EQUITY CORP INTERNATIONAL, 10-K, 1998-03-30

EQUITY CORP INTERNATIONAL
10-K, 1998-03-30
PERSONAL SERVICES

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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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, 1997

[ ] 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)

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DELAWARE 75-2521141
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

415 SOUTH FIRST STREET, SUITE 210 75901
LUFKIN, TEXAS (Zip Code)
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Registrant's telephone number, including area code (409) 631-8700

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

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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $.01 par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

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 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. [ ]

As of March 16, 1998, there were 21,229,405 shares of Equity Corporation
International Common Stock, $.01 par value, issued and outstanding, 20,616,841
of which, having an aggregate market value of approximately $490,938,526, were
held by non-affiliates of the registrant.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement related to the registrant's 1998 annual
meeting of stockholders are incorporated by reference into Part III of this Form
10-K.

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TABLE OF CONTENTS

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PAGE
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Item 1. Business.................................................... 1
The Company................................................. 1
The Deathcare Industry...................................... 1
Business Strategy........................................... 3
Acquisition Program......................................... 3
Operations.................................................. 4
Competition................................................. 6
Trust Funds................................................. 7
Regulation.................................................. 8
Employees................................................... 8
Item 2. Properties.................................................. 8
Item 3. Legal Proceedings........................................... 10
Item 4. Submission of Matters to a Vote of Security Holders......... 10
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 10
Item 6. Selected Financial Data..................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 13
Item 8. Financial Statements and Supplementary Data................. 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 22
Item 10. Directors and Executive Officers of the Registrant.......... 23
Item 11. Executive Compensation...................................... 23
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 23
Item 13. Certain Relationships and Related Transactions.............. 23
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................. 24
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FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE

This Form 10-K contains forward-looking statements and information that are
based on management's beliefs as well as assumptions made by and information
currently available to management. When used in this document, the words
"anticipate," "believe," "estimate" and "expect" and similar expressions are
intended to identify forward-looking statements. Such statements reflect the
Company's current views with respect to future events and are subject to certain
risks, uncertainties and assumptions, including competition for and availability
of funeral home and cemetery acquisitions, the ability of the Company to
successfully implement its revenue enhancement and cost containment programs at
acquired funeral homes and cemeteries, the Company's ability to retain key
management personnel and to continue to attract and retain skilled funeral home
and cemetery management personnel, state and federal regulations, changes in the
death rate or acceleration of the trend towards cremation, availability and cost
of capital and general industry and economic conditions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, believed,
estimated or expected. The Company does not intend to update these
forward-looking statements and information.
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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 and
select suburban areas. As of December 31, 1997, the Company operated 259 funeral
homes and 76 cemeteries in 33 states and one Canadian province. For the year
ended December 31, 1997, the Company generated net revenues of $135.1 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 in such
areas and (iii) the stronger preference in such areas for traditional funeral
services and burials. ECI has also begun to acquire funeral homes and cemeteries
in select suburban areas which possess characteristics similar to the Company's
traditional non-metropolitan markets.

As used herein, unless the context indicates otherwise, the terms "ECI" and
the "Company" refer to Equity Corporation International, 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 segments, including the
identifiable assets of the Company by industry segment, see Note 13 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 estimates, ECI and the
four other publicly traded providers of deathcare services in the United States
represented less than 21% of the total 1996 United States deathcare industry
revenues.

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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 and, according to the Bureau of the Census, is
expected to increase by approximately one percent per year through 2010. In
addition, the ownership of funeral home and cemetery businesses has
traditionally passed from generation to generation within the same family
and the aggregate number of funeral homes and cemeteries in the United
States has remained relatively constant.

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

Consolidation. As the deathcare industry has matured, a trend toward
consolidation has developed. From the standpoint of individual owners, this
trend appears to result principally from family succession issues, a desire
for liquidity, increasing tax and estate planning complexities and the
increasing competitive threat posed by the large deathcare providers. The
active acquisition market for funeral homes and cemeteries provides a
source of potential liquidity that was not as readily available to
individual owners in the past. From the standpoint of the large deathcare
providers, the consolidation trend is driven by the benefits derived from
economies of scale, improved managerial control and more effective
strategic and financial planning. The consolidation trend has accelerated
in recent years as several large deathcare companies have expanded their
operations significantly through acquisitions.

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

Combined Operations. In recent years, there has been an increase in
the number of firms establishing combined operations. Combined operations
refer to funeral home and cemetery operations conducted on a single site.
These operations provide cost savings through shared resources and cross-
marketing opportunities. The ability to offer the full range of products
and services at one location has proven to be a competitive advantage which
tends to increase the market share and profitability of both the funeral
home and cemetery.

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

Cremation. In recent years there has been steady, gradual growth in
the number of families in the United States that have chosen cremation as
an alternative to traditional methods of burial. According to industry
studies, it is estimated that cremations will represent approximately 25%
of all dispositions of human remains in the United States by the year 2000,
as compared with approximately 21% in 1996 and
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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 in non-metropolitan and
select suburban areas of the United States and Canada 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:

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

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

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

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

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

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

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

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

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

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

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

ACQUISITION PROGRAM

The Company intends to continue its active acquisition program focused on
premier funeral homes and cemeteries in non-metropolitan and select suburban
areas throughout the United States and Canada. The Company's funeral home
acquisition effort is primarily 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 primarily targeted at markets with approximately 75,000 to
500,000 residents that are large enough to support an aggressive preneed sales
effort.

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

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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 shares of the Company's 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 professional corporate development staff
headed by a senior corporate executive with substantial deathcare industry
experience. The corporate development staff is responsible for identifying,
evaluating, negotiating and closing acquisitions of funeral homes and
cemeteries. Other members of the Company's senior and regional management teams
are also actively involved in the acquisition process.

The Company is continually evaluating and negotiating potential funeral
home and cemetery acquisitions. The Company typically enters into letters of
intent related to potential acquisitions when an agreement in principle has been
reached between the parties. Such letters of intent are generally intended to be
non-binding and are subject to various contingencies, which may include
completing satisfactory due diligence, negotiating definitive agreements and
obtaining approval of the Company's Board of Directors. The Company is currently
involved in various stages of acquisition negotiations with respect to a number
of funeral homes and cemeteries, and, as of March 5, 1998, had completed or
signed letters of intent relating to the acquisition of 49 funeral homes and
five cemeteries for purchase prices totaling approximately $82.5 million.

OPERATIONS

Funeral Home Operations. As of December 31, 1997, the Company operated 255
funeral homes in 30 states and 4 funeral homes in one Canadian province. Funeral
home operations accounted for approximately 65%, 60% and 57% of the Company's
net revenues for the years ended December 31, 1997, 1996 and 1995, respectively.
Approximately 33%, 41% and 54% of the Company's funeral home net revenues
(approximately 21%, 26% and 31% of the Company's total net revenues) for the
years ended December 31, 1997, 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 and select suburban 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.

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

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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.

All of the Company's funeral homes offer cremation. Cremations accounted
for approximately 23% of the dispositions performed by the Company in 1997.
Approximately 31% of the Company's cremations for 1997 was attributable to the
Company's Florida operations, a state in which the cremation rate is
substantially higher than the national average. Excluding the Company's Florida
operations, cremations accounted for approximately 18% of the dispositions
performed by the Company in 1997. 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.

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 25,471 preneed funeral contracts in the year ended December 31,
1997. At December 31, 1997, the Company had a backlog of 67,369 preneed funeral
contracts to be delivered in the future. Preneed funeral contracts fulfilled as
a percentage of the total funerals performed was approximately 21%, 19% and 19%
for the years ended December 31, 1997, 1996 and 1995, respectively.

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 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.

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Cemetery Operations. As of December 31, 1997 the Company operated 76
cemeteries in 17 states. Cemetery operations accounted for 34%, 38% and 43% of
the Company's net revenues for the years ended December 31, 1997, 1996 and 1995,
respectively.

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 regional sales vice presidents. The Company aggressively markets cemetery
interment rights, merchandise and services on a preneed basis. The Company
believes that consumers throughout the United States increasingly favor
commercial perpetual care cemeteries, such as those operated by the Company,
over non-perpetual care cemeteries, many of which are operated by family,
fraternal and religious organizations. 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.

Cemetery interment rights, interment services and merchandise are sold
either on a preneed or at need basis. Preneed cemetery sales are usually
financed by the Company through installment sale contracts, generally with terms
not exceeding five years (or seven years for some of the larger purchases).
Preneed sales of cemetery interment rights and other related services and
products are recorded as revenues when the contract is signed, with concurrent
recognition of related costs. The Company typically receives payment of at least
5% of the sales price at the time the contract is signed. Allowances for
customer cancellations and refunds are accrued at the date of sale based upon
historical experience. Customers generally have the option to cancel a contract
for cemetery products within three days of the date of sale and receive a refund
of amounts paid. After this three-day period, the Company generally does not
refund amounts received under such contracts. Preneed cemetery sales represented
approximately 72%, 69% and 67% of the Company's cemetery net revenues for the
years ended December 31, 1997, 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 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, four
publicly held North American deathcare companies with operations in the United
States, Service Corporation International ("SCI"), The Loewen Group, Inc.,
Stewart Enterprises, Inc. and Carriage Services, Inc., as well as smaller
national and regional consolidators. While a significant amount of acquisition
activity appears to be concentrated on funeral homes and cemeteries in
metropolitan areas, which are not areas of primary interest to the Company, the
Company faces intense competition in the acquisition of funeral homes and
cemeteries in many of the 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.

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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 hold the funds paid by the
purchasers of preneed funeral contracts pending use of the funds at the time of
need. In most states in which the Company operates, a percentage (depending on
applicable state law) of the proceeds from the sale of each preneed funeral
contract can be retained by the Company with the balance deposited in a trust.
In most states, the Company is not permitted to withdraw principal or investment
income from such trusts until the time the funeral service is performed.
Earnings on trust funds increase the amount of cash to be received by the
Company at the time the funeral service is performed and historically have
allowed the Company to adequately cover the inflationary increase in costs of
funeral services. While direct marketing costs and commissions incurred with the
sale of preneed funeral contracts are a current use of cash, such costs are
deferred for financial reporting purposes and recognized over 12 years, which
approximates the expected timing of the performance of services related to
preneed contracts. Proceeds from the sale of preneed funeral contracts and
earnings on such proceeds are not recognized as revenue until the time the
funeral service is performed. All price guaranteed preneed funeral contracts are
included in the Company's consolidated balance sheet as a long-term asset with a
corresponding credit to deferred preneed funeral contract revenues. The
aggregate balance of the Company's preneed funeral contracts held in trust was
approximately $94 million and $59 million as of December 31, 1997 and 1996,
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 or services purchased by a
customer prior to the time of need. Such amounts are generally deposited in
trust on a pro rata basis as payments are received from the customer. Income on
cemetery merchandise trusts is recognized in cemetery net revenues in the period
the 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, the services are performed or the merchandise contract
is canceled. The Company's preneed cemetery merchandise trust funds had an
aggregate balance of approximately $26 million and $14 million as of December
31, 1997 and 1996, 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 $25 million and $16
million as of December 31, 1997 and 1996, respectively, none of which

7
<PAGE> 10

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, 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. As discussed above, a significant portion of the Company's
funeral home operations are located in the state of Texas. Any material adverse
change in the regulatory requirements applicable to Texas funeral home
operations could have a material adverse effect on the Company's results of
operations. 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, 1997, the Company and its subsidiaries employed
approximately 1,450 full-time and approximately 1,050 part-time employees.
Management believes that its relationship with its employees is good. Except for
a small number of maintenance employees in Illinois, no employees of the Company
or its subsidiaries were members of a collective bargaining unit.

ITEM 2. PROPERTIES

As of December 31, 1997, the Company operated 259 funeral homes and 76
cemeteries in 33 states and one province in Canada. The Company owned the real
estate and buildings of 208 of its funeral homes and 71 of its cemeteries,
leased facilities in connection with 51 of its funeral homes, and operated 5 of
its cemeteries pursuant to management contracts. The leases with respect to
funeral homes leased by the Company 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. Seven of the Company's funeral
homes are located on property contiguous to and operated in combination with a
Company-owned cemetery. The 76 cemeteries operated by the Company cover a total
of approximately 3,200 acres, of which approximately 50% is available

8
<PAGE> 11

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,
1997, regarding the funeral homes and cemeteries operated by the Company in each
state:

<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
FUNERAL HOMES CEMETERIES
------------- ----------
<S> <C> <C>
Alabama..................................................... 14 3
Arizona..................................................... 1 --
Arkansas.................................................... 1 1
California.................................................. 2 1
Connecticut................................................. 1 --
Florida..................................................... 14 5
Georgia..................................................... 2 15
Illinois.................................................... 15 1
Indiana..................................................... 15 --
Iowa........................................................ 13 1
Louisiana................................................... 8 --
Maine....................................................... 20 --
Maryland.................................................... -- 1
Massachusetts............................................... 1 --
Mississippi................................................. 3 --
Missouri.................................................... 17 1
Nebraska.................................................... 6 --
New Hampshire............................................... 3 --
New Jersey.................................................. 1 --
New Mexico.................................................. 5 1
New York.................................................... 9 --
North Carolina.............................................. 1 17
Ohio........................................................ 3 --
Oklahoma.................................................... 10 2
Oregon...................................................... 4 5
Saskatchewan (Canada)....................................... 4 --
South Carolina.............................................. -- 4
South Dakota................................................ 4 --
Tennessee................................................... -- 6
Texas....................................................... 73 7
Vermont..................................................... 3 --
Virginia.................................................... 1 5
West Virginia............................................... 3 --
Wisconsin................................................... 2 --
--- --
Total............................................. 259 76
=== ==
</TABLE>

As of December 31, 1997, the Company's corporate headquarters occupied
approximately 36,227 square feet of leased office space in Lufkin, Texas.

As of December 31, 1997, the Company operated approximately 900 vehicles,
of which 800 were owned and 100 were leased. The Company presently leases two
aircraft.

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

9
<PAGE> 12

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

PART II

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

The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "EQU." The following table presents the quarterly high and low sale
prices as reported by the Nasdaq National Market prior to June 6, 1997 and by
the New York Stock Exchange thereafter during each quarterly period shown below.
The sale prices set forth below have been adjusted to reflect a 3-for-2 stock
split in October 1996.

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
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
1997:
First Quarter............................................. 23 5/8 18 1/2
Second Quarter............................................ 25 1/2 19 3/4
Third Quarter............................................. 24 11/16 19 7/8
Fourth Quarter............................................ 24 1/2 18 1/2
</TABLE>

As of March 16, 1998, there were 21,229,405 shares of Common Stock
outstanding held by 171 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. Any future change in the Company's dividend
policy will be made at the discretion of the Company's Board of Directors in
light of the financial condition, capital requirements, earnings and prospects
of the Company and any restrictions under credit agreements, as well as other
factors the Board of Directors may deem relevant. The Company's Credit Facility
permits the payment of dividends only to the extent the Company maintains a
specified minimum net worth (approximately $201.1 million as of December 31,
1997) and certain financial ratios. The Company's net worth as of December 31,
1997 was approximately $226.5 million.

10
<PAGE> 13

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993(1)
-------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues:
Funeral.................................... $ 87,160 $ 54,854 $ 36,261 $ 27,382 $21,432
Cemetery................................... 46,239 35,035 27,740 21,919 847
Other...................................... 1,674 2,085 -- -- --
-------- -------- -------- -------- -------
Total net revenues................. 135,073 91,974 64,001 49,301 22,279
-------- -------- -------- -------- -------
Gross profit:
Funeral.................................... 22,330 15,050 8,819 7,580 6,118
Cemetery................................... 14,580 10,137 8,477 6,157 47
Other...................................... 750 950 -- -- --
-------- -------- -------- -------- -------
Total gross profit................. 37,660 26,137 17,296 13,737 6,165
General and administrative expenses.......... 7,560 5,848 4,782 3,885 1,521
-------- -------- -------- -------- -------
Income from operations....................... 30,100 20,289 12,514 9,852 4,644
Interest expense............................. 6,331 2,374 2,207 3,178 701
-------- -------- -------- -------- -------
Income before income taxes and extraordinary
item....................................... 23,769 17,915 10,307 6,674 3,943
Provision for income taxes................... 9,070 7,589 4,071 2,728 1,388
Extraordinary item, net...................... -- -- -- (198) --
-------- -------- -------- -------- -------
Net income................................... 14,699 10,326 6,236 3,748 2,555
Preferred stock dividends.................... -- -- -- -- 1,563
-------- -------- -------- -------- -------
Net income attributable to common stock...... $ 14,699 $ 10,326 $ 6,236 $ 3,748 $ 992
======== ======== ======== ======== =======
Earnings per share(2):
Basic:
Continuing operations................... $ 0.71 $ 0.58 $ 0.42 $ 0.40 $ 1.58
Extraordinary item...................... -- -- -- (0.02) --
-------- -------- -------- -------- -------
Net income.............................. $ 0.71 $ 0.58 $ 0.42 $ 0.38 $ 1.58
======== ======== ======== ======== =======
Weighted average number of common shares
outstanding........................... 20,597 17,781 14,699 9,854 628
======== ======== ======== ======== =======
Assuming full dilution:
Continuing operations................... $ 0.70 $ 0.57 $ 0.42 $ 0.39 $ 0.15
Extraordinary item...................... -- -- -- (0.02) --
-------- -------- -------- -------- -------
Net income.............................. $ 0.70 $ 0.57 $ 0.42 $ 0.37 $ 0.15
======== ======== ======== ======== =======
Weighted average number of common and
equivalent shares outstanding......... 20,952 18,068 14,835 10,002 6,613
======== ======== ======== ======== =======
</TABLE>

11
<PAGE> 14

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................ $ 17,666 $ 19,179 $ 9,093 $ 4,495 $ 5,973
Preneed funeral contracts.................. 235,891 156,028 102,889 72,318 48,817
Total assets............................... 717,700 443,891 305,159 211,307 83,095
Deferred preneed funeral contract
revenues................................ 242,185 161,153 107,969 76,447 51,640
Long-term debt, net of current
maturities.............................. 171,303 49,197 54,518 4,037 8,244
Redeemable preferred stock(3).............. -- -- -- -- 20,844
Total stockholders' equity (deficit)....... 226,532 177,464 91,665 84,083 (503)
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Funeral Operations:
Funeral homes in operation at end of
period.................................. 259 178 119 95 79
Funeral services performed................. 19,486 12,483 8,332 6,181 5,127
Preneed funeral contracts sold or obtained
through acquisitions.................... 25,471 16,176 12,415 6,397 2,124
Backlog of preneed funeral contracts at end
of period............................... 67,369 45,978 32,199 21,084 16,103
Cemetery Operations:
Cemeteries in operation at end of period... 76 64 61 48 3
Interments performed....................... 11,053 9,137 7,080 6,283 293
</TABLE>

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

(1) The Company's financial and operating data as of and for the year ended
December 31, 1993 does 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 1993 are not necessarily
comparable with its results of operations for subsequent periods.

(2) Basic earnings per share is based on the weighted average number of common
shares issued and outstanding during the period. Diluted earnings per share
is based on the weighted average number of common and equivalent shares
outstanding during the period which takes into consideration (i) for 1997,
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, (ii) for 1994 and 1993, 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 1993 net income for
purposes of calculating earnings per share. In February 1998, the Company
issued $143.8 million aggregate principal amount of convertible subordinated
debentures that are convertible into 5,306,386 shares of Common Stock. On a
pro forma basis, the assumed conversion of these debentures would have an
antidilutive effect on the Company's diluted earnings per share for all
periods presented. 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 of the Company held by SCI were
exchanged for 5,896,860 shares of Common Stock.

12
<PAGE> 15

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.

Beginning in 1994, the Company 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 full-time professional
corporate development staff headed by a senior corporate executive who has
substantial deathcare industry experience. The corporate development staff has
full-time responsibility for identifying, evaluating, negotiating and closing
acquisitions of funeral homes and cemeteries. With the Company's experienced
corporate development staff and 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,
---------------------------- -----------------------
1997 1996 1995 1997 1996 1995
-------- ------- ------- ----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues.............................. $135,073 $91,974 $64,001 100.0% 100.0% 100.0%
======== ======= ======= ===== ===== =====
Gross profit.............................. $ 37,660 $26,137 $17,296 27.9% 28.4% 27.0%
General and administrative expenses....... 7,560 5,848 4,782 5.6 6.4 7.5
-------- ------- ------- ----- ----- -----
Income from operations.................... 30,100 20,289 12,514 22.3 22.0 19.5
Interest expense.......................... 6,331 2,374 2,207 4.7 2.6 3.4
Provision for income taxes................ 9,070 7,589 4,071 6.7 8.2 6.4
-------- ------- ------- ----- ----- -----
Net income...................... $ 14,699 $10,326 $ 6,236 10.9% 11.2% 9.7%
======== ======= ======= ===== ===== =====
</TABLE>

The Company's net revenues increased by 46.9% to $135.1 million in 1997
from $92.0 million in 1996 and income from operations increased by 48.4% to
$30.1 million in 1997 from $20.3 million in 1996. Income from operations
increased to 22.3% of net revenues in 1997 from 22.0% in 1996. The increase in
income from operations as a percentage of net revenues was primarily
attributable to increased economies of scale as the Company's general and
administrative expenses are spread over a larger revenue base, offset in part by
the increased proportion of acquired operations to the Company's total operating
results in 1997 over 1996. 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 the new policies and procedures
implemented by the Company. The increase in interest expense to $6.3 million in
1997 from $2.4 million in 1996 was primarily attributable to higher levels of
acquisition indebtedness.

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

13
<PAGE> 16

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.

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Funeral homes operated at beginning of period............... 178 119 95
Acquisitions................................................ 84 59 27
Dispositions and consolidations............................. (3) -- (3)
--- --- ---
Funeral homes operated at end of period..................... 259 178 119
=== === ===
</TABLE>

The Company's funeral home revenues are generated primarily through the
sale of funeral services and merchandise. 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. All
principal, earnings, receivables and deferred costs associated with price
guaranteed preneed funeral contracts are included in the Company's consolidated
balance sheet as long-term assets with a corresponding credit to deferred
preneed funeral contract revenues.

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

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

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Cemeteries operated at beginning of period.................. 64 61 48
Acquisitions................................................ 12 3 13
-- -- --
Cemeteries operated at end of period........................ 76 64 61
== == ==
</TABLE>

14
<PAGE> 17

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 72.0%, 68.5%
and 67.3% of the Company's cemetery net revenues for the years ended December
31, 1997, 1996 and 1995, respectively, are 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, 1997. For purposes of this
discussion, funeral homes and cemeteries owned and operated throughout each
period being compared are referred to as "existing operations." Correspondingly,
operations acquired or opened during either period being compared are referred
to as "acquired operations," and operations disposed of during either period
being compared are referred to as "disposed operations."

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31,
1996. Total net revenues for the year ended December 31, 1997 increased 46.9% to
$135.1 million from $92.0 million for the year ended December 31, 1996. The
increase in net revenues reflects a $38.4 million increase in net revenues
attributable to acquired operations and a $5.9 million or 7.6% increase in net
revenues from existing operations. The increase in revenues from existing
operations was attributable primarily to increases in preneed sales at the
Company's cemetery operations combined with slight increases in average funeral
sales prices, partially offset by slightly lower funeral volumes. Included in
net revenues for the year ended December 31, 1997 is $1.7 million related to the
sale of one of the Company's funeral homes in exchange for a cemetery and
$250,000 in cash. Included in net revenues for the year ended December 31, 1996
is $2.1 million resulting from the Company's sale of several long-term licensing
and lease agreements related to three funeral homes which had previously been
operated by a third party.

Gross profit for the year ended December 31, 1997 increased 44.1% to $37.7
million from $26.1 million for the year ended December 31, 1996. The increase in
gross profit is due primarily to an $8.6 million increase attributable to
acquired operations and a $3.4 million or 14.6% increase from existing
operations. The increase in gross profit from existing operations was primarily
attributable to increased preneed sales along with improved operational
efficiencies at the Company's cemetery operations.

15
<PAGE> 18

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, 1997 and 1996.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, CHANGE
------------------ ------------------
1997 1996 AMOUNT PERCENT
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues:
Existing operations................................ $45,786 $44,714 $ 1,072 2.4%
Acquired operations................................ 41,374 9,273 32,101 *
Disposed operations................................ -- 867 (867) *
------- ------- -------
Total funeral net revenues................. $87,160 $54,854 $32,306 58.9%
======= ======= =======
Gross profit:
Existing operations................................ $13,325 $13,003 $ 322 2.5%
Acquired operations................................ 9,005 1,862 7,143 *
Disposed operations................................ -- 185 (185) *
------- ------- -------
Total funeral gross profit................. $22,330 $15,050 $ 7,280 48.4%
======= ======= =======
</TABLE>

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

* Not meaningful

Total funeral net revenues for the year ended December 31, 1997 increased
58.9% to $87.2 million from $54.9 million for the year ended December 31, 1996,
due primarily to a $32.1 million increase attributable to acquired operations.
Revenues from existing operations increased by 2.4% from the prior year due
primarily to a 3.4% increase in the average revenue per funeral service
performed, offset in part by a 0.8% decrease in the number of funeral services
performed.

Total funeral gross profit for the year ended December 31, 1997 increased
48.4% to $22.3 million from $15.1 million for the year ended December 31, 1996.
Excluding the effects of the disposed funeral home operations, funeral gross
margin decreased to 25.6% from 27.5% in the prior year due primarily to acquired
operations, which generally have lower gross margins as compared to the
Company's existing operations. Funeral gross margin at existing operations was
29.1% for both years as improvements in the Company's pricing and merchandising
strategies offset the decline in volume discussed above. Gross profit at
acquired operations increased to 21.8% from 20.1% in 1996, reflecting price
improvements and cost containment programs implemented by the Company.

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

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, CHANGE
------------------ ------------------
1997 1996 AMOUNT PERCENT
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues:
Existing operations................................ $38,619 $33,762 $ 4,857 14.4%
Acquired operations................................ 7,620 1,273 6,347 *
------- ------- -------
Total cemetery net revenues................ $46,239 $35,035 $11,204 32.0%
======= ======= =======
Gross profit:
Existing operations................................ $13,005 $ 9,972 $ 3,033 30.4%
Acquired operations................................ 1,575 165 1,410 *
------- ------- -------
Total cemetery gross profit................ $14,580 $10,137 $ 4,443 43.8%
======= ======= =======
</TABLE>

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

* Not meaningful
16
<PAGE> 19

Total cemetery net revenues for the year ended December 31, 1997 increased
32.0% to $46.2 million from $35.0 million for the year ended December 31, 1996,
due to increases attributable to acquired operations along with significant
increases from existing operations. Revenues from existing operations increased
by 14.4% from the prior year due primarily to the full year results of an
aggressive preneed marketing program initiated in the fourth quarter of 1996,
along with improved investment performance from the Company's merchandise
trusts.

Total cemetery gross profit for the year ended December 31, 1997 increased
43.8% to $14.6 million from $10.1 million in 1996. Cemetery gross margin at
existing operations increased to 33.7% from 29.5% in 1996, reflecting improved
operational efficiencies and operating leverage in the Company's existing
cemetery operations. Cemetery gross margin at acquired operations improved to
20.7% from 13.0% in 1996, due to improved operating efficiencies realized as a
result of the implementation of the Company's preneed sales marketing and cost
containment programs.

General and administrative expenses for the year ended December 31, 1997
increased $1.7 million or 29.3% over the year ended December 31, 1996. This
increase resulted primarily from increased personnel costs associated with the
expansion of the Company's corporate infrastructure necessary to support a
higher rate of growth. Excluding the effects of nonrecurring items such as the
revenues recorded on the asset exchange and sale of licensing and lease
agreements discussed above, general and administrative expenses as a percentage
of net revenues from continuing operations decreased to 5.7% in 1997 from 6.5%
in the prior year as general and administrative expenses are being spread over a
larger revenue base.

Interest expense for the year ended December 31, 1997 increased $3.9
million to $6.3 million from $2.4 million for the year ended December 31, 1996,
due primarily to significantly higher debt levels as average indebtedness
outstanding in 1997 increased to $110.9 million from $52.4 million for 1996.
This increase in average indebtedness outstanding is a result of increased
acquisition activity during 1997 along with the payoff in 1996 of $52.7 million
borrowed under the Company's Credit Facility with a portion of the proceeds of
an equity offering in May 1996. Partially offsetting this increase was the
paydown of approximately $13.0 million borrowed under the Company's Credit
Facility with a portion of the proceeds of an equity offering in February 1997.
Interest income of approximately $41,000 and $276,000 related to the temporary
investment of equity offering proceeds has been netted against interest expense
for the years ended December 31, 1997 and 1996, respectively.

The Company's effective tax rate for the year ended December 31, 1997
decreased to 38.2% from 42.4% in 1996. The Company's effective tax rate for 1997
is lower than its estimated effective tax rate of 39%, due primarily to a
reduction to its income tax provision in the third quarter of 1997 of $200,000,
representing the difference between the Company's estimated and actual tax
liability for the year ended December 31, 1996. The 1996 tax provision includes
a one-time charge of $565,000 to revalue the Company's deferred tax liability
accounts to appropriately reflect 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. The Company expects its
effective tax rate for 1998 to approximate 39%.

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.

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
17
<PAGE> 20

increase in gross profit of $1.0 million relates to the gain recognized on the
buyout of the long-term licensing and lease agreements.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, CHANGE
------------------ ------------------
1996 1995 AMOUNT PERCENT
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues:
Existing operations................................ $32,212 $30,630 $ 1,582 5.2%
Acquired operations................................ 22,642 5,631 17,011 *
------- ------- -------
Total funeral net revenues................. $54,854 $36,261 $18,593 51.3%
======= ======= =======
Gross profit:
Existing operations................................ $ 9,602 $ 7,758 $ 1,844 23.8%
Acquired operations................................ 5,448 1,061 4,387 *
------- ------- -------
Total funeral gross profit................. $15,050 $ 8,819 $ 6,231 70.7%
======= ======= =======
</TABLE>

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

* Not meaningful.

Total funeral net revenues for the year ended December 31, 1996 increased
51.3% to $54.9 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 and a $1.6 million, or 5.2% increase from existing
operations. 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
70.7% to $15.1 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 and a $1.8 million, or 23.8% increase from existing operations.
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.

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.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, CHANGE
------------------ -----------------
1996 1995 AMOUNT PERCENT
------- ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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%
======= ======= ======
</TABLE>

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

* Not meaningful.

18
<PAGE> 21

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 preneed sales increased as a result of aggressive marketing that occurred
primarily in the fourth quarter. 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 $130,000, 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%
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 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 $300,000 of
legal fees incurred in connection with an action brought against the Company by
Loewen Group International, Inc. (which has since been dismissed) offset by a
$600,000 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.

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 comparable period in
1995. Interest income of approximately $276,000 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
$565,000 to revalue the

19
<PAGE> 22

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.

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 $8.0 million at December 31, 1997,
representing a decrease of $4.6 million from December 31, 1996. For the year
ended December 31, 1997, net cash flow provided from operating activities was
approximately $8.0 million, cash used in investing activities totaled
approximately $29.8 million and cash provided from financing activities amounted
to approximately $17.1 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 $20.0 million primarily
attributable to a 33.3% 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 capital expenditures of $12.5 million
related to, among other things, additions and improvements at several funeral
home facilities, the acquisition of professional vehicles and maintenance
equipment and upgrades to computer systems and peripheral equipment.
Additionally, the Company utilized approximately $17.5 million of internal
funds, including funds drawn on the Credit Facility at December 31, 1996, to
consummate funeral home and cemetery acquisitions during 1997. Significant
components of cash provided from financing activities included (i) $22.1 million
of net proceeds received in February 1997 in connection with the sale of the
Company's Common Stock and the use of a portion of these proceeds to pay $13.0
million outstanding under the Company's Credit Facility; (ii) borrowings
totaling approximately $18.9 million which were used for general corporate
purposes including, among other things, tax payments, long-term supply
agreements and refinancings of certain notes payable issued in connection with
the Company's acquisitions; offset by (iii) lump sum payments totaling
approximately $11.4 million to extinguish certain seller financed notes and
normal scheduled debt payments.

Long-term debt, including current maturities, at December 31, 1997 totaled
$172.2 million as compared to $49.7 million at December 31, 1996. The increase
was principally attributable to increased acquisition activity during 1997,
partially offset by the payoff of $13.0 million outstanding under the Credit
Facility with a portion of the proceeds from the issuance of Common Stock in
February 1997, as described below. Due to increases in recent and projected
acquisition activity, the Company increased its borrowing capacity under the
Credit Facility in September 1997 to $225 million from $100 million. Long-term
debt at December 31, 1997 consisted of $156.7 million drawn under the Credit
Facility and $15.5 million owed under various notes payable to sellers of
funeral homes and cemeteries. As of December 31, 1997, the Credit Facility also
supported letters of credit totaling $3.2 million related to one of the
Company's 1996 acquisitions. The Company obtained a release from these letters
of credit in the first quarter of 1998 and the Company currently has no letters
of credit outstanding. At December 31, 1997, $65.1 million was available for
borrowings under the Credit Facility. Any amounts repaid under the Credit
Facility, including amounts previously supporting the letters of credit
outstanding at December 31, 1997, 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 or (ii) the London Interbank Offered Rate
plus an applicable margin, depending on the Company's Leverage Ratio, as
defined. The weighted average interest rates on amounts borrowed under the
Credit Facility were 6.83% and 6.39% at December 31, 1997 and 1996,
respectively. In addition, the Company pays commitment fees on unused funds
depending on the Company's Leverage Ratio. The Tranche A commitments under the
Credit Facility provide for $150 million of borrowings outstanding at any one
time expiring
20
<PAGE> 23

September 2, 2002. The Tranche B commitments under the Credit Facility provide
for $75 million of borrowings outstanding at any one time expiring September 1,
1998, subject to annual renewal options. The Credit Facility 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 substantially all
of the Company's subsidiaries and is collateralized by a pledge of the stock of
certain of the Company's subsidiaries.

In February 1997, the Company received net proceeds of approximately $22.1
million (after selling commissions and related expenses) 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.

Subsequent to December 31, 1997, the Company completed an underwritten
private placement of $143.8 million aggregate principal amount of 4.5%
convertible subordinated debentures (the "Debentures"), including approximately
$18.8 million related to the exercise of the over-allotment option granted by
the Company to the underwriters. The Debentures mature on December 31, 2004, are
convertible into shares of the Company's Common Stock at a conversion price of
$27.09 per share, and may not be redeemed by the Company prior to February 26,
2001. The net proceeds from the private placement totaling approximately $139.8
million (after selling commissions) were used to pay down the Credit Facility.
The selling commissions and related expenses totaling approximately $4.6 million
have been deferred and will be amortized ratably over the term of the
Debentures.

The Company currently expects to acquire funeral homes and cemeteries for
purchase prices aggregating approximately $150 to $160 million in 1998. 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. As of December 31, 1997,
approximately 661,000 shares of Common Stock remained available for issuance
pursuant to the Company's acquisition "shelf" registration statement. The
Company anticipates making routine capital expenditures of approximately $11
million in 1998. In addition, the Company anticipates spending approximately $20
million over the next 12 to 18 months for major construction and development
projects, including the construction of six new funeral homes, three of which
will be built on existing Company-owned cemetery property.

Management believes that cash flow from operations and the borrowing
capacity available under the Credit Facility as a result of the repayment of
such indebtedness with the net proceeds of the Debentures should be sufficient
to meet its anticipated capital expenditures and other operating requirements
and to substantially fund acquisitions through 1998. The Company continually
evaluates alternatives, including additional debt or equity financing, to ensure
adequate funding for its operations, including planned capital expenditures and
projected acquisitions. However, because future cash flows and the availability
of financing at terms favorable to the Company are subject to a number of
variables, such as the number, size and rate of acquisitions made by the
Company, there can be no assurance that the Company's capital resources will be
sufficient to fund planned future levels of capital expenditures and
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.

YEAR 2000

The year 2000 issue is the result of computer programs using two digits to
define the applicable year rather than four. Any programs that have time
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. A computer system which is not year 2000 compliant would not be
able to correctly process certain data, or, in extreme situations, system
failure could result.

Company has also recently purchased year 2000 compliant software to be used for
its funeral corporate and field operations and expects to have year 2000
compliant software in place for substantially all of its operations by mid-year
1999. As part of its initial assessment of its year 2000 exposure, the Company
has identified certain critical path items and has developed a timetable for the
completion of these projects in a timely manner. In the event that year 2000
compliant software is not in place on a timely basis, however, the Company's
results of operations could be adversely affected.

The Company has also made inquiries of certain of its vendors to determine
what impact, if any, their year 2000 compliance exposure might have on the
Company's operations and has received assurances that the vendors' systems are
or will be year 2000 compliant in a timely manner. Accordingly, the Company does
not expect the year 2000 issue in regard to its vendors' operations to have a
material effect on its financial position, results of operations or cash flows.

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 June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive
Income" and SFAS No. 131 "Disclosures About Segments of an Enterprise and
Related Information". SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. SFAS No. 131 establishes standards for the way
that public enterprises report segment information in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports to shareholders. In February
1998, the FASB issued SFAS No. 132, "Employers Disclosures about Pensions and
Other Postretirement Benefits". This statement revises and standardizes
employers' disclosures about pension and other postretirement benefit plans.
These statements are all effective for fiscal years beginning after December 15,
1997. The Company does not believe implementation of SFAS Nos. 130, 131 or 132
will have a material effect on its financial position, results of operation or
cash flows.

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

22
<PAGE> 25

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 will 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, 1997.

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 will 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, 1997.

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 will 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, 1997.

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 of the Company's Common Stock beneficially owned by it and its
subsidiaries in February 1997.

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 will 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, 1997.

23
<PAGE> 26

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:

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheet as of December 31, 1997 and
1996...................................................... F-3
Consolidated Statement of Income for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-4
Consolidated Statement of Changes in Stockholders' Equity
for the Years ended December 31, 1997, 1996 and 1995...... F-5
Consolidated Statement of Cash Flows for the Years ended
December 31, 1997, 1996 and 1995.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

(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:

<TABLE>
<S> <C>
Report of Independent Accountants on Financial Statement
Schedule.................................................. S-1
Financial Statement Schedule
II -- Valuation and Qualifying Accounts................... S-2
</TABLE>

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.

24
<PAGE> 27

<TABLE>
<CAPTION>
EXHIBIT NO, DESCRIPTION
----------- -----------
<C> <S>
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 (filed as Exhibit 10.10 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996)
10.11* -- Amendment to Amended and Restated Equity Corporation
International 1994 Long-Term Incentive Plan, dated May
21, 1997
10.12+* -- 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)
10.13+* -- Form of Non-Qualified Employee Stock Option Agreement for
Executive Officers under 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)
10.14+* -- 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)
</TABLE>

25
<PAGE> 28

<TABLE>
<CAPTION>
EXHIBIT NO, DESCRIPTION
----------- -----------
<C> <S>
10.15+* -- 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)
10.16+* -- Form of Non-Qualified 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)
10.17* -- Form of Non-Qualified Employee Stock Option Agreement for
Executive Officers under the 1994 Long-Term Incentive
Plan, dated August 14, 1997
10.18+* -- 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)
10.19+* -- 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)
10.20+ -- 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))
10.21* -- Form of Executive Severance Agreement dated effective
August 14, 1997.
10.22+* -- Equity Corporation International 1997 Employee Stock
Purchase Plan (filed as Exhibit 4.7 to the Company's
Registration Statement on Form S-8 (Reg. No. 333-25303))
10.23+* -- Consulting Agreement, dated as of September 12, 1996,
between the Company and James P. Hunter, III (filed as
Exhibit 10.25 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996)
10.24+ -- Amended and Restated Credit Agreement, dated September 2,
1997, 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, 1997)
21.1 -- List of Subsidiaries as of December 31, 1997
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 -- Financial Data Schedule
27.1 -- Restated Financial Data Schedules
</TABLE>

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

+ Incorporated herein by reference to the indicated filing.

* Management contract or compensatory plan.

(B) REPORTS ON FORM 8-K

The Company did not file any reports on Form 8-K during the quarter ended
December 31, 1997.

26
<PAGE> 29

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, 1998.

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, 1997, 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.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>

/s/ JAMES P. HUNTER, III Chairman of the Board, March 27, 1998
- ----------------------------------------------------- President and Chief Executive
James P. Hunter, III Officer (Principal Executive
Officer)

/s/ W. CARDON GERNER Senior Vice President -- Chief March 27, 1998
- ----------------------------------------------------- Financial
W. Cardon Gerner Officer -- (Principal
Financial and Accounting
Officer)

/s/ J. PATRICK DOHERTY Director March 27, 1998
- -----------------------------------------------------
J. Patrick Doherty

/s/ JACK T. HAMMER Director March 27, 1998
- -----------------------------------------------------
Jack T. Hammer

/s/ THOMAS R. MCDADE Director March 27, 1998
- -----------------------------------------------------
Thomas R. McDade

/s/ KENNETH W. SMITH Director March 27, 1998
- -----------------------------------------------------
Kenneth W. Smith

/s/ BOB BULLOCK Director March 27, 1998
- -----------------------------------------------------
Bob Bullock
</TABLE>

27
<PAGE> 30

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants......................... F-2
Consolidated Balance Sheet as of December 31, 1997 and
1996................................................... F-3
Consolidated Statement of Income for the Years Ended
December 31, 1997, 1996 and 1995....................... F-4
Consolidated Statement of Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995........... F-5
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995....................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>

F-1
<PAGE> 31

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, 1997 and 1996,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
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, 1997 and 1996 and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Houston, Texas
March 5, 1998

F-2
<PAGE> 32

EQUITY CORPORATION INTERNATIONAL

CONSOLIDATED BALANCE SHEET
(THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 8,039 $ 12,654
Receivables, net of allowances............................ 15,412 9,050
Inventories............................................... 9,134 6,029
Other..................................................... 2,181 1,825
-------- --------
Total current assets.............................. 34,766 29,558
Preneed funeral contracts................................. 235,891 156,028
Cemetery properties, at cost.............................. 117,087 84,706
Long-term receivables, net of allowances.................. 55,393 37,226
Property, plant and equipment, at cost (net).............. 94,684 57,263
Deferred charges and other assets......................... 24,284 7,986
Names and reputations (net)............................... 155,595 71,124
-------- --------
Total assets...................................... $717,700 $443,891
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 14,077 $ 6,943
Income taxes payable...................................... 51 294
Deferred income taxes..................................... 2,114 2,605
Current maturities of long-term debt...................... 858 537
-------- --------
Total current liabilities......................... 17,100 10,379
Deferred preneed funeral contract revenues................ 242,185 161,153
Long-term debt............................................ 171,303 49,197
Deferred cemetery costs................................... 27,224 21,268
Deferred income taxes..................................... 31,106 22,799
Other liabilities......................................... 2,250 1,631
Commitments and contingencies
Stockholders' equity:
Preferred stock........................................ -- --
Common stock, $.01 par value; 50,000,000 shares
authorized; 21,119,362 and 19,322,723 issued and
outstanding in 1997 and 1996, respectively............ 211 193
Capital in excess of par value......................... 191,902 157,468
Retained earnings...................................... 34,502 19,803
Foreign currency translation adjustment................ (83) --
-------- --------
Total stockholders' equity........................ 226,532 177,464
-------- --------
Total liabilities and stockholders' equity........ $717,700 $443,891
======== ========
</TABLE>

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

F-3
<PAGE> 33

EQUITY CORPORATION INTERNATIONAL

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Net revenues
Funeral................................................... $ 87,160 $54,854 $36,261
Cemetery.................................................. 46,239 35,035 27,740
Other..................................................... 1,674 2,085 --
-------- ------- -------
Total revenues.................................... 135,073 91,974 64,001
-------- ------- -------
Costs and expenses
Funeral................................................... 64,830 39,804 27,442
Cemetery.................................................. 31,659 24,898 19,263
Other..................................................... 924 1,135 --
-------- ------- -------
Total costs and expenses.......................... 97,413 65,837 46,705
-------- ------- -------
Gross profit.............................................. 37,660 26,137 17,296
General and administrative expenses......................... 7,560 5,848 4,782
-------- ------- -------
Income from operations.................................... 30,100 20,289 12,514
Interest expense............................................ 6,331 2,374 2,207
-------- ------- -------
Income before income taxes................................ 23,769 17,915 10,307
Provision for income taxes.................................. 9,070 7,589 4,071
-------- ------- -------
Net income........................................ $ 14,699 $10,326 $ 6,236
======== ======= =======
Earnings per share:
Basic..................................................... $ 0.71 $ 0.58 $ 0.42
======== ======= =======
Assuming full dilution.................................... $ 0.70 $ 0.57 $ 0.42
======== ======= =======
Weighted average number of common and equivalent shares
outstanding:
Basic..................................................... 20,597 17,781 14,699
======== ======= =======
Assuming full dilution.................................... 20,952 18,068 14,835
======== ======= =======
</TABLE>

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

F-4
<PAGE> 34

EQUITY CORPORATION INTERNATIONAL

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

<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN CUMULATIVE
------------------- EXCESS OF RETAINED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT PAR VALUE EARNINGS ADJUSTMENT EQUITY
---------- ------ ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
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
Net income................. -- -- -- 14,699 -- 14,699
Common stock issued:
Equity offering......... 1,199,178 12 22,089 -- -- 22,101
Acquisitions............ 571,690 6 11,845 -- -- 11,851
Option exercises........ 10,500 -- 140 -- -- 140
Other................... 15,271 -- 360 -- -- 360
Foreign currency
translation
adjustment.............. -- -- -- -- (83) (83)
---------- ---- -------- ------- ----- --------
Balance, December 31, 1997... 21,119,362 $211 $191,902 $34,502 $ (83) $226,532
========== ==== ======== ======= ===== ========
</TABLE>

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

F-5
<PAGE> 35

EQUITY CORPORATION INTERNATIONAL

CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 14,699 $ 10,326 $ 6,236
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 8,428 4,801 3,458
Provision for bad debts and contract cancellations..... 6,250 3,742 3,217
Gain on sale of assets................................. (750) (1,489) (42)
Deferred income taxes.................................. 1,303 1,392 816
Changes in assets and liabilities, net of effects from
acquisitions:
Receivables............................................ (19,982) (12,382) (7,482)
Inventories............................................ (713) 283 (282)
Other current assets................................... (284) (515) 263
Other long-term assets................................. (4,514) (2,636) (2,998)
Accounts payable and accrued liabilities............... 2,917 1,601 (998)
Income taxes payable................................... (52) (895) 901
Preneed funeral contracts and associated deferred
revenues............................................. 722 (36) 123
-------- -------- -------
Net cash provided by operating activities......... 8,024 4,192 3,212
-------- -------- -------
Cash flows from investing activities:
Capital expenditures...................................... (12,521) (8,318) (7,691)
Proceeds from sale of assets.............................. 139 4,192 68
Acquisitions, net of cash acquired........................ (17,519) (21,541) (906)
Other..................................................... 113 196 106
-------- -------- -------
Net cash used in investing activities............. (29,788) (25,471) (8,423)
-------- -------- -------
Cash flows from financing activities:
Net proceeds from issuance of common stock................ 22,601 73,029 974
Borrowings on debt........................................ 18,950 11,615 11,123
Payments on debt.......................................... (24,402) (56,944) (6,485)
-------- -------- -------
Net cash provided by financing activities......... 17,149 27,700 5,612
-------- -------- -------
Increase (decrease) in cash and cash equivalents............ (4,615) 6,421 401
Cash and cash equivalents at beginning of year.............. 12,654 6,233 5,832
-------- -------- -------
Cash and cash equivalents at end of year.................... $ 8,039 $ 12,654 $ 6,233
======== ======== =======
</TABLE>

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

F-6
<PAGE> 36

EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 and suburban areas of the United States
and Canada. At December 31, 1997, the Company operated 259 funeral homes and 76
cemeteries in 33 states and one Canadian province.

Principles of Consolidation

The consolidated financial statements include ECI and all majority-owned
subsidiaries. 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.

Cemetery Operations

Sales of cemetery interment rights, interment services and related
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 realized and unrealized capital
gains in some states) 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, 1997 and 1996 was approximately $24,924 and $16,249,
respectively, and such principal generally cannot be withdrawn by the Company.
Earnings recognized on perpetual care trusts for the years ended December 31,
1997, 1996 and 1995 were approximately $1,525, $1,304 and $934, 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

F-7
<PAGE> 37
EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

had aggregate balances of approximately $26,194 and $14,316 at December 31, 1997
and 1996, 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, 1997, 1996 and 1995 were approximately $2,470 $1,113 and $535,
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 of property, plant and equipment is 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. Depreciation expense for the years
ended December 31, 1997, 1996 and 1995, was $4,892, $3,038 and $2,010,
respectively.

Deferred Obtaining Costs

Included in "Deferred charges and other assets" are obtaining costs
consisting of sales commissions and other direct marketing costs applicable to
preneed funeral contracts which are deferred and recognized over 12 years, which
approximates the expected timing of the performance of services related to
preneed funeral contracts. The aggregate costs deferred as of December 31, 1997
and 1996 were approximately $1,908 and $1,582, 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, 1997 and 1996, prepaid
covenants not to compete amounted to approximately $6,047 and $4,882,
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 maximum 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

F-8
<PAGE> 38
EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

reputations, at December 31, 1997 and 1996, was approximately $5,580 and $2,750,
respectively. The amortization charged against income was approximately $2,830,
$1,214 and $640 for the three years ended December 31, 1997, 1996 and 1995,
respectively.

Foreign Currency Translation

The functional currency for the Company's Canadian subsidiaries is the
Canadian Dollar. All assets and liabilities of Canadian subsidiaries are
translated into U.S. dollars at exchange rates in effect as of the end of the
reporting period. Income and expense items are translated at average exchange
rates for the reporting period. The resulting translation adjustments are
recorded as a component of stockholders' equity. The effect of exchange rate
changes on cash for the year ended December 31, 1997 was not significant.

Recent FASB Pronouncements

In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income"
and SFAS No. 131 "Disclosures About Segments of an Enterprise and Related
Information". SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. SFAS No. 131 establishes standards for the way that public
enterprises report segment information in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports to shareholders. In February 1998, the
FASB issued SFAS No. 132, "Employers Disclosures about Pensions and Other
Postretirement Benefits". This statement revises and standardizes employers'
disclosures about pension and other postretirement benefit plans. These
statements are all effective for fiscal years beginning after December 15, 1997.
The Company does not believe implementation of SFAS Nos. 130, 131 or 132 will
have a material effect on its financial position, results of operation or cash
flows.

2. ACQUISITIONS

The following table is a summary of acquisitions made during the years
ended December 31, 1997 and 1996:

<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Number acquired:
Funeral homes............................................. 84 59
Cemeteries................................................ 12 3
Purchase price.............................................. $156,098 $ 65,047
</TABLE>

The purchase price in both years consisted primarily of combinations of
cash, common stock and debt issued. The excess of purchase price over the fair
value of net assets acquired is included in Names and reputations (net). In
connection with these acquisitions, the Company enters into customary
employment, consulting and noncompetition agreements with certain employees and
former owners of the businesses acquired. In certain situations, the Company
will prepay a portion of the noncompetition agreements and amortize such
prepayments on a straight-line basis over the terms of the agreements. The
purchase prices indicated above do not include $952 and $832 for noncompetition
agreements which were prepaid to individuals related to businesses acquired in
1997 and 1996, respectively. The acquisitions have been

F-9
<PAGE> 39
EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

accounted for as purchases and their operating results have been included since
their respective date of acquisition. The effect of acquisitions on the
consolidated balance sheet at December 31, was as follows:

<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Current assets.............................................. $ 7,373 $ 3,994
Preneed funeral contracts................................... 66,221 41,365
Cemetery properties......................................... 30,283 6,036
Long-term receivables....................................... 8,536 (319)
Property, plant and equipment............................... 30,058 17,223
Deferred charges and other assets........................... 13,998 603
Names and reputations....................................... 87,136 40,367
Current liabilities......................................... (3,348) (624)
Deferred preneed funeral contract revenues.................. (66,668) (41,561)
Long-term debt.............................................. (127,879) (40,009)
Deferred cemetery costs..................................... (6,972) (803)
Deferred income taxes....................................... (6,513) (978)
Noncurrent liabilities...................................... (211) (465)
Common stock issued......................................... (11,851) (2,415)
--------- --------
Total............................................. 20,163 22,414
Less cash acquired........................................ 2,644 873
--------- --------
Cash used for acquisitions................................ $ 17,519 $ 21,541
========= ========
</TABLE>

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
1996:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Net revenues................................................ $159,494 $150,856
Income before income taxes.................................. 25,087 20,568
Net income.................................................. 15,503 11,854
Earnings per common and equivalent share:
Basic..................................................... $ 0.74 $ 0.64
Diluted................................................... $ 0.73 $ 0.63
</TABLE>

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.

3. DISPOSITIONS

During January 1997, the Company acquired one cemetery from Service
Corporation International ("SCI"), a former significant stockholder of the
Company (Note 7), in exchange for one of the Company's funeral home facilities.
This was a strategic business decision as the acquired cemetery is in close
proximity to one of the Company's existing funeral home facilities. In
connection with the transaction, the Company received consideration of $1,674,
including $250 in cash, and recognized a gain of approximately $750 in the first
quarter of 1997.

During March 1996, the Company conveyed to SCI licensing and lease
agreements related to three funeral home operations which had been previously
operated by an unaffiliated third party for an aggregate

F-10
<PAGE> 40
EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

purchase price of $2,085. This amount and $1,135 of related costs and expenses
are included in net revenues and costs and expenses, respectively, for the year
ended December 31, 1996.

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 $104,523 and $67,364 will be funded by trusts and approximately
$131,368 and $88,664 will be funded by insurance policies as of December 31,
1997 and 1996, respectively. Accumulated earnings from trust funds and
increasing insurance benefits have been included to the extent that they have
accrued through December 31, 1997 and 1996, 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, 1997 and 1996, the amounts collected and held in trusts, at cost, which
approximates market, were approximately $93,900 and $59,246, 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.

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

<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Developed and undeveloped land.............................. $28,093 $22,231
Property, plant and equipment............................... 2,950 2,062
Receivables related to sales of cemetery interment rights
and related products...................................... 3,989 3,751
Names and reputations....................................... 2,556 669
Deferred obtaining costs.................................... 778 650
Other....................................................... 408 475
------- -------
Total deferred tax liabilities.................... 38,774 29,838
------- -------
Preneed funeral contracts................................... 2,499 2,280
Allowance for bad debts and cancellation reserves........... 1,926 1,350
Deferred compensation....................................... 309 181
Other....................................................... 820 623
------- -------
Total deferred tax assets......................... 5,554 4,434
------- -------
Net deferred tax (assets) liabilities....................... $33,220 $25,404
======= =======
</TABLE>

F-11
<PAGE> 41
EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Current tax expense:
Federal.......................................... $7,442 $5,399 $2,868
State............................................ 298 798 387
Foreign.......................................... 27 -- --
------ ------ ------
Total current............................ 7,767 6,197 3,255
------ ------ ------
Deferred tax expense:
Federal.......................................... 1,216 1,282 738
State............................................ 87 110 78
------ ------ ------
Total deferred........................... 1,303 1,392 816
------ ------ ------
Total tax expense........................ $9,070 $7,589 $4,071
====== ====== ======
</TABLE>

United States income taxes have not been provided on the undistributed
earnings of the Company's Canadian subsidiaries since it is the Company's
intention to reinvest such earnings indefinitely.

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

<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Tax at U.S. statutory rate......................... $8,319 $6,270 $3,504
State income taxes, net of federal tax............. 250 590 307
Increase in federal marginal tax rate.............. -- 565 --
Nondeductible amortization......................... 422 180 139
Other, net......................................... 79 (16) 121
------ ------ ------
$9,070 $7,589 $4,071
====== ====== ======
Total effective tax rate........................... 38.2% 42.4% 39.5%
</TABLE>

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 related to this increase in the statutory federal income tax rate.

Income taxes paid during the years ending December 31, 1997, 1996, and 1995
were approximately $8,010, $6,974 and $2,308, respectively.

F-12
<PAGE> 42
EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. DEBT

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

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Credit facility.......................................... $156,700 $ 35,000
Notes payable............................................ 14,441 13,914
Other.................................................... 1,020 820
-------- --------
172,161 49,734
Less current maturities................................ 858 537
-------- --------
$171,303 $ 49,197
======== ========
</TABLE>

In September 1997, the Company amended and increased its borrowing capacity
under its revolving credit agreement with a group of banks (the "Credit
Facility") to $225,000 from $100,000. The Tranche A commitments under the Credit
Facility provide for $150,000 of borrowings outstanding at any one time expiring
September 2, 2002. The Tranche B commitments under the Credit Facility provide
for $75,000 of borrowings outstanding at any one time expiring September 1,
1998, subject to annual renewal options. The Credit Facility is used for
acquisition financing and general corporate purposes. Borrowings under the
Credit Facility bear interest, at the Company's option, at either (i) the prime
rate or (ii) the London Interbank Offered Rate plus an applicable margin,
depending on the Company's Leverage Ratio, as defined. In addition, the Company
pays commitment fees on unused funds depending on the Leverage Ratio. The
weighted average interest rates on amounts borrowed under the Credit Facility
were 6.83% and 6.39% at December 31, 1997 and 1996, respectively. At December
31, 1997 and 1996, the Credit Facility also supported letters of credit totaling
$3,152 related to one of the Company's acquisitions in 1996. The Company
obtained a release from these letters of credit in the first quarter of 1998.
The Credit Facility contains customary restrictive covenants requiring the
Company to maintain certain financial ratios, is guaranteed by substantially all
of the Company's subsidiaries and is collateralized by a pledge of the stock of
certain 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 (approximately $201,054 as of December
31, 1997).

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%.

Aggregate principal payments on long-term debt for each of the five years
and thereafter subsequent to December 31, 1997 are $858, $10,711, $616, $488,
$156,034 and $3,454, respectively. Interest paid during the years ended December
31, 1997, 1996 and 1995 was approximately $4,422, $2,426 and $1,865,
respectively.

In February 1998, the Company completed the private placement of $143,750
aggregate principal amount of 4.5% convertible subordinated debentures due 2004
(the "Debentures") including approximately $18,750 related to the exercise of
the over-allotment option granted by the Company to the underwriters. The
Debentures mature on December 31, 2004, are convertible into shares of the
Company's Common Stock at a conversion price of $27.09 per share and may not be
redeemed by the Company prior to February 26, 2001. The net proceeds to the
Company from this private placement of approximately $139,797 (after selling
commissions of approximately $3,953) were used to pay down the Credit Facility.
The selling commissions and related expenses totaling approximately $4,616 have
been deferred and will be amortized ratably over the term of the Debentures
(Note 9).

F-13
<PAGE> 43
EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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 (after selling commissions and estimated
related expenses of approximately $5,023). 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 completed the registration and sale of
7,994,522 shares of Common Stock owned by SCI which represented SCI's total
investment in the Company. SCI received all proceeds and paid all expenses
related to the sale of these shares. The Company received net proceeds of
approximately $22,101 (after selling commissions and related expenses) 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. Approximately $13,000 of these
proceeds was used to pay down a portion of the Company's Credit Facility and the
remainder was used for general corporate purposes, including acquisitions.

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, 1997. 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

F-14
<PAGE> 44
EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company one one-hundred fiftieth of a share of Series One Preferred Stock, at a
price of $30.00 per one one-hundred fiftieth of a share, subject to adjustment
under certain circumstances. The Rights expire on October 11, 2004. The Series
One Preferred Stock will rank junior to all other Series of Preferred Stock that
may be established by the Board of Directors with respect to the payment of
dividends and the distribution of assets upon liquidation. In general, the
voting, dividend and liquidation rights of Series One Preferred Stock are
designed so that one one-hundred fiftieth of a share of Series One Preferred
Stock will be the economic equivalent of one share of common stock.

1994 Long-Term Incentive Plan

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, or, in the case of
certain options granted to officers of the Company in 1997, based on
predetermined prices for the Company's common stock. 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
10,000 shares of common stock and continuing non-employee directors annually
will receive nonqualified options to purchase an additional 5,000 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 may also grant 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-15
<PAGE> 45
EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company accounts for its stock-based compensation plans in accordance
with the disclosure requirements of SFAS No. 123 "Accounting for Stock-Based
Compensation" 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 recognize compensation expense for its 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.

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>
1997 1996 1995
------------------------- ------------------------- -------------------------
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> <C>
Outstanding at
beginning of
period............. 1,037 $12.96 683 $10.11 548 $ 8.67
Granted............ 580 22.19 363 18.32 248 12.64
Exercised.......... 11 9.07 2 8.67 113 8.67
Cancelled.......... 4 17.59 7 14.20 -- --
----- ----- ---
Outstanding at end of
period............. 1,602 $16.31 1,037 $12.96 683 $10.11
===== ===== ===
</TABLE>

The following table summarizes information about stock options outstanding
under the Incentive Plan at December 31, 1997. (Share amounts in thousands.)

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- ------------------------------
NUMBER WGTD. AVG WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
RANGE OF OUTSTANDING REMAINING EXERCISE PRICE EXERCISABLE EXERCISE PRICE
EXERCISE PRICES AT 12/31/97 CONTRACT LIFE PER SHARE AT 12/31/97 PER SHARE
--------------- ----------- ------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 8.67 to $10.17........... 522 6.88 Yrs. $ 8.95 404 $ 8.85
$14.33 to $20.00........... 534 8.54 17.35 208 16.57
$22.25 to $23.75........... 546 9.60 22.33 -- --
----- ---
$ 8.67 to $23.75........... 1,602 8.36 Yrs. $16.31 612 $11.48
===== ===
</TABLE>

At December 31, 1996, options were outstanding at prices ranging from $8.67
to $19.67 per share, of which approximately 319,000 were immediately
exercisable.

At December 31, 1995, options were outstanding at prices ranging from $8.67
to $14.33 per share, of which 123,000 were immediately exercisable.

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 1997, 1996 and 1995, respectively:
dividend yield of 0.0% for all years; expected volatility of 21.85% for 1997 and
21.32% for 1996 and 1995; risk-free interest rates are different for each grant
and range from 5.94% to 6.54% for grants made in 1997 and from 5.28% to 6.99%
for grants made in 1996; and the expected lives of the options range from 5 to 6
years for all grants. The weighted average fair value of the options granted
during the years ended December 31, 1997, 1996 and 1995 was $8.05, $5.90 and
$4.05 per share, respectively.

Employee Stock Purchase Plan

In May 1997, the stockholders of the Company approved the Equity
Corporation International 1997 Employee Stock Purchase Plan ("ESPP"), whereby
the Company is authorized to issue up to 500,000 shares

F-16
<PAGE> 46
EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of Common Stock to its full-time employees, nearly all of whom are eligible to
participate. Under the terms of the ESPP, employees may choose at the beginning
of each six-month Option Period, as defined, to have up to 10 percent of their
Base Earnings withheld to purchase the Company's Common Stock at a discount by
exercising stock options granted under the ESPP. The purchase price for the
Common Stock is 85 percent of the market value of the Common Stock, as defined.
The Company sold a total of 18,684 shares of Common Stock under the ESPP in 1997
at exercise prices ranging from $17.43 to $19.66 per share. There were no
outstanding options under the ESPP at December 31, 1997.

The fair value of each stock option granted under the ESPP is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions for grants in 1997: dividend yield of
0.0%; expected volatility of 21.85%; risk-free interest rate at date of grants
of 5.30%; and the expected lives of the options under the ESPP is six months.
The weighted average fair value of the options granted under the ESPP for the
year ended December 31, 1997, was $7.43 per share.

Had compensation cost for the Company's Incentive Plan and ESPP been
determined in accordance with SFAS 123, the Company's net income and earnings
per share amounts would have been as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Net income.............................................. $13,766 $9,949 $6,222
Earnings per share:
Basic................................................. $ 0.67 $ 0.56 $ 0.42
Assuming full dilution................................ $ 0.66 $ 0.55 $ 0.42
</TABLE>

The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts.

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 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, 1997, amounts granted under these deferred compensation
agreements aggregated approximately $1,814, of which approximately $702 was
accrued.

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.

F-17
<PAGE> 47
EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. EARNINGS PER SHARE

The Company adopted the provisions of SFAS No. 128, "Earnings per Share,"
effective January 1, 1997. All prior periods presented have been restated to
conform to the new requirements. A reconciliation of the numerators and
denominators of the basic and diluted per-share computations for net income
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income (numerator)
Net income.......................................... $14,699 $10,326 $ 6,236
======= ======= =======
Shares (denominator)
Shares -- basic..................................... 20,597 17,781 14,699
Options............................................. 333 269 135
Other............................................... 22 18 1
------- ------- -------
Shares -- diluted................................... 20,952 18,068 14,835
======= ======= =======
Earnings per share:
Basic............................................... $ 0.71 $ 0.58 $ 0.42
======= ======= =======
Diluted............................................. $ 0.70 $ 0.57 $ 0.42
======= ======= =======
</TABLE>

Options to purchase an aggregate 546,000 shares of common stock at exercise
prices ranging from $22.25 per share to $23.75 per share were excluded from the
calculation of diluted earnings per share for 1997 because their effect would
have been antidilutive. The options, which expire on dates ranging from May
2007, to December 2007, were still outstanding at December 31, 1997.

The Debentures issued in February 1998 (Note 6) would have had an
antidilutive effect on diluted earnings per share for all periods presented
assuming conversion on a pro forma basis.

10. SUPPLEMENTARY INFORMATION

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

<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Receivables and allowances:
Trade..................................................... $15,792 $ 9,053
Other..................................................... 1,768 1,413
------- -------
17,560 10,466
Less allowance for bad debts.............................. 2,148 1,416
------- -------
$15,412 $ 9,050
======= =======
Long-term:
Installment contracts..................................... $40,302 $31,096
Cemetery merchandise receivables.......................... 26,194 14,316
------- -------
66,496 45,412
Less:
Allowance for contract cancellations...................... 4,046 2,669
Unearned finance charges.................................. 7,057 5,517
------- -------
$55,393 $37,226
======= =======
</TABLE>

F-18
<PAGE> 48
EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Interest rates on installment contracts range from 12.5% to 14.5%, at
December 31, 1997.

<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Inventories:
Caskets................................................... $ 4,961 $ 3,364
Interment rights.......................................... 715 456
Mausolea and lawn crypts.................................. 751 759
Other..................................................... 2,707 1,450
-------- -------
$ 9,134 $ 6,029
======== =======
Property, plant and equipment:
Land...................................................... $ 18,259 $11,384
Buildings and improvements................................ 64,716 39,135
Equipment................................................. 26,099 16,691
-------- -------
109,074 67,210
Less accumulated depreciation and amortization............ 14,390 9,947
-------- -------
$ 94,684 $57,263
======== =======
Accounts payable and accrued liabilities:
Trade..................................................... $ 5,133 $ 2,427
Compensation.............................................. 2,463 1,868
Interest.................................................. 2,119 342
Other..................................................... 4,362 2,306
-------- -------
$ 14,077 $ 6,943
======== =======
</TABLE>

11. 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.

Rent expense for the years ended December 31, 1997, 1996 and 1995 was
approximately $2,200, $1,541 and $1,658, 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 fifteen 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 $48,044 at December 31, 1997.

F-19
<PAGE> 49
EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum payments under noncancelable operating leases with initial
or remaining terms of one or more years and the employment, consulting and
noncompetition agreements discussed above consisted of the following at December
31, 1997:

<TABLE>
<CAPTION>
LEASES AGREEMENTS
------- ----------
<S> <C> <C>
1998........................................................ $ 1,687 $11,062
1999........................................................ 1,570 9,505
2000........................................................ 1,426 8,101
2001........................................................ 1,123 6,298
2002........................................................ 980 3,977
Thereafter.................................................. 3,520 9,101
------- -------
Total minimum obligations......................... $10,306 $48,044
======= =======
</TABLE>

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. In
August 1997, the Company entered into severance agreements with its executive
officers that provide for certain benefits in the event that an executive
officer is terminated in connection with a Change in Control of the Company, as
defined in the agreements.

Year 2000

As part of the Company's continuing program to update its information
systems in anticipation of future growth, the Company is currently involved in
the installation of year 2000 compliant software for its cemetery corporate
operations and is evaluating software systems for its cemetery operations at the
field level. The Company has also recently purchased year 2000 compliant
software to be used for its funeral corporate and field operations and expects
to have year 2000 compliant software in place for substantially all of its
operations by mid-year 1999. As part of its initial assessment of its year 2000
exposure, the Company has identified certain critical path items and has
developed a timetable for the completion of these projects in a timely manner.
In the event that year 2000 compliant software is not in place on a timely
basis, however, the Company's results of operations could be adversely affected.

Litigation

F-20
<PAGE> 50
EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. 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 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.

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 $15,274 and $13,867 at December 31, 1997 and 1996,
respectively, approximate their fair value, because their interest rates
approximate rates currently available for debt securities with similar terms.

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

13. MAJOR SEGMENTS OF BUSINESS

The Company conducts its funeral and cemetery operations throughout the
United States and in one Canadian province. The Company's Canadian operations
are not considered material to the Company's funeral operations.

Operating and financial data for the Company's operating segments follows:

<TABLE>
<CAPTION>
FUNERAL CEMETERY CORPORATE CONSOLIDATED
-------- -------- --------- ------------
<S> <C> <C> <C> <C>
Net revenues:
1997.................................... $ 88,834 $ 46,239 $ -- $135,073
1996.................................... 56,939 35,035 -- 91,974
1995.................................... 36,261 27,740 -- 64,001
Operating expenses:
1997.................................... $ 65,754 $ 31,659 $ 7,560 $104,973
1996.................................... 40,939 24,898 5,848 71,685
1995.................................... 27,442 19,263 4,782 51,487
</TABLE>

F-21
<PAGE> 51
EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
FUNERAL CEMETERY CORPORATE CONSOLIDATED
-------- -------- --------- ------------
<S> <C> <C> <C> <C>
Income from operations:
1997.................................... $ 23,080 $ 14,580 $(7,560) $ 30,100
1996.................................... 16,000 10,137 (5,848) 20,289
1995.................................... 8,819 8,477 (4,782) 12,514
Identifiable assets:
1997.................................... $496,267 $207,775 $13,658 $717,700
1996.................................... 294,373 134,229 15,289 443,891
1995.................................... 177,412 119,566 8,181 305,159
Depreciation and amortization:
1997.................................... $ 6,411 $ 1,605 $ 412 $ 8,428
1996.................................... 3,358 1,118 325 4,801
1995.................................... 2,082 1,107 269 3,458
Capital expenditures:
1997.................................... $ 6,717 $ 5,090 $ 714 $ 12,521
1996.................................... 4,580 2,997 741 8,318
1995.................................... 5,442 1,380 869 7,691
Number of operating locations at:
December 31, 1997....................... 259 76 -- 335
December 31, 1996....................... 178 64 -- 242
December 31, 1995....................... 119 61 -- 180
</TABLE>

14. QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
1997
Net revenues......................................... $32,254 $30,912 $33,151 $38,756
Gross profit......................................... 10,000 8,335 8,442 10,883
Net income........................................... 4,490 3,056 3,174 3,979
Earnings per share:
Basic............................................. $ 0.22 $ 0.15 $ 0.15 $ 0.19
Assuming full dilution............................ $ 0.22 $ 0.15 $ 0.15 $ 0.19
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 share:(1)
Basic............................................. $ 0.15 $ 0.15 $ 0.11 $ 0.17
Assuming full dilution............................ $ 0.15 $ 0.14 $ 0.11 $ 0.17
</TABLE>

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

(1) Earnings per share for 1996 quarters reflect the effects of a 3-for-2 stock
split in October 1996.

F-22
<PAGE> 52

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 5, 1998

S-1
<PAGE> 53

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, 1997:
Allowance for bad debts and
Contract cancellations....... $4,085,206 $6,250,451 $1,269,631 $5,411,263 $6,194,025
========== ========== ========== ========== ==========
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
========== ========== ========== ========== ==========
</TABLE>

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

(1) Relates to valuation allowance established at acquired companies on the date
of acquisitions.

S-2
<PAGE> 54

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO, DESCRIPTION
----------- -----------
<C> <S>
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 31, 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)).
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))
</TABLE>
<PAGE> 55

<TABLE>
<CAPTION>
EXHIBIT NO, DESCRIPTION
----------- -----------
<C> <S>
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 (filed as Exhibit 10.10 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996)
10.11* -- Amendment to Amended and Restated Equity Corporation
International 1994 Long-Term Incentive Plan, dated May
21, 1997
10.12+* -- 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)
10.13+* -- Form of Non-Qualified Employee Stock Option Agreement for
Executive Officers under 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)
10.14+* -- 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)
10.15+* -- 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)
10.16+* -- Form of Non-Qualified 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)
10.17* -- Form of Non-Qualified Employee Stock Option Agreement for
Executive Officers under the 1994 Long-Term Incentive
Plan, dated August 14, 1997
10.18+* -- 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)
10.19+* -- 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)
10.20+ -- 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))
10.21* -- Form of Executive Severance Agreement dated effective
August 14, 1997.
10.22+* -- Equity Corporation International 1997 Employee Stock
Purchase Plan (filed as Exhibit 4.7 to the Company's
Registration Statement on Form S-8 (Reg. No. 333-25303))
10.23+* -- Consulting Agreement, dated as of September 12, 1996,
between the Company and James P. Hunter, III (filed as
Exhibit 10.25 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996)
</TABLE>
<PAGE> 56

<TABLE>
<CAPTION>
EXHIBIT NO, DESCRIPTION
----------- -----------
<C> <S>
10.24+ -- Amended and Restated Credit Agreement, dated September 2,
1997, 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, 1997)
21.1 -- List of Subsidiaries as of December 31, 1997
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 -- Financial Data Schedule
27.1 -- Restated Financial Data Schedules
</TABLE>

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

+ Incorporated herein by reference to the indicated filing.

* Management contract or compensatory plan.

<PAGE> 1
EXHIBIT 10.11

AMENDMENT TO THE
EQUITY CORPORATION INTERNATIONAL
1994 LONG-TERM INCENTIVE PLAN

This Amendment ("Amendment") to the Equity Corporation International
1994 Long-Term Incentive Plan is effective upon the date of its adoption by the
Board of Directors of Equity Corporation International (the "Company").

R E C I T A L S:

WHEREAS, in October, 1994, the stockholders of the Company adopted the
Equity Corporation International 1994 Long-Term Incentive Plan (the "Plan") to
promote the interests of the Company and its stockholders as further set forth
in such Plan; and

WHEREAS, pursuant to Section 11(h) of the Plan, the Board of Directors
may amend the Plan or any portion thereof; and

WHEREAS, the Board of Directors have determined that it is in the best
interest of the Company and its stockholders to amend certain provisions of the
Plan;
A M E N D M E N T

NOW THEREFORE, the Plan is hereby amended as follows:
Amendment to Section 6(a)(2)

Section 6(a)(2) is amended in its entirety to read as follows:
(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
10,000 shares of

<PAGE> 2

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 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 5,000 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."

Except as expressly amended hereby all of the other terms and
conditions of the Plan shall remain in full force and effect. Capitalized terms
not otherwise defined herein shall have the same meanings as are assigned to
such terms in the Plan.

Approved by the Board of Directors of the Company May 21, 1997.

<PAGE> 1
EXHIBIT 10.17

NON-QUALIFIED
STOCK OPTION AGREEMENT

This Agreement is made as of the 14th day of August, 1997 ("Date of
Grant") by and between EQUITY CORPORATION INTERNATIONAL, a Delaware corporation
(the "Company"), and _______________________________ (the "Employee").

To carry out the purposes of the Equity Corporation International 1994
Long-Term Incentive Plan (the "Plan") by affording the Employee the opportunity
to purchase shares of the $0.01 par value common stock of Equity Corporation
International ("Stock"), the Company and the Employee hereby agree as follows:

1. Grant of Option. The Company hereby irrevocably grants to the
Employee the right and option (the "Option") to purchase all or any part of the
number of shares of Stock set forth below the Employee's name on the signature
page hereof, on the terms and conditions set forth herein and in the Plan. This
Option is not an incentive stock option within the meaning of Section 422(b) of
the Internal Revenue Code of 1986, as amended (the "Code").

2. Purchase Price. The purchase price of Stock purchased pursuant
to the exercise of this Option shall be $22.25 per share, which is deemed to be
not less than the fair market value of the Stock subject to this Option.

3. Exercise of Option. Subject to the earlier expiration of this
Option as herein provided, this Option may be exercised, by written notice to
the Company, at any time and from time to time, but only to the extent this
Option is then vested and exercisable. This Option shall become vested and
exercisable with respect to 100% of the shares of Stock subject to the Option on
the ninth (9th) anniversary of the Date of Grant, subject to Section 4 hereof
regarding the Accelerated Vesting of the Option. With respect to an Employee
whose "Employment Relationship" (as defined in Section 8 hereof) with the
Company terminates, the Employee's vested interest in the Option shall be
determined as of such termination date and the extent to which Section 4
accelerates the vesting of the Option shall be determined only with respect to
events occurring on or before such termination date.

4. Accelerated Vesting of Option.

(a) Vesting Upon a Change-in-Control. Notwithstanding any other
provision hereof, in the event of a "Change-in-Control" of the
Company, the Option shall become vested and exercisable with
respect to 100% of the shares of Stock subject to the Option,
provided the Employee's "Employment Relationship" (as defined
in Section 8 hereof) with the Company has not terminated on or
before the effective date of such "Change-in-Control". For
purposes of this Agreement, the term "Change-in-Control" shall
have the meaning provided in the "Executive Severance
Agreement"

<PAGE> 2

dated August 14, 1997, as the same may be amended, that is
then in effect with respect to the Employee. If the Executive
Severance Agreement is not in effect on the date an alleged
Change-in-Control occurs or if the executive Severance
Agreement has been amended so that the term
"Change-in-Control" or its equivalent is not defined therein,
then the definition of the term "Change-in-Control" as set
forth in the Plan shall apply.

(b) Vesting Upon Achieving Stock Price Performance Targets.

(i) Vesting of all or a specified percentage of the
Option will be accelerated during the four-year
"Performance Period" (as defined below) based on the
per share Stock price performance of the Company's
Stock during the Performance Period, provided the
Employee's "Employment Relationship" (as defined in
Section 8 hereof) with the Company has not terminated
on or before the last day of the applicable
Performance Period. For purposes of this Agreement,
the term "Performance Period" is defined to mean the
four-year period ending on the fourth (4th)
anniversary of the Date of Grant, and shall include
three (3) consecutive one-year Performance Periods
ending on the first (1st) through the third (3rd)
anniversaries of the Date of Grant, respectively.
With respect to the full four-year Performance
Period, if the Target "Average Stock Price" of $58.50
is achieved at any time during the Performance
Period, the Option shall at that time become vested
and exercisable with respect to 100% of the shares of
Stock subject to the Option. With respect to each of
the three included one-year Performance Periods, if
the Target "Average Stock Price" set forth in the
table below for such Period is achieved at any time
during such Period, the Option shall at that time
become vested and exercisable with respect to the
specified percentage of the then unvested shares of
Stock subject to the Option. For purposes of this
Agreement, the term "Average Stock Price" is defined
to mean the average closing price per share of Stock
during any fifteen (15) consecutive trading days for
the Stock during the applicable Performance Period
determined in a manner consistent with the
determination of "Fair Market Value" under the Plan.

-2-

<PAGE> 3

Performance Period Target Average Percentage of the Then
Ending on the Stock Price Nonvested Shares Subject
Specified Date Per Share to Option Which Vest
August 14, 1998 $29.50 25%
August 14, 1999 $37.00 33%
August 14, 2000 $46.50 50%
August 14, 2001 $58.50 100%

(ii) If (A) the $58.50 Target Average Stock Price for
the four-year Performance Period described in Section
4(b)(i) hereof is not achieved, (B) the percentage
growth rate of the Standard & Poor's 500 Index for
the four-year Performance Period is less than
seventy-four percent (74%), being seventy- five
percent (75%) of its percentage growth rate
determined for the four-year period of August 14,
1993 through August 14, 1997, and (C) the Company's
per share Average Stock Price for the fifteen (15)
consecutive trading days ending with the last day of
the four-year Performance Period is equal to or
greater than $22.50 multiplied by the "Peer Group's"
average total shareholder return percentage
determined for the four-year Performance Period by
the independent accounting firm then engaged by the
Company, then the Option shall, on the last day of
the four-year Performance Period, become vested and
exercisable with respect to 100% of the shares of
Stock subject to the Option. For this purpose, the
term "Peer Group" is defined to mean Loewen Group,
Inc., Service Corporation International, and Stewart
Enterprises, Inc. (and their respective successors).

(c) Vesting Upon Termination During the Four-Year Performance
Period. If (i) the Employee's "Employment Relationship" with
the Company (as defined in Section 8 hereof) terminates during
the four-year Performance Period and after August 14, 1999 by
reason of death, disability (as such term is defined in the
Executive Severance Agreement described in Section 4(a)
hereof), "Retirement" (as defined in Section 5(b) hereof), or
termination "Without Cause" (as such term is defined in the
Executive Severance Agreement described in Section 4(a)
hereof), and (ii) the Employee is not vested and exercisable
with respect to 100% of the shares of Stock subject to the
Option, then the Option shall, on the date of such
termination, become vested and exercisable with respect to the
following percentage of the shares of Stock subject to the
Option, reduced by the percentage of the shares of Stock
subject to the Option which had become vested and exercisable
prior to the Employee's termination. For this purpose, the
percentages set forth in the following table shall

-3-
<PAGE> 4

be pro rated on a fully completed monthly basis if the
Employee's termination occurs during the third or fourth years
of the Performance Period.

Number of Years From Date of Grant to Date Percentage of the Shares
Employment Relationship Terminates Subject to the Option
Which Vest
<S> <C>
2 years or less 0%

More than 2 years but less than 3 years 50%

More than 3 years but less than 4 years 75%

4 years 100%

</TABLE>

5. Transferability. This Option is not transferable by the
Employee otherwise than by will or the laws of descent and distribution, and may
be exercised only by Employee during his lifetime and while his Employment
Relationship with the Company continues, except that:

(a) If the Employee's Employment Relationship with the Company
terminates for any reason other than disability (as such term
is defined in the Executive Severance Agreement described in
Section 4(a) hereof), death or "Retirement" (as defined in
Section 5(b) hereof), this Option may be exercised by Employee
(or his estate or the person who acquires this Option by
bequest or inheritance or by reason of death of the Employee)
at any time during the period of three (3) months following
such termination, but only as to the number of vested and
exercisable shares of Stock subject to the Option.

(b) If the Employee's Employment Relationship with the Company
terminates by reason of disability (as such term is defined in
the Executive Severance Agreement described in Section 4(a)
hereof), death or "Retirement" (as defined below), this Option
may be exercised by Employee (or his estate or the person who
acquires this Option by bequest or inheritance or by reason of
the death of Employee) at any time during the period of one
(1) year following such termination, but only as to the number
of vested and exercisable shares of Stock subject to the
Option. For purposes of this Agreement, the term "Retirement"
is defined to mean the retirement of the Employee after the
Employee has achieved the age of 60 and has completed at least
five years of employment with the Company.

-4-

<PAGE> 5

6. Expiration of Option. Except as hereinafter provided, this
Option shall not be exercisable in any event after the expiration of ten (10)
years from the Date of Grant. The purchase price of shares as to which this
Option is exercised shall be paid in full in cash at the time of such exercise
or, if the Employee so elects, payment may be made, in whole or in part, by
delivery of a number of shares of Stock (plus cash if necessary) having a fair
market value equal to such purchase price or part thereof. Unless and until a
certificate or certificates representing such shares shall have been issued by
the Company to him, the Employee (or the person permitted to exercise this
Option in the event of the Employee's death) shall not be or have any of the
rights or privileges of a stockholder of the Company with respect to shares
acquirable upon the exercise of this Option.

7. Status of Stock. The Company has registered for issue under
the Securities Act of 1933, as amended (the "Act") the shares of Stock
acquirable upon exercise of this Option, and intends to keep such registration
effective throughout the period this Option is exercisable. In the absence of an
effective registration or an available exemption from registration under the
Securities Act of 1933, as amended (the "Act"), delivery of shares of Stock
acquirable upon exercise of this Option will be delayed until registration of
such shares is effective or an exemption from registration under the Act is
available. In the event exemption from registration under the Act is available
upon an exercise of this Option, the Employee (or the person permitted to
exercise this Option in the event of the Employee's death), if requested by the
Company to do so, will execute and deliver to the Company in writing an
agreement containing such provisions as the Company may require to assure
compliance with applicable securities laws.

No sale or disposition of share Stock acquired upon exercise of this
Option shall be made in the absence of a registration statement being on file
with respect to such shares under the Act, unless an opinion of counsel or other
evidence satisfactory to the Company that such sale or disposition will not
constitute a violation of the registration provisions of the Act or any other
applicable securities laws is first obtained.

The certificates representing shares of Stock acquired under this
Option may bear such legend as the Committee administering the Plan
("Committee") deems appropriate, referring to the provisions of this Section.

8. Employment Relationship. For purposes of this Agreement, the
Employee's "Employment Relationship" with the Company shall be defined to
include (i) any period in which he is an employee of either the Company or a
subsidiary corporation (as defined in Section 424 of the Code) of the Company,
or a corporation or a subsidiary corporation of such corporation assuming or
substituting a new option for this Option, and (ii) any period in which he is a
director of either the Company or its successor. The Employee's Employment
Relationship will terminate, for purposes of this agreement only, on the date
the Employee is neither an employee (as defined above) nor a director of the
Company or its successor. Any question as to whether and when there has been a
termination of such Employment Relationship, and the cause of such termination,
shall be determined by the Board of Directors, and the determination by such
body shall be final. Nothing in this Agreement or the Plan shall confer upon the
Employee any right to continue in the employ

-5-

<PAGE> 6

of or as a director of the Company or any of its affiliate corporations or
interfere in any way with the right of the Company or any such affiliate
corporation to terminate such employment or the right of the shareholders to
terminate such directorship at any time.

9. Withholding of Tax. Upon an exercise of this Option, the
Company (or the employing corporation) may be required to withhold United States
federal, state and local tax with respect to the realization of compensation
pursuant to such exercise. The Company (or the employing corporation) is hereby
authorized to satisfy any such withholding requirement out of (i) any cash
distributable upon such exercise, and (ii) any other cash compensation then or
thereafter payable to the Employee. To the extent that the Company in its sole
discretion determines that such sources are or may be insufficient to fully
satisfy such withholding requirement, the Employee, as a condition to the
exercise of this Option, shall deliver to the Company cash in an amount
determined by the Company to be sufficient to satisfy any such withholding
requirement.

10. Effect of Certain Changes.

(a) If there is any change in the number of issued shares of
Stock through the declaration of stock dividends, or through
recapitalization resulting in stock splits, or combinations or
exchanges of such shares, the number of shares subject to the
Option granted pursuant to this Agreement that have not been
exercised or lapsed, and the price per share of such Options
shall be proportionately adjusted by the Committee to reflect
any increase or decrease in the number of shares of Stock,
provided, however, that any fractional shares resulting from
such adjustment shall be eliminated.

(b) In the event of a change in the Stock of the Company as
presently constituted, which is limited to a change of all of
its authorized shares with a par value into the same number of
shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be a
Stock within the meaning of this Agreement and the Plan.

(c) To the extent that the foregoing adjustments relate to stock
or securities of the Company, such adjustments shall be made
by the Committee, whose determination in that respect shall be
final, binding and conclusive.

11. Payment of Transfer Taxes, Fees and Other Expenses. The
Company agrees to pay any and all original issue taxes and stock transfer taxes
that may be imposed on the issuance of shares acquired pursuant to exercise of
this Option, together with any and all other fees and expenses necessarily
incurred by the Company in connection therewith.

12. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of any successors to the Company and all persons lawfully
claiming under the Employee.

-6-

<PAGE> 7

13. Notices. Any notice to be given under the terms of this
Agreement shall be in writing and addressed to the Company at 415 South First,
Suite 210, Lufkin, Texas, 75901, and to the Employee at the address set forth on
the last page of this Agreement or at such other address as either party may
hereafter designate in writing to the other.

14. Laws Applicable to Construction. This Option has been granted,
executed and delivered in the State of Texas, and the interpretation,
performance and enforcement of this Agreement, shall be governed by the laws of
the State of Texas, as applied to contracts executed in and performed wholly
within the State of Texas.

15. Interpretation. In the event of any ambiguity in this
Agreement, any term which is not defined in this Agreement, or any matters as to
which this Agreement is silent, the Plan shall govern including, without
limitation, the provisions thereof pursuant to which the Committee has the
power, among others, to (i) interpret the Plan, (ii) prescribe, amend and
rescind rules and regulations relating to the Plan, and (iii) make all other
determinations deemed necessary or advisable for the administration of the Plan.

16. Headings. The headings of paragraphs herein are included
solely for convenience of reference and shall not affect the meaning or
interpretation of any of the provisions of this Agreement.

17. Amendment. This Agreement may not be modified, amended or
waived in any manner except by an instrument in writing signed by both parties
hereto. The waiver by either party of compliance with any provision of this
Agreement shall not operate or be construed as a waiver of any other provision
of this Agreement, or of any subsequent breach by such party of a provision of
this Agreement.

-7-

<PAGE> 8

IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officers thereunto duly authorized, and the Employee has
executed this Agreement, all on the day and year first above written.

EQUITY CORPORATION INTERNATIONAL

By:
------------------------------------
James P. Hunter, III
Chairman of the Board

EMPLOYEE

Name of Employee:
----------------------
No. of Shares:
-------------------------

ADDRESS:
-------------------------------

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

-8-

<PAGE> 1
EXHIBIT 10.21

EXECUTIVE SEVERANCE AGREEMENT
EQUITY CORPORATION INTERNATIONAL
EFFECTIVE AUGUST 14, 1997

<PAGE> 2

TABLE OF CONTENTS
<TABLE>
<CAPTION>

Article Section Page
<S> <C> <C> <C> <C>
1 Definitions 1
-----------

2 Severance Benefits

2.1 Right to Severance Benefits 6
2.2 Description of Severance Benefits 7
2.3 Termination for Total and Permanent Disability 7
2.4 Termination for Retirement or Death 7
2.5 Termination for Cause or by the Executive Other 8
Than for Good Reason
2.6 Notice of Termination 8

3 Form and Timing of Severance Benefits

3.1 Form and Timing of Severance Benefits 8
3.2 Withholding of Taxes 8

4 Tax Indemnity

4.1 Limitation on Termination Payment 8
4.2 Subsequent Imposition of Excise Tax 10

5 The Company's Payment Obligation

5.1 Payment Obligations Absolute 10
5.2 Contractual Rights to Benefits 10

6 Term of Agreement

6.1 Term 11

7 Arbitration and Legal Fees

7.1 Arbitration 11
7.2 Payment of Expenses and Legal Fees 11

8 Successors

8.1 Company's Successors 11
8.2 Executive's Successors 12

</TABLE>

<PAGE> 3
TABLE OF CONTENTS (CONT'D)

Article Section Page
<S> <C> <C> <C> <C>
9 Miscellaneous

9.1 Employment Status 12
9.2 Beneficiaries 12
9.3 Entire Agreement 12
9.4 Gender and Number 12
9.5 Severability 12
9.6 Modification 13
9.7 Applicable Law 13

</TABLE>

<PAGE> 4

EXECUTIVE SEVERANCE AGREEMENT

THIS AGREEMENT is made and entered into as of 14th day of August, 1997, by and
between Equity Corporation International, a Delaware corporation (hereinafter
referred to as the "Company") and _________________________ (hereinafter
referred to as the "Executive").

W I T N E S S E T H:

WHEREAS, the Board of Directors of the Company has approved the Company
entering into severance agreements with certain key executives of the Company;

WHEREAS, the Executive is a key executive of the Company;

WHEREAS, should the possibility of a Change-in-Control of the Company
arise, the Board believes it imperative that the Company and the Board should be
able to rely on the Executive to continue in the Executive's position and
receive and rely on the Executive's advice, if it requests it, as to the best
interests of the Company and its shareholders without concern that the Executive
might be distracted by the personal uncertainties and risks created by the
possibility of a Change-in-Control; and

WHEREAS, the Executive and the Company desire that the terms of this
Agreement shall be in addition to the provisions set forth in the Executive's
post-employment consulting agreement regarding the Executive's entitlement to
payments for the promise to render consulting services for a period of time
following termination of employment with the Company;

NOW THEREFORE, to assure the Company that it will have the continued
dedication of the Executive and the availability of the Executive's advice and
counsel notwithstanding the possibility, threat, or occurrence of a
Change-in-Control of the Company, to induce the Executive to remain in the
employ of the Company, and for other good and valuable consideration, the
Company and the Executive agree as follows:

Article 1. Definitions

Whenever used in this Agreement, the following capitalized terms shall have the
meanings set forth below:

(a) "Agreement" means this Executive Severance Agreement.

(b) "Base Salary" means the salary of record paid to the Executive
as annual salary, excluding amounts received under incentive
or other bonus plans, whether or not deferred.

<PAGE> 5

(c) "Beneficial Owner" shall have the meaning ascribed to such
term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.

(d) "Beneficiary" means the persons or entities designated or
deemed designated by the Executive pursuant to Section 9.2.

(e) "Board" means the Board of Directors of the Company.

(f) "Cause" shall be determined by the Committee, in good faith,
and shall mean the occurrence of any one or more of the
following:

(i) The Executive's willful and continued failure to
substantially perform the Executive's duties
(other than any such failure resulting from the
Executive's Disability) after a written demand for
substantial performance has been delivered by the
Committee to the Executive that specifically
identifies the manner in which the Committee
believes that the Executive has not substantially
performed the Executive's duties, and the Executive
fails to remedy such failure within thirty (30)
calendar days after receiving such notice; or

(ii) The Executive's conviction (including a trial, plea
of guilty or plea of nolo contendere) for committing
an act of fraud, embezzlement, theft, or other act
constituting a felony; or

(iii) The Executive's willful and continued engagement in
gross misconduct or willful and continued violation
of a Company policy which is materially and
demonstrably injurious to the Company after a
written demand to cease such misconduct or violation
has been delivered by the Committee to the Executive
that specifically identifies the manner in which the
Committee believes that the Executive has violated
this Paragraph (iii), and the Executive fails to
cease such misconduct or violation and remedy any
injury suffered by the Company as a result thereof
within thirty (30) calendar days after receiving
such notice. However, no act or failure to act, on
the Executive's part shall be considered "willful"
unless done, or omitted to be done, by the Executive
not in good faith and without reasonable belief that
the Executive's action or omission was in the best
interest of the Company.

(g) "Change-in-Control" of the Company shall be deemed to have
occurred as of the first day that any one or more of the
following events occurs on or following the effective date of
this Agreement:

(i) Any Person (other than those Persons in control of
the Company on the Effective Date of this Agreement,
a trustee or other fiduciary holding

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<PAGE> 6

securities under an employee benefit plan of the
Company, or a corporation owned directly or
indirectly by the stockholders of the Company in
substantially the same proportions as their
ownership of stock of the Company) becomes the
Beneficial Owner, directly or indirectly, of
securities of the Company representing twenty
percent (20%) or more of the combined voting power
of the Company's then outstanding securities; or

(ii) During any period of two (2) consecutive years (not
including any period prior to the Effective Date of
this Agreement), individuals who were members of the
Board at the beginning of such period (and any new
Director whose election by the Company's stock
holders was approved by a vote of at least
two-thirds (2/3) of the Directors then still in
office who either were Directors at the beginning of
the period or whose election or nomination for
election was so approved) cease for any reason to
constitute a majority thereof; or

(iii) The stockholders of the Company approve: (A) a plan
of complete liquidation of the Company; (B) an
agreement for the sale or disposition of all or
substantially all the Company's assets; or (C) a
merger, consolidation, or reorganization of the
Company with or involving any other corporation,
other than a merger, consolidation, or
reorganization that would result in the voting
securities of the Company outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving entity) at least
fifty percent (50%) of the combined voting power of
the securities of the Company (or such surviving
entity) outstanding immediately after such merger,
consolidation, or reorganization.

However, in no event shall a Change-in-Control be deemed to
have occurred, with respect to the Executive, if the Executive
is part of a purchasing group which consummates the
Change-in-Control transaction. The Executive shall be deemed
"part of a purchasing group" for purposes of the preceding
sentence if the Executive is an equity participant in the
purchasing company or group (except for: (i) passive ownership
of less than three percent (3%) of the stock of the purchasing
company; or (ii) ownership of equity participation in the
purchasing company or group which is otherwise not
significant, as determined prior to the Change-in-Control by
the Committee.

(h) "Code means the Internal Revenue Code of 1986, as amended.

(i) "Committee" means the Compensation Committee of the Board or
any other committee appointed by the Board to perform the
functions of the Compensation Committee.

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<PAGE> 7

(j) "Company" means Equity Corporation International, a Delaware
corporation (including any and all subsidiaries), or any
successor thereto as provided in Article 8.

(k) "Disability" means:

(i) The mental or physical disability, either
occupational or non-occupational in cause, which
satisfies the definition of "total and permanent
disability" in the disability policy or plan provided
by the Company covering the Executive; or

(ii) If no such policy or plan is then covering the
Executive, a physical or mental infirmity which, as
determined by the Committee, in good faith, upon
receipt of and in reliance on sufficient competent
medical advice from one or more individuals, selected
by the Committee, who are qualified to give
professional medical advice, impairs the Executive's
ability to substantially perform the Executive's
duties for a period of at least one hundred eighty
(180) consecutive days.

(l) "Effective Date" means the date this Agreement is approved by
the Committee, or such other date as the Board shall designate
in its resolution approving this Agreement.

(m) "Effective Date of Termination" means the date on which a
Qualifying Termination occurs which causes the payment of
Severance Benefits.

(n) "Exchange Act" means the Securities Exchange Act of 1 934,
as amended.

(o) "Executive" means ________________________.

(p) "Good Reason" means any event or condition described in
Subsections (i) through (ix) below which occurs simultaneous
with or after a Change-in-Control:

(i) A change in the Executive's status, title, position
or responsibilities (including reporting
responsibilities) which, in the Executive's
reasonable judgment, represents an adverse change
from the Executive's status, title, position or
responsibilities as in effect immediately prior
thereto; the assignment to the Executive of any
duties or responsibilities which, in the Executive's
reasonable judgment, are inconsistent with the
Executive's status, title, position or
responsibilities; or any removal of the Executive
from or failure to reappoint or reelect the
Executive to any office or position held by the
Executive prior to such Change-in-Control, except in
connection with the termination of the Executive's
employment for Disability, Cause, as a

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<PAGE> 8

result of the Executive's death or retirement or by
the Executive other than for Good Reason;

(ii) A reduction in the Executive's Base Salary or any
failure to pay the Executive any compensation or
benefits to which the Executive is entitled within
five (5) days of the date due;

(iii) A failure to increase the Executive's Base Salary at
least annually at a percentage of Base Salary no
less than the average percentage increase (other
than increases resulting from the Executive's
promotion) granted to the Executive during the three
(3) full years ended prior to a Change-in-Control
(or such lesser number of full years during which
the Executive was employed), unless such failure
occurs in connection with the Company's failure to
increase the employee's base salaries for the fiscal
year for which such failure occurs of the peer
executives of the Company and its affiliates,
including the peer executives of any company
acquiring control of the Company in such
Change-in-Control and its affiliates.

(iv) The Company's requiring the Executive to be based at
any place outside a 30-mile radius from the
Executive's current place of employment;

(v) The failure by the Company to (A) continue in effect
(without reduction in benefit level and/or reward
opportunities) any material compensation or employee
benefit plans in which the Executive was
participating immediately prior to the Effective
Date, unless a substitute or replacement plan has
been implemented which provides substantially
identical compensation and benefits to the Executive
or (B) provide the Executive with compensation and
benefits, in the aggregate, at least equal (in
terms) of benefit levels and/or reward opportunities
to those provided for under each other compensation
or employee benefit plan, program and practice as in
effect at any time within ninety (90) days preceding
the Effective Date or at any time thereafter;

(vi) The insolvency or the filing (by any party,
including the Company) of a petition for the
bankruptcy of the Company;

(vii) Any material breach by the Company of any provision
of this Agreement or any provision of any employment
agreement between the Executive and the Company;

(viii) Any purported termination of the Executive's
employment for Cause by the Company which is not for
Cause; or

Page 5

<PAGE> 9

(ix) The failure of the Company to obtain an agreement,
satisfactory to the Executive, from any successor or
assign of the Company to assume and agree to perform
this Agreement.

Additionally, any event described in Subsections (i) through
(ix) above which occurs prior to a Change-in-Control, but
which the Executive reasonably demonstrates (A) was at the
request of a third party who has indicated an intention or
taken steps reasonably calculated to effect a
Change-in-Control, or (B) otherwise arose in connection with,
or in anticipation of a Change-in-Control, shall constitute
Good Reason for purposes of this Agreement notwithstanding
that it occurred prior to the Change-in-Control.

(q) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d)
and 14(d) thereof, including a "group" as defined in Section
13(d).

(r) "Qualifying Termination" means the termination of the
Executive's employment with the Company for either of the
following reasons:

(i) The Executive resigns for Good Reason; or

(ii) The Company terminates the Executive for any reason
other than for Cause.

(s) "Retirement" means:

(i) The Executive's voluntary termination of employment
with the Company at or following "normal retirement
age" (as defined in the Company's retirement plan
covering the Executive) or,

(ii) If there is no such plan, the Executive's voluntary
termination of employment with the Company at or
following age 65.

(t) "Severance Benefits" means the compensation described in
Section 2.2.

Article 2. Severance Benefits

2.1. Right to Severance Benefits.

(a) The Executive shall be entitled to receive from the Company
the Severance Benefits described in Section 2.2 if there has
been a Change-in-Control of the Company and if, within
eighteen (18) calendar months thereafter, the Executive's
employment with the Company shall end by reason of a
Qualifying Termination.

Page 6

<PAGE> 10

(b) The Executive shall not be entitled to receive such Severance
Benefits if the Executive is terminated for Cause, if the
Executive resigns other than for Good Reason, or if the
Executive's employment with the Company ends due to the
Executive's death, Retirement or Disability (refer to Sections
2.3 to 2.5 for a summary of severance compensation payable to
the Executive in connection with a termination of employment
for any such reason).

2.2 Description of Severance Benefits. If the Executive becomes entitled to
receive Severance Benefits, as provided in Sections 2.1, and subject to
the limits set forth in Article 4, the Company shall pay to the
Executive and provide the Executive with the following:

(a) An amount equal to three (3) times the highest rate of the
Executive's annual Base Salary in effect at any time up to and
including the Effective Date of Termination;

(b) An amount equal to the greater of: (i) the Executive's average
annual bonus earned over the last three (3) years; or (ii) the
Executive's target bonus established for the bonus plan year
in which the Executive's Effective Date of Termination occurs;

(c) An amount equal to the Executive's unpaid Base Salary and
accrued, unused vacation through the Effective Date of
Termination; and

(d) A continuation of any Company-provided or sponsored
healthcare-related benefits under which the Executive and/or
the Executive's family is covered as of the effective date of
the Change-in-Control. These benefits shall be provided by the
Company to the Executive immediately upon the Effective Date
of Termination and shall continue to be provided for eighteen
(18) months from the Effective Date of Termination; such
benefits shall be provided to the Executive at the same
premium cost and at the same coverage level as in effect as of
the Executive's Effective Date of Termination; and any such
benefit shall be discontinued prior to the end of the eighteen
(18) month period if the Executive receives a substantially
similar benefit from a subsequent employer, as determined by
the Compensation Committee in good faith.

2.3. Termination for Total and Permanent Disability. Following a
Change-in-Control of the Company, if the Executive's employment is
terminated due to Disability, the Executive shall receive the
Executive's Base Salary through the Effective Date of Termination, at
which point in time the Executive's compensation and benefits, if any,
shall be determined in accordance with the Company's retirement,
insurance, and other applicable plans and programs then in effect, and
the Company shall have no further obligations to the Executive under
this Agreement.

2.4. Termination for Retirement or Death. Following a Change-in-Control
of the Company, if the Executive's employment is terminated by reason
of the Executive's Retirement or death,

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<PAGE> 11

the Company shall pay the Executive or the Executive's beneficiary(ies)
his full Base Salary and accrued, unused vacation through the Effective
Date of Termination, at the rate then in effect, plus all other amounts
to which the Executive or the Executive's beneficiary(ies) are entitled
to under any retirement, survivor's benefits, insurance, and other
applicable programs of the Company then in effect, and the Company
shall have no further obligations to the Executive and the Executive's
beneficiary(ies) under this Agreement.

2.5. Termination for Cause or by the Executive Other Than for Good Reason.
Following a Change-in-Control of the Company, if the Executive's
employment is terminated either: (i) by the Company for Cause; or (ii)
by the Executive for any reason other than Good Reason, the Company
shall pay the Executive his full Base Salary and accrued, unused
vacation through the Effective Date of Termination, at the rate then in
effect, plus all other amounts to which the Executive is entitled under
any compensation and benefit plans of the Company, at the time such
payments are due, and the Company shall have no further obligations to
the Executive under this Agreement.

2.6. Notice of Termination. Any termination by the Executive for
any reason or by the Company for Cause shall be communicated by Notice
of Termination to the other party. For purposes of this Agreement, a
"Notice of Termination" shall mean a written notice which shall
indicate the specific termination provision in this Agreement relied
upon, and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated.

Article 3. Form and Timing of Severance Benefits

3.1. Form and Timing of Severance Benefits. The Severance Benefits described
in Sections 2.2(a), (b), and (c) shall be paid in cash to the Executive
in a single lump sum as soon as practicable following the Effective
Date of Termination, but in no event beyond thirty (30) days from such
date.

3.2. Withholding of Taxes. The Company shall withhold from any amounts
payable under this Agreement all Federal, state, city, or other taxes
as legally shall be required.

Article 4. Tax Indemnity

4.1. Limitation on Termination Payment.

(a) Determination of Termination Payment Limit. Notwithstanding
any other provision of this Agreement, if Severance Benefits
payable to the Executive under this Agreement or other
benefits payable under any other agreement or plan of the
Company (in the aggregate "Total Payments") would constitute
an "excess parachute payment," then the payments to be made to
the Executive under this Agreement shall be reduced as
provided in Section 4.1(b) such that the value of the
aggregate Total

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<PAGE> 12

Payments that the Executive is entitled to receive shall be
the maximum amount which the Executive may receive without
becoming subject to the tax imposed by Section 4999 of the
Code. However, the payments to be made to the Executive under
this Agreement shall not be reduced if this results in the
Executive receiving a greater net benefit than the Executive
would have received had a reduction not occurred and an excise
tax been paid pursuant to Code Section 4999.

For purposes of this Agreement, the terms "excess parachute
payment" and "parachute payments" shall be valued as provided
in the Code and regulations.

(b) Procedure for Establishing Limitation on Termination Payment.

(i) Within sixty (60) days following delivery of the
Notice of Termination (as described in Section 2.6)
or notice by the Company to the Executive of its
belief that there is a payment or benefit due the
Executive which will result in an "excess parachute
payment" as defined in Section 28OG of the Code, the
Executive and the Company, at the Company's expense,
shall obtain the opinion of such legal counsel, which
need not be unqualified, as the Executive may choose,
which sets forth: (i) the amount of the Executive's
"annualized includible compensation for the base
period" (as defined in Code Section 28OG(d)(1)); (ii)
the present value of the Total Payments; and (iii)
the amount and present value of any "excess parachute
payment." The opinion of such legal counsel shall be
supported by the opinion of a certified public
accounting firm and, if necessary, a firm of
recognized executive compensation consultants. Such
opinion shall be binding upon the Company and the
Executive.

(ii) If such opinion determines that there would be an
"excess parachute payment" and the Severance Benefits
are to be reduced in accordance with Section 4.1(a),
the Severance Benefits hereunder or any other payment
determined by such counsel to be includible in Total
Payments shall be reduced or eliminated as specified
by the Executive in writing delivered to the Company
within thirty (30) days of the Executive's receipt of
such opinion, or, if the Executive fails to so notify
the Company, then as the Company shall reasonably
determine.

(iii) The provisions of this Section 4.1 (b), including the
calculations, notices, and opinion provided for
herein shall be based upon the conclusive presumption
that: (i) the compensation and benefits provided for
in Section 2.2, and (ii) any other compensation
earned prior to the Effective Date of Termination by
the Executive pursuant to the Company's compensation
programs (if such payments would have been made in
the future in any event, even though the

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<PAGE> 13

timing of such payment is triggered by the
Change-in-Control), are reasonable.

4.2. Subsequent Imposition of Excise Tax. If, notwithstanding compliance
with the provisions of Sections 4.1(a), and 4.1(b), it is ultimately
determined by a court or pursuant to a final determination by the
Internal Revenue Service that any portion of the total payments is
considered to be a "parachute payment," subject to excise tax under
Section 4999 of the Code, which was not contemplated to be a "parachute
payment" at the time of payment (so as to accurately determine whether
a limitation should have been applied to the total payments to maximize
the net benefit to the Executive, as provided in Section 4.1 (b)), the
Executive shall be entitled to receive a lump sum cash payment
sufficient to place the Executive in the same net after-tax position,
computed by using the Executive's marginal total tax rate for the year
in which the payment contemplated under this Section 4.2 is made.

Article 5. The Company's Payment Obligation

5.1. Payment Obligations Absolute.

(i) The Company's obligation to pay or provide Severance Benefits
shall be absolute and unconditional, and shall not be affected
by any circumstances, including, without limitation, any
offset, counterclaim, recoupment, defense, or other right
which the Company may have against the Executive or anyone
else. All Severance Benefits paid or provided by the Company
shall be final, and the Company shall not seek to recover all
or any part of such Severance Benefit from the Executive or
from whomsoever may be entitled thereto, for any reasons
whatsoever except as may be consistent with Section 2.2(d);
and

(ii) The Executive shall not be obligated to seek other employment
in mitigation of the amounts payable or arrangements made
under any provision of this Agreement, and the obtaining of
any such other employment shall in no event effect any
reduction of the Company's obligations to make the payments
and arrangements required to be made under this Agreement,
except to the extent provided in Section 2.2(d).

5.2. Contractual Rights to Severance Benefits. This Agreement establishes
and vests in the Executive a contractual right to the Severance
Benefits to which the Executive is entitled hereunder. However, nothing
herein contained shall require or be deemed to require, or prohibit or
be deemed to prohibit, the Company to segregate, earmark, or otherwise
set aside any funds or other assets, in trust or otherwise, to provide
for any payments to be made or required hereunder.

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<PAGE> 14

Article 6. Term of Agreement

6.1 Term. This Agreement will commence on the Effective Date and shall
continue in effect for eighteen (18) months, the last day of which
shall be the "Expiration Date." However, at the end of such eighteen
(18) month period and, if extended, at the end of each additional year
thereafter, the term of this Agreement shall be extended automatically
for one (1) additional year, unless the Committee delivers written
notice three (3) months prior to the end of such term, or extended
term, to the Executive, that the Agreement will not be extended. In
such case, the Agreement will terminate at the end of the term, or
extended term, then in progress.

However, in the event a Change-in-Control occurs during the original or
any extended term, this Agreement will remain in effect for the longer
of: (i) eighteen (18) months beyond the month in which such
Change-in-Control occurred; or (ii) until all obligations of the
Company hereunder have been fulfilled, and until all benefits required
hereunder have been paid to the Executive.

Article 7. Arbitration and Legal Fees

7.1. Arbitration. The Executive and the Company agree to have any dispute
or controversy arising under or in connection with this Agreement
settled by arbitration, conducted before an arbitrator or panel of
arbitrators selected in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
award of the arbitrator in any court having proper jurisdiction. The
Executive and the Company agree that any decision rendered in any such
arbitration proceeding shall be final and binding and that each of the
parties waives their rights to seek remedies in court, including the
right to jury trial.

7.2. Payment of Expenses and Legal Fees. All expenses of such arbitration,
including the fees and expenses of the counsel for the Executive and
the Company, shall be borne by the Company and/or the Executive in the
amount determined by the arbitrator.

Article 8. Successors

8.1 Company's Successors. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation, or otherwise)
of all or substantially all the business and/or assets of the Company
or of any division or subsidiary thereof to expressly assume and agree
to perform the Company's obligations under this Agreement in the same
manner and to the same extent that the Company would be required to
perform them if no such succession had taken place. Failure of the
Company to obtain such assumption and agreement prior to the effective
date of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company or
successor entity in the same amount and on the same terms as the
Executive would be entitled to hereunder if the Executive had
terminated the Executive's employment with the Company

Page 11

<PAGE> 15

voluntarily for Good Reason. Except for the purposes of implementing
the foregoing, the date on which any such succession becomes effective
shall be deemed the Effective Date of Termination.

8.2 Executive's Successors. This Agreement shall inure to the benefit of
and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees, and legatees. If the Executive should die while
any amount would still be payable to the Executive hereunder had the
Executive continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement, to the Executive's Beneficiary. If the Executive has not
named a Beneficiary, then such amounts shall be paid to the Executive's
devisee, legatee, or other designee, or if there is no such designee,
to the Executive's estate.

Article 9. Miscellaneous

9.1. Employment Status. The Executive and the Company acknowledge that,
except as may be provided under any other agreement between the
Executive and the Company, the employment of the Executive by the
Company is "at will," and, prior to the effective date of a
Change-in-Control, may be terminated by either the Executive or the
Company at any time. Upon a termination of the Executive's employment
prior to the effective date of a Change-in- Control, there shall be no
further rights under this Agreement; provided, however, that if such an
employment termination shall arise in connection with, or in
anticipation of, a Change-in-Control, then the Executive's rights shall
be the same as if the termination had occurred within eighteen (18)
months following a Change-in-Control.

9.2. Beneficiaries. The Executive may designate one or more persons or
entities as the primary and/or contingent Beneficiaries of any
Severance Benefits owing to the Executive under this Agreement. Such
designation must be in the form of a signed writing acceptable to the
Committee. The Executive may make or change such designation at any
time.

9.3. Entire Agreement. This Agreement contains the entire understanding of
the Company and the Executive with respect to the subject matter
hereof. However, this Agreement shall be in addition to the provisions
set forth in the Executive's post-employment consulting agreement,
dated September 10, 1996, regarding the Executive's entitlement to
payments for the promise to render consulting services for a period of
time following termination of employment.

9.4. Gender and Number. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine, the plural
shall include the singular, and the singular shall include the plural.

9.5. Severability. In the event any provision of this Agreement shall be
held illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining parts of the Agreement,

Page 12

<PAGE> 16

and the Agreement shall be construed and enforced as if the illegal or
invalid provision had not been included. Further, the captions of this
Agreement are not part of the provisions hereof and shall have no force
and effect.

9.6. Modification. No provision of this Agreement may be modified, waived or
discharged unless such modification, waiver, or discharge is agreed to
in writing and signed by the Executive and by authorized member of the
Committee, or by the respective parties' legal representatives and
successors.

9.7. Applicable Law. To the extent not preempted by the laws of the United
States, the laws of the state of Texas shall be the controlling law in
all matters relating to this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement on this _____ day
of __________________, 1997.

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

ATTEST: Equity Corporation International

(Corporate Seal)

By: By:
--------------------------------- ---------------------------------

Page 13

<PAGE> 1

EXHIBIT 21.1

EQUITY CORPORATION INTERNATIONAL

LIST OF SUBSIDIARIES AS OF DECEMBER 31, 1997

<TABLE>
<CAPTION>
STATE OF
COMPANY INCORPORATION
------- -------------
<C> <S> <C>
1. ECI Capital Corporation..................................... DE
2. ECI Capital Corporation Limited............................. AB, Canada
3. ECI-Carr Funeral Home, Inc.................................. DE
4. ECI-Henderson Funeral Home, Inc............................. DE
5. ECI Life Insurance Agency, Inc.............................. MA
6. ECI Management Services Inc................................. DE
7. ECI Services, Inc........................................... DE
8. ECI Services of Canada Limited.............................. SD, Canada
9. Equity Corporation International of Texas................... TX
10. ECI-Chapel Hill, Inc........................................ DE
11. ECI Services of Alabama, Inc................................ DE
12. ECI Services of Arizona, Inc................................ DE
13. ECI Services of Arkansas, Inc............................... DE
14. Nelson Acquisition Company.................................. AR
15. ECI Services of California, Inc............................. DE
16. ECI Services of Connecticut, Inc............................ DE
17. ECI Services of Florida, Inc................................ DE
18. San Jose Funeral Home, Inc.................................. FL
19. Stowers Funeral Home, Inc................................... FL
20. ECI Services of Georgia, Inc................................ DE
21. ECI Services of Illinois, Inc............................... DE
22. ECI Services of Indiana, Inc................................ DE
23. Carmony Funeral Homes, Ltd.................................. IN
24. ECI Services of Iowa, Inc................................... DE
25. Willim Funeral Home, Inc.................................... IA
26. ECI Services of Louisiana, Inc.............................. DE
27. ECI Services of Maine, Inc.................................. DE
28. ECI Services of Massachusetts, Inc.......................... DE
29. ECI Services of Minnesota, Inc.............................. DE
30. ECI Services of Mississippi, Inc............................ DE
31. Waters Funeral Home, Inc.................................... MS
32. ECI Services of Missouri, Inc............................... DE
33. ECI Services of Nebraska, Inc............................... NE
34. ECI Services of New Hampshire, Inc.......................... DE
35. Fleury & Patry Funeral Homes, Inc........................... NH
36. ECI Services of New Jersey, Inc............................. DE
37. H.T. Layton & Son Home for Funerals, Inc.................... NJ
38. ECI Services of New Mexico, Inc............................. DE
39. ECI Services of New York, Inc............................... DE
40. Alvah Halloran and Son, Inc................................. NY
41. Light's Funeral Home, Inc................................... NY
42. Eldan Holding Corp., Inc.................................... NY
43. Daniel J. Schaefer., Inc.................................... NY
44. ECI Services of North Carolina, Inc......................... DE
45. ECI Services of Ohio, Inc................................... DE
</TABLE>
<PAGE> 2

<TABLE>
<CAPTION>
STATE OF
COMPANY INCORPORATION
------- -------------
<C> <S> <C>
46. Hahn Funeral Home, Inc...................................... OH
47. Halteman-Fett & Dyer Funeral Home, Inc...................... OH
48. ECI Services of Oklahoma, Inc............................... DE
49. Altebaumer Funeral Homes, Inc............................... OK
50. Ray Smith Funeral Home, Inc................................. OK
51. ECI Services of South Carolina, Inc......................... DE
52. ECI Services of South Dakota, Inc........................... DE
53. ECI Services of Texas, Inc.................................. DE
54. Gipson Funeral Home, Inc.................................... TX
55. ECI Services of Vermont, Inc................................ DE
56. ECI Services of Virginia, Inc............................... DE
57. ECI Services of West Virginia, Inc.......................... DE
58. ECI Services of Wisconsin, Inc.............................. DE
59. Fuller-Speckien Funeral Home, Inc........................... WI
60. Huntsville Funeral Home, Inc................................ TX
61. ECI Stowers, Inc............................................ DE
62. JPH Properties, Inc......................................... TX
63. Lake View Funeral Home, Inc................................. IL
64. Professional Funeral Associates, Inc........................ TX
65. ECI Cemetery Services, Inc.................................. DE
66. ECI Cemetery Management Services, Inc....................... DE
67. ECI Cemetery Services of Alabama, Inc....................... DE
68. ECI Cemetery Services Arkansas, Inc......................... DE
69. ECI Cemetery Services of California, Inc.................... DE
70. ECI Cemetery Services of Florida, Inc....................... GA
71. Beverly Hills Memorial Gardens, Inc......................... FL
72. ECI Cemetery Services of Georgia, Inc....................... GA
73. ECI Cemetery Services of Illinois, Inc...................... DE
74. Lake View Memorial Gardens, Inc............................. IL
75. ECI Cemetery Services of Iowa, Inc.......................... DE
76. ECI Cemetery Services of Maryland, Inc...................... DE
77. ECI Cemetery Services of Missouri, Inc...................... DE
78. The Oak Hill Realty Company................................. MO
79. ECI Cemetery Services of New Mexico, Inc.................... DE
80. ECI Cemetery Services of North Carolina, Inc................ GA
81. ECI Cemetery Services of Oklahoma, Inc...................... DE
82. ECI Cemetery Services of Oregon, Inc........................ DE
83. ECI Cemetery Services of South Carolina, Inc................ GA
84. ECI Cemetery Services of Tennessee, Inc..................... TN
85. ECI Cemetery Services of Texas, Inc......................... TX
86. Garden of Memories Memorial Park of Lufkin, Inc............. TX
87. ECI Cemetery Services of Virginia, Inc...................... VA
88. ECI-Sunny Lane, Inc......................................... DE
89. Lake View Management Company, Inc........................... DE
</TABLE>

<PAGE> 1

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 Nos. 33-98052 and
333-25303) of our reports dated March 5, 1998, on our audits of the consolidated
financial statements and financial statement schedule of the Company as of
December 31, 1997, and 1996 and for each of the three years in the period ended
December 31, 1997, which reports are included in this Annual Report on Form
10-K.

COOPERS & LYBRAND L.L.P.

Houston, Texas
March 27, 1998

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AND INCOME STATEMENT AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1997, 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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,039
<SECURITIES> 0
<RECEIVABLES> 15,792
<ALLOWANCES> 2,148
<INVENTORY> 9,134
<CURRENT-ASSETS> 34,766
<PP&E> 109,074
<DEPRECIATION> 14,390
<TOTAL-ASSETS> 717,700
<CURRENT-LIABILITIES> 17,100
<BONDS> 171,303
0
0
<COMMON> 211
<OTHER-SE> 226,321
<TOTAL-LIABILITY-AND-EQUITY> 717,700
<SALES> 62,791
<TOTAL-REVENUES> 135,073
<CGS> 19,902
<TOTAL-COSTS> 97,413
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,147
<INTEREST-EXPENSE> 6,331
<INCOME-PRETAX> 23,769
<INCOME-TAX> 9,070
<INCOME-CONTINUING> 14,699
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,699
<EPS-PRIMARY> .71
<EPS-DILUTED> .70

</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEETS AND INCOME STATEMENTS AS OF AND FOR THE PERIODS
INDICATED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>

<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS YEAR 9-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> SEP-30-1997 JUN-30-1997 DEC-31-1996 SEP-30-1996 JUN-30-1996
<CASH> 7,407 6,845 12,654 4,900 14,607
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 12,549 10,296 8,908 6,785 5,441
<ALLOWANCES> 2,499 2,023 1,416 1,219 1,026
<INVENTORY> 7,791 7,152 6,029 6,008 5,542
<CURRENT-ASSETS> 29,114 26,215 29,558 19,777 26,760
<PP&E> 101,967 87,159 67,210 62,368 53,757
<DEPRECIATION> 13,186 11,914 9,947 9,532 8,864
<TOTAL-ASSETS> 636,285 570,973 443,891 400,377 358,146
<CURRENT-LIABILITIES> 12,890 11,334 10,379 8,856 7,807
<BONDS> 136,513 98,226 49,197 28,902 10,845
0 0 0 0 0
0 0 0 0 0
<COMMON> 208 208 193 192 128
<OTHER-SE> 215,041 211,677 177,271 171,688 169,462
<TOTAL-LIABILITY-AND-EQUITY> 636,285 570,973 443,891 400,377 358,146
<SALES> 45,639 29,710 41,772 30,206 20,729
<TOTAL-REVENUES> 96,317 63,166 91,974 65,658 44,606
<CGS> 14,067 9,170 12,610 8,959 5,773
<TOTAL-COSTS> 69,540 44,831 65,837 46,895 31,086
<OTHER-EXPENSES> 0 0 0 0 0
<LOSS-PROVISION> 810 512 486 508 332
<INTEREST-EXPENSE> 3,758 1,924 2,374 1,690 1,487
<INCOME-PRETAX> 17,349 12,577 17,915 12,703 9,153
<INCOME-TAX> 6,629 5,031 7,589 5,709 4,271
<INCOME-CONTINUING> 10,720 7,546 10,326 6,994 4,882
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 10,720 7,546 10,326 6,994 4,882
<EPS-PRIMARY> .52 .37 0.58<F1> .40 .45
<EPS-DILUTED> .51 .36 0.57 .40 .44
<FN>
<F1>Includes effect of a 3-for-2 stock split in October 1996. Prior Financial Data
Schedules have not been restated for this recapitalization.
</FN>

</TABLE>