Exhibit 10.4

EXECUTION VERSION

SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) is made
by and between Carriage Services, Inc., a Delaware corporation (the “Company”)
and George J. Klug, a resident of Montgomery County, Texas (“Employee”).
Employee and the Company are referred to individually herein as a “Party” and
collectively as the “Parties.”

W I T N E S S E T H:

WHEREAS, Employee is employed by the Company pursuant to that certain First
Amended and Restated Employment Agreement dated January 4, 2011 (the “Prior
Agreement”); and

WHEREAS, the Parties wish to restate the terms of Employee’s employment with the
Company and enter into this Agreement, which shall supersede and replace the
Prior Agreement; and

WHEREAS the Company desires to continue to employ Employee, and Employee desires
to continue to be employed by the Company, on the terms and conditions, and for
the consideration, set forth herein.

NOW, THEREFORE, for and in consideration of the mutual promises, covenants and
obligations contained herein, the Company and Employee agree as follows:

ARTICLE I

EMPLOYMENT AND DUTIES

1.1 Employment; Effective Date. The Company agrees to employ Employee and
Employee agrees to be employed by Company, on the terms herein, beginning as of
March 14, 2012 (the “Effective Date”) and continuing for the period of time set
forth in Article II of this Agreement, subject to the terms and conditions of
this Agreement.

1.2 Positions. From and after the Effective Date, Employee shall be employed in
the position of Senior Vice President of the Company or in such other position
or positions as the parties mutually may agree, and Employee shall report to the
Chief Executive Officer of the Company.

1.3 Duties and Services. Employee agrees to serve in the position(s) referred to
in Section 1.2 and to perform diligently and to the best of Employee’s abilities
the duties and services appertaining to such positions, as well as such
additional duties and services appropriate to such positions which the parties
mutually may agree upon from time to time. Employee’s employment shall also be
subject to the policies maintained and established by the Company, as such
policies may be amended from time to time.

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1.4 Other Interests. Employee agrees, during the period of his employment by the
Company, to devote his full business time, energy and attention to the business
and affairs of the Company and its affiliates, if applicable. Employee may serve
on corporate, industry, civic, religious or charitable boards or committees
without violating this Section 1.4 so long as such activities do not violate the
terms of Articles IV or VI of this Agreement, present a conflict of interest, or
interfere in any material respect with the performance of the Employee’s duties
and responsibilities pursuant to this Agreement; provided, further that any
service by Employee on a board or committee of a for-profit entity shall be
subject to the prior approval of the Board of Directors of the Company (the
“Board”).

1.5 Duty of Loyalty. Employee acknowledges that Employee owes a fiduciary duty
of loyalty, fidelity and allegiance to act in the best interests of the Company
and to do no act that would injure the business, interests, or reputation of the
Company or its Affiliates. Consistent with those duties, Employee agrees to
disclose to the Company all business opportunities pertaining to the Company’s
business and shall not appropriate (directly or indirectly) for Employee’s own
benefit business opportunities concerning the Company’s business. If Employee’s
other business interests present a conflict of interest with the Company’s
business, Employee shall fully disclose the conflict.

ARTICLE II

TERM AND TERMINATION OF EMPLOYMENT

2.1 Term. Unless sooner terminated pursuant to other provisions hereof, the
Company agrees to employ Employee for the period beginning on the Effective Date
and ending on the third anniversary of the Effective Date (the “Initial
Period”); provided, however, that on the third anniversary of the Effective Date
and each anniversary thereafter, this Agreement shall automatically renew for an
additional, one-year renewal period (each a “Renewal Period”) unless, on or
before the date that is sixty (60) days before the expiration of the
then-existing Initial Period or Renewal Period, either party provides the other
party with notice that no such renewal shall occur.

2.2 Company’s Right to Terminate. Notwithstanding the provisions of Section 2.1,
Employee’s employment by the Company shall automatically terminate upon the
death of Employee, and the Company shall have the right to terminate Employee’s
employment under this Agreement at any time for any of the following reasons:

(a) upon Employee’s becoming incapacitated by accident, sickness or other
circumstance which has rendered him mentally or physically incapable of
performing the duties and services required of him hereunder on a full-time
basis for a period of at least 180 consecutive days (the Employee’s
“Disability”);

(b) for “Cause,” which for purposes of this Agreement shall mean: (i) Employee’s
conviction of, or plea of no contest to, a misdemeanor involving moral turpitude
or a felony, (ii) Employee’s repeated failure or refusal to perform all of his
duties, obligations and agreements herein contained or imposed by law, including
his fiduciary duties, to the reasonable satisfaction of the Board;
(iii) Employee’s commission of acts amounting to gross negligence or willful
misconduct to the material detriment of the Company; or (iv) Employee’s material
breach of any provision of this Agreement or uniformly applied provision of the
Company’s employee handbook or other personnel policies, including without
limitation, its Code of Business Conduct and Ethics. Such

 

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determination of “Cause” shall be made by the Board and, in the event of
circumstances described in (ii) or (iv), the Board shall give written notice to
Employee specifying such circumstances and providing a period of 30 days in
which Employee shall be allowed to cure such circumstances if capable of cure.

(c) at any time for any other reason whatsoever or for no reason at all, in the
sole discretion of the Company.

2.3 Employee’s Right to Terminate. Notwithstanding the provisions of
Section 2.1, Employee shall have the right to terminate his employment under
this Agreement for any of the following reasons:

(a) for “Good Reason,” which for purposes of this Agreement shall mean
termination of Employee’s employment, within 120 days of, and in connection with
or based upon, without Employee’s prior written consent, (i) a material breach
by the Company of any material provision of this Agreement, (ii) any material
diminution of Employee’s Base Salary, (iii) any material diminution in
Employee’s authority, duties or responsibilities; or (iv) the Company requiring
Employee to relocate to a primary place of employment that is located more than
fifty (50) miles outside of the location at which Employee is primarily based as
of the Effective Date; provided, however, that, prior to Employee’s termination
of employment under this Section 2.3(a), Employee must give written notice to
the Company of any Good Reason event within 90 days after Employee has actual
knowledge of the facts or circumstances giving rise thereto and such breach must
remain uncorrected for 30 days following such written notice; or

(b) at any time for any other reason whatsoever or for no reason at all.

2.4 Notice of Termination and Effective Date of Termination.

(a) Notice of Termination. If the Company or Employee desires to terminate
Employee’s employment hereunder, it or he shall do so by giving written notice
to the other Party that it or he has elected to terminate Employee’s employment
hereunder and stating the effective date of the termination and reason for such
termination; provided, however, that in the event that Employee has provided
notice to Company of his termination of employment, the Company may determine,
in its sole discretion, that such termination shall be effective on any date
prior to the effective date of termination provided in such notice (and, if such
earlier date is so required, then it shall not change the basis for Employee’s
termination of employment nor be construed or interpreted as a termination of
employment pursuant to Section 2.2). No action by either party pursuant to this
Section 2.4(a) shall alter or amend any other provisions hereof or rights
arising hereunder, including, without limitation, the provisions of Articles IV,
V and VI hereof.

(b) Date of Termination. The effective date of Employee’s termination will be as
follows: (i) if Employee’s employment is terminated by his death, the date of
his death; (ii) if Employee’s employment is terminated by Company for any
reason, then the date specified in the notice of termination delivered to
Employee by Company; (iii) if Employee’s employment is terminated by Employee
pursuant to Section 2.3 above, then,

 

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unless Company exercises its right pursuant to Section 2.4(a) above to specify
an earlier date, the date specified in the notice of such termination delivered
to Company by Employee; or (iv) if Employee’s employment is terminated due to
the issuance of a non-renewal by one party to the other, then the date on which
the Initial Period or Renewal Period in which such notice was given expires.

2.5 Deemed Resignations. Unless otherwise agreed to in writing by the Parties
prior to the termination of Employee’s employment, any termination of Employee’s
employment shall constitute an automatic resignation of Employee (i) as an
officer of the Company and each Company Affiliate (if applicable), (ii) from the
Board (if applicable) and from the board of directors (or similar governing
body) of each of Company’s Affiliates (if applicable), and (iii) from the board
of directors (or similar governing body) of any corporation, limited liability
company or other entity in which the Company holds an equity interest and with
respect to which board (or similar governing body) Employee serves as a designee
or other representative of the Company.

2.6 Separation from Service. For purposes of this Agreement, references to
Employee’s termination of employment shall mean, and be interpreted in
accordance with, Employee’s “separation from service” from the Company within
the meaning of Treasury Regulation § 1.409A-1(h)(1)(ii).

ARTICLE III

COMPENSATION AND BENEFITS

3.1 Base Salary. During the period that he is employed hereunder, Employee shall
receive an annualized base salary of $240,000 (the “Base Salary”). Employee’s
Base Salary will be reviewed annually, and any increase therein shall remain in
the sole discretion of the Board, acting through its Compensation Committee (the
“Compensation Committee”). Employee’s Base Salary shall be paid in equal
installments in accordance with Company’s standard policy regarding payment of
compensation to similarly situated employees, but no less frequently than
monthly.

3.2 Annual Bonuses. For each complete calendar year that he is employed
hereunder, Employee shall be eligible to receive such annual bonus as may be
determined in the Company’s discretion (each an “Annual Bonus”) after
considering specified corporate and individual performance goals established by
the Compensation Committee at its first meeting of the fiscal year. The goals
for the Annual Bonus will be established at three levels: (i) threshold;
(ii) target; and (iii) maximum. If the Compensation Committee determines that
performance is achieved (i) at the threshold level, the Annual Bonus shall be
22.5% of the Base Salary; (ii) at the target level, the Annual Bonus shall be
45% of the Base Salary; and (iii) at the maximum level, the Annual Bonus shall
be 90% of the Base Salary. In the discretion of the Compensation Committee,
Annual Bonuses for performance falling between threshold, target and maximum
goals may be ratably scaled above and below the goal levels. The Annual Bonus
shall be payable before March 15 of the year following the calendar year to
which the Annual Bonus relates, following the certification of applicable
year-end financial results. Employee must be employed by the Company on the
payment date in order to earn and receive an Annual Bonus.

 

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3.3 Expenses. The Company shall promptly reimburse Employee for all reasonable
business expenses incurred by Employee in performing services hereunder,
including all expenses of travel and lodging expenses while away from home on
business or at the request of the Company; provided, in each case, that such
expenses are incurred and accounted for in accordance with the policies and
procedures established by the Company from time to time. Any such reimbursement
of expenses shall be made by the Company upon or as soon as practicable
following receipt of supporting documentation reasonably satisfactory to the
Company (but in any event not later than the close of Employee’s taxable year
following the taxable year in which the expense is incurred by Employee). In no
event shall (i) any reimbursement under this Section 3.3 be made to Employee for
such expenses incurred after the date of Employee’s termination of employment
with the Company, (ii) Employee be permitted to receive a payment or other
benefit in lieu of reimbursement, or (iii) the amount of expenses for which
Employee is eligible to receive reimbursement during any calendar year effect
the amount of expenses for which Employee is eligible to receive reimbursement
during any other calendar year within the term of this Agreement.

3.4 Vacation. During Employee’s employment hereunder, Employee shall be entitled
to five (5) weeks paid vacation each calendar year, subject to the Company’s
vacation policies as may exist from time to time.

3.5 Incentive Plans. Employee shall be eligible for consideration of awards of
restricted stock or other incentive-based compensation under the terms of the
Company’s 2006 Long Term Incentive Plan or one or more of the Company’s other
incentive plans, as may be recommended and approved by the Compensation
Committee.

3.6 Other Benefits and Perquisites. During Employee’s employment hereunder, and
subject to the terms and conditions of the applicable plans and programs,
Employee and, to the extent applicable, Employee’s spouse, dependents and
beneficiaries, shall be eligible to participate in all benefit plans and
programs of the Company, including improvements or modifications of the same,
which are now, or may hereafter be, available to similarly situated employees of
the Company. The Company shall not, however, by reason of this Section 3.6, be
obligated to institute, maintain, or refrain from changing, amending, or
discontinuing, any such plan or program.

ARTICLE IV

PROTECTION OF INFORMATION

4.1 Access to Information. The Company shall, during the time that Employee is
employed by the Company, (a) disclose or entrust to Employee, and provide
Employee access to, or place Employee in a position to create or develop, trade
secrets or Confidential Information belonging to the Company, (b) place Employee
in a position to develop business goodwill belonging to the Company and
(c) disclose or entrust to Employee business opportunities to be developed for
the Company.

 

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4.2 Disclosure to and Property of Company. All information, trade secrets,
designs, ideas, concepts, improvements, product developments, discoveries and
inventions, whether patentable or not, that are conceived, made, developed or
acquired by, or disclosed to, Employee, individually or in conjunction with
other employees or agents of the Company during the term and in the scope of his
employment that relate to Company’s business, products or services (including,
without limitation, all such information relating to corporate opportunities,
research, financial, accounting and sales data, pricing terms, evaluations,
opinions, interpretations, analyses, reports, operating techniques, employee
lists, training methods and procedures, personnel evaluation procedures,
acquisition prospects, the identity of customers or their requirements, the
identity of key contacts within the customer’s organizations or within the
organization of acquisition prospects, or marketing and merchandising
techniques, prospective names and marks) and all writings or materials of any
type embodying any of such information, ideas, concepts, improvements,
discoveries, inventions and other similar forms of expression (collectively,
“Confidential Information”) shall be disclosed to the Company, and are and shall
be the sole and exclusive property of the Company. Employee agrees to perform
all actions reasonably requested by the Company to establish and confirm such
exclusive ownership. Upon termination of Employee’s employment by the Company,
for any reason, Employee promptly shall deliver such Confidential Information
and work product, and all copies thereof, to the Company. “Confidential
Information” does not, however, include any information that, at the time of
disclosure by Employee, is available to the public other than as a result of any
act of Employee in breach of this Agreement.

4.3 No Unauthorized Use or Disclosure. Employee agrees that Employee will
preserve and protect the confidentiality of all Confidential Information and
work product of the Company, and will not, at any time during or after the
termination of Employee’s employment with the Company, make any unauthorized
disclosure of, and shall not remove from Company premises, and will use his best
efforts to prevent the removal from Company premises of, Confidential
Information, or make any use thereof, in each case, except in the carrying out
of Employee’s responsibilities hereunder. Employee shall inform all persons or
entities to whom or to which any Confidential Information shall be disclosed by
him in accordance with this Agreement about the confidential nature of such
Confidential Information, and Employee shall ensure that such Confidential
Information is identified as being confidential, and shall call such identifying
mark to such recipient’s attention. Employee shall have no obligation hereunder
to keep confidential any Confidential Information if and to the extent
disclosure thereof is specifically required by law; provided, however, that in
the event disclosure is required by applicable law and Employee is making such
disclosure, Employee shall provide the Company with prompt notice of such
requirement, and shall use his commercially reasonable efforts to give such
notice prior to making any disclosure, so that the Company may seek an
appropriate protective order. At the request of the Company, Employee agrees to
deliver to the Company, at any time during the term of employment, or
thereafter, all Confidential Information that he may possess or control.

4.4 Ownership by Company. If, during Employee’s employment by the Company,
Employee creates any original work of authorship fixed in any tangible medium of
expression which is the subject matter of copyright relating to the business,
products, or services of the Company, whether such work is created solely by
Employee or jointly with others (whether during business hours or otherwise and
whether on the Company’s premises or otherwise), Employee shall disclose such
work to the Company. The Company shall be deemed the author of such work if the
work is prepared by Employee in the scope of Employee’s employment; or, if

 

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the work is not prepared by Employee within the scope of Employee’s employment
but is specially ordered by the Company as a contribution to a collective work,
then the work shall be considered to be work made for hire and the Company shall
be the author of the work. If such work is neither prepared by Employee within
the scope of Employee’s employment nor a work specially ordered and is deemed to
be a work made for hire, then Employee hereby agrees to assign, and hereby does
assign, to the Company all of Employee’s worldwide rights, titles, and interests
in and to such work and all rights of copyright therein.

4.5 Assistance by Employee. During the period of Employee’s employment by the
Company, Employee shall assist the Company and its nominee, at any time, in the
protection of the Company’s and its nominee’s worldwide right, title and
interest in and to Confidential Information and shall execute all formal
assignment documents and all lawful oaths and applications for patents and
registration of copyright in the United States and foreign countries as
requested by the Company or its nominee. After Employee’s employment with the
Company terminates, at the request and cost of the Company, Employee shall
reasonably assist the Company and its nominee, at reasonable times and for
reasonable periods and for reasonable compensation, in the protection of the
Company’s or its nominee’s worldwide right, title and interest in and to
Confidential Information and the execution of all formal assignment documents
requested by the Company or its nominee and the execution of all lawful oaths
and applications for patents and registration of copyright in the United States
and foreign countries, all as may be requested by the Company from time to time.

4.6 Remedies. Employee acknowledges that money damages would not be sufficient
remedy for any breach of this Article IV by Employee, and the Company shall be
entitled to enforce the provisions of this Article IV by obtaining specific
performance and injunctive relief as remedies for such breach or any threatened
breach, which such remedies shall be in addition to all other remedies available
to the Company at law and equity. Each affiliate of the Company shall be a third
party beneficiary of Employee’s obligations under this Article IV and, for
purposes of this Article IV, the term “Company” shall be deemed to also include
the Company’s Affiliates.

ARTICLE V

EFFECT OF TERMINATION ON COMPENSATION

5.1 Due to Employee’s Death. If Employee’s employment hereunder shall terminate
due to Employee’s death, then all compensation and all benefits to Employee
hereunder shall terminate contemporaneously with the effective date of the
termination of his employment, except that the Company shall pay to Employee’s
estate: (a) that portion of Employee’s Base Salary accrued through the date on
which Employee’s death occurred and all benefits payable under the governing
provisions of any benefit plan or program of the Company in which Employee
participated; and (b) a pro rata amount of the Annual Bonus for the year in
which the death occurred, which such pro rata bonus shall be at the target level
described in Section 3.2 above and based on the number of days Employee was
employed in the applicable calendar year in comparison to 365. Such payments
pursuant to this Section 5.1 shall be made in the same manner and at the same
times as they would have been paid to Employee had he remained employed by the
Company.

 

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5.2 Due to Employee’s Disability. If Employee’s employment hereunder shall
terminate due to Employee’s Disability as set forth in Section 2.2(a) above,
then all compensation and all benefits to Employee hereunder shall terminate
contemporaneously with the effective date of the termination of his employment,
except that the Company shall pay to Employee: (a) that portion of Employee’s
Base Salary accrued through the date on which Employee’s employment terminated
and all benefits payable under the governing provisions of any benefit plan or
program of the Company in which Employee participated; and (b) subject to
Section 5.7 below, a pro rata amount of the Annual Bonus for the year in which
the termination of employment occurred, which such pro rata bonus shall be at
the target level described in Section 3.2 above and based on the number of days
Employee was employed in the applicable calendar year in comparison to 365,
which such pro rata amount of the Annual Bonus shall be provided on the later of
the first business day after the Release (as defined in Section 5.7 below) is no
longer revocable or the payment date that an Annual Bonus for the year of
termination otherwise would have been payable pursuant to Section 3.2 above had
Employee’s employment not terminated (provided, that, in no event shall such
payment occur later than the date necessary to qualify such payment as a
“short-term deferral” within the meaning of Treas. Reg. § 1.409A-1(b)(4)).

5.3 Termination for Cause or Resignation By Employee. If Employee’s employment
hereunder is terminated: (i) by the Company for Cause at any time pursuant to
Section 2.2(b) above; or (ii) is terminated by Employee pursuant to Section 2.3
above and the date of such termination occurs at any time other than during a
Corporate Change Period (as defined below), then all compensation and all
benefits to Employee hereunder shall terminate contemporaneously with the
effective date of the termination of his employment, except that the Company
shall pay to Employee that portion of Employee’s Base Salary accrued through the
date on which Employee’s employment terminated and all benefits payable under
the governing provisions of any benefit plan or program of the Company in which
Employee participated.

5.4 Termination By the Company Without Cause. If Employee’s employment hereunder
is terminated by the Company without Cause (and not due to Employee’s death or
Disability or due to the issuance of a non-renewal by the Company pursuant to
Section 2.1) pursuant to Section 2.2(c) above, and such termination does not
occur within a Corporate Change Period then all compensation and all benefits to
Employee hereunder shall terminate contemporaneously with the effective date of
the termination of his employment, except that the Company shall pay to Employee
that portion of Employee’s Base Salary accrued through the date on which
Employee’s employment terminated and all benefits payable under the governing
provisions of any benefit plan or program of the Company in which Employee
participated. In addition, subject to Section 5.7 below, the Company shall
provide Employee:

(a) an amount equal to 45% of Base Salary, multiplied by a fraction, the
numerator of which is the number of days Employee was employed by the Company in
the calendar year of Employee’s termination, and the denominator of which is
365, which amount shall be paid on the later of the first business day after the
Release is no longer revocable or the payment date that an Annual Bonus for the
year of termination otherwise would have been payable pursuant to Section 3.2
above had Employee’s employment not terminated (provided, that, in no event
shall such payment occur later than the date necessary to qualify such payment
as a “short-term deferral” within the meaning of Treas. Reg. § 1.409A-1(b)(4));

 

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(b) continued payment of Employee’s monthly Base Salary, in arrears, for a
period of 18 months following the date of termination; provided, however, that
the first such payment shall be made on the Company’s first regular payroll date
that comes after the Release is no longer revocable (the “First Payment Date”)
and shall include all payments, if any, without interest, that would have
otherwise been made pursuant to this Section 5.4(b) between the date of
Employee’s termination of employment and the First Payment Date; and

(c) for that period beginning on the date of the termination of Employee’s
employment and for so long during the 18-month period following the date of
termination that Employee remains eligible to receive, and elects to receive,
continuation of coverage under a Company group health plan under the
Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the Company
shall provide reimbursement of the premiums paid by Employee, if any, for such
continuation coverage; provided, however, that to receive such reimbursement,
Employee must not be eligible to receive health insurance benefits under any
other employer’s group health plan and Employee must provide Company with
documentation evidencing his payment of the applicable premiums within thirty
(30) days of their payment. The Company’s payments of COBRA reimbursements shall
be made within thirty (30) days of its receipt of such documentation; provided,
however, the Company will provide the first COBRA reimbursement referenced in
this Section 5.4(c) after the Release has been executed by Employee and become
irrevocable, and the first such reimbursement payment shall include all
payments, without interest, that otherwise would have been made pursuant to this
Section 5.4(c) between the date of Employee’s termination of employment and the
date that the Release became irrevocable.

5.5 Termination By the Company Without Cause or By Employee for Good Reason
Within a Corporate Change Period. If, within the period that begins the date of
a Corporate Change (as defined below) and ends on the date that is 24 months
after the date of a Corporate Change (the “Corporate Change Period”), Employee’s
employment is terminated: (i) by the Company for any reason (other than Cause or
Employee’s death or due to the issuance of a non-renewal by the Company pursuant
to Section 2.1); or (ii) by Employee pursuant to Section 2.3(a) above, then all
compensation and all benefits to Employee hereunder shall terminate
contemporaneously with the effective date of the termination of his employment,
except that the Company shall pay to Employee that portion of Employee’s Base
Salary accrued through the date on which Employee’s employment terminated and
all benefits payable under the governing provisions of any benefit plan or
program of the Company in which Employee participated. In addition, subject to
Section 5.7 below, the Company shall provide Employee:

(a) a lump sum payment equal to the sum of (i) 1.5 times Employee’s annual Base
Salary, plus (ii) 1 times Employee’s target Annual Bonus, which such payment
shall be made on the First Payment Date; and

 

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(b) for that period beginning on the date of the termination of Employee’s
employment and for so long during the 36-month period following the date of
termination that Employee remains eligible to receive, and elects to receive,
continuation of coverage under a Company group health plan under the
Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the Company
shall provide reimbursement of the premiums paid by Employee, if any, for such
continuation coverage; provided, however, that to receive such reimbursement,
Employee must not be eligible to receive health insurance benefits under any
other employer’s group health plan and Employee must provide Company with
documentation evidencing his payment of the applicable premiums within thirty
(30) days of their payment. The Company’s payments of COBRA reimbursements shall
be made within thirty (30) days of its receipt of such documentation; provided,
however, the Company will provide the first COBRA reimbursement referenced in
this Section 5.5(b) after the Release has been executed by Employee and become
irrevocable, and the first such reimbursement payment shall include all
payments, without interest, that otherwise would have been made pursuant to this
Section 5.5(b) between the date of Employee’s termination of employment and the
date that the Release became irrevocable.

As used herein, a “Corporate Change” means: (a) the dissolution or liquidation
of the Company; (b) a reorganization, merger or consolidation of the Company
with one or more corporations (other than a merger or consolidation effecting a
reincorporation of the Company in another state or any other merger or
consolidation in which the stockholders of the surviving corporation and their
proportionate interests therein immediately after the merger or consolidation
are substantially identical to the stockholders of the Company and their
proportionate interests therein immediately prior to the merger or
consolidation) (collectively, a “Corporate Change Merger”); (c) the sale of all
or substantially all of the assets of the Company; or (d) the occurrence of a
Change in Control. A “Change in Control” shall be deemed to have occurred if
(a) individuals who were directors of the Company immediately prior to a Control
Transaction shall cease, within two years of such Control Transaction to
constitute a majority of the Board (or of the board of directors of any
successor to the Company or to a company which has acquired all or substantially
all its assets) other than by reason of an increase in the size of the
membership of the applicable board that is approved by at least a majority of
the individuals who were directors of the Company immediately prior to such
Control Transaction; or (b) any entity, person or Group acquires shares of the
Company in a transaction or series of transactions that result in such entity,
person or Group directly or indirectly owning beneficially 50% or more of the
outstanding shares of Common Stock. As used herein, “Control Transaction” means
(a) any tender offer for or acquisition of capital stock of the Company pursuant
to which any person, entity, or Group directly or indirectly acquires beneficial
ownership of 20% or more of the outstanding shares of Common Stock; (b) any
Corporate Change Merger of the Company; (c) any contested election of directors
of the Company; or (d) any combination of the foregoing, any one of which
results in a change in voting power sufficient to elect a majority of the Board.
As used herein, “Group” means persons who act “in concert” as described in
Sections 13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of 1934, as
amended. As used herein, “Common Stock” means the common stock of the Company,
$.01 par value per share, or any stock or other securities hereafter issued or
issuable in substitution or exchange for the Common Stock.

 

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5.6 Consequences to Equity Awards. The impact of a Corporate Change and/or
Employee’s termination from employment with the Company on stock option,
restricted stock and other share-based awards made pursuant to a Company
incentive plan shall be governed by the terms of such plan. Where, in the
discretion of the Company, the applicable plan(s) is/are silent about the impact
of a Corporate Change and/or Employee’s termination from employment on the
vesting of Employee’s stock option, restricted stock and other share-based
awards following such Corporate Change and/or termination of employment, then
the following terms shall apply with respect to the applicable vested and
unvested stock options, restricted stock and other share-based awards awarded to
Employee:

 

Reason for Termination

  

Stock Options

   Restricted Stock    Other share-based awards Termination by the Company for
Cause pursuant to Section 2.2(b) above    Forfeit all unvested awards    Forfeit
all unvested awards    Forfeit all unvested awards Involuntary Termination by
the Company without Cause (and not due to death or Disability) pursuant to
Section 2.2(c) above or by Employee for Good Reason pursuant to Section 2.3(a)
above (other than during the Corporate Change Period)    Forfeit all unvested
awards; Employee has 3 months from the date of termination to exercise all
vested awards    Forfeit all unvested awards    Forfeit all unvested awards
Voluntary Termination By Employee (not for Good Reason) pursuant to
Section 2.3(b) above    Forfeit all unvested awards; Employee has 3 months from
the date of termination to exercise all vested awards    Forfeit all unvested
awards    Forfeit all unvested awards

 

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Termination during the Corporate Change Period for one of the reasons specified
in Section 5.5 above    Immediate vesting of all unvested awards; Employee has 3
months from the date of termination to exercise all vested awards    Immediate
vesting of all
unvested awards    Payouts made within 60
days following the end of
the performance period as if
Employee had been
employed during the
entirety of the period,
provided that applicable
performance targets have
been met Death    Immediate vesting of all unvested awards; Employee’s estate
has 12 months to exercise all vested awards    Immediate vesting of all
unvested awards    Awards will be prorated
based on termination date
and prorated payouts will be
made within 60 days
following the end of the
performance period,
provided that applicable
performance targets have
been met Disability    Immediate vesting of all unvested awards; Employee has 12
months to exercise all vested awards    Immediate vesting of all
unvested awards    Awards will be prorated
based on termination date
and prorated payouts will be
made within 60 days
following the end of the
performance period,
provided that applicable
performance targets have
been met Retirement pursuant to a plan or policy adopted by the Company, if any,
or on terms approved by the Board of Directors    Forfeit all unvested awards;
Employee has 3 months to exercise all vested awards    Immediate vesting of all
unvested awards    Awards will be prorated
based on termination date
and prorated payouts will be
made within 60 days
following the end of the
performance period,
provided that applicable
performance targets have
been met.

5.7 Release and Full Settlement. Anything to the contrary herein
notwithstanding, as a condition to the receipt of any payment or benefit under
Section 5.2(b), 5.4(a)-(c) or 5.5(a)-(b), Employee shall first execute (and not
revoke within 7 days of execution) a release of all claims in a form acceptable
to the Company (the “Release”), which such Release shall release the Company,
its affiliates and their respective shareholders, members, partners, Board
members, officers, directors, employees and agents from any and all claims,
including without limitation any and all causes of action arising out of
Employee’s employment with the Company and the termination of such employment,
but excluding (a) all claims to severance payments Employee may have under
Sections 5.2(b), 5.4(a)-(c) or 5.5(a)-(b) above, and (b) all vested benefits to
which Employee is entitled under the Company’s employee benefit plans. The
performance of Company’s obligations hereunder and Employee’s receipt of any
payments or benefits provided to Employee hereunder shall constitute full
settlement of all such claims and causes of action. The Release must be executed
by Employee no later than 50 days following the date of

 

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termination of his employment (or earlier if requested by the Company and
permitted by applicable law). Employee acknowledges Employee’s understanding
that if the applicable Release is not timely executed, and the required
revocation period has not fully expired, Employee shall not be entitled to any
payment under Sections 5.2(b), 5.4(a)-(c) or 5.5(a)-(b) above. Notwithstanding
anything to the contrary in this Section 5, in the event the time period
(including any applicable revocation period) prescribed by the Company for
Employee’s execution of the Release begins in one taxable year and ends in a
second taxable year, payments under Section 5.4 or 5.5 will not commence and the
First Payment Date shall not occur until the second taxable year, irrespective
of when the Release actually becomes irrevocable.

5.8 Reduction of Payments. Notwithstanding anything to the contrary in this
Agreement, if Employee is a “disqualified individual” (as defined in
Section 280G(c) of the Internal Revenue Code of 1986, as amended (the “Code”)),
and the payments and benefits provided for in this Agreement, together with any
other payments and benefits which Employee has the right to receive from the
Company or any of its affiliates, would constitute a “parachute payment” (as
defined in Section 280G(b)(2) of the Code), then the payments and benefits
provided for in this Agreement shall be reduced (but not below zero) so that the
present value of such total amounts and benefits received by Employee from the
Company and its affiliates will be one dollar ($1.00) less than three times
Employee’s “base amount” (as defined in Section 280G(b)(3) of the Code) and so
that no portion of such amounts and benefits received by Employee shall be
subject to the excise tax imposed by Section 4999 of the Code. The reduction of
payments and benefits hereunder, if applicable, shall be made by reducing,
first, payments or benefits to be paid in cash hereunder in the order in which
such payment or benefit would be paid or provided (beginning with such payment
or benefit that would be made last in time and continuing, to the extent
necessary, through to such payment or benefit that would be made first in time)
and, then, reducing any benefit to be provided in-kind hereunder in a similar
order. The determination as to the extent of any such reduction in the amount of
the payments and benefits provided hereunder shall be made by the Company in
good faith. If a reduced payment or benefit is made or provided and through
error or otherwise that payment or benefit, when aggregated with other payments
and benefits from the Company (or its affiliates) used in determining if a
“parachute payment” exists, exceeds one dollar ($1.00) less than three times
Employee’s base amount, then Employee shall immediately repay such excess to the
Company upon notification that an overpayment has been made. Nothing in this
Section 5.8 shall require the Company to be responsible for, or have any
liability or obligation with respect to, Employee’s excise tax liabilities under
Section 4999 of the Code, if any.

ARTICLE VI

NON-COMPETITION AGREEMENT

6.1 Restrictive Covenants. The Company has provided and shall provide in the
future to Employee, Confidential Information. Employee acknowledges that in the
course of his employment with the Company as a member of the Company’s senior
executive and management team, he has been given, and in the future shall be
given, possession of and access to Confidential Information of the Company.
Employee further acknowledges that, in the course of his employment with the
Company, he has been given contacts within the death care industry, and he has
been and shall be identified with the business and goodwill of the Company.
Consequently, it is important that the Company protect its interests in regard
to such matters

 

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from unfair competition. In consideration of the Confidential Information that
has been received and that the Company covenants to provide Employee in the
future, the sufficiency of which is hereby acknowledged by Employee, and in
order to protect the Company’s legitimate business interests, including the
preservation of its Confidential Information and goodwill, Employee agrees to
enter into the covenants contained in this Article VI. The Parties therefore
agree that for so long as the Employee shall remain employed by the Company and,
if the employment of the Employee ceases for any reason (including voluntary
resignation), then for a period of two (2) years thereafter (the “Prohibited
Period”), the Employee shall not, directly or indirectly:

(a) alone or for his own account, or as an officer, director, shareholder,
partner, member, trustee, employee, consultant, advisor, agent or any other
capacity of any corporation, partnership, joint venture, trust, or other
business organization or entity, encourage, support, finance, be engaged in,
interested in, or concerned with (i) any of the companies and entities described
on Schedule I hereto, except to the extent that any activities in connection
therewith are confined exclusively outside the continental United States, or
(ii) any other business within the death care industry having an office or being
conducted within a radius of fifty (50) miles of any funeral home, cemetery or
other death care business owned or operated by the Company or any of its
Affiliates at the time of such termination;

(b) induce or assist anyone in inducing in any way any employee of the Company
or any of its Affiliates to resign or sever his or her employment or to breach
an employment contract with the Company or any Affiliate; or

(c) own, manage, advise, encourage, support, finance, operate, join, control, or
participate in the ownership, management, operation, or control of, or be
connected in any manner with, any business which is or may be in the funeral,
mortuary, crematory, cemetery or burial insurance business or in any business
related thereto (i) as part of any of the companies or entities listed on
Schedule I, or (ii) otherwise within a radius of fifty (50) miles of any funeral
home, cemetery or other death care business owned or operated by the Company or
any of its Affiliates at the time of such termination.

Notwithstanding the foregoing, the above covenants shall not prohibit the
passive ownership of not more than one percent (1%) of the outstanding voting
securities of any entity within the death care industry. The foregoing covenants
shall not be held invalid or unenforceable because of the scope of the territory
or actions subject hereto or restricted hereby, or the period of time within
which such covenants respectively are operative, but the maximum territory, the
action subject to such covenants and the period of time they are enforceable are
subject to any determination by a final judgment of any court which has
jurisdiction over the parties and subject matter.

6.2 Relief. Employee and the Company agree and acknowledge that the limitations
as to time, geographic area and scope of activity to be restrained as set forth
in Section 6.1 are reasonable and do not impose any greater restraint than is
necessary to protect the legitimate business interests of Company. Employee and
the Company further agree and acknowledge that money damages would not be
sufficient remedy for any breach of this Article VI by Employee, and the Company
shall be entitled to enforce the provisions of this Article VI by terminating

 

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payments then owing to Employee under this Agreement or otherwise and to
specific performance and injunctive relief as remedies for such breach or any
threatened breach. Such remedies shall not be deemed the exclusive remedies for
a breach of this Article VI but shall be in addition to all remedies available,
at law or in equity, including the recovery of damages from Employee and his
agents.

6.3 Reasonableness; Enforcement. Employee hereby represents to the Company that
Employee has read and understands, and agrees to be bound by, the terms of this
Article VI. Employee acknowledges that the geographic scope and duration of the
covenants contained in this Article VI are the result of arm’s-length bargaining
and are fair and reasonable in light of (a) the nature and wide geographic scope
of the operations of the Business, (b) Employee’s level of control over and
contact with and association with the goodwill of the Business in all
jurisdictions in which it is conducted, (c) the fact that the Business is
conducted throughout the restricted area and (d) the Confidential Information
that Employee is receiving in connection with the performance of Employee’s
duties hereunder. It is the desire and intent of the parties that the provisions
of this Article VI be enforced to the fullest extent permitted under applicable
law, whether now or hereafter in effect and therefore, to the extent permitted
by applicable law, Employee and the Company hereby waive any provision of
applicable law that would render any provision of this Article VI invalid or
unenforceable.

6.4 Reformation. The Company and Employee agree that the foregoing restrictions
are reasonable under the circumstances and that any breach of the covenants
contained in this Article VI may cause irreparable injury to the Company.
Employee understands that the foregoing restrictions may limit Employee’s
ability to engage in certain businesses in the restricted area and on behalf of
certain entities during the Prohibited Period, but acknowledges that such
restrictions will not prevent Employee from earning a living. Nevertheless, if
any of the aforesaid restrictions are found by a court of competent jurisdiction
to be unreasonable, or overly broad as to geographic area or time, or otherwise
unenforceable, the parties intend for the restrictions therein set forth to be
modified by the court making such determination so as to be reasonable and
enforceable and, as so modified, to be fully enforced. By agreeing to this
contractual modification prospectively at this time, the Company and Employee
intend to make this provision enforceable under the law or laws of all
applicable States and other applicable jurisdictions so that the entire
agreement not to compete and this Agreement as prospectively modified shall
remain in full force and effect and shall not be rendered void or illegal. Such
modification shall not affect the payments made to Employee under this
Agreement.

ARTICLE VII

DISPUTE RESOLUTION

7.1 Choice of Law. The parties hereto stipulate that this Agreement has been
entered into in the State of Texas and this Agreement shall be construed and
interpreted and the rights of the Parties governed by the internal laws of the
State of Texas.

7.2 Venue. The parties hereto submit to the exclusive jurisdiction of the state
and federal courts, as applicable, located in Houston, Texas, and appropriate
appellate courts therefrom, over any dispute, controversy or claim between
Employee and the Company arising out of or relating to this Agreement or
Employee’s employment with the Company. Each Party submits to the jurisdiction
of such courts and agrees not to raise any objections to such jurisdiction.

 

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ARTICLE VIII

MISCELLANEOUS

8.1 Successors; Assigns. This Agreement is personal to Employee, and neither
this Agreement nor any rights or obligations hereunder shall be assignable or
otherwise transferred by Employee. With Employee’s consent, the Company may
assign this Agreement to any Affiliate or successor (whether by merger, purchase
or otherwise) to all or substantially all of the equity, assets or businesses of
Company. Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.

8.2 Notices. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given (a) when received if delivered personally or by courier,
(b) on the date receipt is acknowledged if delivered by certified mail, postage
prepaid, return receipt requested, as follows:

 

  If to Employee, addressed to: George J. Klug

21004 Williams Creek Drive

Porter, Texas 77365

 

  If to Company, addressed to: Carriage Funeral Services, Inc.

3040 Post Oak Blvd., Suite 300

Houston, TX 77056

Attn: Chief Executive Officer

or to such other address as either party may furnish to the other in writing in
accordance herewith, except that notices or changes of address shall be
effective only upon receipt.

8.3 No Waiver. No failure by either Party hereto at any time to give notice of
any breach by the other Party of, or to require compliance with, any condition
or provision of this Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.

8.4 Severability. If a court of competent jurisdiction determines that any
provision of this Agreement is invalid or unenforceable, then the invalidity or
unenforceability of that provision shall not affect the validity or
enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.

8.5 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.

 

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8.6 Withholding of Taxes and Other Employee Deductions. The Company may withhold
from any benefits and payments made pursuant to this Agreement all federal,
state, city and other taxes as may be required pursuant to any law or
governmental regulation or ruling and all other employee deductions made with
respect to the Company’s employees generally.

8.7 Headings. The Article and Section headings have been inserted for purposes
of convenience and shall not be used for interpretive purposes.

8.8 Effect of Termination of Employment Relationship. The provisions of Articles
IV, V, VI, VII, and VIII, and those provisions necessary to interpret and apply
them, shall survive any termination of this Agreement.

8.9 Entire Agreement. Except as provided in the written plans and programs
referenced in Section 3.5 and 3.6, this Agreement constitutes the entire
agreement of the Parties with regard to the subject matter hereof and contains
all the covenants, promises, representations, warranties and agreements between
the parties with respect to the employment of Employee by the Company. Without
limiting the scope of the preceding sentence, all understandings and agreements
preceding the date of execution of this Agreement and relating to the subject
matter hereof, including the Prior Employment Agreement are hereby null and void
and of no further force and effect, and this Agreement shall supersede all other
agreements, written or oral, that purport to govern the terms of Employee’s
employment (including Employee’s compensation) with the Company or any of its
Affiliates; provided, however, the Parties acknowledge and agree that,
notwithstanding the foregoing, Sections 8, 9 and 10 of the Prior Employment
Agreement shall continue in full force and effect and Employee acknowledges the
enforceability, and continuing effect, of those provisions.

8.10 Modification; Waiver. Any modification to or waiver of this Agreement will
be effective only if it is in writing and signed by the Party to be charged.

8.11 Advice of Counsel. Employee acknowledges that Employee has been instructed
to, and has had adequate opportunity to obtain, the advice of his own counsel in
connection with this Agreement.

8.12 Section 409A of the Code. Notwithstanding any provision of this Agreement
to the contrary, if Employee is considered a “specified employee” upon his
termination from employment under such procedures as established by Company in
accordance with the limitations and requirements set forth in Section 409A of
the Code, the regulations promulgated thereunder, and any additional guidance
issued by the Internal Revenue Service related thereto (the “Nonqualified
Deferred Compensation Rules”), then any portion of a cash payment or benefit
distribution made upon such a termination from employment under Section 5.4 or
5.5 or otherwise that would cause the acceleration of, or an addition to, any
taxes pursuant to the Nonqualified Deferred Compensation Rules may not commence
earlier than six months after the date of such termination from employment;
except to the extent any such payments or benefits would be exempt from the
Nonqualified Deferred Compensation Rules, which such payments and benefits shall
be paid in accordance with the original schedules noted in other sections of
this Agreement. Therefore, in the event this Section 8.12 is applicable to
Employee, any payment or distribution under Section 5.4 or 5.5 or otherwise that
would cause the acceleration of, or an addition to, any taxes pursuant to the
Nonqualified Deferred Compensation Rules that would otherwise have been paid to
Employee within the first six months following Employee’s

 

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termination from employment shall be accumulated and paid to Employee, without
interest, in a lump sum on the first day of the seventh month following his
termination from employment (except to the extent exempt from the Nonqualified
Deferred Compensation Rules). If any provision of this Agreement does not
satisfy the requirements of Section 409A of the Code, then such provision shall
nevertheless be applied in a manner consistent with those requirements. In no
event whatsoever shall Company be liable for any tax, interest or penalties that
may be imposed on Employee under Section 409A of the Code. Each payment under
this Agreement is intended to be a “separate payment” and not a series of
payments for purposes of Section 409A of the Code. Any payments or
reimbursements of any expenses provided for under this Agreement shall be made
in accordance with Treas. Reg. §1.409A-3(i)(1)(iv).

8.13 Affiliates. For purposes of this Agreement (including Schedule I hereto),
an “Affiliate” of an entity is an entity that directly or indirectly controls,
is under the control of, or is under common control with, such entity.

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
14th day of March, 2012, effective as of the Effective Date.

 

CARRIAGE SERVICES, INC.

/s/ Melvin C. Payne

    Melvin C. Payne

    Chief Executive Officer

GEORGE J. KLUG

/s/ George J. Klug

Signature Page to

Employment Agreement

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SCHEDULE I

 

1. The following entities, together with all Affiliates thereof:

Service Corporation International

Alderwoods Group, Inc.

Stewart Enterprises, Inc.

Keystone North America, Inc.

Meridian Mortuary Group, Inc.

StoneMor Partners LP

Saber Management LLC

Thomas Pierce & Co.

Legacy Funeral Holdings, LLC

Northstar Memorial Group, LLC

Foundation Partners

The Signature Group

 

2. Any new entity which may hereafter be established which acquires any
combination of five or more funeral homes and/or cemeteries.

 

3. Any funeral home, cemetery or other death care enterprise which is managed by
any entity described in 1 or 2 above.

 

Schedule I - 1