Document:

SUMMIT FINANCIAL CORPORATION
                        1999 INCENTIVE STOCK OPTION PLAN

1.  PURPOSE

     The purpose of the Summit Financial Corporation 1999 Incentive Stock Option
Plan  (the  "1999  Plan")  is  to  encourage  and  enable  eligible officers and
employees  of  Summit  Financial  Corporation  (the  "Corporation")  and  its
subsidiaries  to  acquire  proprietary  interests in the Corporation through the
ownership  of  Common  Stock  of  the Corporation. The Corporation believes that
officers  and  employees  who  participate  in  the  Plan  will  have  a  closer
identification  with  the Corporation by virtue of their ability as stockholders
to  participate  in  the  Corporation's  growth  and  earnings. The Plan also is
designed  to  provide  motivation  for  participating  officers and employees to
remain in the employ of and to give greater effort on behalf of the Corporation.

It  is  the  intention  of  the  Corporation that options granted under the Plan
qualify  as "incentive stock options" ("ISOs") within the meaning of Section 422
of  the  Internal  Revenue  Code  of  1986,  as  amended  (the  "Code")  and the
regulations  promulgated  thereunder.  Accordingly,  the  provisions of the Plan
shall  be  construed  so  as  to  extend  and  limit  participation  in a manner
consistent  with  the  requirements  of  that  section  of  the  Code.

2.  DEFINITIONS

The  following  words  or  terms  shall  have  the  following  meanings:

(a)     "Agreement"  shall  mean an incentive stock option agreement between the
Corporation  and  an  Eligible  Employee  pursuant  to  the  terms of this Plan.

(b)     "Corporation"  shall  mean  Summit  Financial  Corporation.

(c)     "Committee" shall mean the committee appointed by the Board of Directors
to  administer  the  Plan.

(d)     "Common  Stock",  "Shares"  or  "Stock"  shall  mean the $1.00 par value
Common  Stock  of  the  Corporation.

(e)     "Eligible Employee(s)" shall mean a person or persons regularly employed
by  the Corporation or a subsidiary, including officers and other employees, but
excluding  non-employee  Directors.

(f)     "Optionee"  shall  mean  an Eligible Employee having a right to purchase
common  Stock  under  an  Agreement.

(g)     "Option(s)" shall mean the right or rights granted to Eligible Employees
to  purchase  Common  Stock  under  an  offering  made  under  the  Plan.

(h)     "Plan" shall mean this Summit Financial Corporation 1999 Incentive Stock
Option  Plan.

(i)     "Subsidiary"  shall  mean  any  corporation  or  association,  if  the
Corporation  owns  or  controls, directly or indirectly, more than a majority of
the  voting  stock  of  such  corporation  or  association.

(j)     "Ten  Percent Owner" shall mean an individual who, at the time an Option
is  granted,  owns  directly  or  indirectly, more than ten (10%) percent of the
total  combined  voting  power  of  all  classes  of stock of the Corporation or
otherwise  is  considered a Ten Percent Owner by reason of Section 424(d) of the
Code.

(k)     "Retirement"  shall  mean  at  the  normal  retirement  age  of  65.

(l)     "Nonqualified Deferred Compensation Plan" shall mean any plan or program
sponsored  by  the  Corporation  which provides for deferral of income by highly
compensated  individuals  who  constitute  a  bonafide  executive  group  under
Department  of  Labor  regulations  in effect at the time that the individual is
eligibile  to  participate  in  said  plan  or  program.

3.  EFFECTIVE  DATE

     The Effective Date of the Plan shall be the date the Plan is adopted by the
Board  of  Directors or the date the Plan is approved by the stockholders of the
Corporation, whichever is earlier. The Plan must be approved by the shareholders
within  twelve  (12)  months  of  the  effective  date.

4.  SHARES  RESERVED  FOR  PLAN

     The  shares  of  the  Corporation's  Common  Stock  to  be sold to Eligible
Employees  under  the  Plan  may,  at the election of the Board of Directors, be
either  treasury  shares  or  shares  originally  issued  for such purpose.  The
maximum  number  of  shares  which shall be reserved and made available for sale
under  the  Plan  shall  be  215,000.  If  any  Options  granted  under the Plan
terminate,  expire or are otherwise surrendered without having been exercised in
full,  the  number  of such Options shall be available again to be granted under
the  Plan,  subject  to  all  provisions  and  limitations  provided  herein.

     In  the  event  of a subdivision or combination of the Corporation's shares
(including  a  stock dividend), the maximum number of shares that may thereafter
be  issued and sold under the Plan and the number of shares under option will be
proportionately  increased or decreased.  In addition, the terms relating to the
price  at which shares under option will be sold will be approximately adjusted,
and  such other action will be taken as in the opinion of the Board of Directors
is  appropriate  under the circumstances. In case of a reclassification or other
change  in  the  Corporation's  shares,  the  Board  of Directors also will make
appropriate  adjustments.

5.  ADMINISTRATION  OF  THE  PLAN

     The  Plan  shall  be  administered by the Committee. The Committee shall be
comprised  of  not  less  than two non-employee directors (as defined in Section
16b-3  of  the  Securities  Exchange  Act  of  1934)  appointed  by the Board of
Directors  of  the Corporation from among its members. No member of the Board of
Directors shall be appointed or serve as a member of the Committee, and any such
appointment  or  service  immediately  and automatically shall terminate, in the
event  that  such  person  is, or becomes, an Eligible Employee (as described in
Section 2 of the Plan) or is otherwise disqualified by the provisions of Section
16b-3  of  the  Securities  Exchange  Act  of  1934.

     Within the limitations described herein, the Committee shall administer the
Plan;  select  the Eligible Employees to whom Options will be granted; determine
the  number  of  shares  to  be  optioned  to each Eligible Employee; interpret,
construe  and  implement  the  provisions  of the Plan; establish, amend, revoke
rules  and  regulations  relating  to  the  Plan  and its administration; and to
correct  any  defect, supply any omission, or reconcile and inconsistency in the
Plan in a manner and to the extent deemed necessary, all or which determinations
and interpretations made by the Committee shall be conclusive and binding on all
Optionees  and  their  legal  representatives  and  beneficiaries.

     The  Committee  shall  select one of its members as Chairman and shall hold
its meetings at such time and places, and pursuant to such rules consistent with
the  Plan, as it may determine. A majority of the members of the Committee shall
constitute  a  quorum,  and the acts of a majority of the members present at any
meeting  at which a quorum is present, or acts approved in writing by a majority
of  the  members  of  the  Committee,  shall  be  the  acts  of  the  Committee.

6.  ELIGIBILITY

Options  may  be  granted  only  to  Eligible  Employees.

7.  DURATION  OF  THE  PLAN

     This Plan shall terminate on November 15, 2009, unless terminated sooner by
the  Board  of  Directors.  The  Plan  shall  remain  in effect until all shares
subject  to,  or which may become subject to, the Plan shall have been purchased
pursuant  to  Options  granted  under  the  Plan.  No  Options  shall be granted
pursuant  to  this  Plan  after  November  15,  2009.

8.  OPTIONS  GRANTS

     It  is  intended  that  Options  granted  under the Plan shall be qualified
incentive  stock  options  ("ISOs")  under  the provisions of Section 422 of the
Internal  Revenue  Code  of  1986, as amended, and the regulations thereunder or
corresponding provisions of subsequent revenue laws and regulations in effect at
the  time  such  Options  are granted.  Such Options shall be evidenced by stock
option  agreements  in  such  form  and  not  inconsistent with this Plan as the
Committee  and/or  the  full  Board  shall  approve  from  time  to  time, which
agreements  shall  contain  in  substance,  the  following terms and conditions:

(a)     Price.  The  purchase  price  for  shares purchased under exercise of an
Option  shall not be less than 100% of the Fair Market Value of the Stock on the
day  the  Option  is granted, as defined below, and in no case less than the par
value  of such stock.  However, if an ISO is granted to a Ten Percent Owner, the
purchase  price  of  the  Stock  covered  by such ISO shall be not less than one
hundred  ten (110%) percent of the Fair Market Value of the Stock on the day the
Option is granted. Any Option granted to a Ten Percent Owner must, by its terms,
be  exercisable  within  five  (5)  years  from  the  date  it  is  granted.

     For  purposes  of the Plan, "Fair Market Value" shall be the closing quoted
selling  price  of  the  Stock  as reported by NASDAQ on the grant date.  In the
event  that  the  Stock  is  not  publicly  traded, or a published quoted is not
otherwise available, the Fair Market Value shall be the amount determined by the
Committee  in  good  faith.

(b)     Number  of  Shares.  The  Agreement  shall  specify the number of shares
which  the  Optionee  may  purchase  under  such  Option.

(c)     Rights  as  a  Shareholder.  An  Optionee  shall  have  no  rights  as a
shareholder  with  respect  to any shares covered by an Option until the date of
issuance  of  the  stock  certificate to the Optionee for such shares. Except as
otherwise  expressly provided in the Plan, no adjustments shall be made for cash
dividends  or  other  rights for which the record date is prior to the date such
stock  certificate  is  issued.  Options  will be appropriately adjusted for all
stock  distributions  or  dividends  as  discussed  in  Section  4  of the Plan.

(d)     Limitation  on  Grants.  The  aggregate fair market value (determined at
the  time  the  Option  is granted) of the shares with respect to which ISOs are
exercisable  for  the  first time by an Optionee during any calendar year (under
all  incentive  stock option plans of the Corporation) shall not exceed $100,000
or  such other amount as may be specified in Section 422(d) of the Code.  To the
extent that any Options granted fail to comply with the limitations set forth in
this  subparagraph,  such  Options  shall be treated as non-qualified options as
defined  by  the  Code.

9.  OPTION  EXERCISES

(a)     Exercise  of Options.  Options hereunder may be exercised by an Optionee
on  a  cumulative  basis  up  to a maximum of twenty (20%) percent of the shares
subject  to  Option  on each of the first five (5) anniversaries of the grant of
such option, but in no event later than ten (10) years from the date of grant of
the  Option  or  within  sixty  (60) days from date of such written notice to an
Optionee  as referred to in Section 11(c) of the Plan.  Options may be exercised
in  whole  or  in part upon giving written notice to the Corporation stating the
number  of  shares  and  Option  price  for which the Option is being exercised.

(b)     Medium  and  Time  of Payment.  Stock purchased pursuant to an Agreement
shall  be  paid  for  in  full  at the time of purchase evidenced by the written
request  discussed  in  9(a) above.  Payment of the purchase price shall be made
(1)  in  cash; (2) in whole or in part through the surrender of previously owned
(i.e.  held by the Optionee in excess of 6 months) shares of Stock at their Fair
Market Value on the exercise date; or (3) by a cash equivalent acceptable to the
Corporation  and  approved  by  the  Committee.  Upon  receipt  of  payment, the
Corporation  shall,  without  transfer  or  issue tax, deliver to the Optionee a
certificate or certificates for such shares.  Additional or different procedures
or requirements for the exercise of Options may be established from time to time
as  directed  by  the  Committee.

10.      DURATION  OF  OPTIONS

(a)     Termination  of  Employment  or  Service  -  General.  Unless  otherwise
determined by the Committee, upon the termination of an Optionee's employment or
other  service  for  any reason other than retirement, disability, or death, the
Optionee  may  exercise only those ISOs that were immediately exercisable by the
Optionee  at  the  date  of  such  termination  and only for a period of 30 days
following  the  date  of  such  termination.

(b)     Termination  of  Employment - Retirement. Unless otherwise determined by
the  Committee,  in  the  event  of  an  Optionee's Retirement (as defined), the
Optionee  may  exercise only those ISOs that were immediately exercisable by the
Optionee  at  the  date  of  such  termination and only for a period of 3 months
following  the  date  of  such  termination  of  employment.

(c)     Termination  of  Employment  -  Disability  or  Death.  Unless otherwise
determined  by  the  Committee,  in  the  event that an Optionee ceases to be an
employee of the Corporation or any of its subsidiaries for reasons of disability
(in  the  sole  determination  of the Committee) or death, all ISOs held by such
Optionee  shall immediately become exercisable.  In the event of disability, the
Optionee shall have a period of three (3) months from the date of termination of
employment  in  which  to  exercise the Options.  In the event of the death, the
Option  shall  be  exercisable  by  his  or  her  legal representative, heirs or
legatees  within  a  period  of  twelve  (12)  months from the date on which the
Optionee  died.

(d)     Despite  provisions  made  above,  in  no  event  shall  any  Option  be
exercisable  after  ten  (10)  years  from  the  date  the  Option  was granted.

11.  MISCELLANEOUS  OPTION  PROVISIONS

(a)     Nonassignability of Option.No Option shall be assignable or transferable
by  the  Optionee  except  by  will  or by the laws of descent and distribution.
During the lifetime of the Optionee, the Option shall be exercisable only by him
or  her.

(b)     Continuance  of  Employment.  Nothing  contained  in  the Plan or in any
Options  granted  under  the Plan shall confer upon the Optionee any rights with
respect to the continuation of employment by the Company or interfere in any way
with  the  right of the Company (subject to the terms of any separate employment
agreement  to  the  contrary)  at  any  time  to terminate such employment or to
increase or decrease the compensation of the Optionee from the rate in existence
at  the  time  of  the  granting  of  any  Option.

(c)     Change  of  Control.  Upon  a  Change  in Control of the Corporation (as
defined  below),  all  the  outstanding  Options  shall  become  100% vested and
exercisable  as of the effective date of the Change in Control. Exercise must be
made  within  60  days from the written notice to the Optionee of such change in
control.  If, in connection with or as a consequence of a Change in Control, the
Company  is merged into or consolidated with another corporation, if the Company
becomes a subsidiary of another corporation or if the Company sells or otherwise
disposes  of substantially all of its assets to another corporation, then unless
provisions  are made in connection with such transactions for the continuance of
the  Plan and/or the assumption or substitution of then outstanding Options with
new  options  covering  the  stock  of  the  successor corporation, or parent or
subsidiary  thereof,  with  appropriate adjustments as to the number and kind of
shares  and  prices,  such Options shall be canceled as of the effective date of
the  merger,  consolidation,  or  sale and the Optionee shall be paid in cash an
amount  equal  to  the  difference  between  the  Fair Market Value of the Stock
subject  to  the  Options  on the effective date of such corporate event and the
exercise  price  of  the  Options.

     For purposes of this Plan, a "Change in Control" shall mean an event deemed
to  occur  if and when (a) an offeror other than the Company purchases shares of
the stock of the Company pursuant to a tender or exchange offer for such shares,
(b)  any  person  (as  such  term  is used in Sections 13(d) and 14(d)(2) of the
Exchange  Act)  is  or  becomes the beneficial owner, directly or indirectly, of
securities  of the Company representing twenty-five percent (25%) or more of the
combined  voting  power  of  the  Company's then outstanding securities, (c) the
membership  of  the board of directors of the Company changes as the result of a
contested election, such that individuals who were directors at the beginning of
any  twenty-four  (24) month period (whether commencing before or after the date
of  adoption  of this Plan) do not constitute a majority of the Board at the end
of  such period, or (d) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Company or similar transaction occurs
or  is  effectuated  in which the Company is not the resulting entity; provided,
however,  that  such an event listed above will be deemed to have occurred or to
have  been  effectuated  upon  the  receipt  of  all required federal regulatory
approvals  not  including  the  lapse  of  any  statutory  waiting  periods.

(d)     General  Provision  Applicable  to  Nonqualified  Options.  In the event
that, pursuant to the provisions of section 8(d) above, any option that shall be
so  impacted shall, notwithstanding any provisions of this Plan to the contrary,
be  subject  to  the  provisions  of  this  paragraph.  In  the  event  that the
Corporation  shall  have in effect a Nonqualified Deferred Compensation Plan (as
defined)  at the time of exercise of any option so effected by section 8(b), the
Optionee  shall  be  provided  proper  forms on a timely basis to properly elect
deferral  of  any  stock option gain that may have otherwise been recognized for
tax  purposes.

(e)     General  Restrictions.  Each  Option shall be subject to the requirement
that  if  at any time the Board of Directors shall determine, in its discretion,
that  the  listing,  registration or qualification of the Shares subject to such
Option  upon  any  securities exchange or under any state or federal law, or the
consent or approval of any government regulatory body, is necessary or desirable
as  a  condition  of,  or in connection with, the granting of such Option or the
issue  or  purchase  of  shares  thereunder, such Option may not be exercised in
whole  or  in  part unless such listing, registration, qualification, consent or
approval  shall  have  been  affected  or  obtained  free  of any conditions not
acceptable  to  the  Board  of  Directors.

12.  AMENDMENT  AND  TERMINATION  OF  THE  PLAN

     The  Plan  may  at any time or from time to time be terminated, modified or
amended  by  the  affirmative  vote  of  not  less  than a majority of the votes
entitled  to  be  case  thereon  by the Corporation's shareholders. The Board of
Directors  may at any time and from time to time, terminate, modify or amend the
Plan  in  any  respect,  except  that  without shareholder approval the Board of
Directors  may  not  (i) increase the maximum number of shares for which Options
may  be granted under the Plan either in the aggregate (other than increases due
to changes in capitalization as referred to in Section 4 hereof), or (ii) reduce
the  option  price  or  waiting period under Section 422 of the Internal Revenue
Code (except as otherwise expressly provided in the Plan in the case of a change
of  control  of  the  Company  as referred to in Section 11(c) hereof), or (iii)
extend  the  period  during  which  Options may be granted or exercised, or (iv)
change the class of employees eligible for incentive stock options under Section
6  hereof, or (v) otherwise materially modify the requirements as to eligibility
for participation in the Plan, or (vi) otherwise materially increase the benefit
accruing  to participants under the Plan. The termination or any modification or
amendment  of the Plan shall not, without the consent of an Optionee, affect his
or  her  rights  under an Option or right previously granted to him or her. With
the consent of the Optionee affected, the Committee may amend outstanding option
Agreements in a manner not inconsistent with the Plan. Without employee consent,
the  Board  of  Directors may at any time and from time to time, modify or amend
outstanding  option  Agreements  in  such respects as it shall deem necessary in
order  that  Options  granted  hereunder  shall  comply  with  the  appropriate
provisions  of  the  Internal  Revenue Code of 1986, as amended, and regulations
thereunder  which are in effect from time to time respecting qualified incentive
stock  options.

13.  BINDING  EFFECT

     All  decisions  of  the  Board  of Directors or the Committee involving the
implementation,  administration  or  operation of the Plan or any offering under
the  Plan  shall  be  binding  on  the  Corporation,  all  Eligible  Employees
participating in the Plan, and on all persons eligible or who become eligible to
participate  in  the  Plan.

APPROVED  this  15th  day  of  November  1999,

BY:                                      WITNESS:

   /s/ C. Vincent Brown                  J. Randolph Potter
                                         Blaise B. Bettendorf
C. Vincent Brown, ChairmanExhibit 10.11
                             CARRIAGE SERVICES, INC.
                         EXECUTIVE EMPLOYMENT AGREEMENT

      THIS  AGREEMENT,  dated effective as of November 8, 1999, by and between
CARRIAGE  SERVICES,  INC.,  a  Delaware  corporation  (hereinafter  called the
"Company"),  and MELVIN C. PAYNE,  a resident of Houston,  Texas  (hereinafter
called the "Executive");

                              W I T N E S S E T H:

      That for and in consideration of TEN and NO/100 DOLLARS ($10.00) and other
good and valuable consideration the receipt and sufficiency of which are hereby
confessed and acknowledged by the Executive, the Company does hereby agree to
continue to employ, and the Executive hereby agrees to continue to be an
employee of the Company, under the following terms and conditions, to-wit:

1.    DEFINITIONS

      For the purposes of this Agreement, the following terms shall have the
meanings specified in this Paragraph 1:

            A. "Company" means Carriage Services, Inc.

            B. "Affiliate" means any corporation, general or limited
      partnership, limited liability company joint venture or other business
      entity that (i) is owned by or (ii) owns the Company. For the purposes of
      this definition, ownership, directly or indirectly, of 50% or more of the
      capital stock having the right to vote for directors of a corporation, or
      50% or more of the equity interest of a general or limited partnership,
      joint venture or other business entity, shall constitute ownership
      thereof.

            C. Confidential Information" means trade secrets and business
      information of the Company or any Affiliate which is not generally known
      by others, including, by way of illustration and not limitation, all such
      information relating to corporate opportunities, research, financial and
      sales data, pricing and trading terms, evaluations, opinions,
      interpretations, acquisition prospects, the identity of customers or their
      requirements, the identity of key contracts within the customer's
      organization or within the organization of acquisition prospects, or
      marketing and merchandising techniques, prospective names and marks,
      whether or not such information has been reduced to documentary form.

            D. "Conflicting Product or Service" means any product or service
      which competes with or is designed to compete with a product or service
      sold by the Company or any Affiliate, about which Executive has acquired
      or acquires Confidential Information.

<PAGE>
            E. "Conflicting Organization" means any person, firm, association or
      corporation which is engaged in or is about to become engaged in
      development, production, marketing or selling of, a Conflicting Product or
      Service in a market or territory in which the Company or any Affiliate
      offers or intends to offer products or services that would compete with
      the Conflicting Product or Service.

            F. "Cause" shall mean that the Executive has

                  (a) failed to cure, after reasonable notice of not less than
            thirty (30) days, a material breach of any of the terms of this
            Agreement;

                  (b) been convicted of a felony involving moral turpitude,
            fraud, theft, embezzlement, assault, battery, rape or other violent
            act or another crime; or

                  (c) engaged in willful misconduct in the performance of the
            duties and services required of the Executive pursuant to this
            Agreement that has a material adverse effect on the Company;
            provided, however, no act or failure to act shall be deemed
            "willful" if due primarily to an error in judgment or negligence or
            if made in good faith and with reasonable belief that such act is in
            the best interest of the Company.

            G. "Board of Directors" means the board of directors of the Company.

            H. "Monthly Severance Payment" with respect to the Executive shall
      be equal the quotient resulting from dividing (a) the aggregate sum of all
      salary paid to, and incentive bonuses earned by, the Executive pursuant to
      this Agreement and prior employment with the Company during the three year
      period ended December 31 of the year prior to the date of termination of
      the Executive's employment by (b) 36. For purposes hereof, (i) the Special
      Compensation Bonus under Paragraph 3E shall be excluded in calculating the
      "incentive bonus" component in clause (a) above; (ii) the amount of the
      incentive bonus in said clause (a) shall be deemed to be $66,700 for 1997,
      $160,000 for 1998 and $360,000 for 1999; and (iii) in the event any
      non-cash consideration is included in any such incentive bonus in 2000 or
      thereafter, such non-cash consideration shall be included at the value
      reasonably assigned by the Board of Directors or the Compensation
      Committee thereof at the time such bonus is awarded or, in the absence of
      any such value determination, at the fair market value determined by
      independent appraisal.

            I. "Expiration Date" shall initially be November 30, 2004, provided
      that commencing on December 31, 2002 and at the end of each calendar month
      thereafter during which the Executive performs services hereunder, the
      Expiration Date shall automatically be extended for an additional month
      unless, not later than 90 calendar days prior to the end of any calendar
      month commencing with December 2002, the Company or the Executive shall
      have given written notice that it or he, as the case may be, does not wish
      to have the term extended. If the Executive's employment hereunder is
      terminated by either party at any time for any reason, the Expiration Date
      shall thereupon no longer be automatically extended.

                                       -2-
<PAGE>
2.    TERM AND TERMINATION

      A. Subject to the termination provisions herein contained, the employment
of Executive by the Company pursuant to this Agreement commenced as of the 4th
day of November, 1999, and continue thereafter until terminated in accordance
with this paragraph 2 or, if not earlier so terminated, until the Expiration
Date (the "Employment Term").

      B. If the Executive dies during the term of the Agreement and while in the
employ of the Company, this Agreement shall automatically terminate and the
Company shall have no further obligation to the Executive or his estate except
that the Company shall pay to the Executive's estate (i) on the next regular
payroll payment date the unpaid salary through the date of death, and (ii) on or
before April 15 of the next succeeding year a proportionate part of the
incentive bonus as provided in paragraph 3B hereof as is in the same ratio to
the full bonus as the number of days in the year until the date of death is to
365.

      C. If, during the term of this Agreement, the Executive, by reason of a
disability, (I.E., a physical or mental impairment), cannot perform each of the
essential functions of his position, with reasonable accommodation, for a period
of one hundred eighty consecutive days, the Company, on thirty days prior
written notice to the Executive, may terminate this Agreement as of the date
specified in the notice. In the event of a termination pursuant to this
paragraph 2C, the Company shall be relieved of all of its obligations under this
Agreement, except that the Company shall pay to the Executive, or his estate in
the event of his subsequent death: (i) that portion of the Executive's salary
through the 30th day after notice of termination and (ii) on or before April 15
of the next succeeding year, the Company shall pay to the Executive a
proportionate part of the incentive bonus as provided in paragraph 3B hereof as
is in the same ratio to the full bonus as the number of days in the year until
the date of termination is to 365.

      D. At any time prior to the Expiration Date of this Agreement the Company
may terminate this Agreement for Cause (as herein defined) without further
obligation or liability hereunder to the Executive, his spouse, estate, heirs or
assignees except for the obligation of the Company to pay to the Executive his
salary earned through the date of discharge.

      E. The Executive may give written notice of voluntary termination of
employment at any time, and upon giving of the notice, the employment shall
terminate on the earlier of the date set forth in the notice or 30 days after
the notice is received by the Company ("Voluntary Termination Date"). Upon the
Voluntary Termination Date, the Company shall have no further obligation or
liability hereunder to the Executive, his spouse, heirs or estate, except to pay
to the Executive any unpaid salary earned through the Voluntary Termination Date
(subject to the terms of any other employee benefit plan of the Company in which
the Executive participates).

      F. The Company may terminate the employment of the Executive at any time
WITHOUT CAUSE upon written notice to the Executive of such termination, which
notice shall set forth the date of termination ("Without Cause Termination
Date"). Upon the Without Cause Termination Date, the Company shall have no
further obligation or liability hereunder to the

                                      -3-
<PAGE>
Executive or his spouse, heirs or estate, except that (i) after the Without
Cause Termination Date and continuing monthly until the later of the Expiration
Date or two years after the termination date, or if earlier the last day of the
month following the date of death of the Executive, the Company shall pay to the
Executive each month, in accordance with the Company's payroll policies then in
effect, an amount equal to the Monthly Severance Payment, (ii) on or before
April 15 of the next succeeding year following the Without Cause Termination
Date the Company shall pay to the Executive a proportionate part of the
incentive bonus as provided in paragraph 3B hereof as is in the same ratio to
the full bonus as the number of days in the calendar year up to the Without
Cause Termination Date is to 365 and (iii) after the Without Cause Termination
Date and continuing monthly during the period the Executive is receiving the
Monthly Severance Payments specified in subparagraph F(i) above, Executive and
his family shall be entitled to participate in any welfare benefit plans,
programs, or policies in which Executive and his family were participating at
the time of his termination of employment for group and/or executive life,
accident, health, dental, or medical/hospital insurance (whether funded by
actual insurance or self insured by the Company); provided, however, that the
rights of the Executive and his family thereunder shall be governed by the terms
thereof and shall not be enlarged hereunder.

      G. Any termination of the employment relationship, whether termination is
effected by the Company or the Executive, shall be without prejudice to or
waiver of the obligations of the Executive to maintain in secrecy and confidence
all Confidential Information, pursuant to paragraph 5 hereof and not to render
prohibited services to any Conflicting Organization, pursuant to paragraph 6
hereof.

3.    EMPLOYMENT AND SALARY

      A. During the Employment Term, the Company shall employ the Executive and
the Executive shall serve in the employ of the Company at a continuing salary of
Two Hundred Seventy-Five Thousand Dollars ($275,000.00) per year, subject to
increases as provided below (the "Annual Base Salary"), payable in accordance
with the Company's payroll policies applicable to executives as established by
the Company from time to time. The Board of Directors shall review and in its
sole discretion may increase Executive's Annual Base Salary annually commencing
for 2000. Once established at a specified increased rate, the Annual Base Salary
shall not thereafter be reduced.

      B. During the Employment Term, the Executive shall also be entitled to be
paid an incentive bonus in an amount, if any, as shall be determined by the
Board of Directors (or the Compensation Committee thereof) in its sole
discretion. The incentive bonus, if any, shall be paid prior to the close of
business on April 15 of each year. Except for termination by reason of death or
disability or termination WITHOUT CAUSE, the incentive bonus shall not be earned
in whole or in part, until the close of business on December 31 of each year
("Bonus Entitlement Date") and shall be paid annually prior of the close of
business on April 15 following the Bonus Entitlement Date. Termination for Cause
pursuant to paragraph 2D or voluntary termination pursuant to paragraph 2E shall
terminate the right of the Executive to receive any incentive bonus under this
paragraph 3B that has not yet been earned; provided that any termination of
employment after the incentive bonus has been earned, but prior to its payment,
shall not terminate the Executive's right to receive such incentive bonus.

                                      -4-
<PAGE>
      C. The Executive shall receive such further benefits as may be accorded
other executives under the established plans and programs of the Company to the
extent the executive is eligible for participation therein based on the
eligibility criteria applicable to other Executives, all as determined by the
Company from time to time in its sole discretion.

      D. The Executive shall be entitled to receive reimbursement for, or seek
payment directly by the Company of, all reasonable expenses incurred by the
Executive in the performance of his duties under this Agreement. The Executive
shall use his best efforts to obtain approval prior to incurring any expenses.
Unreasonable expenses or expenses out of the ordinary course of business not
approved in advance shall not be reimbursed by the Company. Neither shall the
Company be obligated to reimburse expenses if reimbursement is not sought on a
timely basis.

      E. Effective as of November 8, 1999, the Company shall pay the Executive a
special compensation bonus of $1,800,000.00 (the "Special Compensation Bonus").
Of the Special Compensation Bonus, (i) the sum of $725,000.00, after deducting
applicable withholdings, shall be applied against first, interest, then
principal, outstanding under the Executive's Promissory Note dated October 1,
1999 payable to the order of the Company in the original principal amount of
$1,800,000.00, of which $1,200,000.00 has been advanced (the "Advance Note"),
and (ii) the balance of $1,075,000.00 shall be represented by the Company's
unsecured promissory note dated November 8, 1999 payable to the Executive in the
original principal amount of $1,075,000.00, bearing interest at the rate of 12%
per annum and otherwise in form and substance mutually acceptable to the Company
and the Executive (the "Company Note").

      The Company Note will be payable in two installments. The first
installment shall be in the amount of $600,000.00 and shall be due between March
16, 2000 and March 31, 2000, and the second installment shall be in the amount
of $475,000.00 and shall be due between March 16, 2001 and March 31, 2001.
Interest shall be payable concurrently with installments of principal. Executive
acknowledges that the Company shall be authorized to deduct applicable
withholdings from each such installment.

      The Company and Executive agree that Executive shall repay the full
remaining balance of all principal and interest due under the Advance Note on or
before December 31, 1999, and that Executive's failure to so repay such
remaining balance by such date shall constitute an "event of default" within the
meaning of the Advance Note.

      If the employment of Executive is terminated as a result of voluntary
termination pursuant to paragraph 2E hereof at any time during the five-year
period commencing on November 4, 1999 and ending November 3, 2004 (the
"Recoupment Period"), then upon such termination the Executive shall pay to the
Company an amount in cash equal to the product of the amount of the Special
Compensation Bonus multiplied by a fraction, the numerator of which is the
number of whole months which remain after the month in which such termination
occurs through the balance of the Recoupment Period, and the denominator of
which is 60. Any termination by reason of the Executive's death under paragraph
2B, his disability under paragraph 2C, or a discharge with or

                                      -5-
<PAGE>
without Cause under paragraphs 2D or 2F, shall not affect Executive's
entitlement to retain the Special Compensation Bonus.

      The parties acknowledge that the Special Compensation Bonus (including
installments under the Company Note) shall be paid to the Executive net of any
applicable withholdings, including withholding for federal income taxes. If the
Executive is required to pay a portion of the Special Compensation Bonus back to
the Company as aforesaid, that portion of the Special Compensation Bonus shall
be calculated on a net basis after giving effect to such withholdings; provided,
however, that if the Executive actually realizes a federal income tax benefit
attributable to the disgorgement of a portion of the Special Compensation Bonus
as aforesaid, then upon such realization the Executive shall additionally pay to
the Company the amount of such federal income tax benefit.

      If, at the time the Executive becomes obligated to return a portion of the
Special Compensation Bonus as aforesaid, there remains any outstanding principal
or interest under the Company Note, the Company is specifically authorized to
offset the amount of the Executive's disgorgement obligation against first,
accrued interest under the Company Note, and then the principal installments
thereunder in inverse order of maturity.

4.    DUTIES

      The Executive shall serve the Company in an executive capacity and shall
report to, and be subject to the general direction and control of, the Board of
Directors of the Company. The Executive shall perform such duties and
responsibilities and in such capacities as may be established by the Board of
Directors from time to time. The Executive shall perform his duties and
discharge his obligations well and faithfully and to the utmost of his ability,
and shall use his best efforts to promote the success, reputation and good will
of the Company and its Affiliates. The Executive also agrees to perform, without
additional compensation, such services for any Affiliate as the Board of
Directors may designate; provided that the Executive's performance of duties and
services for any Affiliate shall not unreasonably be added to the time required
for performance of his assigned duties and services for the Company. The Company
agrees that it will assign to the Executive only those duties and
responsibilities of the type, nature and dignity normally assigned to an
executive employee of his position in an enterprise of the size, stature and
nature of the Company. In performing his duties hereunder, the Executive shall
not be required to relocate outside the Houston, Texas area. The Executive
agrees to devote his full business time, attention, skill and effort exclusively
to the performance of his duties and responsibilities hereunder during the term
of his employment and any extension or renewal thereof. In addition, except for
such personal and business investment activities as are essentially passive in
nature and do not involve any breach of fiduciary duty or duty of loyalty to the
Company or its Affiliates, the Executive shall not, during the term of his
employment hereunder, engage in any other activity, whether or not such activity
is conducted or pursued for gain, profit or other pecuniary advantage, if it
conflicts or interferes with or adversely affects in any material respect the
performance or discharge of Executive's duties and responsibilities hereunder.
Without the prior written consent of the Company the Executive shall not, during
the term of his employment hereunder, serve as a principal, partner, employee,
officer, consultant, advisor or director of any other business concern
conducting business for profit except for such personal and business investment
activities as are essentially passive in nature.

                                      -6-
<PAGE>
      The Executive acknowledges that the Executive is employed in an executive
and administrative position that is not subject to overtime pay under the
federal wage and hour law.

5.    COVENANT OF SECRECY

      The Executive agrees that, except as required by his duties to the
Company, he will not:

            A. disclose or use for himself or others Confidential Information
      during or after his employment with the Company, except as required by law
      (provided that the Executive shall first advise the Company of any
      proposed disclosure to afford the Company the opportunity to take any
      protective measures); or

            B. except as is necessary in the performance of his duties, take any
      documents or physical objects constituting or containing Confidential
      Information from facilities of the Company or its Affiliates, without
      first obtaining written authorization from the Company. The Executive
      agrees to return to the Company all documents or other physical objects
      constituting or containing Confidential Information and all reproductions
      thereof upon request, and in any event immediately upon termination by
      either party for any reason of his employment with the Company.

6.    RESTRICTIVE COVENANT

      A. In consideration for the agreement to employ the Executive and to
provide Monthly Severance Payments under the conditions described in paragraph
2F, and the other valuable consideration provided to the Executive hereunder:
(1) during the term hereof, the Executive shall not: (i) either directly or
indirectly, for himself or any third party, divert or attempt to divert any
existing business of the Company, or (ii) either directly or indirectly, for
himself or any third party, cause or induce any present or future employee of
the Company to accept employment with another employer; or (2) during the
two-year period commencing upon the termination of the Executive's employment
hereunder by either party for any reason and during the period the Executive is
to receive the Monthly Severance Payments the Executive shall not, within 50
miles of any facility owned or operated by the Company or any Affiliate, render
advice or service to, or otherwise assist a Conflicting Organization. The
Company and Executive expressly agree that in the event that Executive is
entitled to receive Monthly Severance Payments pursuant to paragraph 2F,
Executive in his sole discretion may irrevocably elect to forego such payments
and thereafter shall not be prevented from rendering advice or service to, or
otherwise assist a Conflicting Organization following Executive's termination of
employment; provided, however, Executive shall not be relieved his obligations
contained in paragraph 5.

      B. Both parties recognize that the services to be rendered under this
Agreement by the Executive are special, unique, and of extraordinary character,
and that in the event of the breach by the Executive of the terms and conditions
of the covenants contained in paragraphs 5 and/or 6, the Company shall be
entitled, if it so elects, to suspend (if applicable) salary payments, Monthly
Severance Payments and bonus payments and/or to institute and prosecute
proceedings in any court

                                      -7-
<PAGE>
of competent jurisdiction to enforce through injunctive relief such covenants.
The Executive acknowledges and agrees that there is no adequate remedy at law
for his violation of such covenants and that in light of the numerous years and
the scope of his Executive-level responsibilities with the Company, the
restrictions as to time, geographic scope and scope of activities restrained in
paragraph 6A and 6C are both reasonable and necessary to protect the goodwill
and other legitimate business interests of the Company. Indeed, the Executive
acknowledges that the term of his employment hereunder, the post employment
Monthly Severance Payments and bonus payments and the amount of salary and bonus
provided by the Company hereunder are in significant part provided by the
Company to secure the Executive's agreement to such covenants. The Executive
agrees to waive and hereby waives any requirement for the Company to secure any
bond in connection with the obtaining of such injunction or other equitable
relief.

      C. Both parties recognize that the covenants set forth in paragraph 6
constitute a restraint on the future employment opportunities of the Executive
and as such are enforceable only to the extent necessary to protect and preserve
to the Company its valuable goodwill and other legitimate business interests
including but not limited to Confidential Information ("Protectable Interests"),
as they now exist and may be developed and expanded prior to the termination of
the Executive's employment hereunder. The Company and the Executive recognize
that the business of the Company and its Protectable Interests are not
restricted to a single market or geographic area but extend to many different
markets and geographic areas and that the duties and the executive-level
activities of the Executive are applicable to all such markets and geographic
areas. The Company and the Executive have entered into this Agreement with the
expectation that as the business of the Company and the duties and activities of
the Executive continue to expand, the Executive may acquire relationships and
Confidential Information that will constitute a part of the evolving Protectable
Interests of the Company. It is the parties' mutual intent that the covenants
contained in paragraph 6 be limited to only those time, geographic and activity
restrictions that are necessary to protect the Protectable Interests of the
Company.

      D. During the period that Executive may not render advice or service to,
or otherwise assist a Conflicting Organization, Executive shall refrain from
making any statement, except for an isolated idle comment made in a non-business
contact, which has the effect of demeaning the name or business reputation of
the Company or any Affiliate, or which materially adversely affects the best
interests (economic or otherwise) of the Company or any Affiliate.

7.    NOTICE

      Any notice or communication to the parties to this contract shall be
deemed to have been sufficiently given for all purposes hereof if mailed by
United States Mail, postage prepaid, Return Receipt Requested, addressed as
follows, to-wit:

            To the Executive: Melvin C. Payne
                              1922 North Blvd.
                              Houston, Texas 77098

                                      -8-
<PAGE>
            To the Company:   Carriage Services, Inc.
                              1300 Post Oak Blvd., Suite 1500
                              Houston, Texas  77056-3012
                              Attention: President

or such other address as may be set forth in a notice given in accordance with
the provisions hereof.

8.    MISCELLANEOUS

      A. This Agreement supersedes all prior agreements and understandings
between the Company and the Executive with respect to the subject matter hereof
and may not be changed or terminated except by an instrument in writing duly
authorized by the Board of Directors and executed by the Executive and the
President of the Company. Without limiting the generality of the foregoing, this
Agreement supersedes and replaces the Executive Employment Agreement dated
effective July 1, 1996 between the Executive and the Company.

      B. This Agreement shall be interpreted and construed in accordance with
the laws of the State of Texas or any other jurisdiction in which the Company
seeks to enforce paragraph 5 or 6 hereof. Should any portion of this Agreement
be adjudged or held to be invalid, unenforceable or void, such holdings shall
not have the effect of invalidating or voiding the remainder of this Agreement,
and the parties hereto agree that the portion so held invalid, unenforceable or
void shall, if possible, be deemed amended or reduced in scope, or to otherwise
be stricken from this Agreement to the extent required for the purposes of
validity and enforcement thereof.

      C. This Agreement may not be assigned by the Executive and the Executive
and his spouse, heirs and estate shall not have any right to commute, encumber
or dispose of any right to receive payments hereunder, it being understood that
such payments and the right thereto are nonassignable and nontransferable;
provided, however, that the Company Note may be assigned by the Executive.
Subject to the limitation in the immediate preceding sentence, this Agreement
shall be binding upon and inure to the benefit of the parties hereto, the
Executive's spouse, heirs and estate, and the successors and assigns of the
Company. It is specifically agreed that in the event that the Company's business
or any part thereof should be sold in any fashion and this Agreement is assigned
to the purchaser, the purchaser shall be entitled to specifically enforce the
terms and provisions of this Agreement.

      D. The Executive represents and warrants to the Company that (i) he has
fulfilled all of the terms and conditions of all prior employment agreements to
which he was or has been a party and that he is not violating and will not
violate any term or provision of any employment agreement or confidentiality
agreement to which he is or has been a party by entering into or performing his
obligations under this Agreement and (ii) he is not violating and will not
violate his fiduciary duty to any prior employer by entering into or performing
his obligations under this Agreement.

      E. The waiver by the Company of the breach of any provision of this
Agreement by the Executive shall not operate or be construed as a waiver of any
subsequent or continuing breach of this Agreement by the Executive.

                                      -9-
<PAGE>
      F. Except for disputes regarding the Executive's failure to comply with
paragraph 5 or 6 hereof, if a dispute arises out of or relates to this Agreement
or its breach, and if the dispute cannot be settled through direct discussions,
then the Company and the Executive agree first to endeavor to settle the dispute
in an amicable manner by mediation, under the applicable provisions of Section
154.002, ET SEQ., Texas Civil Practices and Remedies Code, as supplemented by
the rules of the American Arbitration Association, before having recourse to any
other proceeding or forum.

      G. This Agreement has been entered into by the parties in Harris County,
Texas where the parties agree venue will lie for any action brought to enforce
or interpret the provisions hereof.

      H. This Agreement may be executed in multiple original counterparts each
of which shall be deemed an original, but all of which together shall constitute
the same instrument.

      IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement in Houston, Texas, effective for all purposes as of the date first
above written.

                                    THE COMPANY:

                                    CARRIAGE SERVICES, INC.

                                    By__________________________________
                                      MARK W. DUFFEY, President

                                    EXECUTIVE:

                                    ____________________________________
                                    MELVIN C. PAYNE

                                      -10-

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