Document:

exv10w1

 

Exhibit 10.1

EMPLOYMENT AGREEMENT

     THIS AGREEMENT, dated August 7, 2007, is between CARRIAGE SERVICES, INC., a Delaware
corporation (the “Company”), and Joseph Saporito, a resident of Harris County, Texas (the
“Employee”).

     1. Employment Term. The Company hereby continues the employment of the Employee for a
term commencing as of the date first above written and, subject to earlier termination or extension
as provided in Section 7 hereof, continuing until August 6, 2010 (such term being herein referred
to as the “term of this Agreement”). The term of this Agreement shall automatically be renewed on
an annual basis thereafter, unless terminated by either party upon sixty (60) days’ written notice
prior to the end of the term then in effect. The Employee agrees to accept such employment and to
perform the services specified herein, all upon the terms and conditions hereinafter stated.

     2. Duties. The Employee shall serve the Company and shall report to, and be subject to
the general direction and control of the Chief Executive Officer of the Company. The Employee shall
faithfully, diligently, competently, and to the best of Employee’s ability, perform the management
and administrative duties of Executive Vice President, Chief Financial Officer and Assistant
Secretary. The Employee shall also serve as Executive Vice President, Chief Financial Officer and
Assistant Secretary of any subsidiary of the Company as requested by the Company, and the Employee
shall perform such other duties as are from time to time assigned to him by the Chief Executive
Officer as are not inconsistent with the provisions hereof. The Employee represents and warrants to
the Company that Employee is not subject to any obligation to any third party that would restrict
or interfere with Employee’s ability to perform hereunder.

     3. Extent of Service. The Employee shall devote his full business time and attention
to the business of the Company, and, except as may be specifically permitted by the Company, shall
not be engaged in any other business activity during the term of this Agreement. The foregoing
shall not be construed as preventing the Employee (i) from making passive investments in other
businesses or enterprises, and (ii) from engaging in other civic, charitable and business
activities, provided, however, that such investments and activities will not require services on
the part of the Employee which would in any way impair the performance of his duties under this
Agreement.

     4. Compensation. During the term of this Agreement, the Company shall pay the
Employee an annual salary of not less than $300,000.00 per full calendar year of service completed
(“Base Salary”), appropriately prorated for partial months at the commencement and end of the term
of this Agreement. The Employee’s salary and benefits will be reviewed annually, and any increase
therein shall remain in the sole discretion of the Company, acting through the Compensation
Committee of its Board of Directors if required. The salary set forth herein shall not be subject
to reduction and shall be payable in bi-weekly installments in accordance with the payroll policies
of the Company in effect from time to time during the term of this Agreement. The Company shall
have the right to deduct from any payment of all

 

 

compensation to the Employee hereunder (x) any federal, state or local taxes required by law
to be withheld with respect to such payments, and (y) any other amounts specifically authorized to
be withheld or deducted by the Employee.

     5. Benefits. In addition to the Base Salary, the Employee shall be entitled to
participate in the following benefits during the term of this Agreement:

     (i) Consideration for an annual performance-based bonus within the sole discretion of
the Company, as may be recommended by the Chief Executive Officer and approved by the
Compensation Committee of the Company’s Board of Directors. A target bonus will be set by
the Company, and approved by the Compensation Committee of the Company’s Board of Directors,
on an annual basis.

     (ii) Eligibility 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 the Chief Executive Officer in his
sole discretion may determine and subject to approval of the Company’s Compensation
Committee.

     (iii) Four weeks of paid vacation in each calendar year, subject to the Company’s
personnel policies respecting such matters.

     (iv) Participation in the Company’s group health and hospitalization program, and
inclusion in such other employee benefits, as are available generally to executive-level
employees of the Company.

     (v) Reimbursement for travel, lodging and other out-of-pocket expenses reasonably
incurred by Employee in the exercise of Employee’s duties under this Agreement which are
approved by the Company in advance and are duly substantiated in accordance with the
Company’s policies as to reimbursement. In order to assure compliance with Section 409A of
the Internal Revenue Code of 1986, as amended (the “Code”), such reimbursements shall be
made as soon as practicable, but in no event later than the last day of the calendar year
following the calendar year in which the expense was incurred.

     6. Certain Additional Matters. The Employee agrees that at all times during the term
of this Agreement and for a period of two years following any cessation of employment with the
Company:

     (a) The Employee will not knowingly or intentionally do or say any act or thing which
will or may impair, damage or destroy the goodwill and esteem for the Company held by its
suppliers, employees, patrons, customers and others who may at any time have or have had
business relations with the Company.

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     (b) The Employee will not knowingly or intentionally do any act or thing detrimental to
the Company or its business.

     Nothing herein shall be construed to prevent the Employee from complying with any
requirements of law or legal process or taking such actions as the Company may consent to in
writing.

     7. Termination.

     (a) Death. If the Employee dies during the term of this Agreement and while in
the employ of the Company, this Agreement shall automatically terminate and the Company
shall have no further obligation to the Employee or his estate except that the Company shall
pay the Employee’s estate (i) that portion of the Employee’s Base Salary accrued through the
date on which the Employee’s death occurred, (ii) a pro rata amount of the annual bonus
described in Section 5(i) above, based on the number of days the Employee was employed in
the year in comparison to 365, and (iii) all benefits payable under the governing provisions
of any benefit plan or program of the Company. Such payment of Base Salary and bonus to the
Employee’s estate shall be made in the same manner and at the same times as they would have
been paid to the Employee had he not died.

     (b) Disability. If during the term of this Agreement, the Employee shall be
prevented from performing his duties hereunder by reason of disability, and such disability
shall continue for a period of six months, then the Company may terminate this Agreement at
any time after the expiration of such six-month period. For purposes of this Agreement, the
Employee shall be deemed to have become disabled when the Company, upon the advice of a
qualified physician, shall have determined that the Employee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or can be expected to last for a
continuous period of not less than 12 months. In the event of a termination pursuant to
this paragraph (b), the Company shall be relieved of all its obligations under this
Agreement, except that the Company shall pay to the Employee (or his estate in the event of
his subsequent death), (i) the Employee’s Base Salary through the date on which such
termination shall have occurred, reduced during such period by the amount of any benefits
received under any disability policy maintained by the Company, (ii) a pro rata amount of
the annual bonus described in Section 5(i) above, based on the number of days the Employee
was employed in the year in comparison to 365, and (iii) all benefits payable under the
governing provisions of any benefit plan or program of the Company. All such payments to
the Employee or his estate shall be made in the same manner and at the same times as they
would have been paid to the Employee had he not become disabled. No such termination
pursuant to this paragraph (b) will relieve the Employee of his obligations under Sections
6, 8 and 9 hereunder.

     (c) Discharge for Cause. Prior to the end of the term of this Agreement, the
Company may discharge the Employee for Cause and terminate this Agreement. In such

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case this Agreement shall automatically terminate and the Company shall have no further
obligation to the Employee or his estate other than to pay to the Employee (or his estate in
the event of his subsequent death) that portion of the Employee’s salary accrued through the
date of termination.

     For purposes of this Agreement, the Company shall have “Cause” to discharge the
Employee or terminate the Employee’s employment hereunder upon (i) the Employee’s conviction
of any felony or any other crime involving moral turpitude, (ii) the 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
Company’s Board of Directors, (iii) the Employee’s commission of acts amounting to gross
negligence or willful misconduct to the detriment of the Company, or (iv) the Employee’s
material breach of any provision of this Agreement or uniformly applied provisions of the
Company’s employee handbook or other personnel policies, including without limitation, its
Code of Business Conduct and Ethics. Such determination of “Cause” shall be made by the
Company’s Board of Directors, and in the event of circumstances described in (ii) or (iv),
the Board shall give written notice to the Employee specifying such circumstances and
providing a period of 30 days in which the Employee shall be allowed to cure such
circumstances.

     Any such termination by virtue of this paragraph (c) shall not prejudice any remedy
that the Company may have at law, in equity, or under this Agreement, for breach hereof by
Employee. No such termination pursuant to this paragraph (c) will relieve the Employee of
his obligations under Sections 6, 8 and 9 hereunder.

     (d) Discharge Without Cause. Prior to the end of the term of this Agreement,
the Company may discharge the Employee without Cause (as defined in paragraph (c) above) and
terminate this Agreement. In such case this Agreement shall automatically terminate and the
Company shall have no further obligation to the Employee or his estate, except that the
Company shall continue to pay to the Employee (or his estate in the event of his subsequent
death), (i) the Employee’s Base Salary for a period of 18 months following the date of
discharge, (ii) 50% of the annual target bonus described in Section 5(i) above for the year
of termination, and (iii) all benefits payable under the governing provisions of any benefit
plan or program of the Company. In addition, if following the date of such discharge, the
Employee becomes eligible to elect continuation coverage under the Consolidated Omnibus
Budget Reconciliation Act (“COBRA”) and properly elects such coverage, the Company shall
reimburse the Employee or pay on the Employee’s behalf 100% of applicable medical
continuation premiums for the benefit of the Employee (and his covered dependents as of the
date of his termination, if any) under the Employee’s then-current plan election, with such
coverage to be provided under the closest comparable plan as offered by the Company from
time to time, for so long during the 18-month period following termination as he remains
eligible for and elects COBRA coverage, except as otherwise provided in paragraph (e) below.
All such payments to the Employee or his estate shall be made in the same manner and at the
same times as they would have been paid to the Employee had he not been discharged. No such
termination

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pursuant to this paragraph (d) will relieve the Employee of his obligations under
Sections 6, 8 and 9 hereunder.

     (e) Corporate Change. If following a Corporate Change (as defined in the
Company’s 2006 Long-Term Incentive Plan), the Employee voluntarily terminates his employment
for Good Reason (as defined below) or the Employee is discharged without Cause, in either
case within 24 months following the Corporate Change, then this Agreement shall
automatically terminate and the Company shall have no further obligation to the Employee or
his estate, except that the Company shall pay to the Employee (or his estate in the event of
his subsequent death), (i) a lump sum payment payable following such termination equal to
one and one-half times the Employee’s Base Salary, (ii) 50% of the annual target bonus
described in Section 5(i) above for the year of termination and (iii) all benefits payable
under the governing provisions of any benefit plan or program of the Company. In addition,
if following the date of such resignation or discharge, the Employee becomes eligible to
elect continuation coverage under COBRA and properly elects such coverage, the Company shall
reimburse the Employee or pay on the Employee’s behalf 100% of applicable medical
continuation premiums for the benefit of the Employee (and his covered dependents as of the
date of his termination, if any) under the Employee’s then-current plan election, with such
coverage to be provided under the closest comparable plan as offered by the Company from
time to time, for so long during the 18-month period following the date of resignation or
discharge as he remains eligible for and elects COBRA coverage. No such termination
pursuant to this paragraph (e) will relieve the Employee of his obligations under Sections 6
and 9 hereunder.

          “Good Reason” means any of the following actions if taken without the Employee’s prior
written consent: (A) any material breach by the Company to comply with its obligations under
the terms of the Agreement; (B) any material diminution in the Employee’s responsibilities,
authority or duties, (C) a material diminution in the Employee’s Base Salary; or (D) any
material change in the permanent location at which the Employee performs services for the
Company. The Employee shall give written notice to the Board specifying such actions within
90 days of the existence of such action and providing a period of 30 days in which the
Company shall be allowed to cure such circumstances.

     8. Restrictive Covenants. The Company has provided and shall provide in the future to
the Employee, confidential and proprietary information as that term is defined in Section 9 of this
Agreement (“Confidential Information”). The 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
shall be given possession of and access to Confidential Information of the Company and its
affiliates, and will develop through such employment business systems, methods of doing business,
and contacts within the death care industry, all of which will help to identify him with the
business and goodwill of the Company. Consequently, it is important that the Company protect its
interests in regard to such matters from unfair competition. In consideration of the Confidential
Information that has been received and that the Company covenants to provide the Employee in the
future, the sufficiency of which is hereby

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acknowledged by the Employee, the Employee agrees to enter into the covenants contained in
this Agreement. 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 Employee shall not, directly or
indirectly:

     (i) alone or for his own account, or as a 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 (x) 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 (y) 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 subsidiaries at the time of
such termination;

     (ii) induce or assist anyone in inducing in any way any employee of the Company or any
of its subsidiaries to resign or sever his or her employment or to breach an employment
contract with the Company or any such subsidiary; or

     (iii) 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 (x) as part of any of the
companies or entities listed on Schedule I, or (y) 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 subsidiaries 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.

     9. Confidential Information; Copyrightable Material. The Employee acknowledges that in
the course of his employment by the Company he shall receive and access certain trade secrets,
management methods, financial and accounting data (including, but not limited to, reports, studies,
analyses, spreadsheets and other materials and information), operating techniques, prospective
acquisitions, employee lists, training manuals and procedures, personnel evaluation procedures, and
other confidential information and knowledge concerning the business of the Company and its
affiliates (hereinafter collectively referred to as “Confidential

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Information”) which the Company desires to protect. The Employee understands that the
Confidential Information is confidential and he agrees not to reveal the Confidential Information
to anyone outside the Company so long as the confidential or secret nature of the Confidential
Information shall continue, except as required by law or legal process. The Employee further agrees
that he will at no time use the Confidential Information in competing with the Company. Upon
termination of this Agreement, the Employee shall surrender to the Company all papers, documents,
writings and other property produced by him or coming into his possession by or through his
employment or relating to the Confidential Information and the Employee agrees that all such
materials will at all times remain the property of the Company. The Employee acknowledges that all
materials and other copyrightable works and subject matter (regardless of whether or not
constituting “Confidential Information”) produced by the Employee within the scope of his
employment (regardless of whether or not denoted as copyrighted material) shall be deemed “works
made for hire” and shall be owned by and proprietary to the Company and may not be used or
reproduced in whole or in part without the Company’s prior written consent.

     10. Remedies. The parties recognize that the services to be rendered under this
Agreement by the Employee are special, unique, and of extraordinary character, and that in the
event of the breach by the Employee of the covenants contained in Section 8 or Section 9 hereof,
the Company may suffer irreparable harm as a result. The parties therefore agree that, in the
event of any breach or threatened breach of any of such covenants, the Company shall be entitled to
specific performance or injunctive relief, or both, and may, in addition to and not in lieu of any
claim or proceeding for damages, institute and prosecute proceedings in any court of competent
jurisdiction to enforce through injunctive relief such covenants. In addition, the Company may, if
it so elects, suspend (if applicable) any payments due under this Agreement pending any such breach
and offset against any future payments the amount of the Company’s damages arising from any such
breach. The Employee 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.

     11. Notices. All notices, requests, consents and other communications under this
Agreement shall be in writing and shall be deemed to have been delivered on the date personally
delivered or three business days after the date mailed, postage prepaid, by certified mail, return
receipt requested, or when sent by electronic means or facsimile and receipt is confirmed, if
addressed to the respective parties as follows:

	 	 	 
	     If to the Employee:          

	 	Joseph Saporito
	 

	 	P.O. Box 27591
	 

	 	Houston, TX 77227
	 
	 	 
	     If to the Company:

	 	Carriage Services, Inc.
	 

	 	3040 Post Oak Blvd, Suite 300
	 

	 	Houston, Texas 77056
	 

	 	Attn: Chief Executive Officer

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Either party hereto may designate a different address by providing written notice of such new
address to the other party hereto.

     12. Severability. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law but if any provision
of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such provision or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.

     13. Assignment. This Agreement may not be assigned by the Employee. Neither the
Employee nor his estate shall have any right to commute, encumber or dispose of any right to
receive payments hereunder, it being agreed that such payments and the right thereto are
nonassignable and nontransferable.

     14. Binding Effect. Subject to the provisions of Section 13 of this Agreement, this
Agreement shall be binding upon and inure to the benefit of the parties hereto, the Employee’s
heirs and personal representatives, and the successors and assigns of the Company.

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

     16. Complete Agreement. This Agreement represents the entire agreement between the
parties concerning the subject hereof and supersedes all prior agreements and arrangements between
the parties concerning the subject thereof.

     17. Governing Law; Venue. A substantial portion of the Employee’s duties under this
Agreement shall be performed at the Company’s corporate headquarters in Houston, Texas, and this
Agreement has been substantially negotiated and is being executed and delivered in the State of
Texas. This Agreement shall be construed and enforced in accordance with and governed by the laws
of the State of Texas. Any suit, claim or proceeding arising under or in connection with this
Agreement or the employment relationship evidenced hereby must be brought, if at all, in a state
district court in Harris County, Texas or federal district court in the Southern District of Texas,
Houston Division. Each party submits to the jurisdiction of such courts and agrees not to raise
any objection to such jurisdiction.

     18. Survival. The provisions of Sections 6, 8 and 9 shall survive any termination of
this Agreement or the employment relationship of the Company and Employee; provided, however, if
such termination is the result of Corporate Change as provided in Section 7(e) hereof, Employee
shall not thereafter be bound by the provisions of Section 8 hereof.

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

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     20. Time of Payments. All amounts payable under Sections 7(d) and (e) of this
Agreement shall be paid within 10 days after the Employee’s execution without revocation of a
release in a form satisfactory to the Company and within the time period prescribed by the Company
(which may not be less than 21 days after the date of termination of employment). If the Employee
is a “specified employee,” as such term is defined in Section 409A of the Code and related
regulations and Treasury pronouncements (“Section 409A”) and determined as described below in this
Section 20, any payments payable as a result of the Employee’s termination (other than death) shall
not be payable before the earliest of (i) the date that is six months after the Employee’s
termination, (ii) the date of the Employee’s death, or (iii) the date that otherwise complies with
the requirements of Section 409A. This Section 20 shall be applied by accumulating all payments
that otherwise would have been paid within six months of the Employee’s termination and paying such
accumulated amounts at the earliest date which complies with the requirements of Section 409A. The
Employee shall be a “specified employee” for the twelve-month period beginning on April 1 of a year
if the Employee is a “key employee” as defined in Section 416(i) of the Code (without regard to
Section 416(i)(5)) as of December 31 of the preceding year or using such dates as designated by the
Company in accordance with Section 409A and in a manner that is consistent with respect to all of
the Company’s nonqualified deferred compensation plans. For purposes of determining the identity
of specified employees, the Company may establish procedures as it deems appropriate in accordance
with Section 409A.

     21. Income, Excise or Other Tax Liability. 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 normal employee
deductions made with respect to the Company’s employees generally. Notwithstanding anything in this
Agreement to the contrary, in the event it shall be determined that any payment or distribution by
the Company to the Employee or for his benefit, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (a “Payment”), would be subject
to the excise tax imposed by Section 4999 of the Code, or any interest or penalties with respect to
such excise tax (such excise tax, together with any such interest or penalties, are hereinafter
collectively referred to as the “Excise Tax”), the Company shall pay to the Employee an additional
payment (a “Gross-up Payment” ) in an amount such that after payment by the Employee of all taxes
(including any interest or penalties imposed with respect to such taxes), including any Excise Tax
imposed on any Gross-up Payment, the Employee retains an amount of the Gross-up Payment equal to
the Excise Tax imposed upon the Payments. All determinations required to be made under this
Section 21 shall be made by the Company’s accounting firm (the “Accounting Firm”). The Accounting
Firm shall provide detailed supporting calculations both to the Company and the Employee. All fees
and expenses of the Accounting Firm shall be borne solely by the Company. Absent manifest error,
any determination by the Accounting Firm shall be binding upon the Company and the Employee.

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     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year
first above written.

	 	 	 	 	 
	 	CARRIAGE SERVICES, INC.

 	 
	 	By:  	/s/ MELVIN C. PAYNE
 	 
	 	 	MELVIN C. PAYNE, Chief Executive Officer 	 
	 	 	 	 
	 
	 	 	 
	 	     /s/ Joseph Saporito
 	 
	 	Joseph Saporito 	 
	 	 	 

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SCHEDULE I

TO

EMPLOYMENT AGREEMENT

	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

	 	 	For purposes of the foregoing, an “Affiliate” of an entity is a person that directly or
indirectly controls, is under the control of or is under common control with such entity.
	 
	2.	 	Any new entity which may hereafter be established which acquires any combination of ten or
more funeral homes and/or cemeteries from any of the entities described in 1 above.
	 
	3.	 	Any funeral home, cemetery or other death care enterprise which is managed by any entity
described in 1 or 2 above.

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Exhibit 10.2

EMPLOYMENT AGREEMENT

     THIS AGREEMENT, dated August 7, 2007, is between CARRIAGE SERVICES, INC., a Delaware
corporation (the “Company”), and George J. Klug, a resident of Montgomery County, Texas (the
“Employee”).

     1. Employment Term. The Company hereby continues the employment of the Employee for a
term commencing as of the date first above written and, subject to earlier termination or extension
as provided in Section 7 hereof, continuing until August 6, 2010 (such term being herein referred
to as the “term of this Agreement”). The term of this Agreement shall automatically be renewed on
an annual basis thereafter, unless terminated by either party upon sixty (60) days’ written notice
prior to the end of the term then in effect. The Employee agrees to accept such employment and to
perform the services specified herein, all upon the terms and conditions hereinafter stated.

     2. Duties. The Employee shall serve the Company and shall report to, and be subject to
the general direction and control of the Chief Executive Officer of the Company. The Employee shall
faithfully, diligently, competently, and to the best of Employee’s ability, perform the management
and administrative duties of Senior Vice President of Information Systems and Chief Information
Officer. The Employee shall also serve as Senior Vice President of Information Systems and Chief
Information Officer of any subsidiary of the Company as requested by the Company and the Employee
shall perform such other duties as are from time to time assigned to him by the Chief Executive
Officer as are not inconsistent with the provisions hereof. The Employee represents and warrants to
the Company that Employee is not subject to any obligation to any third party that would restrict
or interfere with Employee’s ability to perform hereunder.

     3. Extent of Service. The Employee shall devote his full business time and attention
to the business of the Company, and, except as may be specifically permitted by the Company, shall
not be engaged in any other business activity during the term of this Agreement. The foregoing
shall not be construed as preventing the Employee (i) from making passive investments in other
businesses or enterprises, and (ii) from engaging in other civic, charitable and business
activities, provided, however, that such investments and activities will not require services on
the part of the Employee which would in any way impair the performance of his duties under this
Agreement.

     4. Compensation. During the term of this Agreement, the Company shall pay the
Employee an annual salary of not less than $230,000.00 per full calendar year of service completed
(“Base Salary”), appropriately prorated for partial months at the commencement and end of the term
of this Agreement. The Employee’s salary and benefits will be reviewed annually, and any increase
therein shall remain in the sole discretion of the Company, acting through the Compensation
Committee of its Board of Directors if required. The salary set forth herein shall not be subject
to reduction and shall be payable in bi-weekly installments in accordance with the payroll policies
of the Company in effect from time to time during the term

 

 

of this Agreement. The Company shall
have the right to deduct from any payment of all
compensation to the Employee hereunder (x) any federal, state or local taxes required by law
to be withheld with respect to such payments, and (y) any other amounts specifically authorized to
be withheld or deducted by the Employee.

     5. Benefits. In addition to the Base Salary, the Employee shall be entitled to
participate in the following benefits during the term of this Agreement:

     (i) Consideration for an annual performance-based bonus within the sole discretion of
the Company, as may be recommended by the Chief Executive Officer and approved by the
Compensation Committee of the Company’s Board of Directors. A target bonus will be set by
the Company, and approved by the Compensation Committee of the Company’s Board of Directors,
on an annual basis.

     (ii) Eligibility 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 the Chief Executive Officer in his
sole discretion may determine and subject to approval of the Company’s Compensation
Committee.

     (iii) Four weeks of paid vacation in each calendar year, subject to the Company’s
personnel policies respecting such matters.

     (iv) Participation in the Company’s group health and hospitalization program, and
inclusion in such other employee benefits, as are available generally to executive-level
employees of the Company.

     (v) Reimbursement for travel, lodging and other out-of-pocket expenses reasonably
incurred by Employee in the exercise of Employee’s duties under this Agreement which are
approved by the Company in advance and are duly substantiated in accordance with the
Company’s policies as to reimbursement. In order to assure compliance with Section 409A of
the Internal Revenue Code of 1986, as amended (the “Code”), such reimbursements shall be
made as soon as practicable, but in no event later than the last day of the calendar year
following the calendar year in which the expense was incurred.

     6. Certain Additional Matters. The Employee agrees that at all times during the term
of this Agreement and for a period of two years following any cessation of employment with the
Company:

     (a) The Employee will not knowingly or intentionally do or say any act or thing which
will or may impair, damage or destroy the goodwill and esteem for the Company held by its
suppliers, employees, patrons, customers and others who may at any time have or have had
business relations with the Company.

-2-

 

     (b) The Employee will not knowingly or intentionally do any act or thing detrimental to
the Company or its business.

     Nothing herein shall be construed to prevent the Employee from complying with any
requirements of law or legal process or taking such actions as the Company may consent to in
writing.

     7. Termination.

     (a) Death. If the Employee dies during the term of this Agreement and while in
the employ of the Company, this Agreement shall automatically terminate and the Company
shall have no further obligation to the Employee or his estate except that the Company shall
pay the Employee’s estate (i) that portion of the Employee’s Base Salary accrued through the
date on which the Employee’s death occurred, (ii) a pro rata amount of the annual bonus
described in Section 5(i) above, based on the number of days the Employee was employed in
the year in comparison to 365, and (iii) all benefits payable under the governing provisions
of any benefit plan or program of the Company. Such payment of Base Salary and bonus to the
Employee’s estate shall be made in the same manner and at the same times as they would have
been paid to the Employee had he not died.

     (b) Disability. If during the term of this Agreement, the Employee shall be
prevented from performing his duties hereunder by reason of disability, and such disability
shall continue for a period of six months, then the Company may terminate this Agreement at
any time after the expiration of such six-month period. For purposes of this Agreement, the
Employee shall be deemed to have become disabled when the Company, upon the advice of a
qualified physician, shall have determined that the Employee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or can be expected to last for a
continuous period of not less than 12 months. In the event of a termination pursuant to
this paragraph (b), the Company shall be relieved of all its obligations under this
Agreement, except that the Company shall pay to the Employee (or his estate in the event of
his subsequent death), (i) the Employee’s Base Salary through the date on which such
termination shall have occurred, reduced during such period by the amount of any benefits
received under any disability policy maintained by the Company, (ii) a pro rata amount of
the annual bonus described in Section 5(i) above, based on the number of days the Employee
was employed in the year in comparison to 365, and (iii) all benefits payable under the
governing provisions of any benefit plan or program of the Company. All such payments to
the Employee or his estate shall be made in the same manner and at the same times as they
would have been paid to the Employee had he not become disabled. No such termination
pursuant to this paragraph (b) will relieve the Employee of his obligations under Sections
6, 8 and 9 hereunder.

     (c) Discharge for Cause. Prior to the end of the term of this Agreement, the
Company may discharge the Employee for Cause and terminate this Agreement. In such

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case this Agreement shall automatically terminate and the Company shall have no further
obligation to the Employee or his estate other than to pay to the Employee (or his estate
in the event of his subsequent death) that portion of the Employee’s salary accrued
through the date of termination.

     For purposes of this Agreement, the Company shall have “Cause” to discharge the
Employee or terminate the Employee’s employment hereunder upon (i) the Employee’s conviction
of any felony or any other crime involving moral turpitude, (ii) the 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
Company’s Board of Directors, (iii) the Employee’s commission of acts amounting to gross
negligence or willful misconduct to the detriment of the Company, or (iv) the Employee’s
material breach of any provision of this Agreement or uniformly applied provisions of the
Company’s employee handbook or other personnel policies, including without limitation, its
Code of Business Conduct and Ethics. Such determination of “Cause” shall be made by the
Company’s Board of Directors, and in the event of circumstances described in (ii) or (iv),
the Board shall give written notice to the Employee specifying such circumstances and
providing a period of 30 days in which the Employee shall be allowed to cure such
circumstances.

     Any such termination by virtue of this paragraph (c) shall not prejudice any remedy
that the Company may have at law, in equity, or under this Agreement, for breach hereof by
Employee. No such termination pursuant to this paragraph (c) will relieve the Employee of
his obligations under Sections 6, 8 and 9 hereunder.

     (d) Discharge Without Cause. Prior to the end of the term of this Agreement,
the Company may discharge the Employee without Cause (as defined in paragraph (c) above) and
terminate this Agreement. In such case this Agreement shall automatically terminate and the
Company shall have no further obligation to the Employee or his estate, except that the
Company shall continue to pay to the Employee (or his estate in the event of his subsequent
death), (i) the Employee’s Base Salary for a period of 18 months following the date of
discharge, (ii) 50% of the annual target bonus described in Section 5(i) above for the year
of termination, and (iii) all benefits payable under the governing provisions of any benefit
plan or program of the Company. In addition, if following the date of such discharge, the
Employee becomes eligible to elect continuation coverage under the Consolidated Omnibus
Budget Reconciliation Act (“COBRA”) and properly elects such coverage, the Company shall
reimburse the Employee or pay on the Employee’s behalf 100% of applicable medical
continuation premiums for the benefit of the Employee (and his covered dependents as of the
date of his termination, if any) under the Employee’s then-current plan election, with such
coverage to be provided under the closest comparable plan as offered by the Company from
time to time, for so long during the 18-month period following termination as he remains
eligible for and elects COBRA coverage, except as otherwise provided in paragraph (e) below.
All such payments to the Employee or his estate shall be made in the same manner and at the
same times as they would have been paid to the Employee had he not been discharged. No such
termination pursuant to this paragraph (d) will relieve the Employee of his obligations
under Sections 6, 8 and 9 hereunder.

-4-

 

     (e) Corporate Change. If following a Corporate Change (as defined in the
Company’s 2006 Long-Term Incentive Plan), the Employee voluntarily terminates his employment
for Good Reason (as defined below) or the Employee is discharged without Cause, in either
case within 24 months following the Corporate Change, then this Agreement shall
automatically terminate and the Company shall have no further obligation to the Employee or
his estate, except that the Company shall pay to the Employee (or his estate in the event of
his subsequent death), (i) a lump sum payment payable following such termination equal to
one and one-half times the Employee’s Base Salary, (ii) 50% of the annual target bonus
described in Section 5(i) above for the year of termination and (iii) all benefits payable
under the governing provisions of any benefit plan or program of the Company. In addition,
if following the date of such resignation or discharge, the Employee becomes eligible to
elect continuation coverage under COBRA and properly elects such coverage, the Company shall
reimburse the Employee or pay on the Employee’s behalf 100% of applicable medical
continuation premiums for the benefit of the Employee (and his covered dependents as of the
date of his termination, if any) under the Employee’s then-current plan election, with such
coverage to be provided under the closest comparable plan as offered by the Company from
time to time, for so long during the 18-month period following the date of resignation or
discharge as he remains eligible for and elects COBRA coverage. No such termination
pursuant to this paragraph (e) will relieve the Employee of his obligations under Sections 6
and 9 hereunder.

          “Good Reason” means any of the following actions if taken without the Employee’s prior
written consent: (A) any material breach by the Company to comply with its obligations under
the terms of the Agreement; (B) any material diminution in the Employee’s responsibilities,
authority or duties, (C) a material diminution in the Employee’s Base Salary; or (D) any
material change in the permanent location at which the Employee performs services for the
Company. The Employee shall give written notice to the Board specifying such actions within
90 days of the existence of such action and providing a period of 30 days in which the
Company shall be allowed to cure such circumstances.

     8. Restrictive Covenants. The Company has provided and shall provide in the future to
the Employee, confidential and proprietary information as that term is defined in Section 9 of this
Agreement (“Confidential Information”). The 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
shall be given possession of and access to Confidential Information of the Company and its
affiliates, and will develop through such employment business systems, methods of doing business,
and contacts within the death care industry, all of which will help to identify him with the
business and goodwill of the Company. Consequently, it is important that the Company protect its
interests in regard to such matters from unfair competition. In consideration of the Confidential
Information that has been received and that the Company covenants to provide the Employee in the
future, the sufficiency of which is hereby

-5-

 

acknowledged by the Employee, the Employee agrees to
enter into the covenants contained in this Agreement. 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 Employee
shall not, directly or indirectly:

     (i) alone or for his own account, or as a 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 (x) 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 (y) 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 subsidiaries at the time of
such termination;

     (ii) induce or assist anyone in inducing in any way any employee of the Company or any
of its subsidiaries to resign or sever his or her employment or to breach an employment
contract with the Company or any such subsidiary; or

     (iii) 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 (x) as part of any of the
companies or entities listed on Schedule I, or (y) 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 subsidiaries 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.

     9. Confidential Information; Copyrightable Material. The Employee acknowledges that in
the course of his employment by the Company he shall receive and access certain trade secrets,
management methods, financial and accounting data (including, but not limited to, reports, studies,
analyses, spreadsheets and other materials and information), operating techniques, prospective
acquisitions, employee lists, training manuals and procedures, personnel evaluation procedures, and
other confidential information and knowledge concerning the business of the Company and its
affiliates (hereinafter collectively referred to as “Confidential

-6-

 

Information”) which the Company
desires to protect. The Employee understands that the Confidential Information is confidential and
he agrees not to reveal the Confidential Information to anyone outside the Company so long as the
confidential or secret nature of the Confidential Information shall continue, except as required by
law or legal process. The Employee further
agrees that he will at no time use the Confidential Information in competing with the Company.
Upon termination of this Agreement, the Employee shall surrender to the Company all papers,
documents, writings and other property produced by him or coming into his possession by or through
his employment or relating to the Confidential Information and the Employee agrees that all such
materials will at all times remain the property of the Company. The Employee acknowledges that all
materials and other copyrightable works and subject matter (regardless of whether or not
constituting “Confidential Information”) produced by the Employee within the scope of his
employment (regardless of whether or not denoted as copyrighted material) shall be deemed “works
made for hire” and shall be owned by and proprietary to the Company and may not be used or
reproduced in whole or in part without the Company’s prior written consent.

     10. Remedies. The parties recognize that the services to be rendered under this
Agreement by the Employee are special, unique, and of extraordinary character, and that in the
event of the breach by the Employee of the covenants contained in Section 8 or Section 9 hereof,
the Company may suffer irreparable harm as a result. The parties therefore agree that, in the
event of any breach or threatened breach of any of such covenants, the Company shall be entitled to
specific performance or injunctive relief, or both, and may, in addition to and not in lieu of any
claim or proceeding for damages, institute and prosecute proceedings in any court of competent
jurisdiction to enforce through injunctive relief such covenants. In addition, the Company may, if
it so elects, suspend (if applicable) any payments due under this Agreement pending any such breach
and offset against any future payments the amount of the Company’s damages arising from any such
breach. The Employee 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.

     11. Notices. All notices, requests, consents and other communications under this
Agreement shall be in writing and shall be deemed to have been delivered on the date personally
delivered or three business days after the date mailed, postage prepaid, by certified mail, return
receipt requested, or when sent by electronic means or facsimile and receipt is confirmed, if
addressed to the respective parties as follows:

	 	 	 
	 
	 	 
	      If to the Employee:

	 	George J. Klug
	 

	 	21004 Williams Creek Drive
	 

	 	Porter, TX 77365
	 
	 	 
	      If to the Company:

	 	Carriage Services, Inc.
	 

	 	3040 Post Oak Blvd, Suite 300
	 

	 	Houston, Texas 77056
	 

	 	Attn: Chief Executive Officer

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Either party hereto may designate a different address by providing written notice of such new
address to the other party hereto.

     12. Severability. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law but if any provision
of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such provision or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.

     13. Assignment. This Agreement may not be assigned by the Employee. Neither the
Employee nor his estate shall have any right to commute, encumber or dispose of any right to
receive payments hereunder, it being agreed that such payments and the right thereto are
nonassignable and nontransferable.

     14. Binding Effect. Subject to the provisions of Section 13 of this Agreement, this
Agreement shall be binding upon and inure to the benefit of the parties hereto, the Employee’s
heirs and personal representatives, and the successors and assigns of the Company.

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

     16. Complete Agreement. This Agreement represents the entire agreement between the
parties concerning the subject hereof and supersedes all prior agreements and arrangements between
the parties concerning the subject thereof.

     17. Governing Law; Venue. A substantial portion of the Employee’s duties under this
Agreement shall be performed at the Company’s corporate headquarters in Houston, Texas, and this
Agreement has been substantially negotiated and is being executed and delivered in the State of
Texas. This Agreement shall be construed and enforced in accordance with and governed by the laws
of the State of Texas. Any suit, claim or proceeding arising under or in connection with this
Agreement or the employment relationship evidenced hereby must be brought, if at all, in a state
district court in Harris County, Texas or federal district court in the Southern District of Texas,
Houston Division. Each party submits to the jurisdiction of such courts and agrees not to raise
any objection to such jurisdiction.

     18. Survival. The provisions of Sections 6, 8 and 9 shall survive any termination of
this Agreement or the employment relationship of the Company and Employee; provided, however, if
such termination is the result of Corporate Change as provided in Section 7(e) hereof, Employee
shall not thereafter be bound by the provisions of Section 8 hereof.

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

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     20. Time of Payments. All amounts payable under Sections 7(d) and (e) of this
Agreement shall be paid within 10 days after the Employee’s execution without revocation of a
release in a form satisfactory to the Company and within the time period prescribed by the Company
(which may not be less than 21 days after the date of termination of employment). If the Employee
is a “specified employee,” as such term is defined in Section 409A of the Code and related
regulations and Treasury pronouncements (“Section 409A”) and determined as described below in this
Section 20, any payments payable as a result of the Employee’s termination (other than death) shall
not be payable before the earliest of (i) the date that is six
months after the Employee’s termination, (ii) the date of the Employee’s death, or (iii) the
date that otherwise complies with the requirements of Section 409A. This Section 20 shall be
applied by accumulating all payments that otherwise would have been paid within six months of the
Employee’s termination and paying such accumulated amounts at the earliest date which complies with
the requirements of Section 409A. The Employee shall be a “specified employee” for the
twelve-month period beginning on April 1 of a year if the Employee is a “key employee” as defined
in Section 416(i) of the Code (without regard to Section 416(i)(5)) as of December 31 of the
preceding year or using such dates as designated by the Company in accordance with Section 409A and
in a manner that is consistent with respect to all of the Company’s nonqualified deferred
compensation plans. For purposes of determining the identity of specified employees, the Company
may establish procedures as it deems appropriate in accordance with Section 409A.

     21. Income, Excise or Other Tax Liability. 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 normal employee
deductions made with respect to the Company’s employees generally. Notwithstanding anything in this
Agreement to the contrary, in the event it shall be determined that any payment or distribution by
the Company to the Employee or for his benefit, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (a “Payment”), would be subject
to the excise tax imposed by Section 4999 of the Code, or any interest or penalties with respect to
such excise tax (such excise tax, together with any such interest or penalties, are hereinafter
collectively referred to as the “Excise Tax”), the Company shall pay to the Employee an additional
payment (a “Gross-up Payment” ) in an amount such that after payment by the Employee of all taxes
(including any interest or penalties imposed with respect to such taxes), including any Excise Tax
imposed on any Gross-up Payment, the Employee retains an amount of the Gross-up Payment equal to
the Excise Tax imposed upon the Payments. All determinations required to be made under this
Section 21 shall be made by the Company’s accounting firm (the “Accounting Firm”). The Accounting
Firm shall provide detailed supporting calculations both to the Company and the Employee. All fees
and expenses of the Accounting Firm shall be borne solely by the Company. Absent manifest error,
any determination by the Accounting Firm shall be binding upon the Company and the Employee.

-9-

 

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year
first above written.

	 	 	 	 	 
	 	CARRIAGE SERVICES, INC.

 	 
	 	By:  	 	 
	 	 	MELVIN C. PAYNE, Chief Executive Officer 	 
	 	 	 	 

	 	 	 	 	 
	 	 	 
	 	 	 
	 	George J. Klug 	 
	 	 	 	 
	 

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SCHEDULE I

TO

EMPLOYMENT AGREEMENT

	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

For purposes of the foregoing, an “Affiliate” of an entity is a person that directly or
indirectly controls, is under the control of or is under common control with such entity.

	2.	 	Any new entity which may hereafter be established which acquires any combination of ten or
more funeral homes and/or cemeteries from any of the entities described in 1 above.

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

-11-

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