CARRIAGE SERVICES INC
10-K405, 2000-03-23
PERSONAL SERVICES
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                    FORM 10-K
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                            ------------------------
                         COMMISSION FILE NUMBER: 1-11961
                            ------------------------

                            CARRIAGE SERVICES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


                DELAWARE                                 76-0423828
    (STATE OR OTHER JURISDICTION OF         (I.R.S. EMPLOYER IDENTIFICATION NO.)
     INCORPORATION OR ORGANIZATION)

1300 POST OAK BLVD., SUITE 1500, HOUSTON, TX                       77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                         (ZIP CODE)

       Registrant's telephone number, including area code: (281) 556-7400
                            ------------------------

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                      Class A Common Stock, $.01 Par Value
                                (TITLE OF CLASS)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                      None
                            ------------------------

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

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

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

The aggregate market value of the voting stock held by non-affiliates
(affiliates being, for these purposes only, directors, executive officers and
holders of more than 5% of Carriage's Class A Common Stock) of the Registrant as
of March 15, 2000 was approximately $34,000,000.

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

The number of shares of the Registrant's Class A Common Stock, $.01 par value
per share, and Class B Common Stock, $.01 par value per share, outstanding as of
March 15, 2000 was 14,071,101 and 1,905,662, respectively.

                      DOCUMENTS INCORPORATED BY REFERENCE

Proxy Statement in connection with the 2000 annual meeting of shareholders,
incorporated in Part III of this Report.
<PAGE>
FORWARD-LOOKING STATEMENTS

     In addition to historical information, this Annual Report contains
forward-looking statements made by the management of Carriage Services, Inc.
(the "Company" or "Carriage"). Such statements are typically identified by
terms expressing future expectations or goals. These forward-looking statements,
although made in good faith, are subject to certain risks and uncertainties that
could cause actual results to differ materially from those reflected in these
forward-looking statements. Factors that might cause such a difference include
Carriage's inability to acquire additional businesses, to increase free cash
flow from operations, or to achieve internal growth from its businesses; adverse
changes in economic and financial market conditions, including declining stock
prices, increasing interest rates, and restricted credit availability; lower
death rates; changing consumer preferences; competition in our markets; and
changes in government regulation of the death care industry. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's opinions only as of the date hereof. We undertake no
obligation to revise or publicly release the results of any revision of these
forward-looking statements. Readers should carefully review the Cautionary
Statements described in this and other documents we file from time to time with
the Securities and Exchange Commission, including Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K filed by Carriage throughout 2000.

CAUTIONARY STATEMENTS

     The Company cautions readers that the following important factors, among
others, in some cases have affected, and in the future could affect, the
Company's actual consolidated results and could cause the Company's actual
consolidated results in the future to differ materially from the goals and
expectations expressed herein and in any other forward-looking statements made
by or on behalf of the Company.

     (1)  Achieving growth in free cash flow from operations depends primarily
on achieving anticipated levels of earnings before depreciation and
amortization, controlling capital expenditures to budgeted levels, reducing the
growth in accounts receivable and reducing preneed funeral costs.

     (2)  Achieving revenue growth historically has been dependant upon the
level of acquisition activity experienced by the Company. Higher levels of
acquisition activity will increase anticipated revenues, and lower levels will
decrease anticipated revenues. The level of acquisition activity depends not
only on the number of properties acquired, but also on the size of the
acquisitions; for example, one large acquisition could increase substantially
the level of acquisition activity and, consequently, revenues. Several important
factors, among others, affect the Company's ability to consummate acquisitions:

        (a)  The Company may be unable to find a sufficient number of businesses
             for sale at prices that are favorable to the Company and which the
             Company is willing to pay.

        (b)  In most of its existing markets and in certain new markets that the
             Company desires to enter, the Company competes for acquisitions
             with other publicly traded and privately owned death care firms.
             These competitors, and others, may be willing to pay higher prices
             for businesses than the Company or may cause the Company to pay
             more to acquire a business than the Company would otherwise have
             paid in the absence of such competition. Thus, the aggressiveness
             of the Company's competitors in pricing acquisitions affects the
             Company's ability to complete acquisitions at prices it finds
             attractive.

        (c)  The timing, size and success of the Company's acquisition efforts
             depend in large part on the continued availability of financing.
             The Company's growth could be negatively impacted if it is unable
             to obtain sufficient capital.

     (3)  Achieving the Company's revenue goals also is affected by the volume
and prices of the properties, products and services sold, as well as the mix of
products and services sold. The annual sales targets set by the Company are
aggressive, and the inability of the Company to achieve planned volume or prices
could cause the Company not to meet anticipated levels of revenue. In certain
markets the Company expects to increase prices, while in other markets prices
will be lowered. The ability of the Company to achieve volume or price targets
at any location depends on numerous factors, including the local economy, the
local death rate, competition and changes in consumer preferences, including
cremations.

                                       1
<PAGE>
     (4)  Future revenue also is affected by the level of prearranged sales in
prior periods. The level of prearranged sales may be adversely affected by
numerous factors, including deterioration in the economy, which causes
individuals to have less discretionary income, as well as changes in commission
practices and contractual terms.

     (5)  In addition to the factors discussed above, financial performance may
be affected by other important factors, including the following:

        (a)  The ability of the Company to successfully integrate acquisitions
             into the Company's business and to realize expected revenue
             projections and cost savings in connection with the acquisitions.

        (b)  Whether acquired businesses perform at pro forma levels used by
             management in the valuation process, and the rate at which
             management is able to increase the profitability of acquired
             businesses.

        (c)  The ability of the Company to manage its growth in terms of
             implementing internal controls and information gathering systems,
             and retaining or attracting key personnel, among other things.

        (d)  The amount and rate of growth in the Company's general and
             administrative expenses.

        (e)  Changes in interest rates, which can increase or decrease the
             amount the Company pays on borrowings with variable rates of
             interest.

        (f)  The Company's debt-to-capital ratio, the number of shares of common
             stock outstanding and the portion of the Company's debt that has
             fixed or variable interest rates.

        (g)  Availability of debt and equity financing to fund operating and
             acquisition strategy.

        (h)  The impact on the Company's financial statements of accounting
             charges that may result from the Company's ongoing evaluation of
             its business strategies, asset valuations and organizational
             structures.

        (i)  Changes in government regulation, including tax rates and their
             effects on corporate structure.

        (j)  Changes in inflation and other general economic conditions
             domestically, affecting financial markets (e.g. marketable security
             values).

        (k)  Unanticipated legal proceedings and unanticipated outcomes of legal
             proceedings.

        (l)  Changes in accounting policies and practices required by generally
             accepted accounting principles or the Securities and Exchange
             Commission, such as amortization periods for long-lived intangible
             assets and revenue or cost recognition in the preneed cemetery or
             funeral business.

     The Company also cautions readers that it assumes no obligation to update
or publicly release any revisions to forward-looking statements made herein or
any other forward-looking statements made by, or on behalf of, the Company.

                                     PART I

ITEM 1.  BUSINESS

THE COMPANY

     Carriage is a leading provider of death care services and products in the
United States. As of December 31, 1999, we operated 182 funeral homes and 41
cemeteries in 31 states. Carriage provides a complete range of services relating
to funerals, burials and cremations, including the use of funeral homes and
motor vehicles, the performance of cemetery interment services and the
management and maintenance of cemetery grounds. We also sell related products
and merchandise including caskets, burial vaults, garments, cemetery interment
rights, stone and bronze memorials, as well as other items. Over the past five
years, Carriage's revenues, earnings and profit margins have increased
significantly. From 1995 to 1999, net revenues increased from $24.2 million to
$168.5 million, operating income increased from $1.9 million to $34.7 million
and diluted earnings per common share from continuing operations increased from
a loss of $0.99 to a profit of $0.67.

                                       2
<PAGE>
     Since Carriage's formation in 1991, we have focused on distinguishing
ourselves from our competitors by developing an employee-driven organization
that emphasizes: (i) providing the highest level of personalized service to
client families, (ii) comprehensive employee training, (iii) a decentralized
management structure, and (iv) incentive compensation and broad-based employee
stock ownership. Our success in developing our operating philosophy, as well as
the increasing awareness of Carriage in the death care industry, has resulted in
a number of attractive acquisition opportunities during the past few years.
Concerns, however, regarding the financial stability and deteriorating
fundamentals of the deathcare industry caused a decline in the prices that we
were willing to pay for acquisition opportunities during 1999. We acquired 48
funeral homes and seven cemeteries for consideration of $159 million in 1998 and
17 funeral homes and 14 cemeteries for consideration of $45 million in 1999.

     Carriage was founded in 1991, incorporated in Delaware on December 29,
1993, and became a public reporting company in August, 1996. Our principal
executive office is located at 1300 Post Oak Blvd., Suite 1500, Houston, Texas
77056, and our telephone number is (281) 556-7400.

DEATH CARE INDUSTRY

     Death care companies provide products and services to families in three
principal areas: (i) ceremony and tribute, generally in the form of a funeral or
memorial service; (ii) disposition of remains, either through burial or
cremation; and, (iii) memorialization, generally through monuments, markers or
inscriptions. The death care industry in the United States is characterized by
the following fundamental attributes:

     HIGHLY FRAGMENTED OWNERSHIP.  A significant majority of death care
operators consist of small, family-owned businesses that control one or several
funeral homes or cemeteries in a single community. Management estimates that
there are approximately 23,000 funeral homes and 9,600 commercial (as opposed to
religious, family, fraternal, military or municipal) cemeteries in the United
States. Approximately 25% of the 1999 United States death care industry revenues
are represented by Carriage and the three largest publicly traded domestic death
care companies.

     BARRIERS TO ENTRY.  Death care businesses have traditionally been
transferred to successive generations within a family and in most cases have
developed a local heritage and tradition that act as a formidable barrier for
those wishing to enter an existing market. Heritage and tradition afford an
established funeral home or cemetery a local franchise and provide the
opportunity for repeat business. Other difficulties faced by entities desiring
to enter a market include local zoning restrictions, substantial capital
requirements, increasing regulatory burdens and scarcity of cemetery land in
certain urban areas. In addition, established firms' backlog of preneed,
prefunded funerals or presold cemetery and mausoleum spaces also makes it
difficult for new entrants to gain entry into the marketplace.

     STABILITY.  The death rates in the United States are relatively stable. The
number of deaths in the United States has increased at a compounded rate of
approximately 1% since 1980. While the death rate decreased in the range of 1%
to 2% in each of the last three years, industry studies show that the average
age of the population is increasing. Because of the relative stability,
individual funeral home business failures are uncommon. As a result, ownership
of funeral home and cemetery businesses generally has not experienced
significant turnover and the aggregate number of funeral homes and cemeteries in
the United States has remained relatively constant.

     CONSOLIDATION.  Until 1999, the industry experienced a trend toward
consolidation of independent death care operations with a few large, primarily
publicly owned death care providers that sought to benefit from economies of
scale, improved managerial control and more effective strategic planning and
greater financial resources. The trend resulted principally from increased
regulation, a desire on the part of small, family operated funeral businesses to
address family succession and estate planning issues, a desire for liquidity,
and the increasing competitive threat posed by the large death care providers.
An active acquisition market for funeral homes and cemeteries provides a source
of potential liquidity that was not as readily available to individual owners in
the past. The consolidation trend has decelerated in recent months and the
number of companies actively pursuing acquisitions has significantly declined.
Some of the other consolidators are now facing financial difficulties as a
result of paying too much for businesses that are not performing as they
expected. We believe

                                       3
<PAGE>
that this will create opportunities for us at some time in the future as prices
and competition for individual acquisitions have declined.

     CLUSTERED OR COMBINED OPERATIONS.  The death care industry has also
witnessed a trend by companies to cluster their funeral home and cemetery
operations. Clusters refer to funeral homes and/or cemeteries that are grouped
together in a geographical region. Clusters provide a company with the ability
to generate cost savings through the sharing of personnel, vehicles and other
resources. Firms also are increasingly combining funeral home and cemetery
operations at a single site to allow cross-marketing opportunities and for
further cost reductions through shared resources. The ability to offer the full
range of products and services at one location or to cluster funeral home and
cemetery operations and cross-market the full range of death care services has
proven to be a cost advantage which tends to increase the profitability of both
the funeral home and cemetery.

     PRENEED MARKETING.  In addition to sales at the time of death or on an "at
need" basis, an increasing number of death care products and services are being
sold prior to the time of death or on a "preneed" basis by death care
providers who have developed sophisticated marketing organizations to actively
promote such products and services. At the same time, consumers are becoming
more aware of the benefits of advanced planning, such as the financial assurance
and peace of mind achieved by establishing in advance a fixed price and type of
service, and the elimination of the emotional strain of making death care plans
at the time of need. Effective marketing of preneed products and services
assures a backlog of future business. We believe sales of preneed products and
services, including cemetery and internment rights and prearranged funeral
services, are purchased primarily by people between the ages of 50 and 70. We
believe the increasing number of people in this age group provides additional
opportunities for growth in preneed sales and services.

     CREMATION.  In recent years, there has been steady, gradual growth in the
number of families in the United States that have chosen cremation as an
alternative to traditional methods of burial. According to industry studies,
cremations represented approximately 25% of the United States burial market in
1999 and is projected at 26% for 2000, as compared to approximately 10% in 1980.
Many parts of the Southern and Midwestern United States and many
non-metropolitan communities exhibit significantly lower rates of cremation as a
result of religious and cultural traditions. Cremation, historically, has been
marketed as a less costly alternative to interment. However, cremation is
increasingly marketed as part of a complete death care package that includes
traditional funeral services and memorialization.

BUSINESS STRATEGY

     Our business strategy for the near term is to build upon our reputation as
a premier operating company and de-emphasize acquisition activities in order to
generate the industry's highest free cash flow from operations as a percentage
of revenue. We seek to achieve a balance between the need for superior overall
corporate financial performance and the desire to promote higher levels of
personalized service to client families.

OPERATING STRATEGY.  Our operating strategy is focused on increasing the
revenues and profitability of each operating location through a combination of
personalized service and operating efficiencies. Key elements of our operating
strategy include the following:

     REORGANIZATION OF OPERATIONS MANAGEMENT.  Shortly before year-end 1999, we
identified our businesses by level of profitability and strength of local
management. We designed plans to make the best better and to identify specific
skills and resources that the poorer performing locations needed. As a result,
we have realigned our senior operations management structure and developed teams
that can improve performance at all levels.

     RATIONALIZATION OF OUR PRENEED FUNERAL SALES PROGRAM.  We have developed a
high quality and productive preneed funeral sales program during the last three
years that is expected to provide significant benefits for years into the
future. This has not come, however, without significant costs. Preneed sales
frequently require an upfront cash investment by the seller to fund commissions
and promotional expenditures. Using market and product data that we developed
internally, we recently revised our commission structure and have redirected our
efforts toward only the markets that we truly believe will benefit from a
preneed program.

                                       4
<PAGE>
     PERSONALIZED SERVICE.  We believe that providing personalized service
results in increased customer satisfaction, increased market share, more
motivated employees and consistently higher levels of profitability. We have
placed a great deal of emphasis on communicating to our employees the linkage
between personalized service, customer satisfaction, market share increases and
profitability throughout the organization.

     EMPLOYEE TRAINING.  Beginning in late 1997, we made a significant
commitment of financial and human resources to a company-wide training effort.
The training is designed to improve the management of and communication among
employees and to develop personalized service that will be of value to clients.
In training employees to deliver personalized service, we emphasize employee
listening and communication skills in working towards the goal of uniquely
memorializing the life of an individual. We have completed the initial phase of
this program and have been focusing on integrating the concepts and practices of
our training program into our operations. In November 1998, we acquired the
Sessions Consulting Group, Inc., which is the service training firm we
previously employed to implement our training initiatives. Consistent with our
Mission Statement and Guiding Principles, the Sessions Group is devoted to our
growing executive development and services training needs by serving as a
permanent platform for ongoing training of employees. We believe that this
long-term investment in our employees will, over time, lead to increased market
share, resulting in higher profitability.

     ENHANCED INFORMATION SYSTEMS.  We utilize an integrated computer system
linked to all of our funeral homes to monitor and access critical operating and
financial data in order to analyze the performance of individual locations on a
timely basis and institute corrective action if necessary. Initiatives are
underway that will utilize the Internet as a medium to internally disseminate
information between locations, and externally as a new way of memorialization.

     HIGH STANDARDS OF PERFORMANCE.  We continuously establish targets to
emphasize and enhance customer service and operational and financial
performance. These standards are designed to identify management's expectations
for high achievement in these three key performance areas and are communicated
to employees through our extensive training programs.

     QUALITY REVIEW MANAGEMENT SYSTEMS.  We have developed quality based
management systems which operate within our decentralized management structure.
These systems involve quantifiable customer survey input in addition to
operational and financial measurement of performance. With the assistance of the
Sessions Group, these systems are being implemented at the local level under the
direction of our area Leader-Managers. Our Leader-Managers provide an additional
level of operational support and feed-back to our local managers.

     INCENTIVE COMPENSATION.  We have established a compensation structure that
is designed to create and maintain an ownership mentality to align overall
compensation to our performance objectives. Local management is awarded
meaningful cash bonuses and stock options or other rewards for achieving
specified service, operational and financial performance objectives. We have
also historically had a stock option program which awarded options to full-time
employees based upon the performance of their local businesses. As a result,
many management and full-time employees have the opportunity to increase their
personal net worth through strong local and corporate performance.

     COST SAVINGS AND OPERATING EFFICIENCIES.  Our larger size, as compared to
local operators, allows favorable pricing and terms to be achieved from vendors
through volume discounts on significant expenditures, such as caskets, vaults,
memorials and vehicles. In addition, while operational functions and management
responsibility are retained at the local level, centralizing certain financial,
accounting, legal, administrative and employee benefit functions allow for more
efficient and cost-effective operations.

ACQUISITION STRATEGY.  Acquisition activities have virtually ceased throughout
the deathcare industry, including Carriage Services, as the focus has changed to
improving operating results. We believe that there will be special acquisition
opportunities in the coming year as certain of the industry consolidators
continue their restructuring. We intend to carefully explore those situations.
We also believe that consolidation will continue to work in this industry, but
only if acquisition prices are substantially lower than we experienced during
the last few years. We will continue to pursue the acquisition of premier
funeral homes that have a strong local market

                                       5
<PAGE>
presence, as well as funeral homes in close proximity to our existing businesses
but only when the price is within our new framework. In the meantime, we have
restructured and reduced our corporate development department.

     In evaluating specific acquisition candidates, we consider such factors as
the property's location, reputation, heritage, physical size, volume of
business, profitability, name recognition, aesthetics, potential for development
or expansion, competitive market position, pricing structure and quality of
operating management. In purchasing the premier location in a particular market,
management believes that Carriage is able to attract the most talented
personnel, minimize downside risk of loss of volume to competitors and provide
opportunities for increased profitability when such operations are coupled with
our management techniques. In addition, we generally retain the former owners
and other key personnel of acquired funeral homes and provide them with
significant operating responsibility to assure the continuation of high quality
services and the maintenance of the acquired firm's reputation and heritage. In
nearly all cases, acquired funeral homes continue operations under the same
trade name as those of the prior owners. In addition, we view experienced
management of certain acquired operations as potential corporate management
candidates. We believe that this potential for advancement with Carriage,
combined with our decentralized operating structure and incentive-based
compensation system, makes Carriage a particularly attractive acquirer to some
independent owners. We target additional funeral homes in present markets so
that personnel and vehicles can be shared and profit margins enhanced.

     We follow a disciplined approach to acquisitions utilizing specific
operating and financial criteria. Carriage personnel develop pro forma financial
statements for acquisition targets, reflecting estimates of revenue and costs
under Carriage ownership, and then utilize such information to determine a
purchase price that we believe is reasonable. We anticipate that the
consideration for future acquisitions will consist of a combination of cash,
deferred purchase price and possibly preferred equity. We also typically enter
into management, consulting and non-competition agreements with former owners
and key executive personnel of acquired businesses.

     A new growth strategy that we are pursuing is the management of large
municipal cemeteries. We have identified several situations in which both the
municipality and Carriage can benefit from such a partnering. Many
municipalities are simply not in the business of operating their local
cemeteries and, as a result, are losing money and not properly serving the local
community. In certain situations, we believe, we can change that by putting a
team in place that can operate the cemetery at a profit for Carriage and the
municipality. This type of opportunity is expected to require very little
capital.

     We have successfully executed our acquisition strategies since inception,
as demonstrated in the table below:

<TABLE>
<CAPTION>
                                                                   FUNERAL
                YEAR                        CONSIDERATION         HOMES(1)     CEMETERIES(2)
- -------------------------------------   ----------------------    ---------    --------------
                                        (DOLLARS IN THOUSANDS)
<S>                                     <C>                       <C>          <C>
1992.................................          $ 11,832               14              2
1993.................................            13,843               11              1
1994.................................             9,153                9              1
1995.................................            12,191                8              0
1996.................................            68,181               38              7
1997.................................           118,260               44             10
1998.................................           158,661               48              7
1999.................................            44,434               17             14
                                        ----------------------       ---             --
                                               $436,555              189             42
                                        ======================       ===             ==
</TABLE>

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

(1) Carriage subsequently sold seven of these funeral homes.

(2) Carriage subsequently sold one of these cemeteries.

OPERATIONS

     Our funeral home operations, cemetery operations and preneed programs are
managed by individuals with extensive death care industry experience. Although
certain financial management and policy matters are centralized, local funeral
home and cemetery managers have substantial autonomy in determining the manner
in

                                       6
<PAGE>
which their services and products are marketed and delivered and their funeral
homes are managed. We believe that this strategy permits each local firm to
maintain its unique style of operation and to capitalize on its reputation and
heritage while Carriage maintains centralized supervisory controls and provides
specialized services at the corporate level. We have a commitment to strong
information systems. Systems are linked to all of the funeral homes to monitor
and assess critical operating and financial data in order to analyze the
performance of individual funeral homes on a timely basis. Management is able to
access customer transaction data and other operating information from the
Houston support center to ensure the quality of operating performance and to
implement any necessary corrective actions.

     FUNERAL HOME OPERATIONS.  As of December 31, 1999, Carriage operated 182
funeral homes in 30 states. Funeral home revenues accounted for approximately
80% and 74% of our net revenues for each of the years ended December 31, 1998
and 1999, respectively. The funeral home operations are managed by a team of
experienced death care industry professionals.

     Our funeral homes offer a complete range of services to meet families'
funeral needs, including consultation, the removal and preparation of cremains,
the sale of caskets and related funeral merchandise, the use of funeral home
facilities for visitation and religious services and transportation services.
Most of our funeral homes have a non-denominational chapel on the premises,
which permits family visitation and religious services to take place at one
location, reducing transportation costs for Carriage and inconvenience to the
family.

     CEMETERY OPERATIONS.  As of December 31, 1999, we operated 41 cemeteries in
16 states. Cemetery revenues accounted for approximately 20% and 26% of our net
revenues for each of the years ended December 31, 1998 and 1999, respectively.

     Carriage's cemetery products and services include interment services, the
rights to interment in cemetery sites (including grave sites, mausoleum crypts
and niches) and related cemetery merchandise such as memorials and vaults.
Cemetery operations generate revenues through sales of interment rights,
memorials and installation, fees for interment and cremation services, finance
charges from installment sales contracts and investment income from preneed
cemetery merchandise and perpetual care trusts.

     PRENEED PROGRAMS.  In addition to sales of funeral merchandise and
services, cemetery interment rights, cemetery merchandise and services at the
time of need, we also market funeral and cemetery services and products on a
preneed basis. Preneed funeral or cemetery contracts enable families to
establish, in advance, the type of service to be performed, the products to be
used and the cost of such products and services in accordance with prices
prevailing at the time the contract is signed, rather than when the products and
services are delivered. Preneed contracts permit families to eliminate the
emotional strain of making death care plans at the time of need and enable
Carriage to establish a portion of its future market share. Proceeds from the
sale of preneed funeral contracts are not recognized as revenue until the time
the funeral service is performed.

     Preneed funeral contracts are usually paid on an installment basis. The
performance of preneed funeral contracts is usually secured by placing the funds
collected in trust for the benefit of the customer or by the purchase of a life
insurance policy, the proceeds of which will pay for such services at the time
of need. Insurance policies, intended to fund preneed funeral contracts cover
the original contract price and generally include built-in escalation clauses
designed to offset future inflationary cost increases.

     In addition to preneed funeral contracts, we also offer "preplanned"
funeral arrangements whereby a client determines in advance substantially all of
the details of a funeral service without any financial commitment or other
obligation on the part of the client until the actual time of need. Preplanned
funeral arrangements permit a family to avoid the emotional strain of making
death care plans at the time of need and enable a funeral home to establish
relationships with a client that may eventually lead to an at-need sale.

     Beginning in the fourth quarter of 1996, experienced preneed marketing
professionals were added at the national and regional levels. This investment in
additional preneed marketing management allowed us to increase preneed sales at
existing cemetery properties and positioned Carriage to more effectively
integrate future cemetery acquisitions. As of December 31, 1999, we employed a
staff of 405 advance planning representatives for the sale of preneed products
and services, which represents an increase of 200% since December 31, 1996.

                                       7
<PAGE>
     Carriage sold 6,481 and 9,814 preneed funeral contracts in the years ended
December 31, 1998 and 1999, respectively. At December 31, 1999, we had a backlog
of 83,754 preneed funeral contracts to be delivered in the future. Preneed
cemetery sales are usually financed through installment sales contracts,
generally with terms of five years. Preneed sales of cemetery interment rights
and other related services and merchandise are recorded as revenue when the
contract is signed, with concurrent recognition of related costs. We always
receive an initial payment at the time the contract is signed. Allowances for
customer cancellations and refunds are accrued at the date of sale based upon
historical experience.

     Preneed cemetery sales represented approximately 73% and 74% of Carriage's
net cemetery revenues for the years ended December 31, 1998 and 1999,
respectively.

COMPETITION

     The operating and acquisition environment in the death care industry has
been highly competitive. Our publicly traded competitors are Service Corporation
International, The Loewen Group, Inc. and Stewart Enterprises, Inc. In addition,
a number of smaller companies have been active in acquiring funeral homes and
cemeteries in recent years. However, as previously discussed, acquisition
activity has virtually ceased as most of the large death care companies are
currently restructuring as a result of high-priced and low-performing
acquisitions that created financial difficulties. We want to be clear that no
assurance can be given that we will be successful in expanding our operations
through acquisitions or that funeral homes and cemeteries will be available at
reasonable prices or on reasonable terms which we are prepared to accept.

     Our funeral home and cemetery operations generally face competition in the
markets that they serve. Market share for funeral homes and cemeteries is
largely a function of reputation and heritage, although competitive pricing,
professional service and attractive, well-maintained and conveniently located
facilities are also important. The sale of preneed funeral services and cemetery
property has increasingly been used by many companies as a marketing tool to
build market share. Due to the importance of reputation and heritage, market
share increases are usually gained over a long period of time.

     We also face competition from companies that market products and related
information over the Internet, as well as non-traditional casket stores in
certain markets. While we have felt little impact from these competitors to
date, we believe that the Internet will continue to grow as a medium through
which consumers obtain information and make purchases. We are currently
exploring partnering opportunities with people from outside of our industry to
position Carriage as a major player in e-commerce death care products and
services.

TRUST FUNDS

     GENERAL.  We have established a variety of trusts in connection with our
funeral home and cemetery operations as required under applicable state law.
Such trusts include (i) preneed funeral trusts; (ii) preneed cemetery
merchandise and service trusts; and (iii) perpetual care trusts. These trusts
are typically administered by independent financial institutions selected by
Carriage. We also use independent professional managers to advise us on
investment matters.

     PRENEED FUNERAL TRUSTS.  Preneed funeral sales are facilitated by deposits
to a trust or purchase of a third-party insurance product. All preneed funeral
sales are deferred until the service is performed. The trust fund income earned
and any increase in insurance benefits are also deferred until the service is
performed, in order to offset possible inflation in cost when providing the
service in the future. Although direct marketing costs and commissions incurred
from the sale of preneed funeral contracts are a current use of cash, such costs
are also deferred and amortized over the expected timing of the performance of
the services related to the preneed funeral sales. Since we do not have access
to the trust fund principal or earnings, the related assets and liabilities are
not reflected on Carriage's balance sheet. In most states, we are not permitted
to withdraw principal or investment income from such trusts until the funeral
service is performed. Some states, however, allow for the retention of a
percentage (generally 10%) of the receipts to offset any administrative and
selling expenses, which we defer until the service is provided. The aggregate
balance of our preneed funeral contracts held in trust and insurance contracts
was approximately $179.6 million and $218.2 million as of December 31, 1998 and
1999, respectively.

                                       8
<PAGE>
     PRENEED CEMETERY MERCHANDISE AND SERVICE TRUSTS.  We are generally required
under applicable state laws to deposit a specified amount (which varies from
state to state, generally 50% to 100% of selling price) into a merchandise and
service trust fund for cemetery merchandise and services sold on a preneed
basis. The related trust fund income earned is recognized in current revenues as
trust earnings. These earnings are offset by any current period inflation costs
accrued related to the merchandise and services that have not yet been provided.
Liabilities for undelivered cemetery merchandise and services, including
accruals for inflation increases, are reflected in the balance sheet net of the
merchandise and service trust balance. We are permitted to withdraw the trust
principal and the accrued income when the merchandise is purchased, when service
is provided by us or when the contract is cancelled. The merchandise and service
trust fund balances, in the aggregate, were approximately $18.6 million and
$33.0 million as of December 31, 1998 and 1999, respectively.

     PERPETUAL CARE TRUSTS.  In certain states, regulations require a portion
(generally 10%) of the sale amount of cemetery property and memorials to be
placed in trust. These perpetual care trusts provide the funds necessary to
maintain cemetery property and memorials in perpetuity. The related trust fund
income earned is recognized in current revenues as trust earnings. While we are
entitled to withdraw the income from our perpetual care trust to provide for the
maintenance of the cemetery property and memorials, we are not entitled to
withdraw any of the principal balance of the trust fund and therefore, none of
the principal balances is reflected in Carriage's balance sheet. The perpetual
care trust balances were approximately $21.7 million and $30.1 million as of
December 31, 1998 and 1999, respectively.

     For additional information with respect to Carriage's trusts, see Note 1 of
the Consolidated Financial Statements.

REGULATION

     Our funeral home operations are subject to substantial regulation by the
Federal Trade Commission (the "FTC"). Certain regulations contain minimum
standards for funeral industry practices, require extensive price and other
affirmative disclosures to the customer at the time of sale and impose mandatory
itemization requirements for the sale of funeral products and services.

     We are subject to the requirements of the federal Occupational Safety and
Health Act ("OSHA") and comparable state statutes. The OSHA hazard
communication standard, the United States Environmental Protection Agency
community right-to-know regulations under Title III of the federal Superfund
Amendment and Reauthorization Act and similar state statutes require us to
organize information about hazardous materials used or produced in our
operations. Certain of this information must be provided to employees, state and
local governmental authorities and local citizens. We are also subject to the
Federal Americans with Disabilities Act and similar laws which, among other
things, may require that we modify our facilities to comply with minimum
accessibility requirements for disabled persons.

     Our operations, including our preneed sales and trust funds, are also
subject to extensive regulation, supervision and licensing under numerous other
Federal, state and local laws and regulations. See "Trust Funds."

     We believe that we are in substantial compliance with all such laws and
regulations. Federal and state legislatures and regulatory agencies frequently
propose new laws, rules and regulations, some of which, if enacted, could have a
material adverse effect on Carriage's results of operations. We cannot predict
the outcome of any proposed legislation or regulations or the effect that any
such legislation or regulations might have on Carriage.

EMPLOYEES

     As of December 31, 1999, Carriage and its subsidiaries employed 1420
full-time employees, 944 part-time employees and 405 advance planning
representatives. All of our funeral directors and embalmers possess licenses
required by applicable regulatory agencies. We believe that our relationship
with our employees is good. No employees of Carriage or its subsidiaries are
members of a collective bargaining unit.

                                       9
<PAGE>
ITEM 2.  PROPERTIES

     At December 31, 1999, we operated 182 funeral homes and 41 cemeteries in 31
states. Carriage owns the real estate and buildings of 76% of its funeral homes
and all of its cemeteries and leases facilities in connection with 24% of its
funeral homes. The 31 cemeteries operated by Carriage have an inventory of
unsold developed lots totaling approximately 106,000 and 129,000 at December 31,
1998 and 1999, respectively. In addition, approximately 754 acres, are available
for future development. We do not anticipate any shortage of available space in
any of our current cemeteries for the foreseeable future.

     The following table sets forth certain information as of December 31, 1999,
regarding Carriage's funeral homes and cemeteries by state:

<TABLE>
<CAPTION>
                                              NUMBER OF
                                            FUNERAL HOMES
                                        ----------------------
                STATE                   OWNED       LEASED(1)       CEMETERIES
- -------------------------------------   ------      ----------      -----------
<S>                                     <C>         <C>             <C>
Alabama..............................       2            0                0
California...........................      18            2                4
Connecticut..........................       6            4                0
Florida..............................       7            4                9
Georgia..............................       3(3)         4                1
Idaho................................       6(2)         2                3
Illinois.............................       0            6                1
Indiana..............................       3(2)         3                2
Iowa.................................       4            0                0
Kansas...............................       8            0                0
Kentucky.............................      11            4                1
Maryland.............................       0            1                0
Massachusetts........................       7            0                0
Michigan.............................       4            2                0
Missouri.............................       0            1                0
Montana..............................       1            0                0
Nevada...............................       2(3)         0                2
New Jersey...........................       3            2                0
New Mexico...........................       1            0                0
New York.............................       3            1                0
North Carolina.......................       1            1                1
Ohio.................................      13            3                1
Oklahoma.............................       1(2)         0                1
Oregon...............................       0            0                1
Rhode Island.........................       4            0                0
South Carolina.......................       4            0                4
Tennessee............................       5            1                3
Texas................................      13(3)         1                6
Virginia.............................       4            1                1
Washington...........................       3            1                0
West Virginia........................       1            0                0
                                        ------          --               --
Total................................     138           44               41
                                        ======          ==               ==
</TABLE>

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

(1) The leases, with respect to these funeral homes, have remaining terms
    ranging from two to fifteen years, and, generally, we have a right of first
    refusal on any proposed sale of the property where these funeral homes are
    located.

(2) One funeral home is located on property contiguous to and operated in
    combination with a Carriage cemetery.

(3) Two funeral homes are located on property contiguous to and operated in
    combination with our cemeteries.

                                       10
<PAGE>
     Carriage's corporate headquarters occupy approximately 34,000 square feet
of leased office space in Houston, Texas.

     At December 31, 1999, we operated 760 vehicles, of which 753 we owned and 7
we leased.

     The specialized nature of our business requires that our facilities be
well-maintained. Management believes that this standard is met.

ITEM 3.  LEGAL PROCEEDINGS

     Suzanne T. Hoeffner, et al. v. Estate of Allan Kenneth Vieira, et al.
Certain of the funeral homes located in California that we acquired in early
1997, along with other death care providers, are defendants in litigation, filed
in August 1997 in the Superior Court of Sacramento County, California. The
plaintiffs in the litigation alleged that a flight service contracted to dispose
of cremains failed to properly carry out its duties, and sought injunctive
relief regarding disposition of the cremains and monetary damages. The
litigation was settled subsequent to December 31, 1999. The settlement amount
awarded was fully covered by Carriage's insurance.

     Additionally, Carriage and our subsidiaries are parties to a number of
legal proceedings that arise from time to time in the ordinary course of
business. While the outcome of these proceedings cannot be predicted with
certainty, management does not expect these matters to have a material adverse
effect on us.

     We carry insurance with coverages and coverage limits that we believe to be
customary in the funeral home and cemetery industries. Although there can be no
assurance that such insurance will be sufficient to protect us against all
contingencies, we believe that our insurance protection is reasonable in view of
the nature and scope of our operations.

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

     None.

                                       11

<PAGE>
                                    PART II

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

     Carriage's Class A Common Stock is traded on the New York Stock Exchange
under the symbol "CSV". From August 9, 1996 to May 8, 1998, the Class A Common
Stock was traded in the over-the-counter market and quoted on the NASDAQ
National Market under the symbol "CRSV". The following table presents the
quarterly high and low sale prices as reported by the New York Stock Exchange
and the NASDAQ National Market:
<TABLE>
<CAPTION>
                1998                     HIGH         LOW
- -------------------------------------   ------       ------
<S>                                     <C>          <C>
First Quarter........................   $24.00       $16.00
Second Quarter.......................   $26.25       $21.00
Third Quarter........................   $27.25       $19.50
Fourth Quarter.......................   $28.75       $19.8125

<CAPTION>
                1999
- -------------------------------------
First Quarter........................   $29.25       $13.125
Second Quarter.......................   $23.00       $15.188
Third Quarter........................   $19.00       $ 7.75
Fourth Quarter.......................   $ 8.375      $ 4.625
</TABLE>

     As of March 15, 2000, there were 14,071,101 shares of Carriage's Class A
Common Stock and 1,905,662 shares of the Class B Common Stock outstanding. The
holders of Class A Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of Common stockholders. The holders of Class B
Common Stock are entitled to ten votes for each share held on all matters
submitted to a vote of Common stockholders. The Class A Common Stock shares
outstanding are held by approximately 230 stockholders of record. We believe
there are approximately 3,800 beneficial owners of the Class A Common Stock.

     We have never paid a cash dividend on our Class A or Class B Common Stock.
Carriage currently intends to retain earnings to finance the growth and
development of our business and do not anticipate paying any cash dividends on
our common stock in the foreseeable future. Any future change in our dividend
policy will be made at the discretion of our Board of Directors in light of the
financial condition, capital requirements, earnings and prospects of Carriage
and any restrictions under credit agreements, as well as other factors the Board
of Directors may deem relevant.

                                       12
<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31,
                                       -----------------------------------------------------
                                         1995       1996       1997       1998       1999
                                       ---------  ---------  ---------  ---------  ---------
                                        (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S>                                    <C>        <C>        <C>        <C>        <C>
INCOME STATEMENT DATA:
Revenue, net:
Funeral..............................  $  22,661  $  37,445  $  64,888  $  92,965  $ 125,264
Cemetery.............................      1,576      2,903     12,533     23,876     43,203
                                       ---------  ---------  ---------  ---------  ---------
Total net revenues...................     24,237     40,348     77,421    116,841    168,467
                                       ---------  ---------  ---------  ---------  ---------
Gross profit:
Funeral..............................      3,740      6,804     16,484     28,036     35,539
Cemetery.............................        250        362      2,899      6,288     10,945
                                       ---------  ---------  ---------  ---------  ---------
Total gross profit...................      3,990      7,166     19,383     34,324     46,484
General and administrative expense...      2,106      2,474      5,277      7,581      9,265
Special compensation charge..........         --         --         --         --      2,500
                                       ---------  ---------  ---------  ---------  ---------
Operating income.....................      1,884      4,692     14,106     26,743     34,719
Interest expense, net................     (3,684)    (4,347)    (5,889)    (9,720)   (17,358)
Settlement of litigation.............         --         --         --         --      2,000
                                       ---------  ---------  ---------  ---------  ---------
Income (loss) before income taxes....     (1,800)       345      8,217     17,023     19,361
Provision for income taxes...........        694        138      3,726      7,490      8,474
                                       ---------  ---------  ---------  ---------  ---------
Net income (loss) before
  extraordinary item.................     (2,494)       207      4,491      9,533     10,887
Extraordinary item, net..............         --       (498)      (195)        --       (200)
                                       ---------  ---------  ---------  ---------  ---------
Income (loss) after extraordinary
  item...............................     (2,494)      (291)     4,296      9,533     10,687
Preferred stock dividends............         --        622        890        606         93
                                       ---------  ---------  ---------  ---------  ---------
Net income (loss) available to common
  stockholders.......................  $  (2,494) $    (913) $   3,406  $   8,927  $  10,594
                                       =========  =========  =========  =========  =========
Earnings (loss) per share
Basic:
Continuing operations................  $    (.99) $    (.09) $     .35  $     .67  $     .68
Extraordinary item...................         --       (.10)      (.02)        --       (.01)
                                       ---------  ---------  ---------  ---------  ---------
Basic earnings (loss) per share......  $    (.99) $    (.19) $     .33  $     .67  $     .67
                                       =========  =========  =========  =========  =========
Diluted:
Continuing operations................  $    (.99) $    (.09) $     .34  $     .65  $     .67
Extraordinary item...................         --       (.10)      (.02)        --       (.01)
                                       ---------  ---------  ---------  ---------  ---------
Diluted earnings (loss) per share....  $    (.99) $    (.19) $     .32  $     .65  $     .66
                                       =========  =========  =========  =========  =========
Weighted average number of common and
  common equivalent shares
  outstanding:
Basic................................      2,520      4,869     10,226     13,315     15,875
                                       =========  =========  =========  =========  =========
Diluted..............................      2,520      4,869     10,485     13,808     16,136
                                       =========  =========  =========  =========  =========
OPERATING AND FINANCIAL DATA:
Funeral homes at end of period.......         41         76        120        166        182
Cemeteries at end of period..........          3         10         20         27         41
Funeral services performed during
  period.............................      4,414      7,181     12,131     16,881     22,869
Preneed funeral contracts sold.......      2,610      3,760      4,020      6,481      9,814
Backlog of preneed funeral
  contracts..........................      8,676     22,925     34,797     57,185     83,754
Depreciation and amortization........  $   1,948  $   3,629  $   7,809  $  11,444  $  16,992

BALANCE SHEET DATA:
Working capital......................  $   6,472  $   5,089  $   5,823  $  11,564  $  22,185
Total assets.........................     61,746    131,308    277,940    466,144    539,590
Long-term debt, net of current
  maturities.........................     42,057     42,733    121,553    212,972    178,942
Redeemable preferred stock...........                17,251     13,951      1,673     91,026
Shareholders' equity.................  $   9,151  $  57,043  $  98,565  $ 200,394  $ 212,009
</TABLE>

                                       13
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

OVERVIEW

     Carriage is a leading provider of death care services and products in the
United States. Our focus has been on operational enhancements at facilities
currently owned to increase revenues and gross profit, as well as growth through
acquisitions. That focus has resulted in a successful track record of growth
from attractive acquisition opportunities; high standards of service,
operational and financial performance; and an infrastructure containing
measurement and management systems. The operating focus for 1999 included
institutionalizing internal training, internal growth, and making quality
initiatives introduced in 1998 an integral part of the culture. In 2000, the
operating focus is expanding to include increasing operating cash flow and
growth through strategies that do not require investment of new capital.

     The objective of these goals was to expand our infrastructure and stability
as we continued to pursue consolidation opportunities in the death care
industry.

     Income from operations, which we define as earnings before interest and
income taxes, increased, as a percentage of net revenues, from 18.2% for 1997 to
22.9% for 1998 and decreased to 20.6% in 1999, primarily due to a special
compensation charge totaling $2.5 million in the fourth quarter for 1999. Income
from operations for the year ended December 31, 1999 increased 29.8% compared to
the same period in 1998. This improvement was largely due to acquisition of new
locations. Gross margins for funeral homes increased from 25.4% in 1997 to 30.2%
in 1998 and decreased to 28.4% in 1999. During 1999, we increased the number of
cemeteries we owned by 50 percent. As a percentage of cemetery net revenues,
cemetery gross profit increased from 23.1% in 1997 to 26.3% in 1998 and
decreased to 25.3% in 1999.

     We have experienced significant growth since the end of 1995 when we owned
44 facilities. We acquired 54 facilities in 1997, 55 facilities in 1998 and 31
facilities in 1999. In a deliberate and managed process, we increased personnel
and related infrastructure as a function of the increase in our revenue
run-rate. As a consequence, general and administrative expenses increased from
$2.1 million in 1995, to $2.5 million in 1996, to $5.3 million in 1997 to $7.6
million in 1998 and to $9.3 million in 1999, excluding the special compensation
charge. However, general and administrative expenses, as a percentage of
revenues over these periods, were 8.7% in 1995, 6.1% in 1996, 6.8% in 1997, 6.5%
in 1998 and 5.5% in 1999, exclusive of the special compensation charge. The
additional personnel filled critical roles in expanding the geographic coverage
of both operations and preneed sales and marketing activities, as well as the
financial, data processing and administrative functions needed to support the
growing number of locations operating in a decentralized management fashion with
timely financial and management information. During this time we restructured
and expanded the prearranged funeral and cemetery sales organization
significantly.

     During 1997, we acquired 44 funeral homes and ten cemeteries for an
aggregate consideration of approximately $118 million. We acquired 48 funeral
homes and seven cemeteries during 1998 for approximately $159 million. During
1999, we acquired 17 funeral homes and 14 cemeteries for an aggregate
consideration of approximately $45 million. We funded these acquisitions through
cash flow from operations, additional borrowings under our credit facilities and
issuance of preferred and common stock. During 1999, we reduced the price we
were willing to pay for businesses as compared to the two most recent years,
which has resulted in a decline in acquisitions and related spending for 1999.

     One consequence of our rapid growth through acquisitions in recent years is
a relatively high level of non-cash depreciation and amortization expense. For
the years ended December 31, 1998 and 1999, depreciation and amortization
expense as a percentage of net revenues was approximately 10%. We believe that
this percentage was higher than others in the industry as most of our
acquisitions have occurred during the past three years and have been primarily
comprised of funeral homes (as compared to cemeteries which have a large
nondepreciable land component). Because all of our properties have been acquired
in these types of transactions in the past few years, the non-cash charges
related to purchase price allocations resulting from these acquisitions have had
a significant impact on our reported net income.

                                       14
<PAGE>
RESULTS OF OPERATIONS

     The following table sets forth certain income statement data for Carriage
expressed as a percentage of net revenues for the periods presented:

<TABLE>
<CAPTION>
                                           YEAR ENDED DECEMBER 31,
                                       -------------------------------
                                         1997       1998       1999
                                       ---------  ---------  ---------
<S>                                    <C>        <C>        <C>
Total revenues, net..................      100.0%     100.0%     100.0%
Total gross profit...................       25.0       29.4       27.6
General and administrative
  expenses...........................        6.8        6.5        7.0
Operating income.....................       18.2       22.9       20.6
Interest expense, net................        7.6        8.3       10.3
Net income before extraordinary
  item...............................        5.8        8.2        6.5
</TABLE>

     The following table sets forth the number of funeral homes and cemeteries
owned and operated by Carriage for the periods presented:

<TABLE>
<CAPTION>
                                           YEAR ENDED DECEMBER 31,
                                       -------------------------------
                                         1997       1998       1999
                                          ---        ---        ---
<S>                                    <C>        <C>        <C>
Funeral homes at beginning of
  period.............................         76        120        166
Acquisitions.........................         44         48         17
Divestitures.........................         --          2          1
                                             ---        ---        ---
Funeral homes at end of period.......        120        166        182
                                             ===        ===        ===
Cemeteries at beginning of period....         10         20         27
Acquisitions.........................         10          7         14
Divestitures.........................         --         --         --
                                             ---        ---        ---
Cemeteries at end of period..........         20         27         41
                                             ===        ===        ===
</TABLE>

     The following is a discussion of Carriage's results of operations for 1997,
1998 and 1999. For purposes of this discussion, funeral homes and cemeteries
owned and operated for the entirety of each year being compared are referred to
as "existing operations." Operations acquired or opened during either year
being compared are referred to as "acquired operations."

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

     Funeral Home Segment.  The following table sets forth certain information
regarding Carriage's net revenues and gross profit from our funeral home
operations during the years ended December 31, 1998 and 1999:

<TABLE>
<CAPTION>
                                            YEAR ENDED
                                           DECEMBER 31,              CHANGE
                                       ---------------------  ---------------------
                                         1998        1999      AMOUNT      PERCENT
                                       ---------  ----------  ---------    --------
<S>                                    <C>        <C>         <C>          <C>
                                                  (DOLLARS IN THOUSANDS)
Net revenues:
     Existing operations.............  $  79,954  $   82,993  $   3,039        3.8%
     Acquired operations.............     13,011      42,271     29,260          *
                                       ---------  ----------  ---------
          Total net revenues.........  $  92,965  $  125,264  $  32,299       34.7%
                                       =========  ==========  =========
Gross profit:
     Existing operations.............  $  23,767  $   23,387  $    (380)     (1.6)%
     Acquired operations.............      4,269      12,152      7,883          *
                                       ---------  ----------  ---------
          Total gross profit.........  $  28,036  $   35,539  $   7,503       26.8%
                                       =========  ==========  =========
* Not meaningful
</TABLE>

     Due to the Carriage's rapid growth, existing operations represented only
66% of the total funeral revenues and only 66% of the total funeral gross profit
for the year ended December 31, 1999. Total funeral net revenues for the year
ended December 31, 1999, increased $32.3 million or 34.7% over 1998. The higher
net revenues

                                       15
<PAGE>
reflect an increase of $29.3 million in net revenues from acquired operations
and an increase in net revenues of $3.0 million or 3.8% from existing
operations. There was a 2.6% increase in the average revenue per funeral service
for existing operations, and a 1.2% increase in the number of funeral services
being performed.

     Total funeral gross profit for the year ended December 31, 1999, increased
$7.5 million or 26.8% over 1998. The higher total gross profit reflected an
increase of $7.9 million from acquired operations and a slight decrease from
existing operations. Gross profit for existing operations decreased primarily
due to the increase in the percent of funeral services which involved cremations
compared to the prior year, as well as a higher portion of incentive
compensation payable in cash rather than in stock options. Total gross margin
decreased from 30.2% for 1998 to 28.4% for 1999.

     Cemetery Segment.  The following table sets forth certain information
regarding Carriage's net revenues and gross profit from cemetery operations for
the years ended December 31, 1998 and 1999:

<TABLE>
<CAPTION>
                                            YEAR ENDED
                                           DECEMBER 31,               CHANGE
                                       --------------------    --------------------
                                         1998       1999       AMOUNT      PERCENT
                                       ---------  ---------    -------     --------
<S>                                    <C>        <C>          <C>         <C>
                                                  (DOLLARS IN THOUSANDS)
Net revenues:
     Existing operations.............  $  20,518  $  20,760    $   242         1.2%
     Acquired operations.............      3,358     22,443     19,085           *
                                       ---------  ---------    -------
          Total net revenues.........  $  23,876  $  43,203    $19,327        80.9%
                                       =========  =========    =======
Gross profit:
     Existing operations.............  $   5,888  $   5,080    $  (808)      (13.7)%
     Acquired operations.............        400      5,865      5,465           *
                                       ---------  ---------    -------
          Total gross profit.........  $   6,288  $  10,945    $ 4,657        74.1%
                                       =========  =========    =======
</TABLE>

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

* Not meaningful

     Due to Carriage's rapid growth, existing operations represented
approximately 48.1% of cemetery revenues and approximately 46.4% of cemetery
gross profit for the year ended December 31, 1999.

     Total cemetery net revenues for the years ended December 31, 1999 increased
$19.3 million or 80.9% over 1998 and total cemetery gross profit increased $4.7
million or 74.1% over 1998. The higher net revenues reflect an increase of $19.1
million in net revenues from acquired operations and moderate increase in
revenues from existing operations. Total gross margin decreased slightly from
26.3% for the year ended December 31, 1998 to 25.3% for the year ended December
31, 1999. The decreases in gross margin was due primarily to our acquisition of
14 cemeteries during 1999, and increased preneed marketing expenditures.

     Other

     During 1999, the Board of Directors authorized new five-year contracts to
the top executive officers to ensure continuity, maintain management's direction
and focus, and therefore enhance long-term shareholder value. A special
compensation charge in the amount of $2.5 million was recorded in general and
administration expenses in connection with these new contracts.

     General and administrative expenses for the year ended December 31, 1999,
increased $4.2 million or 55.2% over 1998. The increase was $1.7 million or
22.2% without the special compensation charge. As a percentage of net revenues,
general and administrative expenses decreased, without including the special
compensation charge, as the expenses were spread over a larger volume of
revenue.

     Interest expense for the year ended December 31, 1999, increased $7.6
million over 1998 due to higher financing costs and interest rates and increased
borrowings for acquisitions.

     All of the Series F redeemable preferred stock, or approximately $20
million, was converted to Class A common stock by December 31, 1998. Dividends
on this preferred stock were four percent per annum. Preferred dividends of
$606,000 and $93,000 were subtracted from net income in computing earnings for
1998 and 1999, attributable to common stockholders for purposes of computing
basic and diluted earnings per common share.

                                       16
<PAGE>
The reduction in preferred stock dividends from 1998 to 1999 was due to
conversions of preferred stock to common stock during the year.

     Carriage provided for income taxes on income before income taxes and
extraordinary item at a combined state and federal tax rate of 44% and 43.8% for
the years ended December 31, 1998 and 1999, respectively. Amortization of names
and reputations related to certain acquisitions, which is nondeductible, is the
primary cause of our effective rate exceeding the combined federal and state
statutory income tax rates.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

     Funeral Home Segment.  The following table sets forth certain information
regarding Carriage's net revenues and gross profit from funeral home operations
during the years ended December 31, 1997 and 1998:

<TABLE>
<CAPTION>
                                            YEAR ENDED
                                           DECEMBER 31,               CHANGE
                                       --------------------    --------------------
                                         1997       1998       AMOUNT      PERCENT
                                       ---------  ---------    -------     --------
<S>                                    <C>        <C>          <C>         <C>
                                                  (DOLLARS IN THOUSANDS)
Net revenues:
     Existing operations.............  $  47,082  $  48,092    $ 1,010        2.1%
     Acquired operations.............     17,806     44,873     27,067          *
                                       ---------  ---------    -------
          Total net revenues.........  $  64,888  $  92,965    $28,077       43.3%
                                       =========  =========    =======
Gross profit:
     Existing operations.............  $  10,881  $  13,752    $ 2,871       26.4%
     Acquired operations.............      5,603     14,284      8,681          *
                                       ---------  ---------    -------
          Total gross profit.........  $  16,484  $  28,036    $11,552       70.1%
                                       =========  =========    =======
</TABLE>

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

* Not meaningful.

     Due to the Carriage's rapid growth, existing operations represented only
52% of the total funeral revenues and only 49% of the total funeral gross profit
for the year ended December 31, 1998. Total funeral net revenues for the year
ended December 31, 1998, increased $28.1 million or 43.3% over 1997. The higher
net revenues reflect an increase of $27.1 million in net revenues from acquired
operations and an increase in net revenues of $1.0 million or 2.1% from existing
operations. While there was a 3.9% increase in the average revenue per funeral
service for existing operations, this was offset by a 1.7% decrease in the
number of funeral services being performed. Fewer services were performed in
1998, primarily due to lower than usual seasonal death rates in certain of our
markets, especially in the South Atlantic region of the country where we have a
large number of existing operations.

     Total funeral gross profit for the year ended December 31, 1998, increased
$11.6 million or 70.1% over 1997. The higher total gross profit reflected an
increase of $8.7 million from acquired operations and an increase of $2.9
million or 26.4% from existing operations. Gross profit for existing operations
increased due to the efficiencies gained by consolidation, cost savings,
improved collections experience and the increasing effectiveness of our
merchandising strategy. Total gross profit increased from 25.4% for 1997 to
30.2% for 1998 due to these factors.

     Cemetery Segment.  The following table sets forth certain information
regarding the net revenues and gross profit of Carriage from our cemetery
operations for the years ended December 31, 1997 and 1998:

<TABLE>
<CAPTION>
                                            YEAR ENDED
                                           DECEMBER 31,               CHANGE
                                       --------------------    --------------------
                                         1997       1998       AMOUNT      PERCENT
                                       ---------  ---------    -------     --------
<S>                                    <C>        <C>          <C>         <C>
                                                  (DOLLARS IN THOUSANDS)
Total net revenues...................  $  12,533  $  23,876    $11,343        90.5%
                                       =========  =========    =======
Total gross profit...................  $   2,899  $   6,288    $ 3,389       116.9%
                                       =========  =========    =======
</TABLE>

                                       17
<PAGE>
     Due to Carriage's rapid growth, existing operations represented
approximately 29% of cemetery revenues and approximately 20% of cemetery gross
profit for the year ended December 31, 1998. As a result, we do not believe it
is meaningful to present the results for existing and acquired operations
separately.

     Total cemetery net revenues for the years ended December 31, 1998 increased
$11.3 million or 90.5% over 1997 and total cemetery gross profit increased $3.4
million or 116.9% over 1997. Total gross margin increased from 23.1% for the
year ended December 31, 1997 to 26.3% for the year ended December 31, 1998.
These increases were due primarily to our acquisition of 17 cemeteries during
1997 and 1998, and increased preneed marketing efforts.

     Other

     General and administrative expenses for the year ended December 31, 1998,
increased $2.3 million or 43.7% over 1997 due primarily to the increased
personnel expense necessary to support a higher rate of growth and acquisition
activity. However, as a percentage of net revenues, general and administrative
expenses decreased as the expenses were spread over a larger volume of revenue.

     Interest expense for the year ended December 31, 1998, increased $3.8
million over 1997 principally due to increased borrowings for acquisitions.

     During 1997, Carriage issued approximately $20 million of Series F
redeemable preferred stock to fund a portion of our acquisition program. All of
the Series F redeemable preferred stock were converted to Class A common stock
by December 31, 1998. Dividends on this preferred stock are four percent per
annum. Preferred dividends of $890,000 and $606,000 were subtracted from net
income in computing earnings for 1997 and 1998, attributable to common
stockholders for purposes of computing basic and diluted earnings per common
share.

     Carriage provided for income taxes on income before income taxes and
extraordinary item at a combined state and federal tax rate of 45.3% and 44% for
the years ended December 31, 1997 and 1998, respectively. The provision for
income taxes for 1997 includes a one-time charge in the amount of $390,000 to
revalue the historical deferred tax liability accounts because our taxable
income had grown to the point at which the federal corporate tax rate increases
from 34% to 35%. Amortization of names and reputations related to certain
acquisitions, which is nondeductible, is the primary cause of our effective rate
exceeding the combined federal and state statutory income tax rates.

LIQUIDITY AND CAPITAL RESOURCES

     Cash and cash equivalents totaled $2.5 million at December 31, 1999,
representing a decrease of $400,000 from December 31, 1998. For the year ended
December 31, 1999, cash provided by operations was $17.0 million as compared to
$11.9 million for the year ended December 31, 1998. The increase in cash
provided by operations was principally due to increases in net income as
adjusted for non-cash charges, which was partially offset by a net increase in
the working capital accounts. The net increase in the working capital accounts
was primarily related to requirements of acquisitions during the year. Cash used
in investing activities was $66 million for the year ended December 31, 1999
compared to $159 million in 1998, primarily due to a slowing in the number of
acquisitions in 1999 as compared to the number in 1998. In 1999, cash flow
provided by financing activities amounted to approximately $49 million,
primarily due to the net proceeds generated from the issuance of $110.0 million
of senior notes and from the Company's sale of mandatorily redeemable
convertible preferred securities, less repayments of long-term debt.

     On June 3, 1999, the Company's subsidiary, Carriage Services Capital Trust,
completed the sale of 1,875,000 units of 7% convertible preferred securities,
resulting in approximately $90 million in net proceeds to the Company, of which
$77.4 million was used to repay outstanding indebtedness under the Company's
credit facility, with the remaining $12.6 million used for general corporate
purposes.

     On July 1, 1999, the Company issued $110 million in senior debt notes and
used the proceeds to reduce the amount outstanding under the Company's revolving
line of credit. The notes are unsecured, mature in tranches of five, seven and
nine years and bear interest at the fixed rates of 7.73%, 7.96% and 8.06%,
respectively.

     Historically, we have financed our acquisitions with proceeds from debt and
the issuance of common and preferred stock. As of December 31, 1998 and 1999, we
had 1,682,500 and 1,182,500, respectively of Series D

                                       18
<PAGE>
Preferred Stock issued and outstanding. The Series D Preferred Stock is
convertible into Class B Common Stock. The holders of Series D Preferred Stock
are entitled to receive cash dividends at an annual rate of $.06-.07 per share
depending upon when such shares were issued. Commencing on August 8, 1998,
Carriage may, at its option, redeem all or any portion of the shares of Series D
Preferred Stock then outstanding at a redemption price of $1.00 per share,
together with all accrued and unpaid dividends. Such redemption is subject to
the right of each holder of Series D Preferred Stock to convert such holder's
shares into shares of Class B Common Stock. On December 31, 2001, we must redeem
all shares of Series D Preferred Stock, then outstanding, at a redemption price
of $1.00 per share, together with all accrued and unpaid dividends. During the
twelve months ended December 31, 1999, holders of Series D Preferred Stock
converted a total of 500,000 shares into 35,238 shares of Class A Common Stock.

     On December 31, 1998, all of the Series F Preferred Stock was converted
into an aggregate of 722,250 shares of Class A Common Stock at the exercise
price of $17 per share.

     At December 31, 1998, the Company had a credit facility with a group of
banks for a $225 million revolving line of credit. During June 1999, the Company
entered into a new credit facility for a $250 million revolving line of credit.
On September 20, 1999, the Company amended the credit facility, increasing the
amount available to $260 million. The credit facility has a five year term, is
unsecured and contains customary restrictive covenants, including a restriction
on the payment of dividends on common stock, and requires the Company to
maintain certain financial ratios. Interest under the credit facility is
provided at both LIBOR and prime rate options. The Company has the ability under
the credit facility to increase its total debt outstanding to as much as 60
percent of its total capitalization (with redeemable preferred stock treated as
equity). As of December 31, 1999, $50.1 million was outstanding under the credit
facility and the Company's debt to total capitalization was 38 percent.

     During the twelve months ended December 31, 1999, the Company incurred
approximately $16.4 million in capital expenditures, primarily related to
constructing new funeral home facilities at a number of our locations. The
Company believes that cash flow from operations and borrowings under the credit
facility should be sufficient to fund any acquisitions and anticipated capital
expenditures as well as other operating requirements. During 1999, the Company
spent approximately $45 million for acquisitions. Acquisition spending during
2000 is anticipated to be significantly less than the amounts during either of
the two preceding years, excluding the effect of any possible transactions that
may occur with other corporate death care companies. Because future cash flows
and the availability of financing are subject to a number of variables, such as
the number and size of acquisitions made by the Company, there can be no
assurance that the Company's capital resources will be sufficient to fund its
capital needs. Additional debt and equity financings may be required in the
future. The availability and terms of these capital sources will depend on
prevailing market conditions and interest rates and the then-existing financial
condition of the Company.

POTENTIAL ACCOUNTING CHANGES

     In December 1999, the Securities and Exchange Commission (the
"Commission") issued Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements, which is to be applied beginning with the first fiscal
quarter of the fiscal year beginning after December 15, 1999, to provide
guidance related to recognizing revenue in circumstances in which no specific
authoritative literature exists. Members of the death care industry, including
us, are reviewing the application of the Staff Accounting Bulletin with the
Commission, which may have a material affect on the manner in which we record
preneed revenues and costs. Any potential accounting changes are not expected to
result in a material change in net cash flows, nor the amount of revenues we
ultimately expect to realize.

     The Financial Accounting Standards Board has issued an exposure draft which
would change certain aspects in the manner in which businesses account for
business combinations. We expect these changes to be prospective in the nature
of adoption. The most significant of the proposed changes to Carriage would be
reducing the period of amortization of Names and Reputations to a period that is
less than 40 years.

                                       19
<PAGE>
SEASONALITY

     Although the death care business is relatively stable and fairly
predictable, our business can be affected by seasonal fluctuations in the death
rate. Generally, death rates are higher during the winter months. In addition,
our quarterly results may fluctuate depending on the magnitude and timing of
acquisitions.

INFLATION

     Inflation has not had a significant impact on the results of Carriage's
operations during the last three years.

YEAR 2000

     Our information systems management group is continually reviewing the
management and accounting software packages for internal accounting and
information requirements to keep pace with our continued growth. To address the
Year 2000 issue, our program encompassed performing an inventory of our
information technology and non-information technology systems, assessing the
potential problem areas, testing the systems for Year 2000 readiness, and
modifying systems that were not Year 2000 ready prior to December 31, 1999.

     The inventory and assessment for all of our core systems that are essential
for business operations was completed by December 31, 1999. All of these core
systems are believed to be Year 2000 compliant. As of December 31, 1999,
management estimated that we had completed all of the work involved in
modifying, replacing and testing the non-compliant hardware and software. The
inventory and assessment phases for newly acquired businesses was performed
during the acquisition process as part of our due diligence analysis.

     We also communicated with vendors, trustees and other third parties with
which we conduct business to determine the extent to which those companies are
addressing their Year 2000 compliance. To date, no significant third parties
have informed us that any Year 2000 issue exists which would have a material
effect on us.

     To date we have continued our business activities without interruption by a
Year 2000 problem, we recognize the general uncertainty inherent in the Year
2000 issue, in part because of the uncertainty about the Year 2000 readiness of
third parties. Under a "most likely worst case Year 2000 scenario," it may
have been necessary for us to replace some suppliers, rearrange some work plans
or even temporarily interrupt some normal business activities or operations. We
have not experienced such circumstances nor any material adverse impact to our
operations.

     Our total costs of becoming Year 2000 compliant were not significant to our
financial position, results of operations or cash flows. As of December 31,
1999, we have spent approximately $100,000 related to Year 2000 compliance.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURE

     Carriage is exposed to market risk primarily related to potential adverse
changes in interest rates as discussed below. Management is actively involved in
monitoring exposure to market risk and developing and utilizing appropriate risk
management techniques. We are not exposed to any other significant market risks
including commodity price risk, nor foreign currency exchange risk.

     Carriage is currently exposed to market risk from changes in interest
rates. Our variable rate long-term borrowings primarily consist of the $50
million outstanding under our $260 million floating rate line of credit maturing
in 2004. Any change in the floating rate will cause a change in interest
expense. We seek to minimize the risk that interest rates will increase by
entering into interest rate swap transactions. As of December 31, 1999, we were
engaged in three interest rate swaps in which we exchange the floating rate
payments for fixed rate payments at 90-day intervals. The interest rate swaps
have a combined notional amount of $50 million, mature in 2003, and have a
weighted average fixed rate of 7.44% and a fair value of $2,182,000 at December
31, 1999. Any decrease in market interest rates, assuming all other things being
equal, causes the fair value of our interest rate swaps to decrease. The
remainder of Carriage's long-term debt and the leases consist of non-interest
bearing notes and fixed rate instruments. Any increase in market interest rates
causes the fair value of those liabilities to decrease.

                                       20
<PAGE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial statements required by this Item 8 are incorporated under
Item 14 in Part IV of this report.

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

     None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by Item 10 is incorporated by reference to the
Registrant's definitive proxy statement relating to its 2000 annual meeting of
shareholders, which proxy statement will be filed pursuant to Regulation 14A of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), within
120 days after the end of the last fiscal year.

ITEM 11.  EXECUTIVE COMPENSATION

     The information required by Item 11 is incorporated by reference to the
Registrant's definitive proxy statement relating to its 2000 annual meeting of
shareholders, which proxy statement will be filed pursuant to Regulation 14A of
the Exchange Act within 120 days after the end of the last fiscal year.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by Item 12 is incorporated by reference to the
Registrant's definitive proxy statement relating to its 2000 annual meeting of
shareholders, which proxy statement will be filed pursuant to Regulation 14A of
the Exchange Act within 120 days after the end of the last fiscal year.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by Item 13 is incorporated by reference to the
Registrant's definitive proxy statement relating to its 2000 annual meeting of
shareholders, which proxy statement will be filed pursuant to Regulation 14A of
the Exchange Act within 120 days after the end of the last fiscal year.

                                       21

<PAGE>
                                    PART IV

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

(A) 1  FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                        PAGE
                                        -----
<S>                                     <C>
Report of Independent Public
  Accountants........................     26
Consolidated Balance Sheets as of
  December 31, 1998 and 1999.........     27
Consolidated Statements of Income for
  the Years Ended December 31, 1997,
  1998 and 1999......................     28
Consolidated Statements of Changes in
  Stockholders' Equity for the Years
  Ended December 31, 1997, 1998 and
  1999...............................     29
Consolidated Statements of Cash Flows
  for the Years Ended December 31,
  1997, 1998 and 1999................     30
Notes to Consolidated Financial
  Statements.........................     31
</TABLE>

(A) 2  FINANCIAL STATEMENT SCHEDULES

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

<TABLE>
<CAPTION>
                                        PAGE
                                        -----
<S>                                     <C>
Report of Independent Public
  Accountants on Financial Statement
  Schedule...........................     46
Financial Statement Schedule
  II -- Valuation and Qualifying
  Accounts...........................     47
</TABLE>

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

(A) 3  EXHIBITS

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

<TABLE>
<CAPTION>
        EXHIBIT
          NO.                                                    DESCRIPTION
- ------------------------  ------------------------------------------------------------------------------------------
<C>                       <S>
           3.1       --   Amended and Restated Certificate of Incorporation, as amended, of the Company.
                          Incorporated herein by reference to Exhibit 3.1 to the Company's Annual Report on Form
                          10-K for its fiscal year ended December 31, 1996.
           3.2       --   Certificate of Amendment dated May 9, 1996. Incorporated by reference to Exhibit 10.2 to
                          the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended September 30,
                          1997.
           3.3       --   Certificate of Decrease, reducing the authorized Series D Preferred Stock. Incorporated by
                          reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for its fiscal
                          quarter ended September 30, 1997.
           3.4       --   Certificate of Decrease, reducing the authorized Series F Preferred Stock. Incorporated by
                          reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for its fiscal
                          quarter ended September 30, 1997.
           3.5       --   Amended and Restated Bylaws of the Company. Incorporated herein by reference to Exhibit
                          3.2 to the Company's Registration Statement on Form S-1 (File No. 333-05545).
           4.1       --   Certificate of Elimination of Series F Preferred Stock. Incorporated by reference to
                          Exhibit 4.1 to the Company's Quarterly Report on Form 10Q for its fiscal quarter ended
                          June 30, 1999.
          =4.2       --   Certificate of Trust of Carriage Services Capital Trust. (4.6)
          =4.3       --   Amended and Restated Declaration of Trust of Carriage Services Capital Trust, dated as of
                          June 3, 1999, among Carriage Services, Inc. as Sponsor, Wilmington Trust Company as
                          Property Trustee, Wilmington Trust Company as Delaware Trustee, and Mark W. Duffey, Thomas
                          C. Livengood and Terry E. Sanford as Administrative Trustees. (4.7)
          =4.4       --   Indenture for the Convertible Junior Subordinated Debentures due 2029, dated as of June 3,
                          1999, amount Carriage Services, Inc. as Issuer, and Wilmington Trust Company as Indenture
                          Trustee. (4.8)
</TABLE>

                                       22
<PAGE>
<TABLE>
<C>                       <S>
          =4.5       --   Form of Carriage Services Capital Trust 7% Convertible Preferred Securities. (4.10)
          =4.6       --   Form of Carriage Services, Inc., Convertible Junior Subordinated Debentures due 2029.
                          (4.11)
          =4.7       --   Preferred Securities Guarantee, dated as of June 3, 1999, between Carriage Services, Inc.,
                          as Guarantor, and Wilmington Trust Company as Guarantee Trustee. (4.12)
          =4.8       --   Common Securities Guarantee, dated as of June 3, 1999, by Carriage Services, Inc. as
                          Guarantor. (4.13)
          =4.9       --   Amendment No. 1 to Amended and Restated Declaration of Trust of Carriage Services Capital
                          Trust. (4.14)
          *9.1       --   Termination of Voting Agreement, dated October 29, 1999. Terminating the Voting Agreement,
                          as amended, among certain stockholders, dated August 8, 1996.
          10.1       --   Credit Agreement by and among the Company and Bank of America dated June 14, 1999.
                          Incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10Q for
                          its fiscal quarter ended June 30, 1999.
         =10.2       --   Registration Rights Agreement, dated June 3, 1999, by and among Carriage Services Capital
                          Trust, Carriage Services, Inc., and Credit Suisse First Boston Corporation. (10.1)
          10.3       --   Amendment No. 1 to Credit Agreement by and among the Company and Bank of America, N.A.,
                          dated July 1, 1999. Incorporated by reference to Exhibit 10.1 to the Company's Quarterly
                          Report on Form 10Q for its quarter ended September 30, 1999.
          10.4       --   Amendment No. 2 to Credit Agreement by and among the Company and Bank of America, N.A.,
                          dated September 20, 1999. Incorporated by reference to Exhibit 10.1 to the Company's
                          Quarterly Report on Form 10Q for its quarter ended September 30, 1999.
          10.5       --   Note Purchase Agreement, dated July 1, 1999, for $300 million in Senior Notes Issuable in
                          Series. Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on
                          Form 10Q for its quarter ended September 30, 1999.
         #10.6       --   Amendment No. 2 to 1995 Stock Incentive Plan. (10.1)
         #10.7       --   Amendment No. 2 to 1996 Stock Option Plan. (10.2)
         #10.8       --   Amendment No. 1 to 1996 Directors' Stock Option Plan. (10.3)
         #10.9       --   Amendment No. 2 to 1995 Directors' Stock Option Plan. (10.4)
         -10.10      --   1998 Stock Option Plan for Consultants. (10.1)
        *+10.11      --   Employment agreement with Melvin C. Payne, dated November 8,1999.
        *+10.12      --   Employment agreement with Mark W. Duffey, dated November 8, 1999.
        *+10.13      --   Employment agreement with Thomas C. Livengood, dated November 8, 1999.
        *+10.14      --   Employment agreement with Russell W. Allen, dated November 8, 1999.
         *11.1       --   Statement regarding computation of per share earnings.
         *12         --   Calculation of Ratio of Earnings to Fixed Charges
         *21.1       --   Subsidiaries of the Company
         *27.1       --   Financial Data Schedule.
</TABLE>

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

(*) Filed herewith.

(+) Management contract or compensation plan.

(=) Incorporated by reference to the Exhibit number shown in parentheses to the
    registrant's Form S-3 Registration Statement No. 333-84141.

(#) Incorporated by reference to the Exhibit number shown in parentheses to the
    registrant's Form S-8 Registration Statement No. 333-85961.

(-) Incorporated by reference to the Exhibit number shown in parentheses to the
    registrant's Form S-8 Registration Statement No. 333-62593.

(B) REPORTS ON FORM 8-K

     Carriage filed a Current Report on Form 8-K on June 1, 1999, with respect
to the private sale of $75 million of 7% Convertible Preferred Securities, Term
Income Deferrable Equity Securities on June 3, 1999.

     Carriage filed a Current Report on Form 8-K on April 13, 1999, with respect
to its acquisition of the operating assets and assumption of liabilities of nine
cemeteries and five funeral homes from Service Corporation International, Inc.,
on March 30, 1999.

     Carriage filed a Current Report on Form 8-K on March 17, 2000, with respect
to the revision to the Company's fourth quarter and full year earnings press
release.

                                       23
<PAGE>
                                   SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED ON MARCH 23, 2000.

                                          CARRIAGE SERVICES, INC.
                                          By:  /s/    MELVIN C. PAYNE
                                                      MELVIN C. PAYNE
                                              CHAIRMAN OF THE BOARD AND CHIEF
                                                    EXECUTIVE OFFICER

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

<TABLE>
<CAPTION>
                      SIGNATURE                                         TITLE                         DATE
- ------------------------------------------------------  --------------------------------------   ---------------
<C>                                                     <S>                                      <C>
                  /s/MELVIN C. PAYNE                    Chairman of the Board, Chief Executive   March 23, 2000
                   MELVIN C. PAYNE                        Officer and Director (Principal
                                                          Executive Officer)

                  /s/MARK W. DUFFEY                     President and Director                   March 23, 2000
                    MARK W. DUFFEY

                /s/THOMAS C. LIVENGOOD                  Executive Vice President, Chief          March 23, 2000
                 THOMAS C. LIVENGOOD                      Financial Officer and Secretary
                                                          (Principal Financial and Accounting
                                                          Officer)

                  /s/C. BYRON SNYDER                    Director                                 March 23, 2000
                   C. BYRON SNYDER

                /s/ROBERT D. LARRABEE                   Director                                 March 23, 2000
                  ROBERT D. LARRABEE

                 /s/VINCENT D. FOSTER                   Director                                 March 23, 2000
                  VINCENT D. FOSTER

                 /s/STUART W. STEDMAN                   Director                                 March 23, 2000
                  STUART W. STEDMAN

                /s/RONALD A. ERICKSON                   Director                                 March 23, 2000
                  RONALD A. ERICKSON

                  /s/MARK F. WILSON                     Director                                 March 23, 2000
                    MARK F. WILSON

                 /s/GREG M. BRUDNICKI                   Director                                 March 23, 2000
                  GREG M. BRUDNICKI
</TABLE>
                                       24
<PAGE>
                            CARRIAGE SERVICES, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            PAGE
                                                                            ----

CONSOLIDATED FINANCIAL STATEMENTS:

     Report of Independent Public Accountants............................     26

     Consolidated Balance Sheets as of December 31, 1998 and 1999........     27

     Consolidated Statements of Income for the Years Ended
      December 31, 1997, 1998 and 1999...................................     28

     Consolidated Statements of Changes in Stockholders' Equity
      for the Years Ended December 31, 1997, 1998 and 1999...............     29

     Consolidated Statements of Cash Flows for the Years Ended
      December 31, 1997, 1998 and 1999...................................     30

     Notes to Consolidated Financial Statements..........................     31

                                       25
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Carriage Services, Inc.

     We have audited the accompanying consolidated balance sheets of Carriage
Services, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998
and 1999 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Carriage
Services, Inc., and subsidiaries as of December 31, 1998 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
February 8, 2000, except with respect
to matters discussed in Note 6, litigation, as to
which the date is
March 17, 2000

                                       26
<PAGE>
                            CARRIAGE SERVICES, INC.
                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                            DECEMBER 31,
                                       ----------------------
                                          1998        1999
                                       ----------  ----------
<S>                                    <C>         <C>
               ASSETS
Current assets:
  Cash and cash equivalents..........  $    2,892  $    2,517
  Accounts receivable --
     Trade, net of allowance for
     doubtful accounts of $3,435 in
     1998 and $6,058 in 1999.........      17,835      23,585
       Other.........................       3,696       4,941
                                       ----------  ----------
                                           21,531      28,526
  Inventories and other current
     assets..........................       7,457      13,302
                                       ----------  ----------
          Total current assets.......      31,880      44,345
                                       ----------  ----------
Property, plant and equipment, at
  cost:
  Land...............................      30,952      34,061
  Buildings and improvements.........      89,567     106,613
  Furniture and equipment............      21,988      29,923
                                       ----------  ----------
                                          142,507     170,597
  Less-accumulated depreciation......     (11,363)    (17,250)
                                       ----------  ----------
                                          131,144     153,347
Cemetery property, at cost...........      63,409      65,920
Names and reputations, net of
  accumulated amortization of $8,428
  in 1998 and $14,339 in 1999........     211,183     231,393
Deferred charges and other
  non-current assets.................      28,528      44,585
                                       ----------  ----------
          Total assets...............  $  466,144  $  539,590
                                       ==========  ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable...................  $    4,754  $    4,726
  Accrued liabilities................       9,168      11,938
  Current portion of long-term debt
     and obligations under capital
     leases..........................       6,394       5,496
                                       ----------  ----------
          Total current
            liabilities..............      20,316      22,160
Preneed liabilities, net.............      11,106       9,099
Long-term debt, net of current
  portion............................     212,972     178,942
Obligations under capital leases, net
  of current portion.................       3,209       3,333
Deferred income taxes................      16,474      23,021
                                       ----------  ----------
          Total liabilities..........     264,077     236,555
                                       ----------  ----------
Commitments and contingencies
Redeemable preferred stock...........       1,673       1,172
Company obligated mandatorily
  redeemable convertible preferred
  securities
  of Carriage Services Capital Trust           --      89,854
Stockholders' equity:
  Class A Common Stock, $.01 par
     value; 40,000,000 shares
     authorized; 12,028,000 and
     13,912,000 issued and
     outstanding in 1998 and 1999,
     respectively....................         120         139
  Class B Common Stock; $.01 par
     value; 10,000,000 shares
     authorized; 3,779,000 and
     2,030,000 issued and outstanding
     in 1998 and 1999,
     respectively....................          38          20
  Contributed capital................     194,911     195,931
  Retained earnings                         5,325      15,919
                                       ----------  ----------
          Total stockholders'
            equity...................     200,394     212,009
                                       ----------  ----------
          Total liabilities and
            stockholders' equity.....  $  466,144  $  539,590
                                       ==========  ==========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       27
<PAGE>
                            CARRIAGE SERVICES, INC.
                       CONSOLIDATED STATEMENTS OF INCOME
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                       FOR THE YEARS ENDED DECEMBER 31,
                                       ---------------------------------
                                         1997        1998        1999
                                       ---------  ----------  ----------
<S>                                    <C>        <C>         <C>
Revenues, net
  Funeral............................  $  64,888  $   92,965  $  125,264
  Cemetery...........................     12,533      23,876      43,203
                                       ---------  ----------  ----------
                                          77,421     116,841     168,467
Costs and expenses
  Funeral............................     48,404      64,929      89,725
  Cemetery...........................      9,634      17,588      32,258
                                       ---------  ----------  ----------
                                          58,038      82,517     121,983
                                       ---------  ----------  ----------
  Gross profit.......................     19,383      34,324      46,484
General and administrative
  expenses...........................      5,277       7,581       9,265
Special compensation charge..........         --          --       2,500
                                       ---------  ----------  ----------
  Operating income...................     14,106      26,743      34,719
Interest expense, net................     (5,889)     (9,720)    (13,566)
Financing costs of company-obligated
 mandatorily redeemable convertible
 preferred securities of Carriage
 Services Capital Trust..............         --          --      (3,792)
Settlement of litigation.............         --          --       2,000
                                       ---------  ----------  ----------
  Income before income taxes and
     extraordinary item..............      8,217      17,023      19,361
Provision for income taxes...........      3,726       7,490       8,474
                                       ---------  ----------  ----------
  Net income before extraordinary
     item............................      4,491       9,533      10,887
Extraordinary item -- loss on early
 extinguishment of debt, net of
 income tax benefit of $159 in 1997
 and $151 in 1999....................       (195)         --        (200)
                                       ---------  ----------  ----------
  Net income.........................      4,296       9,533      10,687
Preferred stock dividend
  requirements.......................        890         606          93
                                       ---------  ----------  ----------
  Net income available to common
     stockholders....................  $   3,406  $    8,927  $   10,594
                                       =========  ==========  ==========
Basic earnings per share:
  Net income before extraordinary
     item............................  $     .35  $      .67  $      .68
  Extraordinary item.................       (.02)         --        (.01)
                                       ---------  ----------  ----------
  Net Income.........................  $     .33  $      .67  $      .67
                                       =========  ==========  ==========
Diluted earnings per share:
  Net income before extraordinary
     item............................  $     .34  $      .65  $      .67
  Extraordinary item.................       (.02)         --        (.01)
                                       ---------  ----------  ----------
  Net Income.........................  $     .32  $      .65  $      .66
                                       =========  ==========  ==========
Weighted average number of common and
 common equivalent shares outstanding
  Basic..............................     10,226      13,315      15,875
                                       =========  ==========  ==========
  Diluted............................     10,485      13,808      16,136
                                       =========  ==========  ==========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       28
<PAGE>
                            CARRIAGE SERVICES, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                              RETAINED
                                                   COMMON     CONTRIBUTED     EARNINGS
                                        SHARES      STOCK       CAPITAL       (DEFICIT)     TOTAL
                                       ---------   -------    ------------    ---------   ----------
<S>                                    <C>         <C>        <C>             <C>         <C>
BALANCE -- DECEMBER 31, 1996.........      8,492       85         63,966         (7,008)      57,043
Net -- income 1997...................         --       --             --          4,296        4,296
Issuance of common stock.............        978       10         14,714             --       14,724
Conversion of redeemable preferred
  stock to common stock..............      1,658       16         23,276             --       23,292
Purchase of treasury stock...........         (3)      --            (60)            --          (60)
Exercise of stock options............         20       --            160             --          160
Preferred stock dividends............         --       --             --           (890)        (890)
                                       ---------   -------    ------------    ---------   ----------

BALANCE -- DECEMBER 31, 1997.........     11,145      111        102,056         (3,602)      98,565
Net Income -- 1998...................         --       --             --          9,533        9,533
Issuance of Common Stock.............      3,943       40         81,339             --       81,379
Conversion of redeemable preferred
  stock to common stock..............        722        7         12,271             --       12,278
Purchase of treasury stock...........        (78)      (1)        (1,822)            --       (1,823)
Exercise of stock options............         75        1          1,067             --        1,068
Preferred stock dividends............         --       --             --           (606)        (606)
                                       ---------   -------    ------------    ---------   ----------

BALANCE -- DECEMBER 31, 1998.........     15,807      158        194,911          5,325      200,394
Net Income -- 1999...................         --       --             --         10,687       10,687
Issuance of Common Stock.............         85        1            193             --          194
Conversion of redeemable preferred
  stock to common stock..............         35       --            500             --          500
Exercise of stock options............         15       --            780             --          780
Preferred stock dividends............         --       --             --            (93)         (93)
Other................................         --       --           (453)            --         (453)
                                       ---------   -------    ------------    ---------   ----------

BALANCE -- DECEMBER 31, 1999.........     15,942    $ 159       $195,931       $ 15,919   $  212,009
                                       =========   =======    ============    =========   ==========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       29
<PAGE>
                            CARRIAGE SERVICES, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                       FOR THE YEARS ENDED DECEMBER 31,
                                       ---------------------------------
                                         1997        1998        1999
                                       ---------  ----------  ----------
<S>                                    <C>        <C>         <C>
Cash flows from operating activities:
  Net income.........................  $   4,296  $    9,533  $   10,687
  Adjustments to reconcile net income
    to net cash provided by operating
    activities --
    Depreciation and amortization....      7,809      11,444      16,992
    Provision for losses on accounts
      receivable.....................      1,025       1,670       3,977
    Loss on early extinguishment of
      debt, net of income taxes......        195          --         200
    Settlement of litigation.........         --          --      (2,000)
    Deferred income taxes............      2,230       1,732       7,068
                                       ---------  ----------  ----------
Cash flows from operating activities
 before changes in working capital
 accounts............................     15,555      24,379      36,924
  Changes in assets and liabilities,
    net of effects from acquisitions:
    (Increase) in accounts
      receivable.....................     (4,747)    (10,959)    (11,484)
    (Increase) in inventories and
      other current assets...........     (1,223)       (726)     (4,422)
    Decrease (increase) in other
      deferred charges...............          8        (662)     (1,243)
    Increase (decrease) in accounts
      payable........................      1,168       1,869      (1,727)
    Increase (decrease) in accrued
      liabilities....................        422        (528)      3,382
    Increase (decrease) in preneed
      liabilities....................        370      (1,509)     (4,475)
                                       ---------  ----------  ----------
      Net cash provided by operating
         activities..................     11,553      11,864      16,955
Cash flows from investing activities:
  Prearranged funeral costs..........     (1,892)     (5,239)     (7,570)
  Acquisitions, net of cash
    acquired.........................    (65,607)   (136,389)    (41,715)
  Purchase of cemetery property......       (518)       (797)     (1,071)
  Purchase of property, plant and
    equipment........................     (8,645)    (16,301)    (16,355)
                                       ---------  ----------  ----------
      Net cash used in investing
         activities..................    (76,662)   (158,726)    (66,711)
Cash flows from financing activities:
  Proceeds from long-term debt.......     79,300     129,330     142,058
  Payments on long-term debt and
    obligations under capital
    leases...........................     (9,196)    (52,942)   (181,323)
  Proceeds from issuance of common
    stock............................        566      68,922         194
  Proceeds from issuance of
    company-obligated mandatorily
    redeemable convertible preferred
    securities.......................         --          --      89,854
  Preferred stock dividends..........       (890)       (606)        (93)
  Exercise of stock options..........        160       1,068         780
  Purchase of treasury stock.........        (60)     (1,771)         --
  Payment of deferred debt charges
    and other........................       (357)       (373)     (2,089)
                                       ---------  ----------  ----------
      Net cash provided by financing
         activities..................     69,523     143,628      49,381
Net increase (decrease) in cash and
  cash equivalents...................      4,414      (3,234)       (375)
Cash and cash equivalents at
  beginning of year..................      1,712       6,126       2,892
                                       ---------  ----------  ----------
Cash and cash equivalents at end of
  year...............................  $   6,126  $    2,892  $    2,517
                                       =========  ==========  ==========
Supplemental disclosure of cash flow
  information:
  Cash paid for interest.............  $   5,477  $    9,879  $   15,996
                                       =========  ==========  ==========
  Cash paid for income taxes.........  $   1,385  $    5,641  $    8,002
                                       =========  ==========  ==========
  Non-cash consideration for
    acquisitions.....................  $  52,653  $   23,810  $    2,774
                                       =========  ==========  ==========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       30

<PAGE>
                            CARRIAGE SERVICES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

     Carriage Services, Inc. was founded in 1991 and incorporated under the laws
of the State of Delaware on December 29, 1993. We own and operate funeral homes
and cemeteries throughout the United States. We provide professional services
related to funerals and interments at our funeral homes and cemeteries.
Prearranged funerals and preneed cemetery property are marketed in the
geographic markets served by Carriage's locations.

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

     The financial statements include the consolidated financial statements of
Carriage Services, Inc. and its subsidiaries. In consolidation, all significant
intercompany balances and transactions have been eliminated. Certain prior year
amounts in the consolidated financial statements have been reclassified to
conform with current year presentation.

FUNERAL AND CEMETERY OPERATIONS

     We record the sales of funeral merchandise and services upon performance of
the funeral service. All sales of cemetery interment rights, together with
associated merchandise and services, are recorded at the time contracts are
signed. Costs related to the sales of interment rights include property and
other costs related to cemetery development activities which are charged to
operations using the specific identification method. The cost for cemetery
merchandise and services sold, but not yet provided, is accrued as an expense at
the same time the cemetery revenue is recognized. Allowances for customer
cancellations, refunds and bad debts are provided at the date of sale based on
the historical experience of Carriage. Accounts receivable-trade, net consists
of approximately $10,016,000 and $11,700,000 of funeral receivables and
approximately $7,819,000 and $11,885,000 of current cemetery receivables at
December 31, 1998 and 1999, respectively. Non-current cemetery receivables,
those payable after one year, are included in Deferred Charges and Other
Non-current Assets on the Consolidated Balance Sheets. The non-current cemetery
accounts receivable balances were approximately $15,058,000 and $22,402,000 at
December 31, 1998 and 1999, respectively (see Note 3).

PRENEED FUNERAL ARRANGEMENTS

     Preneed funeral sales are affected by deposits to a trust or purchase of a
third-party insurance product. The sale is not recorded until the service is
performed. The trust fund and insurance product assets and related liabilities
are, likewise, not reflected on the Consolidated Balance Sheets. The trust
income earned and the increases in insurance benefits on the insurance products
are also deferred until the service is performed in order to offset inflation in
cost to provide the service in the future. The preneed insurance products
totaled approximately $95,637,000 and $106,266,000 and the preneed funeral trust
assets were approximately $83,952,000 and $111,902,000 at December 31, 1998 and
1999, respectively, which in the opinion of management, exceed the future
obligations under such arrangements. The type of instruments that the trusts may
invest in are regulated by state agencies.

                                       31
<PAGE>
                            CARRIAGE SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     The following summary reflects the composition of the assets held in trust
to satisfy Carriage's future obligations under preneed funeral arrangements:

<TABLE>
<CAPTION>
                                        HISTORICAL        UNREALIZED
                                        COST BASIS       GAIN (LOSS)       FAIR VALUE
                                        -----------      ------------      ----------
                                                       (IN THOUSANDS)
<S>                                     <C>              <C>               <C>
As of December 31, 1998:
     Cash and cash equivalents.......    $  38,777          $   --          $ 38,777
     Fixed income investment
       contracts.....................       16,531              --            16,531
     Mutual funds and stocks.........       15,854             862            16,716
     Annuities.......................       11,928              --            11,928
                                        -----------      ------------      ----------
          Total......................    $  83,090          $  862          $ 83,952
                                        -----------      ------------      ----------
As of December 31, 1999:
     Cash and cash equivalents.......    $  37,979          $   --          $ 37,979
     Fixed income investment
       contracts.....................       30,696              --            30,696
     Mutual funds and stocks.........       17,684           1,050            18,734
     Annuities.......................       24,493              --            24,493
                                        -----------      ------------      ----------
          Total......................    $ 110,852          $1,050          $111,902
                                        -----------      ------------      ----------
</TABLE>

CEMETERY MERCHANDISE AND SERVICE TRUST

     Carriage is also generally required, by certain states, to deposit a
specified amount into a merchandise and service trust fund for cemetery
merchandise and service contracts sold on a preneed basis. The principal and
accumulated earnings of the trust may be withdrawn by us upon maturity
(generally, the death of the purchaser) or cancellation of the contracts. Trust
fund investment income is recognized in current revenues as trust earnings
accrue, net of current period inflation costs recognized related to the
merchandise that has not yet been purchased. Merchandise and service trust fund
balances, in the aggregate, were approximately $18,578,000 and $33,043,000 at
December 31, 1998 and 1999, respectively, and are included in Preneed
Liabilities, net on the accompanying Consolidated Balance Sheets.

PERPETUAL AND MEMORIAL CARE TRUST

     In accordance with respective state laws, we are required to deposit a
specified amount into perpetual and memorial care trust funds for each
interment/entombment right and memorial sold. Income from the trust fund is used
to provide care and maintenance for the cemeteries and mausoleums and is
periodically distributed to Carriage and recognized as revenue upon
distribution. The perpetual and memorial care trust assets were approximately
$21,659,000 and $30,103,000 at December 31, 1998 and 1999, respectively, which,
in the opinion of management, will cover future obligations to provide care and
maintenance for our cemeteries and mausoleums. We do not have the right to
withdraw any of the principal balances of these funds and, accordingly, these
trust fund balances are not reflected in the accompanying Consolidated Balance
Sheets.

DEFERRED OBTAINING COSTS

     Deferred obtaining costs consist of sales commissions and other direct
marketing costs applicable to preneed funeral sales, net of insurance
commissions received. These costs are deferred and amortized in funeral costs
and expenses over the expected timing of the performance of the services covered
by the preneed funeral contracts.

CASH AND CASH EQUIVALENTS

     Carriage considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.

                                       32
<PAGE>
                            CARRIAGE SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

DERIVATIVE FINANCIAL SECURITIES

     We enter into interest rate swap agreements to reduce the impact of changes
in interest rates on our floating rate debt. The swap agreements are agreements
to exchange floating rates for fixed interest payments periodically over the
life of the agreements without the exchange of the underlying notional amounts.
Our current accounting practice does not provide that interest rate swaps are
recognized on the consolidated balance sheets. The differential paid or received
is recognized as an adjustment to interest expense. We do not hold or issue
financial instruments for trading purposes.

     In June 1998, the Financial Accounting Standards Board issued Statement No.
133 ("SFAS No. 133"), Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133, and as amended by Financial Accounting Standards Board
Statement No. 137, effective for years beginning after June 15, 2000, requires
derivatives to be recorded in the balance sheet as an asset or liability
measured at its fair value, with changes in the derivatives fair value
recognized currently in earnings unless specific hedge accounting criteria are
met. We expect to adopt SFAS No. 133 in the first quarterly filing in 2001 and
are currently evaluating the impact of such adoption on our consolidated
financial statements. We believe that the effect of adoption will be dependent
on how dramatically and in which direction interest rates change in the future.

INVENTORY

     Inventory is recorded at the lower of its cost basis (determined by the
specific identification method) or net realizable value.

NAMES AND REPUTATIONS

     The excess of the purchase price over the fair value of net identifiable
assets acquired, as determined by management in transactions accounted for as
purchases, is recorded as Names and Reputations. Such amounts are amortized over
40 years using the straight-line method. Many of our acquired funeral homes have
provided high quality service to families for generations. The resulting loyalty
often represents a substantial portion of the value of a funeral business. We
review the carrying value of Names and Reputations at least quarterly on a
location-by-location basis to determine if facts and circumstances exist which
would suggest that this intangible asset might be impaired or that the
amortization period needs to be modified. If indicators are present which
indicate impairment is probable, we will prepare a projection of the
undiscounted cash flows of the location and determine if the intangible assets
are recoverable based on these undiscounted cash flows. If impairment is
indicated, then an adjustment will be made to reduce the carrying amount of the
intangible asset to its fair value. At December 31, 1999, no impairment was
deemed to have occurred.

     The Financial Accounting Standards Board has issued an exposure draft which
would change certain aspects in the manner in which businesses account for
business combinations. We expect these changes to be prospective in the nature
of adoption. The most significant of the proposed changes to Carriage would be
reducing the period of amortization of Names and Reputations to a period that is
less than 40 years.

PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment are stated at cost. The costs of ordinary
maintenance and repairs are charged to operations as incurred, while renewals
and betterments are capitalized. Capitalized interest was $498,000 and $697,000
in 1998 and 1999, respectively. Depreciation of property, plant and equipment is
computed based on the straight-line method over the following estimated useful
lives of the assets:

                                         YEARS
                                        --------
Buildings and improvements...........   15 to 40
Furniture and fixtures...............    7 to 10
Machinery and equipment..............    5 to 10
Automobiles..........................     5 to 7

                                       33
<PAGE>
                            CARRIAGE SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

INCOME TAXES

     Carriage Services, Inc. and its subsidiaries file a consolidated U.S.
federal income tax return. We record deferred taxes for temporary differences
between the tax basis and financial reporting basis of assets and liabilities.

COMPUTATION OF EARNINGS PER COMMON SHARE

     Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Dilutive common equivalent
shares consist of stock options and convertible preferred stock (see Note 10).

FAIR VALUE OF FINANCIAL INSTRUMENTS

     We believe that carrying value approximates fair value for cash and cash
equivalents. Additionally, our floating rate credit facility approximates its
fair value. Management also believes that the carrying value of our the fixed
rate debt and redeemable preferred stock approximates fair value.

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

COMPREHENSIVE INCOME

     In June 1997, the Financial Accounting Standards Board issued Statement No.
130 ("SFAS No. 130"), Reporting Comprehensive Income. SFAS No. 130, effective
for years beginning after December 15, 1997, requires reporting comprehensive
income and its components in financial statements. Carrriage has no
comprehensive income to report for 1998 and 1999.

BUSINESS SEGMENTS

     In 1998, we adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, which requires segment information to be
reported on a basis consistent with that used internally for evaluating segment
performance and deciding how to allocate resources to segments. We restated
segment data for 1997 on a basis consistent with that in 1998 and 1999.

REVENUE RECOGNITION

     In December 1999, the Securities and Exchange Commission (the
"Commission") issued Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements, which is to be applied beginning with the first fiscal
quarter of the fiscal year beginning after December 15, 1999, to provide
guidance related to recognizing revenue in circumstances in which no specific
authoritative literature exists. Members of the death care industry, including
us, are reviewing the application of the Staff Accounting Bulletin with the
Commission, which may have a material affect on the manner in which we record
preneed revenues and costs. Any potential accounting changes are not expected to
result in a material change in net cash flows, nor the amount of revenues we
ultimately expect to realize.

2.  ACQUISITIONS

     During 1999, we acquired 17 funeral homes and 14 cemeteries through the
purchase of stock and assets. In 1998, we acquired 48 funeral homes and seven
cemeteries through the purchase of stock and assets. These

                                       34
<PAGE>
                            CARRIAGE SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

transactions have been accounted for utilizing the purchase method of accounting
and the results of operations of the acquired businesses have been included in
our results from the respective dates of acquisition.

     In accordance with APB Opinion 16, purchase prices were allocated to the
net assets acquired based on our estimate of the fair value of the acquired
assets and liabilities at the date of acquisition. Many of our acquired funeral
homes have provided high quality service to families for generations. The
resulting loyalty often represents a substantial portion of the value of a
funeral business. As a result, the excess of the consideration paid over the
fair value of net tangible and other identifiable intangible assets is allocated
to Names and Reputations. Future adjustments to the allocation of the purchase
price may be made during the 12 months following the date of acquisition due to
resolution of uncertainties existing at the acquisition date, which may include
obtaining additional information regarding asset and liability valuations.

     The effect of the above acquisitions on the Consolidated Balance Sheets at
December 31, 1998 and 1999 was as follows:

<TABLE>
<CAPTION>
                                          1998       1999
                                       ----------  ---------
<S>                                    <C>         <C>
                                          (IN THOUSANDS)
Current Assets.......................  $    8,225  $   8,347
Cemetery Property....................      29,899      4,214
Property, Plant and Equipment........      34,299     11,956
Deferred Charges and Other
  Non-current Assets.................       1,928      1,139
Names and Reputations................      92,504     26,225
Current Liabilities..................      (1,219)    (3,240)
Debt.................................      (1,166)    (1,684)
Other Liabilities....................      (3,468)    (2,468)
                                       ----------  ---------
                                          161,002     44,489
Consideration:
  Debt...............................     (10,965)    (2,774)
  Cash acquired in acquisitions......        (803)        --
  Common stock issued................     (12,845)        --
                                       ----------  ---------
     Cash used for acquisitions......  $  136,389  $  41,715
                                       ==========  =========
</TABLE>

     The following table reflects, on an unaudited pro forma basis, the combined
operations of Carriage and the businesses acquired during 1998 and 1999 as if
such acquisitions had taken place at the beginning of 1998. Appropriate
adjustments have been made to reflect the accounting basis used in recording
these acquisitions. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
that would have resulted had the combination been in effect on the date
indicated, that have resulted since the respective dates of acquisition or that
may result in the future.

<TABLE>
<CAPTION>
                                          1998        1999
                                       ----------  ----------
<S>                                    <C>         <C>
                                         (UNAUDITED AND IN
                                             THOUSANDS)
Revenues, net........................  $  172,776  $  179,109
Income before income taxes and
  extraordinary item.................      17,363      19,567
Net income available to common
  stockholders.......................       9,117      10,625
Earnings per share
     Basic...........................         .68         .67
     Diluted.........................         .66         .66
</TABLE>

     As a part of the purchase price consideration in the acquisition of certain
funeral homes and cemeteries, we issued approximately 375,000 shares of Class A
Common Stock and guaranteed the stock would trade at certain agreed-upon levels
during defined future periods ranging from one to three years. Should the stock
not trade at

                                       35
<PAGE>
                            CARRIAGE SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

these levels, then we would makeup the difference by issuing additional shares
or paying the seller additional cash during the years 2000 through 2002. The
present value of these price guarantees has been recorded as part of the
purchase price of these acquisitions.

3.  DEFERRED CHARGES AND OTHER NON-CURRENT ASSETS

     Deferred charges and other non-current assets at December 31, 1998 and 1999
were as follows (in thousands):

<TABLE>
<CAPTION>
                                         1998       1999
                                       ---------  ---------
<S>                                    <C>        <C>
Agreements not to compete, net of
  accumulated amortization of $2,798
  and $3,535, respectively...........  $   4,888  $   4,928
Non-current cemetery and notes
  receivable.........................     15,084     23,006
Deferred obtaining costs, net of
  accumulated amortization of $787
  and $1,871, respectively...........      7,633     14,120
Other................................        923      2,531
                                       ---------  ---------
                                       $  28,528  $  44,585
                                       =========  =========
</TABLE>

     The cost of agreements not to compete with former owners of businesses
acquired is amortized over the term of the respective agreements, ranging from
four to ten years. Deferred debt expense (included in "Other") is being
amortized over the term of the related debt. Non-current cemetery receivables
result from the multi-year payment terms in the underlying contracts.

4.  LONG-TERM DEBT AND RELATED DERIVATIVES

LONG-TERM DEBT

     Carriage's long-term debt consisted of the following at December 31 (in
thousands):

<TABLE>
<CAPTION>
                                          1998        1999
                                       ----------  ----------
<S>                                    <C>         <C>
Credit Facility, unsecured floating
  rate $260 million line, interest is
  due on a quarterly basis for prime
  borrowings and on the maturity
  dates of the LIBOR borrowings at
  the LIBOR rate plus 1.0% to 2.0%
  (weighted average interest rate was
  7.73% at December 31, 1999),
  matures in September, 2004.........  $  192,375  $   50,125
Senior Notes.........................          --     110,000
Acquisition debt.....................      18,034      17,956
Other................................       6,563       6,204
Less-current portion.................      (4,000)     (5,343)
                                       ----------  ----------
                                       $  212,972  $  178,942
                                       ==========  ==========
</TABLE>

     Prior to December 31, 1998, Carriage had a credit facility with a group of
banks for a $225 million revolving line of credit. During June 1999, we entered
into a new credit facility for a $250 million revolving line of credit. In
September 1999, we amended the credit facility, increasing the amount available
to $260 million. The credit facility has a five year term, is unsecured and
contains customary restrictive covenants, including a restriction on the payment
of dividends on common stock, and requires Carriage to maintain certain
financial ratios. Interest under the credit facility is provided at both LIBOR
and prime rate options. In connection with the repayment of debt in June 1999,
we recognized an extraordinary loss of approximately $200,000, net of income tax
benefit of approximately $151,000 for the write-off of the deferred loan costs
associated with the early retirement of the debt.

     During July 1999, Carriage issued $110 million in senior debt notes and
used the proceeds to reduce the amount outstanding under the our revolving line
of credit. The notes are unsecured, mature in tranches of five, seven and nine
years and bear interest at the fixed rates of 7.73%, 7.96% and 8.06%,
respectively.

                                       36
<PAGE>
                            CARRIAGE SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     Acquisition debt consists of deferred purchase prices payable to sellers.
The deferred purchase price notes bear interest at 0%, discounted at imputed
interest rates ranging from 6% to 8%, with maturities from three to 15 years.

     The aggregate maturities of long-term debt for the year ended December 31,
2000 and for the subsequent four years are approximately $5,342,000, $3,078,000,
$2,596,000, $2,502,000 and $75,272,000, respectively and $95,494,000 thereafter.

OFF BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS

     We enter into interest rate swap agreements with financial institutions to
manage interest costs. Interest on our debt is primarily floating. To manage the
risk that interest rates will rise, we agree to exchange the floating rate
payments for fixed rate payments, at 90-day intervals, calculated by reference
to agreed-upon notional principal amounts. The following presents information
for the interest rate swaps at December 31, 1999 (In thousands):

<TABLE>
<S>                                    <C>
Notional amount......................  $  50,000
Weighted average fixed rate..........       7.44%
Maturity.............................       2003
Fair value...........................  $   2,182
</TABLE>

5.  COMPANY OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES OF
    CARRIAGE SERVICES CAPITAL TRUST

     During June 1999, Carriage, through its wholly-owned subsidiary, Carriage
Services Capital Trust, completed the sale of 1,875,000 units of 7% convertible
preferred securities, resulting in approximately $90 million in net proceeds to
the Company. The convertible preferred securities have a liquidation amount of
$50 per unit, and are convertible into Carriage's Class A Common Stock at the
equivalent conversion price of $20.4375 per share of Class A Common Stock. The
securities mature in 2029 and are guaranteed on a subordinated basis by the
Company. Distributions are payable quarterly, but may be deferred at our option
for up to twenty consecutive quarters.

6.  COMMITMENTS AND CONTINGENCIES

LEASES

     Carriage leases certain office facilities, vehicles and equipment under
operating leases for terms ranging from one to 15 years. Certain of these leases
provide for an annual adjustment. Rent expense was approximately $1,886,000,
$2,161,000 and $2,627,000 for 1997, 1998 and 1999, respectively.

     Assets acquired under capital leases are included in property, plant and
equipment in the amount of $6,394,000 in 1998, and $6,445,000 in 1999, net of
accumulated depreciation. Related obligations are included in current and
long-term debt.

                                       37
<PAGE>
                            CARRIAGE SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     At December 31, 1999 minimum lease payments were as follows:

<TABLE>
<CAPTION>
                                        MINIMUM LEASE PAYMENTS
                                        -----------------------
                                        OPERATING      CAPITAL
                                         LEASES         LEASES
                                        ---------      --------
<S>                                     <C>            <C>
                                            (IN THOUSANDS)
Years ended December 31,
     2000............................    $ 2,032        $   403
     2001............................      1,345            381
     2002............................      1,280            375
     2003............................      1,180            363
     2004............................      1,014            367
Thereafter...........................      4,877          6,325
                                        ---------      --------
Total minimum lease payments.........    $11,728        $ 8,214
                                        =========
Less -- amount representing
  interest...........................                     4,728
Less -- current portion of
  obligations under capital leases...                       153
                                                       --------
Long-term obligations under capital
  leases.............................                   $ 3,333
                                                       ========
</TABLE>

AGREEMENTS AND EMPLOYEE BENEFITS

     Carriage has entered into various employment agreements and agreements not
to compete with former owners of businesses acquired. Payments for such
agreements are not made in advance. These agreements are generally for one to 10
years and provide for future payments annually, quarterly or monthly. The
aggregate payments due under these agreements for the next five years, are
approximately $1,895,000, $1,599,000, $1,447,000, $1,464,000 and $1,260,000,
respectively and $1,935,000 thereafter. In addition, new five-year contracts
were granted to the top executives during 1999. A special compensation charge in
the amount of $2.5 million was recorded during 1999 in connection with these
contracts. The aggregate minimum payments required under these contracts for the
next five years are approximately $870,000 for the years 2000 through 2003 and
$797,500 for 2004.

     We sponsor a defined contribution plan (401k) and an employee stock
purchase plan for the benefit of our employees. The expense for these plans has
not been significant for the periods presented. In addition, we do not offer any
other post-retirement or post-employment benefits.

LITIGATION

     Certain of the funeral homes located in California that were acquired by
Carriage in early 1997, along with other death care providers, have been
defendants in litigation in the state of California alleging that a flight
service contracted to dispose of cremains failed to properly carry out its
duties. We, with the advice of legal counsel, have been of the opinion that
there have been adequate insurance coverages, indemnities and reserves such that
the results of this litigation would not have a material effect on our
consolidated financial position or results of operations. Subsequent to December
31, 1999, the litigation was settled. The amount paid in the settlement was
fully covered by the Company's insurance. As a result of the settlement, we have
reduced the estimated liability previously recorded for the matter and credited
Other Income in the amount of $2 million.

     Additionally, we are, from time to time, subject to routine litigation
arising in the normal course of our business. We, with the advice of legal
counsel, similarly believe that the results of any such routine litigation or
other pending legal proceedings will not have a material effect on our
consolidated financial position or results of operations.

                                       38
<PAGE>
                            CARRIAGE SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

7.  INCOME TAXES

     The provision for income taxes for 1997, 1998 and 1999 consisted of:

<TABLE>
<CAPTION>
                                         1997       1998       1999
                                       ---------  ---------  ---------
<S>                                    <C>        <C>        <C>
                                               (IN THOUSANDS)
Current:
     U. S. Federal...................  $   1,275  $   4,801  $     818
     State...........................        759        957        588
                                       ---------  ---------  ---------
          Total current provision....      2,034      5,758      1,406
                                       ---------  ---------  ---------
Deferred:
     U. S. Federal...................      1,564      1,197      6,061
     State...........................        128        535      1,007
                                       ---------  ---------  ---------
          Total deferred provision...      1,692      1,732      7,068
                                       ---------  ---------  ---------
          Total income tax
            provision................  $   3,726  $   7,490  $   8,474
                                       =========  =========  =========
</TABLE>

     A reconciliation of taxes to the U.S. federal statutory rate to those
reflected in the Consolidated Statements of Operations for 1997, 1998 and 1999
is as follows:

<TABLE>
<CAPTION>
                                         1997       1998       1999
                                       ---------  ---------  ---------
<S>                                    <C>        <C>        <C>
Federal statutory rate...............       34.0%      35.0%      35.0%
Effect of state income taxes, net of
  federal benefit....................        5.3        4.8        4.8
Effect of non-deductible expenses and
  other, net.........................       15.9        4.8        3.5
Effect of valuation allowance........      (14.5)      (0.6)       0.5
Effect of change in statutory rate...        4.6         --         --
                                       ---------  ---------  ---------
                                            45.3%      44.0%      43.8%
                                       =========  =========  =========
</TABLE>

     The tax effects of temporary differences that give rise to significant
deferred tax assets and liabilities at December 31, 1998 and 1999 were as
follows:

<TABLE>
<CAPTION>
                                          1998        1999
                                       ----------  ----------
<S>                                    <C>         <C>
                                           (IN THOUSANDS)
Deferred tax assets:
     Net operating loss
       carryforwards.................  $      389  $      920
     Reserves not currently
       deductible....................         350         350
     Accrued liabilities and other...         684         338
     Amortization of non-compete
       agreements....................       1,112       1,414
                                       ----------  ----------
                                            2,535       3,022
Valuation allowance..................        (174)       (523)
                                       ----------  ----------
     Total deferred tax assets.......  $    2,361  $    2,499
                                       ==========  ==========
Deferred tax liability:
     Amortization and depreciation...  $  (16,044) $  (18,550)
     Preneed assets, net.............      (2,011)     (6,536)
                                       ----------  ----------
          Total deferred tax
            liabilities..............  $  (18,055) $  (25,086)
                                       ==========  ==========
Net deferred tax liability...........  $  (15,694) $  (22,587)
                                       ==========  ==========
Current net deferred asset...........  $      780  $      434
Non-current net deferred liability...     (16,474)    (23,021)
                                       ----------  ----------
                                       $  (15,694) $  (22,587)
                                       ==========  ==========
</TABLE>

                                       39
<PAGE>
                            CARRIAGE SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     Carriage has recorded a valuation allowance to reflect the estimated amount
of deferred tax assets for which realization is uncertain. We review the
valuation allowance at the end of each quarter and make adjustments if it is
determined that it is more likely than not that the NOLs will be realized. At
December 31, 1999, we had approximately $13,129,000 of state NOL carryforwards
that will expire between the years 2000 and 2019, if not utilized. Deferred tax
liabilities were recorded during the year ended December 31, 1998, in the
approximate amount of $1,746,000, and deferred tax assets were recorded during
the year ended December 31, 1999, in the approximate amount of $176,000, with
respect to purchase accounting transactions.

8.  STOCKHOLDERS' EQUITY

COMMON STOCK VOTING CLASSES

     In connection with the initial public offering on August 8, 1996, we
performed a recapitalization of our Common Stock into two classes of Common
Stock (Class A and Class B), provided separate voting rights to each class and
converted existing Common Stock to Class B Common Stock. The holders of Class A
Common Stock are entitled to one vote for each share held on all matters
submitted to a vote of common stockholders. The holders of Class B Common Stock
are entitled to ten votes for each share held on all matters submitted to a vote
of common stockholders.

STOCK OPTION PLANS

     Carriage has four stock option plans currently in effect under which future
grants may be issued: the 1995 Stock Incentive Plan (the "1995 Plan"), the
1996 Stock Option Plan (the "1996 Plan"), the 1996 Directors' Stock Option
Plan (the "Directors' Plan") and the 1998 Stock Option Plan for Consultants
(the "Consultants' Plan").

     Options granted under the 1995 Plan have a ten-year term. All options
granted under the 1995 Plan prior to the IPO vest immediately, while
substantially all of those issued in conjunction with and after the IPO vest
over a four-year period at 25% per year. Options issued under this plan, prior
to Carriage's IPO, are satisfied with shares of Class B Common Stock, but
options issued after that date are satisfied with shares of Class A Common
Stock. A total of 1,450,000 shares are reserved for issuance under the 1995 Plan
of which 399,000 shares were outstanding at December 31, 1999.

     Options granted under the 1996 Plan and the Directors' Plan have ten-year
terms. A total of 1,300,000 shares of Class A Common Stock are reserved for
issuance under the 1996 Plan and 350,000 shares of Class A Common Stock are
reserved for issuance under the Directors' Plan. No shares were outstanding
under the 1996 Plan and 15,000 shares were outstanding under the Directors' Plan
at December 31, 1999.

     Options granted under the Consultants' Plan have ten-year terms and have
vesting provisions that vary with the services to be performed by outside
consultants. A total of 100,000 shares of Class A Common Stock are reserved
under the Consultants' Plan, of which no shares were outstanding at December 31,
1999.

     During 1999, approximately 2,459,000 shares outstanding under these plans,
including all outstanding options issued to executive officers and directors at
that time, were voluntarily canceled by the holders.

                                       40
<PAGE>
                            CARRIAGE SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     We account for stock options issued to employees under APB Opinion No. 25,
under which no compensation cost has been recognized. Had compensation cost for
these plans been determined consistent with SFAS No. 123, our net income and
income per share would have been the following pro forma amounts:

<TABLE>
<CAPTION>
                                           YEAR ENDED DECEMBER 31,
                                       -------------------------------
                                         1997       1998       1999
                                       ---------  ---------  ---------
<S>                                    <C>        <C>        <C>
                                       (IN THOUSANDS, EXCEPT PER SHARE
                                                    DATA)
Net income available to common
  stockholders
  As reported........................  $   3,406  $   8,927  $  10,594
  Pro forma..........................      2,528      7,034      9,906
Net income per share available to
  common stockholders:
Basic
  As reported........................        .33        .67        .67
  Pro forma..........................        .25        .53        .62
Diluted
  As reported........................        .32        .65        .66
  Pro forma..........................        .24        .51        .61
</TABLE>

     Each of the plans is administered by a stock option committee appointed by
the Board of Directors. The plans allow for options to be granted as
non-qualified options, incentive stock options, reload options, alternative
appreciation rights and stock bonus options. As of December 31, 1999 only
non-qualified options and incentive stock options have been issued. The options
are granted with an exercise price equal to the then fair market value of
Carriage's Common Stock as determined by the Board of Directors.

     A summary of the status of the plans at December 31, 1998 and 1999 and
changes during the year ended is presented in the table and narrative below:

<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31,
                                        ------------------------------------------------
                                                1998                       1999
                                        ---------------------     ----------------------
                                        SHARES     WTD. AVG.      SHARES      WTD. AVG.
                                        (000)       EX PRICE       (000)       EX PRICE
                                        ------     ----------     -------     ----------
Outstanding at beginning of period...    1,100       $15.40         1,696       $16.73
<S>                                     <C>        <C>            <C>         <C>
Granted..............................      742        19.39         1,187        13.62
Exercised............................      (75)       14.55           (10)       12.79
Canceled.............................      (71)       19.90        (2,459)       15.52
                                        ------                    -------
Outstanding at end of year...........    1,696        16.73           414        15.30
                                        ------                    -------
Exercisable at end of year...........      511        16.76           147        15.70
                                        ------                    -------
Weighted average fair value of
  options granted....................   $ 8.05                    $  6.04
</TABLE>

     All of the options outstanding at December 31, 1999 have exercise prices
between $5.00 and $27.50, with a weighted average exercise price of $15.30 and a
weighted average remaining contractual life of 8.1 years.

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998 and 1999, respectively: risk-free interest
rates of 5.25% and 5.13%; expected dividend yield of 0% for each year; expected
lives of five years; expected volatility of 35.0% and 42.0%.

EMPLOYEE STOCK PURCHASE PLAN

     Beginning in 1998, Carriage provided all employees the opportunity to
purchase Class A Common Stock through payroll deductions. Purchases are made
quarterly, the price is 85% of the lower of the price on the grant date or the
purchase date. During 1998, employees purchased a total of 47,060 shares at a
weighted average price

                                       41
<PAGE>
                            CARRIAGE SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

of $16.68 per share. In 1999, employees purchased a total of 106,282 shares at a
weighted average price of $8.99 per share.

9.  REDEEMABLE PREFERRED STOCK

     Carriage has 20,000,000 authorized shares of Series D Preferred Stock with
a par value of $.01 per share, of which approximately 1,682,500 and 1,182,500
shares were issued and outstanding at December 31, 1998 and 1999, respectively.
As of December 31, 1999, these shares can be converted into Class A Common Stock
at a conversion price equal to the average market price for the ten days
preceding the date of delivery of notice of conversion. At December 31, 1999,
the conversion price was $5.038, yielding a total of 234,739 shares of Class B
Common Stock that would be issuable upon conversion of the 1,182,500 shares. The
holders of Series D Preferred Stock are entitled to receive preferential
dividends at an annual rate ranging from $0.06 to $0.07 per share, payable
quarterly. Dividends are payable quarterly as long as the stock is outstanding.
The Series D Preferred Stock is redeemable, in whole or in part, at the option
of Carriage, at any time during the period commencing with the second
anniversary of our IPO (August 8, 1998) and ending December 31, 2001. On
December 31, 2001, we must redeem all shares of Series D Preferred Stock then
outstanding at a redemption price of $1.00 per share, together with all accrued
and unpaid dividends.

     On December 31, 1998, all of the shares of Series F Preferred Stock were
converted into 722,250 shares of Class A Common Stock.

                                       42
<PAGE>
                            CARRIAGE SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

10.  EARNINGS PER SHARE

     The following table sets forth the computation of the basic and diluted
earnings per share for 1997, 1998 and 1999:

<TABLE>
<CAPTION>
                                         1997       1998       1999
                                       ---------  ---------  ---------
                                       (IN THOUSANDS, EXCEPT PER SHARE
                                                    DATA)
<S>                                    <C>        <C>        <C>
Numerator:
  Net income before extraordinary
     item............................  $   4,491  $   9,533  $  10,887
  Extraordinary item.................       (195)        --       (200)
                                       ---------  ---------  ---------
  Net income.........................      4,296      9,533     10,687
  Preferred stock dividends..........        890        606         93
                                       ---------  ---------  ---------
  Numerator for basic earnings per
     share -- net income available to
     common stockholders.............  $   3,406  $   8,927  $  10,594
                                       ---------  ---------  ---------
  Effect of dilutive securities:
     Preferred stock dividends.......         --         --         93
                                       ---------  ---------  ---------
  Numerator for diluted earnings per
     share -- net income available to
     common stockholders after
     assumed conversions.............  $   3,406  $   8,927  $  10,687
                                       ---------  ---------  ---------
Denominator:
  Denominator for basic earnings per
     share -- weighted average
     shares..........................     10,226     13,315     15,875
  Effect of dilutive securities:
     Series D convertible preferred
       stock.........................         --         --        235
     Stock options...................        259        493         26
                                       ---------  ---------  ---------
  Denominator for diluted earnings
     per share -- adjusted weighted
     average shares and assumed
     conversions.....................     10,485     13,808     16,136
                                       ---------  ---------  ---------
Basic earnings per share:
  Net income before extraordinary
     item............................  $     .35  $     .67  $     .68
  Extraordinary item.................       (.02)        --       (.01)
                                       ---------  ---------  ---------
  Net income.........................  $     .33  $     .67  $     .67
                                       =========  =========  =========
Diluted earnings per share:
  Net income before extraordinary
     item............................  $     .34  $     .65  $     .67
  Extraordinary item.................       (.02)        --       (.01)
                                       ---------  ---------  ---------
  Net income.........................  $     .32  $     .65  $     .66
                                       =========  =========  =========
</TABLE>

                                       43
<PAGE>
                            CARRIAGE SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

11.  MAJOR SEGMENTS OF BUSINESS

     Carriage conducts funeral and cemetery operations only in the United
States.

<TABLE>
<CAPTION>
   (IN THOUSANDS, EXCEPT NUMBER OF
        OPERATING LOCATIONS)            FUNERAL       CEMETERY       CORPORATE       CONSOLIDATED
<S>                                     <C>           <C>            <C>             <C>
- --------------------------------------------------------------------------------------------------
External revenues:
     1999............................   $125,264      $  43,203       $     --         $ 168,467
     1998............................     92,965         23,876             --           116,841
     1997............................     64,888         12,533             --            77,421
Profit and Loss:
     1999............................   $ 19,586      $   7,412       $(16,311)        $  10,687
     1998............................     15,700          3,521         (9,688)            9,533
     1997............................      8,690          1,565         (5,959)            4,296
Total assets:
     1999............................   $397,835      $ 130,650       $ 11,105         $ 539,590
     1998............................    351,996        107,973          6,175           466,144
     1997............................    212,284         54,320         11,336           277,940
Depreciation and amortization:
     1999............................   $ 12,525      $   3,562       $    905         $  16,992
     1998............................      8,750          2,157            537            11,444
     1997............................      5,450          1,455            904             7,809
Capital expenditures:
     1999............................   $ 20,035      $   4,699       $  3,355         $  28,089
     1998............................     43,921          4,793          2,026            50,740
     1997............................     34,858         34,653          2,758            72,269
Number of operating locations at year
  end:
     1999............................        182             41             --               223
     1998............................        166             27              2               195
     1997............................        120             20              1               141
Interest expense:
     1999............................   $  1,751      $     115       $ 15,942         $  17,358
     1998............................      1,388             69          8,263             9,720
     1997............................        596             37          5,256             5,889
Income tax expense (benefits):
     1999............................   $ 14,769      $   4,829       $(11,124)        $   8,474
     1998............................     12,336          2,767         (7,613)            7,490
     1997............................      7,198          1,297         (4,769)            3,726
</TABLE>

                                       44
<PAGE>
                            CARRIAGE SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

12.  QUARTERLY FINANCIAL DATA (UNAUDITED)

     The table below sets forth consolidated operating results by fiscal quarter
for the years ended December 31, 1998 and 1999:

<TABLE>
<CAPTION>
                                         FIRST     SECOND      THIRD     FOURTH
                                       ---------  ---------  ---------  ---------
<S>                                    <C>        <C>        <C>        <C>
                                       (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
               1998(A)
Revenues, net........................  $  28,118  $  25,214  $  28,620  $  34,889
Gross profit.........................      8,787      6,998      7,313     11,226
Net income before extraordinary
  item...............................      2,646      1,803      1,643      3,441
Extraordinary item...................         --         --         --         --
Preferred stock dividend
  requirements.......................        150        151        153        152
Net income...........................      2,496      1,652      1,490      3,289
Basic earnings per common share:
  Continuing operations..............  $     .22  $     .13  $     .10  $     .22
  Extraordinary item.................         --         --         --         --
                                       ---------  ---------  ---------  ---------
  Net income.........................  $     .22  $     .13  $     .10  $     .22
                                       ---------  ---------  ---------  ---------
Diluted earnings per common share:
  Continuing operations..............  $     .22  $     .13  $     .10  $     .21
  Extraordinary item.................         --         --         --         --
                                       ---------  ---------  ---------  ---------
  Net income.........................  $     .22  $     .13  $     .10  $     .21
                                       ---------  ---------  ---------  ---------
               1999(A)
Revenues, net........................  $  41,871  $  42,470  $  40,470  $  43,656
Gross profit.........................     13,625     11,668     10,038     11,153
Net income before extraordinary
  item...............................      4,377      3,097      1,737      1,676
Extraordinary item...................         --       (200)        --         --
Preferred stock dividend
  requirements.......................         29         27         22         15
Net income...........................      4,348      2,870      1,715      1,661
Basic earnings per common share:
  Continuing operations..............  $     .28  $     .19  $     .11  $     .10
  Extraordinary item.................         --       (.01)        --         --
                                       ---------  ---------  ---------  ---------
  Net income.........................  $     .28  $     .18  $     .11  $     .10
                                       ---------  ---------  ---------  ---------
Diluted earnings per common share:
  Continuing operations..............  $     .27  $     .19  $     .11  $     .10
  Extraordinary item.................         --       (.01)        --         --
                                       ---------  ---------  ---------  ---------
  Net income.........................  $     .27  $     .18  $     .11  $     .10
                                       ---------  ---------  ---------  ---------
</TABLE>

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

(a) Earnings per share is computed independently for each of the quarters
    presented. Therefore, the sum of the quarterly per share amounts does not
    equal the total computed for the year due to stock transactions which
    occurred during the periods presented.

                                       45

<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULE

To Carriage Services, Inc.:

We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Carriage Services, Inc. and subsidiaries
included in this Form 10-K, and have issued our report thereon dated February 8,
2000, except with respect to matters discussed in Note 6 as to which the date is
March 17, 2000. Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in Part IV,
Item 14 (a)(2) for Carriage Services, Inc. and subsidiaries is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

ARTHUR ANDERSEN LLP

Houston, Texas
February 8, 2000, except with respect
to matters discussed in Note 6, litigation, as to
which the date is
March 17, 2000

                                       46
<PAGE>
                            CARRIAGE SERVICES, INC.
                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

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

<TABLE>
<CAPTION>
                                         BALANCE                     CHARGED TO                 BALANCE
                                        BEGINNING     ACQUISITION    COSTS AND                   END OF
             DESCRIPTION                 OF YEAR       RESERVES       EXPENSES     DEDUCTION      YEAR
<S>                                     <C>           <C>            <C>           <C>          <C>
- --------------------------------------------------------------------------------------------------------
Year ended December 31, 1997:
  Allowance for bad debts and
     contract cancellations..........     $  530                       $1,025       $   264      $1,291
  Litigation Reserves................                   $ 2,700                                  $2,700
Year ended December 31, 1998:
  Allowance for bad debts and
     contract cancellations..........     $1,291        $ 2,818        $1,670       $ 2,344      $3,435
  Litigation Reserves................     $2,700                                    $   270      $2,430
  Environmental remediation
     reserves........................                   $   450                                  $  450
Year ended December 31, 1999:
  Allowance for bad debts and
     contract cancellations..........     $3,435        $ 4,647        $3,977       $ 6,001      $6,058
  Litigation Reserves................     $2,430                                    $ 2,250      $  180
  Environmental remediation
     reserves........................     $  450        $    85                                  $  535
</TABLE>

                                       47

                                                                     Exhibit 9.1
                         TERMINATION OF VOTING AGREEMENT

            THIS TERMINATION AGREEMENT dated effective October 29, 1999,
evidences the termination of the Voting Agreement dated effective August 8, 1996
(as amended by Amendment No. 1 dated April 23, 1998 and Amendment No. 2 dated
September 1, 1998, hereafter the "Voting Agreement") among the stockholders
(collectively, the "Stockholders") of Carriage Services, Inc., a Delaware
corporation (the "Company"), whose names appear under the caption "Stockholders"
on the signature page to this Termination;

                              W I T N E S S E T H:

            WHEREAS, Section 5.6(c) of the Voting Agreement provides that the
Voting Agreement shall be terminated upon the written approval of Stockholders
holding Stock constituting at least 80% of the votes of all Stock subject
thereto at the time of such termination; and

            WHEREAS, the undersigned Stockholders, holding such 80% of the
votes, now desire to terminate the Voting Agreement, as hereafter provided;

            NOW, THEREFORE, the undersigned Stockholders agree as follows:

            1. DEFINED TERMS. Capitalized terms used but not defined herein
shall have the meanings given such terms in the Voting Agreement.

            2. TERMINATION. The Stockholders hereby agree that the Voting
Agreement is hereby terminated and of no further force or effect, and that all
rights and interests of the Stockholders thereunder are hereby ended. Without
limiting the generality of the foregoing, from and after the effective date of
this Agreement, the Stockholders shall be free to dispose of and vote their
shares free of any claims or restrictions set forth in the Voting Agreement.

            3. RESTRICTIVE LEGENDS. To the extent that any certificates which
represent shares of Stock of the Company registered in the names of any of the
Stockholders which were subject to the Voting Agreement contain restrictive
legends referring to the Voting Agreement, such legends shall be removed, and
any transfer agent for such shares shall be, and hereby is, authorized and
directed to issue new or replacement certificates without such legend.

            4. FURTHER ASSURANCES. Each Stockholder agrees to execute and
deliver from time to time after the date hereof such additional instruments as
any other Stockholder may reasonably require more effectively to evidence the
termination of the Voting Agreement intended hereby.

            5. BINDING  EFFECT.   This  Termination  of  the  Voting  Agreement
shall be binding upon and inure to the benefit of the Stockholders and their
respective successors, heirs and assigns.

            6. EFFECTIVENESS. This Termination, which shall be deemed effective
for all

<PAGE>
purposes as of the date first above written, shall become effective when signed
by Stockholders holding Stock constituting at least 80% of all Stock subject to
this Agreement on such effective date.

            IN WITNESS WHEREOF, the undersigned Stockholders have executed and
delivered this Termination in multiple counterparts effective as of the date
first above written.



- --------------------------------    ------------------------------------------
C. Byron Snyder, individually       Melvin C. Payne, individually and as
and as General Partner              General Partner of the 1996 Payne Family
of the 1996 Snyder Family           Partnership, Ltd.
Partnership, Ltd.

                                    WOODLAND PARTNERS


- ----------------------------------
Mark W. Duffey, individually and
as Trustee of the Melvin C. Payne   By:_______________________________________
1996 Trust and the Karen P. Payne      Barry Rubinstein, General Partner
1996 Trust





- --------------------------------    ------------------------------------------
Barry K. Fingerhut, individually    Jonathan Lieber
and as General Partner of
Applewood Associates, L.P. and
Longboat Key Associates


- --------------------------------    ------------------------------------------
Irwin Lieber                        Hannah C. Stone


- --------------------------------    ------------------------------------------
Michael J. Marocco                  Seth Lieber



                                       -2-


                                                                   Exhibit 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-


                                                                   Exhibit 10.12
                             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 MARK W. DUFFEY, 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 amount
      of the incentive bonus in said clause (a) shall be deemed to be $53,300
      for 1997, $130,000 for 1998 and $200,000 for 1999; and (ii) 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.    TERM AND TERMINATION

                                       -2-
<PAGE>
      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 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

                                      -3-
<PAGE>
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 Twenty-Five Thousand Dollars ($225,000.00) 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. The
incentive bonus for 1999 performance was in the amount of $200,000 and was paid
to the Executive on or about November 8, 1999.

                                      -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.

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 Chief
Executive Officer of the Company. The Executive shall perform such duties and
responsibilities and in such capacities as may be established by the Board of
Directors and the Chief Executive Officer 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.

      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-
<PAGE>
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 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

                                      -6-
<PAGE>
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:  Mark W. Duffey
                               10003 Candlewood
                               Houston, Texas 77042

            To the Company:    Carriage Services, Inc.
                               1300 Post Oak Blvd., Suite 1500
                               Houston, Texas  77056-3012
                               Attention:  Chief Executive Officer

                                      -7-
<PAGE>
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.
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.

      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

                                      -8-
<PAGE>
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__________________________________
                                      MELVIN C. PAYNE, Chairman and
                                         Chief Executive Officer

                                    EXECUTIVE:



                                    ____________________________________
                                    MARK W. DUFFEY

                                      -9-


                                                                   Exhibit 10.13
                             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 THOMAS C. LIVENGOOD, 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;

                  (d) committed any act that constitutes a material or repeated
            failure to perform his duties in a manner consistent with his
            position of employment; or

                  (e) been excessively absent from his employment not related to
            illness.

            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 $40,000 for 1997,
      $105,000 for 1998 and $200,000 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 be November 30, 2004.

                                       -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 continues 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 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


                                      -3-
<PAGE>
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
One Hundred Ninety Thousand Dollars ($190,000.00) 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. The
incentive bonus for 1999 performance was in the amount of $200,000 and was paid
to the Executive on or about November 8, 1999.


                                       -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. On or before December 31, 2002, the Company shall pay the Executive a
special compensation bonus in the amount of $200,000.00 (the "Special
Compensation Bonus"). The Special Compensation Bonus shall be in addition to any
other bonus that might otherwise be payable to the Executive under Paragraph 3.B
hereof. Payment of the Special Compensation Bonus shall, however, be subject to
the Executive's continuous employment with the Company through December 31,
2002, it being understood that the Executive's voluntary resignation or
discharge for Cause shall constitute a complete forfeiture of the Special
Compensation Bonus. If the Executive is discharged without Cause, then the full
amount of the Special Compensation Bonus shall be payable on the sooner to occur
of December 31, 2002 or six months after the Without Cause Termination Date. If
this Agreement is terminated as a result of the Executive's death or disability,
then the Executive or his estate shall be entitled to a prorated portion of the
Special Compensation Bonus, calculated as the amount of the Special Compensation
Bonus multiplied by a fraction, the numerator of which is the number of whole
months elapsed between November 1, 1999 and the date of death or disability, as
the case may be, and the denominator of which is 38.

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 Chief
Executive Officer of the Company. The Executive shall perform such duties and
responsibilities and in such capacities as may be established by the Board of
Directors and the Chief Executive Officer 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


                                       -5-
<PAGE>
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.

      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


                                       -6-
<PAGE>
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 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


                                       -7-
<PAGE>
      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:    Thomas C. Livengood
                                       8002 Hertfordshire Circle
                                       Spring, Texas 77379

                  To the Company:      Carriage Services, Inc.
                                       1300 Post Oak Blvd., Suite 1500
                                       Houston, Texas 77056-3012
                                       Attention:  Chief Executive Officer

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 December 13, 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.
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


                                       -8-
<PAGE>
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.

      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 _________________________________
                                               MELVIN C. PAYNE, Chairman and
                                                   Chief Executive Officer

                                            EXECUTIVE:



                                            ____________________________________
                                            THOMAS C. LIVENGOOD

                                       -9-


                                                                   Exhibit 10.14
                             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 RUSSELL W. ALLEN, a resident of Conroe, 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;

                  (d) committed any act that constitutes a material or repeated
            failure to perform his duties in a manner consistent with his
            position of employment; or

                  (e) been excessively absent from his employment not related to
            illness.

            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 amount
      of the incentive bonus in said clause (a) shall be deemed to be $40,000
      for 1997, $85,000 for 1998 and $80,000 for 1999; and (ii) 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 be November 30, 2004.

2.    TERM AND TERMINATION


                                       -2-

<PAGE>
      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 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


                                       -3-
<PAGE>
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
One Hundred Eighty Thousand Dollars ($180,000.00) 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. The
incentive bonus for 1999 performance was in the amount of $80,000 and was paid
to the Executive on or about November 8, 1999.

      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


                                      -4-
<PAGE>
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.

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 Chief
Executive Officer of the Company. The Executive shall perform such duties and
responsibilities and in such capacities as may be established by the Board of
Directors and the Chief Executive Officer 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. 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.

      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-
<PAGE>
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 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


                                       -6-
<PAGE>
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:    Russell W. Allen
                                        11301 Lake Forest Dr.
                                        Conroe, Texas 77384

                   To the Company:      Carriage Services, Inc.
                                        1300 Post Oak Blvd., Suite 1500
                                        Houston, Texas 77056-3012
                                        Attention:  Chief Executive Officer


                                      -7-
<PAGE>
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.
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.

      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

                                       -8-
<PAGE>
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 _________________________________
                                               MELVIN C. PAYNE, Chairman and
                                                  Chief Executive Officer

                                            EXECUTIVE:



                                            ____________________________________
                                            RUSSELL W. ALLEN

                                       -9-

                                                                    EXHIBIT 11.1

                            CARRIAGE SERVICES, INC.
                       COMPUTATION OF PER SHARE EARNINGS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

     Earnings (loss) per share for 1997, 1998 and 1999 is calculated based on
the weighted average number of common and common equivalent shares outstanding
during each year as proscribed by SFAS 128. The following table sets forth the
computation of the basic and diluted earnings per share for 1997, 1998 and 1999:

<TABLE>
<CAPTION>
                                         1997       1998       1999
                                       ---------  ---------  ---------
<S>                                    <C>        <C>        <C>
Net income before extraordinary
  item...............................  $   4,491  $   9,533  $  10,887
Extraordinary item...................       (195)        --       (200)
                                       ---------  ---------  ---------
Net income...........................      4,296      9,533     10,687
Preferred stock dividends............       (890)      (606)       (93)
                                       ---------  ---------  ---------
Net income available to common
  stockholders for basic EPS
  computation........................      3,406      8,927     10,594
Effect of dilutive securities........         --         --         93
                                       ---------  ---------  ---------
Net income available to common
  stockholders for diluted EPS
  computation........................  $   3,406  $   8,927  $  10,687
                                       =========  =========  =========
Weighted average number of common
  shares outstanding for basic EPS
  computation........................     10,226     13,315     15,875
Effect of dilutive securities:
  Series D convertible preferred
     stock...........................         --         --        235
  Stock options......................        259        493         26
                                       ---------  ---------  ---------
Weighted average number of common and
  common equivalent shares
  outstanding for diluted EPS
  computation........................     10,485     13,808     16,136
                                       =========  =========  =========
Basic earnings per share
  Net income before extraordinary
     item............................  $     .35  $     .67  $     .68
  Extraordinary item.................       (.02)        --       (.01)
                                       ---------  ---------  ---------
  Net income (loss)..................  $     .33  $     .67  $     .67
                                       =========  =========  =========
Diluted earnings per share
  Net income before extraordinary
     item............................  $     .34  $     .65  $     .67
  Extraordinary item.................       (.02)        --       (.01)
                                       ---------  ---------  ---------
  Net income.........................  $     .32  $     .65  $     .66
                                       =========  =========  =========
</TABLE>

                                                                      EXHIBIT 12

                            CARRIAGE SERVICES, INC.
               COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
                          (UNAUDITED AND IN THOUSANDS)

<TABLE>
<CAPTION>
                                         1995*      1996*      1997       1998       1999
                                       ---------  ---------  ---------  ---------  ---------
<S>                                    <C>        <C>        <C>        <C>        <C>
Fixed charges:
     Interest expense................  $   3,684  $   4,347  $   5,889  $   9,720  $  17,358
     Amortization of capitalized
       expenses related to debt......         50        150        200        150        242
     Rental expense..................        317        308        629        720        876
                                       ---------  ---------  ---------  ---------  ---------
Total fixed charges before
  capitalized interest and preferred
  stock dividends....................      4,051      4,805      6,718     10,590     18,476
Capitalized interest.................        175        250        450        600        686
                                       ---------  ---------  ---------  ---------  ---------
          Total fixed charges........      4,226      5,055      7,168     11,190     19,162
Preferred stock dividends............         --      1,037      1,627      1,082        167
                                       ---------  ---------  ---------  ---------  ---------
          Total fixed charges plus
            preferred dividends......      4,226      6,092      8,795     12,272     19,329
                                       ---------  ---------  ---------  ---------  ---------
Earnings available for fixed charges:
Earnings (loss) before income taxes
  and extraordinary item.............     (1,800)       345      8,217     17,023     19,361
Add fixed charges before capitalized
  interest and preferred stock
  dividends..........................      4,051      4,805      6,718     10,590     18,476
                                       ---------  ---------  ---------  ---------  ---------
Total earnings available for fixed
  charges............................  $   2,251  $   5,150  $  14,935  $  27,613  $  37,837
                                       =========  =========  =========  =========  =========
Ratio of earnings to fixed charges
  (1)................................       0.53       1.02       2.08       2.47       1.97
                                       =========  =========  =========  =========  =========
Ratio of earnings to fixed charges
  plus dividends (1).................       0.53       0.85       1.70       2.25       1.96
                                       =========  =========  =========  =========  =========
</TABLE>

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

  (1) For purposes of computing the ratios of earnings to fixed charges and
      earnings to fixed charges plus dividends: (i) earnings consist of income
      before provision for income taxes plus fixed charges (excluding
      capitalized interest) and (ii) "fixed charges" consist of interest
      expensed and capitalized, amortization of debt discount and expense
      relating to indebtedness and the portion of rental expense representative
      of the interest factor attributable to leases for rental property. There
      were no dividends paid or accrued on the Company's Common Stock during the
      periods presented above.

   *  Earnings were inadequate to cover fixed charges. The coverage deficiency
      was $1,975,000 and $942,000 for 1995 and 1996 respectively.

                                                                    EXHIBIT 21.1

                        SUBSIDIARIES AS OF MARCH 15, 2000

                                                           Jurisdiction of
                Name                                       Incorporation
- --------------------------------------------               --------------------
Carriage Funeral Holdings, Inc.                            Delaware
CFS Funeral Services, Inc.                                 Delaware
Carriage Holding Company, Inc.                             Delaware
Carriage Funeral Services of Michigan, Inc.                Michigan
Carriage Funeral Services of Kentucky, Inc.                Kentucky
Carriage Funeral Services of Indiana, Inc.                 Indiana
Carriage Funeral Services of California, Inc.              California
Carriage Cemetery Services of Idaho, Inc.                  Idaho
Wilson & Kratzer Mortuaries                                California
Rolling Hills Memorial Park                                California
Grandview Memorial Gardens, Inc.                           Indiana
Carriage Funeral Services of Kansas, Inc.                  Kansas
CFS Funeral Services of Kansas, Inc.                       Kansas
Carriage Services of Connecticut, Inc.                     Connecticut
Carriage Services of Florida, Inc.                         Florida
Lakeland Memorial Gardens, Inc.                            Florida
CHC Insurance Agency of Ohio, Inc.                         Ohio
Barnett, Demrow & Ernst, Inc.                              Kentucky
Carriage Services of New Mexico, Inc.                      New Mexico
Carriage Cemetery Services, Inc.                           Texas
Carriage Services of Oklahoma, L.L.C.                      Oklahoma
Carriage Services of Massachusetts, Inc.                   Massachusetts
Carriage Services of Nevada, Inc.                          Nevada
Hubbard Funeral Home, Inc.                                 Maryland
Carriage Services Capital Trust                            Delaware
Carriage Services of New York, Inc.                        New York
Carriage Team California (Cemetery), LLC                   Delaware
Carriage Team California (Funeral), LLC                    Delaware
Carriage Team Florida (Cemetery), LLC                      Delaware
Carriage Team Florida (Funeral), LLC                       Delaware
Carriage Team Ohio, LLC                                    Delaware
Carriage Team Kansas, LLC                                  Delaware
Carriage Municipal Cemetery Services of Nevada, Inc.       Nevada
Carriage Cemetery Services of California, Inc.             California

<TABLE> <S> <C>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S>                             <C>
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                        DEC-31-1999
<PERIOD-END>                             DEC-31-1999
<CASH>                                         2,517
<SECURITIES>                                       0
<RECEIVABLES>                                 34,584
<ALLOWANCES>                                   6,058
<INVENTORY>                                   13,302
<CURRENT-ASSETS>                              44,345
<PP&E>                                       170,597
<DEPRECIATION>                                17,250
<TOTAL-ASSETS>                               539,590
<CURRENT-LIABILITIES>                         22,160
<BONDS>                                      182,275
                              0
                                    1,172
<COMMON>                                         159
<OTHER-SE>                                   211,850
<TOTAL-LIABILITY-AND-EQUITY>                 539,590
<SALES>                                      168,467
<TOTAL-REVENUES>                             170,467
<CGS>                                        121,983
<TOTAL-COSTS>                                121,983
<OTHER-EXPENSES>                              11,765
<LOSS-PROVISION>                                   0
<INTEREST-EXPENSE>                            17,358
<INCOME-PRETAX>                               19,361
<INCOME-TAX>                                   8,474
<INCOME-CONTINUING>                           10,887
<DISCONTINUED>                                     0
<EXTRAORDINARY>                                 (200)
<CHANGES>                                          0
<NET-INCOME>                                  10,687
<EPS-BASIC>                                      .67
<EPS-DILUTED>                                    .66


</TABLE>


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