SEC Filing - Carriage Services, Inc.

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-11961

CARRIAGE SERVICES, INC.

(Exact name of registrant as specified in its charter)

DELAWARE		76-0423828
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1900 Saint James Place, 4^th Floor, Houston, TX		77056
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (713) 332-8400

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

	Common Stock, $.01 Par Value	New York Stock Exchange
	Series G Preferred Stock Purchase Rights	New York Stock Exchange
	(Title Of Class)	(Name of Exchange on which registered)

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 ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). Yes o No ý

The number of shares of the Registrant’s Common Stock, $.01 par value per share, outstanding as of August 7, 2003 was 17,474,992.

CARRIAGE SERVICES, INC.

INDEX

PART I - FINANCIAL INFORMATION

	Item 1. Financial Statements

		Consolidated Balance Sheets as of December 31, 2002 and June 30, 2003

		Consolidated Statements of Operations for the Three Months ended June 30, 2002 and 2003 and Six Months ended June 30, 2002 and 2003

		Consolidated Statements of Comprehensive Income for the Six Months ended June 30, 2002 and 2003

		Consolidated Statements of Cash Flows for the Six Months ended June 30, 2002 and 2003

		Condensed Notes to Consolidated Financial Statements

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

	Item 3. Quantitative and Qualitative Disclosures of Market Risk

	Item 4. Controls and Procedures

PART II - OTHER INFORMATION

	Item 1. Legal Proceedings

	Item 2. Changes in Securities and Use of Proceeds

	Item 3. Defaults Upon Senior Securities

	Item 4. Submission of Matters to a Vote of Security Holders

	Item 5. Other Information

	Item 6. Exhibits and Reports on Form 8-K

		Signatures

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CARRIAGE SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	December 31, 2002			June 30, 2003
				(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,702		$	2,020
Accounts receivable —
Trade, net of allowance for doubtful accounts of $2,844 in 2002 and $2,076 in 2003	14,640			12,914
Other	746			542
	15,386			13,456
Inventories and other current assets	8,777			8,834
Total current assets	26,865			24,310

Property, plant and equipment, at cost, net of accumulated depreciation of $30,449 in 2002 and $33,044 in 2003	113,967			113,592
Cemetery property, at cost	64,570			64,173
Goodwill	158,696			159,668
Deferred charges and other non-current assets	60,344			56,058
Preneed funeral contracts	235,347			235,985
Preneed cemetery merchandise and service trust funds	43,965			45,050
Total assets	$	703,754		$	698,836

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable and accrued liabilities	$	26,097		$	22,706
Current portion of long-term debt and capital leases obligations	2,348			2,159
Total current liabilities	28,445			24,865

Deferred cemetery revenue and preneed liabilities	96,812			98,121
Deferred preneed funeral contracts revenue	243,067			243,519
Long-term debt, net of current portion	141,207			133,266
Obligations under capital leases, net of current portion	5,539			5,521
Total liabilities	515,070			505,292
Commitments and contingencies
Minority interest in consolidated subsidiary	400			—
Company-obligated mandatorily redeemable convertible preferred securities of Carriage Services Capital Trust	90,193			90,260
Stockholders’ equity:
Common Stock, $.01 par value; 80,000,000 shares authorized; 17,075,000 and 17,465,000 shares issued and outstanding at December 31, 2002 and June 30, 2003, respectively	171			176
Contributed capital	185,100			186,491
Accumulated deficit	(86,915		)	(82,563		)
Deferred compensation	—			(820		)
Unrealized loss on interest rate swaps, net of tax benefit	(265		)	—
Total stockholders’ equity	98,091			103,284
Total liabilities and stockholders’ equity	$	703,754		$	698,836

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

CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share data)

	For the three months ended June 30,					For the six months ended June 30,
	2002		2003			2002			2003
Revenues, net
Funeral	$	28,832	$	28,702		$	61,539		$	59,056
Cemetery	9,018		9,165			17,233			17,517
	37,850		37,867			78,772			76,573
Costs and expenses
Funeral	21,544		21,590			42,568			43,312
Cemetery	6,618		6,609			13,132			12,493
	28,162		28,199			55,700			55,805
Gross profit	9,688		9,668			23,072			20,768
General and administrative expenses	2,329		2,476			4,834			5,088
Special charges and other items	—		(896		)	—			(308		)
Operating income	7,359		8,088			18,238			15,988
Interest expense, net	3,246		2,741			6,371			5,677
Financing costs of company-obligated mandatory redeemable convertible preferred securities of Carriage Services Capital Trust	1,674		1,674			3,348			3,348
Total interest and financing costs	4,920		4,415			9,719			9,025
Income before income taxes	2,439		3,673			8,519			6,963
Provision (benefit) for income taxes	962		1,377			(9,518		)	2,611

Net income available to common stockholders	$	1,477	$	2,296		$	18,037		$	4,352

Basic earnings per common share	$	0.09	$	0.13		$	1.07		$	0.25

Diluted earnings per common share	$	0.08	$	0.13		$	1.03		$	0.25

Weighted average number of common and common equivalent shares outstanding:
Basic	16,942		17,411			16,918			17,365
Diluted	17,458		17,788			17,458			17,740

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

CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited and in thousands)

	For the six months ended June 30,
	2002			2003

Net income	$	18,037		$	4,352

Other comprehensive income:
Unrealized gain on interest rate swaps	153			165
Amortization of accumulated unrealized loss on interest rate swap	166			166
Related income tax provision	(64		)	(66		)
Total other comprehensive income	$	255		$	265

Comprehensive income	$	18,292		$	4,617

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

CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)

	For the six months Ended June 30,
	2002			2003
Cash flows from operating activities:
Net income	$	18,037		$	4,352
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	3,264			3,368
Amortization	2,065			1,981
Provision for losses on accounts receivable	765			569
Net gain on sale of business assets	—			(706		)
Stock-related compensation	—			169
Deferred income taxes (benefit)	(9,957		)	2,611
Other	120			(145		)
Changes in assets and liabilities, net of effects from acquisitions and dispositions:
Decrease in accounts receivable	2,060			1,475
Decrease (increase) in inventories and other current assets	593			(150		)
(Increase) in deferred charges and other	(201		)	(86		)
(Increase) in preneed funeral and cemetery costs	(1,844		)	(2,065		)
(Increase) in preneed cemetery trust funds	(1,325		)	(2,417		)
(Decrease) in accounts payable and accrued liabilities	(2,992		)	(2,534		)
Income tax (payments) refunds, net	(71		)	20
Increase in deferred revenue and preneed liabilities	1,539			1,218
Net cash provided by operating activities	12,053			7,660

Cash flows from investing activities:
Net proceeds from sales of businesses and other assets	107			1,512
Sale of minority interest in subsidiary	200			—
Acquisitions and cost adjustments related to acquisitions	(2,159		)	1,500
Capital expenditures	(3,483		)	(3,707		)
Net cash used in investing activities	(5,335		)	(695		)

Cash flows from financing activities:
Proceeds (payments) under bank line of credit	2,300			(3,000		)
Payments on long-term debt and obligations under capital leases	(4,202		)	(5,023		)
Proceeds from issuance of common stock	319			376
Payment of contingent stock price guarantees	(5,289		)	—
Net cash used in financing activities	(6,872		)	(7,647		)

Net decrease in cash and cash equivalents	(154		)	(682		)
Cash and cash equivalents at beginning of period	2,744			2,702
Cash and cash equivalents at end of period	$	2,590		$	2,020

Supplemental disclosure of cash flow information:

Cash paid for interest and financing costs	$	9,476		$	9,249
Cash paid for income taxes	$	198		$	35

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

CARRIAGE SERVICES, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. BASIS OF PRESENTATION

(a) The Company

Carriage Services, Inc., (the “Company”) is a leading provider of products and services in the death care industry in the United States. As of June 30, 2003, the Company owned and operated 141 funeral homes and 30 cemeteries in 29 states.

(b) Principles of Consolidation

The accompanying consolidated financial statements include the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated.

The information for the three and six month periods ended June 30, 2002 and 2003 is unaudited, but in the opinion of management, reflects all adjustments which are of a normal, recurring nature necessary for a fair presentation of financial position and results of operations for the interim periods. Certain information and footnote disclosures, normally included in annual financial statements, have been condensed or omitted pursuant to the rules of the SEC. The accompanying consolidated financial statements have been prepared consistent with the accounting policies described in our annual report on Form 10-K for the year ended December 31, 2002, and should be read in conjunction therewith. Certain amounts in the consolidated financial statements for the period ended in 2002 in this report have been reclassified to conform with current year presentation.

(d) 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.

2. ACCOUNTING CHANGES

(a) Costs Associated with Disposal Activities

In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Previous guidance, provided under Emerging Issues Task Force (“EITF”) No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including certain costs incurred in a restructuring),” required an exit cost liability to be recognized at the date of an entity’s commitment to an exit plan. The provisions of this statement are effective for exit or disposal activities that are initiated by a company after December 31, 2002. The adoption of SFAS No. 146 did

not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

(b) Stock-Based Compensation

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. This Statement is effective for financial statements for fiscal years ending after December 15, 2002. The Company accounts for stock options and shares issued pursuant to its employee stock purchase plan under APB Opinion No. 25, under which no compensation expense is recognized in the Consolidated Statement of Operations. Had the Company accounted for stock options and shares pursuant to its employee stock benefit plans under SFAS No. 123 for the three and six months ended June 30, 2002 and 2003, the results would have been as follows (in thousands, except per share amounts):

	Three months ended June 30,				Six months ended June 30,
	2002		2003		2002		2003

Net income, as reported	$	1,477	$	2,296	$	18,037	$	4,352

Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	184		111		368		222

Pro forma net income	$	1,293	$	2,185	$	17,669	$	4,130

Earnings per share:
Basic – as reported	$	0.09	$	0.13	$	1.07	$	0.25
Basic – pro forma	$	0.08	$	0.13	$	1.04	$	0.24

Diluted – as reported	$	0.08	$	0.13	$	1.03	$	0.25
Diluted – pro forma	$	0.07	$	0.12	$	1.01	$	0.23

In January 2003, the FASB issued FASB Interpretation (FIN) No. 46, “Consolidation of Variable Interest Entities.” FIN No. 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”, to require consolidation of business entities under certain circumstances, particularly with respect to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. An enterprise that consolidates a variable interest entity is the primary beneficiary of the variable interest entity. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the entity’s expected losses, receives a majority of its expected residual returns, or both, as a result of holding variable interests, which are the ownership, contractual, or other primary interests in an entity. The provisions of this statement would be effective beginning with Carriage’s third quarter of 2003. The Company is currently evaluating FIN No. 46 and its preliminary conclusion is that the

preneed and perpetual care trusts will be consolidated at fair value in the Company’s balance sheet. The application of FIN No. 46 is not expected to affect earnings or cash flow.

3. SALES OF BUSINESSES

The Company sold certain of its businesses during the first six months of 2003. These businesses generated $564,000 in revenue and $96,000 in gross profit for the six months ended June 30, 2002 and $318,000 in revenue and $19,000 in gross profit for the period of time that the Company owned them in 2003. The Company recognized gains on the sale of these businesses totaling $601,000 during the six months ended June 30, 2003.

4. MAJOR SEGMENTS OF BUSINESS

Carriage conducts funeral and cemetery operations only in the United States. The following table presents external revenue, net income and total assets by segment (in thousands):

	Funeral		Cemetery		Corporate(1)			Consolidated
External revenues:
Six months ended June 30, 2003	$	59,056	$	17,517	$	—		$	76,573
Six months ended June 30, 2002	61,539		17,233		—			78,722

Net income (loss):
Six months ended June 30, 2003	9,178		3,051		(7,877		)	4,352
Six months ended June 30, 2002	11,502		2,495		4,040			18,037

Total assets:
June 30, 2003	523,393		164,292		11,151			698,836
December 31, 2002	525,645		163,750		14,359			703,754

(1) Net income for the six months ended June 30, 2002 assigned to Corporate is primarily attributable to the reduction in the deferred tax valuation allowance discussed in Note 4.

5. INCOME TAXES

The Company estimates that its effective tax rate will be 37.5 percent for financial statement purposes in 2003. Carriage records a valuation allowance to reflect the estimated amount of deferred tax for which realization is uncertain. Management reviews the valuation allowance at the end of each quarter and makes adjustments if it is determined that it is more likely than not that the tax benefits will be realized. When the Company incurred the Fresh Start restructuring costs and write-downs in late 2000 and proceeded to dispose of low performing businesses, it could not be assured that it would generate enough future taxable income to utilize the tax benefits created by the tax losses on asset sales. To acknowledge this uncertainty, the Company recorded a valuation allowance to offset these tax benefits until such time that is could be determined it would be more likely than not the Company would be able to realize the tax benefits. Based on positive operating results subsequent to 2000 and management’s forecast of future positive operating results, management determined in the first quarter of 2002 that it is more likely than not the Company will be able to utilize substantially all of these previously unrecognized tax benefits. Accordingly, in the first quarter of 2002 the Company recorded a tax benefit in the amount of $12.8 million, equal to $0.73 per diluted share, which eliminated a substantial portion of the valuation allowance. Excluding the $12.8 million tax benefit, income taxes were recorded at the effective rate of 38.2 percent during the first six months of 2002.

6. DEFERRED COMPENSATION AND STOCK-RELATED COMPENSATION

In January 2003, the Company issued 227,000 shares of restricted stock to certain officers of the Company. Twenty-five percent of the shares vest annually on each of the next four anniversary dates of the grant. The value of the stock was $3.97 per share, for a total of $902,000, which will be amortized into expense over the four-year vesting period.

The Company also has a compensation plan for its outside directors under which directors may choose to accept shares of the Company’s common stock for all or a portion of their directors fees and under which new directors receive a grant of 20,000 shares of common stock at the time of their initial election to the Board, 50% of which are vested at the grant date and 25% of which vests on the first and second anniversary of the grant. During the first six months of 2003, the Company issued 4,200 shares of common stock to directors, the value of which was charged to operations. A new director was elected on May 13, 2003 at which time he received 20,000 shares of common stock, the value of which at the grant date is charged to operations as the shares vest.

7. SUBSEQUENT EVENT

Carriage had $24.5 million drawn on its $75 million bank revolving credit facility at June 30, 2003. Carriage has subsequently replaced the facility with a new $40 million unsecured revolving credit facility that matures in March 2006 which should be sufficient for Carriage to meet its working capital needs and retire the Series A maturities of the Senior Notes having a current balance of $22.5 million in July 2004. Interest is payable at both prime rate and LIBOR options. Initially, the LIBOR option is set at LIBOR plus 300 basis points and the basis points above LIBOR can decline in the future with reductions in Carriage’s debt to EBITDA ratio, if any, as defined in the credit agreement. The new credit facility reduces by $7.5 million in March 2005 and by an additional $7.5 million in September 2005. In addition, the commitment reduces by up to $5 million for the banks’ pro-rata share of proceeds from dispositions of assets, if any. In order to comply with the conditions of the new credit facility, the Company will begin deferring interest payments on the subordinated debentures held by its affiliated trust. As a result, cash distributions on the Company-obligated mandatorily redeemable convertible preferred securities (“TIDES”) of Carriage Services Trust will be deferred for at least the term of the new credit facility beginning with the September 1, 2003 payment.

The TIDES contain a provision for the deferral of distributions for up to 20 consecutive quarters. During the period in which distribution payments are deferred, distributions will continue to accumulate at the 7 percent annual rate. Also, the deferred distributions will themselves accumulate distributions at the annual rate of 7 percent. During the period in which distributions are deferred, Carriage is prohibited from paying dividends on its common stock or repurchasing its common stock, with limited exceptions.

Carriage will record a pretax charge in the third quarter of 2003 in connection with the extinguishment of the existing credit facility in the approximate amount of $0.2 million, which represents the unamortized loan origination costs related to the previously existing credit facility.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Our business strategy is to continue to focus on increasing operating cash flow and improving profitability at each business location through activities to execute our culture of service and leadership excellence. We do

not expect the execution of our business strategy will require significant investments of new capital over the next two years. However, the Company will likely access the debt and capital markets over the next three years to refinance or repay maturing debt. We plan to continue reducing our senior debt and improving our leverage ratios. Our focus is on continuing to improve our organizational leadership, quality of personnel and financial flexibility.

Net income totaled $2.3 million for the second quarter of 2003, equal to $0.13 per diluted share as compared to net income of $1.5 million for the second quarter of 2002, or $0.08 per diluted share. Gross profit at the field level for the quarter was comparable, year-over-year. Gains from the sales of businesses and excess real estate totaling $0.9 million during the second quarter of 2003 provided $0.03 in diluted earnings per share, and lower interest expense in the current year quarter contributed $0.02 of the improvement in earnings per share.

Net income totaled $4.4 million for the first six months of 2003, or $0.25 per diluted share as compared to net income of $18.0 million for the first six months of 2002, or $1.03 per diluted share. Two items significantly impacted the results and comparability of the two periods. The first quarter of 2002 included an income tax benefit in the amount of $12.8 million, equal to $0.73 per diluted share, related to the reversal of a valuation allowance on deferred tax assets established in 2000. Excluding the impact of this tax benefit, diluted earnings per share for the first six months of 2002 would have been $0.30. Net income for the first six months of 2003 was negatively impacted by the operating results of the funeral segment, which accounts for approximately 77 percent of the Company’s revenues, which, when compared to the first six months of 2002, reported a revenue decline of 4.0 percent and an increase in segment costs and expenses of 1.7 percent. These operating variances combined to reduce the gross profit of the Company by $3.2 million, equal to $0.11 per diluted share, compared to the first six months of 2002. Substantially all of the decline in the funeral segment revenues occurred in the first quarter of 2003 when same-store sales declined 8.6 percent.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements presented herewith, which have been prepared in accordance with generally accepted accounting principles in the United States of America. Our significant accounting policies are summarized in Note 1 to the consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2002. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Funeral and Cemetery Operations

We record the sales of funeral merchandise and services when the funeral service is performed. Sales of cemetery interment rights are recorded as revenue in accordance with the retail land sales provisions of Statement of Financial Accounting Standards (SFAS) No 66, “Accounting for Sales of Real Estate”. This method provides for the recognition of revenue in the period in which the customer’s cumulative payments exceed 10% of the contract price related to the real estate. Costs related to the sales of interment rights, which include property and other costs related to cemetery development activities, are charged to operations using the specific identification method in the period in which the sale of the interment right is recognized as revenue. Revenue from the sales of cemetery merchandise and services are recognized in the period in which the merchandise is delivered or the service is performed. Revenues to be recognized from the delivery of merchandise and performance of services related to contracts that were acquired in acquisitions are typically lower than those originated by the Company and are likely to exceed the cash collected from the contract and received from the trust at maturity.

Allowances for customer cancellations, refunds and bad debts are provided at the date of sale based on our historical experience. In addition, we monitor changes in delinquency rates and provide additional bad debt and cancellation reserves when warranted. When preneed funeral services and merchandise are funded through third-party insurance policies, we earn a commission on the sale of the policies. Insurance commissions are recognized as revenues at the point at which the commission is no longer subject to refund, which is typically one year after the policy is issued.

Preneed Funeral Contracts & Deferred Preneed Funeral Contracts Revenue

Cash proceeds from preneed funeral sales are deposited to a trust or used to purchase a third-party insurance product. Unperformed guaranteed preneed funeral contracts are included in the consolidated balance sheets as preneed funeral contracts. The balance in this asset account represents amounts due from customer receivables and third-party insurance companies, and the amounts deposited with the trustee and the accumulated earnings on these deposits. A corresponding credit is recorded to deferred preneed funeral contracts revenue. The funeral revenue is not recorded until the service is performed. 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.

Deferred Obtaining Costs

Deferred obtaining costs consist of sales commissions and other direct related costs of originating preneed sales contracts. These costs are deferred and amortized into funeral and cemetery costs and expenses over the expected timing of the performance of the services or delivery of the merchandise covered by the preneed contracts. The pattern of the periods over which the costs are recognized is based on actuarial statistics, provided by a third party administrator, based on the actual contracts we hold.

Goodwill and Other Intangible Assets

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 goodwill. Many of the 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. Goodwill is typically not associated with or recorded for the cemetery businesses. In accordance with SFAS No. 142, we review the carrying value of goodwill at least annually on a regional basis to determine if facts and circumstances exist which would suggest that this intangible asset might be carried in excess of fair value. Fair value is determined by reference to certain valuation models, which include discounting the estimated future cash flows of the businesses in each region at the Company’s weighted average cost of capital, less debt allocable to the region. The calculation of fair value can vary dramatically with changes in estimates of the number of future services performed, inflation in costs, market conditions and the Company’s cost of capital. If impairment is indicated, then an adjustment will be made to reduce the carrying amount of goodwill to fair value. No impairments were recorded during the six month periods ended June 30, 2002 and 2003.

Income Taxes

The Company 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, in accordance with SFAS 109, “Accounting for Income Taxes.

Stock Compensation Plans

The Company has four stock option plans currently in effect under which stock options may be issued. Additionally, the Company sponsors an Employee Stock Purchase Plan (ESPP) under which employees can

purchase common stock at a discount. The stock options are granted with an exercise price equal to or greater than the fair market value of the Company’s Common Stock. Substantially all of the options granted under the four stock option plans have ten-year terms. The options generally vest over a period of two to four years. The Company accounts for stock options and shares issued under the ESPP under APB Opinion No. 25, under which no compensation cost is recognized in the Consolidated Statement of Operations. Had the Company accounted for stock options and shares pursuant to its employee stock benefit plans under SFAS No. 123 for the six months ended June 30, 2002 and 2003, net income for those periods would have been lower by $0.4 and $0.2 million, respectively.

The Financial Accounting Standards Board (“FASB”) recently announced its opinion that stock options should be expensed and that they will undertake work to develop accounting and valuation guidance regarding such.

In January 2003, the Company issued 227,000 shares of restricted stock to certain officers of the Company. Twenty-five percent of the shares vest annually on each of the next four anniversary dates of the grant. The value of the stock was $3.97 per share, for a total of $902,000, which is being amortized into expense over the four-year vesting period.

RESULTS OF OPERATIONS

The following is a discussion of the Company’s results of operations for the three and six month periods ended June 30, 2002 and 2003. Funeral homes and cemeteries owned and operated for the entirety of each period being compared are referred to as “same-store” or “existing operations”.

Funeral Home Segment. The following table sets forth certain information regarding the net revenues and gross profit of the Company from its funeral home operations for the three and six months ended June 30, 2002 compared to the three and six months ended June 30, 2003.

Three months ended June 30, 2002 compared to three months ended June 30, 2003

(dollars in thousands)

	Three months ended June 30,				Change
	2002		2003		Amount			Percent

Total same-store revenue	$	27,853	$	27,966	$	113		0.4	%
Acquired, sold or discontinued	565		244		(321		)	*
Preneed insurance commissions revenue	414		492		78			18.8	%
Total net revenues	$	28,832	$	28,702	$	(130	)	(0.5	)%

Gross profit:
Same-store	$	6,825	$	6,578	$	(247	)	(3.6	)%
Acquired, sold or discontinued	49		42		(7		)	*
Preneed insurance commissions revenue	414		492		78			18.8	%
Total gross profit	$	7,288	$	7,112	$	(176	)	(2.4	)%

*not meaningful

Six months ended June 30, 2002 compared to six months ended June 30, 2003

(dollars in thousands)

	Six months ended June 30,				Change
	2002		2003		Amount			Percent

Total same-store revenue	$	59,570	$	57,483	$	(2,087	)	(3.5	)%
Acquired, sold or discontinued	1,123		647		(476		)	*
Preneed insurance commissions revenue	846		926		80			9.5	%
Total net revenues	$	61,539	$	59,056	$	(2,483	)	(4.0	)%

Gross profit:
Same-store	$	17,938	$	14,723	$	(3,215	)	(17.9	)%
Acquired, sold or discontinued	187		95		(92		)	*
Preneed insurance commissions revenue	846		926		80			9.5	%
Total gross profit	$	18,971	$	15,744	$	(3,227	)	(17.0	)%

*not meaningful

Funeral same-store revenues for the three months ended June 30, 2003 increased 0.4% when compared to the three months ended June 30, 2002, as we experienced a decrease of the number of services of 22, equal to 0.5% and an increase of 0.9% to $5,771 in the average revenue per service for those existing operations. Approximately 29.0 percent of the funeral services were cremation services compared to 29.2 percent in the second quarter of 2002. The average price of Carriage’s cremation services increased 4.5 percent compared to the second quarter of 2002. Of the funeral services performed during the second quarter of 2003, 20.6 percent were previously prearranged.

Total funeral same-store gross profit for the three months ended June 30, 2003 decreased $0.2 million from the comparable three months of 2002, and as a percentage of funeral revenue, declined from 25.3% to 24.8%.

Funeral same-store revenues for the six months ended June 30, 2003 decreased $2.1 million, or 3.5%, when compared to the six months ended June 30, 2002, as we experienced a decrease in the number of services of 489, or 4.7%, and an increase of 1.2% in the average revenue per service for those existing operations. In addition to lower mortality rates during the first half of the current year, we identified approximately 12 percent of our businesses that experienced market share declines during the first quarter of 2003 compared to the first quarter of 2002. These underperforming businesses represented more than half of the decline in same store volumes in the first quarter. This group performed much better in the second quarter with basically flat performance year over year.

Total funeral same-store gross profit for the six months ended June 30, 2003 decreased $3.2 million or 17.9% from the comparable six months of 2002, primarily the result of the decrease in same store revenues given the predominantly fixed cost structure of our businesses and staffing for what is normally a seasonally high period of services. Funeral costs and expenses increased 1.7% from the first six months of 2002.

Cemetery Segment. The following table sets forth certain information regarding the net revenues and gross profit of the Company from its cemetery operations for the three and six month periods ended June 30, 2002 compared to the three and six month periods ended June 30, 2003.

Three months ended June 30, 2002 compared to three months ended June 30, 2003

(dollars in thousands)

	Three months ended June 30,				Change
	2002		2003		Amount		Percent

Total same-store revenue and total net revenues	$	9,018	$	9,165	$	147	1.6	%

Total same-store gross profit and total gross profit	$	2,400	$	2,556	$	156	6.5	%

Six months ended June 30, 2002 compared to six months ended June 30,2003

(dollars in thousands)

	Six months ended June 30,				Change
	2002		2003		Amount		Percent

Total same-store revenue and total net revenues	$	17,233	$	17,517	$	284	1.7	%

Total same-store gross profit and total gross profit	$	4,101	$	5,024	$	923	22.5	%

No cemetery businesses were acquired or sold during the comparable periods.

Cemetery net revenues for the three months ended June 30, 2003 increased $0.2 million, or 1.6%, over the three months ended June 30, 2002, and cemetery gross profit increased $0.2 million, or 6.5%, over the comparable three months of 2002. Cemetery revenues were positively impacted by a $0.2 million increase in preneed sales of interment rights and a $0.2 million increase in at-need revenues compared to the prior year period. Financial revenues (trust earnings and finance charges on installment contracts) and deliveries of preneed merchandise and services each declined $0.1 million compared to the second quarter of the prior year.

Cemetery net revenues for the six months ended June 30, 2003 increased $0.3 million, or 1.6%, over the six months ended June 30, 2002, and cemetery gross profit increased $0.9 million over the comparable six months of 2002. Total gross margin increased from 23.8% for the six months ended June 30, 2002 to 28.7% for the six months ended June 30, 2003 primarily from improvement in bad debt expense.

Other. General and administrative expenses for the quarter ended June 30, 2003 increased $0.1 million and $0.2 million, respectively, as compared to the second quarter and the six months of 2002. These expenses, as a percentage of net revenues, increased for the second quarter from 6.2% to 6.5% and for the six months from 6.2% to 6.6%.

The following table describes the components of special charges and other items of the Company for the three and six months ended June 30, 2003:

	Three months ended June 30, 2003				Six months ended June 30, 2003
	Amount		Diluted EPS impact		Amount			Diluted EPS impact
	(000s)				(000s)
Net gains from the dispositions of business assets	$	896	$	0.03	$	740		$	0.03
Early termination of lease obligation					(432		)	$	(0.02	)
Total special charges and other items	$	896	$	0.03	$	308		$	0.01

Businesses and excess real estate were sold for approximately $1.5 million during the second quarter of 2003.

Interest expense and other financing costs for the three and six month periods ended June 30, 2003 declined $0.5 million and $0.7 million respectively, compared to the three and six month periods ended June 30, 2002 primarily because average debt outstanding has decreased by approximately $14.5 million since comparable periods of 2002.

Income Taxes. The Company recorded income taxes at the effective rate of 38.5% (excluding the affect of the change in the valuation allowance) and 37.5% for the six months ended June 30, 2002 and 2003, respectively.

The Company has net operating loss carryforwards totaling approximately $11 million for Federal income tax purposes, as well as operating loss carryforwards in certain states. Because of the ability to use the net operating loss to offset taxable income and the timing of when revenue and expenses are recognized for tax purposes, we do not expect to pay Federal income taxes in 2003. The slightly lower tax rate in 2003, compared to 2002, is based on our expectations of utilizing certain state loss carryforwards, the benefits of which have not yet been recognized.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents totaled $2.0 million at June 30, 2003, representing a decrease of $0.7 million from December 31, 2002. It is Carriage’s practice to apply available cash against its revolving line of credit, described below, to minimize interest expense. If the Company needs cash for working capital or investment purposes, it may draw on the line of credit so long as the Company is in compliance with the loan covenants and committed funds are available. For the six months ended June 30, 2003, cash provided by operating activities was $7.7 million as compared to $12.1 million for the six months ended June 30, 2002. Cash used in investing activities was $0.7 million for the six months ended June 30, 2003 compared to cash used in the amount of $5.3 million for the first six months of 2002, the change being primarily due to the combination of

acquisition costs totaling $2.2 million in the 2002 period versus proceeds totaling $3.0 million from the sales of businesses and the settlement of a prior acquisition contingency in the 2003 period.

The Company’s debt at June 30, 2003 totaled $140.9 million and consisted of $97.5 million in senior debt notes, a $75 million revolving line of credit ($24.5 million outstanding at June 30, 2003) and $18.9 million in acquisition indebtedness and capital lease obligations.

The $97.5 million in senior debt notes are unsecured, mature in tranches of $22.5 million in 2004, $53.1 million in 2006 and $21.9 million in 2008 (based on current balances) and bear interest at the fixed rates of 7.73%, 7.96% and 8.06%, respectively.

As discussed above, the Company had a revolving credit facility at June 30, 2003. The credit facility, set to mature in June 2004, was unsecured and contained customary restrictive covenants, including a restriction on the payment of dividends on common stock, and required that Carriage maintain certain financial ratios. Interest on the existing credit facility was provided at both LIBOR and prime rate options. As of June 30, 2003, the Company’s debt to total capitalization, as defined by the credit facility, was 42.3 percent as compared to 44.4 percent at December 31, 2002. On August 4, 2003, Carriage replaced the facility with a new $40 million unsecured revolving credit facility that matures in March 2006 which should be sufficient for the Company to meet its working capital needs and retire the Series A maturities of the Senior Notes in July 2004. Interest is payable at both prime rate and LIBOR options. Initially, the LIBOR option is set at LIBOR plus 300 basis points and the basis points above LIBOR can decline in the future with reductions, if any, in Carriage’s debt to EBITDA ratio, as defined by the credit agreement. As of June 30, 2003, the Company’s debt to EBITDA ratio was 3.53. The new credit facility reduces by $7.5 million in March 2005 and by $7.5 million in September 2005. In addition, the commitment reduces by up to $5 million for the bank’s pro-rata share of proceeds from disposition of assets.

The Company, in complying with the conditions of the new credit facility, will begin deferring interest payments on the subordinated debentures held by the Company’s affiliated trust. As a result, cash distributions on the Company-obligated mandatorily redeemable convertible trust preferred securities of Carriage Services Capital Trust (“TIDES”) will be deferred for at least the term of the new credit facility beginning with the September 1, 2003 payment. The condition was imposed by the lenders to ensure that the Company had sufficient available borrowings under the unsecured credit facility to retire the Series A maturities of the Senior Notes that have a current balance of $22.5 million and to accommodate the two $7.5 million commitment reductions in 2005. The Company intends to use the cash savings from the deferral of the TIDES distributions to repay borrowings under the unsecured credit facility.

The TIDES contain a provision for the deferral of distributions for up to 20 consecutive quarters. During the period in which distribution payments are deferred, distributions will continue to accumulate at the 7 percent annual rate. Also, the deferred distributions will themselves accumulate distributions at the annual rate of 7 percent. During the deferral period, Carriage will be prohibited from paying dividends on the common stock or repurchasing its common stock, subject to limited exceptions.

We believe that cash flow from operations, cash savings from the deferral of the TIDES distributions and borrowings under the credit facility should be sufficient to fund anticipated capital expenditures, retire the Series A maturities of the Senior Notes in July 2004 and other operating requirements. Because future cash flows and the availability of financing are subject to certain variables, such as the Company’s operating performance and conditions of the credit and equity markets, there can be no assurance that the Company’s capital resources will be sufficient to fund its capital needs in future years. Additional debt and equity financing will likely 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.

ACCOUNTING CHANGES

(a) Costs Associated with Disposal Activities

(b) Consolidation of Variable Interest Entities

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities.” FIN No. 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”, to require consolidation of business entities under certain circumstances, particularly with respect to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. An enterprise that consolidates a variable interest entity is the primary beneficiary of the variable interest entity. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the entity’s expected losses, receives a majority of its expected residual returns, or both, as a result of holding variable interests, which are the ownership, contractual, or other primary interests in an entity. The provisions of this statement would be effective beginning with Carriage’s third quarter of 2003. The Company is currently evaluating FIN No. 46 and preliminarily believes that the preneed and perpetual care trusts will be consolidated at fair value in the Company’s balance sheet. The application of FIN No. 46 is not expected to affect earnings or cash flow.

SEASONALITY

The Company’s business can be affected by seasonal fluctuations in the death rate. Generally, death rates are higher during the winter months.

INFLATION

Inflation has not had a significant impact on the results of operations of the Company.

Item 3. Quantitative and Qualitative Disclosures of Market Risk

Carriage is currently exposed to market risk from changes in interest rates. Interest on the Company’s revolving credit facility will change with changes in the prime lending rate and LIBOR. Previously, the Company was party to interest rate swaps to minimize the affect of increasing interest rates. Those swaps matured in May 2003 and, consequently, a change of, for example, one percent in the interest rate would cause a change in interest expense on these borrowings of approximately $245,000, or $0.01 per diluted share, on an annualized basis.

Item 4. Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 30, 2003. Based on their evaluation, our chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures are effective. During the period covered by this report, there were no changes in our internal control over financial reporting, as such term is defined under Rule 13a-15(f) of the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The Company and its 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, we do not expect these matters to have a material adverse effect.

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 against all contingencies, we believe that our insurance protection is reasonable in view of the nature and scope of our operations.

Item 2. Changes in Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

The Company’s 2003 annual meeting of stockholders was held on May 13, 2003. All director nominees were elected. The voting tabulation was as follows:

Name of Nominee	Number of Votes For	Number of Votes Withheld

Melvin C. Payne	14,875,270	345,353
Joe R. Davis	14,781,409	439,214

The terms of the following other directors continue after the meeting: Greg M. Brudnicki, Ronald A. Erickson, Vincent D. Foster and Stuart W. Stedman.

Item 5. Other Information

Forward-Looking Statements

In addition to historical information, this Quarterly Report contains forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include any projections of earnings, revenues, asset sales, cash flow, debt levels or other financial items; any statements of the plans, strategies and objectives of management for future operation; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may”, “will”, “estimate”, “intend”, “believe”, “expect”, “project”, “forecast”, “plan”, “anticipate” and other similar words.

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.

Risks related to our business

(1) Earnings from and principal of trust funds and insurance contracts could be reduced by changes in stock and bond prices and interest and dividend rates.

(2) Increased costs may have a negative impact on earnings and cash flows.

(3) Our ability to achieve our debt reduction targets and to service our debt in the future depends upon our ability to generate sufficient cash, which depends on many factors, some of which are beyond our control.

(4) We may experience declines in preneed sales due to numerous factors including changes made to contract terms and sales force compensation, or a weakening economy. Declines in preneed sales would reduce our backlog and revenue and could reduce our future market share.

(5) Increased preneed sales may have a negative impact on cash flow.

(6) Price competition could reduce market share or cause us to reduce prices to retain or recapture market share, either of which could reduce revenues and margins.

(7) Increased advertising or better marketing by competitors, or increased activity by competitors offering products or services over the Internet, could cause us to lose market share and revenues or cause us to incur increased costs in order to retain or recapture our market share.

(8) Increases in interest rates would increase interest costs on our variable-rate long-term debt and could have a material adverse effect on our net income and earnings per share.

(9) Covenant restrictions under our revolving credit facility and senior notes limit our flexibility in operating our business.

(10) Our projections for 2003 and later years include adjustments to earnings and cash flow for estimated disposition activity. Several important factors, among others, may affect our ability to consummate dispositions, including our ability to identify buyers for the businesses and assets we expect to sell at acceptable prices.

Risks related to the death care industry

(1) Declines in the number of deaths in our markets can cause a decrease in revenues. Changes in the number of deaths are not predictable from market to market or over the short term.

(2) The increasing number of cremations in the United States could cause revenues to decline because we could lose market share to firms specializing in cremations. In addition, basic cremations produce no revenues for cemetery operations and lesser funeral revenues and, in certain cases, lesser profit margins than traditional funerals.

(3) If we are not able to respond effectively to changing consumer preferences, our market share, revenues and profitability could decrease.

(4) Because the funeral and cemetery businesses are high fixed-cost businesses, positive or negative changes in revenue can have a disproportionately large effect on cash flow and profits.

(5) Changes or increases in, or failure to comply with, regulations applicable to our business could increase costs or decrease cash flows.

ITEM 6. Exhibits and Reports on Form 8-K

(a) Exhibits

10.1 —		Indemnity Agreement with Joe R. Davis dated May 13, 2003.

10.2 —		Indemnity Agreement with Joseph Saporito dated May 13, 2003.

10.3 —		Indemnity Agreement with James J. Benard dated May 13, 2003.

10.4 —		Indemnity Agreement with Mark Groeneman dated May 13, 2003.

10.5 —		Indemnity Agreement with George J. Klug dated May 13, 2003.

11.1 —		Computation of Per Share Earnings

31.1 —		Certification of Periodic Financial Reports by Melvin C. Payne in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002

31.2 —		Certification of Periodic Financial Reports by Joseph Saporito in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002

32.1 —		Certification of Periodic Financial Reports by Melvin C. Payne in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002

32.2 —		Certification of Periodic Financial Reports by Joseph Saporito in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K

A report on Form 8-K Current Report was filed with the SEC on May 14, 2003 in connection with the press release dated May 12, 2003 reporting the Company’s first quarter results.

A report on Form 8-K Current report was filed with the SEC on June 10, 2003 in connection with the press release dated June 10, 2003 reporting changes to the Company and Investment Profile dated June 2003.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		CARRIAGE SERVICES, INC.


August 13, 2003		/s/ Joseph Saporito
Date		Joseph Saporito,
		Senior Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)

Exhibit 10.1

INDEMNITY AGREEMENT

This Indemnity Agreement (“Agreement”) is made effective as of the 13th day of May, 2003 by and between Carriage Services, Inc., a Delaware corporation (the “Company”), and Joe R. Davis (“Indemnitee”).

RECITALS

WHEREAS, highly competent persons have become more reluctant to serve publicly held corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation.

WHEREAS, the Board of Directors of the Company (the “Board”) has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among United States based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future at higher premiums and with more exclusions. At the same time, directors, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the corporation or business enterprise itself. The Amended and Restated Bylaws of the Company (“Bylaws”) require indemnification of the officers and directors of the Company. Indemnitee may also be entitled to indemnification pursuant to the Delaware General Corporation Law (“DGCL”). The Bylaws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the Board, officers and other persons with respect to indemnification.

WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons.

WHEREAS, the Board has determined that the Company should act to assure such persons that there will be increased certainty of such protection in the future.

WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified.

WHEREAS, this Agreement is a supplement to and in furtherance of the Bylaws and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

1. Services to the Company. Indemnitee will serve or continue to serve, at the will of the Company, as an officer, director or key employee of the Company for so long, as Indemnitee is duly elected or appointed or until Indemnitee tenders his or her resignation.

2. Definitions. As used in this Agreement:

(a) A “Change in Control” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:

(i) Acquisition of Stock by Third Party. Any Person (as defined below) is or becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company’s then outstanding securities;

(ii) Change in Board of Directors. During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning, of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 2(a)(i), 2(a)(iii) or 2(a)(iv)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a least a majority of the members of the Board;

(iii) Corporate Transactions. The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 51% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity;

(iv) Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement or series of agreements for the sale or disposition by the Company of all or substantially all of the Company’s assets; or

(v) Other Events. There occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar schedule or form) promulgated under the Exchange Act (as defined below), whether or not the Company is then subject to such reporting requirement.

(b) Certain Definitions. For purposes of this Agreement, the following terms shall have the following meanings:

(i) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(ii) “Person” shall have the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

(iii) “Beneficial Owner” shall have the meaning given to such term in Rule l3d-3 under the Exchange Act; provided, however, that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Company approving a merger of the Company with another entity.

(iv) “Corporate Status” describes the status of a person who is or was a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of the Company or of any other Enterprise (as defined below) which such person is or was serving at the request of the Company.

(v) “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

(vi) “Enterprise” shall mean the Company and any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent.

(vii) “Expenses” shall include all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersede as bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

(viii) Reference to “other enterprise” shall include employee benefit plans; references to “fines” shall include any excise tax assessed with respect to any employee benefit plan; references to “serving at the request of the Company” shall include any service as a director, officer, which imposes duties on, or involves services by, such director, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with

respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

(ix) The term “Proceeding” shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative or investigative nature, in which Indemnitee was, is or will be involved as a party or otherwise by reason of the fact that Indemnitee is or was a director or officer of the Company, by reason of any action taken by him or of any action on his part while acting as director or officer of the Company, or by reason of the fact that he is or was serving, at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of any other Enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement, or advancement of expenses can be provided under this Agreement.

(x) “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving, rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

3. Indemnity in Third-Party Proceedings. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant (as a witness or otherwise) in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified against all Expenses, Judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, Judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding had no reasonable cause to believe that his conduct was unlawful.

4. Indemnity in Proceedings by or in the Right of the Company. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant (as a witness or otherwise) in any Proceeding by or

in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that any court in which the Proceeding was brought or the Delaware Court of Chancery shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification.

5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee is a party to (or a participant in) and is successful, on the merits or otherwise, in any Proceeding, or in defense of any claim, issue or matter therein, in whole or in part, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. If the Indemnitee is not wholly successful in such Proceeding, the Company also shall indemnify Indemnitee against all Expenses reasonably incurred in connection with a claim, issue or matter related to any claim, issue, or matter on which the Indemnitee was successful. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding, by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

6 Indemnification For Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.

7. Additional Indemnification.

(a) Notwithstanding any limitation in Sections 3, 4, or 5, the Company shall indemnify Indemnitee to the fullest extent permitted by law if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by Indemnitee in connection with the Proceeding. No indemnity shall be made under this Section 7(a) on account of Indemnitee’s conduct which constitutes a breach of Indemnitee’s duty of loyalty to the Company or its stockholders or is an act or omission not in good faith or which involves intentional misconduct or a knowing violation of the law.

(b) Notwithstanding any limitation in Sections 3, 4, 5 or 7(a), the Company shall indemnify Indemnitee to the fullest extent permitted by law if Indemnitee is a party to or threatened

to be made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, Judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, Judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by Indemnitee in connection with the Proceeding.

(c) For purposes of Sections 7(a) and 7(b), the meaning, of the phrase “to the fullest extent permitted by law” shall include, but not be limited to:

(i) to the fullest extent permitted by the provision of the DGCL that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the DGCL; and

(ii) to the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this Agreement that increase the extent to which on may indemnify its officers and directors.

8. Exclusions. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

(a) for which payment has actually been received by or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount actually received under any insurance policy or other indemnity provision;

(b) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act or similar provisions of state statutory law or common law; or

(c) except as otherwise provided in Sections 13 (d)-(f) hereof, prior to a Change in Control, in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Board of Directors of the Company authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law.

9. Advances of Expenses; Defense of Claim.

(a) Notwithstanding any provision of this Agreement to the contrary, the Company shall advance the expenses incurred by Indemnitee in connection with any Proceeding within ten (10) days after the receipt by the Company of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest-free. Advances shall be made without regard to Indemnitee’s ability to repay the expenses and without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement. Advances shall include any and all reasonable

Expenses incurred pursuing, an action to enforce this right of advancement, including, Expenses incurred preparing and forwarding statements to the Company to support the advances claimed. The Indemnitee shall qualify for advances solely upon the execution and delivery to the Company of an undertaking providing that the Indemnitee undertakes to repay the advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company. This Section 9(a) shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 8.

(b) The Company will be entitled to participate in the Proceeding at its own expense.

(c) The Company shall not settle any action, claim or Proceeding (in whole or in part) which would impose any expense, judgment, fine, penalty or limitation on the Indemnitee without the Indemnitee’s prior written consent.

10. Procedure for Notification and Application for Indemnification.

(a) Within sixty (60) days after the actual receipt by Indemnitee of notice that he or she is a party to or a participant (as a witness or otherwise) in any Proceeding, Indemnitee shall submit to the Company a written notice identifying the Proceeding. The omission by the Indemnitee to notify the Company will not relieve the Company from any liability which it may have to Indemnitee (i) otherwise than under this Agreement, and (ii) under this Agreement only to the extent the Company can establish that such omission to notify resulted in actual prejudice to the Company.

(b) Indemnitee shall thereafter deliver to the Company a written application to indemnify Indemnitee in accordance with this Agreement. Such application(s) may be delivered from time to time and at such time(s) as Indemnitee deems appropriate in his or her sole discretion. Following such a written application for indemnification by Indemnitee, the Indemnitee’s entitlement to indemnification shall be determined according to Section 11(a) of this Agreement.

11. Procedure Upon Application for Indemnification.

(a) Upon written request by Indemnitee for indemnification pursuant to Section 10(b), a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in the specific case: (i) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board; or (ii) if so requested by the Indemnitee in his or her sole discretion, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee. If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee shall reasonably cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to

indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

(b) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 11(a) hereof, the Independent Counsel shall be selected as provided in this Section 11(b). If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Board of Directors, and the, Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a Change in Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board of Directors, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within 10 days after such written notice of selection shall have been received, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court of competent jurisdiction has determined that such objection is without merit. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 10(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition a court of competent jurisdiction for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 11(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 13(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

(c) The Company agrees to pay the reasonable fees of Independent Counsel and to fully indemnify such Independent Counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

12. Presumptions and Effect of Certain Proceedings.

(a) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 10(b) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Neither the failure of the Company (including by its directors or independent legal counsel) to have made a determination prior to the

commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

(b) If the person, persons or entity empowered or selected under Section 11 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining, or evaluating, of documentation and/or information relating thereto.

(c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.

(d) Reliance as Safe Harbor. For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected by the Enterprise. The provisions of this Section 12(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed or found to have met the applicable standard of conduct set forth in this Agreement.

(e) Actions of Others. The knowledge and/or actions, or failure to act, of any other director, trustee, partner, managing member, fiduciary, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

13. Remedies of Indemnitee.

(a) In the event that (i) a determination is made pursuant to Section 11 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement

of Expenses is not timely made pursuant to Section 9 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 11(a) of this Agreement within 45 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5, 6, 7 or the last sentence of Section 11(a) of this Agreement within ten (10) days after receipt by the Company of a written request therefor, or (v) payment of indemnification pursuant to Section 3 or 4 of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by a court of his entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

(b) In the event that a determination shall have been made pursuant to Section 11(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 13 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 1.3 the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be, and the Company may not refer to or introduce into evidence any determination pursuant to Section 11(a) of this Agreement adverse to Indemnitee for any purpose. If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 13, Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section 9 until a final determination is made with respect to Indemnitee’s entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed).

(c) If a determination shall have been made pursuant to Section 11(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 13, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.

(d) In the event that Indemnitee, pursuant to this Section 13, seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all Expenses actually and reasonably incurred by him in such judicial adjudication or arbitration. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, the Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all Expenses reasonably incurred by Indemnitee in connection with such judicial adjudication or arbitration.

(e) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 13 that the procedures and presumptions of this

Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.

(f) The Company shall indemnify Indemnitee to the fullest extent permitted by law against all Expenses and, if requested by Indemnitee, shall (within ten (10) days after the Company’s receipt of such written request) advance such Expenses to Indemnitee, which are incurred by Indemnitee in connection with any judicial proceeding or arbitration brought by Indemnitee for (i) indemnification or advances of Expenses by the Company under the Agreement or any other agreement or provision of the Company’s Certificate of Incorporation or Bylaws now or hereafter in effect or (ii) recovery or advances under any insurance policy maintained by any person for the benefit of Indemnitee, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance or insurance recovery, as the case may be.

14. Non-exclusivity; Survival of Rights, Insurance; Subrogation.

(a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Company’s Certificate of Incorporation, the Company’s Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Company’s Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, trustees, partners, managing members, fiduciaries, employees, or agents of the Company or of any other Enterprise which such person serves at the request of the Company. Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, trustee, partner, managing member, fiduciary, officer, employee or agent under such policy or policies. If, at the time the Company receives notice from any source of a Proceeding as to which Indemnitee is a party or a participant (as a witness or otherwise), the Company has director and officer liability insurance in effect, the Company shall give prompt notice of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.

(c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

(d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable (or for which advancement is provided hereunder) hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

(e) The Company’s obligation to indemnification, or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, trustee, partner. managing member. fiduciary, employee or agent of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such Enterprise.

15. Duration of Agreement. This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a director or officer of the Company or as a director, officer, trustee, partner, managing, member, fiduciary, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which Indemnitee served at the request of the Company, or (b) one (1) year after the final termination of any Proceeding (including any rights of appeal thereto) then pending in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 13 of this Agreement relating thereto (including any rights of appeal of any Section 13 Proceeding).

16. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law, (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto, and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

17. Enforcement and Binding Effect.

(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director or officer of the Company.

(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.

(c) The indemnification and advancement of expenses provided by, or granted pursuant to this Agreement shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

18. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.

19. Notice by Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding, or matter which may be subject to indemnification or advancement of Expenses covered hereunder. The failure of Indemnitee to so notify, the Company shall not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement or otherwise.

20. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duty given (a) if delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (b) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:

(a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide in writing to the Company.

(b) If to the Company to:

Carriage Services, Inc.

1900 St. James Place - 4th Floor

Houston, Texas 77056

Attn: President

or to any other address as may have been furnished to Indemnitee in writing by the Company.

21. Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company

and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).

22. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 10(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) irrevocably appoint, to the extent such party is not a resident of the State of Delaware, The Corporation Trust Company as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding, against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

23. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

24. Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof

IN WITNESS WHEREOF, the parties have entered into this Agreement on the dates set forth below their signatures but made effective for all purposes as of the day and year first above written.

CARRIAGE SERVICES, INC.			INDEMNITEE


By:	/s/ Melvin C. Payne		/s/ Joe R. Davis
	Melvin C. Payne,		Joe R. Davis
	Chief Executive Officer		Address:		5858 Westheimer, Suite 200
					Houston, Texas 77057

Date:		August 13, 2003	Date	August 13, 2003

Exhibit 10.2

INDEMNITY AGREEMENT

This Indemnity Agreement (“Agreement”) is made effective as of the 13th day of May, 2003 by and between Carriage Services, Inc., a Delaware corporation (the “Company”), and Joseph Saporito (“Indemnitee”).

RECITALS

WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons.

WHEREAS, the Board has determined that the Company should act to assure such persons that there will be increased certainty of such protection in the future.

WHEREAS. this Agreement is a supplement to and in furtherance of the Bylaws and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

2. Definitions. As used in this Agreement:

(a) A “Change in Control” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:

(b) Certain Definitions. For purposes of this Agreement, the following terms shall have the following meanings:

(i) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(v) “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

7. Additional Indemnification.

(b) Notwithstanding any limitation in Sections 3, 4, 5 or 7(a), the Company shall indemnify Indemnitee to the fullest extent permitted by law if Indemnitee is a party to or threatened

(c) For purposes of Sections 7(a) and 7(b), the meaning, of the phrase “to the fullest extent permitted by law” shall include, but not be limited to:

8. Exclusions. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

9. Advances of Expenses; Defense of Claim.

(b) The Company will be entitled to participate in the Proceeding at its own expense.

10. Procedure for Notification and Application for Indemnification.

11. Procedure Upon Application for Indemnification.

indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

12. Presumptions and Effect of Certain Proceedings.

13. Remedies of Indemnitee.

(a) In the event that (i) a determination is made pursuant to Section 11 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement

(e) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 13 that the procedures and presumptions of this

Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.

14. Non-exclusivity; Survival of Rights, Insurance; Subrogation.

17. Enforcement and Binding Effect.

(a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide in writing to the Company.

(b) If to the Company to:

Carriage Services, Inc.

1900 St. James Place - 4th Floor

Houston, Texas 77056

Attn: President

or to any other address as may have been furnished to Indemnitee in writing by the Company.

IN WITNESS WHEREOF, the parties have entered into this Agreement on the dates set forth below their signatures but made effective for all purposes as of the day and year first above written.

CARRIAGE SERVICES, INC.			INDEMNITEE


By:	/s/ Melvin C. Payne		/s / Joseph Saporito
	Melvin C. Payne,		Joseph Saporito
	Chief Executive Officer		Address:		P. O. Box 27591
					Houston, Texas 77227-7591

Date:		August 13, 2003	Date	August 13, 2003

Exhibit 10.3

INDEMNITY AGREEMENT

This Indemnity Agreement (“Agreement”) is made effective as of the 13th day of May, 2003 by and between Carriage Services, Inc., a Delaware corporation (the “Company”), and James J. Benard (“Indemnitee”).

RECITALS

WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons.

WHEREAS, the Board has determined that the Company should act to assure such persons that there will be increased certainty of such protection in the future.

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

2. Definitions. As used in this Agreement:

(a) A “Change in Control” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:

(b) Certain Definitions. For purposes of this Agreement, the following terms shall have the following meanings:

(i) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(v) “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

7. Additional Indemnification.

(b) Notwithstanding any limitation in Sections 3, 4, 5 or 7(a), the Company shall indemnify Indemnitee to the fullest extent permitted by law if Indemnitee is a party to or threatened

(c) For purposes of Sections 7(a) and 7(b), the meaning, of the phrase “to the fullest extent permitted by law” shall include, but not be limited to:

8. Exclusions. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

9. Advances of Expenses; Defense of Claim.

(b) The Company will be entitled to participate in the Proceeding at its own expense.

10. Procedure for Notification and Application for Indemnification.

11. Procedure Upon Application for Indemnification.

indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

12. Presumptions and Effect of Certain Proceedings.

13. Remedies of Indemnitee.

(a) In the event that (i) a determination is made pursuant to Section 11 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement

(e) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 13 that the procedures and presumptions of this

Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.

14. Non-exclusivity; Survival of Rights, Insurance; Subrogation.

17. Enforcement and Binding Effect.

(a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide in writing to the Company.

(b) If to the Company to:

Carriage Services, Inc.

1900 St. James Place - 4th Floor

Houston, Texas 77056

Attn: President

or to any other address as may have been furnished to Indemnitee in writing by the Company.

IN WITNESS WHEREOF, the parties have entered into this Agreement on the dates set forth below their signatures but made effective for all purposes as of the day and year first above written.

CARRIAGE SERVICES, INC.			INDEMNITEE


By:	/s/ Melvin C. Payne		/s/ James J. Benard
	Melvin C. Payne,		James J. Benard
	Chief Executive Officer		Address:		4 Camden Court
					Sugar Land, Texas 77479

Date:		August 13, 2003	Date	August 13, 2003

Exhibit 10.4

INDEMNITY AGREEMENT

This Indemnity Agreement (“Agreement”) is made effective as of the 13th day of May, 2003 by and between Carriage Services, Inc., a Delaware corporation (the “Company”), and Mark Groeneman (“Indemnitee”).

RECITALS

WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons.

WHEREAS, the Board has determined that the Company should act to assure such persons that there will be increased certainty of such protection in the future.

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

2. Definitions. As used in this Agreement:

(a) A “Change in Control” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:

(b) Certain Definitions. For purposes of this Agreement, the following terms shall have the following meanings:

(i) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(v) “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

7. Additional Indemnification.

(b) Notwithstanding any limitation in Sections 3, 4, 5 or 7(a), the Company shall indemnify Indemnitee to the fullest extent permitted by law if Indemnitee is a party to or threatened

(c) For purposes of Sections 7(a) and 7(b), the meaning, of the phrase “to the fullest extent permitted by law” shall include, but not be limited to:

8. Exclusions. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

9. Advances of Expenses; Defense of Claim.

(b) The Company will be entitled to participate in the Proceeding at its own expense.

10. Procedure for Notification and Application for Indemnification.

11. Procedure Upon Application for Indemnification.

indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

12. Presumptions and Effect of Certain Proceedings.

13. Remedies of Indemnitee.

(a) In the event that (i) a determination is made pursuant to Section 11 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement

(e) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 13 that the procedures and presumptions of this

Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.

14. Non-exclusivity; Survival of Rights, Insurance; Subrogation.

17. Enforcement and Binding Effect.

(a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide in writing to the Company.

(b) If to the Company to:

Carriage Services, Inc.

1900 St. James Place - 4th Floor

Houston, Texas 77056

Attn: President

or to any other address as may have been furnished to Indemnitee in writing by the Company.

IN WITNESS WHEREOF, the parties have entered into this Agreement on the dates set forth below their signatures but made effective for all purposes as of the day and year first above written.

CARRIAGE SERVICES, INC.			INDEMNITEE


By:	/s/ Melvin C. Payne		/s/ Mark Groeneman
	Melvin C. Payne,		Mark Groeneman
	Chief Executive Officer		Address:		3906 Valley Green Ct
					Houston, Texas 77059

Date:		August 13, 2003	Date	August 13, 2003

Exhibit 10.5

INDEMNITY AGREEMENT

This Indemnity Agreement (“Agreement”) is made effective as of the 13th day of May, 2003 by and between Carriage Services, Inc., a Delaware corporation (the “Company”), and George J. Klug (“Indemnitee”).

RECITALS

WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons.

WHEREAS, the Board has determined that the Company should act to assure such persons that there will be increased certainty of such protection in the future.

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

2. Definitions. As used in this Agreement:

(a) A “Change in Control” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:

(b) Certain Definitions. For purposes of this Agreement, the following terms shall have the following meanings:

(i) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(v) “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

7. Additional Indemnification.

(b) Notwithstanding any limitation in Sections 3, 4, 5 or 7(a), the Company shall indemnify Indemnitee to the fullest extent permitted by law if Indemnitee is a party to or threatened

(c) For purposes of Sections 7(a) and 7(b), the meaning, of the phrase “to the fullest extent permitted by law” shall include, but not be limited to:

8. Exclusions. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

9. Advances of Expenses; Defense of Claim.

(b) The Company will be entitled to participate in the Proceeding at its own expense.

10. Procedure for Notification and Application for Indemnification.

11. Procedure Upon Application for Indemnification.

indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

12. Presumptions and Effect of Certain Proceedings.

13. Remedies of Indemnitee.

(a) In the event that (i) a determination is made pursuant to Section 11 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement

(e) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 13 that the procedures and presumptions of this

Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.

14. Non-exclusivity; Survival of Rights, Insurance; Subrogation.

17. Enforcement and Binding Effect.

(a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide in writing to the Company.

(b) If to the Company to:

Carriage Services, Inc.

1900 St. James Place - 4th Floor

Houston, Texas 77056

Attn: President

or to any other address as may have been furnished to Indemnitee in writing by the Company.

IN WITNESS WHEREOF, the parties have entered into this Agreement on the dates set forth below their signatures but made effective for all purposes as of the day and year first above written.

CARRIAGE SERVICES, INC.			INDEMNITEE


By:	/s/ Melvin C. Payne		/s/ George J. Klug
	Melvin C. Payne,		George J. Klug
	Chief Executive Officer		Address:		5918 Spring Lodge
					Kingwood, Texas 77345

Date:		August 13, 2003	Date	August 13, 2003

EXHIBIT 11.1

CARRIAGE SERVICES, INC.

COMPUTATION OF PER SHARE EARNINGS

(unaudited and in thousands, except per share data)

Earnings per share for the three and six month periods ended June 30, 2002 and 2003 is calculated based on the weighted average number of common and common equivalent shares outstanding during the period as prescribed by SFAS 128. The following table sets forth the computation of the basic and diluted earnings per share for the three and six month periods ended June 30, 2002 and 2003:

	Three months ended June 30,				Six months ended June 30,
	2002		2003		2002		2003
Net income available to common stockholders for basic EPS computation	$	1,477	$	2,296	$	18,037	$	4,352
Effect of dilutive securities	—		—		—		—
Net income available to common stockholders for diluted EPS computation	$	1,477	$	2,296	$	18,037	$	4,352

Weighted average number of common shares outstanding for basic EPS computation	16,942		17,411		16,918		17,365
Effect of dilutive securities:
Stock options	516		377		540		375
Weighted average number of common and common equivalent shares outstanding for diluted EPS computation	17,458		17,788		17,458		17,740

Basic earnings per common share	$	.09	$	.13	$	1.07	$	0.25

Diluted earnings per common share	$	.08	$	.13	$	1.03	$	0.25

EXHIBIT 31.1

I, Melvin C. Payne, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Carriage Services Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Dated:	August 13, 2003	/s/ Melvin C. Payne
		Melvin C. Payne
		Chairman of the Board, President and Chief Executive Officer

EXHIBIT 31.2

I, Joseph Saporito, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Carriage Services Inc.;

a. designed such disclosure controls and procedures, or caused such controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is prepared;

b. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Dated:	August 13, 2003	/s/ Joseph Saporito
		Joseph Saporito
		Senior Vice President and Chief Financial Officer

EXHIBIT 32.1

I, Melvin C. Payne, certify, to the best of my knowledge, that: the attached Quarterly Report on Form 10-Q of Carriage Services, Inc. for the period June 30, 2003 (“Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Carriage Services, Inc.

August 13, 2003

			/s/ Melvin C. Payne
			Melvin C. Payne
			Chairman of the Board, President and Chief Executive Officer

EXHIBIT 32.2

I, Joseph Saporito, certify, to the best of my knowledge, that: the attached Quarterly Report on Form 10-Q of Carriage Services, Inc. for the period ended June 30, 2003 (“Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Carriage Services, Inc.

August 13, 2003

			/s/ Joseph Saporito
			Joseph Saporito
			Senior Vice President and Chief Financial Officer