Document:

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EXHIBIT 10.12

                      JOINT VENTURE OPERATING AGREEMENT OF

                                 DAL ITALIA LLC

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                                TABLE OF CONTENTS
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                                                                                                           Page No.
<S>      <C>      <C>                                                                                      <C>
                                    ARTICLE 1
                                   DEFINITIONS
Section  1.1      Definitions.....................................................................................1

                                    ARTICLE 2
                      ORGANIZATIONAL MATTERS; PURPOSE; TERM
Section  2.1      Formation of Company............................................................................4
Section  2.2      Name............................................................................................4
Section  2.3      Registered Office; Registered Agent; Principal Office...........................................4
Section  2.4      Foreign Qualification...........................................................................4
Section  2.5      Purpose and Scope...............................................................................4
Section  2.6      Term............................................................................................4
Section  2.7      No State Law Partnership........................................................................4
Section  2.8      Representations, Warranties and Covenants of Ceramica Member....................................4
Section  2.9      Representations, Warranties and Covenants of Dal-Tile Member....................................5

                                    ARTICLE 3
                      MEMBERSHIP; DISPOSITIONS OF INTERESTS
Section  3.1      Members.........................................................................................5
Section  3.2      Restriction on Membership Interest Transfer.....................................................5
Section  3.3      Creation of Additional Membership Interests.....................................................6
Section  3.4      Resignation.....................................................................................6
Section  3.5      Information.....................................................................................6
Section  3.6      Liability to Third Parties......................................................................6

                                    ARTICLE 4
                              MANAGEMENT OF COMPANY
Section  4.1      Management......................................................................................6
Section  4.2      Board of Directors..............................................................................8
Section  4.3      Meetings........................................................................................8
Section  4.4      Authority of Board of Directors.................................................................8
Section  4.5      Business Plans; Operating Budgets...............................................................8
Section  4.6      Meetings of Members.............................................................................8
Section  4.7      Officers........................................................................................9
Section  4.8      Compensation....................................................................................9
Section  4.9      Production Committee............................................................................9
Section  4.10     Transactions with Affiliates....................................................................9
Section  4.11     Indemnification; Reimbursement of Expenses; Insurance...........................................9

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Section  4.12     Conflicts of Interest..........................................................................10
Section  4.13     Selling and Operations.........................................................................10
Section  4.14     Brands.........................................................................................10
Section  4.15     Intellectual Property..........................................................................10

                                    ARTICLE 5
                        FINANCIAL AFFAIRS AND ACCOUNTING
Section  5.1      Records and Accounting.........................................................................11
Section  5.2      Accounting Period..............................................................................11
Section  5.3      Financial Statements and Audits................................................................11
Section  5.4      Accounting Principles..........................................................................11

                                    ARTICLE 6
                              CAPITAL CONTRIBUTIONS
Section  6.1      Initial Capital Contributions..................................................................11
Section  6.2      Additional Capital Contributions...............................................................12
Section  6.3      Return of Contributions........................................................................13

                                    ARTICLE 7
                                  DISTRIBUTIONS
Section  7.1      Distributions in General.......................................................................13
Section  7.2      Tax Distributions..............................................................................13

                                    ARTICLE 8
                 CAPITAL ACCOUNTS, ALLOCATIONS, AND TAX MATTERS
Section  8.1      Definitions....................................................................................14
Section  8.2      Capital Accounts...............................................................................15
Section  8.3      Adjustment of Gross Asset Value................................................................16
Section  8.4      Profits, Losses and Distributive Shares of Tax Items...........................................17
Section  8.5      Tax Returns....................................................................................19
Section  8.6      Tax Elections..................................................................................19
Section  8.7      Tax Matters Member.............................................................................20
Section  8.8      Allocations on Transfer of Interests...........................................................20

                                    ARTICLE 9
              WITHDRAWAL, DISSOLUTION, LIQUIDATION, AND TERMINATION
Section  9.1      Dissolution, Liquidation, and Termination Generally............................................20
Section  9.2      Liquidation and Termination....................................................................21
Section  9.3      Deficit Capital Accounts.......................................................................22
Section  9.4      Cancellation of Certificate....................................................................22

                                   ARTICLE 10
                            MISCELLANEOUS PROVISIONS
Section  10.1     Notices........................................................................................22
Section  10.2     Governing Law..................................................................................22
Section  10.3     Entireties; Amendments.........................................................................23

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Section  10.4     Waiver.........................................................................................23
Section  10.5     Severability...................................................................................23
Section  10.6     Ownership of Property and Right of Partition...................................................23
Section  10.7     Captions, References...........................................................................23
Section  10.8     Involvement of Members in Certain Proceedings..................................................23
Section  10.9     Interest.......................................................................................23

                                   ARTICLE 11
                                 PUT/CALL OPTION
Section  11.1     Put Options....................................................................................24
Section  11.2     Call Option....................................................................................24
Section  11.3     Closing........................................................................................24

                                   ARTICLE 12
                    TRANSFER OF INTERESTS; OFFER OF INTERESTS
Section  12.1     Transfer of Interests..........................................................................24
Section  12.2     Right of First Refusal.........................................................................24
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                              LIST OF DEFINED TERMS
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                                                                                                                   Page No.
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<S>                                                                                                                <C>
Act................................................................................................................   1
Additional Capital Contributions...................................................................................   12
Adjusted Capital Account...........................................................................................   14
Adjusted Capital Account Deficit...................................................................................   14
Affiliated Company.................................................................................................   1
Bankruptcy.........................................................................................................   1
Board of Directors.................................................................................................   1
Business Day.......................................................................................................   2
Call Option Notice.................................................................................................   24
Capital Account....................................................................................................   15
Capital Contribution...............................................................................................   2
Ceramica Member....................................................................................................   1
Ceramica Membership Sale Price.....................................................................................   24
Certificate........................................................................................................   4
Code...............................................................................................................   14
Company............................................................................................................   2
Dal-Tile...........................................................................................................   2
Dal-Tile Member....................................................................................................   1
Default Contribution...............................................................................................   12
Depreciation.......................................................................................................   14
Distribution Agreement.............................................................................................   2
Effective Date.....................................................................................................   1
Emilceramica.......................................................................................................   2
Gross Asset Value..................................................................................................   16
Initial Phase......................................................................................................   2
Initiating Member..................................................................................................   24
Interest Income or Expense.........................................................................................   2
Key Senior Officers................................................................................................   2
Losses.............................................................................................................   14
Major Decisions....................................................................................................   7
Manager............................................................................................................   2
Market Value.......................................................................................................   2
Members............................................................................................................   2
Membership Interests...............................................................................................   3
Net Book Value.....................................................................................................   3
Non-Contributing Member............................................................................................   12
Non-Initiating Member..............................................................................................   24
Offer..............................................................................................................   24
Officers...........................................................................................................   9
Operating Budget...................................................................................................   3
Partner Nonrecourse Debt...........................................................................................   14

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Partner Nonrecourse Debt Minimum Gain..............................................................................   14
Partner Nonrecourse Deductions.....................................................................................   14
Partnership Minimum Gain...........................................................................................   14
Person.............................................................................................................   3
Proceeding.........................................................................................................   9
Product............................................................................................................   3
Production Committee...............................................................................................   9
Production Facility................................................................................................   3
Profits............................................................................................................   14
Put Option Notice..................................................................................................   24
Regulations........................................................................................................   15
Regulatory Allocations.............................................................................................   18
Related Agreements.................................................................................................   3
Response Period....................................................................................................   25
Sale Notice........................................................................................................   24
Sharing Ratios.....................................................................................................   3
Supply Agreement...................................................................................................   3
Territory..........................................................................................................   3
Window Period......................................................................................................   24
</TABLE>

                                        v
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                      JOINT VENTURE OPERATING AGREEMENT OF
                                 DAL ITALIA LLC

         This Joint Venture Operating Agreement is entered into as of
September 14, 2000 (the "EFFECTIVE DATE"), between DAL-TILE I LLC, a Delaware
limited liability company, as a Member and the initial Manager (the "DAL-TILE
MEMBER"), and EMILAMERICA, INC., a Delaware corporation, as a Member (the
"CERAMICA MEMBER").

                                    ARTICLE 1
                                   DEFINITIONS

         Section 1.1 DEFINITIONS. As used in this Agreement, the following
terms shall have the following meanings:

                  "ACT" means the Delaware Limited Liability Company Act, as
it may be amended from time to time.

                  "AFFILIATED COMPANY" means any existing company,
corporation, partnership or other legal entity, or one which may come into
existence in the future, which is controlled by or under common control with
one of the Members. For this purpose "control" means direct or indirect
beneficial ownership of more than fifty percent (50%) of the voting stock.

                  "AGREEMENT" means this Joint Venture Operating Agreement,
including its attachments, documents referred to herein and all modifications
and alterations thereof if made in writing and duly signed or initialed by
authorized officers of the Members.

                  "BANKRUPTCY" means, with respect to a Person, the occurrence
of (1) an assignment by the Person for the benefit of creditors; (2) the
filing by the Person of a voluntary petition in bankruptcy; (3) the entry of a
judgment by any court that the Person is bankrupt or insolvent, or the entry
against the Person of an order for relief in any bankruptcy or insolvency
proceeding; (4) the filing of a petition or answer by the Person seeking for
itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law or
regulation; (5) the filing by the Person of an answer or other pleading
admitting or failing to contest the material allegations of a petition filed
against it in any proceeding for reorganization or of a similar nature; (6)
the consent or acquiescence of the Person to the appointment of a trustee,
receiver or liquidator of the Person or of all or any substantial part of its
properties; or (7) any other event that would cause the Person to cease to be
a member of a limited liability company under Section 18-304 of the Act.

                  "BOARD OF DIRECTORS" means the group of persons to be
appointed by the Members, whose functions are further specified in Article 4
of this Agreement.

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                  "BUSINESS DAY" means any day other than Saturday, Sunday, or
other day on which commercial banks in New York are authorized or required to
close under the laws of the State of New York.

                  "CAPITAL CONTRIBUTION" means, with respect to each Member,
the amount of cash and the initial Gross Asset Value of any property (net of
liabilities assumed by Company resulting from such contribution and
liabilities to which the property is subject) contributed to Company by that
Member.

                  "COMPANY" means Dal Italia LLC, a Delaware limited liability
company.

                  "DAL-TILE" means Dal-Tile Corporation, a Pennsylvania
corporation.

                  "DAL-TILE INTERNATIONAL" means Dal-Tile International Inc.,
a Delaware corporation, and its consolidated subsidiaries.

                  "DISTRIBUTION AGREEMENT" means the Distribution Agreement of
even date herewith between Company and Dal-Tile International.

                  "EMILCERAMICA" means Emilceramica S.p.A., an Italian
corporation.

                  "INITIAL PHASE" means the initial construction and operation
of the Production Facility for a capacity of at least 48,000,000 square feet
of Product from at least two kilns.

                  "INTEREST INCOME OR EXPENSE" means, for Interest Income,
interest accruing on cash held by the Company, and, for Interest Expense,
interest accruing on debt owed by the Company. Interest income or expense will
accrue to Company at the end of each month.

                  "KEY SENIOR OFFICERS" means those officers of Company who
are from time to time designated as "key senior officers" by the Board of
Directors.

                  "MANAGER" means the initial Manager and each Person
hereafter designated as a Manager in accordance with this Agreement, until
such Person ceases to be a Manager of Company.

                  "MARKET VALUE" means the fair market value of Company to be
established by an investment banking or consulting firm of national reputation
selected by Ceramica Member from a list of at least three firms proposed by
Dal-Tile Member, applying customary business appraisal practices, and assuming
for valuation purposes the Company's ownership of brands and intellectual
property notwithstanding Dal-Tile's continuing ownership of brands and
intellectual property under Sections 4.14 and 4.15.

                  "MEMBERS" means the Dal-Tile Member, Ceramica Member, and
each Person hereafter admitted as a Member in accordance with this Agreement,
until such Person ceases to be a Member of Company.

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                  "MEMBERSHIP INTERESTS" means all of the rights and interests
of whatsoever nature of the Members in Company, including without limitation
the right to participate in management to the extent herein expressly
provided, to receive distributions of funds, and to receive allocations of
income, gain, loss, deduction, and credit.

                  "NET BOOK VALUE" means the value of the Members' equity, as
shown on the most recent quarterly financial statement of Company.

                  "OPERATING BUDGET" means the annual budget, prepared by the
Manager and approved in writing by the Members, and setting forth the
estimated capital and operating expenses of Company for the then current or
immediately succeeding calendar year and for each month and each calendar
quarter of such calendar year, in such detail as the Members shall require.

                  "PERSON" means an individual or entity.

                  "PRODUCT" means tile of first quality, as manufactured by
Emilceramica and made available to Company under the Supply Agreement, or as
manufactured at the Production Facility.

                  "PRODUCTION FACILITY" shall mean a manufacturing plant
constructed by Company in the Territory for the manufacture of Product, which
in its Initial Phase will have the capacity to produce at least 48,000,000
square feet of Product each year from two or more operating kilns and at its
completion will have the capacity to produce at least 120,000,000 square feet
of Product each year from six or more operating kilns.

                  "RELATED AGREEMENTS" means the Distribution Agreement, the
Supply Agreement and all other present and future agreements referred to
herein and all agreements contemplated thereby.

                  "SHARING RATIOS" means the percentages in which the Members
participate in, and bear, certain Company items. The initial Sharing Ratios of
the Members are as follows:

                                            Ceramica Member   20%
                                            Dal-Tile Member   80%

After the Members have elected to construct the Production Facility and
Ceramica Member has increased its Capital Contribution to the Company under
Section 6.1, the Sharing Ratios, subject to adjustment under Section 6.2, of
the Members shall be as follows:

                                            Ceramica Member   33%
                                            Dal-Tile Member   67%

                  "SUPPLY AGREEMENT" means the Supply Agreement of even date
herewith between Company and Emilceramica S.p.A. relating to the furnishing of
Product to Company.

                  "TERRITORY" means the United States (including its
territories), Canada and Mexico.

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                                    ARTICLE 2
                      ORGANIZATIONAL MATTERS; PURPOSE; TERM

         Section 2.1 FORMATION OF COMPANY. Company has been organized as a
Delaware limited liability company by filing a certificate of formation (the
"CERTIFICATE") under the Act.

         Section 2.2 NAME. The name of Company shall be Dal Italia LLC and all
Company business must be conducted in that name or such other name as the
Manager and the Board of Directors approve.

         Section 2.3 REGISTERED OFFICE; REGISTERED AGENT; PRINCIPAL OFFICE.
The registered office and the registered agent of Company in the State of
Delaware shall be as specified in the Certificate or as designated by the
Manager with the Board of Directors' approval. The principal office of Company
shall be at 7834 C.F. Hawn Freeway, P.O. Box 170130, Dallas, Texas 75217, or
at such other location as the Manager and the Board of Directors approve.

         Section 2.4 FOREIGN QUALIFICATION. Before Company conducts business
in any jurisdiction other than Delaware, the Manager shall cause Company to
comply with all requirements necessary to qualify Company as a foreign limited
liability company in that jurisdiction. At the request of the Manager, each
Member shall execute, acknowledge, swear to, and deliver all certificates and
other instruments conforming with this Agreement that are necessary or
appropriate to qualify, continue, or terminate Company as a foreign limited
liability company in all jurisdictions in which Company may conduct business.

         Section 2.5 PURPOSE AND SCOPE. The purposes and scope of Company's
activities are strictly limited to the import, marketing, sale and manufacture
of Product and performing all other activities reasonably necessary or
incidental to the furtherance of such purposes.

         Section 2.6 TERM. Company shall commence on the effective date of the
Certificate and shall have perpetual existence, unless sooner dissolved as
herein provided.

         Section 2.7 NO STATE LAW PARTNERSHIP. Company shall not be a
partnership or joint venture under any state or federal law, and no Member or
Manager shall be a partner or joint venturer of any other Member or Manager
for any purposes, other than under the Code and other applicable tax laws, and
this Agreement may not be construed otherwise.

         Section 2.8 REPRESENTATIONS, WARRANTIES AND COVENANTS OF CERAMICA
MEMBER. In order to induce Dal-Tile Member to enter into this Agreement and
perform hereunder, and without limiting any other representation, covenant or
warranty contained herein or in any Related Agreement, Ceramica Member makes
the following representations, covenants and warranties to Dal-Tile Member:

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                  (a) Ceramica Member is duly organized, validly existing and
in good standing under the laws of the State of Delaware and each other
jurisdiction in which it is doing business and is authorized to enter into
this Agreement and perform its obligations hereunder.

                  (b) Ceramica Member will have the financial ability to make
Additional Capital Contributions which are necessary for the construction and,
as necessary, the expansion of the Production Facility upon request of the
Board of Directors.

         Section 2.9 REPRESENTATIONS, WARRANTIES AND COVENANTS OF DAL-TILE
MEMBER. In order to induce Ceramica Member to enter into this Agreement and
perform hereunder, and without limiting any other representation, covenant or
warranty contained herein or in any Related Agreement, Dal-Tile Member makes
the following representations, covenants and warranties to Ceramica Member:

                  (a) Dal-Tile Member is duly organized, validly existing and
in good standing under the laws of the State of Delaware and each other
jurisdiction in which it is doing business and is authorized to enter into
this Agreement and perform its obligations hereunder.

                  (b) Dal-Tile Member will have the financial ability to make
Additional Capital Contributions which are necessary for the construction and,
as necessary, the expansion of the Production Facility upon request of the
Board of Directors.

                                    ARTICLE 3
                      MEMBERSHIP; DISPOSITIONS OF INTERESTS

         Section 3.1 MEMBERS. The initial Members of Company are the Dal-Tile
Member and the Ceramica Member, each of which is admitted to Company as a
Member as of the date hereof.

         Section  3.2 RESTRICTION ON MEMBERSHIP INTEREST TRANSFER.

                  (a) Except as provided in Section 3.2(b), Article 11, or
Article 12 neither Member shall sell, mortgage, hypothecate, transfer, assign,
pledge, create a security interest in or lien on, give, place in a voting or
any other type of trust, or otherwise dispose of or encumber its Membership
Interest. Any transfer, sale, assignment, pledge, or other disposition or
encumbrance of Membership Interests by either Member not made pursuant to this
Article 3 shall be null, void, inefficacious, and not recorded on the books of
Company.

                  (b) If either Emilceramica or Dal-Tile shall merge with,
consolidate with, or be acquired by any other entity, the direct or indirect
transfer of ownership of each Member's Membership Interest to the surviving
entity shall be permitted hereunder. Dal-Tile Member may transfer all, but not
less than all, of its Membership Interest to one of its Affiliated Companies
in connection with an assignment of its rights and obligations hereunder to
such Affiliated Company. In the event of such assignment, Dal-Tile Member will
inform Ceramica Member thereof without delay. Likewise, Ceramica Member may
transfer all, but not less than all, of its Membership Interest to one of its
Affiliated Companies in connection with an assignment of its rights and
obligations

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hereunder to such Affiliated Company. In the event of such assignment,
Ceramica Member will inform Dal-Tile Member thereof without delay.

         Section 3.3 CREATION OF ADDITIONAL MEMBERSHIP INTERESTS. Additional
Membership Interests may be created and issued to existing Members or to other
Persons, and such other Persons may be admitted to Company as Members, with
the approval of the Manager and the Members, on such terms and conditions as
the Manager and the Members may determine at the time of admission. Upon
approval of the Members, the Manager may reflect the admission of any new
Members or the creation of any new class or group of Member in an amendment to
this Agreement which shall be valid if executed only by the Manager.

         Section 3.4 RESIGNATION. Except as otherwise provided herein, a
Member may not resign or withdraw from Company without the consent of the
other Members.

         Section 3.5 INFORMATION. In addition to the other rights specifically
set forth in this Agreement, each Member is entitled to the following
information under the circumstances and conditions set forth in the Act: (a)
true and full information regarding the status of the business and financial
condition of Company; (b) promptly after becoming available, a copy of
Company's federal, state and local income tax returns for each year; (c) a
current list of the name and last known business, residence or mailing address
of each Member and Manager; (d) a copy of this Agreement, Company's
certificate of formation, and all amendments to such documents; (e) true and
full information regarding the amount of cash and a description and statement
of the agreed value of any other property or services contributed by each
Member and which each Member has agreed to contribute in the future, and the
date on which each became a Member; and (f) other information regarding the
affairs of Company to which that Member is entitled pursuant to Section 18-305
of the Act (including all Company books and records).

         Section 3.6 LIABILITY TO THIRD PARTIES. No Member shall be liable for
the debts, obligations or liabilities of Company.

                                    ARTICLE 4
                              MANAGEMENT OF COMPANY

         Section  4.1 MANAGEMENT.

                  (a) The daily management of the activities of Company shall
be organized and conducted by the Manager, who shall be responsible for the
implementation of the decisions adopted by the Board of Directors, as well as
for the organization of the day-to-day management affairs of Company. Through
Dal-Tile, Dal-Tile Member will provide for Company's administration and
operations, including provision for human resources, finance and accounting.
With due regard to its function, rights and tasks as set out in this
Agreement, the Manager shall carry out the policy decisions of the Board of
Directors and shall also have the right and power to appoint and dismiss its
subordinates, other than the Key Senior Officers. The Manager shall also
exercise all other rights and responsibilities authorized by the Board of
Directors. The Manager and the directors and officers of the Company shall
serve in such capacities without compensation by the Company;

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however, a director or officer of the Company may receive compensation under
Section 4.8 in connection with the Production Facility.

                  (b) No action shall be taken, sum expended, or obligation
incurred by the Manager or Company regarding the matters described below (the
"MAJOR DECISIONS") unless it has been approved by both Members:

                           (1)      amendment of this Agreement;

                           (2)      increase or reduction of the Membership
          Interests of, or issuance of bonds or debentures by Company, except as
          otherwise provided herein;

                           (3)      transfer or disposal of all or a substantial
          portion of the assets or business, or any major capital asset, of
          Company;

                           (4)      acquisition, joint venture, merger or
          consolidation of Company with another company;

                           (5)      dissolution or liquidation of Company,
          except as otherwise provided herein;

                           (6)      construction of the Production Facility; and

                           (7)      expansion of the Production Facility above
          its completed capacity of at least 120,000,000 square feet of Product
          per year from six or more kilns or construction of any additional
          manufacturing plant.

                  (c) The Manager shall discharge its duties in a good and
proper manner as provided for in this Agreement. The Manager, on behalf of
Company, shall in good faith use all reasonable efforts to implement all Major
Decisions approved by the Members, enforce agreements entered into by Company,
and conduct the ordinary business and affairs of Company in accordance with
good industry practice and this Agreement. The Manager shall not be required
to devote a particular amount of time to Company's business, but shall devote
sufficient time to perform its duties hereunder.

                  (d) On or before July 1, 2001 the Members shall elect
whether to construct the Production Facility, in which event, construction of
the Production Facility must commence before December 31, 2001. Company shall
pay costs to construct the Initial Phase of the Production Facility only out
of cash available to Company and Additional Capital Contributions by the
Members to Company under Section 6.2. The Production Facility shall be
expanded progressively as additional production capacity is required until the
Production Facility reaches its completed capacity. Dal-Tile and Emilceramica
will cooperate in order to minimize negative impacts on production at
Emilceramica's existing plants, while maintaining the most efficient
production schedules at the Production Facility. If the Production Facility
has production capacity in excess of the requirements of the Company, the
Company may upon mutual agreement of its Members regarding conditions and
pricing, make such excess capacity available to third parties or affiliates

                                        7
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of Dal-Tile and/or Emilceramica. If the Members do not elect by mutual
agreement before July 1, 2001 to construct the Production Facility (including
the agreement to develop the Production Facility to its completed capacity),
either Member may by notice to the other Member, elect to terminate and
dissolve Company. If the Members do elect to construct the Production
Facility, then each Member shall provide such assistance as Company may
require regarding the design, site selection, planning and construction of the
Production Facility. Ceramica Member shall provide necessary technical
assistance as specified in SCHEDULE 4.1(d).

         Section 4.2 BOARD OF DIRECTORS. Before the agreement in writing by
the Members to construct the Production Facility, Company shall have a Board
of Directors initially consisting of five Directors, four to be designated by
the Dal-Tile Member, and one to be designated by Ceramica Member. After
agreement in writing by the Members to construct the Production Facility,
Company shall have a Board of Directors consisting of six Directors, four to
be designated by Dal-Tile Member and two to be designated by Ceramica Member.
A Dal-Tile Member-designated Director shall serve as Chairman of the Board of
Directors. Each of the Members shall vote its Membership Interests for the
designees of the Member. No increase or decrease in the number of Directors
shall be made which results in a variance from the proportionate
representation of each of the Members, nor shall any change in such number be
made except with the mutual consent of the Members or in accordance with this
Agreement. In the event that a vacancy shall develop in the Board of Directors
by virtue of the death, resignation or other removal of a Director prior to
the end of his term, the Member which designates such Director shall designate
a new Director to fill the vacancy.

         Section 4.3 MEETINGS. Meetings of the Board of Directors shall be
held at such times and places as the Directors may deem advisable, but in no
event less than twice per year. Action may be taken by the Directors by
written consent, by telephone conference in lieu of a meeting, or otherwise in
accordance with this Agreement.

         Section 4.4 AUTHORITY OF BOARD OF DIRECTORS. Except as otherwise
provided in this Agreement, the business affairs of Company, as administered
and implemented by Manager, shall be under the direction of the Board of
Directors in accordance with the provisions of the Act.

         Section 4.5 BUSINESS PLANS; OPERATING BUDGETS. On an annual basis,
Manager shall submit to the Members for discussion by the Members a three-year
business plan for the operation of the Company. Company shall operate under
annual Operating Budgets which shall be prepared and submitted by the Manager
to the Board of Directors for approval. After an annual Operating Budget has
been approved, the Manager shall implement it on behalf of Company and may
incur the expenditures and obligations therein provided.

         Section  4.6 MEETINGS OF MEMBERS.

                  (a) REGULAR MEETINGS. The Members shall hold annual meetings
after the Manager submits an Operating Budget to the Board of Directors for
its review, to discuss Company, and to discuss such other matters regarding
Company business as the Members may elect.

                                        8
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                  (b) SPECIAL MEETINGS. Special meetings of the Members may be
called by the Manager or by the Board of Directors at any time by delivering
prior notice thereof to the other Member to discuss such matters regarding
Company business as the Members may elect. Such notice shall be delivered at
least ten Business Days in advance for consideration of customary business
matters and at least two Business Days in advance for emergency matters.

                   (c) PROCEDURE. Each Company meeting shall be held at the
principal place of business of Company, unless the Members otherwise agree.
Attendance of a Person at a meeting shall constitute a waiver of notice of
such meeting, unless such Person attends the meeting for the purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened. A Person may vote at such meeting by written
proxy executed by that Person and delivered to a Manager or Member. A proxy
shall be revocable unless it is stated to be irrevocable. Any action required
or permitted to be taken at such meeting may be taken without a meeting,
without prior notice, and without a vote if a consent in writing, setting
forth the action so taken, is signed by the Manager and the Members that would
be necessary to take the action at a meeting at which all Members were present
and voted. Any meeting may take place by means of telephone conference, video
conference, or similar communication equipment by means of which all Persons
participating therein can hear and speak to each other.

         Section 4.7 OFFICERS. The Board of Directors may designate one or
more Persons to be officers of Company ("OFFICERS"), and any officer so
designated shall have such title, authorities, and duties as the Manager, with
the Board of Directors' approval, may delegate to them. Any Officer may be
removed as such, either with or without cause, by the Manager, with the
approval of the Board of Directors.

         Section 4.8 COMPENSATION. Except as herein otherwise specifically
provided and except for Persons designated by Company for operation of the
Production Facility, no compensatory payment shall be made by Company to any
Member or any member or employee of such Member for the services to Company.

         Section 4.9 PRODUCTION COMMITTEE. The Members shall establish and
each shall designate two (2) representatives to a Production Committee (the
"PRODUCTION COMMITTEE"), one of which shall serve as the principal
representative and the other of which shall serve as an alternate or
additional representative, to become and remain active under the authority of
the Board of Directors. The Production Committee shall conduct and deal with
all other matters concerning the feasibility, cost and timing of construction
of the proposed Production Facility, the purchasing of the required equipment,
tools, assembly and transportation means, and shall formulate an
organizational plan for Company, to be approved by the Board of Directors,
including the necessary technical assistance to be provided by Ceramica Member
as specified in SCHEDULE 4.1(d). The related costs and expenditures of the
Production Committee are to be borne by Company.

         Section 4.10 TRANSACTIONS WITH AFFILIATES. When any service or
activity to be performed on behalf of Company is performed by an Affiliate of
a Member, the fee payable for such service or activity shall not exceed the
fee which would be payable by Company to an unaffiliated third party of
comparable standing providing the same services.

                                        9
<PAGE>

         Section 4.11 INDEMNIFICATION; REIMBURSEMENT OF EXPENSES; INSURANCE.
To the fullest extent permitted by the Act: (a) Company shall indemnify from
and against any claim, loss, cause or action that Manager is or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding ("PROCEEDING"), any appeal therein, or any inquiry or investigation
preliminary thereto, solely by reason of the fact that it is or was a Manager
and was acting within scope of duties or under the authority of the Members;
(b) Company shall pay or reimburse Manager for expenses incurred by Manager
(1) in advance of the final disposition of a Proceeding to which such Manager
was, is or is threatened to be made a party, and (2) in connection with any
appearance on behalf of Manager as a witness or other participation in any
Proceeding. Company, by adoption of a resolution of the Members, may indemnify
and advance expenses to an Officer, employee or agent of Company to the same
extent and subject to the same conditions under which it may indemnify and
advance expenses to Managers under the preceding sentence. The provisions of
this Section 4.11 shall not be exclusive of any other right under any law,
provision of the Certificate or this Agreement, or otherwise. Notwithstanding
the foregoing, this indemnity shall not apply to actions constituting gross
negligence, willful misconduct or bad faith, or involving a breach of this
Agreement, but shall apply to actions constituting simple negligence. Company
may purchase and maintain insurance to protect itself and any Manager,
Officer, employee or agent of Company, whether or not Company would have the
power to indemnify such Person under this Section 4.11. This indemnification
obligation shall be limited to the assets of Company and no Member shall be
required to make a Capital Contribution in respect thereof.

         Section 4.12 CONFLICTS OF INTEREST. Subject to the other express
provisions of this Agreement and the provisions of the Supply Agreement which
are expressly incorporated into this Agreement, each Member, Manager, Officer
or Affiliate thereof may engage in and possess interests in other business
ventures of any and every type and description, independently or with others,
including ones in competition with Company, with no obligation to offer to
Company or any other Member, Manager or Officer the right to participate
therein or to account therefor. Company may transact business with any Member,
Manager, Officer or Affiliate thereof, provided the terms of those
transactions are no less favorable than those Company could obtain from
unrelated third parties.

         Section 4.13 SELLING AND OPERATIONS. The Company shall obtain Product
from Emilceramica under the Supply Agreement. The Company shall distribute and
sell Product to customers through Dal-Tile International under the
Distribution Agreement.

         Section 4.14 BRANDS. All Product shall be branded by Dal-Tile Member
at Dal-Tile Member's sole discretion using Dal-Tile current and future brand
names, including but not limited to Daltile(R), American Olean(R) and Home
Source(R). During the existence and following the dissolution of Company,
Dal-Tile will retain ownership of these brands and all new brands created
within Company.

         Section 4.15 INTELLECTUAL PROPERTY. All patents, copyrights, formulae,
blueprints and similar intellectual property related to any Designed Product or
Identified Product (as those terms are defined in the Supply Agreement), the
Production Facility or any other manufacturing plant owned or constructed by
Company shall at all times be owned exclusively by Dal-Tile, free of any claim
by Ceramica Member or Emilceramica. Following the termination of this Agreement,

                                        10
<PAGE>

(a) Dal-Tile and Dal-Tile Member shall have the right, without any fee or
additional cost, to utilize all patents, copyrights, formulae, blueprints and
similar intellectual property related to any Other Ceramic Product (as that
term is defined in the Supply Agreement) to manufacture and sell products
identical or similar to any Other Ceramic Product, and (b) Emilceramica and
Ceramica Member shall have the right, without fee or additional cost, to sell
Identified Product outside the Territory.

                                    ARTICLE 5
                        FINANCIAL AFFAIRS AND ACCOUNTING

         Section 5.1 RECORDS AND ACCOUNTING. The bookkeeping and cost
accounting of Company shall be done by or under the responsibility of Manager
in accordance with generally accepted accounting principles consistently
applied. Company shall maintain true and accurate business and accounting
records of all of its operations in accordance with the principles and
practices set forth in this Section 5.1. Each Member, or its duly authorized
representatives, shall have the right, at any time, to inspect, copy or audit
any or all of the business records and accounts of Company.

         Section 5.2 ACCOUNTING PERIOD. Each quarterly and annual accounting
period (or fiscal quarter and fiscal year) of Company shall be the same as the
quarterly and annual accounting periods utilized by Dal-Tile; provided,
however, that the first annual accounting period or fiscal year of Company
shall commence as of the date of formation of Company and end on the last day
of the then current fiscal year of Dal-Tile.

         Section 5.3 FINANCIAL STATEMENTS AND AUDITS. Manager shall provide to
Members (a) on a monthly basis, an unaudited income statement of the Company,
and (b) on a quarterly basis, a reviewed income statement reflecting profits
and losses of Company for the preceding quarter, a balance sheet of Company,
and a statement of cash flows of Company. The cost of preparing the monthly
and quarterly reports will be included in the Dal-Tile SG&A (as defined in the
Distribution Agreement). Company's financial statements shall be reviewed
quarterly and audited annually by an independent certified public accountant
determined by Dal-Tile Member, with copies of such annual audits to be
furnished to each Member within ninety (90) days of the close of each fiscal
year. Expenses for organizing Company and for the quarterly reviews and annual
audits shall be borne and paid by Company. The cost of Dal-Tile
International's annual audit shall not be included in the calculation of
Dal-Tile SG&A under the Distribution Agreement. Either Member may at any time
require an audit of the books and records of the Company, the cost of such
audit to be borne and paid by the requesting Member.

         Section 5.4 ACCOUNTING PRINCIPLES. Generally accepted accounting
principles in the United States will be applied by Company, as interpreted by
Dal-Tile Member.

                                    ARTICLE 6
                              CAPITAL CONTRIBUTIONS

         Section  6.1 INITIAL CAPITAL CONTRIBUTIONS.  Immediately after the
execution of the Related Agreements, the Members shall make the following
Capital Contributions:

                                        11
<PAGE>

                            Ceramica Member USD $200
                            Dal-Tile Member USD $800

If the Members elect to construct the Production Facility, Ceramica Member
shall increase its Capital Contribution by contributing to Company an amount
sufficient such that Ceramica Member will have increased its interest in the
Company to 33% of the Net Book Value of Company after such contribution and
without any change in the Capital Contributions of Dal-Tile Member in the
Company.

         Section 6.2 ADDITIONAL CAPITAL CONTRIBUTIONS. From time to time as
the Board of Directors determines that Company requires additional capital (i)
to construct the Production Facility, (ii) to develop the Production Facility
to its completed capacity (it being understood and agreed that the cost of the
Initial Phase shall be paid entirely out of Capital Contributions and cash
available to Company from operations), or (iii) otherwise to carry on its
business and implement any Major Decisions, the Members shall make such
required capital available to Company through additional Capital Contributions
to Company ("ADDITIONAL CAPITAL CONTRIBUTIONS") by the Members in proportion
to their respective Sharing Ratios. Additional Capital Contributions shall be
required to be paid to Company within thirty (30) days after a notice by
Manager that such Additional Capital Contributions are required. A Member's
failure to make Additional Capital Contributions shall be subject to the
following conditions:

                  (a) BEFORE THE INITIAL PHASE. If the Members have not
elected to construct and develop the Production Facility and either Member (a
"NON-CONTRIBUTING MEMBER") fails to make any Additional Capital Contribution,
then the other Member may, as its sole remedy, elect to make all or part of
the Additional Capital Contribution which the Non-Contributing Member failed
to timely make (a "DEFAULT CONTRIBUTION"), in which event the Sharing Ratios
of the Members automatically shall be adjusted to percentages equal to the
proportion of total Capital Contributions of the respective Members after the
Default Contribution, without regard to any distributions under Article 7.

                  (b) INITIAL PHASE. If the Members have elected to construct
and develop the Production Facility and either Member fails to make any
Additional Capital Contribution which the Board of Directors determines is
required for the Initial Phase, the Non-Contributing Member shall pay to the
other Member a breakup fee of $1,000,000 and the other Member may elect to
either (1) terminate and dissolve Company as set forth in Section 9.2, or (2)
make a Default Contribution, in which event the Sharing Ratios of the Members
automatically shall be adjusted to percentages equal to the proportion of
total Capital Contributions of the respective Members after the Default
Contribution, without regard to any distributions under Article 7.

                  (c) AFTER THE INITIAL PHASE. If Company has completed the
Initial Phase and each Member has made its Additional Capital Contributions
therefor, and thereafter either Member fails to make any Additional Capital
Contribution, then:

                           (3) FIRST FAILURE. If such failure to make an
         Additional Capital Contribution is the Non-Contributing Member's first
         failure, then as its sole remedy the other

                                        12

<PAGE>

         Member may elect to make a Default Contribution, in which event the
         Sharing Ratios of the Members automatically shall be adjusted to
         percentages equal to the proportion of total Capital Contributions of
         the respective Members after the Default Contribution, without regard
         to any distributions under Article 7; and

                 (4)  SUBSEQUENT FAILURE. If such failure to make an Additional
         Capital Contribution is not the Non-Contributing Member's first
         failure, then the other Member may either (A) elect to make a Default
         Contribution, in which event the Sharing Ratios of the Members
         automatically shall be adjusted to percentages equal to the proportion
         of total Capital Contributions of the respective Members after the
         Default Contribution, without regard to any distributions under Article
         7, or (B) elect to purchase the entire Membership Interest of such
         Non-Contributing Member for the fair market value of such Membership
         Interest (calculated on the basis of the Market Value).

         Section 6.3  RETURN OF CONTRIBUTIONS.  Except as expressly provided
herein, no Member shall be entitled to (a) the return of any part of its Capital
Contributions, (b) any interest in respect of any Capital Contribution, or (c)
the fair market value of its Membership Interest in connection with a withdrawal
from Company or otherwise. No Member shall be required to contribute or lend any
cash or property to Company to enable Company to return any Member's Capital
Contributions to Company.

                                   ARTICLE 7
                                 DISTRIBUTIONS

         Section 7.1  DISTRIBUTIONS IN GENERAL.  Unless otherwise mutually
agreed by the Members, Company shall make no cash distributions until Company
has completed construction of the Production Facility, except for
distributions in liquidation of Company's assets pursuant to Section 9.2 and
distributions to Members for payment of federal income tax liabilities of
Members resulting directly from Company's business pursuant to Section 7.2.
From time to time after the completion of the Production Facility, the
Manager and the Board of Directors shall, on the basis of capital and
operating funds required by Company and consistent with agreed financial
parameters established by the Members, determine the amount, if any, of cash
held by the Company which should be distributed to the Members, such
distributions to be made in accordance with Sharing Ratios.

         Section 7.2  TAX DISTRIBUTIONS.  Prior to the completion of the
Production Facility, Company will make distributions to its Members, in
proportion to the Members' respective Sharing Ratios, on request of a Member
and to the extent of available cash held by the Company, in an aggregate
amount such that the requesting Member shall, to the maximum extent possible,
receive a distribution in the amount of the taxable income allocable to such
Member under this Agreement for the taxable period to which the request
relates, multiplied by the highest marginal United States federal tax rate
applicable to such Member (or if such Member is not a taxable entity, to the
owner(s) of such Member). Manager shall use best efforts in designating
available cash for investment or reinvestment by Company to assure that
remaining cash available to Company will be sufficient for

                                       13
<PAGE>

such tax distributions to Members; however, Manager may not cause Company to
incur any debt or other obligation in its efforts to assure cash availability
for such tax distributions.

                                   ARTICLE 8
                CAPITAL ACCOUNTS, ALLOCATIONS, AND TAX MATTERS

         Section 8.1  DEFINITIONS.  The following terms shall have the
following meanings:

                 (a)  "ADJUSTED CAPITAL ACCOUNT" means, with respect to a
Member, such Member's Capital Account as of the end of each fiscal year, as
the same is specially computed to reflect the adjustments required or
permitted to be taken into account in applying Regulations Section
1.704-1(b)(2)(ii)(d) (including adjustments for Company Minimum Gain and
Member Nonrecourse Debt Minimum Gain).

                 (b)  "ADJUSTED CAPITAL ACCOUNT DEFICIT" means, for each
Member, the deficit balance, if any, in that Member's Adjusted Capital
Account.

                 (c)  "CAPITAL ACCOUNT" shall have the meaning set forth in
Section 8.2.

                 (d)  "CODE" means the Internal Revenue Code of 1986, as
amended from time to time, and any corresponding provisions of succeeding law.

                 (e)  "DEPRECIATION" means, for each taxable year or other
period, an amount equal to the depreciation, amortization or other cost
recovery deduction allowable with respect to an asset for the year or other
period, except that if the Gross Asset Value of an asset differs from its
adjusted basis for federal income tax purposes at the beginning of the year
or other period, Depreciation will be an amount which bears the same ratio to
the beginning Gross Asset Value as the federal income tax depreciation,
amortization or other cost recovery deduction for the year or other period
bears to the beginning adjusted tax basis, provided that if the federal
income tax depreciation, amortization, or other cost recovery deduction for
the year or other period is zero, Depreciation will be determined with
reference to the beginning Gross Asset Value using any reasonable method
selected by the Manager and the Board of Directors.

                 (f)  "GROSS ASSET VALUE" has the meaning assigned to it in
Section 8.3.

                 (g)  "PARTNER NONRECOURSE DEBT" has the meaning assigned to
it in Regulations Sections 1.704-2(b)(4) and 1.752-2.

                 (h)  "PARTNER NONRECOURSE DEBT MINIMUM GAIN" has the meaning
assigned to it in Regulations Section 1.704-2(i)(3).

                 (i)  "PARTNER NONRECOURSE DEDUCTIONS" has the meaning
assigned to it in Regulations Section 1.704-2(i)(2).

                                      14
<PAGE>

                 (j)  "PARTNERSHIP MINIMUM GAIN" has the meaning assigned to
it in Regulations Section 1.704-2(d).

                 (k)  "PROFITS" and "LOSSES" mean, for each taxable year or
other period, an amount equal to Company's taxable income or loss for the
year or other period, determined in accordance with Section 703(a) of the
Code (including all items of income, gain, loss or deduction required to be
stated separately under Section 703(a)(1) of the Code), with the following
adjustments:

                      (1)  Any income of Company that is exempt from federal
         income tax and not otherwise taken into account in computing Profits
         or Losses will be added to taxable income or loss;

                      (2)  Any expenditures of Company described in Code
         Section 705(a)(2)(B) or treated as Section 705(a)(2)(B) expenditures
         under Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken
         into account in computing Profits or Losses, will be subtracted from
         taxable income or loss;

                      (3)  Gain or loss resulting from any disposition of
         Company property with respect to which gain or loss is recognized for
         federal income tax purposes will be computed by reference to the Gross
         Asset Value of the property, notwithstanding that the adjusted tax
         basis of the property differs from its Gross Asset Value;

                      (4)  In lieu of depreciation, amortization and other cost
         recovery deductions taken into account in computing taxable income or
         loss, there will be taken into account Depreciation for the taxable
         year or other period;

                      (5)  Any items which are specially allocated under
Section 8.4(c)  or 8.4(d) will not affect calculations of Profits or Losses; and

                      (6)  If the Gross Asset Value of any Company asset is
         adjusted under Section 8.3(b) or 8.3(c), the adjustment will be taken
         into account as gain or loss from disposition of the asset for purposes
         of computing Profits or Losses.

                 (l)  "REGULATIONS" means the regulations promulgated by the
United States Department of the Treasury pursuant to and in respect of
provisions of the Code. All references herein to sections of the Regulations
shall include any corresponding provisions of succeeding, similar, substitute
proposed or final Regulations.

                 (m)  "REGULATORY ALLOCATIONS" has the meaning assigned to it
in Section 8.4(d).

         Section 8.2  CAPITAL ACCOUNTS.

                 (a)  ESTABLISHMENT AND MAINTENANCE. A separate capital
account ("CAPITAL ACCOUNT") will be maintained for each Member. The Capital
Account of each Member will be determined and adjusted as follows:

                                      15
<PAGE>

                      (1)  Each Member's Capital Account will be credited with
         the Member's Capital Contributions, the Member's distributive share of
         Profits, any items in the nature of income or gain that are specially
         allocated to the Member under Sections 8.4(c) or 8.4(d), and the amount
         of any Company liabilities that are assumed by the Member or secured by
         any Company property distributed to the Member.

                      (2)  Each Member's Capital Account will be debited with
         the amount of cash and the Gross Asset Value of any Company property
         distributed to the Member under any provision of this Agreement, the
         Member's distributive share of Losses, any items in the nature of
         deduction or loss that are specially allocated to the Member under
         Section 8.4(c) or 8.4(d), and the amount of any liabilities of
         the Member assumed by Company or which are secured by any property
         contributed by the Member to Company.

                      (3)  If any interest in Company is transferred in
         accordance with the terms of this Agreement, the transferee will
         succeed to the Capital Account of the transferor to the extent it
         relates to the transferred interest.

                 (b)  MODIFICATIONS BY MANAGER. The provisions of this
Section 8.1 and the other provisions of this Agreement relating to the
maintenance of Capital Accounts have been included in this Agreement to
comply with Section 704(b) of the Code and the Regulations promulgated
thereunder and will be interpreted and applied in a manner consistent with
those provisions. The Manager may, with the consent of the Board of
Directors, modify the manner in which the Capital Accounts are maintained
under this Section 8.2 to comply with those provisions, as well as upon the
occurrence of events that might otherwise cause this Agreement not to comply
with those provisions; however, without the unanimous consent of all Members,
the Manager may not make any modification to the way Capital Accounts are
maintained if such modification would have the effect of changing the amount
of distributions to which any Member would be entitled during the operation,
or upon the liquidation, of Company.

         Section 8.3  ADJUSTMENT OF GROSS ASSET VALUE.  "GROSS ASSET VALUE",
with respect to any asset, is the adjusted basis of that asset for federal
income tax purposes, except as follows:

                 (a)  The initial Gross Asset Value of any asset contributed
(or deemed contributed under Code Sections 704(b) and 752 and the Regulations
promulgated thereunder) by a Member to Company shall be the fair market value
of the asset on the date of the contribution, as determined by the Manager
and the Board of Directors.

                 (b)  The Gross Asset Values of all Company assets shall be
adjusted to equal the respective fair market values of the assets, as
determined by the Manager and the Board of Directors, as of (1) the
acquisition of an additional interest in Company by any new or existing
Member in exchange for more than a DE MINIMIS capital contribution, (2) the
distribution by Company to a Member of more than a DE MINIMIS amount of
Company property as consideration for an interest in Company if an adjustment
is necessary or appropriate to reflect the relative economic interests of

                                       16
<PAGE>

the Members in Company, and (3) the liquidation of Company within the meaning
of Regulations Section 1.704-1(b)(2)(ii)(g).

                 (c)  The Gross Asset Value of any Company asset distributed
to any Member will be the gross fair market value of the asset on the date of
distribution.

                 (d)  The Gross Asset Values of Company assets will be
increased or decreased to reflect any adjustment to the adjusted basis of the
assets under Code Section 734(b) or 743(b), but only to the extent that the
adjustment is taken into account in determining Capital Accounts under
Regulations SECTION 1.704-1(b)(2)(iv)(m), provided that Gross Asset Values
will not be adjusted under this Section 8.3 to the extent that the Manager
determines that an adjustment under Section 8.3(b) is necessary or
appropriate in connection with a transaction that would otherwise result in
an adjustment under this Section 8.3(d).

                 (e)  After the Gross Asset Value of any asset has been
determined or adjusted under Section 8.3(a), 8.3(b) or 8.3(d), Gross Asset
Value will be adjusted by the Depreciation taken into account with respect to
the asset for purposes of computing Profits or Losses.

         Section 8.4  PROFITS, LOSSES AND DISTRIBUTIVE SHARES OF TAX ITEMS.

                 (a)  PROFITS. Except as otherwise provided in Sections
8.4(c) and 8.4(d), Profits for any taxable year (other than those arising
from the sale, financing, or refinancing of or involving all or substantially
all of the assets of Company) shall be allocated to the Members in accordance
with their respective Sharing Ratios.

                 (b)  LOSSES. Except as otherwise provided in Sections 8.4(c)
and 8.4(d), Losses for any taxable year shall be allocated in the following
manner:

                      (1)  First, to the Members in proportion to their
         respective Adjusted Capital Account balances, but not in excess of
         the Adjusted Capital Account balance of each such Member before
         the allocation provided for in this Section 8.4(b)(1); and

                      (2)  thereafter, to the Members with positive Capital
         Account balances (in proportion to such balances) to the extent further
         allocations of Losses to a Member under this Section 8.4(b) would cause
         such Member to have an Adjusted Capital Account Deficit.

                 (c)  SPECIAL ALLOCATIONS. The following special allocations
will be made in the following order and priority before allocations of
Profits and Losses:

                      (1)  PARTNERSHIP MINIMUM GAIN CHARGEBACK. If there is
         a net decrease in Partnership Minimum Gain during any taxable year
         or other period for which allocations are made, before any other
         allocation under this Agreement, each Member will be specially
         allocated items of Company income and gain for that period (and, if
         necessary, subsequent periods) in proportion to, and to the extent of,
         an amount equal to such Member's share of the net decrease in
         Partnership Minimum Gain during such year determined in accordance with
         Regulations Section 1.704-2(g)(2). The items to be allocated will be
         determined

                                      17
<PAGE>

         in accordance with Regulations Section 1.704-2(g). This
         Section 8.4(c)(1) is intended to comply with the Partnership Minimum
         Gain chargeback requirements of the Regulations, will be interpreted
         consistently with the Regulations and will be subject to all exceptions
         provided therein.

                      (2)  PARTNER NONRECOURSE DEBT MINIMUM GAIN CHARGEBACK.
         Notwithstanding any other provision of this Section 8.4 (other than
         Section 8.4(c)(1) which shall be applied first), if there is a net
         decrease in Partner Nonrecourse Debt Minimum Gain with respect to a
         Partner Nonrecourse Debt during any taxable year or other period for
         which allocations are made, any Member with a share of such Partner
         Nonrecourse Debt Minimum Gain (determined under Regulations Section
         1.704-2(i)(5)) as of the beginning of the year will be specially
         allocated items of Company income and gain for that period (and, if
         necessary, subsequent periods) in an amount equal to such Member's
         share of the net decrease in the Partner Nonrecourse Debt Minimum Gain
         during such year determined in accordance with Regulations Section
         1.704-2(g)(2). The items to be so allocated will be determined in
         accordance with Regulations Section 1.704-2(g). This Section 8.4(c)(2)
         is intended to comply with the Partner Nonrecourse Debt Minimum Gain
         chargeback requirements of the Regulations, will be interpreted
         consistently with the Regulations and will be subject to all exceptions
         provided therein.

                      (3)  QUALIFIED INCOME OFFSET.  A Member who
         unexpectedly receives any adjustment, allocation or distribution
         described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) or
         (6) will be specially allocated items of Company income and gain in
         an amount and manner sufficient to eliminate, to the extent required
         by the Regulations, the Adjusted Capital Account Deficit of the
         Member as quickly as possible.

                      (4)  NONRECOURSE DEDUCTIONS.  Nonrecourse Deductions for
         any taxable year or other period for which allocations are made will
         be allocated among the Members in proportion to their respective
         Sharing Ratios in Company.

                      (5)  PARTNER NONRECOURSE DEDUCTIONS.  Notwithstanding
         anything to the contrary in this Agreement, any Partner Nonrecourse
         Deductions for any taxable year or other period for which allocations
         are made will be allocated to the Member who bears the economic risk of
         loss with respect to the Partner Nonrecourse Debt to which the Partner
         Nonrecourse Deductions are attributable in accordance with Regulations
         Section 1.704-2(i).

                      (6)  CODE SECTION 754 ADJUSTMENTS.  To the extent an
         adjustment to the adjusted tax basis of any Company asset under Code
         Sections 734(b) or 743(b) is required to be taken into account in
         determining Capital Accounts under Regulations Section
         1.704-1(b)(2)(iv)(m), the amount of the adjustment to the Capital
         Accounts will be treated as an item of gain (if the adjustment
         increases the basis of the asset) or loss (if the adjustment decreases
         the basis), and the gain or loss will be specially allocated to the
         Members in a manner consistent with the manner in which their Capital
         Accounts are required to be adjusted under Regulations Section
         1.704-1(b)(2(iv)(m).

                                      18
<PAGE>

                 (d)  CURATIVE ALLOCATIONS.  The allocations set forth in
Section 8.4(c) (the "REGULATORY ALLOCATIONS") are intended to comply with
certain requirements of Regulations Sections 1.704-1(b) and 1.704-2. The
Regulatory Allocations may effect results which would be inconsistent with
the manner in which the Members intend to divide Company distributions.
Accordingly, the Manager is authorized to divide other allocations of
Profits, Losses, and other items among the Members, to the extent that they
exist, so that the net amount of the Regulatory Allocations and the special
allocations to each Member is zero. The Manager will have discretion to
accomplish this result in any reasonable manner that is consistent with Code
Section 704 and the related Regulations.

                 (e)  TAX ALLOCATIONS--CODE SECTION 704(c).  For federal,
state and local income tax purposes, Company income, gain, loss, deduction or
expense (or any item thereof) for each fiscal year shall be allocated to and
among the Members to reflect the allocations made pursuant to the provisions
of this Section 8.4 for such fiscal year. In accordance with Code Section
704(c) and the related Regulations, income, gain, loss and deduction with
respect to any property contributed to the capital of Company, solely for tax
purposes, will be allocated among the Members so as to take account of any
variation between the adjusted basis to Company of the property for federal
income tax purposes and the initial Gross Asset Value of the property
(computed in accordance with Section 8.3). If the Gross Asset Value of any
Company asset is adjusted under Section 8.3(b), subsequent allocations of
income, gain, loss and deduction with respect to that asset will take account
of any variation between the adjusted basis of the asset for federal income
tax purposes and its Gross Asset Value in the same manner as under Code
Section 704(c) and the related Regulations. Any elections or other decisions
relating to allocations under this Section 8.4(e) will be made in any manner
that the Manager determines reasonably reflects the purpose and intention of
this Agreement. Allocations under this Section 8.4(e) are solely for purposes
of federal, state and local taxes and will not affect, or in any way be taken
into account in computing, any Member's Capital Account or share of Profits,
Losses or other items or distributions under any provision of this Agreement.

                 (f)  Members shall be bound by the provisions of this
Section 8.4(f) in reporting their shares of Company income and loss for
income tax purposes.

         Section 8.5  TAX RETURNS.  The Manager shall cause to be prepared
and filed all necessary federal and state income tax returns for Company,
including making the elections described in Section 8.6. Each Member shall
furnish to the Manager all pertinent information in its possession relating
to Company operations that is necessary to enable such income tax returns to
be prepared and filed.

         Section 8.6  TAX ELECTIONS.  The following elections shall be made
on the appropriate returns of Company:

                 (a)  to adopt the tax year of Dal-Tile International Inc. as
Company's fiscal year;

                 (b)  to adopt the accrual method of accounting and to keep
Company's books and records on the income-tax method;

                                      19
<PAGE>

                 (c)  if there is a distribution of Company property as
described in section 734 of the Code or if there is a transfer of a Company
interest as described in section 743 of the Code, upon written request of any
Member, to elect, pursuant to section 754 of the Code, to adjust the basis of
Company properties; and

                 (d)  to elect to amortize the organizational expenses of
Company ratably over a period of 60 months as permitted by section 709(b) of
the Code.

No election shall be made by Company or any Member to be excluded from the
application of the provisions of subchapter K of chapter 1 of subtitle A of
the Code or any similar provisions of applicable state laws.

         Section 8.7  TAX MATTERS MEMBER.  The Member serving as Manager
shall be the "tax matters partner" of Company pursuant to section 6231(a)(7)
of the Code. As tax matters partner, such Member shall take such action as
may be necessary to cause each other Member to become a "notice partner"
within the meaning of section 6223 of the Code. Such Member shall inform each
other Member of all significant matters that may come to its attention in its
capacity as tax matters partner by giving notice thereof within ten days
after becoming aware thereof and, within such time, shall forward to each
other Member copies of all significant written communications it may receive
in such capacity. Such Member shall not take any action contemplated by
sections 6222 through 6232 of the Code without the consent of the Dal-Tile
Member. This provision is not intended to authorize such Member to take any
action left to the determination of an individual Member under sections 6222
through 6232 of the Code.

         Section 8.8  ALLOCATIONS ON TRANSFER OF INTERESTS.  All items of
income, gain, loss, deduction, and credit allocable to any interest in
Company that may have been transferred shall be allocated between the
transferor and the transferee based upon that portion of the tax year during
which each was recognized as owning such interest, without regard to the
results of Company operations during any particular portion of such tax year
and without regard to whether cash distributions were made to the transferee
during such tax year; however, such allocation shall be made in accordance
with a method permissible under section 706 of the Code and the Regulations
thereunder.

                                   ARTICLE 9
             WITHDRAWAL, DISSOLUTION, LIQUIDATION, AND TERMINATION

         Section 9.1  DISSOLUTION, LIQUIDATION, AND TERMINATION GENERALLY.

                 (a)  Company shall be dissolved upon the occurrence of a
Bankruptcy with respect to a Member. Notwithstanding the foregoing, if
Company is dissolved because an event described in Section 18-801(4) of the
Act occurs with respect to a Member, then the other Member may elect to
continue Company business within 120 days after actual notice of such event
and shall have the option to purchase all (but not less than all) of the
Membership Interest of the Member which is subject to a Bankruptcy for the
then current fair market value of such Membership Interest, calculated on the
basis of the Market Value.

                                      20
<PAGE>

                 (b)  Company shall be dissolved upon any termination of any
of the Related Agreements which occurs prior to the agreement of Members to
construct and develop the Production Facility.

                 (c)  If any of the following events or conditions shall
occur or exist:

                      (1)  the Members have mutually agreed not to construct
         the Production Facility or, otherwise before July 1, 2001, have not
         reached an agreement to construct the Production Facility; or

                      (2)  Company has not achieved its stated business
         objectives, within one (1) year from the start of its operations, and
         the Members, after good faith discussions, agree that there will be no
         realistic possibility for improvement within the next one (1) year;

then either Member may request the liquidation of the Company in accordance
with Section 9.2.

                 (d)  if any of the following events or conditions shall
occur or exist:

                      (1)  a material failure of Ceramica Member to provide
         such technical assistance as the Board of Directors determines that
         Company may require regarding design, site selection, planning and
         construction of the Production Facility, or regarding the planning of
         processes and techniques for the quality and style of Product to be
         manufactured at the Production Facility, all as more fully set forth in
         SCHEDULE 4.1(d); or

                      (2)  either Member has defaulted under this Agreement or
         any Related Agreement; or

                      (3)  either Member has failed to make any required
         Additional Capital Contribution,

then the other Member, in addition to any rights under Section 6.2 with
respect to a failure to make Additional Capital Contributions but subject to
provisions of Section 6.2 providing for the exercise of only a specific
remedy in some circumstances, may either request the liquidation of Company
in accordance with Section 9.2 or purchase the Membership Interest of such
failing or defaulting Member for the amount specified in Section 6.2(c)(2) of
this Agreement.

         Section 9.2  LIQUIDATION AND TERMINATION.  Upon dissolution of
Company, unless it is continued as provided above, the Manager shall act as
liquidator or may appoint one or more other Persons as liquidator; however,
if Company is dissolved because of an event occurring with respect to the
Manager, the liquidator shall be one or more Persons selected in writing by
the other Member. The liquidator shall proceed diligently to wind up the
affairs of Company and make final distributions as provided herein. The costs
of liquidation shall be a Company expense. Until final distribution, the
liquidator shall continue to operate Company properties with all of the power
and authority of the Manager hereunder. The steps to be accomplished by the
liquidator are as follows:

                                      21
<PAGE>

                 (a)  as promptly as possible after dissolution and again
after final liquidation, the liquidator shall cause a proper accounting to be
made by a firm of certified public accountants acceptable to the Dal-Tile
Member of Company's assets, liabilities, and operations through the last day
of the calendar month in which the dissolution shall occur or the final
liquidation shall be completed, as applicable;

                 (b)  the liquidator shall pay all of the debts and
liabilities of Company or otherwise make adequate provision therefor
(including the establishment of a cash escrow fund for contingent liabilities
in such amount and for such term as the liquidator may reasonably determine);
and

                 (c)  all remaining assets of Company shall be distributed to
the Members as follows:

                      (1)  the liquidator may sell any or all Company property
         and the sum of (A) any resulting gain or loss from each sale plus (B)
         the fair market value of such property that has not been sold shall
         be determined and income, gain, loss, and deduction inherent in such
         property (that has not been reflected in the Capital Accounts
         previously) shall be allocated among the Members to the extent possible
         to cause the Capital Account balance of each Member to equal the amount
         distributable to such Member under Section 9.2(c)(2); and

                      (2)  Company property shall be distributed to the Members
         in accordance  with their respective Sharing Ratios.

         Section 9.3  DEFICIT CAPITAL ACCOUNTS.  No Member shall be required
to pay to Company, to any other Member or to any third party any deficit
balance that may exist from time to time in the Member's capital account.

         Section 9.4  CANCELLATION OF CERTIFICATE.  On completion of the
distribution of Company assets, the Member (or such other person as the Act
may require or permit) shall file a Certificate of Cancellation with the
Secretary of State of Delaware, cancel any other filings made pursuant to
Section 2.4, and take such other actions as may be necessary to terminate the
existence of Company.

                                   ARTICLE 10
                            MISCELLANEOUS PROVISIONS

         Section 10.1 NOTICES.  All notices provided for or permitted to be
given pursuant to this Agreement must be in writing and shall be given or
served by (a) depositing the same in the United States mail, addressed to the
party to be notified, postpaid and certified with return receipt requested,
(b) by depositing the same with Federal Express, DHL, or another established
overnight (or for international deliveries, second-day) delivery, addressed
to the party to be notified, (c) by delivering such notice in person to such
party, or (d) by prepaid telegram or telecopy. All notices

                                      22
<PAGE>

are to be sent to or made at the addresses set forth on the signature pages
hereto. All notices given in accordance with this Agreement shall be
effective upon delivery at the address of the addressee. By giving written
notice thereof, each Member shall have the right from time to time to change
its address pursuant hereto.

         Section 10.2 GOVERNING LAW.  This Agreement and the obligations of
the Members hereunder shall be construed and enforced in accordance with the
laws of the State of Delaware, excluding any conflicts of law rule or
principle that might refer such construction to the laws of another state or
country. Each Member submits to the jurisdiction of the state and federal
courts in the State of Delaware.

         Section 10.3 ENTIRETIES; AMENDMENTS.  This Agreement and its
exhibits constitute the entire agreement between the Members relative to the
formation of Company. Except as otherwise provided herein, no amendments to
this Agreement shall be binding upon any Member unless set forth in a
document duly executed by such Member.

         Section 10.4 WAIVER.  No consent or waiver, express or implied, by
any Member of any breach or default by any other Member in the performance by
the other Member of its obligations hereunder shall be deemed or construed to
be a consent or waiver to or of any other breach or default in the
performance by such other Member of the same or any other obligation
hereunder. Failure on the part of any Member to complain of any act or to
declare any other Member in default, irrespective of how long such failure
continues, shall not constitute a waiver of rights hereunder.

         Section 10.5 SEVERABILITY.  If any provision of this Agreement or
the application thereof to any Person or circumstances shall be invalid or
unenforceable to any extent, and such invalidity or unenforceability does not
destroy the basis of the bargain between the parties, then the remainder of
this Agreement and the application of such provisions to other Persons or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.

         Section 10.6 OWNERSHIP OF PROPERTY AND RIGHT OF PARTITION.  A
Member's interest in Company shall be personal property for all purposes. No
Member shall have any right to partition the property owned by Company.

         Section 10.7 CAPTIONS, REFERENCES.  Pronouns of any gender, wherever
used herein, and of whatever gender, shall include natural persons and
corporations and associations of every kind and character, and the singular
shall include the plural wherever and as often as may be appropriate. Article
and section headings are for convenience of reference and shall not affect
the construction or interpretation of this Agreement. Whenever the terms
"hereof", "hereby", "herein", or words of similar import are used in this
Agreement they shall be construed as referring to this Agreement in its
entirety rather than to a particular section or provision, unless the context
specifically indicates to the contrary. Whenever the word "including" is used
herein, it shall be construed to mean including without limitation. Any
reference to a particular "Article" or a "Section" shall be construed as
referring to the indicated article or section of this Agreement unless the
context indicates to the contrary.

                                      23
<PAGE>

         Section 10.8 INVOLVEMENT OF MEMBERS IN CERTAIN PROCEEDINGS.  Should
any Member become involved in legal proceedings unrelated to Company's
business in which Company is required to provide books, records, an
accounting, or other information, then such Member shall indemnify Company
from all expenses incurred in conjunction therewith.

         Section 10.9 INTEREST.  No amount charged as interest on loans
hereunder shall exceed the maximum rate from time to time allowed by
applicable law.

                                  ARTICLE 11
                               PUT/CALL OPTION

         Section 11.1 PUT OPTIONS.  (a) During the three-year period
commencing three years after production begins at the Production Facility
(the "WINDOW PERIOD"), upon written request by Ceramica Member to Dal-Tile
Member (a "PUT OPTION NOTICE"), Dal-Tile Member (or its designee) shall
purchase the Membership Interest of Ceramica Member for an amount equal to
the Market Value of Company multiplied by the Sharing Ratio of Ceramica
Member, without any discount relating to Ceramica's minority interest in
Company (the "CERAMICA MEMBERSHIP SALE PRICE").

                      (b)  At any time during which Ceramica Member
reasonably determines that Company is suffering material losses solely as a
result of Dal-Tile International's gross negligence in the operation and
administration of the Distribution Agreement, and after a Put Option Notice,
Dal-Tile Member (or its designee) shall purchase the Membership Interest of
Ceramica Member for the Ceramica Membership Sale Price.

         Section 11.2 CALL OPTION.  During the Window Period, upon written
request by Dal-Tile Member (the "CALL OPTION NOTICE"), Ceramica Member shall
sell its Membership Interest to Dal-Tile Member (or its designee) for the
Ceramica Membership Sale Price.

         Section 11.3 CLOSING.  The purchase and sale of the Ceramica
Member's Membership Interest under this Article 11 shall be completed on a
date designated by Dal-Tile Member within ninety (90) days after the Put
Option Notice or the Call Option Notice, as the case may be. Ceramica Member
shall execute such documents of assignment and transfer, amendments of this
Agreement and other documentation as Dal-Tile Member shall require for the
consummation of such purchase and sale and Dal-Tile Member shall pay to
Ceramica Member the Ceramica Membership Sale Price. Each Member shall bear
and pay its own expenses, including legal fees, related to such sale and
purchase.

                                  ARTICLE 12
                   TRANSFER OF INTERESTS; OFFER OF INTERESTS

         Section 12.1 TRANSFER OF INTERESTS.  Until the expiration of the
Window Period, neither of the Members shall sell, transfer, assign, pledge or
hypothecate its Membership Interest in

                                      24
<PAGE>

Company without the prior written consent of the other Member, such consent
not to be unreasonably withheld.

         Section 12.2 RIGHT OF FIRST REFUSAL.

                 (a)  If after the expiration of the Window Period either
Member receives from an unaffiliated purchaser a bona fide written cash offer
for the purchase of such Member's Membership Interest on terms which such
Member desires to accept (such bona fide offer being called an "OFFER"), the
Member desiring to accept such Offer (the "INITIATING MEMBER") shall provide
notice of the term of such Offer (a "SALE NOTICE") to the other Member (the
"NON-INITIATING MEMBER"). The Non-Initiating Member shall have thirty (30)
days from the date of the Sale Notice (the "RESPONSE PERIOD") to provide
notice to the Initiating Member of its willingness or unwillingness to
purchase the Initiating Member's Membership Interest on the terms of the
Offer; failure to deliver such notice shall constitute an election to allow
the Initiating Member to sell its Membership Interest on the terms of the
Offer. If the Non-Initiating Member elects to accept the Offer, it shall
enter into an agreement with Initiating Member on the same terms as the
Offer, including any remedies for default or non-performance. If the
Non-Initiating Member elects not to accept the Offer, then the Initiating
Member may sell its Membership Interest on the terms of the Offer to the
Person making the Offer. If the terms of the Offer are modified in any
respect, the Initiating Member shall have no right to sell its Membership
Interest under this Section 12.2 without offering such modified terms to
Non-Initiating Member in a new Sale Notice subject to Non-Initiating Member's
rights hereunder.

                 (b)  If Dal-Tile Member is the Initiating Member and
Ceramica Member refuses to purchase Dal-Tile Member's Membership Interest on
the terms of the Offer, then Dal-Tile Member may require Ceramica Member to
sell its Membership Interest in the Company in conjunction with Dal-Tile
Member's sale of its Membership Interest in a sale of the Company for a
selling price proportionate to the selling price of Dal-Tile Member's
Membership Interest under the Offer.

                 (c)  If Dal-Tile Member is the Initiating Member, and
Ceramica Member so requests, Dal-Tile Member shall seek to include a sale of
Ceramica Member's Membership Interest in the sale of Dal-Tile Member's
Membership Interest but shall have no liability or obligation for its failure
to do so.

                 (d)  In the event of the sale of any Membership Interest to
a third party, such third party shall be admitted as a Member of Company on
the same terms as those of the selling Member, and as a condition to such
sale and transfer any newly-admitted Member shall execute an amendment and
restatement of this Agreement on the same terms as this Agreement.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

                                      25
<PAGE>

         Executed effective as of the date above written.

MEMBERS:                              EMILAMERICA, INC., a Delaware corporation

                                      By:
                                         --------------------------------------

                                      Name:
                                           ------------------------------------

                                      Title:
                                            -----------------------------------

                                      Address:  7942-J Angus Court
                                                Springfield, VA  22153
                                      Taxpayer Identification
                                      Number:  541977370

                                      DAL-TILE I LLC, a Delaware limited
                                      liability company
                                      By:  Dal-Tile  Corporation, a Pennsylvania
                                           corporation, its sole Member

                                      By:
                                         --------------------------------------
                                         Jacques R. Sardas, President
                               Address:  Dal-Tile International Inc.
                                         7834 C.F. Hawn Freeway
                                         P.O. Box 170130
                                         Dallas, Texas  75217
                               Taxpayer Identification
                               Number:
                                      -----------------------------------------

                                      26
<PAGE>

                               SCHEDULE 4.1(d)

                             TECHNICAL ASSISTANCE

Technical Assistance shall include but not be limited to providing
information, recommendations, suggestions, written reports and assistance in
the following areas to assure high quality, design and style of Product and
efficient processes and manufacturing techniques in the Production Facility:

Production Facility: design, plant layout, manufacturing techniques and
technologies, equipment selection, staffing requirements, schedule of
operation and computer information systems.

Body Development: body raw materials, body formulas, ceramic stains and stain
suppliers, color control, particle size control and identification of other
important process and control parameters.

Product Development: surface textures, glazes, stains, soluble salts, body
powders (double loading), graphic designs, silkscreen/silicon, order of
application, paste media, additives and raw material.

Product Transfer: all necessary information, samples and assistance to
successfully transfer existing Product to the Production Facility.

Production Facility Start-up and Operation: including a written report to
Manager following quarterly plant inspections/audit of operation. The
Production Facility should be compared to industry best practices, most
efficient processes and latest available technology for continuous
improvement.

Process Development: making available to Company for Company's use the latest
state-of-the-art technology, patents, copyrights, and process development
available to Emilceramica, unless Emilceramica is legally or contractually
prohibited from making such processes available to Company.

New Products:  Latest industry trends, style, design and colors.

                              Schedule 4.1(d) - 1<PAGE>

EXHIBIT 10.13

                    AMENDED AND RESTATED EMPLOYMENT AGREEMENT

         AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of November 22,
2000, by and between Dal-Tile International Inc., a Delaware corporation (the
"Company"), and Jacques R. Sardas (the "Executive").

         The Company is engaged in the business of the manufacture, distribution
and marketing of glazed and unglazed tile. The Company desires to employ the
Executive and the Executive desires to accept such employment on the terms and
conditions of this Agreement.

         The Executive has served as President and Chief Executive of the
Company since July 1, 1997 pursuant to an Employment Agreement dated as of June
13, 1997 and amended as of October 10, 1997, and as of July 17, 1998 (the "Prior
Employment Agreement"). The Company and the Executive desire to extend the term
of the Prior Employment Agreement and amend certain other of its provisions.

         NOW, THEREFORE, in consideration of the mutual premises and agreements
herein contained, and other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the Prior Employment Agreement is
hereby amended and restated as follows:

         1.       TERM OF EMPLOYMENT. The term of the Executive's employment
                  under this Agreement (the "Term") shall commence on July 1,
                  1997 and continue through and expire on December 31, 2004
                  unless earlier terminated as herein provided.

         2.       DUTIES OF EMPLOYMENT. The Executive hereby agrees for the Term
                  to render his exclusive services to the Company as (subject to
                  the last sentence of this Section 2) its President and Chief
                  Executive Officer and, in connection therewith, to perform
                  such duties commensurate with his office as he shall
                  reasonably be directed by the Board of Directors of the
                  Company (the "Board") to perform. The Executive shall devote
                  during the Term all of his business time, energy, and skill to
                  his executive duties hereunder and perform such duties
                  faithfully and efficiently, except for reasonable vacations
                  and except for periods of illness or incapacity. When and if
                  requested to do so by the Board, the Executive shall serve as
                  a director of the Company and a director and officer of any
                  subsidiary or affiliate of the Company, provided that the
                  Executive shall be indemnified for liabilities incurred by him
                  in his capacity as a Director or an Officer in accordance with
                  an Indemnification Agreement in the form attached hereto as
                  Exhibit A and as provided in the Company's Certificate of
                  Incorporation and By-Laws as in effect from time to time. From
                  and after January 1, 2004, with the prior written consent of
                  the Board, the Executive may resign from his position as
                  President and Chief Executive Officer of the Company; it being
                  understood that in such event (i) the Executive shall be
                  obligated at the request of the Board to serve as its Chairman
                  for the remainder of the Term, (ii) the Executive shall
                  continue to perform services exclusively for the Company for
                  the remainder of the Term as the Board shall direct consistent
                  with his position as Chairman, (iii) the Annual Salary and
                  Annual Bonus shall remain the same, unless the Board and the
                  Executive shall reasonably agree otherwise and (iv) such
                  resignation, and any circumstances directly or indirectly
                  related thereto, shall not constitute Good Reason (as defined
                  below).

                                     -1-
<PAGE>

         3.    COMPENSATION AND OTHER BENEFITS.

                  3.1      SALARY. Effective commencing December 1, 2000, as
                           compensation for all services to be rendered by the
                           Executive during the Term, the Company shall pay to
                           the Executive a salary at the annual rate of $700,000
                           per year (which may be increased from time to time by
                           the Board (the "Annual Salary")), payable in
                           accordance with the Company's usual payroll practices
                           for executives. Executive shall be eligible to
                           receive annual salary reviews and salary increases as
                           authorized by the Board.

                  3.2      ANNUAL BONUS. In addition to his Annual Salary, the
                           Executive shall be eligible to be paid a bonus in
                           respect of each fiscal year of the Company (the
                           "Annual Bonus") in accordance with the Company's
                           bonus plan (the "Plan"), which Annual Bonus shall be
                           determined by the Compensation Committee of the Board
                           and which bonus shall be paid not later than 120 days
                           after the end of such fiscal year. The amount of the
                           bonus opportunity shall be 100% of the amount of the
                           Annual Salary upon attainment of the "target"
                           performance level. The minimum amount of Annual Bonus
                           to be paid to Executive shall be fifty percent (50%)
                           of Executive's Annual Salary, and the maximum amount
                           of Annual Bonus to be paid to Executive shall be two
                           hundred percent (200%) of Executive's Annual Salary,
                           unless otherwise mutually agreed to in writing by the
                           Executive and the Board.

                  3.3      STOCK OPTION AGREEMENT. The Company shall
                           simultaneously herewith grant Executive options (the
                           "Options") to purchase (i) 2,000,000 shares of Common
                           Stock at an exercise price of $12.63 per share and
                           (ii) 1,000,000 shares of Common Stock at an exercise
                           price of $13.89 per share, on the date hereof on the
                           terms and conditions set forth in the Option Plan and
                           Stock Option Agreements to be entered into (the
                           "Stock Option Agreements") in the forms attached
                           hereto. All stock options granted by the Company to
                           Executive prior to the date hereof shall remain in
                           full force and effect in accordance with their terms
                           and such options shall be referred to herein as the
                           "Existing Options."

                  3.4      PARTICIPATION IN EMPLOYEE BENEFIT PLANS. During the
                           Term, the Executive shall be permitted to participate
                           in any group life, hospitalization or disability
                           insurance plan, health program, pension plan, similar
                           benefit plan or other so-called "fringe benefit
                           programs" of the Company as now existing or as may
                           hereafter be revised or adopted.

         4.    COVENANTS AGAINST COMPETITION. In order to induce the Company
               to enter into the Prior Employment Agreement, the Existing
               Options, this Agreement, the Stock Option Agreements, and the

                                     -2-
<PAGE>

               Management Subscription Agreement between Executive and
               Company dated as of July 17, 1998 (the "Management Subscription
               Agreement"), the Executive hereby agrees as follows:

                  4.1      ACKNOWLEDGMENTS OF EXECUTIVE. The Executive
                           acknowledges that (i) the Company and any affiliates
                           or subsidiaries thereof that are currently existing
                           or are acquired or formed during the Restricted
                           Period, as hereinafter defined (collectively, the
                           "Companies"), are and will be engaged primarily in
                           the business of the manufacture, distribution and
                           marketing of glazed and unglazed tile (the "Company
                           Business"); (ii) his work for the Companies will give
                           him access to trade secrets of and confidential
                           information concerning the Companies, including,
                           without limitation, information concerning its
                           organization, business and affairs, organization and
                           operations, "know-how", customer lists, details of
                           client or consultant contracts, pricing policies,
                           financial information, operational methods, marketing
                           plans or strategies, business acquisition plans, new
                           personnel acquisition plans, technical processes,
                           projects of the Companies, financing projections,
                           budget information and procedures, marketing plans or
                           strategies, and research products (collectively, the
                           "Trade Secrets"); and (iii) the agreements and
                           covenants contained in this Section 4 are essential
                           to protect the Company Business and goodwill of the
                           Companies.

                  4.2      RESTRICTIONS ON COMPETITION. During the Term and
                           for a two-year period after the end of the Term
                           (the "Restricted Period") unless this Agreement is
                           terminated in accordance with the provisions of
                           Section 5.4, the Executive shall not in any place
                           where the Company Business is now or hereafter
                           conducted by any of the Companies while the
                           Executive is an employee, agent, officer, director
                           or shareholder of the Companies, directly or
                           indirectly (a) engage in the Company Business for
                           his own account; (b) enter the employ of, or
                           render any services to any person or entity
                           engaged in the Company Business; or (c) become
                           interested in any such person or entity in any
                           capacity, including, without limitation, as an
                           individual, partner, shareholder, officer,
                           director, principal, agent trustee or consultant;
                           provided, however, that the Executive may own,
                           directly or indirectly, solely as an investment,
                           securities of any entity traded on any national
                           securities exchange or registered pursuant to
                           Section 12(g) of the Securities Exchange Act of
                           1934 if the Executive is not a controlling person
                           of, or a member of a group which controls, such
                           entity and does not directly or indirectly, own 3%
                           or more of any class of securities of such entity.
                           The Company shall notify the Executive of any
                           additional entities which may hereafter become
                           "Companies" within the meaning of this Agreement.

                  4.3      CONFIDENTIAL INFORMATION, PERSONAL RELATIONSHIPS.
                           During the Restricted Period, the Executive shall
                           keep secret and retain in strictest confidence,
                           and shall not use for the benefit of himself or
                           others, all confidential matters and Trade Secrets
                           of the Companies, except in the ordinary course of
                           performance by the Executive of his obligations
                           hereunder.

                                     -3-
<PAGE>

                  4.4      PROPERTY OF THE COMPANIES. All memoranda, notes,
                           lists, records and other documents or papers, (and
                           all copies thereof), including such items stored
                           in computer memories, on microfiche or by any
                           other means, made or compiled by or on behalf of
                           the Executive, or made available to the Executive
                           relating to the Companies are and shall be the
                           Companies' property and shall be delivered to the
                           Companies upon the expiration of the Term unless
                           requested earlier by the Companies.

                  4.5      EMPLOYEES OF THE COMPANIES. The Executive
                           acknowledges that any attempt on the part of the
                           Executive to induce any employee of any of the
                           Companies to leave any of the Companies' employ,
                           would be harmful and damaging to the Companies.
                           During the Restricted Period, the Executive will
                           not without the prior agreement of the Companies,
                           in any way, directly or indirectly: (i) induce or
                           attempt to induce any employee to terminate
                           employment with the Companies; (ii) disrupt the
                           Companies' relationship with any employee; or
                           (iii) solicit or entice any person employed by the
                           Companies.

                  4.6      BUSINESS OPPORTUNITIES. The Executive acknowledges
                           that the Companies have been considering, and
                           during the Term may consider, the acquisition of
                           various entities engaged in the Company Business
                           and that it would be harmful and damaging to the
                           Companies if he were to become interested in any
                           such entity without the Company's prior consent.
                           During the Restricted Period, the Executive will
                           not without the Company's prior consent become
                           interested in any such entity in any capacity,
                           including, without limitation, as an individual,
                           partner, shareholder, officer, director, principal,
                           agent trustee or consultant, if the Executive was
                           aware at any time during the Term that the
                           Companies had been considering the acquisition of
                           such entity.

                  4.7      RESTRICTIVE COVENANTS. For the purposes of this
                           Agreement all matters discussed in Sections 4.1,
                           4.2, 4.3, 4.4, 4.5 and 4.6 of this Agreement shall
                           be referred to as the "Restrictive Covenants."

                  4.8      RIGHTS AND REMEDIES UPON BREACH. If the Executive
                           breaches, or threatens to commit a breach of, any
                           of the provisions of the Restrictive Covenants,
                           the Company shall have the following rights and
                           remedies with respect to the Executive, each of
                           which rights and remedies shall be independent of
                           the others and severally enforceable, and each of
                           which is in addition to, and not in lieu of, any
                           other rights and remedies available to the Company
                           under law or in equity.

                                    4.8.1    SPECIFIC PERFORMANCE. The right and
                                             remedy to have the Restrictive
                                             Covenants specifically enforced, it
                                             being agreed that any breach or
                                             threatened breach, of the
                                             Restrictive Covenants would cause
                                             irreparable injury to the Company
                                             and money damages will not provide
                                             an adequate remedy to the Company.

                                     -4-
<PAGE>

                                    4.8.2    ACCOUNTING. The right and remedy to
                                             require the Executive to account
                                             for and pay over to the Company all
                                             compensation, profits, monies,
                                             accruals, increments or other
                                             benefits derived or received by him
                                             as a result of any transactions
                                             constituting a breach of the
                                             Restrictive Covenants.

                                    4.8.3    SEVERABILITY OF COVENANTS. The
                                             Executive acknowledges and agrees
                                             that the Restrictive Covenants are
                                             reasonable and valid in
                                             geographical and moral scope and in
                                             all other respects. If any court
                                             determines that any of the
                                             Restrictive Covenants, or any part
                                             thereof, are invalid or
                                             unenforceable, the remainder of the
                                             Restrictive Covenants shall not
                                             thereby be affected and shall be
                                             given full effect without regard to
                                             the invalid portions.

                                    4.8.4    BLUE-PENCILLING. If it is
                                             determined that any of the
                                             Restrictive Covenants, or any part
                                             thereof, is unenforceable because
                                             of the duration or geographic scope
                                             of such provision, the duration or
                                             scope of such provision, as the
                                             case may be, shall be reduced so
                                             that such provisions becomes
                                             enforceable and, in its reduced
                                             form, such provision shall then be
                                             enforceable.

                  4.9      ENFORCEABILITY IN JURISDICTION. The Company and
                           the Executive intend to and hereby confer
                           jurisdiction to enforce the Restrictive Covenants
                           upon the courts of any jurisdiction within the
                           states or countries in which the Company does
                           business. If the courts of any one or more of such
                           jurisdictions hold the Restrictive Covenants
                           unenforceable by reason of the breadth of such
                           scope or otherwise, it is the intention of the
                           Company and the Executive that such determination
                           not bar or in any way affect the Company's right
                           to relief provided above in the courts of any
                           other jurisdiction within the geographical scope
                           of the Restrictive Covenants, as to breaches of
                           such Restrictive Covenants in such other
                           respective jurisdictions, such Restrictive
                           Covenants as they relate to each jurisdiction
                           being, for this purpose, severable into diverse
                           and independent covenants.

           5. TERMINATION.

                  5.1      TERMINATION UPON DEATH. If the Executive dies during
                           the Term, this Employment Agreement shall terminate
                           immediately, except that the Executive's legal
                           representatives shall be entitled to receive any
                           Annual Salary to the extent such Annual Salary has
                           accrued and remains payable up to the date of the
                           Executive's death (to be paid in a lump sum within 10
                           days of the termination), plus a portion of the
                           Executive's Annual Bonus, as set forth in Section
                           3.2, computed on a pro rata basis based on the
                           performance of the Company from the beginning of the
                           relevant bonus period to the date of Executive's
                           death (to be paid

                                     -5-
<PAGE>

                           as promptly as practicable, but no later than 10
                           days after the determination thereof), and any
                           benefits to which the Executive, his heirs, or
                           legal representatives may be entitled under and in
                           accordance with the terms of any employee benefits
                           plan or program maintained by the Company.

                  5.2      TERMINATION UPON DISABILITY. If the Executive becomes
                           disabled during his employment hereunder so that he
                           is unable substantially to perform his services
                           hereunder for 180 consecutive days, then the term of
                           this Agreement may be terminated by resolution of the
                           Board sixty days after the expiration of such 180
                           days, such termination to be effective upon delivery
                           of written notice to the Executive of the adoption of
                           such resolution; provided, that the Executive shall
                           be entitled to receive any accrued and unpaid Annual
                           Salary through such effective date of termination (to
                           be paid in a lump sum within 10 days of the
                           termination), plus a portion of the Executive's
                           Annual Bonus, as set forth in Section 3.2, computed
                           on a pro rata basis based on the performance of the
                           Company from the beginning of the relevant bonus
                           period to the date of termination (to be paid as
                           promptly as practicable, but no later than 10 days
                           after the determination thereof; it being understood
                           that the Executive shall make the determination
                           whether the calculation and payment of the bonus
                           shall be made immediately after the effective date of
                           the termination or after the end of the fiscal year
                           of the termination), and any benefits to which the
                           Executive may be entitled under and in accordance
                           with the terms of any employee benefits plan or
                           program maintained by the Company.

                  5.3      TERMINATION FOR CAUSE. The Company has the right at
                           any time during the Term, subject to all of the
                           provisions hereof, exercisable by serving notice,
                           effective in accordance with its terms, to terminate
                           the Executive's employment under this Agreement and
                           discharge the Executive for "Cause" (as defined
                           below). If such right is exercised, the Executive
                           shall be entitled to receive unpaid and accrued
                           Annual Salary prorated through the date of such
                           termination, any benefits vested as of the date of
                           such termination and any other compensation or
                           benefits otherwise required to be paid under
                           applicable law. Except for such payments, the Company
                           shall be under no further obligation to the
                           Executive. As used in this Section 5, the term
                           "Cause" shall mean (i) the conviction of or plea of
                           guilty by the Executive of any felony or other
                           serious crime involving the Company, or (ii) gross
                           negligence or willful misconduct by the Executive in
                           the performance of his duties hereunder; provided
                           however, that no act shall be considered gross or
                           willful misconduct if the Executive believes he was
                           acting in good faith or in a manner not opposed to
                           the interests of the Company. The Company shall be
                           entitled to terminate the Executive for Cause only
                           upon approval of a resolution adopted by the
                           affirmative vote of not less than two-thirds of the
                           membership of the Board (excluding Executive). The
                           Company agrees to provide to the Executive prior
                           written notice (the "Notice") of its intention to
                           terminate Executive's employment for Cause, such
                           notice to state in detail the particular acts or
                           failures to act which constitute grounds for the
                           termination. The Executive shall be entitled to a
                           hearing before the Board to contest the Board's
                           findings, and to be accompanied by counsel. Such
                           hearing shall be held within 15 days of the

                                     -6-
<PAGE>

                           request thereof to the Company by the Executive,
                           provided that such request must be made within 15
                           days of delivery of the Notice. If, following any
                           such hearing, the Board maintains its
                           determination to terminate the Executive's
                           employment for Cause, the effective date of such
                           termination shall be as specified in the Notice.

                  5.4      TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. The
                           Company shall have the right at any time during the
                           Term to terminate the Executive's employment
                           hereunder without Cause. Upon such a termination or
                           the termination by the Executive for Good Reason, the
                           Company's sole obligation hereunder, except as
                           otherwise provided in Section 3.4, shall be to pay to
                           the Executive (i) an amount equal to any Annual
                           Salary accrued and due and payable to the Executive
                           hereunder on the date of termination (to be paid in a
                           lump sum within 10 days of the termination), (ii)
                           thereafter all Annual Salary for the remainder of the
                           Term, to be paid in a lump sum within 10 days of the
                           termination, (iii) in a lump sum payment (to be paid
                           as promptly as practicable, but no later than 10 days
                           after the determination thereof; it being understood
                           that the Executive shall make the determination
                           whether the calculation and payment of the bonus
                           shall be made immediately after the effective date of
                           the termination or after the end of the fiscal year
                           of the termination), the greater of (A) a portion of
                           the Executive's Annual Bonus as set forth in Section
                           3.2 computed on a pro rated basis based on the
                           performance of the Company from the beginning of the
                           bonus period to the date of termination and (B) an
                           amount equal to the amount of the Annual Bonus for
                           the fiscal year preceding the fiscal year in which
                           the date of termination occurs, pro rated based on
                           the number of days elapsed in the year of
                           termination. For purposes of this Agreement, "Good
                           Reason" shall mean (i) a reduction in the Annual
                           Salary or bonus opportunity as specified in Section
                           3.1 or 3.2, (ii) a relocation of the Company's
                           headquarters or required relocation of the Executive
                           more than 100 miles outside of the Dallas/Fort Worth
                           Metropolitan area, (iii) a material diminution in the
                           Executive's duties or responsibilities, (iv) an
                           adverse change in the Executive's title, (v)
                           assignment to Executive of duties and
                           responsibilities that are inconsistent with his
                           position in any material respect or (vi) failure of
                           the Board to nominate Executive for election to the
                           Board, or removal of the Executive from the Board
                           without his consent.

                  5.5      TERMINATION IN CONNECTION WITH CHANGE OF CONTROL. In
                           the event Executive's employment is terminated in
                           connection with a Change of Control (as such term is
                           defined in a Change of Control Agreement between
                           Executive and Company dated as of October 1, 2000
                           (the "Change of Control Agreement")) under
                           circumstances pursuant to which Executive is entitled
                           to payments under the Change of Control Agreement,
                           Executive shall be entitled to such payments as are
                           provided under such agreement in lieu of the payments
                           provided in this Section 5. It is the intent of both
                           Company and Executive that this Agreement in no way
                           shall impair Executive's rights and obligations, and
                           Company's rights and obligations, under such Change
                           of Control Agreement. However, to the extent that
                           this Agreement and the Change of Control Agreement
                           shall conflict, it is the intent of the Company and
                           the Executive that such agreements shall be
                           interpreted

                                     -7-
<PAGE>

                           in a manner such that Executive receives the
                           greater of (i) the payment or benefit provided
                           under this Agreement or (ii) the payment or
                           benefit provided under the Change of Control
                           Agreement, but that in no event shall Executive be
                           entitled to receive payments or benefits under
                           both agreements to the extent such payments or
                           benefits are duplicative.

                  5.6      OTHER. Except as otherwise provided herein, upon the
                           expiration or other termination of this Agreement
                           including the resignation of Executive, all
                           obligations of the Company shall forthwith terminate,
                           except as to any stock option rights as provided in
                           the Stock Option Agreements, the Existing Options,
                           and the Right (as defined below) as provided in the
                           SAR Agreement (as defined below) and except as
                           otherwise required by applicable law.

         6.    EXPENSES.

                  During the Term, the Executive will be reimbursed for his
                  reasonable professional and personal expenses incurred for
                  the benefit of the Company in accordance with the general
                  policy of the Company or directives and guidelines
                  established by management of the Company and upon
                  submission of documentation satisfactory to the Company.
                  Such expenses shall include, but shall not be limited to,
                  travel, entertainment, club dues and promotional expenses
                  and transportation expenses. With respect to any expenses
                  that are to be reimbursed by the Company to the Executive,
                  the Executive shall be reimbursed upon his presenting to
                  the Company an itemized expense voucher.

           7.  OTHER PROVISIONS.

                  7.1      NOTICES. Any notice or other communication required
                           or permitted hereunder shall be in writing and shall
                           be delivered personally, telegraphed, telexed, sent
                           by facsimile transmission or sent by certified,
                           registered or express mail, postage prepaid. Any such
                           notice shall be deemed given when so delivered
                           personally, telegraphed, telexed or sent by facsimile
                           transmission or, if mailed, five days after the date
                           of deposit in the United States mail, as follows:

                  (i)      if to the Company, to:
                           Dal-Tile International Inc.
                           7834 Hawn Freeway
                           Dallas, TX 75217
                           Attention: Mark Solls, Esq.

                  (ii)     if to the Executive, to:     with a copy to:

                           Jacques R. Sardas            Ira C. Kaplan, Esq.
                           6031 Orchid Lane             Benesch, Friedlander,
                                                        Coplan & Aronoff, LLP

                                     -8-
<PAGE>

                           Dallas, TX 75230             2300 BP America Building
                                                        200 Public Square
                                                        Cleveland, Ohio 44114

         Any party may change its address for notice hereunder by notice to
         the other parties hereto.

                  7.2      ENTIRE AGREEMENT. This Agreement, the Management
                           Subscription Agreement, the SAR Agreement, the
                           Existing Options, and the Stock Option Agreements
                           contain the entire agreement between the parties with
                           respect to the subject matter hereof and supersede
                           all prior agreements, written or oral, with respect
                           thereto, including, without limitation, the Prior
                           Employment Agreement.

                  7.3      WAIVERS AND AGREEMENTS. This Agreement may be
                           amended, modified, superseded, cancelled, renewed or
                           extended, and the terms and conditions hereof may be
                           waived, only by a written instrument signed by the
                           parties or, in the case of a waiver, by the party
                           waiving compliance. No delay on the part of any party
                           in exercising any right, power or privilege hereunder
                           shall operate as a waiver thereof, nor shall any
                           waiver on the part of any party of any right, power
                           or privilege hereunder, nor any single or partial
                           exercise of any right, power or privilege hereunder
                           preclude any other or further exercise thereof or the
                           exercise of any other right power or privilege
                           hereunder.

                  7.4      GOVERNING LAW. This Agreement shall be governed and
                           construed in accordance with the laws of the State of
                           Delaware applicable to agreements made and to be
                           performed entirely within such State.

                  7.5      ASSIGNMENT. Executive may not delegate the
                           performance of any of his duties hereunder. Neither
                           party hereto may assign any rights hereunder without
                           the written consent of the other party hereto.
                           Subject to the foregoing, this Agreement shall be
                           binding upon and shall inure to the benefit of the
                           parties hereto and their respective successors and
                           assigns.

                  7.6      COUNTERPARTS. This Agreement may be executed in two
                           counterparts, each of which shall be deemed an
                           original but both of which together shall constitute
                           one and the same instrument.

                  7.7      HEADINGS. The headings in this Agreement are for
                           reference purposes only and shall not in any way
                           affect the meaning or interpretation of this
                           Agreement.

           8.  ARBITRATION.

           Any and all disputes arising out of or relating to this Agreement or
the breach, termination or validity thereof shall be settled by arbitration
before a sole arbitrator in accordance with the then current CPR Rules for
Non-Administered Arbitration. The arbitration shall be governed by the Federal
Arbitration Act, 9 U.S.C. Section 116, and judgment upon the award rendered by
the arbitrator may be entered by any court having

                                     -9-
<PAGE>

jurisdiction thereof. The arbitration shall be held in Dallas, Texas and,
unless the parties agree otherwise, the arbitrator shall be selected from
CPR's panel of neutrals.

           Either party may demand arbitration by sending to the other party by
certified mail a written notice of demand for arbitration, setting forth the
matters to be arbitrated. The arbitrator shall have the authority to award only
compensatory damages, and neither party shall be entitled to written or
deposition discovery from the other. The Company will pay the fees and expenses
of the arbitrator, as well as any attorneys' fees, expert witness fees, and
other expenses to the extent provided in Section 18 hereof. The arbitrator shall
have no authority to alter, amend or modify any of the terms and conditions of
this Agreement.

           Before arbitrating the dispute, the parties, if they so agree, may
endeavor to settle the dispute by mediation under the then current CPR Mediation
Procedure. Unless otherwise agreed, the parties will select a mediator from the
CPR panel of neutrals. If the mediation is not successfully concluded within
thirty (30) days, the dispute will proceed to arbitration as set forth above.

           Notwithstanding the pendency of any dispute or controversy concerning
termination or the effects thereof, the Company will continue to pay the
Executive his full compensation in effect immediately before any notice of
termination giving rise to the dispute was given and continue him as a
participant in all compensation, benefit and insurance plans in which he was
then participating, until an award has been entered by the arbitrator. Any
amounts paid hereunder shall be set off against or reduced by any other amounts
due under this Agreement.

           9.   STOCK OPTIONS, REGISTRATION.

                     (a) The Company agrees, upon the occurrence of a Filing
                     Event (as defined below), as promptly as practicable but
                     not later than 45 days after such occurrence, to (i) file
                     with the Securities and Exchange Commission (the "SEC"), at
                     the Company's cost and expense, a Registration Statement on
                     Form S-8, including an offer prospectus on Form S-3 (or
                     similar form) with respect to the shares of Common Stock
                     issuable upon exercise of the Options, the Existing
                     Options, and (to the extent not previously exercised) the
                     Right (as defined in the Stock Appreciation Rights
                     Agreement dated as of February 20, 1998, between the
                     Company and Executive (the "SAR Agreement")), (ii) maintain
                     the effectiveness of such Registration Statement (subject
                     to the other provisions of this Section 9) until all of the
                     Options, the Existing Options and the Right shall have been
                     exercised in full or shall have expired, whichever shall
                     first occur, and (iii) provide to Executive copies of the
                     Registration Statement and all amendments, if any, thereto.
                     The Company further agrees to cause any Registration
                     Statement on Form S-8 filed by the Company on behalf of its
                     other employees to cover the Options, the Existing Options
                     and the Right held by the Executive.

                     (b) (i) If the Company proposes to effect an underwritten
                     secondary registration on behalf of DTI Investors LLC or
                     its members, the Company will provide prompt notice to the
                     Executive thereof and will permit the Executive to include
                     in such registration shares of Common Stock owned by him
                     (including shares acquired or to be acquired pursuant to
                     the exercise of options by him) with respect to which the
                     Company has received written request for inclusion therein
                     within 20 days after the receipt of the Company's notice.
                     Common Stock requested by the Executive to be included in
                     such registration will be included pro rata on the basis of
                     the number of shares of Common Stock held by the Executive
                     and the other

                                     -10-
<PAGE>

                     participants in such registration, subject to reduction,
                     if necessary, if the managing underwriter for the offering
                     advises the Company that such reduction is advisable in
                     order to avoid an adverse effect on the proposed offering;
                     provided, however, Executive shall have priority as to
                     500,000 of his shares of Common Stock.

                                  (ii) Subject to receipt of requisite third
                     party consents, at any time during the period commencing
                     January 31, 2005 and ending December 31, 2006, Executive
                     shall have the right to make one or more requests for
                     registration on Form S-3 of shares of Common Stock owned by
                     him (including shares acquired pursuant to the exercise of
                     options by him), provided that such request shall not be
                     effective unless the Common Stock subject thereto has an
                     estimated market value of at least $15,000,000. The Company
                     will not be obligated to effect any such registration
                     within six months after the effective date of any
                     previously filed registration statement of the Company, and
                     the Company shall have the right to postpone any requested
                     registration for up to six months if it determines in good
                     faith that such registration could reasonably be expected
                     to have an adverse effect on any Proposal or plan by the
                     Company or its subsidiaries to engage in any acquisition,
                     merger, disposition or other material corporate
                     transaction. Executive shall have the right to select the
                     managing underwriters to administer the registered public
                     offering requested pursuant hereto, who shall be of
                     national prominence and reasonably acceptable to the
                     Company. Upon any request pursuant hereto, the Company will
                     use all reasonable efforts to effect the registration and
                     the sale of the Common Stock subject thereto as promptly as
                     practicable. Executive acknowledges that any registration
                     requested pursuant hereto will be subject to any "piggy
                     back" registration rights in effect at the time of the
                     Executive's request, provided, however, that (a) the
                     Executive shall not be obligated to reduce his
                     participation in such registration below 2 million shares
                     of Common stock as a result of a pro-rata reduction, and
                     (b) the Executive shall have the right to make one or more
                     additional requests for registration (on the same terms and
                     conditions provided for in this subparagraph (ii), except
                     that the $15 million minimum referred to above shall be $10
                     million) if shares of Common Stock owned by him were
                     excluded from registration as a result of "piggy back"
                     registration rights of others exercised by others. Except
                     as otherwise set forth above, no such "piggy back"
                     registration rights shall have priority over those granted
                     to the Executive pursuant to this subparagraph (ii).

                                  (iii) The Company shall bear all expenses in
                     connection with the registrations provided for herein
                     (other than underwriting discounts and commissions and
                     transfer taxes, if any) and fees and expenses of the
                     Executive's legal and other advisers, attributable to the
                     inclusion in any such registration of Common Stock owned by
                     Executive.

                     (c) The obligations of the Company contained in this
                     Section 9 are subject to (i) requirements of applicable
                     law, (ii) restrictions that may be imposed by the Company's
                     underwriters, and (iii) Executive cooperating and providing
                     any needed consents, agreements (including any required
                     "lock up" or customary indemnity agreements, to the extent
                     such arrangements are requested of members of Company
                     management or significant shareholders, generally) and
                     information. Executive agrees that he will discontinue any
                     (i) exercise of the Options, the Existing Options, or the
                     Rights or (ii) sale of shares of Common Stock upon notice
                     from the Company that an event or development makes
                     amendment or supplement of any Registration Statement of
                     the Company covering shares of Common Stock owned by the
                     Executive (or suspension of effectiveness thereof)
                     necessary, and will not resume such exercise

                                     -11-
<PAGE>

                     or sale until the Company informs Executive he may do so
                     (provided that the Company shall not require such
                     discontinuance for more than 90 days in any 360-day
                     period). Executive specifically agrees that, in
                     connection with a Filing Event described in clause (i)
                     of the definition thereof, he will not sell, transfer or
                     otherwise dispose of any shares of Common Stock, for a
                     period of 180 days following such event, unless the
                     underwriters for the relevant public offering determine
                     a shorter period to be appropriate.

                     (d) For the purpose of this Section 9, "Filing Event" shall
                     mean the earliest to occur of the following events: (i) the
                     sale in a registered public offering of at least 10% of the
                     shares of Common Stock held at such time by DTI Investors
                     LLC or its members (taken as a group); and (ii) the date of
                     the termination of the Executive's employment (A) by the
                     Company without Cause or by reason of disability or by the
                     Executive for Good Reason, (B) as a result of the
                     expiration of the Term of this Agreement (December 31,
                     2004), (C) by reason of the Executive's death, or (D)
                     subsequent to a Change of Control (as such term is defined
                     in the Change of Control Agreement).

                     (e) Company agrees, at the reasonable request of Executive
                     and at the sole cost of Company, to assist Executive in
                     determining a strategy for the sale of Common Stock
                     acquired by Executive, whether acquired pursuant to the
                     Options, the Existing Options, the Rights or otherwise,
                     provided that such strategy shall be designed to maximize
                     the economic and business benefits for both Company and
                     Executive.

                     (f) Company agrees that the Options granted pursuant to
                     Section 3.3 of this Agreement, as well as any stock options
                     granted to him in the future by the Company, shall (to the
                     extent permitted by law) be transferable by Executive
                     without restriction, provided that Executive shall be
                     required to notify Company (and inform Company of the terms
                     of such transfer and the identity of the transferee of such
                     options) at least five (5) business days prior to such
                     transfer.

                     (g) Company and Executive agree that this Agreement hereby
                     incorporates the terms of that certain letter, dated August
                     5, 1999, from the Company to DTI Investors LLC (the "Letter
                     Agreement"), which Letter Agreement has been previously
                     provided to Executive. To the extent that the terms and
                     provisions of the Letter Agreement and this Agreement are
                     inconsistent, the terms and provisions of the Letter
                     Agreement shall prevail.

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

                                         DAL-TILE INTERNATIONAL INC.

--------------------------               By:
JACQUES R. SARDAS                           ---------------------------------
                                         Name:
                                              -------------------------------
                                         Title:
                                               ------------------------------

                                     -12-

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