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<PAGE>

================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

(MARK ONE)

/X/  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 29, 2000

                                       OR

/ /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                         COMMISSION FILE NUMBER 33-64140

                              --------------------
                           DAL-TILE INTERNATIONAL INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                   DELAWARE                             13-3548809
        (STATE OR OTHER JURISDICTION OF              (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)               IDENTIFICATION NO.)

       7834 HAWN FREEWAY, DALLAS, TEXAS                    75217
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)             (ZIP CODE)

                                 (214) 398-1411
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

                                               NAME OF EACH EXCHANGE
        TITLE OF EACH CLASS                     ON WHICH REGISTERED
        -------------------                     -------------------

    COMMON STOCK, $.01 PAR VALUE              NEW YORK STOCK EXCHANGE

        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

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

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

As of March 8, 2001, there were 55,725,247 shares of the Registrant's Common
Stock outstanding. The aggregate market value of Common Stock held by
nonaffiliates of the Registrant at March 8, 2001 was $436,367,815 (based on the
closing sale price of the Common Stock on March 8, 2001). This calculation does
not reflect a determination that persons are affiliates for any other purposes.




                       DOCUMENTS INCORPORATED BY REFERENCE

                DOCUMENT                       PART OF FORM 10-K
                --------                    INTO WHICH INCORPORATED
        PROXY STATEMENT FOR 2001            -----------------------
     ANNUAL MEETING OF STOCKHOLDERS                PART III




================================================================================

<PAGE>

                                                DAL-TILE INTERNATIONAL INC.

                                                        FORM 10-K

                                                    TABLE OF CONTENTS


<TABLE>
<CAPTION>

                                                                                                                      Page
                                                                                                                      ----
<S>               <C>                                                                                                 <C>
                                                           PART I

Item 1.           Business.........................................................................................    1
Item 2.           Properties.......................................................................................    10
Item 3.           Legal Proceedings................................................................................    11
Item 4.           Submission of Matters to a Vote of Security Holders..............................................    11

                                                          PART II
Item 5.           Market for Registrant's Common Equity and Related Stockholder Matters............................    12
Item 6.           Selected Financial Data..........................................................................    13
Item 7.           Management's Discussion and Analysis of Financial Condition and Results of Operations............    14
Item 7A.          Quantitative and Qualitative Disclosures About Market Risk.......................................    20
Item 8.           Financial Statements and Supplementary Data......................................................    22
Item 9.           Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............    22

                                                          PART III
Item 10.          Directors and Executive Officers of the Registrant...............................................    23
Item 11.          Executive Compensation ..........................................................................    26
Item 12.          Security Ownership of Certain Beneficial Owners and Management...................................    26
Item 13.          Certain Relationships and Related Transactions...................................................    26

                                                          PART IV
Item 14.          Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................    27

</TABLE>

<PAGE>

                                     PART I


ITEM 1. BUSINESS

GENERAL

Dal-Tile International Inc., a Delaware corporation formed in 1987 (the
"Registrant"), believes that it is the largest manufacturer, distributor and
marketer of ceramic tile in the United States and one of the largest in the
world. Unless the context otherwise requires, references herein to the "Company"
and "Dal-Tile" shall refer to Dal-Tile International Inc. and its consolidated
subsidiaries. Dal-Tile International Inc. is a holding company and conducts all
its operations through its subsidiaries. References herein to fiscal year 2000
refer to the fiscal year ended December 29, 2000.

Dal-Tile currently conducts its business in one industry segment, engaging in
the manufacturing, distribution and marketing of tile (wall, floor, quarry and
mosaic), natural stone and related products. The Company operates with a
significant level of vertical integration, combining what it believes to be
North America's largest volume distribution system of ceramic tile with modern
manufacturing facilities located in the United States and Mexico. A full range
of tile and stone products are offered, as well as installation materials and
tools ("allied products") designed to appeal to a broad range of customers for
both residential and commercial applications (new construction as well as
remodeling). Products are sold through a network of 220 Company-operated sales
centers to tile contractors, architects, design professionals, builders,
developers and individual consumers. Products are also sold through a network of
200 independent distributor locations to a variety of commercial and residential
customers. In addition, Dal-Tile is a significant supplier to the do-it-yourself
and buy-it-yourself market by supplying home center retailers, such as The Home
Depot and Lowe's. The Company's manufactured products are marketed under the
names DALTILE-Registered Trademark- and AMERICAN OLEAN-Registered Trademark-. In
addition, the Company resells other manufacturers' products under its own and/or
such other manufacturers' brands.

The Company commenced operations in 1947 as the Dallas Ceramic Company and
established its first wall tile manufacturing facility and corporate
headquarters in Dallas, TX. On January 9, 1990, AEA Investors Inc., a privately
held corporation headquartered in New York ("AEA Investors"), arranged for
Dal-Tile to acquire all the outstanding capital stock of Dal-Tile Corporation,
its affiliated companies and certain related assets (the "AEA Acquisition"). On
December 29, 1995, the Company completed the acquisition of all the issued and
outstanding stock of American Olean Tile Company, Inc. ("AO"), a wholly owned
subsidiary of Armstrong World Industries, Inc. ("AWI"), and certain related
assets of the ceramic tile operations of AWI (the "AO Acquisition").

DISTRIBUTION, SALES AND MARKETING

Products are distributed through three separate distribution channels consisting
of (i) Company-operated sales centers, (ii) independent distributors and (iii)
home center retailers. The business is organized into three strategic business
units to address the specific customer needs of each distribution channel. Each
strategic business unit is supported by a dedicated sales force.

Dal-Tile has three regional distribution centers strategically located in
California, Maryland and Texas to improve customer service in each distribution
channel through shorter lead times, increased order fill rates and improved
on-time deliveries to its customers. In addition, the regional distribution
centers enhance the ability to plan and schedule production and to manage
inventory requirements.

                                       1

<PAGE>

During fiscal year 2000, Dal-Tile opened a state-of-the-art showroom and design
center in Atlanta, GA. The Company had previously opened a showroom in Dallas,
TX in fiscal year 1999. These showrooms are dedicated primarily to the
residential business and provide a place for customers of local builders,
remodelers, architects, designers and contractors to view and select ceramic
tile for their building projects. The showroom is staffed with design
professionals knowledgeable in wall and floor tile applications, as well as
current design and decorating trends.

COMPANY-OPERATED SALES CENTERS

A network of 220 Company-operated sales centers located in the U.S., Canada and
Puerto Rico distributes primarily the DALTILE brand product, serving customers
in all 50 states and portions of Canada and Puerto Rico. For fiscal year 2000, a
majority of the Company's net sales were made through its Company-operated sales
centers.

In addition to sales center staff, this distribution channel is supported by
approximately 129 sales associates servicing both commercial and residential
markets. The DALTILE brand also has a group of 43 sales representatives
dedicated exclusively to the architectural community. The architectural
community exercises significant influence over the specification of products
utilized in commercial applications.

The Company has designed each sales center to serve as a "one-stop" source that
provides customers with one of the ceramic tile industry's broadest product
lines - a complete selection of glazed floor tile, glazed wall tile, glazed and
unglazed ceramic mosaic tile, porcelain tile, quarry tile and stone products, as
well as allied products. In addition to products manufactured by the Company,
the sales centers carry a selection of purchased products to provide customers
with a broader product line. The sales centers generally range in size from
3,000 to 30,000 square feet, with a typical center occupying approximately
12,000 square feet. The sales centers consist of a showroom dedicated to
displaying the product offerings together with office space and a warehouse in
which inventory is stocked. Sales center displays and inventories are designed
to reflect local consumer preferences. The sales centers generally are located
in light industrial areas rather than retail areas and generally occupy
moderately priced lease space under 3 to 5 year leases.

As of December 29, 2000, the sales center distribution system included 218
Dal-Tile sales centers and two American Olean sales centers, three stone slab
operations and two residential showrooms, which provide sales and merchandising
support to the sales centers. In the future, the Company may open additional
sales centers in areas where factors such as population, construction activity,
local economic conditions and usage of tile create an attractive environment for
a sales center. From time to time, sales centers are closed in locations where
economic and competitive conditions have changed.

INDEPENDENT DISTRIBUTOR

The independent distributor channel is serviced through a dedicated business
unit that includes 12 regional sales managers to serve the particular
requirements of its customers. Currently, the AMERICAN OLEAN brand is
distributed through 200 independent distributor locations and two Company-owned
sales centers that service a variety of residential and commercial customers.
The Company's strategy is to increase its presence in the independent
distributor channel, particularly in tile products that are most commonly used
in flooring applications.

Domestic sales within Mexico are made primarily through a network of independent
retailers who are principally supplied by the Monterrey, Mexico manufacturing
facility.

                                       2

<PAGE>

HOME CENTER RETAILERS

The Company believes it is one of the U.S. ceramic tile industry's largest
suppliers to the do-it-yourself and buy-it-yourself markets through home center
retailers, such as The Home Depot and Lowe's, serving more than 1,600 home
center retail outlets nationwide. The home center retailer channel has provided
Dal-Tile with new sources of sales over the past five years and is expected to
continue presenting important growth opportunities.

ESTABLISHED BRANDS AND SPECIAL MARKETING PROGRAMS

The Company believes that it has two of the leading brand names in the U.S.
ceramic tile industry - DALTILE and AMERICAN OLEAN. The roots of the DALTILE and
AMERICAN OLEAN brand names date back approximately fifty and seventy-five years,
respectively.

The Company-operated sales centers distribute primarily the DALTILE brand, which
includes a fully integrated marketing program, emphasizing a focus on fashion.
The product offering is based on the Company's assessment of the needs of
professional installers, designers, architects and builders, as well as a review
of competitive products. The marketing program includes public relations
support, merchandising (displays/sample boards, chip chests),
literature/catalogs and an Internet website.

The AMERICAN OLEAN brand consists of a full product offering and is distributed
primarily through independent distributors. The brand is supported by a fully
integrated marketing program, including public relations efforts, displays,
merchandising (sample boards, chip chests), literature/catalogs and an Internet
website.

The Company also has a special marketing program with Kohler-Registered
Trademark- for bathroom and kitchen fixture color coordination. The program
includes development of ceramic tile products and merchandising programs to
complement this product line.

PRODUCT AND PRODUCT DEVELOPMENT

The Company manufactures and sells different types of tile in various sizes and
styles for commercial and residential use, including related trim and angle
pieces. The Company also sells products purchased from third-party
manufacturers, primarily porcelain tile, natural stone and allied products.
Management believes that "one-stop shopping," which requires a full product line
at its Company-operated sales centers, is an important competitive advantage in
servicing its core customers, especially tile contractors.

The Company believes that, due to technological innovations, the U.S. ceramic
tile industry is increasing its fashion orientation, particularly in tile used
in flooring applications. The Company has developed capabilities to produce
fashionable and innovative tile products and to simulate natural products such
as stone, marble and granite. In order to capitalize on the increased demand
for, and higher margins available from, fashion-oriented tile products, the
Company has (i) increased the number of new tile product introductions, (ii)
focused on shortening product introduction cycle time, (iii) expanded its
relationships with leading glaze and raw material manufacturers, (iv) focused on
consumer preferences to deliver products consistent with current design trends
and (v) continued to invest in research and development to further develop new
products and manufacturing capabilities.

                                       3

<PAGE>

During fiscal year 2000, Dal-Tile announced that it had entered into a joint
venture, Dal Italia LLC, with EmilCeramica S.p.A., a leading Italian tile
manufacturer. Dal Italia LLC sells and distributes high quality porcelain tile
for the North American market. This will allow Dal-Tile to offer its customers
specially designed products combining superior Italian technology with
Dal-Tile's unmatched distribution and professional sales services.

CUSTOMERS

Dal-Tile's core customers consist of large and small tile contractors,
architects, design professionals, builders, developers, independent
distributors, floor covering dealers and ceramic specialty retailers. The
Company also sells to the do-it-yourself and buy-it-yourself market through a
relationship with home center retailers, such as The Home Depot and Lowe's, and
is a significant supplier to this channel. The Company has a broad and
diversified customer base of more than 41,000 active accounts in the United
States. In addition, the Company has a program with over 285 accounts where
Dal-Tile products are specified on their projects. These accounts range from
recognized restaurant chains, such as McDonald's, Wendy's, Taco Bell and Burger
King, to other national chain stores, such as Barnes & Noble book stores,
Wal-Mart stores and ExxonMobil service stations.

The Company does not rely on any one customer or group of customers for a
material amount of its net sales. The largest customer for fiscal year 2000
accounted for less than 8 percent of net sales, and the 10 largest customers
accounted for approximately 15 percent of net sales in the same period.

MANUFACTURING

Currently, Dal-Tile operates nine tile manufacturing facilities with an
aggregate annual manufacturing capacity of 488 million square feet. During the
five-year period 1996-2000, approximately $150 million has been invested in
capital expenditures, principally for new plants and state-of-the-art fast-fire
equipment to increase manufacturing capacity, improve efficiency and develop new
capabilities. Operating capacity has expanded from 402 million square feet to
488 million square feet during the same period.

In fiscal year 1996, approximately 22 million square feet of fast-fire wall
tile production capacity was established at the El Paso, TX facility and was
increased to approximately 45 million square feet in fiscal year 1997. During
fiscal year 1998, approximately 22 million square feet of fast-fire wall tile
production capacity was added at the Dallas, TX facility to replace less
efficient production capacity at the location. In fiscal year 1999,
approximately 22 million square feet of fast-fire glazed floor tile capacity
was added in Monterrey, Mexico. Also, approximately 5.6 million square feet
of fast-fire wall tile trim capacity was added in the Dallas, TX facility to
replace less efficient production capacity at the location. In fiscal year
2000, approximately 22 million square feet of fast-fire glazed wall tile
capacity was added in El Paso, TX. Also, approximately 5.0 million square
feet of fast-fire wall tile trim capacity was added in the Dallas, TX
facility to replace less efficient production capacity at the location. Also,
approximately 5.5 million square feet of fast-fire quarry capacity was added
in the Lewisport, KY facility.

The Company commenced operations in Mexico at its Monterrey facility in 1955 and
since then has been manufacturing products at this facility for U.S. and Mexican
consumption. The Monterrey location contains five distinct manufacturing
facilities, three of which produce ceramic tile, one which produces frit (ground
glass) and one which produces refractories. This location is the Company's
largest manufacturing facility.

                                       4

<PAGE>

The Company also has a 49.99 percent interest in Recumbrimientos Interceramic,
S.A. de C.V. ("RISA"), a Mexican joint venture with Interceramic, a leading
Mexican manufacturer, which, pursuant to contractual arrangements, has agreed to
supply the Company, at the Company's option, with up to 25 million additional
square feet of floor tile annually.

Following the AO Acquisition, the Company consolidated wall tile production by
closing the Lansdale, PA and Jackson, TN wall tile facilities and consolidating
a portion of the mosaic tile production in fiscal year 1996. In fiscal year
1997, the Company initiated the process of consolidating a portion of unglazed
floor tile production by closing the Coleman, TX facility. In addition,
production was suspended in late fiscal year 1997 at the Mt. Gilead, NC glazed
floor tile facility, and the facility was closed during fiscal year 1998. As of
December 29, 2000, the Company was pursuing the sale of the Coleman and Mt.
Gilead facilities.

The Company believes that its manufacturing organization offers competitive
advantages due to its ability to manufacture a differentiated product line
consisting of one of the industry's broadest product offerings of colors,
textures and finishes, as well as the industry's largest offering of trim and
angle pieces and its ability to utilize the industry's newest technology. The
Company's manufacturing strategy is to maximize production at its lowest cost
manufacturing facilities, continue ongoing improvements by implementing
demonstrated best practices and continue to invest in manufacturing technology
to lower its costs and develop new capabilities.

The following table summarizes the products currently manufactured by the
Company's facilities:


<TABLE>
<CAPTION>

FACILITY                                         PRODUCT TYPE
--------                                         ------------
<S>                                              <C>
Fayette, AL.............................         Unglazed quarry tile
Lewisport, KY...........................         Unglazed quarry tile
Monterrey, Mexico.......................         Glazed wall tile, glazed floor tile, glazed mosaic tile
Olean, NY...............................         Unglazed mosaic tile
Gettysburg, PA..........................         Unglazed mosaic tile
Jackson, TN.............................         Glazed and unglazed mosaic tile
Conroe, TX..............................         Glazed floor tile
Dallas, TX..............................         Glazed wall tile
El Paso, TX.............................         Glazed wall tile

</TABLE>

While certain of the manufacturing facilities are described above as producing
either "floor" or "wall" tile, tile consumers employ all sizes and varieties of
tile products in all types of applications. The references to "floor" and "wall"
tile serve to identify the most common application for the size and variety in
question.

RAW MATERIALS

Dal-Tile manufactures (i) wall tile primarily from talc and clay, (ii) floor
tile and glazed mosaic tile primarily from impure nepheline syenite and clay,
(iii) unglazed ceramic tile primarily from pure nepheline syenite and clay and
(iv) unglazed quarry tile from clay.

During the fourth quarter of fiscal year 1999, the Company sold its talc mining
operation, along with the related mineral rights, to Wold Talc Company. In
conjunction with the sale, a long-term supply agreement for talc requirements
was signed between the Company and Wold Talc Company.

                                       5

<PAGE>

Dal-Tile owns long-term clay mining rights in Alabama, Kentucky and Mississippi
that satisfy nearly all clay requirements for producing unglazed quarry tile.
The Company purchases a number of different grades of clay for the manufacture
of its non-quarry tile. Management believes that there is an adequate supply of
all grades of clay and that all are readily available from a number of
independent sources.

The Company purchases all of its impure nepheline syenite requirements from
Minnesota Mining and Manufacturing Company; however, management believes that
there is an adequate supply of impure nepheline syenite which can be obtained
from other sources. Pure nepheline syenite is purchased from Unimin Corporation,
which is the only major supplier of this raw material in North America.
Management believes that if there were a supply interruption of pure nepheline
syenite, feldspar could be used in the production of mosaic tile. Feldspar can
be purchased from a number of sources at comparable cost.

Glazes are used on a significant percentage of manufactured tile, consisting of
frit (ground glass), zircon, stains and other materials, with frit being the
largest ingredient. The Company manufactures approximately 62 percent of its
frit requirements.

Management reviews its sources of raw materials periodically and may eliminate
or reduce the use of certain raw materials based on the cost and chemical
composition of alternative sources.

MANAGEMENT INFORMATION SYSTEMS

During fiscal year 2000, major new systems implemented included a new sales
forecasting system, an eCommerce web site for independent distributors, a
web-based tracking system to track purchase orders for sourced finished goods,
an Oracle general ledger system and a sales data warehouse for comprehensive
sales reporting.

COMPETITION

Sales of the Company's products are made in a highly competitive marketplace.
Management estimates that over 100 tile manufacturers, more than half of
which are based outside the U.S., compete for sales of ceramic tile to
customers located in the U.S. Although the U.S. ceramic tile industry is
highly fragmented at both the manufacturing and distribution levels, the
Company believes that it is the largest manufacturer, distributor and
marketer of ceramic tile in the U.S. and one of the largest in the world. In
addition to competition from domestic and foreign tile manufacturers,
Dal-Tile encounters competition from manufacturers of products that serve as
an alternative to tile. Competition in the tile industry is based on design,
price, customer service and quality. The Company believes that it has a
favorable competitive position as a result of its extensive North American
distribution system and manufacturing capacity, together with its vertically
integrated operations. In fiscal year 1999, approximately 72 percent of
ceramic tile sales (by unit volume) in the U.S. consisted of imports,
including approximately 7 percent manufactured by the Company in Mexico. In
general, the proportion of U.S. ceramic tile sales attributable to imports
has increased in recent years.

Dal-Tile products compete with numerous other wall and flooring coverings for
residential and commercial uses. Among such floor coverings are carpet, wood
flooring and resilient flooring. Among such wall coverings are paint, wallpaper,
laminates and wood paneling. Ceramic tile products compete effectively as to
price with carpeting, wood flooring and vinyl flooring. Although the cost of
installation of ceramic tile is higher than the cost of installation of carpet,
wood flooring and some wall coverings, it is generally believed that ceramic
tile has a lower cost over its useful life, primarily due to ceramic tile's
durability.

                                       6

<PAGE>

EMPLOYEES

At December 29, 2000, the Company employed 7,524 persons, 2,879 of which were
employed by its Mexican subsidiary. Approximately 10 percent of employees in
the U.S. are represented by unions. Approximately 90 percent of the employees
in Mexico are represented by a union under a collective bargaining agreement
effective January 1, 2001. The Company has not experienced a significant work
stoppage in Mexico in over 20 years and experienced only one brief work
stoppage in the U.S. over that period. The Company believes that relations
with its employees are good.

TRADEMARKS

The Company owns rights to certain trademarks and trade names, including
DALTILE, AMERICAN OLEAN, HOME SOURCE AND DAL-MONTE-TM-, which are or have been
used in the marketing of its products. The Company believes that breadth of
product line, customer service and price are important in tile selection and
that the trademarks and tradenames themselves are important as source
identifiers that help differentiate Company product lines from those of
competitors.

ENVIRONMENTAL REGULATION

The Company is subject to various federal, state, local and foreign
environmental laws and regulations, including those governing air emissions,
wastewater discharges, the use, storage, treatment and disposal of solid and
hazardous materials, and the remediation of contamination associated with such
disposal. Because of the nature of its business, the Company has incurred, and
will continue to incur, costs relating to compliance with such laws and
regulations. The Company is involved in various proceedings relating to
environmental matters and is currently engaged in environmental investigation,
remediation and post-closure care programs at certain sites. The Company has
provided reserves for such activities that the Company has determined to be both
probable and reasonably estimable. The Company is entitled to indemnification
with respect to certain expenditures incurred in connection with such
environmental matters and does not expect that the ultimate liability with
respect to such activities will have a material effect on the Company's
liquidity and financial condition.

A number of the Company's facilities have conducted tile manufacturing
operations for many years and in the past have used lead compounds and other
hazardous materials in its glazing operations. The Texas environmental
proceedings discussed below arose principally in connection with the Company's
disposal of waste materials containing lead compounds prior to the AEA
Acquisition. From time to time, the Company also is involved in the remediation
of historic contamination at certain of its other present and former facilities,
as well as at other locations in the U.S.

The Company is involved in Resource Conservation and Recovery Act ("RCRA") Part
B post-closure care permitting projects with respect to two sites near its
Dallas facility, which are proceeding under the oversight of the Texas Natural
Resource Conservation Commission ("TNRCC"). In March 1991, the Company and the
predecessor to the TNRCC agreed to an administrative order (the "1991 Order")
relating to past waste disposal activities conducted prior to the AEA
Acquisition. The 1991 Order related principally to the disposal by the Company
of waste materials containing lead compounds in a gravel pit ("Elam") near the
City of Mesquite's landfill in Dallas County during a period from 1980 to 1987,
and the disposal of miscellaneous solid wastes that were contaminated by lead
compounds at a Company-operated landfill located on Pleasant Run Road ("Pleasant
Run") in Dallas County from 1986 to May of 1990. Pursuant to the 1991 Order, the
Company paid a non-deferred assessed penalty of $350,000 and contributed another
$350,000 to a fund dedicated to environmental enhancement activities in Dallas
County. The Company received notice from the TNRCC terminating the 1991 Order
and releasing the Company from any obligation regarding the payment of deferred
penalties. The Company's closure plans

                                       7

<PAGE>

for Elam and Pleasant Run were approved by the TNRCC, and remediation and
other activities associated with the closures have been completed. The TNRCC
formally issued post-closure care permits for Elam and Pleasant Run in April
of 2000. The Company expects to incur a future cost of approximately $270,000
in connection with post-closure at Elam and Pleasant Run. The Company expects
to recover at least 50 percent of costs relating to these sites (a substantial
portion of which has already been recovered) pursuant to the Settlement
Agreement with two of the former owners of the Company described below, and
the Company believes that any amounts not recovered pursuant to the Settlement
Agreement will not have a material adverse effect on the Company.

The remediations described above followed a related criminal investigation which
led to the indictments and, in fiscal year 1993, the convictions of a former
owner and a former senior executive officer of the Company on federal charges of
violating environmental laws. The U.S. Attorney's Office for the Northern
District of Texas (the "U.S. Attorney's Office"), which obtained the
indictments, informed the Company in writing on April 22, 1992 that, based on
information in the possession of the U.S. Attorney's Office, it had decided not
to prosecute the Company for violations of environmental criminal statutes.

The Company is involved in an environmental remediation program with respect to
the disposal of hazardous wastes prior to the AEA Acquisition at a third site
near its Dallas facility. In October 1994, the Company, Master-Halco, Inc.
("Master-Halco") (a manufacturing company not affiliated with the Company),
certain third party individuals and the TNRCC agreed to an administrative order
(the "1994 Order") relating to, among other things, investigation and
remediation in connection with the alleged disposal of waste materials
containing lead compounds generated by the Company and others at a gravel pit on
Kleburg Road ("Walton") in Dallas prior to 1980. The Company has agreed to
indemnify such individuals against any costs relating to the disposal of
industrial solid waste at the site. Pursuant to the 1994 Order, among other
things, an administrative penalty of $213,200 assessed against the individuals
has been deferred pending timely and satisfactory completion of the technical
requirements in the 1994 Order. Master-Halco has paid the Company $690,000 to
resolve Master-Halco's share of remediation costs relating to the Walton site.
The Company has completed all required remediation and closure activities and in
November of 2000 submitted a formal closure certificate to the TNRCC. The
Company will submit an application for a post-closure care permit after the
closure certificate is approved. The Company expects to receive approval of the
post-closure care permit prior to the end of fiscal year 2002. In fiscal year
2000, total expenditures at Walton were approximately $1,800,000. The Company
expects to incur future costs of approximately $670,000 in connection with the
Walton site. The Company expects to recover at least 50 percent of its costs
pursuant to the Settlement Agreement with two of the former owners of the
Company described below, and the Company believes that any amounts not recovered
pursuant to the Settlement Agreement will not have a material adverse effect on
the Company.

On May 20, 1993, the Company entered into an agreement with Robert M.
Brittingham and John G. Brittingham, two of the former owners of the Company
(the "Settlement Agreement"), pursuant to which substantially all of the costs
incurred to the date thereof by the Company (approximately $13,600,000) in
respect of the 1991 Order, the three Dallas area sites described above and
certain related matters, including certain of the notices of violation referred
to above, have been repaid to the Company. Such former owners are also
obligated, pursuant to the terms of the Settlement Agreement, to indemnify the
Company against 50 percent of all expenditures incurred in connection with
various environmental violations relating to the Company's U.S. operations
occurring prior to the AEA Acquisition in excess of the approximately
$13,600,000 already paid, until such total excess expenditures reach a formula
amount, and 100 percent of all such expenditures in excess of the formula
amount. The Company's expenditures to date in respect of the matters described
above have been or are expected to be indemnified in accordance with the terms
of the Settlement Agreement (subject to the percentage limitations described
above). Accordingly, the Company believes (taking into account the
indemnification rights referred to above and

                                       8

<PAGE>

the reserves it has established) that its liability for environmental
violations occurring prior to the AEA Acquisition will not have a material
adverse effect on the Company. The Company believes that these two former
owners currently have assets far in excess of their potential liability under
the Settlement Agreement, and, accordingly, the Company believes that they
will be able to satisfy all of their obligations pursuant to their agreement
with the Company. Future events, which cannot be predicted, could affect the
ability of these former owners to satisfy their obligations. Therefore, no
assurance can be given that they will be able to meet their obligations when
they arise.

Under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") and similar state statutes, regardless of fault or the legality of
original disposal, certain classes of persons, including generators of hazardous
substances, are subject to claims for response costs by federal and state
agencies. Such persons may be held jointly and severally liable for any such
claims. The Company has been named as a potentially responsible party ("PRP")
under CERCLA and similar state statutes with respect to the historic disposal of
certain hazardous substances at various other sites in the United States. With
respect to certain of these sites, the Company has entered into DE MINIMIS
settlements; at certain other sites, the liability of the Company remains
pending. Based on currently available information, the Company believes that its
ultimate allocation of costs associated with the investigation and remediation
of these pending sites will not, in the aggregate, have a material adverse
effect on the Company's financial condition.

In addition, subject to the terms of the Stock Purchase Agreement, dated as of
December 21, 1995 (the "AO Acquisition Agreement"), pursuant to which the
Company acquired AO, AWI agreed to indemnify the Company for various costs and
expenses that may be incurred in the future by the Company arising out of
pre-closing environmental conditions and activities with respect to AO. In
December of fiscal year 2000, AWI filed a voluntary petition for bankruptcy
under Chapter 11 of the bankruptcy code. The Company has filed a proof of claim
in the bankruptcy case with respect to certain pre-closing environmental matters
subject to indemnification pursuant to the AO Acquisition Agreement. There can
be no assurance that the Company will obtain any recovery in connection with its
proof of claim. The Company believes that, based on currently available
information, any liability of AO that is reasonably likely to arise out of any
of the sites at which AO has potential liability as a result of pre-closing
conditions and activities would not result in a material adverse effect on the
Company.

The Company's manufacturing facilities generate wastes regulated under the RCRA
and other U.S. federal and state laws. The Company also generates non-hazardous
wastes and is engaged in recycling and pollution prevention programs. Compliance
with current laws and regulations has not had, and is not expected to have, a
material adverse effect on the Company, including with respect to its capital
expenditures, earnings and competitive position.

Numerous aspects of the manufacture of ceramic tile currently require
expenditures for environmental compliance. For example, the mixing of raw
materials, preparation of glazes, and pressing, drying and firing of tile all
are sources of air emissions that require expenditures for compliance with laws
and regulations governing air emissions, including the purchase, operation and
maintenance of control equipment to prevent or limit air emissions. Many of
these manufacturing processes also currently result in the accumulation of dust
that contains silica, thereby requiring expenditures for capital equipment in
order to comply with Occupational Safety and Health Administration ("OSHA")
regulations with respect to potential employee exposure to such dust. In
addition, the rinsing of spray dryers and containers used for the preparation of
glaze and tile body results in wastewater discharges that require expenditures
for compliance with laws and regulations governing water pollution. Finally,
certain of the Company's manufacturing processes, including the preparation of
glaze, the assembly of certain tile and the operation and maintenance of
equipment, at times result in the generation of solid and hazardous waste that
require

                                       9

<PAGE>

expenditures in connection with the appropriate handling, treatment, storage
and disposal of such waste.

In addition, in light of the lengthy manufacturing history of the Company's
facilities, it is possible that additional environmental issues and related
matters may arise relating to past activities which the Company cannot now
predict, including tort liability and liability under environmental laws. In
particular, a number of the Company's facilities located in the United States
used lead compounds in glaze materials. The Company's Mexican facilities
continue to use lead compounds in their glaze materials on certain specially
ordered tiles. Significant exposure to lead compounds may have adverse health
effects. Although it is impossible to quantify the Company's liability, if
any, in respect of these matters, including liability to individuals exposed
to lead compounds, no claims relating to its use of lead compounds or waste
disposal matters are pending against the Company except as set forth above.
In addition, it is impossible to predict the effect which future
environmental regulation in the United States, Mexico and Canada could have
on the Company.

GEOGRAPHIC LOCATION

Financial information by geographic location for the three years ended December
29, 2000 is set forth in Note 12 to the Consolidated Financial Statements
included in this report. See also Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources," below in this report.

ITEM 2. PROPERTIES

The Company owns or leases manufacturing, distributing, office and sales
facilities in the United States and Mexico, as described below.

MANUFACTURING, DISTRIBUTION AND OFFICE FACILITIES

The Company owns or leases 12 manufacturing, distribution and office facilities.
The location, use and floor area of such facilities are described as follows:


<TABLE>
<CAPTION>

LOCATION                      USE                                          SQ. FEET     LEASED/OWNED
--------                      ---                                          --------     ------------
<S>                           <C>                                          <C>          <C>
Fayette, AL...............    Manufacturing                                 276,467        Owned
Lewisport, KY.............    Manufacturing                                 270,836        Owned
Baltimore, MD.............    Distribution                                  315,000        Leased (1)
Monterrey, Mexico.........    Manufacturing, Distribution & Office        1,464,597        Owned
Olean, NY.................    Manufacturing                                 278,417        Owned
Gettysburg, PA............    Manufacturing                                 218,609        Owned
Jackson, TN...............    Manufacturing                                 655,211        Owned
Conroe, TX................    Manufacturing                                 208,059        Owned
Dallas, TX................    Manufacturing, Distribution & Office          733,846        Owned
Dallas, TX................    Distribution                                  472,500        Leased (1)
El Paso, TX...............    Manufacturing                                 366,876        Ground Leased (2)
Los Angeles, CA...........    Distribution                                  410,515        Leased (1)

</TABLE>

(1)      The leases for the Baltimore, MD; Los Angeles, CA; and Dallas, TX
         facilities expire on February 28, 2007, March 31, 2007 and January 31,
         2003, respectively, and are subject to renewal options.
(2)      The ground lease expires on November 21, 2034.

                                      10

<PAGE>

The Company closed its Coleman, TX manufacturing facility in fiscal year 1997
and closed its Mt. Gilead, NC manufacturing facility in fiscal year 1998. As of
December 29, 2000, the Company was pursuing the sale of the Coleman and Mt.
Gilead facilities.

SALES CENTERS

As of December 29, 2000, the Company owned one sales center in Denver, CO,
totaling approximately 22,500 square feet. In addition, 219 sales centers were
leased as of December 29, 2000 (aggregating approximately 2.6 million square
feet), pursuant to leases that extend for terms on average of 3 to 5 years with
expiration dates primarily from 2001 - 2006.

For a description of aggregate rental expenses with respect to its operating
leases, see Note 10 to the Consolidated Financial Statements included herein
relating to commitments and contingencies.

As of December 29, 2000, the Company leased three stone sales centers totaling
approximately 67,000 square feet and leased two showrooms totaling approximately
16,000 square feet.

ITEM 3. LEGAL PROCEEDINGS

In addition to the proceedings described under Item 1, "Business - Environmental
Regulation," the Company is involved in various lawsuits arising in the normal
course of business. In the opinion of management, the ultimate outcome of these
lawsuits will not have a material adverse effect.

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

           None.

EXECUTIVE OFFICERS OF THE REGISTRANT

The information appearing in item 10 hereof under the caption "Directors and
Executive Officers of the Registrant" is incorporated by reference herein.












                                      11


<PAGE>


                                     PART II


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

MARKET INFORMATION FOR COMMON STOCK

The Company's Common Stock, par value $.01 per share (the "Common Stock"), is
listed on the New York Stock Exchange under the symbol "DTL". The following
table sets forth the high and low sale prices for the common stock as reported
by the New York Stock Exchange from January 2, 1999, through December 29, 2000.

<TABLE>
<CAPTION>
                                                       HIGH            LOW
                                                       ----            ---
<S>                                                  <C>             <C>
January 2, 1999 to April 2, 1999                     13-1/16            7
April 3, 1999 to July 2, 1999                          13             7-1/2
July 3, 1999 to October 1, 1999                       13-1/8          6-3/4
October 2, 1999 to December 31, 1999                  10-1/2         7-11/16
January 3, 2000 to March 31, 2000                     10-1/8          6-1/8
April 1, 2000 to June 30, 2000                        10-1/2              8
July 1, 2000 to September 29, 2000                   12-13/16             7
September 30, 2000 to December 29, 2000              14-5/16             11
</TABLE>


HOLDERS

At March 8, 2001, there were 101 holders of record of Common Stock and
55,725,247 shares of Common Stock outstanding.

DIVIDEND POLICY

The Company has not paid cash dividends on Common Stock during the last three
years. The Company currently intends to retain any earnings for use in its
business and therefore, does not anticipate paying any cash dividends on the
Common Stock in the foreseeable future.

Moreover, the Company is a holding company with no operations or significant
assets other than its investment in Dal-Tile Group Inc. ("Dal-Tile Group") and
its 49.99 percent interest in RISA. The Dal-Tile Group is a separate and
distinct legal entity and has no obligation, contingent or otherwise, to make
funds available to Dal-Tile, whether in the form of loans, dividends or other
cash distributions. The bank credit agreement limits dividends, loans or other
cash distributions from Dal-Tile Group to Dal-Tile, so that profits generated by
Dal-Tile Group may not be available to Dal-Tile to pay cash dividends or repay
indebtedness or otherwise. In light of these limitations, Dal-Tile Group will be
prohibited from making such dividends, loans and other cash distributions, and
Dal-Tile does not believe that Dal-Tile Group will be able to make such
dividends, loans or other cash distributions in the foreseeable future.


                                      12
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data presented for fiscal years 1996 through
2000 are derived from the Consolidated Financial Statements of the Company for
such period, and should be read in conjunction with Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
with the Consolidated Financial Statements including the related notes thereto
included elsewhere herein.

<TABLE>
<CAPTION>
                                                                     FISCAL YEAR ENDED
                                             ----------------------------------------------------------------------
                                             DECEMBER 29,   DECEMBER 31,    JANUARY 1,    JANUARY 2,     JANUARY 3,
                                                 2000          1999            1999          1998           1997
                                             -----------    -----------    -----------    -----------    -----------
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                          <C>            <C>            <C>            <C>            <C>
OPERATING DATA:
   Net sales..............................   $   952,156    $   850,568    $   751,785    $   676,637    $   720,236
   Cost of goods sold.....................       497,933        440,514        396,112        404,728        369,731
                                             -----------    -----------    -----------    -----------    -----------
   Gross profit...........................       454,223        410,054        355,673        271,909        350,505
   Expenses:
     Transportation.......................        64,549         57,124         55,988         58,425         47,125
     Selling, general and administrative..       247,099        232,845        222,790        277,515        190,911
     Provisions for merger integration
       charges............................             -              -              -              -          9,000
     Amortization of goodwill...                   5,512          5,607          5,604          5,605          5,605
                                             -----------    -----------    -----------    -----------    -----------
   Total operating expenses...............       317,160        295,576        284,382        341,545        252,641
                                             -----------    -----------    -----------    -----------    -----------
   Operating income (loss)................       137,063        114,478         71,291        (69,636)        97,864
   Interest expense.......................        30,102         37,125         45,051         40,649         46,338
   Interest income........................           104            126            128            268          1,685
   Other (expense) income ................          (444)           250          1,264          1,220            129
                                             -----------    -----------    -----------    -----------    -----------
   Income (loss) before income taxes
     and extraordinary item...............       106,621         77,729         27,632       (108,797)        53,340
   Income tax provision...................         5,864          3,966          3,604          1,439         18,914
                                             -----------    -----------    -----------    -----------    -----------
   Income (loss) before extraordinary            100,757         73,763         24,028       (110,236)        34,426
     item.................................
   Extraordinary item - loss on early
     retirement of debt, net of taxes.....             -              -              -              -        (29,072)
                                             -----------    -----------    -----------    -----------    -----------
   Net income (loss)......................   $   100,757    $    73,763    $    24,028    $  (110,236)   $     5,354
                                             ===========    ===========    ===========    ===========    ===========
BASIC EARNINGS (LOSS) PER SHARE:
   Income (loss) before extraordinary
     item per common share................   $      1.83    $      1.36    $      0.45    $     (2.06)   $      0.71
   Extraordinary item per common share....             -              -              -              -          (0.60)
                                             -----------    -----------    -----------    -----------    -----------
   Net income (loss) per common share.....   $      1.83    $      1.36    $      0.45    $     (2.06)   $      0.11
                                             ===========    ===========    ===========    ===========    ===========
   Weighted average common shares.........        54,918         54,103         53,487         53,435         48,473
                                             ===========    ===========    ===========    ===========    ===========

DILUTED EARNINGS (LOSS) PER SHARE:
   Income (loss) before extraordinary
     item per common share................   $      1.82    $      1.35    $      0.45    $     (2.06)   $      0.69
   Extraordinary item per common share....             -              -              -              -          (0.58)
                                             -----------    -----------    -----------    -----------    -----------
   Net income (loss) per common share.....   $      1.82    $      1.35    $      0.45    $     (2.06)   $      0.11
                                             ===========    ===========    ===========    ===========    ===========

   Weighted average common shares,
     assuming dilution....................      55,396           54,539         53,983         53,435         50,053
                                             ===========    ===========    ===========    ===========    ===========

BALANCE SHEET DATA (AT END OF PERIOD):
   Working capital........................   $   116,303    $    91,791    $   117,615    $   154,888    $   180,819
   Total assets...........................       670,520        638,704        640,808        672,069        688,497
   Total debt.............................       331,778        410,673        500,432        557,091        465,858
   Long-term debt.........................       276,017        353,877        453,923        537,830        433,035
   Stockholders' equity...................       212,308        100,944         15,459          3,920        115,569
</TABLE>
                                        13
<PAGE>


ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
           CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

For the fiscal year ended December 29, 2000, the Company achieved record sales
and net income. Sales increased approximately 11.9 percent and net income grew
36.6 percent versus the prior year. The growth in sales was realized across all
product teams through significant gains in the residential market and steady
improvement in commercial sales. These improvements were driven by strong market
acceptance of new products and initiatives to improve customer service. In
addition, the Company's emphasis on residential growth included opening its
second state-of-the-art showroom and design center.

Earnings growth was achieved despite significant pressure from foreign
competition, higher energy costs and a strong Mexican peso. During the year, the
Company took steps to partially offset these factors through greater
manufacturing efficiencies, modernization of facilities and reductions of
general and administrative costs. Because of these productivity enhancements and
focus on improved management of working capital, the Company increased operating
cash flow $6.3 million to $110.2 million versus $103.9 million in fiscal year
1999. Day's sales outstanding decreased to 42.9 days in fiscal year 2000 from
44.4 days in fiscal year 1999, while average inventory turns improved to 3.5 in
fiscal year 2000 from 3.2 a year ago. Debt decreased by $78.9 million, which
contributed to a $7.0 million, or 18.9 percent, reduction in interest expense
versus fiscal year 1999. Free cash flow decreased $5.8 million to $73.0 million
due primarily to a $12.1 million increase in capital expenditures over the prior
year for modernization and expansion of the Company's manufacturing facilities.

In September the Company announced the formation of a joint venture with
Emilceramica, S.p.A., an Italian tile manufacturer. The joint venture, Dal
Italia LLC, sells and distributes porcelain tile products for the North American
market. Dal Italia LLC is 80 percent owned by the Company and included in its
consolidated financial statements, and is 20 percent owned by Emilceramica,
S.p.A. Dal Italia LLC has a supply agreement with Emilceramica S.p.A. in which
porcelain tile products are purchased at cost plus transportation charges and
then distributed and sold exclusively through the Company's sales service
centers according to a distribution agreement between Dal Italia LLC and the
Company.


RESULTS OF OPERATIONS

The following table sets forth certain operating data as a percentage of net
sales for the periods indicated:

<TABLE>
<CAPTION>
                                                          FISCAL YEAR ENDED
                                              ------------------------------------------
                                              DECEMBER 29,     DECEMBER 31,   JANUARY 1,
                                                 2000              1999         1999
                                              ------------     ------------   ----------
<S>                                           <C>              <C>            <C>
Net sales....................................     100.0%           100.0%        100.0%
Cost of goods sold...........................      52.3             51.8          52.7
                                              ------------     ------------   ----------
Gross profit.................................      47.7             48.2          47.3
Operating expenses...........................      33.3             34.7          37.8
                                              ------------     ------------   ----------
Operating income ............................      14.4             13.5           9.5
Interest expense (net).......................       3.2              4.3           6.0
Other income ................................         -                -           0.2
                                              ------------     ------------   ----------
Income before income taxes...................      11.2              9.2           3.7
Income tax provision.........................       0.6              0.5           0.5
                                              ------------     ------------   ----------
Net income ..................................      10.6%             8.7%          3.2%
                                              ============     ============   ==========
</TABLE>


                                       14
<PAGE>


FISCAL YEAR ENDED DECEMBER 29, 2000 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1999

NET SALES

Net sales increased $101.6 million, or 11.9 percent, to $952.2 million for
fiscal year 2000 from $850.6 million for fiscal year 1999. The increase in sales
related principally to the Company-operated sales centers, which increased
$101.0 million, or 16.6 percent, versus fiscal year 1999. During fiscal year
2000, residential sales grew steadily due primarily to increased market
acceptance of new products. In addition, the Company opened a state-of-the-art
showroom and design center in Atlanta, GA to provide higher levels of customer
service to this market. The Company achieved growth in commercial sales through
improved product availability and overall customer service.

Net sales to independent distributors were up $1.4 million, or 1.2 percent,
versus fiscal year 1999 and the Home Center channel decreased $4.0 million, or
4.2 percent. The Company took steps to improve sales through its distributor
base by introducing new residential products and changing distributors in
selected markets. Home Center sales declined as a result of the Company's
decision to reduce sales of lower margin commodity products. Net sales within
Mexico increased $3.9 million to $32.8 million in fiscal year 2000 from $28.9
million in fiscal year 1999.

GROSS PROFIT

Gross profit increased $44.1 million, or 10.7 percent, to $454.2 million in
fiscal year 2000 from $410.1 million in fiscal year 1999. The increase in gross
profit was due primarily to the growth in sales. Gross margin decreased to 47.7
percent for fiscal year 2000 from 48.2 percent for fiscal year 1999. This
decrease was due primarily to higher natural gas prices and the strong Mexican
peso. These costs were partially offset by the implementation of various process
improvements and a shifting of production to low cost state-of-the-art
manufacturing facilities.

OPERATING EXPENSES

Operating expenses increased $21.6 million, or 7.3 percent, to $317.2 million in
fiscal year 2000 from $295.6 million in fiscal year 1999. This increase was a
result of additional spending for new product introductions and higher costs
associated with the growth in sales.

Operating expenses as a percent of sales decreased to 33.3 percent in fiscal
year 2000 compared to 34.7 percent in fiscal year 1999. This decrease was
primarily related to higher sales volume. In addition, corporate spending was
substantially reduced due to the completion of Y2K efforts in fiscal year 1999.
Freight expense as a percent of sales increased to 6.8 percent for fiscal year
2000 versus 6.7 percent in 1999 due to higher fuel costs and increased service
requirements of the expanding residential market.

OPERATING INCOME

Operating income increased to $137.1 million in fiscal year 2000 from $114.5
million in fiscal year 1999. Operating margin increased to 14.4 percent compared
to 13.5 percent for the previous fiscal year due primarily to increased sales.

INTEREST EXPENSE (NET)

Interest expense (net) decreased $7.0 million, or 18.9 percent, to $30.0 million
in fiscal year 2000 from $37.0 million in fiscal year 1999. Interest expense
decreased due to reduced borrowing requirements on the Company's credit
facility. Also, lower fees and interest rates combined with reduced borrowing


                                       15
<PAGE>


spreads contributed to the reduction in interest expense. The Company's credit
facility contains a pricing mechanism that lowers borrowing spreads as financial
performance improves. During fiscal year 2000, borrowing spreads decreased from
1.25 percent to 0.75 percent on the revolver and Term A Loan borrowings and
remained at 1.75 percent on the Term B Loan borrowings.

INCOME TAXES

The income tax provisions for fiscal years 2000 and 1999 reflect Mexico tax
liabilities and U.S. state and possession income tax based on taxable income
in those jurisdictions. The fiscal year 2000 tax provision includes a U.S.
federal income tax benefit due to the reversal of the remaining valuation
allowance recorded against certain U.S. federal deferred tax assets. The
reversal of the valuation allowance is a result of the Company's analysis of
the likelihood of generating sufficient future taxable income and thus
realizing the future benefit of tax loss carryforwards and other deferred tax
assets. Although realization is not assured, the Company believes that it is
more likely than not that the tax benefits recorded will be realized through
future taxable income. The Company's normalized effective tax rate for fiscal
years 2000 and 1999 was 38.5 percent. The Company expects the effective tax
rate to be approximately 38.5 percent in the near term.

PESO-U.S. DOLLAR EXCHANGE RATE

The Company's Mexican facility is considered an extension of the U.S. parent
and primarily a provider of ceramic tile to the Company's U.S. operations.
Due to the U.S. parent's manufacturing requirements, fiscal year 2000
domestic sales in Mexico were limited to approximately 3.4 percent of the
Company's consolidated net sales. Prior to fourth quarter 1998, translation
gains or losses relating to exchange rate changes were reported as a separate
component of stockholders' equity. Due to the change in functional currency
in Mexico to the U.S. dollar, translation gains or losses and foreign
currency transaction gains or losses are recognized in other income and
expense. During fiscal year 2000, the Company recorded translation and
transaction losses of approximately $0.1 million. The Company uses foreign
currency forward contracts to hedge against currency risk associated with the
Mexican peso and accounts for these contracts as cash flow hedges. In
accordance with Statement of Financial Accounting Standards No. 133 -
"Accounting for Derivative Instruments and Hedging Activities," ("SFAS 133")
and its amendments, such financial instruments are marked-to-market with the
offset to other comprehensive income and then subsequently recognized as a
component of cost of goods sold in the same period or periods during which
the hedged transaction affects earnings. The Company did not have any forward
contracts outstanding as of December 29, 2000.

FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED TO FISCAL YEAR ENDED JANUARY 1,
1999

NET SALES

Net sales increased $98.8 million, or 13.1 percent, to $850.6 million for fiscal
year 1999 from $751.8 million for fiscal year 1998. The increase in sales
related principally to the Company-operated sales centers, which increased $87.2
million, or 16.7 percent versus fiscal year 1998. During fiscal year 1999, the
Company increased residential sales through new product introductions and the
addition of a dedicated sales force. In addition, a new state-of-the-art
showroom and design center was opened in Dallas, TX to provide higher levels of
customer service to this market. Also, the Company achieved growth in commercial
sales through improved product availability and overall customer service.

Net sales to independent distributors were down $1.4 million, or 1.2 percent
versus fiscal year 1998, and the Home Center channel increased $9.0 million, or
10.4 percent. Independent distributor sales were


                                       16
<PAGE>


negatively affected by the Company's continued process of restructuring its
distributor base, while Home Centers sales were favorably affected by the
growth of the residential business and sales to new store locations. Net
sales within Mexico increased $3.7 million to $28.9 million in fiscal year
1999 from $25.2 million in fiscal year 1998.

GROSS PROFIT

Gross profit increased $54.4 million, or 15.3 percent, to $410.1 million in
fiscal year 1999 from $355.7 million in fiscal year 1998. The increase in gross
profit was due primarily to the growth in sales and lower manufacturing costs.
Gross margin increased to 48.2 percent for fiscal year 1999 from 47.3 percent
for fiscal year 1998. This increase was due primarily to lower manufacturing
costs and increased productivity offset by reductions in selling prices caused
by more intense competition. During fiscal year 1999, manufacturing cost
reductions were achieved through shifts in production to low cost
state-of-the-art manufacturing equipment at several facilities. In addition,
efficiencies were gained through the implementation of various process
improvements. Inventory shrink and breakage were significantly reduced due to
better controls at the Company-operated stores and distribution centers.

OPERATING EXPENSES

Operating expenses increased $11.2 million, or 3.9 percent, to $295.6 million in
fiscal year 1999 from $284.4 million in fiscal year 1998. The increase was due
primarily to higher selling and marketing costs associated with the increase in
sales.

Operating expenses as a percent of sales decreased to 34.7 percent in fiscal
year 1999 from 37.8 percent in fiscal year 1998. This decrease was the result of
higher sales and the Company's efforts to reduce general and administrative
costs. Due to improved collection experience, bad debt provisions were lowered
during fiscal year 1999 and consulting expenses were reduced through the
completion of Y2K efforts and other initiatives. In addition, freight expense as
a percent of sales decreased to 6.7 percent for fiscal year 1999 versus 7.4
percent in 1998 due to improved shipment planning, increased efficiencies in
distribution and consolidation of freight carriers.

OPERATING INCOME

Operating income increased to $114.5 million in fiscal year 1999 from $71.3
million in fiscal year 1998. Operating margin increased to 13.5 percent compared
to 9.5 percent for the previous fiscal year due primarily to increased sales and
decreased operating costs.

INTEREST EXPENSE (NET)

Interest expense (net) decreased $7.9 million, or 17.6 percent, to $37.0 million
in fiscal year 1999 from $44.9 million in fiscal year 1998. Interest expense
decreased due to reduced borrowing requirements on the Company's credit
facility. Also, lower fees and interest rates combined with reduced borrowing
spreads contributed to the reduction in interest expense. The Company's credit
facility contains a pricing mechanism that lowers borrowing spreads as financial
performance improves. During fiscal year 1999, borrowing spreads decreased from
2.0 percent to 1.25 percent on the revolver and Term A Loan borrowings and
decreased from 2.5 percent to 1.75 percent on the Term B Loan borrowings.

INCOME TAXES

The income tax provisions for fiscal years 1999 and 1998 reflect Mexico tax
liabilities and U.S. state and possession income tax based on taxable income in
those jurisdictions. No U.S. federal income tax expense


                                       17
<PAGE>


was recorded for fiscal years 1999 and 1998 due to an offsetting reduction in
a valuation allowance recorded against certain U.S. federal deferred tax
assets. The valuation allowance was established in fiscal year 1997 offsetting
any benefit of federal net operating losses and to reflect management's
estimation as to the future utilization of the deferred tax assets.

PESO-U.S. DOLLAR EXCHANGE RATE

The Company's Mexican facility is considered an extension of the U.S. parent and
primarily a provider of ceramic tile to the Company's U.S. operations. Due to
the U.S. parent's manufacturing requirements, fiscal year 1999 domestic sales in
Mexico were limited to approximately 3.4 percent of the Company's consolidated
net sales. Prior to fourth quarter 1998, translation gains or losses relating to
exchange rate changes were reported as a separate component of stockholders'
equity. Due to the change in functional currency in Mexico to the U.S. dollar,
translation gains or losses and foreign currency transaction gains or losses are
recognized in other income and expense. During fiscal year 1999, the Company
recorded translation and transaction gains of approximately $0.1 million.

ASSET IMPAIRMENT

During fiscal year 1998, the Mt. Gilead, NC glazed floor manufacturing
facility was closed and is currently being held for sale. An aggregate
provision of $6.6 million was recorded in cost of sales in fiscal year 1998
to reduce the carrying value of the facility to its net realizable value. As
of December 29, 2000 its net realizable value was $0.9 million.

LIQUIDITY AND CAPITAL RESOURCES

Funds available under the Company's existing bank credit agreement provided
liquidity and capital resources for working capital requirements, capital
expenditures and debt service. Cash provided by operating activities was $110.2
million in fiscal year 2000 versus $103.9 million in fiscal year 1999.

Net expenditures for property, plant and equipment were $37.2 million for fiscal
year 2000, which included approximately $23.8 million for manufacturing process
improvements and the expansion and modernization of various manufacturing
facilities. In addition, the Company incurred expenditures for enhancements to
distribution and information systems and routine capital improvements. In July
2000, the Company amended its existing bank credit agreement (as amended, the
"Fourth Amended Credit Facility") primarily to increase capital spending and
lease limitations in support of expansion efforts.

Cash used in financing activities was $72.7 million for fiscal year 2000. Cash
outflows for revolver repayments of $22.1 million, term debt amortization of
$51.0 million and additional debt and fees of approximately $5.8 million were
partially offset by cash inflows of approximately $6.2 million primarily related
to the exercise of options of common stock and purchases of stock pursuant to
the Employee Stock Purchase Plan. Total availability as of December 29, 2000
under the Fourth Amended Credit Facility was $150.0 million. The Company
believes cash flow from operating activities, together with borrowings available
under its Fourth Amended Credit Facility will be sufficient to fund future
working capital needs, capital expenditures and debt service requirements.


                                       18
<PAGE>


The Company is involved in various proceedings relating to environmental matters
and is currently engaged in environmental investigation and remediation programs
at certain sites. The Company has provided reserves for remedial investigation
and cleanup activities that are determined to be both probable and reasonably
estimable. The Company is entitled to indemnification with respect to certain
expenditures incurred in connection with such environmental matters and does not
expect that the ultimate liability with respect to such investigation and
remediation activities will have a material effect on the Company's liquidity
and financial condition.

The U.S. is a party to the General Agreement on Tariffs and Trade ("GATT").
Under GATT, the U.S. currently imposes import duties on ceramic tile from
non-North American countries at no more than 14 percent, to be reduced ratably
to no less than 8 1/2 percent by 2004. Accordingly, GATT may stimulate
competition from non-North American manufacturers who now export, or who may
seek to export, ceramic tile to the U.S. The Company cannot predict with
certainty the effect that GATT may have on the Company's operations.

In 1993, Mexico, the U.S. and Canada approved the North American Free Trade
Agreement ("NAFTA"). NAFTA has, among other things, removed and will continue to
remove, over a transition period, most normal customs duties imposed on goods
traded among the three countries. In addition, NAFTA will remove or limit many
investment restrictions, liberalize trade in services, provide a specialized
means for settlement of, and remedies for, trade disputes arising thereunder and
will result in new laws and regulations to further these goals. Although NAFTA
lowers the tariffs imposed on the Company's ceramic tile manufactured in Mexico
and sold in the U.S., it also may stimulate competition in the U.S. and Canada
from manufacturers located in Mexico. The U.S. currently imposes import duties
on glazed ceramic tile from Mexico of approximately 10.1 percent, although these
duties on imports from Mexico are being phased out ratably under NAFTA by 2008.
It is uncertain what ultimate effect NAFTA will have on the Company's results of
operations.

EFFECTS OF INFLATION

The Company believes it has generally been able to enhance productivity to
offset increases in costs resulting from inflation in the U.S. and Mexico.
During fiscal year 2000, the Company's results were negatively affected by the
increase of the inflation rate in Mexico that was not offset by devaluation of
the peso. Any future increases in the Mexican inflation rate which are not
offset or increases in the U.S. inflation rate, which affect financing costs,
may negatively affect the Company's results of operations.

NEW ACCOUNTING STANDARDS

Effective September 30, 2000, the Company adopted SFAS 133 and its amendments,
which require the Company to recognize all derivatives on the balance sheet at
fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of the
hedge, changes in its fair value are either offset against the change in fair
value of assets, liabilities or firm commitments through earnings or recognized
in other comprehensive income until the hedged item is recognized in earnings.

The Company formally documents all hedging instruments and hedging items, as
well as its risk management objective and strategy for undertaking various hedge
items. This process includes linking all derivatives that are designated as fair
value and cash flow hedges to specific assets or liabilities on the balance
sheet or to forecasted transactions. The Company also formally assesses, both at
inception and on an ongoing basis, whether the derivatives that are used in
hedging transactions are highly effective in offsetting changes in fair value or
cash flows of hedged items. When it is determined that a derivative is


                                       19
<PAGE>


not highly effective, the derivative expires, is sold, terminated, exercised
or the derivative is discontinued because it is unlikely that a forecasted
transaction will occur, the Company discontinues hedge accounting for that
specific hedge instrument.

In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, - "Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25." The Interpretation,
which was adopted prospectively as of July 1, 2000, requires that stock options
that have been modified to reduce the exercise price be accounted for as
variable. The adoption of this interpretation did not affect the Company's
results for the fiscal year ended December 29, 2000, and is not expected to have
a material impact on future results.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101") "Revenue Recognition in Financial Statements". SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The adoption of SAB 101
during the fourth quarter of fiscal year 2000 did not affect the Company's
financial statements for the fiscal year ended December 29, 2000 and is not
expected to materially affect future financial results.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to risks, uncertainties and other factors, which could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. Potential risks and uncertainties
include, but are not limited to, the impact of competitive pressures and
changing economic conditions on the Company's business and its dependence on
residential and commercial construction activity, the fact that the Company is
highly leveraged, currency fluctuations and other factors relating to the
Company's foreign manufacturing operations, the impact of pending reductions in
tariffs and custom duties and environmental laws and other regulations.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company engages in activities that expose it to various market risks,
including the effects of changes in foreign currency exchange rates, interest
rates and natural gas prices. The financial exposure is managed as an integral
part of the Company's risk management program, which seeks to reduce the
potentially adverse effects that the volatility of the markets may have on
operating results. The Company does not regularly engage in speculative
transactions, nor does it regularly hold or issue financial instruments for
trading purposes. The Company maintains a foreign currency risk management
strategy that uses derivative instruments to protect its interests from
unanticipated fluctuations in earnings and cash flows caused by volatility in
currency exchange rates. The Company maintains an interest rate risk management
strategy that uses derivative instruments, currently interest rate swaps, to
minimize significant, unanticipated earnings fluctuations caused by volatility
in interest rates. In addition, the Company maintains a natural gas pricing
strategy to minimize significant fluctuations in earnings caused by the
volatility of gas prices.


                                       20

<PAGE>

INTEREST RATE RISK MANAGEMENT

To mitigate the impact of fluctuations in U.S. interest rates, the Company
currently maintains approximately 60 percent of its debt as fixed rate by
entering into interest rate swap agreements. Interest rate swap agreements are
designated with a portion of the principal balance and term of a specific debt
obligation.

INTEREST RATE SENSITIVITY TABLE AS OF DECEMBER 29, 2000:


<TABLE>
<CAPTION>

                                                                                           FAIR VALUE
                                                                                           DECEMBER 29,
EXPECTED MATURITY DATES                 2001        2002        2003        2004              2000
                                      ---------- ----------- -----------  -----------   ----------------
(IN THOUSANDS)
<S>                                   <C>        <C>         <C>          <C>           <C>

Total debt:
      Fixed rate...................    $ 2,886    $    879    $    -        $   -           $  3,764
      Average interest rate........       8.5%        8.3%         -            -               -


      Variable rate................    $52,875    $154,038    $120,800      $   300         $328,013
      Average interest rate (a)....       6.3%        6.5%        7.5%         7.5%             -

Interest rate swaps:
      Pay fixed/receive variable...    $    74    $    -      $    -        $   -           $     74
      Average pay .................       5.7%         -           -            -               -
      Average receive..............       6.7%         -           -            -               -

</TABLE>

(a)      The Term loans, revolver borrowings and other debt bear interest at
         weighted average variable rates based on implied forward rates in the
         yield curve at the reporting date plus an applicable margin ranging
         from 0 percent to 1.75 percent depending upon the Company's leverage
         ratio (as defined under the Fourth Amended Credit Facility). The
         variable rate is equal to the London Interbank Offered Rate ("LIBOR")
         or the prime rate as announced from time to time. At December 29, 2000,
         the LIBOR interest rate in effect was 6.6 percent and applicable
         margins were .75 percent and 1.75 percent for the Term A Loan /
         revolver borrowings and Term B Loan, respectively. The prime rate in
         effect was 9.5 percent and the applicable margin was 0 percent.












                                      21

<PAGE>

INTEREST RATE SENSITIVITY TABLE AS OF DECEMBER 31, 1999:


<TABLE>
<CAPTION>

                                                                                                       FAIR VALUE
                                                                                                       DECEMBER 31,
EXPECTED MATURITY DATES                 2000        2001        2002        2003         2004             1999
                                     ----------- ---------- ----------- -----------   -----------  ----------------
(IN THOUSANDS)
<S>                                  <C>         <C>        <C>         <C>           <C>          <C>
Total debt:
      Fixed rate...................    $ 3,921    $ 2,885    $    879    $    -         $  -          $  7,685
      Average interest rate........       8.4%       8.5%                     -            -               -
                                                                 8.3%

      Variable rate................    $52,875    $52,875    $176,138    $120,800       $ 300         $402,988
      Average interest rate (a)....       7.7%       8.6%        8.7%        9.4%        9.4%              -

Interest rate swaps:
      Pay fixed/receive variable...    $ 2,050    $   152    $    -      $    -         $  -          $  1,501
      Average pay .................       5.7%       5.7%         -           -            -               -
      Average receive..............       6.7%       7.4%         -           -            -               -

</TABLE>

(a)      The Term loans, revolver borrowings and other debt bear interest at
weighted average variable rates based on implied forward rates in the yield
curve at the reporting date plus an applicable margin ranging from 0.25
percent to 2.75 percent depending upon the Company's leverage ratio (as
defined under the Third Amended Credit Facility). The variable rate is equal
to LIBOR or the prime rate as announced from time to time. At December 31,
1999, the LIBOR interest rate in effect was 5.8 percent and applicable
margins were 1.25 percent and 1.75 percent for the Term A Loan / revolver
borrowings and Term B Loan, respectively. The prime rate in effect was 8.5
percent and the applicable margin was 0.25 percent.

NATURAL GAS RISK MANAGEMENT

The Company uses a combination of natural gas futures contracts and long-term
supply agreements to manage unanticipated fluctuations in natural gas prices.
The instruments generally cover a period of one to three years on forecasted
usage of natural gas measured in Million British Thermal Units ("MMBTU"). As of
December 29, 2000, the Company held natural gas futures contracts with an
aggregate notional amount of approximately 4.2 million MMBTU and an aggregate
fair value of approximately $8.6 million. The weighted average strike price per
contract was $3.75. The Company did not have material futures contracts
outstanding as of December 31, 1999.

FOREIGN CURRENCY EXCHANGE RISK MANAGEMENT

The Company uses foreign currency forward contracts to hedge against foreign
currency exchange rate risk. As of December 29, 2000 and December 31, 1999 the
Company did not have any outstanding instruments that were sensitive to foreign
currency exchange rates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required by this item are set forth on pages F-1
through F-22 below and the related financial statement schedule is set forth on
page S-1 below.

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

None.

                                      22

<PAGE>

PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The directors and executive officers of the Company are set forth below. Certain
of the executive officers hold positions with Dal-Tile Corporation or Dal-Tile
Mexico, each a subsidiary of the Company. All Directors hold office until the
annual meeting of stockholders following their election or until their
successors are duly elected and qualified. Officers are appointed by the Board
of Directors and serve at the discretion thereof.


<TABLE>
<CAPTION>

             NAME                                AGE     POSITION OR OFFICE HELD
             ----                                ---     -----------------------
<S>                                              <C>     <C>
Jacques R. Sardas.......................          70     President, Chief Executive Officer and Chairman of the
                                                         Board of Directors
Douglas D. Danforth.....................          78     Director
John F. Fiedler.........................          62     Director
Vincent A. Mai..........................          60     Director
Martin C. Murrer........................          43     Director
Charles J. Pilliod, Jr..................          82     Director
Norman E. Wells, Jr.....................          52     Director
W. Christopher Wellborn.................          45     Executive Vice President, Chief Financial Officer and
                                                         Assistant Secretary
Scot B. Bernstein.......................          35     Vice President, Supply Chain Planning
D. Curtis Cook..........................          50     Vice President, American Olean Distribution
Dan L. Cooke............................          59     Vice President, Information Technology
Silvano Cornia..........................          41     Vice President, Research and Development
David F. Finnigan.......................          44     Vice President, Home Center Sales and Business
                                                         Development
William R. Hanks........................          47     Vice President, Manufacturing
Andrew D. Hiduke........................          53     Vice President, Human Resources
Matthew J. Kahny........................          39     Vice President, Marketing
H. Clay Orme............................          61     Vice President, Operations
Javier Eugenio Martinez Serna...........          49     Vice President, Mexico Operations
Mark A. Solls...........................          44     Vice President, General Counsel and Secretary
Harold G. Turk..........................          54     Vice President, Sales Centers Operations
John C. Turner, Jr......................          32     Vice President, Distribution and Customer Service
Scott R. Veldman........................          44     Treasurer

</TABLE>

JACQUES R. SARDAS, President, Chief Executive Officer and Chairman of the Board
of Directors - Mr. Sardas has been President and Chief Executive Officer of the
Registrant since July 1997 and Chairman of the Board of Directors since
September 1997. Prior to joining the Company, Mr. Sardas was Chairman and Chief
Executive Officer of Sudbury, Inc. from 1992 to 1997. Prior to that, he spent 34
years at Goodyear Tire & Rubber Company, concluding as President of Goodyear
Worldwide Tire.

                                      23

<PAGE>

DOUGLAS D. DANFORTH, Director - Mr. Danforth has been a Director of the
Registrant since February 1997. He was Chairman and Chief Executive Officer of
Westinghouse Corporation from December 1983 to December 1987. Mr. Danforth is
also a Director of Sola International, Inc. and of Atlantic Express
Transportation Corporation.

JOHN F. FIEDLER, Director - Mr. Fiedler has been a Director of the Registrant
since July 1998. He is Chairman and Chief Executive Officer of Borg-Warner
Automotive, Inc. Prior to joining Borg-Warner in June of 1994, he was Executive
Vice President of Goodyear Tire & Rubber Company, where he was responsible for
North American Tires. Mr. Fiedler's 29-year career with Goodyear included
numerous sales, marketing and manufacturing positions in the U.S. and Far East.
Mr. Fiedler is also a director of Roadway Express, Inc.

VINCENT A. MAI, Director - Mr. Mai has been a Director of the Registrant since
October 1989. Mr. Mai was the President, Chief Executive Officer and a Director
of AEA Investors (the managing member of DTI Investors LLC, a beneficial owner
of Common Stock of the Registrant) from April 1989 to December 1998, which
included appointment to Chairman in January 1998. From January 1999 to December
1999, Mr. Mai served as Chairman and Chief Executive Officer and currently
serves as Chairman of AEA Investors. For the preceding 15 years, he was a
Managing Director of Lehman Brothers, Inc., an investment banking firm. Mr. Mai
is also a Director of the Federal National Mortgage Association.

MARTIN C. MURRER, DIRECTOR - Mr. Murrer has been a Director of the Registrant
since February 2000. Mr. Murrer has been a Managing Director of AEA Investors
(the managing member of DTI Investors LLC, a beneficial owner of Common Stock of
the Registrant) since February 1999. From 1995 through 1999, Mr. Murrer was a
Managing Director at Donaldson, Lufkin & Jenrette. From 1990 through 1995, he
was a Vice President at Goldman Sachs. Mr. Murrer is also a Director of PC
Connection, Inc.

CHARLES J. PILLIOD, JR., Director - Mr. Pilliod has been a Director of the
Registrant since March 1990 and served as Chairman of the Board of Directors
from October 1993 through September 1997. From October 1993 through April 1994,
Mr. Pilliod also served as President and Chief Executive Officer of the
Registrant. Mr. Pilliod served as U.S. Ambassador to Mexico from 1986 to 1989.
Prior to that, he was the Chairman and Chief Executive Officer of Goodyear Tire
& Rubber Company. Mr. Pilliod is also a director of Marvin & Palmer Associates,
Inc.

NORMAN E. WELLS, JR., Director - Mr. Wells has been a Director of the
Registrant since December 1997. Mr. Wells joined Rand McNally and Company in
July 2000 as Chief Operating Officer and became Chief Executive Officer in
December, 2000. Mr. Wells was President and Chief Executive Officer of Easco,
Inc. from November 1996 to September 1999. From March 1993 to November 1996,
he was President and Chief Executive Officer of CasTech Aluminum Group, Inc.
Mr. Wells is also a director of Sovereign Specialty Chemicals, Inc.

W. CHRISTOPHER WELLBORN, Executive Vice President, Chief Financial Officer and
Assistant Secretary - Mr. Wellborn has been Executive Vice President, Chief
Financial Officer and Assistant Secretary of the Registrant since August 1997.
From June 1993 to August 1997, Mr. Wellborn was Senior Vice President and Chief
Financial Officer of Lenox, Inc. Prior to Lenox, he was Vice President and Chief
Financial Officer of Grand Metropolitan PLC's Alpo Pet Food Division.

SCOT B. BERNSTEIN, Vice President, Supply Chain Planning - Mr. Bernstein has
been Vice President, Supply Chain Planning since July 2000. He has been with the
Company since April 1997 and prior to July 2000 served as Director of Resource
Planning. Prior to joining the Company, Mr. Bernstein was Director, Supply Chain
Planning for Black & Decker. Prior to that Mr. Bernstein held various
manufacturing and management positions with GTE and Sylvania, a division of GTE.

                                      24

<PAGE>

D. CURTIS COOK, Vice President, American Olean Distribution - Mr. Cook has been
Vice President, American Olean Distribution of the Company since January 2000.
From January 1996 until December 1999, Mr. Cook was General Manager, Independent
Distributor Operations. From December 1979 through December 1995, he served at
American Olean, then a subsidiary of AWI, where he became Regional Sales
Manager, Southern Region.

DAN L. COOKE, Vice President, Information Technology - Mr. Cooke has been Vice
President, Information Technology of the Registrant since January 1997. From
1982 to 1996, he held various positions with PepsiCo in the Frito-Lay and Pizza
Hut divisions, most recently, as Pizza Hut Vice President, Information
Technology. Prior to that, Mr. Cooke spent 17 years with IBM in sales and
systems engineering management.

SILVANO CORNIA, Vice President, Research and Development - Mr. Cornia has been
Vice President, Research and Development of the Registrant since January 1994.
Since July 1984, he has held various positions at the Company.

DAVID F. FINNIGAN, Vice President, Home Center Sales and Business Development -
Mr. Finnigan has been Vice President, Home Center Sales and Business Development
since January 2000. Mr. Finnigan was Vice President, Independent Distributor and
Home Center Services from April 1998 through December 1999. From August 1997
through April 1998, Mr. Finnigan was Vice President, Independent Distributor
Operations of the Company. From January 1996 through January 1997, Mr. Finnigan
held the position of Vice President, Sales Center Operations of the Company.
Prior to the AO Acquisition, he held various executive marketing positions with
AO, AWI and Evans and Black.

WILLIAM R. HANKS, Vice President, Manufacturing - Mr. Hanks has been Vice
President, Manufacturing of the Registrant since February 1994. He has been with
the Company since March 1985, and prior to 1994, served as General Manager,
Assistant Plant Manager and Vice President, Manufacturing of one of the
Company's floor tile facilities.

ANDREW D. HIDUKE, Vice President, Human Resources - Mr. Hiduke has been Vice
President, Human Resources of the Company since September 1999. From January
1998 to September 1999, Mr. Hiduke was a human resources consultant for various
corporate clients. From February 1990 through January 1998, Mr. Hiduke was
Senior Vice President for All First Financial (formerly First Maryland Bank
Corp.) where he was responsible for retail delivery. Mr. Hiduke's 20-year career
in banking included numerous senior level human resources management and
operational positions.

MATTHEW J. KAHNY, Vice President, Marketing - Mr. Kahny has been Vice President,
Marketing since August 1997. From January 1996 to July 1997, Mr. Kahny was Vice
President, Independent Distributor Operations. From July 1983 through December
1995, he served at AO, then a subsidiary of AWI, where he became Business Team
Manager, Floor Tile Products.

H. CLAY ORME, Vice President, Operations - Mr. Orme has been Vice President,
Operations of the Registrant since March 1999. Prior to joining the Company, Mr.
Orme spent 36 years at Goodyear Tire & Rubber Company, concluding as Vice
President, Product Supply for Goodyear's Global Operations. His responsibilities
included the supervision of 85 plants located in twenty-six countries and
corporate facilities planning.

                                      25

<PAGE>

JAVIER EUGENIO MARTINEZ SERNA, Vice President, Mexico Operations - Mr. Martinez
has been Vice President, Mexico Operations of the Registrant since August 1995.
Prior to August 1995, he was a Managing Director of Materiales Ceramicos S.A. de
C.V., a prior subsidiary of the Registrant, since December 1985. From 1980 to
1985, Mr. Martinez was Vice President of Strategic Planning and Business
Diversification of the food division of Protexa, a diversified oil services,
construction and food products company in Monterrey, Mexico.

MARK A. SOLLS, Vice President, General Counsel and Secretary - Mr. Solls has
been Vice President, General Counsel and Secretary of the Registrant since
January 1998. From December 1994 to December 1997, he was Vice President and
General Counsel for ProNet, Inc. Additionally, Mr. Solls has owned a private
practice and worked as counsel for various national health care companies. He is
a Certified Mediator and a member of numerous legal associations.

HAROLD G. TURK, Vice President, Sales Center Operations - Mr. Turk has been Vice
President, Sales Center Operations of the Registrant since January 1997. In
1996, Mr. Turk was Vice President, Home Center Services of the Company. In 1995,
Mr. Turk was Executive Vice President of Field Operations of the Company. In
1994, he was Executive Vice President of Marketing of the Company. From April
1991 through 1993, Mr. Turk was Executive Vice President of Sales and Marketing,
Western Region of the Company. Mr. Turk was a Vice President of Warehouse
Administration of the Company from 1976 to 1991.

JOHN C. TURNER, JR., Vice President, Distribution and Customer Service - Mr.
Turner has been Vice President, Distribution and Customer Service since July
2000. He has been with the Company since June 1990 and prior to July 2000 served
as Dal SBU GM of SSC Operations, HCS GM of Operations, HCS National Account
Manager, SSC Manager and as an Architectural Representative.

SCOTT R. VELDMAN, Treasurer - Mr. Veldman has been Treasurer of the Registrant
since December 1998. From October 1997 to December 1998, he was Assistant
Treasurer. Prior to that, Mr. Veldman worked with Borg-Warner Security
Corporation for 11 years, most recently as Assistant Treasurer.

ITEM 11. EXECUTIVE COMPENSATION

The information appearing in the sections captioned "Directors' Compensation",
"Executive Compensation" and "Compensation Committee Interlocks and Insider
Participation" in the Company's Proxy Statement for the 2001 Annual Meeting of
the Stockholders (the "2001 Proxy Statement") is incorporated by reference
herein.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

The information appearing in the section "Principal Stockholders" in the 2001
Proxy Statement is incorporated by reference herein.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information appearing in the section captioned "Certain Transactions" in the
2001 Proxy Statement is incorporated by reference herein.


                                      26


<PAGE>

                                     PART IV


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


           (a)  Documents to be filed as part of this report:

            1.   Financial statements under Item 8:

See Index to Consolidated Financial Statements and Financial Statement Schedule
included on page F-1 below in this report.

            2.   Financial Statement Schedule Filed herewith:

See Index to Consolidated Financial Statements and Financial Statement Schedule
included on page F-1 below in this report.

All other schedules are omitted either because they are not required or because
the required information is included in the financial statements and notes
thereto included herein. See Index to Consolidated Financial Statements and
Financial Statement Schedule included on page F-1 below in this report.

            3.   List of Exhibits. Each management contract or compensatory plan
                 or arrangement required to be filed as an Exhibit to this form
                 10-K pursuant to Item 14(c) of this report is identified with
                 an asterisk (*).


<TABLE>
<CAPTION>

EXHIBIT
  NO.
-------
<S>          <C>
    2.1      Stock Purchase Agreement, dated as of December 21, 1995, by and among
             Dal-Tile International Inc., Armstrong Enterprises, Inc., Armstrong
             Cork Finance Corporation and Armstrong World Industries, Inc. (Filed
             as Exhibit 2 to the Registrant's Current Report on Form 8-K filed on
             January 19, 1996 and incorporated herein by reference.)

    2.2      Agreement and Plan of Merger among Dal-Tile International Inc.,
             Dal-Tile International Inc. Investors LLC and Dal-Tile International
             Inc. Merger Company, dated as of August 7, 1996. (Filed as Exhibit 2.1
             to the Registrant's Form 10-Q filed on January 16, 1996 and
             incorporated herein by reference.)




                                      27

<PAGE>

EXHIBIT
  NO.
-------
    3.1      Second Amended and Restated Certificate of Incorporation of the
             Company. (Filed as Exhibit 3.1 to the Registrant's Form 10Q filed on
             November 7, 1996 and incorporated herein by reference.)

    3.2      Amended and Restated By-laws of the Company. (Filed as Exhibit 3.2 to
             the Registrant's Registration Statement on Form S-1 (No. 333-5069) and
             incorporated herein by reference.)

    4.1      Specimen form of certificate for Common Stock. (Filed as Exhibit 4.1
             to the Registrant's Form 10-K filed on March 17, 1999 and incorporated
             herein by reference.)

   *4.2      Dal-Tile International Inc. 1990 Stock Option Plan. (As Amended and
             Restated) (Filed as Exhibit 4.4 to the Registrant's Registration
             Statement on Form S-8 (No. 333-70879) and incorporated herein by
             reference.)

  *10.1      Amended and Restated Employment Agreement dated June 7, 1993, between
             Dal-Tile Corporation and Harold G. Turk. (Filed as Exhibit 10.2.3 to
             the Registrant's Registration Statement on Form S-1 (No. 33-64140) and
             incorporated herein by reference.)

   10.2      Credit and Guarantee Agreement, dated August 14, 1996, among Dal-Tile
             International Inc., Dal-Tile Group Inc., the several banks, financial
             institutions and other entities from time-to-time party thereto,
             Credit Suisse, as Documentation Agent, Goldman Sachs Credit Partners
             L.P., as Syndication Agent, and the Chase Manhattan Bank, as
             Administrative Agent. (Filed as Exhibit 10.1 to the Registrant's Form
             10Q filed on November 7, 1996 and incorporated herein by reference.)

   10.3      Pledge Agreement dated as of August 14, 1996, made by Dal-Tile
             International Inc. in favor of The Chase Manhattan Bank, as
             Administrative Agent, relating to the pledge of Common Stock of
             Dal-Tile Group Inc. (Filed as Exhibit 10.3 to the Registrant's Form
             10Q filed on November 7, 1996 and incorporated herein by reference.)

   10.4      Pledge Agreement dated as of August 14, 1996, made by Dal-Tile Group
             Inc. in favor of The Chase Manhattan Bank, as Administrative Agent,
             relating to the pledge of Common Stock of Dal-Tile Corporation. (Filed
             as Exhibit 10.4 to the Registrant's Form 10Q filed on November 7, 1996
             and incorporated herein by reference.)

   10.5      Pledge Agreement dated as of October 4, 1996, made by Dal-Tile Group
             Inc. in favor of The Chase Manhattan Bank, as Administrative Agent,
             relating to the pledge of Common Stock of Dal-Tile Mexico, S.A. de
             C.V. (Filed as Exhibit 10.2 to the Registrant's Form 10Q filed on
             November 7, 1996 and incorporated herein by reference.)




                                      28

<PAGE>

EXHIBIT
  NO.
-------

   10.6      Form of Indemnification Agreement filed by Dal-Tile International
             Inc. and its directors and officers. (Filed as Exhibit 10.4 to
             the Registrant's Registration Statement on Form S-1 (No.
             33-64140) and incorporated herein by reference.)

   10.7      Settlement Agreement dated as of May 20, 1993, among AEA Investors
             Inc., DTM Investors Inc., Dal-Tile Group Inc., Dal-Tile
             Corporation, Dal-Minerals Company and Robert M. Brittingham and
             John G. Brittingham. (Filed as Exhibit 10.5 to the Registrant's
             Registration Statement on Form S-1 (No. 33-64140) and
             incorporated herein by reference.)

  *10.8      Stock Appreciation Rights Agreements, dated as of October 10, 1997,
             and amended February 20, 1998, between Dal-Tile International
             Inc. and each of Jacques R. Sardas, W. Christopher Wellborn, Dan
             L. Cooke, Marc Powell and David F. Finnigan. (Filed as Exhibit
             10.19 to the Registrant's Form 10-K for fiscal year 1997 and
             incorporated herein by reference.)

   10.9      Collateral Agreement, dated as of June 19, 1997, made by Dal-Tile
             Group Inc. and certain of its subsidiaries in favor of Chase
             Manhattan Bank, as Administration Agent. (Filed as Exhibit 10.22 to
             the Registrant's Form 10-K for fiscal year 1997 and incorporated
             herein by reference.)

  10.10      Supply Agreement dated as of December 29, 1999, between Dal-Tile
             Corporation and Wold Talc Company. (Filed as Exhibit 10.18 to the
             Registrant's Form 10-K for fiscal year 1999 and incorporated herein
             by reference.)

  10.11      Fourth Amendment dated as of July 14, 2000, to the Credit and
             Guarantee Agreement. (Filed as Exhibit 10.1 to the Registrant's
             Form 10-Q filed on August 11, 2000 and incorporated herein by
             reference.)

 +10.12      Joint Venture Agreement dated as of September 14, 2000, between
             Dal-Tile I LLC and Emilamerica, Inc.

*+10.13      Amended and Restated Employment Agreement, dated as of November 22,
             2000 between Dal-Tile International Inc. and Jacques R. Sardas.

*+10.14      Amended and Restated Employment Agreement, dated as of December 14,
             2000 between Dal-Tile International Inc. and W. Christopher Wellborn.

*+10.15      Change of Control Agreement, dated as of October 1, 2000 between
             Dal-Tile International Inc. and Jacques R. Sardas.

*+10.16      Change of Control Agreement, dated as of October 1, 2000 between
             Dal-Tile International Inc. and W. Christopher Wellborn.

*+10.17      Change of Control Agreement, dated as of October 1, 2000 between
             Dal-Tile International Inc. and 13 Executive Officers.



                                      29

<PAGE>

EXHIBIT
  NO.
-------
  +21.1      List of subsidiaries of Dal-Tile International Inc.

  +23.1      Consent of Ernst and Young LLP

  +24.1      Power of Attorney (on the signature page hereof)

</TABLE>

 ........................................................

+  Included herewith

           (b)  Reports on Form 8-K:
                  None
           (c)  Exhibits:
                  See Item 14(a) above.
           (d)  Financial Statement Schedule:
                  See Item 14(a) above.



















                                      30

<PAGE>

                                   SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THE 15TH DAY OF MARCH,
2001.


                              DAL-TILE INTERNATIONAL INC.



                                  By:            /s/ Jacques R. Sardas
                                      ------------------------------------------
                                                  JACQUES R. SARDAS
                                        President, Chief Executive Officer and
                                        Chairman of the Board of Directors





                                POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY CONSTITUTES AND APPOINTS JACQUES R. SARDAS AND/OR W. CHRISTOPHER
WELLBORN AS HIS TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM IN HIS NAME, PLACE AND STEAD, IN ANY
AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS TO THIS REPORT AND ANY AND
ALL DOCUMENTS IN CONNECTION THEREWITH, AND FILE THE SAME WITH ALL EXHIBITS
THERETO, AND ALL DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND
EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENT FULL POWER
AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND
NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND
PURPOSES AS HE MIGHT OR COULD DO IN PERSON, AND HEREBY RATIFIES, APPROVES AND
CONFIRMS ALL THAT HIS SAID ATTORNEY-IN-FACT AND AGENT, OR HIS SUBSTITUTE OR
SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.

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


<TABLE>
<CAPTION>

SIGNATURE                                     TITLE                                  DATE
---------                                     -----                                  ----
<S>                                 <C>                                         <C>
/s/ Jacques R. Sardas               President, Chief Executive                  March 15, 2001
------------------------------      Officer and Chairman of the
Jacques R. Sardas                   Board of Directors


                                      31

<PAGE>

SIGNATURE                                     TITLE                                  DATE
---------                                     -----                                  ----


/s/ W. Christopher Wellborn         Executive Vice President, Chief             March 15, 2001
------------------------------      Financial Officer and Assistant
W. CHRISTOPHER WELLBORN             Secretary (Principal Financial and
                                    Accounting Officer)


/s/ Charles J. Pilliod, Jr.         Director                                    March 15, 2001
-----------------------------
CHARLES J. PILLIOD, JR.


/s/ Douglas D. Danforth             Director                                    March 15, 2001
-----------------------------
DOUGLAS D. DANFORTH


/s/ John F. Fiedler                 Director                                    March 15, 2001
-----------------------------
JOHN F. FIEDLER


/s/ Vincent A. Mai                  Director                                    March 15, 2001
-----------------------------
VINCENT A. MAI


/s/ Norman E. Wells, Jr.            Director                                    March 15, 2001
-----------------------------
NORMAN E. WELLS, JR.


/s/ Martin C. Murrer                Director                                    March 15, 2001
-----------------------------
MARTIN C. MURRER

</TABLE>

                                      32

<PAGE>

                              DAL-TILE INTERNATIONAL INC.

                     ITEM 14(A) - INDEX TO CONSOLIDATED FINANCIAL
                      STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

    FISCAL YEARS ENDED DECEMBER 29, 2000, DECEMBER 31, 1999 AND JANUARY 1, 1999



                                        CONTENTS


<TABLE>

     <S>                                                                                 <C>
     Report of Independent Auditors..........................................            F-2
     CONSOLIDATED FINANCIAL STATEMENTS
     Consolidated Balance Sheets at December 29, 2000 and December 31, 1999..            F-3
     Consolidated Statements of Operations for each of the three years in
     the period ended December 29, 2000......................................            F-5
     Consolidated Statements of Stockholders' Equity for each of the three
     years in the period ended December 29, 2000.............................            F-6
     Consolidated Statements of Cash Flows for each of the three years in
     the period ended December 29, 2000......................................            F-7
     Notes to Consolidated Financial Statements..............................            F-8
     CONSOLIDATED FINANCIAL STATEMENTS SCHEDULE
     Schedule II - Valuation and Qualifying Accounts.........................            S-1

</TABLE>

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and therefore have been omitted.

<PAGE>

                         REPORT OF INDEPENDENT AUDITORS





The Board of Directors
Dal-Tile International Inc.

We have audited the accompanying consolidated balance sheets of Dal-Tile
International Inc. as of December 29, 2000 and December 31, 1999, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 29, 2000. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Dal-Tile International Inc. at December 29, 2000 and December 31, 1999,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 29, 2000, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.




                                                     /s/ Ernst & Young



Dallas, Texas
January 22, 2001







                                     F-2


<PAGE>

                           DAL-TILE INTERNATIONAL INC.
                           CONSOLIDATED BALANCE SHEETS
                                (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                DECEMBER 29,   DECEMBER 31,
                                                                    2000          1999
                                                                -----------    -----------
<S>                                                             <C>            <C>
ASSETS

Current Assets:
  Cash ....................................................     $     1,477    $     1,193
  Trade accounts receivable, net of allowance of
    $3,271 in 2000 and $5,186 in 1999 .....................         104,352         94,915
  Inventories .............................................         140,246        140,153
  Prepaid expenses ........................................           5,702          4,884
  Other current assets ....................................          25,222         14,819
                                                                -----------    -----------

      Total current assets ................................         276,999        255,964

Property, plant and equipment, at cost:

  Land ....................................................          11,553         11,456
  Leasehold improvements ..................................          13,134         11,407
  Buildings ...............................................          81,808         76,969
  Machinery and equipment .................................         214,783        190,195
  Construction in progress ................................          22,754         19,702
                                                                -----------    -----------

                                                                    344,032        309,729
Accumulated depreciation ..................................         119,343        102,405
                                                                -----------    -----------

                                                                    224,689        207,324

Goodwill, net of accumulated amortization of
  $76,202 in 2000 and $71,421 in 1999 .....................        138,260         143,041
Tradename and other assets, net of accumulated
  amortization of $9,373 in 2000 and $7,179 in 1999 .......         30,572          32,375
                                                                -----------    -----------

      Total assets ........................................     $   670,520    $   638,704
                                                                ===========    ===========
</TABLE>

                                   See accompanying notes.

                                             F-3
<PAGE>


                           DAL-TILE INTERNATIONAL INC.
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                             DECEMBER 29,    DECEMBER 31,
                                                                 2000            1999
                                                             -----------     -----------
<S>                                                          <C>             <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

  Trade accounts payable .................................   $    32,766     $    36,388
  Accrued expenses .......................................        66,848          67,375
  Current portion of long-term debt ......................        55,761          56,796
  Income taxes payable ...................................           542           1,153
  Deferred income taxes ..................................         4,779           2,461
                                                             -----------     -----------
      Total current liabilities ..........................       160,696         164,173

Long-term debt ...........................................       276,017         353,877
Other long-term liabilities ..............................        17,968          17,671
Deferred income taxes ....................................         3,531           2,039
Commitments and Contingencies
Stockholders' Equity:
   Preferred stock, $ .01 par value, 11,100,000 shares
     authorized; no shares issued and outstanding
     at December 29, 2000 or December 31, 1999 ...........             -               -
  Common stock, $ .01 par value, 200,000,000
    shares authorized; issued and outstanding shares -
    55,252,695 at December 29, 2000 and
    54,669,255 at December 31, 1999 ......................           553             547
  Additional paid-in capital .............................       453,144         447,738
  Accumulated deficit ....................................      (172,338)       (273,095)
  Accumulated other comprehensive loss ...................       (69,051)        (74,246)
                                                             -----------     -----------

      Total stockholders' equity .........................       212,308         100,944
                                                             -----------     -----------
Total liabilities and stockholders' equity ...............   $   670,520     $   638,704
                                                             ===========     ===========
</TABLE>

                                   See accompanying notes.

                                             F-4

<PAGE>

                                                DAL-TILE INTERNATIONAL INC.
                                          CONSOLIDATED STATEMENTS OF OPERATIONS
                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>

                                                                                    FISCAL YEAR ENDED
                                                              --------------------------------------------------------------
                                                                  DECEMBER 29,          DECEMBER 31,           JANUARY 1,
                                                                      2000                  1999                  1999
                                                              ------------------    ------------------    ------------------
<S>                                                           <C>                   <C>                   <C>
Net sales................................................       $       952,156       $      850,568        $       751,785
Cost of goods sold.......................................               497,933              440,514                396,112
                                                              ------------------    -----------------     ------------------
                                                                        454,223              410,054                355,673

Operating expense:
    Transportation.......................................                64,549               57,124                 55,988
    Selling, general and administrative..................               247,099              232,845                222,790
    Amortization of goodwill and tradename...............                 5,512                5,607                  5,604
                                                              ------------------    -----------------     ------------------
Total operating expense..................................               317,160              295,576                284,382
                                                              ------------------    -----------------     ------------------
Operating income.........................................               137,063              114,478                 71,291

Interest expense.........................................                30,102               37,125                 45,051
Interest income..........................................                   104                  126                    128
Other (expense) income...................................                  (444)                 250                  1,264
                                                              ------------------    -----------------     ------------------
Income before income taxes...............................               106,621               77,729                 27,632
Income tax provision.....................................                 5,864                3,966                  3,604
                                                              ------------------    -----------------     ------------------
Net income...............................................       $       100,757       $       73,763        $        24,028
                                                              ==================    =================     ==================


BASIC EARNINGS PER SHARE
Net income per common share..............................       $          1.83       $         1.36        $          0.45
                                                              ==================    =================     ==================
Weighted average common shares...........................                54,918               54,103                 53,487
                                                              ==================    =================     ==================


DILUTED EARNINGS PER SHARE
Net income per common share..............................       $          1.82       $         1.35        $          0.45
                                                              ==================    =================     ==================
Weighted average common shares assuming dilution.........                55,396               54,539                 53,983
                                                              ==================    =================     ==================

</TABLE>





                             See accompanying notes.

                                     F-5

<PAGE>

                                           DAL-TILE INTERNATIONAL INC.
                                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                  (IN THOUSANDS)


<TABLE>
<CAPTION>

                                                                                        ACCUMULATED
                                                        ADDITIONAL                         OTHER
                                          COMMON         PAID-IN       ACCUMULATED     COMPREHENSIVE
                                          STOCK          CAPITAL         DEFICIT            LOSS               TOTAL
                                      -------------- ---------------   ------------  -------------------  ---------------
<S>                                   <C>            <C>               <C>           <C>                  <C>
BALANCE AT JANUARY 2, 1998..........  $      534     $   436,100       $ (370,886)   $    (61,828)        $    3,920
Common stock registration...........         -            (1,030)             -               -               (1,030)
Proceeds from issuance of
 common stock.......................           1           1,112              -               -                1,113


COMPREHENSIVE INCOME:
Net income..........................         -               -             24,028             -               24,028
Currency translation adjustment.....         -               -                -           (12,572)           (12,572)
                                                                                                          ---------------
Total comprehensive income..........         -               -                -               -               11,456
                                      -------------- ---------------   ------------  -------------------  ---------------

BALANCE AT JANUARY 1, 1999..........         535         436,182         (346,858)        (74,400)            15,459
Stock option compensation...........         -               255              -               -                  255
Exercise of stock options
 and other..........................          12          11,301              -               -               11,313

COMPREHENSIVE INCOME:
Net income..........................         -               -             73,763             -               73,763
Currency translation adjustment.....         -               -                -               154                154
                                                                                                          ---------------
Total comprehensive income..........         -               -                -               -               73,917
                                      -------------- ---------------   ------------  -------------------  ---------------

BALANCE AT DECEMBER 31, 1999........         547         447,738         (273,095)        (74,246)           100,944
Exercise of stock options and
 other..............................           6           5,406              -               -                5,412

COMPREHENSIVE INCOME:
Net income..........................         -               -            100,757             -              100,757
Unrealized gain on hedge
 instrument, net of tax.............         -               -                -             5,282              5,282
Currency translation adjustment.....         -               -                -               (87)               (87)
                                                                                                          ---------------
Total comprehensive income..........         -               -                -               -              105,952
                                      -------------- ---------------   ------------  -------------------  ---------------


BALANCE AT DECEMBER 29, 2000........  $      553     $   453,144       $ (172,338)   $    (69,051)        $  212,308
                                      ============== ===============   ============  ===================  ===============

</TABLE>






                             See accompanying notes.




                                     F-6

<PAGE>


                           DAL-TILE INTERNATIONAL INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                     DECEMBER 29,    DECEMBER 31,     JANUARY 1,
                                                         2000            1999           1999
                                                     ------------    ------------    ------------
<S>                                                  <C>            <C>              <C>
OPERATING ACTIVITIES
Net income.......................................    $    100,757    $     73,763    $     24,028
Adjustments to reconcile net income to net
cash provided by operating activities:
  Depreciation and amortization..................          26,782          26,889          27,873
  Impairment of long-lived assets................             -              -              6,625
  Provision for losses on accounts receivable....           2,126           2,199           7,024
  Other..........................................             138             153          (2,407)
  Deferred income tax provisions (benefit).......             553          (1,717)          1,995

Changes in operating assets and liabilities:
  Trade accounts receivable......................         (11,706)         (3,673)         (5,091)
  Inventories....................................            (276)         (1,388)        (14,956)
  Other assets...................................          (3,063)          3,474          (3,194)
  Trade accounts payable and accrued expenses....          (5,353)         14,594          14,955
  Accrued interest payable.......................           1,436              94          (1,797)
  Other liabilities..............................          (1,167)        (10,444)          1,901
                                                     ------------    ------------    ------------
Net cash provided by operating activities........         110,227         103,944          56,956

INVESTING ACTIVITIES
Expenditures for property, plant and
    equipment, net...............................         (37,180)        (25,129)         (5,776)

FINANCING ACTIVITIES
Borrowings under long-term debt..................         241,900         255,600         149,808
Repayment of long-term debt......................        (320,796)       (345,359)       (206,467)
Fees associated with debt refinancing and stock
    registration.................................               -            (176)         (1,118)
Proceeds from issuance of common stock...........           6,184          10,640           1,113
                                                     ------------    ------------    ------------
Net cash used in financing activities............         (72,712)        (79,295)        (56,664)

Effect of exchange rate on cash..................             (51)            127            (458)
                                                     ------------    ------------    ------------
Net increase (decrease) in cash..................             284            (353)         (5,942)
Cash at beginning of year........................           1,193           1,546           7,488
                                                     ------------    ------------    ------------
Cash at end of year..............................    $      1,477    $      1,193    $      1,546
                                                     ============    ============    ============
</TABLE>

                                   See accompanying notes.

                                              F-7
<PAGE>


                           DAL-TILE INTERNATIONAL INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 29, 2000


1.   ORGANIZATION

Dal-Tile International Inc. (the "Company"), a holding company, owns the
outstanding capital stock of its sole direct subsidiary, Dal-Tile Group Inc.
(the "Group"), and conducts its operations through the Group. The Group also
conducts substantially all of its operations through its subsidiaries. Dal-Tile
International Inc., as a stand-alone holding company, has no operations (see
Note 13).

The Group is a multinational manufacturing and distribution company operating in
the United States, Mexico and Canada. The Group offers a full range of glazed
and unglazed ceramic tile products and accessories, as well as natural stone
products. The Group's products are sold principally through its extensive
network of Company-operated sales centers. The Group also distributes products
through independent distributors and sells to home center retailers and flooring
dealers.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements reflect the consolidation of all
accounts of the Company, including a majority owned joint venture. Significant
intercompany transactions and balances have been eliminated in consolidation.

The Company's 49.99 percent investment in Recumbrimientos Interceramic, S.A.
de C.V. ("RISA") is accounted for under the cost method as the Company does
not exercise significant influence over the operations. Such investment
amounted to less than 2 percent of total assets at December 29, 2000 and
December 31, 1999.

USE OF ESTIMATES

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

REVENUE RECOGNITION

The Company recognizes revenue from product sales upon shipment.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with maturities of three
months or less to be cash equivalents.

INVENTORIES

U.S. finished products inventories are valued at the lower of cost (last-in,
first-out ("LIFO")) or market, while U.S. raw materials and goods-in-process
inventories are valued at the lower of cost (first-in, first-out ("FIFO")) or
market. Mexican and Canadian inventories are valued at the lower of cost (FIFO)
or market.


                                     F-8
<PAGE>


DEPRECIATION

Depreciation for financial reporting purposes is determined using the
straight-line method. Estimated useful lives are as follows:

<TABLE>
<CAPTION>
                                                            YEARS
                                                        -------------
              <S>                                       <C>
              Leasehold improvements.................   Life of lease
              Buildings..............................      20 - 30
              Machinery and equipment................       3 - 15
</TABLE>


INTANGIBLE ASSETS

Goodwill and tradename, which represent the excess cost over the fair value of
net assets acquired, are amortized on a straight-line basis over the expected
period to be benefited of 40 years and 25 years, respectively. The Company
assesses the recoverability of intangible assets by determining whether the
amortization of the balances over their remaining lives can be recovered through
undiscounted future operating cash flows of the acquired operations.
Recoverability is reviewed when events or changes in circumstances indicate that
the carrying amount may exceed such cash flows.

ADVERTISING EXPENSE

Advertising and promotion expenses are charged to income during the period in
which they are incurred. Advertising and promotion expenses incurred for the
fiscal years 2000, 1999, and 1998 amounted to $21,617,000, $20,572,000, and
$14,353,000, respectively.

STOCK OPTIONS

The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the underlying common stock at the
date of grant. The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and
related interpretations in accounting for its employee stock options. Under APB
25, no compensation expense is recognized if the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant.

RETIREMENT PLANS

The Company maintains a defined contribution 401(k) plan for eligible
employees in the U.S. A participant may contribute up to 15 percent of his
total annual compensation (annual base pay for union participants) to the
plan. Contributions by the Company to the plan are made at the discretion of
its Board of Directors. Currently, the Company matches 50 percent of any
participant's contribution to the plan up to 6 percent of the employee's
total annual compensation. Dal-Tile Mexico maintains a defined benefit plan
for eligible employees with funding policies based on local statutes.

FOREIGN CURRENCY TRANSLATION

The Company's Mexican operations use the U.S. dollar as their functional
currency. Translation gains or losses are reflected in the consolidated
statements of operations. Gains and losses resulting from foreign currency
transactions are reflected currently in the consolidated statements of
operations. The Company recorded a foreign currency transaction loss of $82,000
for the fiscal year ended December 29, 2000 and foreign currency transaction
gains of $137,000 and $1,727,000 for the fiscal years ended December 31, 1999
and January 1, 1999, respectively. The cumulative foreign currency translation
adjustment as of December 29, 2000 was approximately $74,330,000.


                                     F-9
<PAGE>


FINANCIAL INSTRUMENTS

The carrying amounts of cash, trade accounts receivable and trade accounts
payable approximate fair value because of the short maturity of those
instruments. The carrying amount of the Company's long-term debt approximates
its fair value, which the Company estimates based on incremental rates of
comparable borrowing arrangements.

CONCENTRATIONS OF CREDIT RISK

The Company is engaged in the manufacturing and distribution of glazed and
unglazed ceramic tile products and accessories in the United States and Mexico
and the distribution of such manufactured products in Canada. The Company grants
credit to customers, substantially all of whom are dependent upon the
construction economic sector. The Company continuously evaluates its customers'
financial condition and periodically requires payments to its customers to be
issued on behalf of the customer and the Company. In addition, the Company
frequently obtains liens on property to secure accounts receivable.

DERIVATIVE FINANCIAL INSTRUMENTS

Effective September 30, 2000, the Company adopted Statement of Financial
Accounting Standards No. 133 - "Accounting for Derivative Instruments and
Hedging Activities," ("SFAS 133") and its amendments which require the Company
to recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in its
fair value are either offset against the change in fair value of assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings.

The Company engages in activities that expose it to various market risks,
including the effects of changes in foreign currency exchange rates, interest
rates and natural gas prices. These financial exposures are managed as an
integral part of the Company's risk management program, which seeks to reduce
the potentially adverse effects that the volatility of the markets may have on
operating results. The Company does not regularly engage in speculative
transactions, nor does it regularly hold or issue financial instruments for
trading purposes. The Company maintains a foreign currency risk management
strategy that uses derivative instruments to protect its interests from
unanticipated fluctuations in earnings and cash flows caused by volatility in
currency exchange rates. The Company maintains an interest rate risk management
strategy that uses derivative instruments, currently interest rate swaps, to
minimize significant, unanticipated earnings fluctuations caused by volatility
in interest rates. In addition, the Company maintains a natural gas pricing
strategy to minimize significant fluctuations in earnings caused by the
volatility of gas prices.

The Company formally documents all hedging instruments and hedging items, as
well as its risk management objective and strategy for undertaking various hedge
items. This process includes linking all derivatives that are designated as fair
value and cash flow hedges to specific assets or liabilities on the balance
sheet or to forecasted transactions. The Company also formally assesses, both at
inception and on an ongoing basis, whether the derivatives that are used in
hedging transactions are highly effective in offsetting changes in fair value or
cash flows of hedged items. When it is determined that a derivative is not
highly effective, the derivative expires, or is sold, terminated, or exercised,
or the derivative is discontinued because it is unlikely that a forecasted
transaction will occur, the Company discontinues hedge accounting for that
specific hedge instrument.

RECLASSIFICATION

Certain prior year amounts have been reclassified to conform to the 2000
presentation.


                                     F-10
<PAGE>


NET INCOME PER SHARE

Computations of basic and diluted earnings per share are presented in the table
below.

<TABLE>
<CAPTION>
                                                             FISCAL YEAR ENDED
                                                 --------------------------------------------
                                                 DECEMBER 29,    DECEMBER 31,     JANUARY 1,
                                                     2000           1999             1999
                                                 ------------    ------------    ------------
                                                    (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                              <C>             <C>             <C>
BASIC EARNINGS PER SHARE
Net income...................................    $    100,757    $     73,763    $    24,028
                                                 ============    ============    ===========

Weighted average common shares...............          54,918          54,103         53,487

Net income per common share..................    $       1.83    $       1.36    $      0.45
                                                 ============    ============    ===========

DILUTED EARNINGS PER SHARE
Net income...................................    $    100,757    $     73,763    $    24,028
                                                 ============    ============    ===========

Weighted average common shares...............          54,918          54,103         53,487
Effect of dilutive stock options.............             478             436            496
                                                 ------------    ------------    -----------
Weighted average common shares
assuming dilution............................          55,396          54,539         53,983

Net income per common share..................    $       1.82    $       1.35    $      0.45
                                                 ============    ============    ===========
</TABLE>


Options to purchase 3,000,000 shares of common stock were outstanding during
fiscal year 2000, but were not included in the computation of diluted earnings
per share because the options' exercise price was greater than the average
market price of the common shares during the year.

Options to purchase 2,472,000 shares of common stock were outstanding during
fiscal year 1999, but were not included in the computation of diluted earnings
per share because the options' exercise price was greater than the average
market price of the common shares during the year.

Options to purchase 1,694,000 shares of common stock were outstanding during
fiscal year 1998 but were not included in the computation of diluted earnings
per share because the options' exercise price was greater than the average
market price of the common shares during the year.

3. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
                                                       DECEMBER 29,    DECEMBER 31,
                                                           2000           1999
                                                       ------------    ------------
                                                               (IN THOUSANDS)
<S>                                                    <C>             <C>
Finished products in U.S...........................    $    117,272    $    118,877
Finished products in Mexico........................           5,671           4,828
Finished products in Canada........................           2,500           2,166
Goods-in-process...................................           5,204           4,316
Raw materials......................................           9,599           9,966
                                                       ------------    ------------
Total inventories..................................    $    140,246    $    140,153
                                                       ============    ============
</TABLE>


                                     F-11

<PAGE>

If U.S. finished products inventories were shown at current costs (approximating
the FIFO method) rather than at LIFO values, inventories would have been
$1,700,000 lower and $2,700,000 lower than reported at December 29, 2000 and
December 31, 1999, respectively.

During fiscal year 2000, inventory quantities in four LIFO pools were reduced.
This reduction resulted in the liquidation of LIFO inventory quantities carried
at higher costs prevailing in prior years as compared with the fiscal year 2000
costs, the effect of which decreased net income by approximately $757,000, or
$0.01 per share (basic and diluted).

During fiscal year 1999, inventory quantities in six LIFO pools were reduced.
This reduction resulted in the liquidation of LIFO inventory quantities carried
at higher costs prevailing in prior years as compared with the fiscal year 1999
costs, the effect of which decreased net income by approximately $1,713,000, or
$0.03 per share (basic and diluted).

During fiscal year 1998, inventory quantities in six LIFO pools were reduced.
This reduction resulted in the liquidation of LIFO inventory quantities carried
at higher costs prevailing in prior years as compared with the fiscal year 1998
costs, the effect of which decreased net income by approximately $772,000, or
$0.01 per share (basic and diluted).

4. LONG-TERM DEBT

Long-term debt consists of the following:


<TABLE>
<CAPTION>

                                                                                            DECEMBER 29,            DECEMBER 31,
                                                                                               2000                   1999
                                                                                         ------------------    ------------------
                                                                                                      (IN THOUSANDS)
<S>                                                                                      <C>                   <C>
Term A Loan, interest due quarterly at LIBOR plus .75% or Prime (approximately
   7.4% at December 29, 2000), principal due in variable quarterly installments
   through December 31, 2002 (1)....................................................      $        115,000      $        165,000
Term B Loan, interest due quarterly at LIBOR plus 1.75% (approximately 8.4% at
   December 29, 2000), principal due in variable quarterly installments through
   December 31, 2003 (1)............................................................               122,000               123,000
Revolving line of credit, interest due quarterly at blended LIBOR rates plus .75%
   or Prime (approximately 7.4% at December 29, 2000), principal due December 31,
   2002 (1).........................................................................                86,700               108,800
Other, principally borrowings to fund capital additions.............................                 8,078                13,873
                                                                                         ------------------    ------------------
                                                                                                   331,778               410,673
Less current portion................................................................                55,761                56,796
                                                                                         ------------------    ------------------
                                                                                          $        276,017      $        353,877
                                                                                         ==================    ==================

</TABLE>

(1)  Substantially all of the Company's assets are pledged on the debt.

During the third quarter of fiscal year 2000, the Company amended certain
financial covenants to provide increased operating flexibility under the Third
Amended Credit Facility (as amended, the "Fourth Amended Credit Facility").
Under the Fourth Amended Credit Facility, the Company is required, among other
things, to maintain certain financial covenants and has restrictions on
incurring additional debt and limitations on cash dividends. The Company was in
compliance with such covenants at December 29, 2000. A commitment fee at a rate
per annum based on a pricing grid is payable quarterly.

                                    F-12

<PAGE>

As of December 29, 2000, the Company had availability of approximately
$150,002,000 on the revolving line of credit. The availability is net of
$13,298,000 in letters of credit for foreign inventory purchases, insurance
programs and industrial revenue bond financing transactions.

Aggregate maturities of long-term debt for the four years subsequent to December
29, 2000 (in thousands) are:


<TABLE>

                <S>                             <C>
                2001.....................       $   55,761
                2002.....................          154,917
                2003.....................          120,800
                2004.....................              300

</TABLE>

Total interest cost incurred for the fiscal years 2000, 1999 and 1998 amounted
to approximately $30,915,000, $37,508,000 and $45,173,000, respectively, of
which approximately $813,000, $383,000 and $122,000, respectively, was
capitalized to property, plant and equipment. Total interest paid was
$28,017,000, $35,952,000 and $45,712,000 for fiscal years ended December 29,
2000, December 31, 1999 and January 1, 1999, respectively.

5.  ASSET IMPAIRMENT

During fiscal year 1998, the Mt. Gilead, NC glazed floor manufacturing
facility was closed and is currently being held for sale. An aggregate
provision of $6,625,000 was recorded in cost of sales in fiscal year 1998 to
reduce the carrying value of the facility to its net realizable value. As of
December 29, 2000 its net realizable value was $900,000.

6.  INCOME TAXES

Income before income taxes relating to operations is as follows:


<TABLE>
<CAPTION>

                                                               FISCAL YEAR ENDED
                                         ---------------------------------------------------------------
                                            DECEMBER 29,          DECEMBER 31,           JANUARY 1,
                                                2000                  1999                  1999
                                         -------------------    -----------------    -------------------
                                                                 (IN THOUSANDS)
<S>                                      <C>                    <C>                  <C>
United States.....................        $     100,103          $    65,430          $      12,905
Mexico............................                6,150               11,502                 14,827
Other.............................                  368                  797                   (100)
                                         -------------------    -----------------    -------------------

                                          $     106,621          $    77,729          $      27,632
                                         ===================    =================    ===================

</TABLE>



                                              F-13

<PAGE>

The components of the provision for income taxes include the following:


<TABLE>
<CAPTION>

                                                             FISCAL YEAR ENDED
                                         -----------------------------------------------------------
                                            DECEMBER 29,          DECEMBER 31,         JANUARY 1,
                                                2000                  1999                1999
                                         -------------------    -----------------    ---------------
                                                                 (IN THOUSANDS)
<S>                                      <C>                    <C>                  <C>
U.S. state - current.............        $        1,024         $        334         $      262
U.S. - deferred..................                 3,316                1,247              1,286
                                         -------------------    -----------------    ---------------
                                                  4,340                1,581              1,548

Mexico - current.................                 1,300                2,289              1,876
Mexico - deferred................                   224                   96                180
                                         -------------------    -----------------    ---------------
                                                  1,524                2,385              2,056
                                         -------------------    -----------------    ---------------
Total............................        $        5,864         $      3,966         $    3,604
                                         ===================    =================    ===============

</TABLE>

Principal reconciling items from income tax provision computed at the U.S.
statutory rate of 35 percent and the provision for income taxes for the
fiscal years ended December 29, 2000, December 31, 1999 and January 1, 1999
are as follows:

<TABLE>
<CAPTION>

                                                                        FISCAL YEAR ENDED
                                                   -------------------------------------------------------------
                                                     DECEMBER 29,          DECEMBER 31,            JANUARY 1,
                                                         2000                 1999                   1999
                                                   -----------------     ----------------      -----------------
                                                                          (IN THOUSANDS)
<S>                                                <C>                   <C>                   <C>
Provision at U.S. statutory rate..........         $     37,316          $     27,205          $      9,671
Amortization of goodwill..................                1,673                 1,667                 1,667
State income tax..........................                4,040                 1,028                 1,006
Foreign loss not benefited................                 (128)                 (279)                   35
Difference between U.S. and Mexico
  statutory rate..........................                   -                    915                   884
Mexico inflationary indexing and other....                 (628)               (2,556)               (2,267)
Valuation allowance.......................              (36,739)              (24,285)               (7,679)
Other.....................................                  330                   271                   287
                                                   -----------------     -----------------     -----------------
Total.....................................         $      5,864          $      3,966          $      3,604
                                                   =================     =================     =================

</TABLE>







                                                        F-14

<PAGE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:


<TABLE>
<CAPTION>

                                                                       DECEMBER 29,            DECEMBER 31,
                                                                           2000                    1999
                                                                    -------------------    -------------------
                                                                                  (IN THOUSANDS)
<S>                                                                 <C>                    <C>
Deferred tax liabilities:
Book basis of property, plant and equipment over tax..........       $          19,636      $          18,394
Book basis of other assets over tax.........................                     9,951                  9,319
Unrealized gain on hedging instruments......................                     3,306                   -
Other, net .................................................                    10,206                  9,592
                                                                    -------------------    -------------------
      Total deferred tax liabilities........................                    43,099                 37,305
                                                                    -------------------    -------------------
Deferred tax assets:
Tax basis of inventories over book..........................                     2,326                    922
Tax basis of other assets over book.........................                     2,003                    741
Net operating loss carryforwards............................                    22,311                 56,530
Expenses not yet deductible for tax.........................                     8,149                 11,351
                                                                    -------------------    -------------------
      Total deferred tax assets.............................                    34,789                 69,544
Valuation allowance for deferred tax assets.................                      -                   (36,739)
                                                                    -------------------    -------------------
Net deferred tax assets.....................................                    34,789                 32,805
                                                                    -------------------    -------------------
Net deferred tax liabilities................................         $           8,310      $           4,500
                                                                    ===================    ===================

</TABLE>

Total income tax payments, net of refunds received, during the years ended
December 29, 2000, December 31, 1999 and January 1, 1999 were $3,777,000,
$1,680,000 and $1,836,000, respectively. The Company has a U.S. federal net
operating loss carryforward of approximately $57,000,000, which expires in
2008-2019. The net operating loss carryforwards will be available to offset
regular U.S. taxable income during the carryforward period. In addition, the
Company has state net operating loss carry forwards with a tax benefit of
approximately $2,500,000 which expire between 2001 and 2019.

The valuation allowance for net deferred tax assets decreased by $36,739,000 in
fiscal year 2000. This decrease is a result of the Company's analysis of the
likelihood of generating sufficient future taxable income and thus realizing the
future benefit of tax loss carryforwards and other deferred tax assets.
Although realization is not assured, the Company believes it is more likely
than not that the tax benefits recorded will be realized through future
taxable income.

U.S. tax rules impose limitations on the use of net operating loss carryforwards
following certain changes in ownership. If such a change were to occur with
respect to the Company, the limitation could reduce the amount of deductions
that would be available to offset future taxable income each year, starting with
the year of the ownership change.

7.  DERIVATIVE FINANCIAL INSTRUMENTS

FOREIGN CURRENCY EXCHANGE RISK MANAGEMENT
The Company uses foreign currency forward contracts to hedge against foreign
currency risk and accounts for these contracts as cash flow hedges. Such
financial instruments are marked-to-market with the offset to other
comprehensive income and deferred taxes and then subsequently recognized as a
component of cost of goods sold in the same period or periods during which the
hedged transaction affects earnings. These hedges are designed to be perfectly
effective at inception and throughout the hedge. The Company did not have any
forward contracts outstanding as of December 29, 2000 and foreign currency
contracts did not materially effect earnings for fiscal year 2000.

                                    F-15

<PAGE>

INTEREST RATE RISK MANAGEMENT
The Company uses interest rate swap contracts to adjust the proportion of
total debt that is subject to variable and fixed interest rates. Under an
interest rate swap contract, the Company agrees to pay an amount equal to a
fixed-rate of interest times a notional principal amount, and to receive in
return an amount equal to a specified variable-rate of interest times the same
notional principal amount. The notional amounts of the contracts are not
exchanged, and no other cash payments are made. The contract fair value is
reflected on the balance sheet and related gains or losses are deferred in
other comprehensive income. These deferred gains and losses are recognized in
income as an adjustment to interest expense over the same period in which the
related interest payments being hedged are recognized in income. However, to
the extent that any of these contracts are not considered to be perfectly
effective in offsetting the change in the value of the interest payments being
hedged, any changes in fair value relating to the ineffective portion of these
contracts is immediately recognized in income. As of December 29, 2000, the
Company had an interest rate swap agreement outstanding for $200,000,000,
which will be in effect until January 16, 2001. Under the terms of the swap
agreement, the Company pays a fixed interest rate of 5.7 percent. As of
December 29, 2000, the cumulative net gain and fair value of the swap
agreement was immaterial. At December 29, 2000, the Company held four
$50,000,000 interest rate swap contracts which become effective January 16,
2001. The fair value of these contracts was not material at December 29, 2000,
and the contracts expire on December 31, 2001 and December 31, 2002.

NATURAL GAS RISK MANAGEMENT
The Company uses a combination of natural gas futures contracts and long-term
supply agreements to manage unanticipated fluctuations in natural gas prices.
These instruments generally cover a period of one to three years on forecasted
usage of natural gas measured in Million British Thermal Units ("MMBTU"). The
long-term supply agreements do not have net settlement provisions and are
accounted for as normal purchases, which are excluded from hedge accounting
consideration under SFAS 133 and its amendments. The Company accounts for
natural gas futures contracts as cash flow hedges. Such financial instruments
are marked-to-market using futures prices with the offset to other comprehensive
income, net of applicable income taxes and hedge ineffectiveness. Subsequently,
the gain or loss is recognized as a component of cost of goods sold in the same
period or periods during which the hedged transaction affects earnings. For the
fiscal year ended December 29, 2000, the Company recognized approximately
$905,000 in net gain on its natural gas hedge program.

At December 29, 2000 the Company had natural gas futures contracts outstanding
with an aggregate notional amount of approximately 4,210,000 MMBTU. These
contracts had a fair value of approximately $8,588,000 of which $7,249,000 was
recorded in other current assets and $1,339,000 was recorded in long-term assets
with the offset to other comprehensive income, net of applicable income taxes.
The hedge instruments were considered perfectly effective at December 29, 2000
and expire at various dates through August 2002.

8.  EMPLOYEE STOCK PURCHASE PLAN

In March 1999, the Company's Stockholders approved the Company's Employee Stock
Purchase Plan ("ESPP"). Pursuant to the ESPP, employees can purchase Common
Stock at a specified price through payroll deductions during an offering period,
currently established on a semi-annual basis beginning on January 1 and July 1
of each year. Pursuant to the ESPP, 63,181 shares were issued in January 2000,
and 65,382 shares were issued in July 2000. The Company reserved 500,000 shares
for issuance, 371,437 of which were available for issue at December 29, 2000.

9.  STOCK PLAN

The Company has a stock option plan (the "Plan") that provides for the
granting of options for up to 14,063,494 shares of its common stock to key
employees of the Company. Options granted under the Plan prior to January 1,
1996 vest 20 percent at the date of the grant and 20 percent on each
successive anniversary of the date of the grant until fully vested.
Generally, options granted on or after January 1, 1996 vest 25 percent at the
date of the grant and 25 percent on each successive anniversary of the date
of the grant until fully vested. In each case, the options expire on the
tenth

                                    F-16

<PAGE>

anniversary of the date of the grant. The terms of the stock option plan may
be modified on an individual grant basis at the discretion of the Company's
Board of Directors.

Stock option activity under the Plan is summarized as follows (option data shown
below is after giving effect to the Company's options conversion):


<TABLE>
<CAPTION>

                                                                                                     WEIGHTED
                                                                                                      AVERAGE
                                                      NUMBER OF          RANGE OF EXERCISE            EXERCISE
                                                       SHARES                  PRICES                  PRICE
                                                   ----------------     ---------------------    ------------------
<S>                                                <C>                  <C>                      <C>
Outstanding at January 2, 1998..................      6,597,371          $   9.01 - 13.75         $      11.30
    Granted.....................................      3,770,000              8.69 - 11.31                 8.92
    Cancelled...................................       (110,024)             9.01 - 13.69                11.26
                                                   ----------------     ---------------------    ------------------

Outstanding at January 1, 1999..................     10,257,347          $   8.69 - 11.94         $       9.73
    Granted.....................................        475,000              8.44 - 11.25                 9.03
    Exercised...................................       (975,094)             8.69 -  9.91                 9.33
    Cancelled...................................       (522,359)             8.69 - 11.94                 9.44
                                                   ----------------     ---------------------    ------------------

Outstanding at December 31, 1999................      9,234,894          $   8.44 - 11.94         $       9.77
    Granted.....................................      3,557,000              7.38 - 13.89                12.39
    Exercised...................................       (364,765)             7.38 -  9.19                 8.96
    Cancelled...................................       (438,007)             7.38 -  9.91                 9.46
                                                   ----------------     ---------------------    ------------------

Outstanding at December 29, 2000...............      11,989,122          $   7.38 - 13.89         $      10.58
                                                   ================     =====================    ==================

</TABLE>

The Company has reserved 14,063,494 shares of common stock for options, of which
2,074,372 had not been granted at December 29, 2000, and are available for
future issuance under the Plan. At December 29, 2000, December 31, 1999 and
January 1, 1999, there were 7,950,705 options exercisable at a weighted average
exercise price of $11.43, 5,415,212 options exercisable at a weighted average
exercise price of $10.03, and 5,051,347 options exercisable at a weighted
average exercise price of $9.84, respectively. The following table summarizes
information with regard to stock options outstanding at December 29, 2000:


<TABLE>
<CAPTION>

                                                                     WEIGHTED AVERAGE
                   EXERCISE                 OPTIONS                     REMAINING
                    PRICE                 OUTSTANDING                CONTRACTUAL LIFE
             --------------------    ------------------------     -----------------------
             <S>                     <C>                          <C>
                  $    7.38                   266,000                    9.05 years
                       8.13                    34,000                    9.51 years
                       8.44                   100,000                    8.70 years
                       8.69                   944,000                    7.94 years
                       8.81                   100,000                    8.16 years
                       8.94                    51,000                    9.55 years
                       9.01                 4,616,122                    5.52 years
                       9.13                    80,000                    9.05 years
                       9.19                   206,000                    8.82 years
                       9.44                    32,000                    8.96 years
                      11.25                    15,000                    8.51 years
                      11.94                 2,425,000                    6.77 years
                      12.19                   120,000                    9.95 years
                      12.63                 2,000,000                    9.89 years
                      13.89                 1,000,000                    9.89 years

</TABLE>

                                    F-17

<PAGE>

If the Company had elected to recognize compensation cost based on the fair
value of the options granted at grant date, net income and earnings per share
would have been reduced to the pro forma amounts indicated in the table below:


<TABLE>
<CAPTION>

                                                                                FISCAL YEAR ENDED
                                                            -----------------------------------------------------------
                                                              DECEMBER 29,          DECEMBER 31,          JANUARY 1,
                                                                  2000                  1999                1999
                                                            -----------------     -----------------    ----------------
                                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                         <C>                   <C>                  <C>
Net income - as reported...............................       $   100,757           $   73,763           $    24,028
Net income - pro forma.................................            90,506               62,609                14,929
Earnings per share as reported - basic.................             1.83                 1.36                  0.45
                               - diluted...............             1.82                 1.35                  0.45
Earnings per share pro forma   - basic.................             1.65                 1.16                  0.28
                               - diluted...............             1.63                 1.15                  0.28

</TABLE>

The weighted average fair value at date of grant for options granted during the
fiscal years ended December 29, 2000, December 31, 1999 and January 1, 1999 was
$5.01, $3.80 and $4.03 per option, respectively. The fair value of the options
at the date of grant was estimated using the Black Scholes model with the
following weighted average assumptions:


<TABLE>
<CAPTION>

                                                             FISCAL YEAR ENDED
                                        -------------------------------------------------------------
                                             DECEMBER 29,          DECEMBER 31,          JANUARY 1,
                                                2000                  1999                 1999
                                        --------------------    -----------------    ----------------
<S>                                     <C>                     <C>                  <C>
Expected life (years)...........                   3                    3                   3
Interest rate...................                 5.66%                5.83%               5.25%
Volatility......................                 52.4%                55.0%               61.9%
Dividend yield..................                 0.00%                0.00%               0.00%

</TABLE>

During 1997, the Company issued stock units under a stock appreciation rights
agreement to certain executives which permitted the holders to receive values in
excess of the base price of the unit at the date of grant. Payment of the excess
was made in cash, stock or a combination of cash and stock at the discretion
of the Board of Directors. The total value to be received was subject to a
ceiling. During the fourth quarter of fiscal year 1997, 2,710,000 stock units
were granted at a base price of $9.01 per unit. The stock units vested at
various dates through fiscal year 2000. As of December 29, 2000, all of the
units were either exercised or expired. The Company recorded compensation
expense of approximately $58,000, $710,000 and $1,770,000 for the fiscal years
ended December 29, 2000, December 31, 1999 and January 1, 1999, respectively.



                                    F-18
<PAGE>

10.  COMMITMENTS AND CONTINGENCIES

The Company leases substantially all of its sales centers and various
distribution, manufacturing and transportation equipment under noncancelable
operating leases. Certain leases contain escalation provisions and renewal
options. The minimum aggregate annual lease payments subsequent to December 29,
2000 are as follows (in thousands):


<TABLE>

               <S>                                   <C>
               2001............................       $      25,520
               2002............................              21,953
               2003............................              16,888
               2004............................              13,216
               2005............................               9,624
               Thereafter......................              16,798
                                                     ----------------
                                                      $     103,999
                                                     ================

</TABLE>

Rental expense amounted to approximately $33,853,000, $34,040,000 and
$33,269,000 for the fiscal years ended December 29, 2000, December 31, 1999 and
January 1, 1999, respectively.

The Company is subject to federal, state, local and foreign laws and regulations
relating to the environment and to work places. Laws that affect or could affect
the Group's United States operations include, among others, the Clean Air Act,
the Clean Water Act, the Resource Conservation and Recovery Act and the
Occupational Safety and Health Act. The Company believes that it is currently in
substantial compliance with such laws and the regulations promulgated
thereunder.

The Company is involved in various proceedings relating to environmental
matters. The Company, in the past, has disposed or arranged for the disposal of
substances, which are now characterized as hazardous and currently is engaged in
the cleanup of hazardous substances at certain sites. It is the Company's policy
to accrue liabilities for remedial investigations and cleanup activities when it
is probable that such liabilities have been incurred and when they can be
reasonably estimated. The Company has provided reserves, which management
believes are adequate to cover probable and estimable liabilities of the Company
with respect to such investigations and cleanup activities, taking into account
currently available information and the Company's contractual rights of
indemnification. However, estimates of future response costs are necessarily
imprecise due to, among other things, the possible identification of presently
unknown sites, the scope of contamination of such sites, the allocation of costs
among other potentially responsible parties with respect to any such sites and
the ability of such parties to satisfy their share of liability. Accordingly,
there can be no assurance that the Company will not become involved in future
litigation or other proceedings or, if the Company were found to be responsible
or liable in any litigation or proceeding, that such costs would not be material
to the Company. The Company is also a defendant in various lawsuits arising from
normal business activities.

In the opinion of management, the ultimate liabilities likely to result from the
contingencies described above are not expected to have a material adverse effect
on the Company's consolidated financial condition, results of operations or
liquidity.

11.  JOINT VENTURE

In September of fiscal year 2000, the Company announced the formation of a joint
venture with Emilceramica, S.p.A., an Italian tile manufacturer. The joint
venture, Dal Italia LLC, sells and distributes porcelain tile products for the
North American market. Dal Italia LLC is 80 percent owned by the Company and
included in its consolidated financial statements, and is 20 percent owned by
Emilceramica, S.p.A. Dal Italia LLC has a supply agreement with Emilceramica
S.p.A. in which porcelain tile products are purchased at cost plus
transportation charges and then distributed and sold exclusively through the
Company's sales service centers according to a

                                    F-19

<PAGE>

distribution agreement between Dal Italia LLC and the Company. For the fiscal
year ended December 29, 2000 transactions between Dal-Italia LLC and the
Company were immaterial.

12.  GEOGRAPHIC AREA OPERATIONS

The Company currently conducts its business in one industry segment, engaging in
the manufacturing, distribution and marketing of tile (wall, floor, quarry and
mosaic), natural stone and related products. The Company operates manufacturing
facilities in the United States and Mexico and distributes products through
wholly owned sales centers in the United States, Canada and Puerto Rico and
nonaffiliated distributors in the United States and Mexico. Intercompany sales
between geographic areas are accounted for at amounts that are generally above
cost and in compliance with rules and regulations governing tax authorities.
Such intercompany sales are eliminated in the consolidated financial statements.

Financial information by geographical area is summarized below:


<TABLE>
<CAPTION>

                                                                             FISCAL YEAR ENDED
                                                      -----------------------------------------------------------------
                                                          DECEMBER 29,          DECEMBER 31,              JANUARY 1,
                                                             2000                  1999                     1999
                                                      ------------------    ------------------      -------------------
                                                                               (IN THOUSANDS)
<S>                                                   <C>                   <C>                     <C>
Consolidated revenue:
Unaffiliated customers:
         United States.............................     $    905,426          $    811,359            $     716,075
         Mexico....................................           32,554                28,936                   25,242
         Other.....................................           14,176                10,273                   10,468
                                                      ------------------    ------------------      -------------------
           Total consolidated revenue
                  from unaffiliated customers......     $    952,156          $    850,568            $     751,785
                                                      ==================    ==================      ===================
Intercompany revenue:
         United States.............................     $      5,802          $      3,847            $       5,462
         Mexico....................................           86,734                85,102                   74,533
         Other.....................................               84                    43                      -
         Eliminations..............................          (92,620)              (88,992)                 (79,995)
                                                      ------------------    ------------------      -------------------
              Total consolidated revenue...........     $    952,156          $    850,568            $     751,785
                                                      ==================    ==================      ===================
Consolidated operating income
         United States.............................     $    130,473          $    102,641            $      60,558
         Mexico....................................            6,161                11,167                   10,608
         Eliminations/other........................              429                   670                      125
                                                      ------------------    ------------------      -------------------
              Total consolidated operating
                      income ......................     $    137,063          $    114,478            $      71,291
                                                      ==================    ==================      ===================
Consolidated identifiable assets:
         United States.............................     $    588,905          $    568,374            $     576,037
         Mexico....................................           72,182                61,347                   56,435
         Eliminations/other........................            9,433                 8,983                    8,336
                                                      ------------------    ------------------      -------------------
              Total consolidated identifiable
                 assets ...........................     $    670,520          $    638,704            $     640,808
                                                      ==================    ==================      ===================

</TABLE>




                                    F-20

<PAGE>

13.   CONDENSED UNCONSOLIDATED FINANCIAL STATEMENTS

Provided below are the condensed unconsolidated financial statements of Dal-Tile
International Inc.:


<TABLE>
<CAPTION>

                                                                   DECEMBER 29,            DECEMBER 31,
                                                                      2000                    1999
                                                                ------------------     ------------------
                                                                             (IN THOUSANDS)
<S>                                                            <C>                     <C>
Condensed balance sheets:
Cash......................................................         $      59              $      59
Other assets..............................................            24,644                 21,459
Investment in Dal-Tile Group Inc., net
   of accumulated losses..................................           188,609                 80,289
                                                                ------------------     ------------------
Total assets..............................................         $ 213,312              $ 101,807
                                                                ==================     ==================

Other liabilities.........................................         $   1,004              $     863
Stockholders' equity......................................           212,308                100,944
                                                                ------------------     ------------------
Total liabilities and stockholders' equity................         $ 213,312              $ 101,807
                                                                ==================     ==================

</TABLE>


<TABLE>
<CAPTION>

                                                                        FISCAL YEAR ENDED
                                                   -------------------------------------------------------------
                                                     DECEMBER 29,          DECEMBER 31,           JANUARY 1,
                                                         2000                 1999                    1999
                                                   -----------------     ----------------     ------------------
                                                                          (IN THOUSANDS)
<S>                                                <C>                   <C>                  <C>
Condensed statements of operations:
Equity in net income of Dal-Tile Group Inc. .....     $   103,124           $  72,468             $  24,140
Other expense (income)...........................           2,367              (1,295)                   99
Interest expense.................................             -                   -                      13
                                                   -----------------     ----------------     ------------------
Net income ......................................     $   100,757           $  73,763             $  24,028
                                                   =================     ================     ==================
Condensed statements of cash flows:
Cash flow used in operating activities..........      $    (6,184)          $ (10,464)            $     (80)
Financing activities:
Proceeds from issuance of stock.................            6,184              10,640                 1,113
Fees associated with stock registration.........              -                  (176)                 (876)
Repayment of long-term debt.....................              -                   -                    (157)
                                                   -----------------     ----------------     ------------------
Net increase (decrease) in cash.................              -                   -                     -
Cash at beginning of period.....................               59                  59                    59
                                                   -----------------     ----------------     ------------------
     Cash at end of period......................      $        59           $      59             $      59
                                                   =================     ================     ==================

</TABLE>




                                               F-21

<PAGE>

14.  SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a tabulation of the unaudited quarterly results of operations
for the fiscal years ended December 29, 2000 and December 31, 1999:


<TABLE>
<CAPTION>

                                                   FIRST              SECOND           THIRD             FOURTH
                                                  QUARTER             QUARTER         QUARTER            QUARTER
                                              ---------------     --------------    ------------     ----------------
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                           <C>                 <C>               <C>              <C>
Fiscal year ended December 29, 2000:
Net sales....................................  $  230,113          $   244,981       $  247,852         $  229,210
Gross profit.................................     110,684              117,522          117,857            108,160
Operating income.............................      30,531               35,799           36,424             34,309
Net income...................................      21,325               25,539           27,685             26,208
Per share:
    Net income
        basic................................        0.39                 0.47             0.50               0.48
        assuming dilution....................        0.39                 0.46             0.50               0.47

Fiscal year ended December 31, 1999:
Net sales....................................  $  200,692          $   219,303       $  219,500         $  211,073
Gross profit.................................      96,682              105,651          107,220            100,501
Operating income.............................      22,385               29,947           34,145             28,001
Net income...................................      11,138               19,491           23,777             19,357
Per share:
    Net income
        basic................................        0.21                 0.36             0.44               0.35
        assuming dilution....................        0.21                 0.36             0.43               0.35

</TABLE>

The sum of quarterly per share amounts does not necessarily equal the annual
amount reported, as per share amounts are computed separately for each quarter
and the full year based on respective weighted average basic common shares
outstanding and weighted average common shares outstanding assuming dilution.






                                    F-22

<PAGE>

                                                                     SCHEDULE II

                           DAL-TILE INTERNATIONAL INC.

                        VALUATION AND QUALIFYING ACCOUNTS

    FISCAL YEARS ENDED DECEMBER 29, 2000, DECEMBER 31, 1999 AND JANUARY 1, 1999

                                  (IN THOUSANDS)


Allowance for Losses from Uncollectible Accounts and customer credits:


<TABLE>
<CAPTION>

                   Balance at              Additions
                  Beginning of           Charged to Costs             (a)              Balance at End of
                     Period                and Expenses            Deductions               Period
                ------------------    ---------------------     ----------------    ---------------------
<S>             <C>                   <C>                       <C>                 <C>
       2000       $    5,186            $       2,126             $   4,041            $     3,271
       1999            9,581                    2,199                 6,594                  5,186
       1998           13,160                    7,024                10,603                  9,581

</TABLE>



(a)  Net of recoveries.

















                                    S-1

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>2
<FILENAME>a2041503zex-10_12.txt
<DESCRIPTION>EX.10.12
<TEXT>

<PAGE>




EXHIBIT 10.12












                      JOINT VENTURE OPERATING AGREEMENT OF

                                 DAL ITALIA LLC


<PAGE>




                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                           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


                                        i
<PAGE>

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

                                        ii
<PAGE>

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
</TABLE>

                                        iii
<PAGE>



                              LIST OF DEFINED TERMS
<TABLE>
<CAPTION>
                                                                                                                   Page No.
                                                                                                                   --------
<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

                                        iv
<PAGE>

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
<PAGE>

                      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.


                                        1
<PAGE>

                  "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.

                                        2
<PAGE>

                  "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.

                                        3
<PAGE>

                                    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:

                                        4
<PAGE>

                  (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

                                        5
<PAGE>

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;

                                        6
<PAGE>

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
<PAGE>

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
<PAGE>

                  (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
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>3
<FILENAME>a2041503zex-10_13.txt
<DESCRIPTION>EX.10.13
<TEXT>

<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-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.14
<SEQUENCE>4
<FILENAME>a2041503zex-10_14.txt
<DESCRIPTION>EX.10.14
<TEXT>

<PAGE>

EXHIBIT 10.14


                              AMENDED AND RESTATED
                              EMPLOYMENT AGREEMENT


         AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of December 14,
2000, by and between Dal-Tile International Inc., a Delaware corporation (the
"Company"), and W. Christopher Wellborn (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.

         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 acknowledged, the parties hereby agree as
follows:

         1.   TERM OF EMPLOYMENT. The term of the Executive's employment
under this Agreement (the "Term") shall commence on August 25, 1997 and
continue through and expire on December 31, 2004 unless earlier terminated as
herein provided. The Term of this Agreement shall automatically be renewed
for successive one-year periods unless Company shall have given Executive
notice of non-renewal at least six months prior to December 31, 2004 (or such
subsequent December 31st to which the Term has been extended).

         2.   DUTIES OF EMPLOYMENT. The Executive hereby agrees for the Term
to render his exclusive services to the Company as its Chief Financial
Officer and, in connection therewith, to perform such duties commensurate
with his office as he shall reasonably be directed by the Chief Executive
Officer of the Company (the "CEO") to perform. The Executive shall devote
during the Term all of his business time, energy and skill to his executive
duties hereunder and perform


<PAGE>


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 of Directors of the Company (the "Board"), the Executive shall, for no
additional compensation, 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.

         3.   COMPENSATION AND OTHER BENEFITS.

              3.1   SALARY. 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 rate of $360,000 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. The Executive shall be
eligible to receive annual salary reviews and salary increases as authorized
by the Board.

              3.2   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. The amount of the Annual Bonus shall range from (i) no payment if
performance goals are not attained as established under the Plan as determined
by the Compensation Committee of the Board and the Board, (ii) a maximum of 50%
of the amount of the Annual Salary upon attainment of the "target" performance
goal established under the Plan and (iii) a maximum of 100% of the amount of the
Annual Salary upon attainment of the "maximum" performance goal established
under the Plan. The Annual


                                     -2-
<PAGE>


Bonus may be paid on a pro rata basis upon attainment of performance goals as
determined by the Compensation Committee of the Board.

              3.3   STOCK OPTION AGREEMENT. Concurrent with the execution of
this Agreement, the Company shall subject to approval by its shareholders of
the Dal-Tile International, Inc. 1998 Amended and Restated Stock Option Plan in
accordance with Section 162(m) of the Code (the "Option Plan"), grant options
(the "Options") to purchase 120,000 shares of its Common Stock at an exercise
price per share equal to the fair market value of the Common Stock on the date
hereof on the terms and conditions set forth in the Option Plan and a Stock
Option Agreement to be entered into (the "Stock Option Agreement") in the form
attached hereto as Exhibit B. If Executive's employment with the Company is
terminated by the Company without Cause (as defined herein) or upon the
occurrence of a Transaction (as defined in the Stock Option Plan), the Options
shall be 100% vested and shall remain exercisable through the term of the Stock
Option Agreement.

              3.4   TREATMENT OF PREVIOUSLY-GRANTED STOCK OPTIONS.

       3.4.1  IN GENERAL. Except as otherwise provided for herein, 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."

       3.4.2  DECEMBER 10, 1998 STOCK OPTION. Section 4 of the Nonqualified
Stock Option Agreement dated December 10, 1998 between Executive and Company is
hereby amended by deleting the third sentence thereof and replacing such
sentence with the following language:


                                     -3-
<PAGE>


              "Notwithstanding any provision of this Option to the contrary, if
Optionee remains employed by Company through December 31, 2001, the Option shall
be 100% vested and shall remain exercisable until December 10, 2008."

       3.4.3  JULY 17, 1998 STOCK OPTION. Section 4 of the Nonqualified Stock
Option Agreement dated July 17, 1998 between Executive and Company is hereby
amended by deleting the third sentence thereof and replacing such sentence with
the following language:

              "Notwithstanding any provision of this Option to the contrary,
if Optionee remains employed by Company through December 31, 2001, the Option
shall be 100% vested and shall remain exercisable through July 17, 2008."

       3.4.4  February 20, 1998 Stock Option. Section 4 of the Amended and
Restated Nonqualified Stock Option Agreement dated as of February 20, 1998
between Executive and Company is hereby amended by deleting the third sentence
thereof and replacing such sentence with the following language:

              "Notwithstanding any provision of this Option to the contrary, if
Optionee remains employed by Company through August 25, 2000, the Option shall
be 100% vested and shall remain exercisable through August 25, 2007."

              3.5   PARTICIPATION IN EMPLOYEE BENEFIT PLANS. Commencing on the
respective eligibility dates of the 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.

              3.6   VACATION. The Executive shall be entitled to three (3) weeks
vacation per annum.


                                     -4-
<PAGE>


         4.   COVENANTS AGAINST COMPETITION. In order to induce the Company to
enter this Agreement and the Stock Option 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 of glazed and unglazed tile, for which marketing
and distribution is a primary business (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, affairs, 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


                                     -5-
<PAGE>


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 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. 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 means, made or controlled 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, or any efforts by the Executive
to interfere with the Companies' relationship with any other employee, 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


                                     -6-
<PAGE>


terminate employment with the Companies; (ii) interfere with or 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 a 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 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


                                     -7-
<PAGE>


of the Restrictive Covenants would cause irreparable injury to the Company
and money damages will not provide an adequate remedy to the Company.

                   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 county 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


                                     -8-
<PAGE>


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 such bonus period to the date of
Executive's death (to be paid 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


                                     -9-
<PAGE>


such 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 benefit 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 base 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 and
include (i) the conviction of or plea of guilty by the Executive of any felony
or other serious crime involving the Company, or (ii) gross 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


                                     -10-
<PAGE>


failure 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 with 15 days of the
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 3.3, 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, and (iv) in a lump sum payment (to be paid as promptly as
practicable, but no later than 10 days after


                                     -11-
<PAGE>


the determination thereof; it being understood that the Executive shall make
the determination whether the bonus payment shall be made immediately after
the effective date of the termination or after the end of the fiscal year of
the termination) a portion of any other bonus plan(s) in which the Executive
is a participant computed and determined in accordance with its terms, on a
pro-rated basis based on the performance of the Company from the beginning of
the bonus period through the date of termination. For purposes of this
Agreement, "Good Reason" shall mean (i) a reduction in the Annual Salary or
maximum 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, or (v)
assignment to Executive of duties and responsibilities that are inconsistent
with his position in any material respect. Notwithstanding the foregoing
provisions of this Section 5.4, in no event shall Annual Salary be provided
for less than one (1) year from the date of such termination.

              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


                                     -12-
<PAGE>


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 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  NON-RENEWAL OF EMPLOYMENT AGREEMENT. If the Company shall
not renew this Agreement at the end of the Term, the Company's sole obligation
hereunder shall be to (i) pay to the Executive an amount equal to any Annual
Salary accrued and due and payable to the Executive hereunder through the last
date of the Term of this Agreement, as set forth in Section 1 hereof (to be paid
in accordance with the Company's usual payroll practices for executives), (ii)
thereafter, pay to the Executive an amount equal to the Annual Salary (as set
forth in Section 3.1) payable for one year to be paid in accordance with the
Company's usual payroll practices for executives and (iii) provide to the
Executive for a period of one year commencing on the day after the last date of
the Term of this Agreement 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. As of the last date of the Term of this Agreement,
accrual of vacation time shall be discontinued. Upon acceptance by Executive of
an employment opportunity other than the Company, payments by the Company
pursuant to clauses (ii) and (iii) of this Section 5.6 shall terminate.

              5.7  OTHER. Except as otherwise provided herein, upon the
expiration or other termination of this Agreement, including the resignation of
Executive, all obligations of the


                                     -13-
<PAGE>


Company shall forthwith terminate, except as to any stock option rights as
provided in the Stock Option Agreement and the Existing Options and except as
otherwise required by applicable law.

       6.     EXPENSES.

              6.1  GENERAL. During the Term, the Executive will be reimbursed
for his reasonable expenses incurred for the benefits 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. With respect to any expenses which
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.     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, Texas 75217
                       Attention:  Mark A. Solls

              (ii)     if to the Executive, to:

                       W. Christopher Wellborn
                       908 Suffolk Court
                       Southlake, Texas  76092

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


                                     -14-
<PAGE>


              7.2  ENTIRE AGREEMENT. This Agreement, the Stock Option Agreement,
the Existing Options, and the Change of Control Agreement 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.

              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
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 by 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.

              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.


                                     -15-
<PAGE>


       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 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.


                                     -16-
<PAGE>


       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.     PIGGYBACK RIGHTS.

              (a)  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 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 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. The Company shall bear all expenses in connection with such
registration, 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 such registration of Common Stock
owned by Executive.

              (b)  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


                                     -17-
<PAGE>


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 exercise of Options or 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 (or suspension of effectiveness thereof) necessary, and will not
resume such exercise 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.

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

                                       DAL-TILE INTERNATIONAL INC.


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


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

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



                                       --------------------------------
                                       W. Christopher Wellborn




                                     -18-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.15
<SEQUENCE>5
<FILENAME>a2041503zex-10_15.txt
<DESCRIPTION>EX.10.15
<TEXT>

<PAGE>

EXHIBIT 10.15


                           CHANGE OF CONTROL AGREEMENT


1.  RECITALS

         (a) This Change of Control Agreement ("Agreement") is between Dal-Tile
International Inc. (the "Company") and Jacques R. Sardas (the "Executive") and
is effective as of October 1, 2000.

         (b) The address of the Company is 7834 C.F. Hawn Freeway, PO Box
170130, Dallas, Texas 75217. The address of the Executive is 6031 Orchid Lane,
Dallas, Texas 75230.

         (c) The Executive is currently employed by the Company in the capacity
of President and Chief Executive Officer and the Executive is one of the key
executives of the Company.

         (d) In consideration of the mutual promises contained herein and other
good and valuable consideration, the Executive and the Company have entered into
this Agreement.

         (e) This Agreement is in addition to, and supplements the provisions
of, the Amended and Restated Employment Agreement dated as of July 17, 1998,
between the Company and the Executive (the "Employment Agreement").

2.  TERM OF THIS AGREEMENT

         This Agreement shall remain in effect until December 31, 2005 (the
"Agreement Termination Date"), provided that on January 1, 2004 (and each
January 1st thereafter), the Agreement Termination Date shall be extended by one
year, unless the Company shall have notified the Executive at least six months
prior to such January 1st that the Agreement Termination Date shall not be
extended.

<PAGE>

3.  CHANGE OF CONTROL

         Notwithstanding the other provisions of this Agreement, no benefit
shall be payable under this Agreement (and Sections 5 through 9, and Section 16,
shall not apply) unless (i) a Change of Control of the Company shall be deemed
to have occurred, (ii) the Executive shall be employed by the Company at the
time of such Change of Control (except to the extent Section 3(g) is
applicable), and (iii) the Executive's employment by the Company shall have been
terminated by the Executive more than ninety (90) days after such Change of
Control (but within one year after the date of such Change of Control), or by
the Company for any reason within two (2) years after such Change of Control.
For purposes of this Agreement, a "Change of Control of the Company" shall be
deemed to have occurred if:

         (a) The Company is merged, consolidated or reorganized into or with
another corporation or other legal person, and immediately after such merger,
consolidation or reorganization less than fifty percent (50%) of the combined
voting power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders of
voting stock of the Company immediately prior to such transaction;

         (b) The Company sells all or substantially all of its assets to any
other corporation or other legal person, and less than fifty percent (50%) of
the combined voting power of the then-outstanding securities of such corporation
or person immediately after such sale are held in the aggregate by the holders
of voting stock of the Company immediately prior to such sale;

         (c) Any person or group of persons (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), other than DTI
Investors LLC or its members, or any affiliate or successor of DTI Investors LLC
or its members, becomes the beneficial owner (as the term "beneficial owner" is
defined under Rule 13d-3 or any successor rule or regulation promulgated under
the Exchange Act) of securities (i) representing 40% or more of the issued and
outstanding common stock of the Company or (ii) possessing the power to elect a
majority of the Board of Directors of the Company, provided that a Change of
Control under this Section 3(c) shall only be deemed to occur if such person or
persons shall own at such time a greater number of shares of common stock than
are owned at such time by DTI Investors LLC, or its members, or its former
members (taken as a group);

         (d) The Company files a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in response to
Form 8-K or Schedule 14A (or any successor schedule, form or report or item
therein) that a Change of Control of the Company has occurred;

         (e) The shareholders of the Company approve the liquidation or
dissolution

                                     -2-

<PAGE>

of the Company;

         (f) If during any period of two consecutive years, individuals who at
the beginning of any such period constitute the Board of Directors of the
Company (the "Board") cease for any reason to constitute at least a majority
thereof, provided, however, that for purposes of this Section 3(f), each
Director who is first elected, or first nominated for election by the Company's
stockholders, by a vote of at least two thirds of the Directors of the Company
(or a committee thereof) then still in office who were Directors of the Company
at the beginning of any such period will be deemed to have been a Director of
the Company at the beginning of such period; or

         (g) At the time of determination, the Company is actively engaged in
negotiations or other activities for the purpose of effecting a transaction of
the type referred to in Section 3 (a), (b), (c), or (e) of this Agreement and,
in the case of this Section 3(g) only, the Executive's employment is terminated
by the Company.

4.  NOTICE OF TERMINATION; DATE OF TERMINATION

         (a) Any termination of the Executive's employment by the Company or the
Executive shall be communicated by written Notice of Termination to the other
party thereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of employment under the
provision so indicated.

         (b) "Date of Termination" shall mean:

                  (i)         If the Agreement is terminated for Disability,
                              thirty (30) days after Notice of Termination is
                              given (provided that the Executive shall not have
                              returned to the performance of his duties on a
                              full-time basis during such thirty (30) day
                              period), or

                  (ii)        If the Executive's employment is terminated for
                              any other reason, the date on which a Notice of
                              Termination is given.


5.  COMPENSATION AFTER CHANGE OF CONTROL

         Immediately after any Change of Control of the Company shall be deemed
to have occurred, the Executive shall be entitled to receive for the remainder
of the Term of this Agreement (as extended from time to time) (i) an annual base
salary (the "Base Salary"), payable in installments in accordance with the
current practice of the Company, at an annual rate at least equal to the
aggregate annual base

                                     -3-

<PAGE>

salary payable to the Executive as of the date of the Change of Control of the
Company and (ii) an award under a Company incentive bonus plan offering the
Executive the opportunity to earn a target bonus at least comparable to the
target bonus opportunity offered under the Company's Annual Incentive Plan
immediately prior to the Change of Control. Subsequent to such Change of
Control, the Base Salary may be increased (but may not be decreased) at any
time and from time to time by action of the Board, any committee thereof, or
any individual having authority to take such action, in accordance with the
Company's regular practices, and, if so increased, such increased Base Salary
shall thereafter be the Base Salary for the purposes of this Agreement. Any
increase in the Base Salary shall not serve to limit or reduce any other
obligation of the Company hereunder.

6.  BENEFIT PLANS

         After a Change of Control of the Company shall be deemed to have
occurred,

         (a) The Company agrees to continue in effect those perquisites, and
benefit or compensation plans, identified on Exhibit A hereto in which the
Executive is currently participating or, with continued service or retirement
would be eligible for participation (collectively referred to as the "Benefit
Plans"); or to maintain plans providing substantially similar benefits;
provided, however, that the Company may make modifications in such plans so long
as such modifications (i) are generally applicable to all salaried employees of
the Company and (ii) do not discriminate against highly-paid employees of the
Company;

         (b) Except as permitted in the proviso contained in paragraph (a)
above, the Company agrees not to take any action that would adversely affect the
Executive's participation in, or materially reduce the benefits under, any of
the Benefit Plans or deprive the Executive of any material fringe benefit
currently enjoyed;

         (c) The Company agrees to provide the Executive with the number of paid
vacation days to which he is entitled on the basis of years of service with the
Company in accordance with the Company's normal vacation policy in effect on the
date of the Change of Control of the Company or in accordance with the
Executive's individual employment agreement; and

         (d) Except as provided in Section 19 hereof, benefits herein provided
are in lieu of any severance payment benefit otherwise provided under any other
Agreement, policy or practice provided by the Company except that Executive
shall retain any rights that he has with respect to accumulated and unused
vacation or vacation pay. The Executive waives all rights to any other severance
payments under any such agreement, policy or practice provided, however, that
this waiver shall not extend to any retirement plan, excess benefit plan,
applicable supplemental pension plan, or Executive's rights under the Employment
Agreement.

                                     -4-

<PAGE>

7.  TERMINATION FOR DEATH OR DISABILITY

         (a) The Executive's employment shall terminate in the event of
Executive's death.

         (b) The Company may terminate Executive's employment for "Disability"
if the Executive is "Disabled." For purposes of this Agreement, the Executive
shall be considered Disabled only if, as a result of his incapacity due to
physical or mental illness, he shall have been absent from his duties with the
Company on a full-time basis for a period of one year and a physician selected
by him is of the opinion that (i) he is suffering from "Total Disability" as
defined in the Company's qualified pension plan as of the date hereof, or any
successor plan or program and (ii) he will qualify for Social Security
Disability Payment and (iii) within thirty (30) days after written notice of
termination is given, he shall not have returned to the full-time performance of
his duties.

         (c) If, subsequent to a Change of Control, the Executive's employment
terminates on account of the Executive's death or because the Executive is
Disabled, the Company shall pay to the Executive (or his successors) the
amounts, and provide to the Executive the benefits, set forth in Section 8
hereof.


8.  COMPENSATION UPON CERTAIN TERMINATIONS

         (a) If, subsequent to a Change of Control, (i) the Company shall
terminate the Executive's employment within two (2) years after such Change of
Control or (ii) the Executive shall terminate his employment more than ninety
(90) days after such Change of Control (but within one year after such Change of
Control), then the Company shall pay to the Executive in a lump sum on the
fifteenth business day following the Date of Termination, the following amounts:

                  (i)         The Executive's Base Salary through the Date of
                              Termination at the rate in effect at the time
                              Notice of Termination is given;

                  (ii)        A pro-rata portion of the Executive's target bonus
                              for the year in which the Date of Termination
                              occurs, based upon the number of days that have
                              elapsed during the year in question prior to the
                              Date of Termination.

                  (iii)       In lieu of any further salary and bonus payments
                              for periods subsequent to the Date of Termination,
                              an amount equal to 3

                                     -5-

<PAGE>

                              multiplied by the sum of (i) the Executive's
                              current Base Salary at such time and (ii) the
                              greater of (I) the average of the bonuses
                              actually received by the Executive with respect
                              to the two calendar years immediately preceding
                              the year in which the Date of Termination occurs
                              or (II) the Executive's target bonus for the
                              year in which the Date of Termination occurs.

                  (iv)        All legal fees and expenses incurred as a result
                              of such termination (including all such fees and
                              expenses, if any, incurred in contesting or
                              disputing any such termination, in seeking to
                              obtain or enforce any right or benefit provided by
                              this Agreement, or in interpreting this
                              Agreement).


         (b) If, subsequent to a Change of Control, (i) the Company shall
terminate the Executive's employment within two (2) years after such Change of
Control or (ii) the Executive shall terminate his employment more than ninety
(90) days after such Change of Control (but within one year after such Change of
Control), the Company shall maintain in full force and effect, for the
Executive's continued benefit for thirty-six (36) months after the Date of
Termination, all medical and dental employee benefit plans, programs, or
arrangements in which he was entitled to participate immediately prior to the
Date of Termination, provided that continued participation is possible under the
general terms and provisions of such plans and programs. In the event that
participation in any such plan or program is barred, the Company shall arrange
to provide him with benefits substantially similar in coverage and cost to those
which he is entitled to receive under such plans and programs.

         (c) If, subsequent to a Change of Control, (i) the Company shall
terminate the Executive's employment within two (2) years after such Change of
Control or (ii) the Executive shall terminate his employment more than ninety
(90) days after such Change of Control (but within one year after such Change of
Control), the Company shall allow the Executive, at Company expense, to utilize
the services of the public accounting firm used by the Company to audit its
books and records (or such other firm as shall be designated by the Company) for
assistance in preparation of his tax returns relating to the taxable year in
which the Executive's employment was terminated (and for any other taxable year
that is affected by the Change of Control).

9.       TREATMENT OF STOCK OPTIONS

         Notwithstanding any provision to the contrary in any stock option plan
or any agreement relating to the Executive that provides for less favorable
treatment of any stock option or stock appreciation right, in the event of the
consummation of a Change of Control of the Company (excluding for this purpose
the application of

                                     -6-

<PAGE>

Section 3(g) hereof), all stock options and stock appreciation rights granted
prior to the Change of Control by the Company to the Executive with respect to
the stock of the Company shall immediately vest and become immediately
exercisable, and shall remain exercisable for the original maximum period set
forth in such stock option or stock appreciation right agreement.


10.  SUCCESSORS, BINDING AGREEMENT

         The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle the Executive
to compensation from the Company in the same amount and on the same terms as
would apply if the Executive terminated his employment pursuant to Section 8
hereof, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid that executes and delivers the agreement provided for in this section
or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law. This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amount would still be payable hereunder had the
Executive continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to his devisee,
legatee, or other designee or, if there be no such designee, to his estate.


11.  NOTICE

         Notices and all other communications provided for in this Agreement
shall be in writing and shall be deemed to have been duly given when delivered
or mailed by facsimile, overnight delivery service, or United States registered
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement, provided that all
notices to the Company shall be directed to the attention of the Secretary of
the Company, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.

                                     -7-

<PAGE>

12.  MISCELLANEOUS

         No provisions of this Agreement may be modified, waived or discharged
unless such modification, waiver or discharge is agreed to in writing signed by
the Executive and such officer as may be specifically designated by the Board of
Directors of the Company. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreement or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party that are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Texas.

13.  VALIDITY

         The invalidity or unenforceability of any one or more provisions of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.

14.  COUNTERPARTS

         This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.

15.  ALTERNATIVE DISPUTE RESOLUTION

         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 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

                                     -8-

<PAGE>

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.

16.      CERTAIN TAX MATTERS

         (a) ADDITIONAL PAYMENTS

                    (i)       Anything in this Agreement to the contrary
                              notwithstanding (other than as provided in Section
                              16(b) hereof), in the event it shall be determined
                              (as hereafter provided) that any payment or
                              distribution to or for the Executive's benefit,
                              whether paid or payable or distributed or
                              distributable pursuant to the terms of this
                              Agreement or otherwise pursuant to or by reason of
                              any other agreement, policy, plan, program or
                              arrangement (including without limitation any
                              stock option agreement), or similar right (a
                              "Payment"), would be subject to the excise tax
                              imposed by Section 4999 of the Internal Revenue
                              Code of 1986 (the "Code") (or any successor
                              provision thereto), or any interest or penalties
                              with respect to such excise tax (such excise tax,
                              together with any such interest and penalties, are
                              hereafter collectively referred to as the "Excise
                              Tax"), then the Executive shall be entitled to
                              receive an additional payment or payments (a
                              "Gross-Up Payment") in an amount such that, after
                              payment by the Executive of all taxes (including
                              any interest or penalties imposed with respect to
                              such taxes), including any Excise Tax, imposed
                              upon the Gross-Up Payment, the Executive retains
                              an amount of the Gross-Up Payment equal to the
                              Excise Tax imposed upon the Payments.

                    (ii)      Subject to the provisions of Section 16(a)(v), all
                              determinations

                                     -9-

<PAGE>

                              required to be made under this Section 16(a),
                              including whether an Excise Tax is payable by
                              the Executive, the amount of such Excise Tax,
                              whether a Gross-Up Payment is required, and the
                              amount of such Gross-Up Payment, shall be made
                              by a nationally-recognized legal or accounting
                              firm (the "Firm") selected by the Company in the
                              Company's sole discretion. The Executive agrees
                              to direct the Firm to submit its determination
                              and detailed supporting calculations to both the
                              Executive and the Company as promptly as
                              practicable. If the Firm determines that any
                              Excise Tax is payable by the Executive and that
                              a Gross-Up Payment is required, the Company
                              shall pay the Executive the required Gross-Up
                              Payment within fifteen business days after
                              receipt of such determination and calculations.
                              If the Firm determines that no Excise Tax is
                              payable by the Executive, it shall, at the same
                              time as it makes such determination, furnish the
                              Executive with an opinion that the Executive has
                              substantial authority not to report any Excise
                              Tax on the Executive's federal income tax
                              return. Any determination by the Firm as to the
                              amount of the Gross-Up Payment shall be binding
                              upon the Executive and the Company. As a result
                              of the uncertainty in the application of Section
                              4999 of the Code (or any successor provision
                              thereto) at the time of the initial
                              determination by the Firm hereunder, it is
                              possible that Gross-Up Payments which will not
                              have been made by the Company should have been
                              made (an "Underpayment"). In the event that the
                              Company exhausts its remedies pursuant to
                              Section 16(a)(v) hereof and the Executive
                              thereafter is required to make a payment of any
                              Excise Tax, the Executive may direct the Firm to
                              determine the amount of the Underpayment (if
                              any) that has occurred and to submit its
                              determination and detailed supporting
                              calculations to both the Executive and the
                              Company as promptly as possible. Any such
                              Underpayment shall be promptly paid by the
                              Company to the Executive, or for the Executive's
                              benefit, within ten business days after receipt
                              of such determination and calculations.

                  (iii)       The Executive and the Company shall each provide
                              the Firm access to and copies of any books,
                              records and documents in the possession of the
                              Company or the Executive, as the case may be,
                              reasonably requested by the Firm, and otherwise
                              cooperate with the Firm in connection with the
                              preparation and issuance of the determination
                              contemplated by Section 16(a)(ii) hereof.

                                    -10-

<PAGE>

                  (iv)        The fees and expenses of the Firm for its services
                              in connection with the determinations and
                              calculations contemplated by Section 16(a)(ii)
                              hereof shall be borne by the Company. If such fees
                              and expenses are initially paid by the Executive,
                              the Company shall reimburse the Executive the full
                              amount of such fees and expenses within ten
                              business days after receipt from the Executive of
                              a statement therefor and reasonable evidence of
                              the Executive's payment thereof.

                    (v)       The Executive agrees to notify the Company in
                              writing of any claim by the Internal Revenue
                              Service that, if successful, would require the
                              payment by the Company of a Gross-Up Payment. Such
                              notification shall be given as promptly as
                              practicable but no later than 10 business days
                              after the Executive actually receives notice of
                              such claim. The Executive agrees to further
                              apprise the Company of the nature of such claim
                              and the date on which such claim is requested to
                              be paid (in each case, to the extent known by the
                              Executive). The Executive agrees not to pay such
                              claim prior to the earlier of (a) the expiration
                              of the 30-calendar-day period following the date
                              on which the Executive gives such notice to the
                              Company and (b) the date that any payment with
                              respect to such claim is due. If the Company
                              notifies the Executive in writing at least five
                              business days prior to the expiration of such
                              period that it desires to contest such claim, the
                              Executive agrees to:

                              (a)   provide the Company with any written records
                                    or documents in the Executive's possession
                                    relating to such claim reasonably requested
                                    by the Company;

                              (b)   take such action in connection with
                                    contesting such claim as the Company shall
                                    reasonably request in writing from time to
                                    time, including without limitation accepting
                                    legal representation with respect to such
                                    claim by an attorney competent in respect of
                                    the subject matter and reasonably selected
                                    by the Company;

                              (c)   cooperate with the Company in good faith in
                                    order effectively to contest such claim; and

                                    -11-

<PAGE>

                              (d)   permit the Company to participate in any
                                    proceedings relating to such claim;

                  provided, however, that the Company shall bear and pay
                  directly all costs and expenses (including interest and
                  penalties) incurred in connection with such contest and shall
                  indemnify and hold the Executive harmless, on an after-tax
                  basis, from and against any Excise Tax or income tax,
                  including interest and penalties with respect thereto, imposed
                  as a result of such representation and payment of costs and
                  expenses. Without limiting the foregoing provisions of this
                  Section 16(a)(v), the Company shall control all proceedings
                  taken in connection with the contest of any claim contemplated
                  by this Section 16(a)(v) and, at its sole option, may pursue
                  or forego any and all administrative appeals, proceedings,
                  hearings and conferences with the taxing authority in respect
                  of such claim (provided, however, that the Executive may
                  participate therein at the Executive's own cost and expense)
                  and may, at its option, either direct the Executive to pay the
                  tax claimed and sue for a refund or contest the claim in any
                  permissible manner, and the Executive agrees to prosecute such
                  contest to a determination before any administrative tribunal,
                  in a court of initial jurisdiction and in one or more
                  appellate courts, as the Company shall determine; provided,
                  however, that if the Company directs the Executive to pay the
                  tax claimed and sue for a refund, the Company shall advance
                  the amount of such payment to the Executive on an
                  interest-free basis and shall indemnify and hold the Executive
                  harmless, on an after-tax basis, from any Excise Tax or income
                  tax, including interest or penalties with respect thereto,
                  imposed with respect to such advance; and provided further,
                  however, that any extension of the statute of limitations
                  relating to payment of taxes for the Executive's taxable year
                  with respect to which the contested amount is claimed to be
                  due is limited solely to such contested amount. Furthermore,
                  the Company's control of any such contested claim shall be
                  limited to issues with respect to which a Gross-Up Payment
                  would be payable hereunder and the Executive shall be entitled
                  to settle or contest, as the case may be, any other issue
                  raised by the Internal Revenue Service or any other taxing
                  authority.

                    (vi)      If, after the receipt by the Executive of an
                              amount advanced by the Company pursuant to Section
                              16(a)(v) hereof, the Executive receives any refund
                              with respect to such claim, the Executive agrees
                              (subject to the Company's complying with the
                              requirements of Section 16(a)(v) hereof) to
                              promptly pay to the Company the amount of such
                              refund (together with any

                                    -12-

<PAGE>

                              interest paid or credited thereon after any
                              taxes applicable thereto). If, after the
                              Executive's receipt of an amount advanced by the
                              Company pursuant to Section 16(a)(v) hereof, a
                              determination is made that the Executive is not
                              entitled to any refund with respect to such
                              claim and the Company does not notify the
                              Executive in writing of its intent to contest
                              such denial of refund prior to the expiration of
                              30 calendar days after such determination, then
                              such advance shall be forgiven and shall not be
                              required to be repaid and the amount of such
                              advance shall offset, to the extent thereof, the
                              amount of Gross-Up Payment required to be paid
                              pursuant to this Section 16(a).

          (b) Notwithstanding Section 16(a), in the event that the excess of
              (i) the amount of "parachute payments" (as defined in Section
              280G of the Code) received by the Executive pursuant to this
              Agreement (or any other agreement between the Company and the
              Executive) over (ii) 2.99 times the Executive's "base amount"
              (as defined in Section 280G of the Code), is less than $50,000,
              the Executive agrees to waive such payments and benefits as he
              may choose so as to reduce the payments and benefits that he
              shall receive to an amount that will not result in any loss of
              a deduction to the Company for such payments and benefits pursuant
              to Section 280G nor the imposition of an excise tax on the
              Executive for such payments and benefits pursuant to Section 4999.

17.  WITHHOLDING OF TAXES

         The Company may withhold from any amounts payable under this Agreement
all federal, state, city or other taxes as shall be required pursuant to any law
or government regulation or ruling.


18.  LEGAL FEES AND EXPENSES

         It is the intent of the Company that the Executive not be required to
incur the legal expenses associated with (i) the obtaining of any right or
benefit under, this Agreement or (ii) the enforcement of his rights under this
Agreement by litigation or other legal action, because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, the Company irrevocably authorizes the
Executive from time to time to retain counsel of his choice, at the expense of
the Company as hereafter provided, to represent the Executive in connection with
the interpretation or enforcement of this Agreement,

                                    -13-

<PAGE>

including the initiation or defense of any litigation or other legal action,
whether by or against the Company or any Director, officer, stockholder or
other person affiliated with the Company, in any jurisdiction. Notwithstanding
any existing or prior attorney-client relationship between the Company and
such counsel, the Company irrevocably consents to the Executive's entering
into an attorney-client relationship with such counsel, and in that connection
the Company and the Executive agree that a confidential relationship shall
exist between the Executive and such counsel. The Company shall pay or cause
to be paid and shall be solely responsible for any and all attorneys' and
related fees and expenses incurred by the Executive under this Section 18.

19.      INTEGRATION WITH AMENDED AND RESTATED EMPLOYMENT AGREEMENT

         The Company has previously entered into the Employment Agreement with
Executive. It is the intent of both Company and Executive that such Employment
Agreement remain in full force and effect and that this Agreement in no way
shall impair Executive's rights and obligations, and Company's rights and
obligations, under such Employment Agreement. However, to the extent that this
Agreement and the Employment Agreement shall conflict, it is the intent of the
Company and the Executive that such agreements shall be interpreted 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
Employment 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.


                           Dal-Tile International Inc.

                           BY:
                                ------------------------------------------------
                                Title:


                           -----------------------------------------------------
                           Jacques R. Sardas







                                    -14-


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.16
<SEQUENCE>6
<FILENAME>a2041503zex-10_16.txt
<DESCRIPTION>EX.10.16
<TEXT>

<PAGE>

EXHIBIT 10.16


                           CHANGE OF CONTROL AGREEMENT


1.  RECITALS

         (a) This Change of Control Agreement ("Agreement") is between Dal-Tile
International Inc. (the "Company") and W. Christopher Wellborn (the "Executive")
and is effective as of October 1, 2000.

         (b) The address of the Company is 7834 C.F. Hawn Freeway, PO Box
170130, Dallas, Texas 75217. The address of the Executive is 908 Suffolk Court,
Southlake, Texas 76092.

         (c) The Executive is currently employed by the Company in the capacity
of Executive Vice President and Chief Financial Officer and the Executive is one
of the key executives of the Company.

         (d) In consideration of the mutual promises contained herein and other
good and valuable consideration, the Executive and the Company have entered into
this Agreement.

         (e) This Agreement is in addition to, and supplements the provisions
of, the Employment Agreement dated as of August 25, 1997, amended as of October
10, 1997, and further amended by the First Amendment to Employment Agreement
dated as of November 24, 1998, between the Company and the Executive (the
"Employment Agreement").


2.  TERM OF THIS AGREEMENT

         This Agreement shall remain in effect until December 31, 2005 (the
"Agreement Termination Date"), provided that on January 1, 2004 (and each
January 1st thereafter), the Agreement Termination Date shall be extended by one
year, unless the Company shall have notified the Executive at least six months
prior to such January 1st that the Agreement Termination Date shall not be
extended.

<PAGE>

3.   CHANGE OF CONTROL


         Notwithstanding the other provisions of this Agreement, no benefit
shall be payable under this Agreement (and Sections 5 through 9, and Section 16,
shall not apply) unless (i) a Change of Control of the Company shall be deemed
to have occurred, (ii) the Executive shall be employed by the Company at the
time of such Change of Control (except to the extent Section 3(g) is
applicable), and (iii) the Executive's employment by the Company shall have been
terminated by the Executive more than one hundred eighty (180) days after such
Change of Control (but within one year after the date of such Change of
Control), or by the Company for any reason within two (2) years after such
Change of Control. For purposes of this Agreement, a "Change of Control of the
Company" shall be deemed to have occurred if:

         (a) The Company is merged, consolidated or reorganized into or with
another corporation or other legal person, and immediately after such merger,
consolidation or reorganization less than fifty percent (50%) of the combined
voting power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders of
voting stock of the Company immediately prior to such transaction;

         (b) The Company sells all or substantially all of its assets to any
other corporation or other legal person, and less than fifty percent (50%) of
the combined voting power of the then-outstanding securities of such corporation
or person immediately after such sale are held in the aggregate by the holders
of voting stock of the Company immediately prior to such sale;

         (c) Any person or group of persons (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), other than DTI
Investors LLC or its members, or any affiliate or successor of DTI Investors LLC
or its members, becomes the beneficial owner (as the term "beneficial owner" is
defined under Rule 13d-3 or any successor rule or regulation promulgated under
the Exchange Act) of securities (i) representing 40% or more of the issued and
outstanding common stock of the Company or (ii) possessing the power to elect a
majority of the Board of Directors of the Company, provided that a Change of
Control under this Section 3(c) shall only be deemed to occur if such person or
persons shall own at such time a greater number of shares of common stock than
are owned at such time by DTI Investors LLC, or its members, or its former
members (taken as a group);

         (d) The Company files a report or proxy statement with the Securities
and

                                     -2-

<PAGE>

Exchange Commission pursuant to the Exchange Act disclosing in response to
Form 8-K or Schedule 14A (or any successor schedule, form or report or item
therein) that a Change of Control of the Company has occurred;

         (e) The shareholders of the Company approve the liquidation or
dissolution of the Company;

         (f) If during any period of two consecutive years, individuals who at
the beginning of any such period constitute the Board of Directors of the
Company (the "Board") cease for any reason to constitute at least a majority
thereof, provided, however, that for purposes of this Section 3(f), each
Director who is first elected, or first nominated for election by the Company's
stockholders, by a vote of at least two thirds of the Directors of the Company
(or a committee thereof) then still in office who were Directors of the Company
at the beginning of any such period will be deemed to have been a Director of
the Company at the beginning of such period; or

         (g) At the time of determination, the Company is actively engaged in
negotiations or other activities for the purpose of effecting a transaction of
the type referred to in Section 3(a), (b), (c), or (e) of this Agreement and,
in the case of this Section 3(g) only, the Executive's employment is terminated
by the Company.

3.  NOTICE OF TERMINATION; DATE OF TERMINATION

         (a) Any termination of the Executive's employment by the Company or the
Executive shall be communicated by written Notice of Termination to the other
party thereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of employment under the
provision so indicated.

         (b)  "Date of Termination" shall mean:

                  (i)         If the Agreement is terminated for Disability,
                              thirty (30) days after Notice of Termination is
                              given (provided that the Executive shall not have
                              returned to the performance of his duties on a
                              full-time basis during such thirty (30) day
                              period), or

                  (ii)        If the Executive's employment is terminated for
                              any other reason, the date on which a Notice of
                              Termination is given.

                                     -3-

<PAGE>

4.  COMPENSATION AFTER CHANGE OF CONTROL

         Immediately after any Change of Control of the Company shall be deemed
to have occurred, the Executive shall be entitled to receive for the remainder
of the Term of this Agreement (as extended from time to time) (i) an annual base
salary (the "Base Salary"), payable in installments in accordance with the
current practice of the Company, at an annual rate at least equal to the
aggregate annual base salary payable to the Executive as of the date of the
Change of Control of the Company and (ii) an award under a Company incentive
bonus plan offering the Executive the opportunity to earn a target bonus at
least comparable to the target bonus opportunity offered under the Company's
Annual Incentive Plan immediately prior to the Change of Control. Subsequent to
such Change of Control, the Base Salary may be increased (but may not be
decreased) at any time and from time to time by action of the Board, any
committee thereof, or any individual having authority to take such action, in
accordance with the Company's regular practices, and, if so increased, such
increased Base Salary shall thereafter be the Base Salary for the purposes of
this Agreement. Any increase in the Base Salary shall not serve to limit or
reduce any other obligation of the Company hereunder.

5.   BENEFIT PLANS

         After a Change of Control of the Company shall be deemed to have
occurred,

         (a) The Company agrees to continue in effect those perquisites, and
benefit or compensation plans, identified on Exhibit A hereto in which the
Executive is currently participating or, with continued service or retirement
would be eligible for participation (collectively referred to as the "Benefit
Plans"); or to maintain plans providing substantially similar benefits;
provided, however, that the Company may make modifications in such plans so long
as such modifications (i) are generally applicable to all salaried employees of
the Company and (ii) do not discriminate against highly-paid employees of the
Company;

         (b) Except as permitted in the proviso contained in paragraph (a)
above, the Company agrees not to take any action that would adversely affect the
Executive's participation in, or materially reduce the benefits under, any of
the Benefit Plans or deprive the Executive of any material fringe benefit
currently enjoyed;

         (c) The Company agrees to provide the Executive with the number of paid
vacation days to which he is entitled on the basis of years of service with the
Company in accordance with the Company's normal vacation policy in effect on the
date of the Change of Control of the Company or in accordance with the
Executive's individual employment agreement; and

         (d) Except as provided in Section 19 hereof, benefits herein provided
are in

                                     -4-

<PAGE>

lieu of any severance payment benefit otherwise provided under any other
Agreement, policy or practice provided by the Company except that Executive
shall retain any rights that he has with respect to accumulated and unused
vacation or vacation pay. The Executive waives all rights to any other
severance payments under any such agreement, policy or practice provided,
however, that this waiver shall not extend to any retirement plan, excess
benefit plan, applicable supplemental pension plan, or Executive's rights
under the Employment Agreement.


7.  TERMINATION FOR DEATH OR DISABILITY

         (a) The Executive's employment shall terminate in the event of
Executive's death.

         (b) The Company may terminate Executive's employment for "Disability"
if the Executive is "Disabled." For purposes of this Agreement, the Executive
shall be considered Disabled only if, as a result of his incapacity due to
physical or mental illness, he shall have been absent from his duties with the
Company on a full-time basis for a period of one year and a physician selected
by him is of the opinion that (i) he is suffering from "Total Disability" as
defined in the Company's qualified pension plan as of the date hereof, or any
successor plan or program and (ii) he will qualify for Social Security
Disability Payment and (iii) within thirty (30) days after written notice of
termination is given, he shall not have returned to the full-time performance of
his duties.

         (c) If, subsequent to a Change of Control, the Executive's employment
terminates on account of the Executive's death or because the Executive is
Disabled, the Company shall pay to the Executive (or his successors) the
amounts, and provide to the Executive the benefits, set forth in Section 8
hereof.

8.  COMPENSATION UPON CERTAIN TERMINATIONS

         (a) If, subsequent to a Change of Control, (i) the Company shall
terminate the Executive's employment within two (2) years after such Change of
Control or (ii) the Executive shall terminate his employment more than one
hundred eighty (180) days after such Change of Control (but within one year
after such Change of Control), then the Company shall pay to the Executive in a
lump sum on the fifteenth business day following the Date of Termination, the
following amounts:

                  (i)         The Executive's Base Salary through the Date of
                              Termination at the rate in effect at the time
                              Notice of Termination is given;

                  (ii)        A pro-rata portion of the Executive's target bonus
                              for the year

                                     -5-

<PAGE>

                              in which the Date of Termination occurs, based
                              upon the number of days that have elapsed during
                              the year in question prior to the Date of
                              Termination.

                  (iii)       In lieu of any further salary and bonus payments
                              for periods subsequent to the Date of Termination,
                              an amount equal to 3 multiplied by the sum of (i)
                              the Executive's current Base Salary at such time
                              and (ii) the greater of (I) the average of the
                              bonuses actually received by the Executive with
                              respect to the two calendar years immediately
                              preceding the year in which the Date of
                              Termination occurs or (II) the Executive's target
                              bonus for the year in which the Date of
                              Termination occurs.

                  (iv)        All legal fees and expenses incurred as a result
                              of such termination (including all such fees and
                              expenses, if any, incurred in contesting or
                              disputing any such termination, in seeking to
                              obtain or enforce any right or benefit provided by
                              this Agreement, or in interpreting this
                              Agreement).


         (b) If, subsequent to a Change of Control, (i) the Company shall
terminate the Executive's employment within two (2) years after such Change of
Control or (ii) the Executive shall terminate his employment more than one
hundred eighty (180) days after such Change of Control (but within one year
after such Change of Control), the Company shall maintain in full force and
effect, for the Executive's continued benefit for thirty-six (36) months after
the Date of Termination, all medical and dental employee benefit plans,
programs, or arrangements in which he was entitled to participate immediately
prior to the Date of Termination, provided that continued participation is
possible under the general terms and provisions of such plans and programs. In
the event that participation in any such plan or program is barred, the Company
shall arrange to provide him with benefits substantially similar in coverage and
cost to those which he is entitled to receive under such plans and programs.

         (c) If, subsequent to a Change of Control, (i) the Company shall
terminate the Executive's employment within two (2) years after such Change of
Control or (ii) the Executive shall terminate his employment more than one
hundred eighty (180) days after such Change of Control (but within one year
after such Change of Control), the Company shall allow the Executive, at Company
expense, to utilize the services of the public accounting firm used by the
Company to audit its books and records (or such other firm as shall be
designated by the Company) for assistance in preparation of his tax returns
relating to the taxable year in which the Executive's employment was terminated
(and for any other taxable year that is affected by the Change of Control).

                                     -6-

<PAGE>

9.       TREATMENT OF STOCK OPTIONS

         Notwithstanding any provision to the contrary in any stock option plan
or any agreement relating to the Executive that provides for less favorable
treatment of any stock option or stock appreciation right, in the event of the
consummation of a Change of Control of the Company (excluding for this purpose
the application of Section 3(g) hereof), all stock options and stock
appreciation rights granted prior to the Change of Control by the Company to the
Executive with respect to the stock of the Company shall immediately vest and
become immediately exercisable, and shall remain exercisable for the original
maximum period set forth in such stock option or stock appreciation right
agreement.


10.  SUCCESSORS, BINDING AGREEMENT

         The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle the Executive
to compensation from the Company in the same amount and on the same terms as
would apply if the Executive terminated his employment pursuant to Section 8
hereof, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid that executes and delivers the agreement provided for in this section
or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law. This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amount would still be payable hereunder had the
Executive continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to his devisee,
legatee, or other designee or, if there be no such designee, to his estate.






                                     -7-

<PAGE>

11.  NOTICE

         Notices and all other communications provided for in this Agreement
shall be in writing and shall be deemed to have been duly given when delivered
or mailed by facsimile, overnight delivery service, or United States registered
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement, provided that all
notices to the Company shall be directed to the attention of the Secretary of
the Company, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.

12.  MISCELLANEOUS

         No provisions of this Agreement may be modified, waived or discharged
unless such modification, waiver or discharge is agreed to in writing signed by
the Executive and such officer as may be specifically designated by the Board of
Directors of the Company. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreement or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party that are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Texas.

13.  VALIDITY

         The invalidity or unenforceability of any one or more provisions of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.

14.  COUNTERPARTS

         This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.

15.  ALTERNATIVE DISPUTE RESOLUTION

         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

                                     -8-

<PAGE>

entered by any court having 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.

16.      CERTAIN TAX MATTERS

         (a)      ADDITIONAL PAYMENTS

                  (i)         Anything in this Agreement to the contrary
                              notwithstanding (other than as provided in Section
                              16(b) hereof), in the event it shall be determined
                              (as hereafter provided) that any payment or
                              distribution to or for the Executive's benefit,
                              whether paid or payable or distributed or
                              distributable pursuant to the terms of this
                              Agreement or otherwise pursuant to or by reason of
                              any other agreement, policy, plan, program or
                              arrangement (including without limitation any
                              stock option agreement), or similar right (a
                              "Payment"), would be subject to the excise tax
                              imposed by Section 4999 of the Internal Revenue
                              Code of 1986 (the "Code") (or any successor
                              provision thereto), or any interest or penalties
                              with respect to such excise tax (such excise tax,
                              together with any such interest and penalties, are

                                     -9-

<PAGE>

                              hereafter collectively referred to as the "Excise
                              Tax"), then the Executive shall be entitled to
                              receive an additional payment or payments (a
                              "Gross-Up Payment") in an amount such that, after
                              payment by the Executive of all taxes (including
                              any interest or penalties imposed with respect to
                              such taxes), including any Excise Tax, imposed
                              upon the Gross-Up Payment, the Executive retains
                              an amount of the Gross-Up Payment equal to the
                              Excise Tax imposed upon the Payments.

                  (ii)        Subject to the provisions of Section 16(a)(v), all
                              determinations required to be made under this
                              Section 16(a), including whether an Excise Tax is
                              payable by the Executive, the amount of such
                              Excise Tax, whether a Gross-Up Payment is
                              required, and the amount of such Gross-Up Payment,
                              shall be made by a nationally-recognized legal or
                              accounting firm (the "Firm") selected by the
                              Company in the Company's sole discretion. The
                              Executive agrees to direct the Firm to submit its
                              determination and detailed supporting calculations
                              to both the Executive and the Company as promptly
                              as practicable. If the Firm determines that any
                              Excise Tax is payable by the Executive and that a
                              Gross-Up Payment is required, the Company shall
                              pay the Executive the required Gross-Up Payment
                              within fifteen business days after receipt of such
                              determination and calculations. If the Firm
                              determines that no Excise Tax is payable by the
                              Executive, it shall, at the same time as it makes
                              such determination, furnish the Executive with an
                              opinion that the Executive has substantial
                              authority not to report any Excise Tax on the
                              Executive's federal income tax return. Any
                              determination by the Firm as to the amount of the
                              Gross-Up Payment shall be binding upon the
                              Executive and the Company. As a result of the
                              uncertainty in the application of Section 4999 of
                              the Code (or any successor provision thereto) at
                              the time of the initial determination by the Firm
                              hereunder, it is possible that Gross-Up Payments
                              which will not have been made by the Company
                              should have been made (an "Underpayment"). In the
                              event that the Company exhausts its remedies
                              pursuant to Section 16(a)(v) hereof and the
                              Executive thereafter is required to make a payment
                              of any Excise Tax, the Executive may direct the
                              Firm to determine the amount of the Underpayment
                              (if any) that has occurred and to submit its
                              determination and detailed supporting calculations
                              to both the Executive and the Company as promptly
                              as possible. Any such Underpayment shall be
                              promptly paid by the Company to the Executive, or
                              for the Executive's benefit, within ten

                                    -10-

<PAGE>

                              business days after receipt of such determination
                              and calculations.

                  (iii)       The Executive and the Company shall each provide
                              the Firm access to and copies of any books,
                              records and documents in the possession of the
                              Company or the Executive, as the case may be,
                              reasonably requested by the Firm, and otherwise
                              cooperate with the Firm in connection with the
                              preparation and issuance of the determination
                              contemplated by Section 16(a)(ii) hereof.

                  (iv)        The fees and expenses of the Firm for its services
                              in connection with the determinations and
                              calculations contemplated by Section 16(a)(ii)
                              hereof shall be borne by the Company. If such fees
                              and expenses are initially paid by the Executive,
                              the Company shall reimburse the Executive the full
                              amount of such fees and expenses within ten
                              business days after receipt from the Executive of
                              a statement therefor and reasonable evidence of
                              the Executive's payment thereof.

                  (v)         The Executive agrees to notify the Company in
                              writing of any claim by the Internal Revenue
                              Service that, if successful, would require the
                              payment by the Company of a Gross-Up Payment. Such
                              notification shall be given as promptly as
                              practicable but no later than 10 business days
                              after the Executive actually receives notice of
                              such claim. The Executive agrees to further
                              apprise the Company of the nature of such claim
                              and the date on which such claim is requested to
                              be paid (in each case, to the extent known by the
                              Executive). The Executive agrees not to pay such
                              claim prior to the earlier of (a) the expiration
                              of the 30-calendar-day period following the date
                              on which the Executive gives such notice to the
                              Company and (b) the date that any payment with
                              respect to such claim is due. If the Company
                              notifies the Executive in writing at least five
                              business days prior to the expiration of such
                              period that it desires to contest such claim, the
                              Executive agrees to:

                              (a)   provide the Company with any written records
                                    or documents in the Executive's possession
                                    relating to such claim reasonably requested
                                    by the Company;

                              (b)   take such action in connection with

                                    -11-

<PAGE>

                                    contesting such claim as the Company shall
                                    reasonably request in writing from time to
                                    time, including without limitation accepting
                                    legal representation with respect to such
                                    claim by an attorney competent in respect of
                                    the subject matter and reasonably selected
                                    by the Company;

                              (c)   cooperate with the Company in good faith
                                    in order effectively to contest such
                                    claim; and

                              (d)   permit the Company to participate in any
                                    proceedings relating to such claim;

                  provided, however, that the Company shall bear and pay
                  directly all costs and expenses (including interest and
                  penalties) incurred in connection with such contest and shall
                  indemnify and hold the Executive harmless, on an after-tax
                  basis, from and against any Excise Tax or income tax,
                  including interest and penalties with respect thereto, imposed
                  as a result of such representation and payment of costs and
                  expenses. Without limiting the foregoing provisions of this
                  Section 16(a)(v), the Company shall control all proceedings
                  taken in connection with the contest of any claim contemplated
                  by this Section 16(a)(v) and, at its sole option, may pursue
                  or forego any and all administrative appeals, proceedings,
                  hearings and conferences with the taxing authority in respect
                  of such claim (provided, however, that the Executive may
                  participate therein at the Executive's own cost and expense)
                  and may, at its option, either direct the Executive to pay the
                  tax claimed and sue for a refund or contest the claim in any
                  permissible manner, and the Executive agrees to prosecute such
                  contest to a determination before any administrative tribunal,
                  in a court of initial jurisdiction and in one or more
                  appellate courts, as the Company shall determine; provided,
                  however, that if the Company directs the Executive to pay the
                  tax claimed and sue for a refund, the Company shall advance
                  the amount of such payment to the Executive on an
                  interest-free basis and shall indemnify and hold the Executive
                  harmless, on an after-tax basis, from any Excise Tax or income
                  tax, including interest or penalties with respect thereto,
                  imposed with respect to such advance; and provided further,
                  however, that any extension of the statute of limitations
                  relating to payment of taxes for the Executive's taxable year
                  with respect to which the contested amount is claimed to be
                  due is limited solely to such contested amount. Furthermore,
                  the Company's control of any such contested claim shall be
                  limited to issues with respect to which a Gross-Up Payment
                  would be payable

                                    -12-

<PAGE>

                  hereunder and the Executive shall be entitled to settle or
                  contest, as the case may be, any other issue raised by the
                  Internal Revenue Service or any other taxing authority.

                  (vi)        If, after the receipt by the Executive of an
                              amount advanced by the Company pursuant to Section
                              16(a)(v) hereof, the Executive receives any refund
                              with respect to such claim, the Executive agrees
                              (subject to the Company's complying with the
                              requirements of Section 16(a)(v) hereof) to
                              promptly pay to the Company the amount of such
                              refund (together with any interest paid or
                              credited thereon after any taxes applicable
                              thereto). If, after the Executive's receipt of an
                              amount advanced by the Company pursuant to Section
                              16(a)(v) hereof, a determination is made that the
                              Executive is not entitled to any refund with
                              respect to such claim and the Company does not
                              notify the Executive in writing of its intent to
                              contest such denial of refund prior to the
                              expiration of 30 calendar days after such
                              determination, then such advance shall be forgiven
                              and shall not be required to be repaid and the
                              amount of such advance shall offset, to the extent
                              thereof, the amount of Gross-Up Payment required
                              to be paid pursuant to this Section 16(a).


         (b)      Notwithstanding Section 16(a), in the event that the excess of
                  (i) the amount of "parachute payments" (as defined in Section
                  280G of the Code) received by the Executive pursuant to this
                  Agreement (or any other agreement between the Company and the
                  Executive) over (ii) 2.99 times the Executive's "base amount"
                  (as defined in Section 280G of the Code), is less than
                  $50,000, the Executive agrees to waive such payments and
                  benefits as he may choose so as to reduce the payments and
                  benefits that he shall receive to an amount that will not
                  result in any loss of a deduction to the Company for such
                  payments and benefits pursuant to Section 280G nor the
                  imposition of an excise tax on the Executive for such payments
                  and benefits pursuant to Section 4999.


17.  WITHHOLDING OF TAXES

         The Company may withhold from any amounts payable under this Agreement
all federal, state, city or other taxes as shall be required pursuant to any law
or government regulation or ruling.

                                    -13-

<PAGE>

18.  LEGAL FEES AND EXPENSES

         It is the intent of the Company that the Executive not be required to
incur the legal expenses associated with (i) the obtaining of any right or
benefit under, this Agreement or (ii) the enforcement of his rights under this
Agreement by litigation or other legal action, because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, the Company irrevocably authorizes the
Executive from time to time to retain counsel of his choice, at the expense of
the Company as hereafter provided, to represent the Executive in connection with
the interpretation or enforcement of this Agreement, including the initiation or
defense of any litigation or other legal action, whether by or against the
Company or any Director, officer, stockholder or other person affiliated with
the Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the Company
irrevocably consents to the Executive's entering into an attorney-client
relationship with such counsel, and in that connection the Company and the
Executive agree that a confidential relationship shall exist between the
Executive and such counsel. The Company shall pay or cause to be paid and shall
be solely responsible for any and all attorneys' and related fees and expenses
incurred by the Executive under this Section 18.


19.      INTEGRATION WITH AMENDED AND RESTATED EMPLOYMENT AGREEMENT

         The Company has previously entered into the Employment Agreement with
Executive. It is the intent of both Company and Executive that such Employment
Agreement remain in full force and effect and that this Agreement in no way
shall impair Executive's rights and obligations, and Company's rights and
obligations, under such Employment Agreement. However, to the extent that this
Agreement and the Employment Agreement shall conflict, it is the intent of the
Company and the Executive that such agreements shall be interpreted 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
Employment 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.


                             Dal-Tile International Inc.

                             BY:
                                ------------------------------------------------
                                Title:


                             ---------------------------------------------------
                             W. Christopher Wellborn




                                    -14-


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.17
<SEQUENCE>7
<FILENAME>a2041503zex-10_17.txt
<DESCRIPTION>EX.10.17
<TEXT>

<PAGE>


EXHIBIT 10.17


                           CHANGE OF CONTROL AGREEMENT


1.  RECITALS

         (a) This Change of Control Agreement ("Agreement") is between Dal-Tile
International Inc. (the "Company") and _________________ (the "Executive") and
is effective as of October 1, 2000.

         (b) The address of the Company is 7834 C.F. Hawn Freeway, PO Box
170130, Dallas, Texas 75217. The address of the Executive is 4620 Melissa Lane,
Dallas, Texas 75229.

         (c) The Executive is currently employed by the Company in the capacity
of ________________________ and the Executive is one of the key executives of
the Company.

           (d) In consideration of the mutual promises contained herein and
other good and valuable consideration, the Executive and the Company have
entered into this Agreement.

2.  TERM OF THIS AGREEMENT

         (a) This Agreement shall remain in effect until December 31, 2005 (the
"Agreement Termination Date"), provided that on January 1, 2004 (and each
January 1st thereafter), the Agreement Termination Date shall be extended by
one year, unless the Company shall have notified the Executive at least six
months prior to such January 1st that the Agreement Termination Date shall not
be extended.

         (b) Nothing contained in this Agreement shall prevent the Company at
any time from terminating the Executive's employment with the Company or
prevent the Company from removing the Executive from any position which the
Executive holds in the Company, subject to the obligation of the Company to
make payments and provide benefits if and to the extent required under this
Agreement, which payments and benefits shall be full and complete liquidated
damages, insofar as the obligations of the Company pursuant to this Agreement
are concerned, for any such action taken by the Company. The Executive
specifically acknowledges that, except for this Agreement, his employment by
the Company is employment-at-will, subject to termination by the Executive, or
by the Company, at any time with or without cause. The Executive acknowledges
that such employment-at-will status cannot be modified except in a specific
writing that has been authorized or ratified by the Board.

<PAGE>

3.  CHANGE OF CONTROL

           Notwithstanding the other provisions of this Agreement, no benefit
shall be payable under this Agreement (and Sections 5 through 11, and Section
18, shall not apply) unless (i) a Change of Control of the Company shall be
deemed to have occurred, (ii) the Executive shall be employed by the Company at
the time of such Change of Control (except to the extent Section 3(g) is
applicable), and (iii) the Executive's employment by the Company shall have
been terminated (by the Executive or by the Company) within two (2) years
thereafter. For purposes of this Agreement, a "Change of Control of the
Company" shall be deemed to have occurred if:

         (a) The Company is merged, consolidated or reorganized into or with
another corporation or other legal person, and immediately after such merger,
consolidation or reorganization less than fifty percent (50%) of the combined
voting power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders of
voting stock of the Company immediately prior to such transaction;

         (b) The Company sells all or substantially all of its assets to any
other corporation or other legal person, and less than fifty percent (50%) of
the combined voting power of the then-outstanding securities of such
corporation or person immediately after such sale are held in the aggregate by
the holders of voting stock of the Company immediately prior to such sale;

         (c) Any person or group of persons (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), other than DTI
Investors LLC or its members, or any affiliate or successor of DTI Investors
LLC or its members, becomes the beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of securities (i) representing 40% or more
of the issued and outstanding common stock of the Company or (ii) possessing
the power to elect a majority of the Board of Directors of the Company,
provided that a Change of Control under this Section 3(c) shall only be deemed
to occur if such person or persons shall own at such time a greater number of
shares of common stock than are owned at such time by DTI Investors LLC, or its
members, or its former members (taken as a group);

         (d) The Company files a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in response to
Form 8-K or Schedule 14A (or any successor schedule, form or report or item
therein) that a Change of Control of the Company has occurred;

         (e) The shareholders of the Company approve the liquidation or
dissolution of the Company;


                                      -2-
<PAGE>


           (f) If during any period of two consecutive years, individuals who
at the beginning of any such period constitute the Board of Directors of the
Company (the "Board") cease for any reason to constitute at least a majority
thereof, provided, however, that for purposes of this Section 3(f), each
Director who is first elected, or first nominated for election by the Company's
stockholders, by a vote of at least two thirds of the Directors of the Company
(or a committee thereof) then still in office who were Directors of the Company
at the beginning of any such period will be deemed to have been a Director of
the Company at the beginning of such period; or

           (g) At the time of determination, the Company is actively engaged in
negotiations or other activities for the purpose of effecting a transaction of
the type referred to in Section 3(a), (b), (c), or (e) of this Agreement and,
in the case of this Section 3(g) only, the Executive's employment is terminated
by the Company.

4.  NOTICE OF TERMINATION; DATE OF TERMINATION

           (a) Any termination of the Executive's employment by the Company or
the Executive shall be communicated by written Notice of Termination to the
other party thereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of employment
under the provision so indicated.

           (b)  "Date of Termination" shall mean:

                  (i)      If the Agreement is terminated for Disability, thirty
                           (30) days after Notice of Termination is given
                           (provided that the Executive shall not have returned
                           to the performance of his duties on a full-time basis
                           during such thirty (30) day period),

                  (ii)     If the Executive's employment is terminated for Good
                           Reason pursuant to Section 10, the date specified in
                           the Notice of Termination, or

                  (iii)    If the Executive's employment is terminated for any
                           other reason, the date on which a Notice of
                           Termination is given.


5.  COMPENSATION AFTER CHANGE OF CONTROL

           Immediately after any Change of Control of the Company shall be
deemed to have occurred, the Executive shall be entitled to receive for the
remainder of the Term of this Agreement (as extended from time to time) (i) an
annual base salary


                                      -3-
<PAGE>


(the "Base Salary"), payable in installments in accordance with the current
practice of the Company, at an annual rate at least equal to the aggregate
annual base salary payable to the Executive as of the date of the Change of
Control of the Company and (ii) an award under a Company incentive bonus plan
offering the Executive the opportunity to earn a target bonus at least
comparable to the target bonus opportunity offered under the Company's Annual
Incentive Plan immediately prior to the Change of Control. Subsequent to such
Change of Control, the Base Salary may be increased (but may not be decreased)
at any time and from time to time by action of the Board, any committee
thereof, or any individual having authority to take such action, in accordance
with the Company's regular practices, and, if so increased, such increased Base
Salary shall thereafter be the Base Salary for the purposes of this Agreement.
Any increase in the Base Salary shall not serve to limit or reduce any other
obligation of the Company hereunder.

6.  BENEFIT PLANS

           After a Change of Control of the Company shall be deemed to have
occurred,

           (a) The Company agrees to continue in effect those perquisites, and
benefit or compensation plans, identified on Exhibit A hereto in which the
Executive is currently participating or, with continued service or retirement
would be eligible for participation (collectively referred to as the "Benefit
Plans"); or to maintain plans providing substantially similar benefits;
provided, however, that the Company may make modifications in such plans so
long as such modifications (i) are generally applicable to all salaried
employees of the Company and (ii) do not discriminate against highly-paid
employees of the Company;

           (b) Except as permitted in the proviso contained in paragraph (a)
above, the Company agrees not to take any action that would adversely affect
the Executive's participation in, or materially reduce the benefits under, any
of the Benefit Plans or deprive the Executive of any material fringe benefit
currently enjoyed;

           (c) The Company agrees to provide the Executive with the number of
paid vacation days to which he is entitled on the basis of years of service
with the Company in accordance with the Company's normal vacation policy in
effect on the date of the Change of Control of the Company or in accordance
with the Executive's individual employment agreement; and

           (d) Benefits herein provided are in lieu of any severance payment
benefit otherwise provided under any other Agreement, policy or practice
provided by the Company except that Executive shall retain any rights that
Executive has with respect to accumulated and unused vacation or vacation pay.
The Executive waives all rights to any other severance payments under any such
agreement, policy or practice provided, however, that this waiver shall not
extend to any retirement plan,


                                      -4-
<PAGE>


excess benefit plan, or applicable supplemental pension plan.

7.  TERMINATION FOR CAUSE

         (a) The Company may terminate the Executive's employment for Cause.
For the purposes of this Agreement, 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 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 believed
he was acting in good faith or in a manner not opposed to the interests of the
Company. 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 that
constitute grounds for the termination.

         (b) If the Executive's employment shall be terminated for Cause, the
Company shall pay the Executive his full Base Salary through the Date of
Termination at the rate in effect at the time Notice of Termination is given
and the Company shall have no further obligations to the Executive under this
Agreement.

8.  TERMINATION FOR DEATH OR DISABILITY

         (a) The Executive's employment shall terminate in the event of
Executive's death.

         (b) The Company may terminate Executive's employment for "Disability"
if the Executive is "Disabled." For purposes of this Agreement, the Executive
shall be considered Disabled only if, as a result of his incapacity due to
physical or mental illness, he shall have been absent from his duties with the
Company on a full-time basis for a period of one year and a physician selected
by him is of the opinion that (i) he is suffering from "Total Disability" as
defined in the Company's qualified pension plan as of the date hereof, or any
successor plan or program and (ii) he will qualify for Social Security
Disability Payment and (iii) within thirty (30) days after written notice of
termination is given, he shall not have returned to the full-time performance
of his duties.

         (c) If, subsequent to a Change of Control, the Executive's employment
terminates on account of the Executive's death or because the Executive is
Disabled, the Company shall pay to the Executive (or his successors) the
amounts, and provide to the Executive the benefits, set forth in Section 11
hereof.


                                      -5-
<PAGE>


9.  TERMINATION FOLLOWING RETIREMENT

         (a) Executive's employment will terminate upon the Executive's
Retirement. For purposes of this Agreement, "Retirement" shall mean termination
of the Executive's employment with his consent in accordance with the Company's
retirement policy (including early retirement) generally applicable to its
salaried employees or in accordance with any retirement arrangement established
with the Executive's consent with respect to him.

         (b) In the event Executive's employment terminates as a result of
Executive's Retirement, the Company shall pay to the Executive his full Base
Salary through the Date of Termination at the rate in effect at the time Notice
of Termination is given and the Company shall have no further obligation to the
Executive under this Agreement, and the Executive shall not be entitled to the
payments and benefits set forth in Section 11 hereof.

10.  TERMINATION OF EMPLOYMENT BY THE EXECUTIVE FOR GOOD REASON

           The Executive may terminate his employment for Good Reason. For
purposes of this Agreement, Good Reason will exist if any one or more of the
following occur:

         (i)      Failure by the Company to honor any of its obligations under
                  Sections 5, 6, 12, or 13; or

         (ii)     Any purported termination by the Company of the Executive's
                  employment that is not effected pursuant to a Notice of
                  Termination satisfying the requirements of Section 4 above
                  and, for purposes of this Agreement, no such purported
                  termination shall be effective; or

         (iii)    Failure to elect or reelect or otherwise to maintain the
                  Executive to or in the office or the position (or a
                  substantially equivalent office or position) in the Company
                  that the Executive held immediately prior to a Change of
                  Control of the Company having been deemed to occur, or the
                  removal of the Executive as a Director of the Company (or any
                  successor thereto) if the Executive shall have been a Director
                  of the Company immediately prior to the Change of Control of
                  the Company having been deemed to occur; or

         (iv)     A significant adverse change in the nature or scope of the
                  authorities, powers, functions, responsibilities (including
                  reporting responsibilities), or duties attached to the
                  position with the Company which the Executive held immediately
                  prior


                                      -6-
<PAGE>


                  to the Change of Control of the Company having been deemed to
                  occur, without the prior written consent of the Executive,
                  which is not remedied within 10 calendar days after receipt by
                  the Company of written notice from the Executive of such
                  change; or

         (v)      A determination by the Executive made in good faith that as a
                  result of a Change of Control of the Company having been
                  deemed to occur and a change in circumstances thereafter
                  significantly affecting his position, including without
                  limitation a change in the scope of the business or other
                  activities for which he was responsible immediately prior to a
                  Change of Control of the Company having been deemed to occur,
                  he has been rendered substantially unable to carry out, has
                  been substantially hindered in the performance of, or has
                  suffered a substantial reduction in, any of the authorities,
                  powers, functions, responsibilities or duties attached to the
                  position held by the Executive immediately prior to the Change
                  of Control of the Company having been deemed to occur, which
                  situation is not remedied within 10 calendar days after
                  written notice to the Company from the Executive of such
                  determination; or

         (vi)     The Company shall relocate its principal executive offices, or
                  require the Executive to have his principal location of work
                  changed, to any location which is in excess of 50 miles from
                  the location thereof immediately prior to the change of
                  control of the Company having been deemed to occur or to
                  travel away from his office in the course of discharging his
                  responsibilities or duties hereunder significantly more (in
                  terms of either consecutive days or aggregate days in any
                  calendar year) than was required of him prior to the change of
                  control of the Company having been deemed to occur without, in
                  either case, his prior written consent; or

         (vii)    the cessation of the Company's status as a corporation the
                  stock of which is publicly traded on a national securities
                  exchange.




                                      -7-
<PAGE>


11.  COMPENSATION UPON CERTAIN TERMINATIONS

         (a) If, subsequent to a Change of Control, (i) the Company shall
terminate the Executive's employment other than pursuant to Section 7 hereof or
(ii) the Executive shall terminate his employment for Good Reason pursuant to
Section 10 hereof, then the Company shall pay to the Executive in a lump sum on
the fifteenth business day following the Date of Termination, the following
amounts:

         (i)      The Executive's Base Salary through the Date of Termination at
                  the rate in effect at the time Notice of Termination is given;

         (ii)     A pro-rata portion of the Executive's target bonus for the
                  year in which the Date of Termination occurs, based upon the
                  number of days that have elapsed during the year in question
                  prior to the Date of Termination.

         (iii)    In lieu of any further salary and bonus payments for periods
                  subsequent to the Date of Termination, an amount equal to 2.5
                  multiplied by the sum of (i) the Executive's current Base
                  Salary at such time and (ii) the greater of (I) the average of
                  the bonuses actually received by the Executive with respect to
                  the two calendar years immediately preceding the year in which
                  the Date of Termination occurs or (II) the Executive's target
                  bonus for the year in which the Date of Termination occurs.

         (iv)     All legal fees and expenses incurred as a result of such
                  termination (including all such fees and expenses, if any,
                  incurred in contesting or disputing any such termination, in
                  seeking to obtain or enforce any right or benefit provided by
                  this Agreement, or in interpreting this Agreement).


         (b) If, subsequent to a Change of Control, (i) the Company shall
terminate the Executive's employment other than pursuant to Section 7 hereof, or
(ii) the Executive shall terminate his employment for Good Reason pursuant to
Section 10 hereof, the Company shall maintain in full force and effect, for the
Executive's continued benefit for thirty (30) months after the Date of
Termination, all medical and dental employee benefit plans, programs, or
arrangements in which he was entitled to participate immediately prior to the
Date of Termination, provided that continued participation is possible under the
general terms and provisions of such plans and programs. In the event that
participation in any such plan or program is barred, the Company shall arrange
to provide him with benefits substantially similar in coverage and cost to those
which he is entitled to receive under such plans and programs.


                                      -8-
<PAGE>


         (c) If, subsequent to a Change of Control, (i) the Company shall
terminate the Executive's employment other than pursuant to Section 7 hereof, or
(ii) the Executive shall terminate his employment for Good Reason pursuant to
Section 10 hereof, the Company shall allow the Executive, at Company expense, to
utilize the services of the public accounting firm used by the Company to audit
its books and records (or such other firm as shall be designated by the Company)
for assistance in preparation of his tax returns relating to the taxable year in
which the Executive's employment was terminated (and for any other taxable year
that is affected by the Change of Control).

12.        TREATMENT OF STOCK OPTIONS

           Notwithstanding any provision to the contrary in any stock option
plan or any agreement relating to the Executive that provides for less favorable
treatment of any stock option or stock appreciation right, in the event of the
consummation of a Change of Control of the Company (excluding for this purpose
the application of Section 3(g) hereof), all stock options and stock
appreciation rights granted prior to the Change of Control by the Company to the
Executive with respect to the stock of the Company shall immediately vest and
become immediately exercisable and shall remain so for a period of three (3)
months subsequent to the date that Executive's employment is terminated. To the
extent any stock option plan or any agreement relating to Executive permits
Executive to exercise a stock option or a stock appreciation right for a longer
period, the terms of such plan or agreement shall control.

13.  SUCCESSORS, BINDING AGREEMENT

           The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, by agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle the Executive
to compensation from the Company in the same amount and on the same terms as
would apply if the Executive terminated his employment for Good Reason, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As used in
this Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid that executes and delivers
the agreement provided for in this section or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law. This
Agreement shall inure to the benefit of and be enforceable


                                      -9-
<PAGE>


by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amount would still be payable hereunder had the
Executive continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to his
devisee, legatee, or other designee or, if there be no such designee, to his
estate.

14.  NOTICE

           Notices and all other communications provided for in this Agreement
shall be in writing and shall be deemed to have been duly given when delivered
or mailed by facsimile, overnight delivery service, or United States registered
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement, provided that all
notices to the Company shall be directed to the attention of the Secretary of
the Company, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.

15.  MISCELLANEOUS

           No provisions of this Agreement may be modified, waived or discharged
unless such modification, waiver or discharge is agreed to in writing signed by
the Executive and such officer as may be specifically designated by the Board of
Directors of the Company. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreement or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Texas.

16. VALIDITY

           The invalidity or unenforceability of any one or more provisions of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.

17.  COUNTERPARTS

           This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.


                                      -10-
<PAGE>


18.  ALTERNATIVE DISPUTE RESOLUTION

           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 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 21 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.

19.        CERTAIN TAX MATTERS

           (a)    ADDITIONAL PAYMENTS

                  (i)      Anything in this Agreement to the contrary
                           notwithstanding (other than as provided in Section
                           19(b) hereof), in the event it shall be determined
                           (as hereafter provided) that any payment or
                           distribution to or for the Executive's benefit,
                           whether paid or payable or distributed or
                           distributable pursuant to the terms of this Agreement
                           or otherwise pursuant to or by reason of any


                                      -11-
<PAGE>


                           other agreement, policy, plan, program or
                           arrangement (including without limitation any stock
                           option agreement), or similar right (a "Payment"),
                           would be subject to the excise tax imposed by
                           Section 4999 of the Internal Revenue Code of 1986
                           (the "Code") (or any successor provision thereto),
                           or any interest or penalties with respect to such
                           excise tax (such excise tax, together with any such
                           interest and penalties, are hereafter collectively
                           referred to as the "Excise Tax"), then the Executive
                           shall be entitled to receive an additional payment
                           or payments (a "Gross-Up Payment") in an amount such
                           that, after payment by the Executive of all taxes
                           (including any interest or penalties imposed with
                           respect to such taxes), including any Excise Tax,
                           imposed upon the Gross-Up Payment, the Executive
                           retains an amount of the Gross-Up Payment equal to
                           the Excise Tax imposed upon the Payments.

                  (ii)     Subject to the provisions of Section 19(a)(v), all
                           determinations required to be made under this Section
                           19(a), including whether an Excise Tax is payable by
                           the Executive, the amount of such Excise Tax, whether
                           a Gross-Up Payment is required, and the amount of
                           such Gross-Up Payment, shall be made by a
                           nationally-recognized legal or accounting firm (the
                           "Firm") selected by the Company in the Company's sole
                           discretion. The Executive agrees to direct the Firm
                           to submit its determination and detailed supporting
                           calculations to both the Executive and the Company as
                           promptly as practicable. If the Firm determines that
                           any Excise Tax is payable by the Executive and that a
                           Gross-Up Payment is required, the Company shall pay
                           the Executive the required Gross-Up Payment within
                           fifteen business days after receipt of such
                           determination and calculations. If the Firm
                           determines that no Excise Tax is payable by the
                           Executive, it shall, at the same time as it makes
                           such determination, furnish the Executive with an
                           opinion that the Executive has substantial authority
                           not to report any Excise Tax on the Executive's
                           federal income tax return. Any determination by the
                           Firm as to the amount of the Gross-Up Payment shall
                           be binding upon the Executive and the Company. As a
                           result of the uncertainty in the application of
                           Section 4999 of the Code (or any successor provision
                           thereto) at the time of the initial determination by
                           the Firm hereunder, it is possible that Gross-Up
                           Payments which will not have been made by the Company
                           should have been made (an "Underpayment"). In the
                           event that the Company exhausts its remedies pursuant
                           to Section 19(a)(v) hereof and the Executive


                                      -12-
<PAGE>


                           thereafter is required to make a payment of any
                           Excise Tax, the Executive may direct the Firm to
                           determine the amount of the Underpayment (if any)
                           that has occurred and to submit its determination and
                           detailed supporting calculations to both the
                           Executive and the Company as promptly as possible.
                           Any such Underpayment shall be promptly paid by the
                           Company to the Executive, or for the Executive's
                           benefit, within ten business days after receipt of
                           such determination and calculations.

                  (iii)    The Executive and the Company shall each provide the
                           Firm access to and copies of any books, records and
                           documents in the possession of the Company or the
                           Executive, as the case may be, reasonably requested
                           by the Firm, and otherwise cooperate with the Firm in
                           connection with the preparation and issuance of the
                           determination contemplated by Section 19(a)(ii)
                           hereof.

                  (iv)     The fees and expenses of the Firm for its services in
                           connection with the determinations and calculations
                           contemplated by Section 19(a)(ii) hereof shall be
                           borne by the Company. If such fees and expenses are
                           initially paid by the Executive, the Company shall
                           reimburse the Executive the full amount of such fees
                           and expenses within ten business days after receipt
                           from the Executive of a statement therefor and
                           reasonable evidence of the Executive's payment
                           thereof.

                  (v)      The Executive agrees to notify the Company in writing
                           of any claim by the Internal Revenue Service that, if
                           successful, would require the payment by the Company
                           of a Gross-Up Payment. Such notification shall be
                           given as promptly as practicable but no later than 10
                           business days after the Executive actually receives
                           notice of such claim. The Executive agrees to further
                           apprise the Company of the nature of such claim and
                           the date on which such claim is requested to be paid
                           (in each case, to the extent known by the Executive).
                           The Executive agrees not to pay such claim prior to
                           the earlier of (a) the expiration of the
                           30-calendar-day period following the date on which
                           the Executive gives such notice to the Company and
                           (b) the date that any payment with respect to such
                           claim is due. If the Company notifies the Executive
                           in writing at least five business days prior to the
                           expiration of such period that it desires to contest
                           such claim, the Executive agrees to:


                                      -13-
<PAGE>


                           (a)      provide the Company with any written records
                                    or documents in the Executive's possession
                                    relating to such claim reasonably requested
                                    by the Company;

                           (b)      take such action in connection with
                                    contesting such claim as the Company shall
                                    reasonably request in writing from time to
                                    time, including without limitation accepting
                                    legal representation with respect to such
                                    claim by an attorney competent in respect of
                                    the subject matter and reasonably selected
                                    by the Company;

                           (c)      cooperate with the Company in good faith in
                                    order effectively to contest such claim; and

                           (d)      permit the Company to participate in any
                                    proceedings relating to such claim;

                     provided, however, that the Company shall bear and pay
                     directly all costs and expenses (including interest and
                     penalties) incurred in connection with such contest and
                     shall indemnify and hold the Executive harmless, on an
                     after-tax basis, from and against any Excise Tax or income
                     tax, including interest and penalties with respect thereto,
                     imposed as a result of such representation and payment of
                     costs and expenses. Without limiting the foregoing
                     provisions of this Section 19(a)(v), the Company shall
                     control all proceedings taken in connection with the
                     contest of any claim contemplated by this Section 19(a)(v)
                     and, at its sole option, may pursue or forego any and all
                     administrative appeals, proceedings, hearings and
                     conferences with the taxing authority in respect of such
                     claim (provided, however, that the Executive may
                     participate therein at the Executive's own cost and
                     expense) and may, at its option, either direct the
                     Executive to pay the tax claimed and sue for a refund or
                     contest the claim in any permissible manner, and the
                     Executive agrees to prosecute such contest to a
                     determination before any administrative tribunal, in a
                     court of initial jurisdiction and in one or more appellate
                     courts, as the Company shall determine; provided, however,
                     that if the Company directs the Executive to pay the tax
                     claimed and sue for a refund, the Company shall advance the
                     amount of such payment to the Executive on an interest-free
                     basis and shall indemnify and hold the Executive harmless,
                     on an after-tax basis, from any Excise Tax or income tax,
                     including


                                      -14-
<PAGE>


                     interest or penalties with respect thereto, imposed with
                     respect to such advance; and provided further, however,
                     that any extension of the statute of limitations relating
                     to payment of taxes for the Executive's taxable year with
                     respect to which the contested amount is claimed to be due
                     is limited solely to such contested amount. Furthermore,
                     the Company's control of any such contested claim shall be
                     limited to issues with respect to which a Gross-Up Payment
                     would be payable hereunder and the Executive shall be
                     entitled to settle or contest, as the case may be, any
                     other issue raised by the Internal Revenue Service or any
                     other taxing authority.

                     (vi)  If, after the receipt by the Executive of an amount
                           advanced by the Company pursuant to Section 19(a)(v)
                           hereof, the Executive receives any refund with
                           respect to such claim, the Executive agrees (subject
                           to the Company's complying with the requirements of
                           Section 19(a)(v) hereof) to promptly pay to the
                           Company the amount of such refund (together with any
                           interest paid or credited thereon after any taxes
                           applicable thereto). If, after the Executive's
                           receipt of an amount advanced by the Company pursuant
                           to Section 19(a)(v) hereof, a determination is made
                           that the Executive is not entitled to any refund with
                           respect to such claim and the Company does not notify
                           the Executive in writing of its intent to contest
                           such denial of refund prior to the expiration of 30
                           calendar days after such determination, then such
                           advance shall be forgiven and shall not be required
                           to be repaid and the amount of such advance shall
                           offset, to the extent thereof, the amount of Gross-Up
                           Payment required to be paid pursuant to this Section
                           19(a).

           (b)       Notwithstanding Section 19(a), in the event that the excess
                     of (i) the amount of "parachute payments" (as defined in
                     Section 280G of the Code) received by the Executive
                     pursuant to this Agreement (or any other agreement between
                     the Company and the Executive) over (ii) 2.99 times the
                     Executive's "base amount" (as defined in Section 280G of
                     the Code), is less than $50,000, the Executive agrees to
                     waive such payments and benefits as he may choose so as to
                     reduce the payments and benefits that he shall receive to
                     an amount that will not result in any loss of a deduction
                     to the Company for such payments and benefits pursuant to
                     Section 280G nor the imposition of an excise tax on the
                     Executive for such payments and benefits pursuant to
                     Section 4999.


                                      -15-
<PAGE>


20.  WITHHOLDING OF TAXES

           The Company may withhold from any amounts payable under this
Agreement all federal, state, city or other taxes as shall be required pursuant
to any law or government regulation or ruling.

21.  LEGAL FEES AND EXPENSES

           It is the intent of the Company that the Executive not be required to
incur the legal expenses associated with (i) the obtaining of any right or
benefit under, this Agreement or (ii) the enforcement of his rights under this
Agreement by litigation or other legal action, because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, the Company irrevocably authorizes the
Executive from time to time to retain counsel of his choice, at the expense of
the Company as hereafter provided, to represent the Executive in connection with
the interpretation or enforcement of this Agreement, including the initiation or
defense of any litigation or other legal action, whether by or against the
Company or any Director, officer, stockholder or other person affiliated with
the Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the Company
irrevocably consents to the Executive's entering into an attorney-client
relationship with such counsel, and in that connection the Company and the
Executive agree that a confidential relationship shall exist between the
Executive and such counsel. The Company shall pay or cause to be paid and shall
be solely responsible for any and all attorneys' and related fees and expenses
incurred by the Executive under this Section 21.



                                                Dal-Tile International Inc.

                                                BY:
                                                   -----------------------------
                                                   Title:


                                                --------------------------------
                                                [Name]





                                      -16-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>8
<FILENAME>a2041503zex-21_1.txt
<DESCRIPTION>EX.21.1
<TEXT>

<PAGE>

EXHIBIT 21.1




                         SUBSIDIARIES OF THE REGISTRANT


<TABLE>
<CAPTION>

                                                                JURISDICTION OF
NAME OF SUBSIDIARY                                              INCORPORATION
------------------                                              -------------
<S>                                                             <C>
Dal-Tile Group Inc.........................................       Delaware
Dal-Tile Corporation.......................................     Pennsylvania
Tileways, Inc..............................................       Delaware
DTM/CM Holdings, Inc.......................................       Delaware
Dal-Tile I LLC ............................................       Delaware
DTG Tile Corp..............................................       Delaware
DTL Tile Corp..............................................       Delaware
Dal-Tile Puerto Rico.......................................      Puerto Rico
Dal-Tile Mexico, S.A. de C.V. .............................        Mexico
Dal-Tile of Canada Inc.....................................        Ontario

</TABLE>


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>9
<FILENAME>a2041503zex-23_1.txt
<DESCRIPTION>EX.23.1
<TEXT>

<PAGE>


                                                                    Exhibit 23.1


                          Consent of Independent Auditors


We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-70879) pertaining to the Dal-Tile International Inc. 1990
Stock Option Plan (As Amended and Restated) of our report dated
January 22, 2001 with respect to the consolidated financial statements and
schedule of Dal-Tile International Inc. included in the Annual Report (Form
10-K) for the year ended December 29, 2000.

                                               /s/ Ernst & Young LLP



Dallas, Texas
March 13, 2001

</TEXT>
</DOCUMENT>
</SUBMISSION>
