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  EXHIBIT 10.3




 

EXHIBIT 10.3    
  


  PARENT UNDERTAKING AGREEMENT    
  


    PARENT UNDERTAKING AGREEMENT, dated as of October 26, 2001, made by Dal-Tile International Inc., a corporation organized and existing
under the laws of Delaware ("Dal-Tile International"), and Dal-Tile Group Inc., a corporation organized and existing
under the laws of Delaware ("Dal-Tile Group" and, together with Dal-Tile International, the
"Companies"), in favor of DTSC, Inc., a corporation organized and existing under the laws of Delaware (the
"Purchaser"), the Investors and the Banks (as each such term is defined in the Sale Agreement referred to below) and Credit Lyonnais New York Branch, as
agent (the "Agent") for the Investors and the Banks, and their respective successors and assigns (collectively, the
"Beneficiaries"). 



 PRELIMINARY STATEMENTS:  




    (1) Dal-Tile
Corporation, a corporation organized and existing under the laws of Pennsylvania (the
"Originator") has entered into a Purchase and Contribution Agreement dated as of October 26, 2001 with the Purchaser (said Agreement, as it may
hereafter be amended or otherwise modified from time to time, being the "Originator Agreement," the terms defined therein and not otherwise defined
herein being used herein as defined therein or in the Sale Agreement (as defined below)), pursuant to which the Originator may transfer Receivables and other financial assets to the Purchaser, either
by sale or by contribution to the capital of the Purchaser. 


    (2) The
Originator, the Purchaser, Atlantic Asset Securitization Corp., as an Investor, Credit Lyonnais New York Branch, as a Bank, and the Agent have entered into a
Receivables Purchase Agreement dated as of October 26, 2001 (said Agreement, as it may hereafter be amended or otherwise modified from time to time, being the "Sale
Agreement"), pursuant to which the Purchaser may sell Receivables and other financial assets (or interests therein) to the Investors and/or the Banks. 



    (3) Dal-Tile
Group, as the owner of all of the outstanding shares of stock of the Originator, and Dal-Tile International, as the owner of all of
the outstanding shares of stock of Dal-Tile Group, will derive substantial benefit from the transactions contemplated under the Originator Agreement and the Sale Agreement. 


    (4) It
is a condition precedent to the acquisition of Receivables by the Purchaser under the Originator Agreement and to the acquisition of Receivables (or interests
therein) by the Investors and/or the Banks under the Sale Agreement that the Companies shall have executed and delivered this Agreement. 



    NOW,
THEREFORE, in consideration of the premises and in order to induce the Purchaser to purchase Receivables under the Originator Agreement and the Investors and the Banks to make
purchases under the Sale Agreement, the Companies hereby agree as follows: 


 

       SECTION 2.  Unconditional Undertaking.   The Companies hereby jointly and severally, unconditionally and irrevocably undertake and agree with and for
the benefit of the Beneficiaries to cause the due
and punctual performance and observance by the Originator and its successors and assigns of all of the terms, covenants, conditions, agreements and undertakings on the part of the Originator (whether
as Originator, Collection Agent or otherwise) to be performed or observed under the Originator Agreement, the Sale Agreement, each other Transaction Document (as defined under the Sale Agreement) and
any document delivered in connection with any of the foregoing in accordance with the terms thereof (each of the foregoing, collectively, the "Applicable
Documents"), including, without limitation, the punctual payment when due of all obligations of the Originator now or hereafter existing under the Applicable Documents, whether
for indemnification payments, fees, expenses or otherwise (such terms, covenants, conditions, agreements, undertakings and other obligations being the
"Obligations"), and agrees to pay any and all expenses (including counsel fees and expenses) incurred by the Beneficiaries in enforcing any rights under
this Agreement; provided, that, in no event, shall the undertaking contained herein constitute a guaranty of the ability to collect on, or 





 


payment of, the Transferred Receivables. In the event that the Originator shall fail in any manner whatsoever to perform or observe any of the Obligations when the same shall be required to be
performed or observed under any Applicable Document, then the Companies will themselves duly and punctually perform or observe, or cause to be duly and punctually performed or observed, such
Obligation, and it shall not be a condition to the accrual of the obligation of the Companies hereunder to perform or observe any Obligation (or to cause the same to be performed or observed) that any
Beneficiary shall have first made any request of or demand upon or given any notice to either Company or to the Originator or their respective successors or assigns, or have instituted any action or
proceeding against any Company or the Originator or their respective successors or assigns in respect thereof. 


 

       SECTION 3.  Obligation Absolute.   Each Company undertakes that the Obligations will be performed or paid strictly in accordance with the terms of the
Applicable Documents, regardless of any
law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Beneficiaries with respect thereto. The obligations of the Companies under this
Agreement are independent of the Obligations, and a separate action or actions may be brought and prosecuted against either or both of the Companies to enforce this Agreement, irrespective of whether
any action is brought against the Originator or whether the Originator is joined in any such action or actions. The liability of the Companies under this Agreement shall be absolute and unconditional
irrespective of: 



    (a) any
lack of validity or enforceability of any Applicable Document; 


    (b) any
change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to
departure from any Applicable Document, including, without limitation, any increase in the Obligations resulting from additional purchases of Receivables (or interests therein) or otherwise; 


    (c) any
taking, exchange, release or non-perfection of any collateral, or any taking, release or amendment or waiver of or consent to departure from any
guaranty, for all or any of the Obligations; 



    (d) any
manner of application of collateral, or proceeds thereof, to all or any of the Obligations, or any manner of sale or other disposition of any collateral for all
or any of the Obligations or any other assets of the Originator or any of its subsidiaries; 


    (e) any
change, restructuring or termination of the corporate structure or existence of the Originator or any of its subsidiaries; or 


    (f)  any
other circumstance (other than satisfaction in full or termination of the Obligations in accordance with the terms of the Applicable Documents) that might
otherwise constitute a defense available to, or a discharge of, the Originator or a guarantor. 




    This
Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by
any Beneficiaries upon the insolvency, bankruptcy or reorganization of the Originator or otherwise, all as though payment had not been made. 


 

       SECTION 4.  Waiver.   The Companies hereby waive promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations
and this Agreement and any
requirement that any Beneficiary protect, secure, perfect or insure any security interest or lien or any property subject thereto or exhaust any right or take any action against the Originator or any
other person or entity or any collateral. 


 

       SECTION 5.  Subrogation.   The Companies hereby defer and subordinate all rights of subrogation against the Originator and its property and all rights
of indemnification, contribution
and 


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reimbursement from the Originator and its property, in each case in connection with this Agreement and any payments made hereunder, and regardless of whether such rights arise by operation of law,
pursuant to contract or otherwise until satisfaction in full of the Obligations. 


 

       SECTION 6.  Representations and Warranties.   Each Company hereby represents and warrants as to itself as follows: 



    (a) Such
Company is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction indicated at the beginning of this
Agreement. 


    (b) The
execution, delivery and performance by such Company of this Agreement are within such Company's corporate powers, have been duly authorized by all necessary
corporate action, and do not contravene (i) such Company's organizational documents or (ii) law or any contractual restriction binding on or affecting such Company. 


    (c) No
authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution,
delivery and performance by such Company of this Agreement. 


    (d) This
Agreement is the legal, valid and binding obligation of such Company enforceable against such Company in accordance with its terms, except that such
enforceability may be subject to bankruptcy, insolvency, reorganization, moratorium (whether general or specific) and other similar laws now or hereafter in effect affecting creditors rights
generally. 


    (e) The
consolidated balance sheet of Dal-Tile International and its consolidated subsidiaries as at December 29, 2000, and the related consolidated
statement of income and retained earnings of Dal-Tile International and its consolidated subsidiaries for the fiscal year then ended, copies of which have been furnished to the
Beneficiaries, fairly present, in all material respects, the financial condition of Dal-Tile International and its consolidated subsidiaries as at such date and the results of the
operations of Dal-Tile International and its consolidated subsidiaries for the period ended on such date, all in accordance with generally accepted accounting principles consistently
applied, and since December 29, 2000 there has been no material adverse change in the business, financial condition or operations of Dal-Tile International and its consolidated
subsidiaries taken as a whole that could reasonably be expected to adversely affect the value or collectibility of the Receivables or the ability of the Purchaser or the Originator to collect the
Receivables or otherwise perform its obligations under the Applicable Documents. 


    (f)  There
is no pending or threatened action or proceeding affecting any Company or any of its subsidiaries before any court, governmental agency or arbitrator, which
may reasonably be expected to materially adversely affect (i) the financial condition or operations of such Company or any of its subsidiaries or (ii) the ability of such Company to
perform its obligations under this Agreement, or which purports to affect the legality, validity or enforceability of this Agreement. 


    (g) Each
information, financial statement, document, book, record and report furnished or to be furnished at any time by any Company to any Beneficiary in connection
with this Agreement is or will be accurate in all material respects as of its date and (except as otherwise disclosed to such Beneficiary at such time) as of the date so furnished, and no such
information, financial statement, document, book, record or report contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to
make the statements contained therein, in the light of the circumstances under which they were made, not misleading. 


    (h) There
are no conditions precedent to the effectiveness of this Agreement that have not been satisfied or waived. 


    (i)  As
of the date hereof and prior to the date, if any, of the merger contemplated in Section 6(c) below, Dal-Tile International is the owner of
all of the outstanding shares of stock of 



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Dal-Tile Group and Dal-Tile Group is the owner of all of the outstanding shares of stock of the Originator. 


 
 


 

       SECTION 7.  Covenants.   Each Company covenants and agrees that, until the later of the Facility Termination Date and the date on which all Receivables
shall have either been collected
in full or become Defaulted Receivables, such Company will, unless each Beneficiary shall otherwise consent in writing: 


 
 

    (a)  Compliance with Laws, Etc.  Comply in all material respects with all applicable laws, rules,
regulations and orders with respect to it, its business and properties. 


 
 

    (b)  Preservation of Corporate Existence.  Except upon consummation, if at all, of the merger
contemplated in Section 6(c) below, preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified
in good standing as a foreign corporation in each relevant jurisdiction, except to the extent that the failure so to preserve and maintain such existence, rights, franchises, privileges and
qualification would not materially adversely affect the interests of the Beneficiaries hereunder, or the ability of such Company to perform its obligations hereunder. 


 
 

    (c)  Stock Ownership.  In the case of Dal-Tile International, be the registered and
beneficial owner of all of the issued and outstanding shares of each class of the capital stock of Dal-Tile Group and, in the case of Dal-Tile Group, be the registered and
beneficial owner of all of the issued and outstanding shares of each class of the capital stock of the Originator, provided that Dal-Tile Group may merge with and into Dal-Tile
International, with Dal-Tile International being the surviving corporation, so long as Dal-Tile International is the registered and beneficial owner of all of the issued and
outstanding shares of each class of the capital stock of the Originator. 


 
 

    (d)  Notice Regarding Credit Agreement.  At least three Business Days prior to the effectiveness of any
amendment or waiver of any provision under the Credit Agreement, and as soon as possible and in any event within three Business Days after the occurrence of any "Event of Default" under the Credit
Agreement, deliver a copy of such amendment or waiver and a written notice of such occurrence to the Agent. 




 

       SECTION 8.  Additional Covenants Dal-Tile International.   Dal-Tile International covenants and agrees that, until the later of the Facility Termination
Date and the date on which all Receivables shall have
either been collected in full or become Defaulted Receivables, Dal-Tile International will, unless each Beneficiary shall otherwise consent in writing: 



    (a)  Maintenance of Net Worth.  Not permit the Consolidated Net Worth of Dal-Tile
International, at the end of any fiscal quarter of Dal-Tile International, to be less than an amount equal to the sum of (i) $262,977,000 and (ii) 50% of aggregate
Consolidated Net Income of Dal-Tile International for each fiscal quarter ending after June 29, 2001 for which the Consolidated Net Income of Dal-Tile International is
positive. 


    (b)  Maintenance of Consolidated Interest Coverage Ratio.  Not permit, for any period of four consecutive
fiscal quarters of Dal-Tile International ending on the last day of any fiscal quarter of Dal-Tile International, the Consolidated Interest Coverage Ratio of
Dal-Tile International for such period to be less than 2.50 to 1.00. 


    (c)  Maintenance of Consolidated Leverage Ratio.  Not permit, for any period of four consecutive fiscal
quarters ending on the last day of any fiscal quarter of Dal-Tile International, the Consolidated Leverage Ratio of Dal-Tile International for such period to be greater than
3.25 to 1.00. 



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    (d)  Reporting Requirements.  Furnish to the Purchaser and the Agent: 



    (ii) as
soon as available and in any event within 45 days after the end of the first three quarters of each fiscal year of Dal-Tile International, an
unaudited consolidated balance sheet of Dal-Tile International and its consolidated Subsidiaries as of the end of such quarter and consolidated statements of income and retained earnings
of Dal-Tile International and its consolidated Subsidiaries for the period commencing at the end of the previous fiscal year of Dal-Tile International and ending with the end
of such quarter, certified by the chief financial officer or treasurer of Dal-Tile International; 


    (iii) as
soon as available and in any event within 90 days after the end of each fiscal year of Dal-Tile International, a copy of the annual report
for such fiscal year of Dal-Tile International and its consolidated Subsidiaries, containing consolidated financial statements for such year audited by Ernst & Young or other
independent public accountants acceptable to the Agent; and 



    (iv) promptly
after the sending or filing thereof, copies of all reports that Dal-Tile International sends to any of its security holders generally, and
copies of all Form 10-K, Form 10-Q and Form 8-K reports and all
other reports and registration statements that Dal-Tile International or any Subsidiary thereof files with the Securities and Exchange Commission or any national securities exchange. 




    (e)  Definitions.  As used in this Section 7, the following terms shall have the following
meanings: 




    "Consolidated Interest Coverage Ratio" and any defined terms included in, or otherwise affecting, the definition of Consolidated
Interest Coverage Ratio in the Credit Agreement shall each have the meanings set forth in the definitions of such terms in the Credit Agreement as in effect on the date hereof and giving effect solely
to any subsequent amendments or waivers thereto which were granted at a time when the Agent was a party to the Credit Agreement (but only to the extent that a written statement (which such statement
shall be requested by the Agent to the extent the Agent deems such statement to be required under the terms of any agreement governing the activities of any Investor) has been obtained from each
Relevant Rating Agency that the rating of the commercial paper of each Investor that is rated by such Relevant Rating Agency will not be downgraded or withdrawn solely as a result of such amendment or
waiver) or which are specifically approved in writing by the Agent at a time when the Agent is not a party to the Credit Agreement. 



    "Consolidated Leverage Ratio" and any defined terms included in, or otherwise affecting, the definition of Consolidated Leverage Ratio
in the Credit Agreement shall each have the meanings set forth in the definitions of such terms in the Credit Agreement as in effect on the date hereof and giving effect solely to any subsequent
amendments or waivers thereto which were granted at a time when the Agent was a party to the Credit Agreement (but only to the extent that a written statement (which such statement shall be requested
by the Agent to the extent the Agent deems such statement to be required under the terms of any agreement governing the activities of any Investor) has been obtained from each Relevant Rating Agency
that the rating of the commercial paper of each Investor that is rated by such Relevant Rating Agency will not be downgraded or withdrawn solely as a result of such amendment or waiver) or which are
specifically approved in writing by the Agent at a time when the Agent is not a party to the Credit Agreement. 





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    "Consolidated Net Income" and any defined terms included in, or otherwise affecting, the definition of Consolidated Net Income in the
Credit Agreement shall each have the meanings set forth in the definitions of such terms in the Credit Agreement as in effect on the date hereof and giving effect solely to any subsequent amendments
or waivers thereto which were granted at a time when the Agent was a party to the Credit Agreement (but only to the extent that a written statement (which such statement shall be requested by the
Agent to the extent the Agent deems such statement to be required under the terms of any agreement governing the activities of any Investor) has been obtained from each Relevant Rating Agency that the
rating of the commercial paper of each Investor that is rated by such Relevant Rating Agency will not be downgraded or withdrawn solely as a result of such amendment or waiver) or which are
specifically approved in writing by the Agent at a time when the Agent is not a party to the Credit Agreement. 



    "Consolidated Net Worth" and any defined terms included in, or otherwise affecting, the definition of Consolidated Net Worth in the
Credit Agreement shall each have the meanings set forth in the definitions of such terms in the Credit Agreement as in effect on the date hereof and giving effect solely to any subsequent amendments
or waivers thereto which were granted at a time when the Agent was a party to the Credit Agreement (but only to the extent that a written statement (which such statement shall be requested by the
Agent to the extent the Agent deems such statement to be required under the terms of any agreement governing the activities of any Investor) has been obtained from each Relevant Rating Agency that the
rating of the commercial paper of each Investor that is rated by such Relevant Rating Agency will not be downgraded or withdrawn solely as a result of such amendment or waiver) or which are
specifically approved in writing by the Agent at a time when the Agent is not a party to the Credit Agreement. 






 

       SECTION 9.  Amendments, Etc.   No amendment or waiver of any provision of this Agreement or consent to any departure by any Company herefrom shall be
effective unless in a writing signed by
each Beneficiary (and, in the case of any amendment, also signed by the Companies), and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific
purpose for which given. 


 

      SECTION 10.  Addresses for Notices.   All notices and other communications hereunder shall be in writing (which shall include facsimile communication)
and faxed or delivered, if to any Beneficiary,
at its address set forth under its name on the signature pages of the Sale Agreement and if to a Company, at its address set forth under its name on the signature pages hereof or, as to any party, at
such other address as shall be designated by such party in a written notice to each other party. Notices and communications by facsimile shall be effective when sent, and notices and communications
sent by other means shall be effective when received. 


 

      SECTION 11.  No Waiver; Remedies.   No failure on the part of any Beneficiary to exercise, and no delay in exercising, any right hereunder shall operate
as a waiver thereof; nor shall any single
or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law. 


 

      SECTION 12.  Continuing Agreement; Assignments under Originator Agreement.   This Agreement is a continuing agreement and shall (i) remain in full
force and effect until the later of (x) the payment and performance in full
of the Obligations and the payment of all other amounts payable under this Agreement and (y) the Facility Termination Date (as defined under the Sale Agreement), (ii) be binding upon
each Company, its successors and assigns, and (iii) inure to the benefit of, and be 


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enforceable by, each Beneficiary and its successors, transferees and assigns. Each Beneficiary (and any assignee thereof) may at any time assign any and all of its rights hereunder to any other person
or entity without the consent of the Companies or the Originator, whereupon (i) each reference herein to such Beneficiary shall mean and be a reference to such assignee and (ii) such
assignee may enforce this Agreement to the fullest extent as if it were a named party hereto. Without limiting the generality of the foregoing, each Company acknowledges and consents to the assignment
by the Purchaser, under and in connection with the Sale Agreement, of all of the Purchaser's right, title and interest in, to and under this Agreement to the Agent for the benefit of the Investors and
the Banks and each Company agrees that at all times that the Sale Agreement shall be in effect (i) any claim made by the Purchaser hereunder shall be deemed made for the benefit of the Agent
and the Investors and the Banks and (ii) any payment or remittance to be made hereunder by any Company in respect of any claim being made by or in respect of the Purchaser or the Purchaser's
interest under the Originator Agreement shall be paid or remitted to the Agent for the benefit of the Investors and the Banks. 


 

       SECTION 13.  Governing Law.   This Agreement shall, in accordance with Section 5-1401 of the General Obligations Law of the State of New York, be
governed by, and
construed in accordance with, the law of the State of New York without regard to any conflict of laws principles thereof that would call for the application of the laws of any other jurisdiction. 


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    IN WITNESS WHEREOF, each Company has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. 



	 	 	DAL-TILE INTERNATIONAL INC.
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Title:
	

 	
 	

7834 C.F. Hawn Freeway

P.O. Box 170130

Dallas, Texas 75217

Attention: Scott Veldman

Facsimile Number: (214) 309-4390
	

 	
 	

DAL-TILE GROUP INC.
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Title:
	

 	
 	

7834 C.F. Hawn Freeway

P.O. Box 170130

Dallas, Texas 75217

Attention: Scott Veldman

Facsimile Number: (214) 309-4390






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ASSIGNMENT OF PARENT UNDERTAKING AGREEMENT    
  


    The undersigned hereby assigns all of its right, title and interest in and to the foregoing Parent Undertaking Agreement to Credit Lyonnais New York Branch, in
its capacity as agent (the "Agent") for the Investors and the Banks under and as defined in the Receivables Purchase Agreement dated as of October 26,
2001 by and among DTSC, Inc. (the "Purchaser"), the Agent and certain other parties, as the same may be amended, restated, supplemented or otherwise
modified from time to time. Dal-Tile International Inc. and Dal-Tile Group Inc. (the "Companies") acknowledge such assignment and agree that the Agent
may further assign, without notice, its right, title and interest in and to the Parent Undertaking Agreement without the consent of any person or entity. The Agent, as the assignee of the Purchaser,
shall have the right to enforce the Parent Undertaking Agreement, and to directly exercise all of the Purchaser's rights and remedies under the Parent Undertaking Agreement, and the Companies agree to
cooperate fully with the Agent in the exercise of such rights and remedies thereunder. 



	 	 	DTSC, INC.
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:





Acknowledged and agreed to

this 26th day of October, 2001 


DAL-TILE
INTERNATIONAL INC. 



	By:	 	 	 	 
	 	 	
 Name:

Title:	 	 
	

DAL-TILE GROUP INC.	
 	

 
	

By:	
 	

 	
 	

 
	 	 	
 Name:

Title:

	 	 




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TABLE OF CONTENTS    
  



 



	SECTION 1.	 	Unconditional Undertaking
	

SECTION 2.	
 	

Obligation Absolute
	

SECTION 3.	
 	

Waiver
	

SECTION 4.	
 	

Subrogation
	

SECTION 5.	
 	

Representations and Warranties
	

SECTION 6.	
 	

Covenants
	 	 	(a)	 	Compliance with Laws, Etc.
	 	 	(b)	 	Preservation of Corporate Existence
	 	 	(c)	 	Stock Ownership
	 	 	(d)	 	Notice Regarding Credit Agreement
	

SECTION 7.	
 	

Additional Covenants Dal-Tile International
	 	 	(a)	 	Maintenance of Net Worth
	 	 	(b)	 	Maintenance of Consolidated Interest Coverage Ratio
	 	 	(c)	 	Maintenance of Consolidated Leverage Ratio
	 	 	(d)	 	Reporting Requirements
	 	 	(e)	 	Definitions
	

SECTION 8.	
 	

Amendments, Etc.
	

SECTION 9.	
 	

Addresses for Notices
	

SECTION 10.	
 	

No Waiver; Remedies
	

SECTION 11.	
 	

Continuing Agreement; Assignments under Originator Agreement
	

SECTION 12.	
 	

Governing Law




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