DSW 2013 Annual Report Download - page 18

Table of Contents
The Schottenstein Affiliates may compete directly against us.
The Schottenstein Affiliates engage in a variety of businesses, including, but not limited to, business and inventory liquidations, apparel companies and real
estate investments. Opportunities may arise in the area of potential competitive business activities that may be attractive to the Schottenstein Affiliates and us.
Our amended and restated articles of incorporation provide that the Schottenstein Affiliates are under no obligation to communicate or offer any corporate
opportunity to us. In addition, the Schottenstein Affiliates have the right to engage in similar activities as us, do business with our suppliers and customers,
and except as limited by the Master Separation Agreement with RVI, employ or otherwise engage any of our officers or employees. The provisions of the Master
Separation Agreement with RVI also outline how opportunities are to be assigned in the event that our or the Schottenstein Affiliates' directors and officers learn
of opportunities.

Prior to the Merger, RVI had actual liabilities and significant contingent liabilities. As of the effective time of the Merger, Merger Sub, a subsidiary
of DSW, assumed RVI's obligations with respect to these actual liabilities and contingent liabilities, if they become actual liabilities, which could
adversely affect DSW’s financial condition.
Merger Sub assumed the obligations of RVI for a guaranteed lease obligation. On November 2, 2011, Syms and Filene’s Basement filed for bankruptcy
protection. RVI guaranteed the obligations of Filene’s Basement in connection with a lease for the Union Square location. Merger Sub may be responsible for
any obligations of RVI under this guarantee. This lease expires in October 2024.
The landlord at the Union Square location has brought a lawsuit against Merger Sub seeking to recoup payments under the guarantee. A third party has
entered into a lease for this location, but the landlord has asserted that DSW is responsible for rent while the space was unoccupied. In April 2013, the court in
the case denied the landlord's motion for summary judgment. The landlord appealed the court's denial of summary judgment. Oral arguments for the appeal
were held in February 2014. We believe that the guarantee may not be enforceable and/or that the amount of liability under the guarantee may be limited. If the
guarantee is deemed to be enforceable, the new lease may not release Merger Sub from liability under the original guarantee.
In addition, if our assumptions or estimates regarding the amount of any actual or contingent liabilities were incorrect or become incorrect due to changes in
economic conditions, among other reasons, this could cause the amount of any actual liability to exceed the amounts estimated, which could have a material
adverse effect on our financial condition.
Merger Sub has a long-term lease that is subleased to a third party at a rent that was lower than its expenses under the lease.
In connection with the Merger, Merger Sub assumed RVI’s responsibilities under a lease dated September 2003 for an office building in Columbus, Ohio (the
"Premises"). In April 2005, RVI sublet the Premises to an unrelated third party at a rent that is lower than its expenses under the lease. In fiscal 2012, DSW
assumed responsibility for the lease. The sublease is through the lease expiration date, but either party can terminate after each two year renewal option. Merger
Sub remains liable under the lease through the lease expiration date in 2024, and if the subtenant does not pay the rent or vacates the premises, Merger Sub
would be required to make full rent payments to the landlord without any rental income. All of the foregoing circumstances or events could have a material
adverse effect on our financial condition.
 
None.
 
We own our corporate office headquarters and distribution center. As of February 1, 2014, all 394 DSW stores and our fulfillment center are leased or
subleased, and we leased or subleased 22 DSW stores and our dsw.com fulfillment center from Schottenstein Affiliates. The remaining DSW stores are leased
from unrelated entities. Most of the DSW store leases provide for a minimum annual rent plus a percentage of gross sales over specified breakpoints and are
for a fixed term with options for two to five extension periods, each of which is for a period of four or five years, exercisable at our option. The lease for our
fulfillment center expires in September 2017 and has two renewal options with terms of five years each. Our primary distribution facility, our corporate office
headquarters and our dsw.com fulfillment center are located in Columbus, Ohio.
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Source: DSW Inc., 10-K, March 27, 2014 Powered by Morningstar® Document Research℠
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