As filed with the Securities and Exchange Commission on March 4, 2011

Registration No. 333-          

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

Form S-4

 

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

 

DSW INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

810 DSW Drive

Columbus, Ohio 43219

(614) 237-7100

(Address, including zip code, and telephone number, including

area code, of registrant’s principal executive offices)

 

 

 

 

William L. Jordan

General Counsel

DSW Inc.

810 DSW Drive

Columbus, Ohio 43219

(614) 237-7100

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

 

 

 

 

Copies of Correspondence to:

 

 

 

 

 

Approximate date of commencement of proposed sale of the securities to the public:  As soon as practicable after this registration statement is declared effective and at the effective time of the merger referred to herein.

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

 

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) o

 

Exchange Act Rule 14d-1(d) (Cross-Border Third Party Tender Offer o

 

CALCULATION OF REGISTRATION FEE

 

 

 

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

 

 

 

PRELIMINARY — SUBJECT TO COMPLETION — DATED MARCH 4, 2011

 

PROPOSED MERGER — YOUR VOTE IS VERY IMPORTANT

 

 

To the shareholders of DSW Inc. and Retail Ventures, Inc.:

 

On February 8, 2011, DSW Inc. and Retail Ventures, Inc. announced our proposed merger. This joint proxy statement/prospectus describes the merger, including the reasons the merger was proposed, the negotiation process that led to the merger, and other background information. We are sending you this joint proxy statement/prospectus and related materials in connection with the solicitation of proxies by the boards of directors of DSW and Retail Ventures for use at their special meetings of shareholders, both to be held on [    l    ], 2011. At the special meetings, among other items, the shareholders of DSW and Retail Ventures will be asked to consider and vote on proposals regarding the merger of Retail Ventures with and into DSW MS LLC, referred to as Merger Sub, a newly formed wholly owned subsidiary of DSW. These proposals are discussed in greater detail in the remainder of this joint proxy statement/prospectus. We urge you to read carefully this joint proxy statement/prospectus and the documents incorporated by reference into it.

 

If the proposed merger is completed, each holder of Retail Ventures common shares will be entitled to receive 0.435 DSW class A common shares for each Retail Ventures common share he, she or it owns, unless the holder affirmatively elects to receive 0.435 DSW class B common shares in lieu of DSW class A common shares. DSW shareholders will continue to own their existing DSW class A common shares. DSW class A common shares are currently traded on the New York Stock Exchange under the symbol “DSW,” and Retail Ventures common shares are currently traded on the New York Stock Exchange under the symbol “RVI.” DSW class B common shares are not publicly traded.

 

Based on the recommendation of a special committee of the DSW board of directors, the independent members of the DSW board of directors approved unanimously the merger agreement and the merger, and the DSW board of directors recommends unanimously that the DSW shareholders vote “FOR” the proposal to adopt the merger agreement and approve the merger at the DSW special meeting. Based on the recommendation of a special committee of the Retail Ventures board of directors, the Retail Ventures board of directors approved unanimously the merger agreement and the merger and recommends unanimously that the Retail Ventures shareholders vote “FOR” the proposal to adopt the merger agreement and approve the merger at the Retail Ventures special meeting.

 

We cannot complete the merger unless:

 

 

All Retail Ventures and DSW shareholders are invited to attend their company’s special meeting in person. Your vote is very important, regardless of the number of shares you own. Whether or not you expect to attend either special meeting in person, please submit a proxy to vote your shares as promptly

as possible so that your shares may be represented and voted at the DSW or Retail Ventures special meeting, as applicable, by signing, dating and returning the enclosed proxy card, by calling the toll-free telephone number, or by using the Internet as described in the instructions included with your proxy card.

 

The obligations of DSW and Retail Ventures to complete the merger are subject to the satisfaction or waiver of several conditions. The accompanying joint proxy statement/prospectus contains detailed information about DSW, Retail Ventures, the special meetings, the merger agreement and the merger. You should read this joint proxy statement/prospectus carefully and in its entirety before voting, including the section entitled “Risk Factors” beginning on page 19.

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this joint proxy statement/prospectus or determined if this joint proxy statement/prospectus is adequate, accurate, truthful, or complete. Any representation to the contrary is a criminal offense.

 

This joint proxy statement/prospectus is dated [    l    ], 2011, and is first being mailed to shareholders on or about [    l    ], 2011.

DSW INC.
810 DSW Drive
Columbus, Ohio 43219
(614) 237-7100

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

 

 

The DSW board of directors recommends unanimously that shareholders vote “FOR” the proposal to adopt the merger agreement and approve the merger and the issuance of DSW class A common shares and DSW class B common shares, “FOR” the proposal to adopt the Amended and Restated Articles of Incorporation, and “FOR” the proposal to adjourn or postpone the special meeting, if necessary to solicit additional proxies.

 

YOUR VOTE IS IMPORTANT

 

If you receive a copy of the proxy card by mail, we urge you to date, sign, and promptly return the enclosed form of proxy in the enclosed envelope, to which no postage need be affixed if mailed in the United States. You may also authorize the individuals named on your proxy card to vote shares by calling the toll-free telephone number or by using the Internet as described in the instructions included with your card. Voting your shares over the Internet, via the toll-free telephone number or by mailing a proxy card will not limit your right to vote in person or attend the special meeting. You are invited to attend the special meeting. If you attend, you may revoke your proxy and vote in person if you wish, even if you have previously returned your

proxy. Please note, however, if your shares are held of record by a broker, bank, or other nominee and you wish to vote at the special meeting, you must obtain from the record holder a proxy issued in your name.

 

By order of the board of directors,

 

William L. Jordan

Secretary

 

Columbus, Ohio

[    l    ], 2011

RETAIL VENTURES, INC.
4150 East 5th Avenue
Columbus, Ohio 43219
(614) 238-4148

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

 

 

The Retail Ventures board of directors recommends unanimously that Retail Ventures shareholders vote “FOR” the proposal to adopt the merger agreement and approve the merger and “FOR” the proposal to adjourn or postpone the special meeting, if necessary to solicit additional proxies. Jay L. Schottenstein, chairman of the board of directors of Retail Ventures, Schottenstein Stores Corporation and other privately held entities controlled by Jay L. Schottenstein and his family own, in the aggregate, a majority of the outstanding Retail Ventures common shares and have indicated they intend to vote their Retail Ventures common shares in favor of these proposals.

 

YOUR VOTE IS IMPORTANT

 

If you receive a copy of the proxy card by mail, we urge you to date, sign and promptly return the enclosed form of proxy in the enclosed envelope, to which no postage need be affixed if mailed in the United States. You may also authorize the individuals named on your proxy card to vote shares by calling the toll-free telephone number or by using the Internet as described in the instructions included with your card. Voting your shares over the Internet, via the toll-free telephone number or by mailing a proxy card will not limit your right to vote in person or attend the special meeting. You are invited to attend the special meeting. If you attend, you may revoke your proxy and vote in person if you wish, even if you have previously returned your

proxy. Please note, however, if your shares are held of record by a broker, bank or other nominee and you wish to vote at the special meeting, you must obtain from the record holder a proxy issued in your name.

 

By order of the board of directors,

 

James A. McGrady

Chief Executive Officer, President,

Chief Financial Officer and Treasurer

 

Columbus, Ohio

[    l    ], 2011

ADDITIONAL INFORMATION

 

This joint proxy statement/prospectus incorporates important business and financial information about DSW and Retail Ventures from other documents filed with the Securities and Exchange Commission, referred to as the SEC, that are not included in or delivered with this joint proxy statement/prospectus. You can obtain any of those documents filed with the SEC through the SEC at the SEC’s website, www.sec.gov. Shareholders of DSW or Retail Ventures may obtain documents filed with the SEC or documents incorporated by reference in this joint proxy statement/prospectus, when available, free of cost, by directing a written or oral request to the applicable company at:

 

 

Shareholders of DSW may also obtain copies of any of these documents and answers to questions about the DSW special meeting and proposals from Georgeson, DSW’s proxy solicitor, by directing a written or oral request to Georgeson at:

 

Georgeson
199 Water Street, 26th Floor
New York, New York 10038
(866)-391-7007

 

If you would like to request documents, in order to ensure timely delivery, you must do so at least five business days before the date of the special meetings. This means you must request this information no later than [    l    ], 2011. DSW or Retail Ventures, as the case may be, will mail properly requested documents to requesting shareholders by first class mail, or another equally prompt means, within one business day after receipt of such request.

 

You should rely only on the information contained in, or incorporated by reference into, this joint proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated [    l    ], 2011. You should not assume that the information contained in, or incorporated by reference into, this joint proxy statement/prospectus is accurate as of any date other than that date, except to the extent that such information is contained in an additional document filed with the SEC under section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, referred to as the Exchange Act, between the date of this joint proxy statement/prospectus and the date of the DSW and Retail Ventures special meetings and is incorporated into this joint proxy statement/prospectus by reference. Neither the mailing of this joint proxy statement/prospectus to DSW or Retail Ventures shareholders nor the issuance by DSW of DSW class A common shares or DSW class B common shares in connection with the merger will create any implication to the contrary.

 

This joint proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this joint proxy statement/prospectus regarding DSW has been provided by DSW, and information contained in this joint proxy statement/prospectus regarding Retail Ventures has been provided by Retail Ventures.

 

For a listing of the documents incorporated by reference into this joint proxy statement/prospectus, see the section entitled “Where You Can Find More Information; Incorporation by Reference” beginning on page 126 of this joint proxy statement/prospectus.

Table of Contents

 

 

Following are brief answers to certain questions that you may have regarding the proposals being considered at the special meeting of DSW shareholders, which we refer to as the DSW special meeting, and the special meeting of Retail Ventures shareholders, which we refer to as the Retail Ventures special meeting. DSW and Retail Ventures urge you to read carefully this entire joint proxy statement/prospectus, including the appendices, and the other documents to which this joint proxy statement/prospectus refers or incorporates by reference, because this section does not provide all of the information that might be important to you.

 

Unless stated otherwise, all references in this joint proxy statement/prospectus to DSW are to DSW Inc., an Ohio corporation; all references to Retail Ventures are to Retail Ventures, Inc., an Ohio corporation; all references to the combined company are to DSW after the completion of the merger; all references to Merger Sub are to DSW MS LLC, an Ohio limited liability company and a wholly owned subsidiary of DSW; all references to the Schottenstein Affiliates are to Jay L. Schottenstein, chairman of the board of directors of DSW and Retail Ventures, Schottenstein Stores Corporation, a Delaware corporation, and other privately held entities controlled by Jay L. Schottenstein and members of his family; all references to DSW class A common shares are to DSW’s class A common shares, without par value; all references to DSW class B common shares are to DSW’s class B common shares, without par value; and all references to DSW common shares are collectively to the DSW class A common shares and DSW class B common shares. All references to the merger agreement are to the Agreement and Plan of Merger, dated as of February 8, 2011, as it may be amended from time to time, by and among DSW, Retail Ventures and Merger Sub, a copy of which is attached as Appendix A to this joint proxy statement/prospectus.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

If all of the Retail Ventures shareholders other than the Schottenstein Affiliates receive DSW class A common shares, then (based upon DSW common shares owned and outstanding as of January 29, 2011) upon completion of the merger, the Schottenstein Affiliates would hold approximately 33.2% of the outstanding DSW common shares and approximately 78.0% of the voting power of the outstanding DSW common shares, and all other shareholders would hold approximately 66.8% of the outstanding DSW common shares and approximately 22.0% of the voting power of the DSW common shares.

 

If all of the Retail Ventures shareholders, including the Schottenstein Affiliates, elect to receive DSW class B common shares, then (based upon DSW common shares owned and outstanding as of January 29, 2011) upon completion of the merger, the Schottenstein Affiliates would hold approximately 33.2% of the outstanding DSW common shares and approximately 47.5% of the voting power of the outstanding DSW common shares, and all other shareholders would hold approximately 66.8% of the outstanding DSW common shares and approximately 52.5% of the voting power of the DSW common shares.

 

 

 

Retail Ventures:  As of [    l    ], 2011, which is the record date for the Retail Ventures special meeting, the directors and executive officers of Retail Ventures held and are entitled to vote, in the aggregate, Retail Ventures common shares representing approximately [    l    ]% of the outstanding Retail Ventures common shares.

 

Each of Retail Ventures and DSW believes that its directors and executive officers intend to vote all of their Retail Ventures common shares and DSW class A common shares “FOR” the proposal to adopt the merger agreement and approve the merger at the respective special meetings.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail Ventures shareholders:  The record date for the Retail Ventures special meeting is [    l    ], 2011. Only holders of record of Retail Ventures common shares outstanding and entitled to vote as of the close of business on the record date are entitled to notice of, and to vote at, the Retail Ventures special meeting or any adjournment or postponement of the Retail Ventures special meeting.

 

 

The holders of a majority of the voting power of the DSW class A common shares and the DSW class B common shares outstanding and entitled to vote, voting together as a single class (for purposes of this vote, holders of DSW class A common shares have one vote for each share and holders of DSW class B common shares have eight votes for each share), must vote in favor of the adoption of the merger agreement and the approval of the merger and the issuance of DSW class A common shares and DSW class B common shares to Retail Ventures shareholders as a condition to the closing of the merger.

 

The holders of a majority of the DSW class A common shares outstanding and entitled to vote that are held by unaffiliated DSW shareholders (i.e., those holders other than Retail Ventures, the Schottenstein Affiliates, and their respective officers and directors) must vote in favor of the adoption of the merger agreement and the approval of the merger and the issuance of DSW class A common shares and DSW class B common shares to Retail Ventures shareholders as a condition to the closing of the merger.

 

The holders of a majority of the voting power of the DSW class A common shares and the DSW class B common shares outstanding and entitled to vote, voting together as a single class (for purposes of this vote, holders of DSW class A common shares have one vote for each share and holders of DSW class B common shares have eight votes for each share), and the holders of a majority of the DSW class A common shares outstanding and entitled to vote, voting as a separate class, must vote in favor of the adoption of the Amended and Restated Articles of Incorporation for its approval and adoption as a condition to the closing of the merger.

 

The holders of a majority of the DSW class A common shares and DSW class B common shares, voting together as a single class, represented and entitled to vote at the DSW special meeting, whether or not a quorum is present, must vote in favor of the proposal to approve any motion to adjourn or postpone the DSW special meeting to another time or place, if necessary to solicit additional proxies if there are insufficient votes at the time of the DSW special meeting to adopt any of the foregoing proposals, for this proposal to be approved and adopted.

 

Unless the merger agreement is terminated or there is a permitted change in the recommendation of the merger by the board of directors of either Retail Ventures or DSW, Retail Ventures has agreed to vote all of its DSW class B common shares in favor of the adoption of the merger agreement and the approval of the merger and the issuance of DSW common shares to Retail Ventures shareholders; the adoption of the Amended and Restated Articles of Incorporation; and the proposal to approve any motion to adjourn or postpone the DSW special meeting to another time or place, if necessary to solicit additional proxies if there are insufficient votes at the time of the DSW special meeting to adopt any of the foregoing proposals. Retail Ventures’ ownership of all of the outstanding DSW class B common shares represents

approximately 92.9% of the combined voting power of the two classes of DSW common shares as of January 29, 2011.

 

 

 

 

 

 

 

If you are a holder of record of DSW common shares or Retail Ventures common shares and you sign, date, and send in your proxy but do not indicate how you want to vote, your proxy will be voted “FOR” the proposal to adopt the merger agreement and approve the merger and “FOR” all other proposals to be voted on at the respective company’s special meeting. If your shares are held by a broker, bank or other nominee, please see the answer to the next question.

 

Since approval of the proposals requires the affirmative vote of a majority of the voting power of the shares outstanding and entitled to vote, if you submit a proxy or otherwise respond, but you abstain from voting with respect to a proposal, your abstention will have the same effect as a vote “AGAINST” such proposal.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summary

 

The Parties to the Merger Agreement

 

The DSW Special Meeting (page 113)

 

The Retail Ventures Special Meeting (page 119)

 

Overview of the Merger Agreement (page 3)

 

DSW Amended and Restated Articles of Incorporation (page 3)

 

Purposes and Reasons for the Merger (page 3)

	•	The proposed merger would simplify the corporate structure of DSW;
	•	The proposed merger would enhance the trading liquidity of DSW class A common shares;
	•	The proposed merger would result in slightly fewer DSW diluted shares outstanding upon closing and would allow DSW the opportunity to decrease efficiently the number of diluted shares outstanding in the future through DSW’s ability to settle the PIES in cash; and
	•	The DSW committee expects that, following the merger, DSW will succeed to certain tax attributes of Retail Ventures, which would benefit the shareholders of DSW following the merger.

	•	The proposed merger would result in greater value to the Retail Ventures shareholders than any of the other strategic alternatives available to Retail Ventures shareholders;
	•	In the merger, Retail Ventures shareholders will receive shares in DSW, a proven operating entity with a well-known brand producing reliable cash flows;
	•	The proposed merger would allow the Retail Ventures shareholders to become direct shareholders of DSW at an exchange ratio that the Retail Ventures committee and board of directors determined to be fair to the unaffiliated Retail Ventures shareholders; and
	•	The proposed merger would eliminate the complexity and public company expenses associated with Retail Ventures.

 

Ownership of DSW After the Merger

 

Directors and Executive Officers After the Merger (page 5)

 

Recommendations of the DSW Committee and Board of Directors (page 5)

 

Recommendations of the Retail Ventures Committee and Board of Directors (page 43)

 

Opinion of Goldman, Sachs & Co., Financial Advisor to the DSW Committee (page 43)

 

Opinion of Houlihan Lokey Capital, Inc., Financial Advisor to the Retail Ventures Committee (page 7)

 

Interests of Certain Persons in the Merger (page 7)

	•	One member of Retail Ventures’ board of directors who is not currently a director of DSW will become a director of DSW at the effective time of the merger. DSW and Retail Ventures anticipate that this director will be Henry L. Aaron.
	•	Jay L. Schottenstein (who is chairman of the board of DSW, Retail Ventures, and Schottenstein Stores Corporation, referred to as SSC), Harvey L. Sonnenberg (who is a member of the boards of DSW and Retail Ventures), Heywood Wilansky (who is a member of the board of DSW and who served as a member of the Retail Ventures board until July 2009 and as president and chief executive officer of Retail Ventures until January 2009), and James A. McGrady (who is the chief executive officer, president, chief financial officer and treasurer of Retail Ventures and a vice president of DSW) each beneficially own shares in both Retail Ventures and DSW. In addition, the spouse of James D. Robbins, a DSW board member and chairman of the DSW committee, beneficially owns less than 100 shares in Retail Ventures.
	•	Certain directors of Retail Ventures hold unvested options to purchase common shares of Retail Ventures that will vest in connection with the merger.

	•	Each of the two executive officers of Retail Ventures is a party to an employment agreement entitling the officer to certain severance benefits and is a participant in a retention bonus plan.
	•	The Retail Ventures committee members and the DSW committee members received compensation for their participation on such committees.
	•	Following the merger, Retail Ventures directors, officer and employees are entitled to continued indemnification coverage relating to their service to Retail Ventures in such capacity.

 

Accounting Treatment of the Merger (page 8)

 

No Solicitation of Alternative Proposals (page 8)

 

Termination of the Merger Agreement (page 8)

 

Conditions to the Merger (page 9)

	•	the registration statement that includes this joint proxy statement/prospectus has become effective;
	•	the Retail Ventures and DSW proposals to adopt the merger agreement and approve the merger have been approved by the requisite votes of the Retail Ventures and DSW shareholders, as applicable, and the aggregate number of Retail Ventures common shares with respect to which shareholders have exercised dissenters’ rights does not exceed 10% of the number of outstanding Retail Ventures common shares;
	•	the DSW proposal to adopt the DSW Amended and Restated Articles of Incorporation has been approved by the requisite vote of the DSW shareholders;
	•	the absence of any judgment or order of a state or federal court or governmental entity that would prohibit or enjoin the consummation of the merger;
	•	the DSW class A common shares to be issued in the merger have been approved for listing on the NYSE, subject to official notice of issuance;
	•	the representations and warranties of the parties to the merger agreement are true and correct, except for inaccuracies that would not have a material adverse effect;
	•	the requisite covenants of each of the parties have been performed in all material respects in accordance with the merger agreement; and
	•	the IRS Private Letter Rulings with respect to the merger continue to remain in full force and effect, or, if not, each of DSW and Retail Ventures shall have received an opinion of counsel to the effect that the merger will be treated for federal income tax purposes as a reorganization within the meaning of section 368(a) of the Code.

 

Dissenting Shareholders’ Rights (page 9)

 

Listing of DSW Class A Common Shares (page 10)

 

No Listing of DSW Class B Common Shares; Delisting of Retail Ventures Common Shares (page 10)

 

Comparative Rights of DSW and Retail Ventures Shareholders (page 10)

 

Regulatory Approval (page 10)

 

Material U.S. Federal Income Tax Consequences of the Merger (page 10)

 

Litigation Relating to the Merger (page 11)

 

The selected historical consolidated financial data of DSW for each of the years ended January 30, 2010, January 31, 2009, and February 2, 2008, and as of January 30, 2010, and January 31, 2009, have been derived from DSW’s audited consolidated financial statements and related notes contained in its Annual Report on Form 10-K for the year ended January 30, 2010, which is incorporated by reference in this joint proxy statement/prospectus. The selected historical consolidated financial data for the years ended February 3, 2007, and January 28, 2006, and as of February 2, 2008, February 3, 2007, and January 28, 2006, have been derived from DSW’s audited consolidated financial statements for such years, which have not been incorporated by reference in this joint proxy statement/prospectus. The selected historical consolidated financial data of DSW as of and for the 39 weeks ended October 30, 2010, and October 31, 2009, have been derived from DSW’s unaudited condensed consolidated financial statements and related notes contained in its Quarterly Reports on Form 10-Q for the quarterly periods ended October 30, 2010, and October 31, 2009, which are incorporated by reference in this joint proxy statement/prospectus. The information set forth below is only a summary and is not necessarily indicative of the results of future operations of DSW or the combined company, and you should read the following information together with DSW’s audited consolidated financial statements, the related notes and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in DSW’s Annual Report on Form 10-K for the year ended January 30, 2010, and DSW’s unaudited condensed consolidated financial statements, the related notes and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in DSW’s Quarterly Report on Form 10-Q for the quarterly period ended October 30, 2010, which are incorporated by reference in this joint proxy statement/prospectus. For more information, see the section entitled “Where You Can Find More Information; Incorporation by Reference” beginning on page 126.

 

 

 

 

The selected historical consolidated financial data of Retail Ventures for each of the years ended January 30, 2010, January 31, 2009, and February 2, 2008, and as of January 30, 2010, and January 31, 2009, have been derived from Retail Ventures’ audited consolidated financial statements and related notes contained in its Annual Report on Form 10-K/A for the year ended January 30, 2010, which is incorporated by reference in this joint proxy statement/prospectus. The selected historical consolidated financial data for the years ended February 3, 2007, and January 28, 2006, and as of February 2, 2008, February 3, 2007, and January 28, 2006, have been derived from Retail Ventures’ audited consolidated financial statements for such years, which have not been incorporated by reference in this joint proxy statement/prospectus. The selected historical consolidated financial data of Retail Ventures as of and for the 39 weeks ended October 30, 2010, and October 31, 2009, have been derived from Retail Ventures’ unaudited condensed consolidated financial statements and related notes contained in its Quarterly Reports on Form 10-Q and 10-Q/A for the quarterly periods ended October 30, 2010, and October 31, 2009, respectively, which are incorporated by reference in this joint proxy statement/prospectus. The selected historical consolidated financial data for Retail Ventures includes the operations of Retail Ventures’ controlled subsidiary, DSW. The information set forth below is only a summary and is not necessarily indicative of the results of future operations of Retail Ventures or the combined company, and you should read the following information together with Retail Ventures’ audited consolidated financial statements, the related notes and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Retail Ventures’ Annual Report on Form 10-K/A for the year ended January 30, 2010, and Retail Ventures’ unaudited condensed consolidated financial statements, the related notes and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Retail Ventures’ Quarterly Report on Form 10-Q for the quarterly period ended October 30, 2010, which are incorporated by reference in this joint proxy statement/prospectus. For more information, see the section entitled “Where You Can Find More Information; Incorporation by Reference” beginning on page 126.

 

 

 

 

For the unaudited pro forma financial information of DSW and Retail Ventures after giving effect to the merger, please see the section entitled “Unaudited Pro Forma Condensed Consolidated Financial Information” beginning on page 85. The unaudited pro forma condensed consolidated financial information has been derived from the historical financial statements of DSW and Retail Ventures after giving effect to the merger as a purchase of the noncontrolling interest in DSW by Retail Ventures as described in the section titled “Accounting Treatment of the Merger” of this joint proxy statement/prospectus. As the transaction represents a merger of entities under common control, a total of three years of pro forma statements of operations are required.

 

The historical per share income (loss) from continuing operations and book value of DSW and Retail Ventures shown in the table below are derived from their unaudited condensed consolidated financial statements as of and for the period ended October 30, 2010, and their audited consolidated financial statements for the years ended January 30, 2010, January 31, 2009, and February 2, 2008. The pro forma comparative per share data for DSW common shares and Retail Ventures common shares was derived from the unaudited pro forma condensed consolidated financial information included in this joint proxy statement/prospectus beginning on page 85. The pro forma book value per share information was computed as if the merger had been completed on October 30, 2010. You should read this information in conjunction with such pro forma financial information and the related notes and with the historical financial information of DSW and Retail Ventures included or incorporated elsewhere in this joint proxy statement/prospectus, including DSW’s and Retail Ventures’ financial statements and related notes. The pro forma shares outstanding as of October 30, 2010, assumes that Retail Ventures common shares convert at the 0.435 exchange ratio. The pro forma data is not necessarily indicative of actual results had the merger occurred during the periods indicated and is not necessarily indicative of future operations of the combined entity.

 

 

DSW class A common shares are listed on the NYSE under the symbol “DSW.” Retail Ventures common shares are listed on the NYSE under the symbol “RVI.” The following table shows the closing sale prices of DSW class A common shares and Retail Ventures common shares as reported on the NYSE on February 8, 2011, the last full trading day prior to the public announcement of the proposed merger, and on [    l    ], the last practicable trading day prior to mailing this joint proxy statement/prospectus. This table also shows the implied value as of those dates of the merger consideration proposed for each Retail Ventures common share, which we calculated by multiplying the closing price of DSW class A common shares on those dates by the exchange ratio of 0.435.

 

 

The following table sets forth for the periods indicated the high and low per share sale price of DSW’s class A common shares and Retail Ventures’ common shares.

 

 

Retail Ventures shareholders are encouraged to obtain current market quotations for DSW class A common shares prior to making any decision with respect to the merger. No assurance can be given concerning the market price for DSW class A common shares before or after the date on which the merger is consummated. The market price for DSW class A common shares will fluctuate between the date of this joint proxy statement/prospectus and the date on which the merger is consummated and thereafter.

 

This joint proxy statement/prospectus contains or incorporates by reference a number of forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. Forward-looking statements often, although not always, include words or phrases like “will likely result,” “expect,” “will continue,” “anticipate,” “estimate,” “intend,” “plan,” “project,” “outlook,” or similar expressions. For example, the following types of statements are, or may be, forward-looking statements:

 

 

These forward-looking statements represent DSW’s and Retail Ventures’ intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of these factors are outside the control of DSW and Retail Ventures and could cause actual results to differ materially from the results expressed or implied by these forward-looking statements. In addition to the risk factors described in the section entitled “Risk Factors” beginning on page 19 of this joint proxy statement/prospectus, these factors include:

 

 

 

You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this joint proxy statement/prospectus and should be read in conjunction with the risk factors and other disclosures contained or incorporated by reference into this joint proxy statement/prospectus. The areas of risk and uncertainty described above are not exclusive and should be considered in connection with any written or oral forward-looking statements that may be made in this joint proxy statement/prospectus or on, before or after the date of this joint proxy statement/prospectus by DSW or Retail Ventures or anyone acting for either or both of them. Except as required by applicable law or regulation, neither DSW nor Retail Ventures undertakes any obligation to release publicly or otherwise make any revisions to any forward-looking statements, to report events or circumstances after the date of this joint proxy statement/prospectus or to report the occurrence of unanticipated events.

 

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and other reports filed with the SEC by DSW and Retail Ventures. See the section entitled “Where You Can Find More Information; Incorporation By Reference” beginning on page 126 for a list of the documents incorporated by reference.

 

In addition to the other information in this joint proxy statement/prospectus or incorporated in this joint proxy statement/prospectus by reference, including the matters addressed under “Forward-Looking Statements,” you should consider carefully the following factors before deciding how to vote.

 

Retail Ventures has actual liabilities and significant contingent liabilities. After the merger, Merger Sub will be required to fulfill Retail Ventures’ obligations with respect to these actual liabilities and contingent liabilities, if they become actual liabilities, which could adversely affect DSW’s results of operations and financial condition.

 

As of October 30, 2010, Retail Ventures had approximately $10.8 million of liabilities on its balance sheet net of cash on hand and not including the PIES and other derivative instruments. If the merger is completed, Merger Sub will be obligated with respect to all of Retail Ventures’ liabilities.

 

Retail Ventures also has significant contingent liabilities. Retail Ventures has guaranteed the obligations of Filene’s Basement in connection with three leases for retail store locations. If the merger is completed, Merger Sub will be responsible for these guarantees. The remaining lease obligations under these leases could be as much as $100 million. In addition, Retail Ventures is the tenant under two leases for which it has subleased the property to a third party. Retail Ventures is principally responsible for the rent due under these leases, and if the subtenants do not pay the rent to the landlord, Merger Sub would be required to make full rent payments to the landlords. The remaining lease obligations under these leases could be as much as $37 million. If the merger is completed, all of the foregoing circumstances or events could have an adverse impact on Merger Sub’s financial condition and results of operations, which could in turn have an adverse impact on DSW’s financial condition and results of operations.

 

In addition, if the assumptions or estimates regarding the amount of any actual or contingent liabilities made by the parties 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 assumed or estimated by the parties in negotiating the merger, which could have an adverse effect on DSW’s results of operations and financial condition.

 

Retail Ventures’ ability (and DSW’s ability following completion of the merger) to use net operating loss carryforwards to reduce future tax payments may be limited if there is a change in ownership of Retail Ventures or DSW.

 

Retail Ventures has significant net operating loss carryforwards, referred to as NOLs, and other income tax attributes available to reduce taxable income in future years. Retail Ventures’ and DSW’s ability to utilize these NOLs may be limited by section 382 of the Code if Retail Ventures undergoes an ownership change before, or as a result of, the merger or DSW undergoes an ownership change after the merger. An ownership change generally occurs if 5% shareholders (and certain persons treated as 5% shareholders) of an issuer’s stock, collectively, increase their ownership percentage by more than 50 percentage points within any three-year period. If an ownership change occurs, section 382 imposes an annual limitation on the amount of post-ownership change taxable income a corporation may offset with pre-ownership change NOLs.

 

Retail Ventures has adopted a shareholder rights plan in an effort to prevent it from undergoing an ownership change before the merger. Based upon a review of the aggregate change in percentage ownership during the current testing period, Retail Ventures does not believe that it will undergo an ownership change as a result of the merger. However, such a determination is complex and there can be no assurance that the IRS could not successfully challenge Retail Ventures’ conclusion. Moreover, issuances or sales of Retail Ventures common shares before the merger and DSW common shares following the merger (including certain transactions outside of Retail Ventures’ and DSW’s control) could result in an ownership change under

section 382 of the Code. For these and other reasons, we cannot assure you that DSW will be able to use the NOLs after the merger without limitation.

 

The Schottenstein Affiliates will directly control or substantially influence the outcome of matters submitted for DSW shareholder votes following the merger, and their interests may differ from DSW’s other shareholders.

 

The Schottenstein Affiliates that own Retail Ventures common shares have indicated that they plan to elect to receive DSW class B common shares in the merger, which shares entitle the holder to eight votes per share on all matters submitted to the DSW shareholders. The Schottenstein Affiliates are privately held entities controlled by Jay L. Schottenstein, chairman of the board of directors of DSW and Retail Ventures, and members of his family. If all of the Retail Ventures shareholders other than the Schottenstein Affiliates receive DSW class A common shares, then (based upon DSW common shares owned and outstanding as of January 29, 2011) upon completion of the merger, the Schottenstein Affiliates would have approximately 78.0% of the voting power of the outstanding DSW common shares. If all of the Retail Ventures shareholders, including the Schottenstein Affiliates, elect to receive DSW class B common shares, then (based upon DSW common shares owned and outstanding as of January 29, 2011) upon completion of the merger, the Schottenstein Affiliates would have approximately 47.5% of the voting power of the outstanding DSW common shares. Therefore, the Schottenstein Affiliates will directly control or substantially influence the outcome of all matters submitted to DSW’s shareholders for approval following the merger, including the election of directors, approval of mergers or other business combinations, and acquisitions or dispositions of assets.

 

The interests of the Schottenstein Affiliates may differ from or be opposed to the interests of DSW’s other shareholders, and their level of ownership and voting power in DSW following the merger may have the effect of delaying or preventing a subsequent change in control that may be favored by other DSW shareholders.

 

Retail Ventures may not be able to repay its obligations under an unsecured loan agreement between SEI and Retail Ventures if the merger is not completed, which may have a significant adverse effect on its financial condition.

 

In connection with the merger, SEI, an affiliate of SSC and Retail Ventures, is obligated pursuant to a loan agreement to lend up to $30 million to Retail Ventures to provide for the ongoing working capital and general business needs of Retail Ventures for the term of the loan. The loan agreement contemplates that the loan will mature on the earlier of February 8, 2013, or two days after the consummation of the merger. If the merger is not completed, Retail Ventures may not be able to repay this obligation, which may have a significant adverse effect on its financial condition.

 

Pending litigation against DSW and Retail Ventures could prevent or delay the completion of the merger, result in the payment of damages in the event the merger is completed, or adversely affect DSW’s financial condition or results of operations following the merger.

 

Purported shareholders of Retail Ventures have filed a putative shareholder class action lawsuit in an Ohio state court against Retail Ventures and its directors and chief executive officer (referred to, collectively, as the Retail Ventures defendants), and DSW. The lawsuit alleges, among other things, that Retail Ventures and its directors breached their fiduciary duties by approving the merger agreement, and that Retail Ventures’ chief executive officer and DSW aided and abetted in these alleged breaches of fiduciary duty. The complaint seeks, among other things, to enjoin the shareholder vote on the merger, as well as money damages. While the Retail Ventures defendants and DSW believe the lawsuits are without merit and intend to defend vigorously against these claims, the outcome of any such litigation is inherently uncertain. If a dismissal is not granted or a settlement is not reached, the lawsuit could prevent or delay the completion of the merger and result in substantial costs to Retail Ventures and DSW. In addition, the defense or settlement of any lawsuit or claim that remains unresolved at the time the merger closes could adversely affect DSW’s financial condition or results of operations.

We do not expect a trading market for the DSW class B common shares to develop and therefore any investment in DSW class B common shares may be effectively illiquid, unless such DSW class B common shares are converted into DSW class A common shares.

 

There is currently no public market for DSW class B common shares. DSW does not intend to list the class B common shares on any securities exchange or any automated quotation system. As a result, there can be no assurance that a secondary market will develop, and we do not expect any market makers to participate in a secondary market. Trading activity, if any, in the DSW class B common shares will be very limited. Because the DSW class B common shares will not be listed on a securities exchange or automated quotation system, it may be difficult to obtain pricing information with respect to the shares. Accordingly, there may be a limited number of buyers if you decide to sell your DSW class B common shares. This may affect the price you receive upon such sale. Alternatively, a holder of DSW class B common shares could convert them into DSW class A common shares prior to selling such shares. However, this could affect the timing of any such sale, which may in turn affect the price a holder may receive upon such sale.

 

Following the merger, Retail Ventures shareholders’ relative voting power may be less than such shareholders’ economic interests.

 

A holder of Retail Ventures common shares owns shares in a company with only one class of shares. Following the merger, such holders will own shares in DSW, a company with two classes of shares where the DSW class B common shares have voting rights that are superior to the voting rights of the DSW class A common shares. As a result, the issuance of DSW common shares in exchange for Retail Ventures common shares in the merger may result in a Retail Ventures shareholder’s relative voting power being less than such shareholder’s economic interests.

 

The merger will result in an increase in the number of DSW class A common shares available for trading, which could depress the price of such shares and increase the volatility of the price of such shares, both before and after completion of the merger.

 

The merger will increase the number of DSW class A common shares available for sale in the public markets. As of January 29, 2011, approximately 16,643,698 DSW class A common shares and 27,382,667 DSW class B common shares were outstanding. Currently, all 27,382,667 outstanding DSW class B common shares are held by Retail Ventures and do not trade in the public markets, but all DSW class B common shares outstanding after the merger will be convertible, at the holder’s option, into DSW class A common shares and could trade in the public markets.

 

Because of the election that may be made by Retail Ventures shareholders, the numbers of new DSW class A common shares and new DSW class B common shares that will be issued to holders of Retail Ventures common shares and become immediately available for sale following the merger is unknown. Additional DSW class A common shares could become available for sale after the merger depending upon whether holders of options or warrants to purchase Retail Ventures common shares exercise those options or warrants and the timing of such exercises. Additionally, if DSW settles the PIES or warrants with DSW common shares, such shares would be immediately available for sale.

 

Sales of large amounts of DSW class A common shares could depress the market price of DSW class A common shares. In addition, the potential that such sales may occur could depress prices, even in advance of such sales. DSW cannot predict the effect that any such sales, or the perception that such sales could occur, will have on the price of DSW common shares, either before or after completion of the merger.

The merger is subject to closing conditions that, if not satisfied or waived in a timely manner or at all, will result in the merger not being completed or delayed. A failure to complete or delay in completing the merger may have an adverse effect on both companies’ businesses due to uncertainty or operating restrictions while the merger is pending or cause the market prices of DSW class A common shares or Retail Ventures common shares to decline.

 

The merger will not be completed unless all of the conditions to the merger have been satisfied or, if permissible, waived. Neither DSW nor Retail Ventures can predict what the effect on the market price of their respective shares would be if the merger is not completed, but depending on market conditions at the time, it could result in a decline in market price. A substantial delay in completing the merger due to litigation that has or may be instituted regarding the merger or the need to satisfy the conditions to closing the merger, or the imposition of any unfavorable terms, conditions or restrictions in obtaining a waiver to such conditions or otherwise, could have a material adverse effect on the anticipated benefits of, or increase the costs associated with or delay the cost savings anticipated from, the merger, thereby impacting the business, financial condition or results of operations of DSW after the merger. In addition, the parties are subject to restrictions on the operation of their business while the merger is pending, which could impair their ability to operate their businesses and prevent them from pursuing attractive business opportunities that may arise prior to the completion of the merger. Any of these situations could also result in a decline in the market price of DSW class A common shares or Retail Ventures common shares. Also, the uncertainty regarding whether the merger will be completed (including uncertainty regarding whether the conditions to closing will be met) could impact DSW’s and Retail Ventures’ relationships with their employees, suppliers and partners. These restrictions and uncertainties could have an adverse impact on DSW’s and Retail Ventures’ business, operations and financial condition and could result in a decline in the market price of DSW class A common shares or Retail Ventures common shares or an increase in the volatility of these market prices.

 

Officers and directors of Retail Ventures may have conflicts of interest because they have severance and other agreements providing for payments.

 

When considering the recommendation of the Retail Ventures board of directors, you should be aware that some executive officers of Retail Ventures and some members of the Retail Ventures board of directors have interests in the merger that are different from yours. These interests exist because of rights certain directors and executive officers have under incentive, benefit and compensation agreements. These interests may create conflicts of interest with respect to the merger. The Retail Ventures board was aware of these conflicts of interest when they approved the merger. See the section entitled “The Merger — Interests of Certain Persons in the Merger” beginning on page 55.

 

The merger agreement contains provisions that limit Retail Ventures’ and DSW’s ability to pursue alternatives to the merger, which could discourage a potential competing acquirer of either DSW or Retail Ventures from making an alternative transaction proposal and, in certain circumstances, could require DSW or Retail Ventures to pay to the other up to $10 million of transaction expenses.

 

Under the merger agreement, Retail Ventures and DSW are restricted, subject to limited exceptions, from entering into alternative transactions. Unless and until the merger agreement is terminated, subject to specified exceptions (which are discussed in more detail in the section entitled “The Merger Agreement” beginning on page 69), both Retail Ventures and DSW are restricted from initiating, soliciting, encouraging, or knowingly facilitating, any inquiry, proposal or offer for a competing acquisition proposal with any person. Additionally, under the merger agreement, in the event of a potential change by either the Retail Ventures of the DSW board of directors of its recommendation with respect to the merger-related proposals, the company changing its recommendation must negotiate in good faith an adjustment to the terms and conditions of the merger agreement prior to changing its recommendation. Retail Ventures and DSW may terminate the merger agreement and enter into an agreement with respect to a superior proposal only if specified conditions have been satisfied, including compliance with the non-solicitation provisions of the merger agreement. These provisions could discourage a third party that may have an interest in acquiring all or a significant part of Retail Ventures or DSW from considering or proposing that acquisition, even if such third party were prepared

to pay consideration with a higher per share cash or market value than that market value proposed to be received or realized in the merger, or might result in a potential competing acquirer proposing to pay a lower price than it would otherwise have proposed to pay because of the added expense of the transaction expenses that may become payable in certain circumstances.

 

Because the exchange ratio is fixed and will not be adjusted for any change in either the price of Retail Ventures common shares or the price of DSW class A common shares, Retail Ventures shareholders cannot be sure of the value of the merger consideration they will receive.

 

If the merger is completed, each Retail Ventures common share outstanding as of immediately prior to the effective time will be converted into the right to receive 0.435 DSW class A common shares or DSW class B common shares. This exchange ratio was fixed in the merger agreement and will not be adjusted for changes in the market price of either DSW class A common shares or Retail Ventures common shares. Changes in the market price of DSW class A common shares prior to the effective time of the merger will affect the market value of the merger consideration that Retail Ventures shareholders will receive in the merger. In addition, the relationship between the market price of Retail Ventures common shares and the market price of DSW class A common shares could change prior to consummation of the merger in a manner that makes the exchange ratio, from a current market price standpoint, less favorable to Retail Ventures shareholders, or less favorable to DSW, than it was based on the market prices of the Retail Ventures common shares and of the DSW class A common shares at the time the parties executed the merger agreement.

 

 

DSW and Retail Ventures are, and will continue to be, subject to the risks described in Part  I, Item 1A, “Risk Factors” in DSW’s Annual Report on Form 10-K for the fiscal year ended January 30, 2010, which was filed by DSW on March 24, 2010, with the SEC, as supplemented by the disclosure in DSW’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 30, 2010, which was filed by DSW on December 1, 2010, with the SEC, and Part I, Item 1A, “Risk Factors” in Retail Ventures’ Annual Report on Form 10-K for the fiscal year ended January 30, 2010, which was filed by Retail Ventures on April 14, 2010, as amended on October 12, 2010, as supplemented by the disclosure in Retail Ventures’ Quarterly Report on Form 10-Q for the fiscal quarter ended October 30, 2010, which was filed by Retail Ventures on December 8, 2010, with the SEC, and in each case incorporated by reference in this joint proxy statement/prospectus. Please see the section entitled “Where You Can Find More Information; Incorporation by Reference” beginning on page 126 for how you can obtain information incorporated by reference in this joint proxy statement/prospectus.

 

On February 8, 2011, DSW, Merger Sub and Retail Ventures entered into the merger agreement. The merger agreement provides for the merger of Retail Ventures with and into Merger Sub with Merger Sub as the surviving entity and a wholly owned subsidiary of DSW.

 

If the merger is completed, each Retail Ventures common share outstanding as of immediately prior to the effective time will be converted into the right to receive 0.435 shares of DSW class A common shares, unless the shareholder properly and timely elects to receive an equal amount of DSW class B common shares instead of DSW class A common shares, with cash to be paid instead of fractional shares.

 

In connection with the proposed merger and subject to shareholder approval and completion of the merger, the DSW board of directors adopted and approved the Amended and Restated Articles of Incorporation, which will permit all holders of DSW class B common shares to convert such shares into DSW class A common shares and delete all references to Retail Ventures as a related party because as a result of the Merger, Retail Ventures will cease to exist.

 

Retail Ventures is a holding company with no operations other than the holding of equity interests in DSW. Until January 23, 2008, Retail Ventures had three operating subsidiaries: Value City Department Stores LLC, Filene’s Basement, Inc., and DSW.

 

Retail Ventures disposed of an 81% ownership interest in Value City on January 23, 2008. Value City filed for bankruptcy protection on October 26, 2009, and no longer operates any stores. In October 2008, a private equity fund, in which certain affiliates of Schottenstein Stores Corporation have interests, approached Retail Ventures about a possible going-private transaction. The Retail Ventures board of directors formed a special committee of its directors, comprising James Weisman, Elizabeth Eveillard and Harvey Sonnenberg, each of whom is an independent director of Retail Ventures and was determined by the Retail Ventures board of directors to be independent of Schottenstein Stores Corporation and its affiliates, collectively referred to as the Schottenstein Affiliates, to assess and respond to the fund’s overture and, in that context, to evaluate other strategic alternatives available to Retail Ventures. The committee, which we refer to as the Retail Ventures special committee, engaged Houlihan Lokey to act as its independent financial advisor and engaged Baker & Hostetler LLP, referred to as Baker Hostetler, to act as its independent counsel. In December 2008, the Retail Ventures special committee, following consultation with Houlihan Lokey and Baker Hostetler, and the Retail Ventures board of directors, determined not to act on the fund’s overture, in part because of the deterioration of conditions in the economy and capital markets generally and the continuing deterioration in the operations and financial condition of Retail Ventures’ Filene’s Basement subsidiary.

 

During January 2009, the Retail Ventures special committee and Retail Ventures’ board of directors evaluated Filene’s Basement’s capital needs and potential sources of capital available to Retail Ventures, including possible sales of Retail Ventures common shares or DSW common shares held by Retail Ventures. The Retail Ventures special committee and Retail Ventures board also evaluated, during the first quarter of 2009, a possible disposition of Filene’s Basement, and other alternatives for both Filene’s Basement and Retail Ventures, including the possibility of a business combination of Retail Ventures and DSW. In April 2009, the Retail Ventures special committee and Retail Ventures board of directors determined to sell Filene’s Basement and continued to evaluate the near-term and longer term funding and other alternatives available to Retail Ventures for purposes of maximizing value to Retail Ventures’ shareholders, taking into account considerations including, among other things, the absence of business operations or other sources of revenue at the Retail Ventures level, Retail Ventures’ significant continuing expenses associated with being a public company and its substantial annual interest costs on the outstanding PIES, the relative trading histories of Retail Ventures common shares and DSW class A common shares, opportunities to reduce costs and improve efficiency, and Retail Ventures’ tax attributes. Retail Ventures disposed of its entire interest in Filene’s Basement on April 21,

2009, following which Retail Venture’s sole asset with operations and revenues was its interest in DSW. Filene’s Basement filed for bankruptcy protection on May 4, 2009.

 

Retail Ventures focused primarily during May and June 2009 on matters relating to maximizing Retail Ventures’ recovery of amounts payable to it by Filene’s Basement, and to responding to intercompany claims asserted by Filene’s Basement and its creditors’ committee against Retail Ventures and Retail Ventures’ affiliates.

 

In late June 2009, the Retail Ventures special committee determined that a merger of Retail Ventures into DSW might be a viable and attractive means of maximizing Retail Ventures shareholder value. Accordingly, Retail Ventures directed its counsel, Skadden, Arps, Slate, Meagher and Flom LLP, referred to as Skadden Arps, to prepare, and Baker Hostetler, the Retail Ventures special committee’s independent counsel, reviewed and commented on, an outline of the principal features of such a merger. In early July 2009, Retail Ventures directed Skadden Arps to begin preparing a private letter ruling request to the Internal Revenue Service, referred to as the IRS, under various sections of the Internal Revenue Code, referred to as the Ruling Request, by which Retail Ventures and DSW could request certain rulings regarding the U.S. federal income tax consequences of a downstream merger of Retail Ventures with DSW, including that the merger be treated as a tax-free reorganization.

 

In light of the continuing possibility of a downstream merger, or alternative transactions, between Retail Ventures and DSW, the Retail Ventures board of directors formed a strategic review committee in July 2009, comprising Mr. Weisman, Ms. Eveillard and Lawrence Ring, each of whom is an independent director of Retail Ventures (and is not also a director of DSW) and was determined by the Retail Ventures board of directors to be independent of the Schottenstein Affiliates. The strategic review committee, referred to as the Retail Ventures committee, as well as the DSW committee described below, was established in order to ensure an independent arm’s-length process and negotiation between Retail Ventures and DSW. The Retail Ventures committee was given broad authority to review, evaluate, and negotiate independently the terms of any merger or similar transaction with DSW or any of Retail Ventures’ other strategic alternatives that the Retail Ventures committee considered advisable, and to engage independent financial and legal advisors to assist it in those efforts. In light of the Retail Ventures committee’s effective assumption of the Retail Ventures special committee’s functions, the Retail Ventures committee engaged Houlihan Lokey as its independent financial advisor and Baker Hostetler as its independent counsel.

 

The Retail Ventures committee held a meeting on July 22, 2009 to review Retail Ventures’ financial condition and near-term and longer term financing and other alternatives. Representatives of the committee’s advisors, Baker Hostetler and Houlihan Lokey, as well as James A. McGrady (the chief executive officer of Retail Ventures), Julia Davis (Retail Ventures’ general counsel) and representatives of Skadden Arps, participated in the meeting at the committee’s invitation. At that meeting, representatives of Houlihan Lokey reviewed with the committee certain preliminary financial analyses regarding Retail Ventures and DSW and certain information provided by Retail Ventures’ management regarding, among other things, Retail Ventures’ and DSW’s projected cash flows through the end of 2010, Retail Ventures’ potential liability for obligations of Filene’s Basement, potential liabilities of Retail Ventures relating to the Value City disposition, and a comparison of the implied market value of the DSW common shares owned by Retail Ventures on a per share basis, given recent trading prices of Retail Ventures common shares, to recent trading prices of DSW class A common shares. The Retail Ventures committee then discussed with its advisors the advantages and disadvantages of various financing alternatives available to Retail Ventures, including a privately-negotiated sale to a third party of DSW common shares owned by Retail Ventures, a sale of DSW common shares owned by Retail Ventures in a registered offering, a private placement of Retail Ventures equity securities, a sale of DSW common shares owned by Retail Ventures to DSW or one or more other Retail Ventures affiliates (such as the Schottenstein Affiliates) in a privately-negotiated transaction, a rights offering of Retail Ventures common shares to Retail Ventures shareholders, a rights offering of DSW common shares owned by Retail Ventures to Retail Ventures shareholders, and various means of raising capital by leveraging the DSW shares owned by Retail Ventures. At the conclusion of these discussions, the Retail Ventures committee determined to pursue multiple financing alternatives simultaneously in order to determine the most efficient and attractive

means of raising necessary capital, and directed the Houlihan Lokey representatives to assist the Retail Ventures committee in evaluating various alternatives.

 

At an August 12, 2009 meeting of the Retail Ventures committee in which, at the committee’s invitation, Mr. McGrady, Ms. Davis and representatives of Baker Hostetler participated, and Skadden Arps attended as counsel to Retail Ventures, Mr. Weisman led a discussion regarding Retail Ventures’ capital-raising efforts, including an update regarding the amount and timing of Retail Ventures’ anticipated near-term capital requirements and further discussions regarding various potential transaction structures involving the sale of DSW common shares owned by Retail Ventures to one or more third parties, DSW, one or more Retail Ventures affiliates, or a combination thereof, as described above. At the conclusion of this discussion, the Retail Ventures committee determined to approach both DSW and the Schottenstein Affiliates to determine whether, and at what price, either may be willing to purchase DSW common shares from Retail Ventures as part of the Retail Ventures committee’s plan to address Retail Ventures’ near-term capital needs.

 

The Retail Ventures committee met again on September 15, 2009, with representatives of Houlihan Lokey and Baker Hostetler participating at the committee’s invitation. Mr. Weisman reviewed the latest estimates of Retail Ventures’ cash requirements, reported that, when approached by Mr. Weisman following the Retail Ventures committee’s August 12, 2009 meeting, a representative of the Schottenstein Affiliates had expressed a willingness on the part of the Schottenstein Affiliates to exercise Retail Ventures warrants that were “in the money,” reviewed the likelihood that Retail Ventures would receive distributions from the Filene’s Basement bankruptcy estate, and, in light of Retail Venture’s near and longer term cash needs, reiterated the importance of exploring DSW’s willingness to purchase DSW common shares from Retail Ventures regardless of whether the Schottenstein Affiliates exercised any of their Retail Ventures warrants.

 

During an October 21, 2009 meeting, the Retail Ventures committee again considered the effects of selling DSW common shares alternatively to DSW, the Schottenstein Affiliates or other buyers, including in relation to the possibility of a subsequent merger of Retail Ventures into DSW and the related ownership changes that could affect Retail Ventures’ tax attributes. The Retail Ventures committee then discussed further the possibility of a merger of Retail Ventures into DSW and Retail Ventures’ other strategic alternatives.

 

On November 2, 2009, Skadden Arps, as counsel to Retail Ventures, forwarded a draft of the Ruling Request to the Retail Ventures committee and Baker Hostetler for their review and comment. The Retail Ventures committee met on November 5, 2009 and, with the assistance of Houlihan Lokey and Baker Hostetler, discussed the price at which DSW common shares might be sold to address Retail Ventures’ near-term capital needs, and the advisability of any such sale, including with respect to maintaining Retail Ventures’ flexibility to enter into subsequent strategic transactions with a view to maximizing value to Retail Ventures’ shareholders.

 

On November 6, 2009, Mr. McGrady, in his capacity as the chief executive officer of Retail Ventures and with the approval of the Retail Ventures committee, and Ms. Davis met with DSW management to outline the background for, potential structure of, and anticipated benefits to both parties of a merger of Retail Ventures into DSW. Mr. McGrady reviewed the process for and prospective timing of entering into a transaction, but no financial terms were discussed. Mr. McGrady also delivered to the DSW attendees a draft of the Ruling Request.

 

On November 18, 2009, Mr. McGrady, with the approval of the Retail Ventures committee, outlined the possible merger transaction to the DSW audit committee, in light of that committee’s responsibility to review and approve all related-party transactions. The transaction outlined would take the form of an all-stock merger in which Retail Ventures shareholders would receive DSW class A common shares or DSW class B common shares in exchange for their Retail Ventures common shares. Mr. McGrady discussed the key goals for such a transaction, including allowing Retail Ventures shareholders to participate directly in the ownership of DSW commensurate with their portion of Retail Ventures’ ownership interest in DSW prior to the merger, reducing the expenses associated with maintaining two separate public companies, enhancing the trading liquidity of DSW class A common shares, and preserving Retail Ventures’ income tax attributes. Mr. McGrady requested that the DSW audit committee join the Retail Ventures committee in seeking guidance from the IRS regarding the proposed transaction in the form of the Ruling Request. Mr. McGrady then left the meeting. Upon

consideration of Mr. McGrady’s presentation and after further discussion, the DSW audit committee agreed that seeking a private letter ruling may be warranted.

 

The Retail Ventures committee met again on November 20, 2009, with Houlihan Lokey and Baker Hostetler in attendance at the committee’s invitation, to continue the committee’s evaluation of Retail Ventures’ near-term and longer term alternatives. The Retail Ventures committee discussed the recent trading prices of Retail Ventures’ common shares and DSW common shares, Retail Ventures’ near-term cash needs, Retail Ventures’ tax attributes, and the potential benefits of having DSW assume Retail Ventures’ obligations under the PIES. The Retail Ventures committee and its advisors also discussed Retail Ventures’ lack of any source of liquidity other than its DSW class B common shares and the benefits of eliminating Retail Ventures’ public company expenses in light of its lack of any significant assets other than its DSW class B common shares and lack of continuing income.

 

The Retail Ventures committee and its advisors then discussed the advantages and disadvantages of various alternatives, including maintaining the status quo, a merger of Retail Ventures into DSW, Retail Ventures’ distribution to its shareholders of the DSW common shares owned by Retail Ventures, a sale of those DSW common shares to a third party, a sale of Retail Ventures to a third party, and Retail Ventures’ acquisition of another operating company. During this discussion, Mr. Weisman reported that, during the course of conversations with representatives of the Schottenstein Affiliates, those representatives had informed him that the Schottenstein Affiliates desired to maintain their investment in Retail Ventures and its assets, including DSW common shares owned by Retail Ventures. Mr. Weisman also reported that DSW had expressed interest in purchasing DSW common shares owned by Retail Ventures in connection with Retail Ventures addressing its near-term cash needs, and that DSW had also expressed interest in pursuing discussions concerning a merger of Retail Ventures into DSW. Following a lengthy discussion, the Retail Ventures committee concluded that a merger of Retail Ventures into DSW presented the most favorable and viable opportunity to maximize value for the unaffiliated Retail Ventures’ shareholders, and also approved the submission of the Ruling Request to the IRS.

 

In November 2009, DSW engaged Thompson Hine LLP, referred to as Thompson Hine, as tax counsel to advise DSW regarding the drafting and submission of the Ruling Request, and Thompson Hine was provided a draft of the Ruling Request. The DSW audit committee also began seeking legal advice from Katten Muchin Rosenman LLP, referred to as Katten Muchin, at this juncture, as independent counsel with respect to the potential Retail Ventures transaction. The DSW audit committee and the independent members of the board of directors of DSW previously had consulted with Katten Muchin as independent counsel on matters unrelated to the proposed transaction.

 

In early December 2009, Retail Ventures management updated the Retail Ventures committee on Retail Ventures’ near-term cash needs. In addition, Mr. Weisman and the Retail Ventures committee’s advisors discussed potential pricing for, and other implications and considerations surrounding, any sale of DSW common shares by Retail Ventures. During this time, Baker Hostetler and William Jordan, DSW’s general counsel, exchanged views on terms, other than price, of an agreement for Retail Ventures’ sale to DSW of DSW common shares owned by Retail Ventures.

 

On December 14, 2009, at a meeting of the DSW audit committee, representatives of Thompson Hine presented the objectives of submitting the Ruling Request, including confirmation that the transaction would be treated as a tax-free reorganization and verification of the parties’ understanding of certain tax attributes following a change of ownership.

 

The Thompson Hine representatives also discussed whether the potential merger transaction would result in DSW succeeding to Retail Ventures’ tax attributes. Upon consideration of Thompson Hine’s presentation and after further discussion, the DSW audit committee approved DSW’s joint submission with Retail Ventures of the Ruling Request. The DSW audit committee identified several investment banking firms that it would like to consider engaging to advise the DSW audit committee regarding a potential merger transaction. The DSW audit committee instructed DSW management to interview these firms on a preliminary basis and report the results of such interviews for further consideration by the DSW audit committee.

Also at the December 14, 2009 meeting of the DSW audit committee, Michael MacDonald, chief executive officer of DSW, reported that Retail Ventures had approached him regarding a possible sale by Retail Ventures of DSW common shares owned by Retail Ventures, and proposed that DSW purchase $8 million to $10 million of DSW class B common shares held by Retail Ventures. Mr. MacDonald observed that the purchase would be attractive to both Retail Ventures and DSW because it would reduce the number of outstanding DSW common shares and thus increase earnings per share. It would also potentially offer a better return on investment than DSW’s investment portfolio return at the time. Mr. MacDonald stated the purchase would provide liquidity for Retail Ventures and would impose lower regulatory and transaction costs than if Retail Ventures sold a similar amount of shares on the open market, and that DSW would expect to purchase the shares at a discount as Retail Ventures would enjoy the benefit of reduced transaction costs and reduced downward pressure on the share price that Retail Ventures might receive if it attempted to sell a similar amount of DSW common shares on the open market. Upon consideration of Mr. MacDonald’s presentation and after further discussion, the DSW audit committee approved proceeding with a transaction to purchase up to $10 million of DSW class B common shares from Retail Ventures, subject to Mr. Robbins’ approval of the final terms of the transaction in his capacity as chairman of the DSW audit committee.

 

On December 29, 2009, Mr. Weisman notified the other members of the Retail Ventures committee that the Schottenstein Affiliates had declined to pursue a purchase of DSW common shares from Retail Ventures, and that DSW had offered to purchase DSW class B common shares from Retail Ventures for $22.50 per share. Mr. Weisman requested an early January 2010 meeting of the committee, and subsequently caused to be distributed to the other members of the committee and to DSW management a pro forma analysis relating to ownership changes with respect to Retail Ventures and DSW based on varied assumptions regarding the number of DSW common shares to be sold by Retail Ventures and the identity of the purchaser.

 

Early in 2010, Retail Ventures and DSW jointly submitted the Ruling Request to the IRS. Retail Ventures and DSW ultimately received an IRS private letter ruling in response to the Ruling Request, referred to as the IRS Private Letter Ruling, to the effect that, subject to specified representations and conditions, a merger of Retail Ventures into DSW would qualify as a tax-free reorganization.

 

The Retail Ventures committee met on January 4, 2010, with Houlihan Lokey and Baker Hostetler in attendance at the committee’s invitation, to consider DSW’s proposal to purchase DSW common shares from Retail Ventures for $22.50 per share. Following a lengthy discussion, the committee directed Mr. Weisman to endeavor to secure an increase in the share purchase price.

 

The Retail Ventures committee met again with its advisors in attendance on January 8, 2010. Mr. Weisman reported that DSW had agreed to pay $25.00 per share for up to 320,000 DSW class B common shares owned by Retail Ventures. The meeting participants discussed Retail Ventures liquidity needs and other factors including the adequacy of the proposed price in light of DSW’s current share trading price and average trading prices over various periods, Retail Ventures’ current capital needs, the relative certainty and timing of closing of the proposed purchase and the absence of other viable purchasers at the same or for a more favorable price for the volume of shares to be sold. The Retail Ventures committee approved unanimously the sale to DSW of 320,000 DSW class B common shares owned by Retail Ventures, at a price of $25.00 per share, for an aggregate of $8 million.

 

At a meeting of the DSW audit committee on January 13, 2010, Douglas J. Probst, chief financial officer of DSW, reported to the DSW audit committee on DSW management’s information regarding each of seven investment banking firms interviewed as potential advisors to the DSW audit committee with respect to the possible merger transaction. Upon consideration of management’s report and after further discussion, the DSW audit committee determined that it would perform its own interview of Goldman, Sachs & Co, referred to as Goldman Sachs.

 

At the same meeting, Mr. Jordan updated the DSW audit committee regarding negotiations to purchase DSW class B common shares held by Retail Ventures. Upon consideration of Mr. Jordan’s presentation and after further discussion, the DSW audit committee authorized DSW to purchase up to $8 million of DSW class B common shares from Retail Ventures at a purchase price of $25 per share. On January 15, 2010, in accordance with the Retail Ventures committee’s and DSW audit committee’s respective authorizations, Retail

Ventures sold to DSW 320,000 DSW class B common shares at a price of $25 per share, for an aggregate of $8 million. The per share price reflected a discount of 3.9% to the $26.02 prior day closing price of DSW class A common shares.

 

On January 28, 2010, the DSW audit committee recommended to the DSW board of directors that the DSW board authorize the members of the DSW audit committee, namely James D. Robbins (chairman), Joanna Lau, Philip Miller and Allan Tanenbaum, each of whom is an independent member of the DSW board of directors and is not a member of the Retail Ventures board of directors, to act as a special committee with regard to the consideration of a potential transaction with Retail Ventures. Also at this meeting, the DSW audit committee interviewed Goldman Sachs as a potential financial advisor with respect to the proposed merger transaction with Retail Ventures.

 

At its quarterly meeting held on January 28, 2010, the Retail Ventures board of directors discussed, among other agenda items, a possible business combination transaction between Retail Ventures and DSW. The discussion topics pertaining to a combination included the status of the Ruling Request and of other work being performed by the Retail Ventures committee’s advisors.

 

On February 1, 2010, the DSW board of directors approved the DSW audit committee’s recommendation that the members of the audit committee be authorized to act as a special committee with respect to the proposed transaction with Retail Ventures, referred to in this capacity as the DSW committee. The DSW committee was vested with the power to:

 

 

The DSW committee was also vested with the power to retain independent counsel and financial advisors.

 

In February 2010, DSW engaged Porter Wright Morris & Arthur, LLP as counsel to advise it with respect to the proposed Retail Ventures transaction. On February 19, 2010, the DSW committee engaged Goldman Sachs as its financial advisor regarding the transaction.

 

In early March 2010, Mr. Weisman, on behalf of the Retail Ventures committee, asked Houlihan Lokey to prepare to assist the Retail Ventures committee in a closer evaluation of a potential business combination of Retail Ventures and DSW. Additionally, DSW submitted a preliminary due diligence request to Retail Ventures, which Retail Ventures management forwarded to the Retail Ventures committee and Houlihan Lokey, and Retail Ventures, after consulting committee advisors, submitted a preliminary due diligence request to DSW.

 

On March 3, 2010, at a meeting of the DSW committee, Mr. Jordan and a representative of Katten Muchin provided an update of the status of the proposed merger transaction. The other DSW independent directors (Carolee Friedlander and Elaine Eisenman) also attended this meeting.

 

During the remainder of March and in April 2010, Mr. Weisman had periodic discussions with the other members of the Retail Ventures committee, Retail Ventures management and Houlihan Lokey regarding financial and other factual developments and circumstances and their potential implications for a possible business combination involving Retail Ventures and DSW.

 

On April 9, 2010, the DSW committee, along with the other DSW independent directors, met to review the status of the proposed merger transaction. At the meeting, the DSW committee determined to engage Katten Muchin to serve as the DSW committee’s independent counsel. The DSW committee discussed the

nature and scope of Retail Ventures’ liabilities, including contingent liabilities and commitments, and the due diligence that should be undertaken to evaluate these financial attributes, and Retail Ventures’ tax attributes. The DSW committee also discussed the steps that could be taken, including in the terms of a transaction, to potentially mitigate the contingencies and commitments assumed in any transaction. The DSW committee discussed that, subsequent to the dispositions of Value City and Filene’s Basement, Retail Ventures’ audited consolidated financial statements had consisted primarily of DSW’s financial statements. In evaluating an acquisition of Retail Ventures, the DSW committee believed it was important to understand Retail Ventures’ net assets on a stand-alone basis, excluding its investment in DSW. As part of this discussion, the DSW committee concluded that a nationally-recognized independent registered public accounting firm should be engaged to perform a special-purpose audit of Retail Ventures’ statement of net assets, exclusive of Retail Ventures’ investment in DSW, and if necessary, provide a subsequent bring down report in anticipation of closing the proposed merger transaction. The DSW committee believed that this audit and the related procedures would help the DSW committee in understanding and assessing the financial condition, contingencies and commitments of Retail Ventures on a stand-alone basis, would help DSW in confirming the satisfaction of the conditions to closing any such transaction, and would serve as a benchmark for future consolidated financial reporting by DSW if a transaction were completed.

 

At the same DSW committee meeting, representatives of Goldman Sachs, together with the DSW committee, discussed several topics related to the proposed merger transaction, including key criteria for assessing alternative transaction structures; the potential financial impact on DSW and Retail Ventures on a combined basis of a proposed merger transaction; the preliminary work that had been done by on behalf of the DSW committee with respect to assessing Retail Ventures’ liabilities, contingencies and commitments; potential structures for mitigation of Retail Ventures’ contingent liabilities; considerations regarding Retail Ventures’ tax attributes; governance issues with respect to DSW’s two classes of common shares; considerations influencing the exchange ratio at which shares of Retail Ventures would be exchanged for shares of DSW; and a review of a draft term sheet to be submitted to the Retail Ventures committee.

 

The Retail Ventures committee met on April 19, 2010, with representatives of Houlihan Lokey, Mr. McGrady and Ms. Davis participating at the committee’s invitation, in anticipation of receipt of a merger proposal from DSW later in April or in May 2010. The Houlihan Lokey representatives reviewed and discussed with the Retail Ventures committee their preliminary financial analyses with respect to Retail Ventures and DSW and a potential business combination of Retail Ventures with DSW. The information discussed by the Retail Ventures committee and Houlihan Lokey included certain information and considerations relevant to any such combination and other strategic alternatives available to Retail Ventures based on information provided by Retail Ventures’ management regarding, among other things, Retail Ventures’ ownership and voting interests in DSW; Retail Ventures’ recent corporate history and financial results, including its background and contingent liabilities; Retail Ventures’ cost structure (including public-company expenses estimated to be $6.8 million for 2010 and PIES interest costs of $8.9 million per year); a summary of the assets and liabilities of each of Retail Ventures and DSW; certain projected financial information for Retail Ventures and DSW; DSW’s historical earnings and EBITDA; updated DSW operating information and trends; the potential structure of a business combination of Retail Ventures and DSW; and further information and considerations based on publicly available information regarding, among other things, the trading prices of Retail Ventures’ and DSW’s common shares, and the ratio between those trading prices, DSW’s historical share price performance, on a standalone basis and in relation to the share price performance of selected comparable companies, and financial analyst commentary regarding DSW.

 

On April 30, 2010, the DSW committee met with Goldman Sachs and Katten Muchin to review and approve a term sheet for the proposed transaction to be submitted to Retail Ventures. The proposed terms included an exchange ratio in which each common share of Retail Ventures would be converted into 0.35 DSW class A common shares. The DSW committee members discussed the manner in which Retail Ventures’ liabilities, contingencies and commitments could be defined in a merger transaction and how the exchange ratio might be adjusted to address any fluctuations. The committee members also discussed a proposal to create a liquidating trust that could be utilized to mitigate DSW’s exposure to Retail Ventures’ contingent liabilities. At the conclusion of the meeting, the committee members directed Goldman Sachs to present a

proposal with an exchange ratio of 0.35 DSW class A common shares per Retail Ventures common share and a liquidating trust to Houlihan Lokey for communication to the Retail Ventures committee.

 

On May 6, 2010, Goldman Sachs presented the DSW committee’s proposal to Houlihan Lokey. The proposal contemplated a merger transaction in which DSW would acquire all of Retail Ventures’ outstanding shares in exchange for newly-issued DSW class A common shares and units in a liquidating trust, with the trust serving initially to fund indemnification against certain contingent liabilities of Retail Ventures above a specified base amount. The suggested terms included an exchange ratio of 0.27 DSW class A common shares per Retail Ventures common share, plus an additional 0.08 DSW class A common shares per Retail Ventures common share to be placed in a liquidating trust, with the number of shares to be released from the trust to be determined based on the realized value of Retail Ventures’ liabilities and contingencies over the next five years. The terms also contemplated that the then-current board of directors and management of DSW would remain in place following the merger, that the transaction would be subject to approval by the holders of a majority of Retail Ventures’ common shares and the holders of a majority of the DSW common shares held by unaffiliated DSW shareholders, that DSW would be able to succeed to certain of Retail Ventures’ tax attributes following the merger, that Retail Ventures would adopt a shareholder rights plan with a 4.9% threshold to mitigate the risk of interim ownership changes impacting its tax attributes, and that the Schottenstein Affiliates would enter into a three-year lock-up agreement for that purpose.

 

Promptly following the presentation by Goldman Sachs of the DSW committee’s proposal to Houlihan Lokey, Mr. Weisman convened a May 11, 2010 meeting of the Retail Ventures committee, in which Houlihan Lokey, Mr. McGrady and Ms. Davis also participated at the request of the committee. The meeting participants discussed each of the terms set forth in the proposal, and at the Retail Ventures committee’s request, Mr. McGrady undertook to solicit Mr. Schottenstein’s assessment of the proposal, including in light of the suggested terms relating directly to the Schottenstein Affiliates.

 

On May 19, 2010, at a meeting of the DSW committee, representatives of Goldman Sachs and Katten Muchin provided an update of the status of the proposed merger transaction and informed the committee that a due diligence review of Retail Ventures had commenced.

 

The Retail Ventures committee met again on May 25, 2010, and, after further discussing the terms of the DSW committee’s proposal and consistent with its discussions at its May 11, 2010 meeting, determined that those terms were unacceptable. Mr. McGrady also reported at the meeting that Mr. Schottenstein’s response to the Retail Ventures committee’s inquiry was that he did not believe the DSW committee’s proposal was acceptable. The Retail Ventures committee also determined to, and subsequently did, inform the DSW committee on June 1, 2010 that the proposed terms were unacceptable and that the Retail Ventures committee would present a responsive outline of terms. At the Retail Ventures committee’s request, a draft term sheet was prepared by its advisors for the committee’s review and discussion.

 

The Retail Ventures committee met on June 10, 2010 to discuss the draft term sheet, with representatives of Houlihan Lokey and Baker Hostetler, as well as representatives of Retail Ventures management and Retail Ventures’ counsel, Skadden Arps, participating at the committee’s invitation. The meeting participants discussed comprehensively the outlined terms, which included an exchange ratio of 0.50 DSW shares for each Retail Ventures common share, elimination of the liquidating trust proposed by DSW, retention of DSW’s dual-class capital structure, designation by Retail Ventures of four DSW board members upon consummation of the transaction, adoption by Retail Ventures of a shareholder rights plan as described above, and an outline of the shareholder approvals to be obtained by each of Retail Ventures and DSW for the transaction. Following the departure from the meeting of the representatives of Retail Ventures’ management and Skadden Arps, the Retail Ventures committee, with the assistance of Houlihan Lokey and Baker Hostetler, discussed further the proposed terms, the viability of alternatives to a business combination with DSW, considerations regarding Retail Ventures’ tax attributes, and how best to achieve (and provide to the DSW committee) additional clarity regarding Retail Ventures’ contingent liabilities. At the conclusion of this discussion and a discussion of how best to conduct negotiations, the committee directed Houlihan Lokey to communicate the Retail Ventures committee’s proposal to DSW for its consideration.

On June 11, 2010, representatives of Houlihan Lokey conveyed to representatives of Goldman Sachs the Retail Ventures committee’s proposal.

 

On June 30, 2010, representatives of Goldman Sachs and Mr. Jordan met with representatives of Retail Ventures and the Schottenstein Affiliates and reiterated DSW’s initial proposal to accomplish the merger with a 0.35 exchange ratio. Key DSW considerations for a proposed merger transaction were presented, including whether the transaction would be accretive to DSW’s earnings per share and balanced in its impact on Retail Ventures and DSW shareholders, and appropriately reflect the relative trading histories of Retail Ventures common shares and DSW class A common shares. Following this meeting, members of Retail Ventures’ management (with Skadden Arps) and Mr. Weisman (with Baker Hostetler) conferred regarding those discussions and steps for a continuing dialogue with DSW.

 

On July 6, 2010, the DSW committee, along with the other DSW independent directors and representatives of Katten Muchin and Goldman Sachs, met to discuss the status of the proposed merger transaction. Mr. Robbins updated the committee on the June 30, 2010 meeting and reviewed Retail Ventures’ latest proposal. Mr. Robbins also noted that he, representatives of Goldman Sachs and Mr. Jordan would be meeting with the Retail Ventures committee and its advisors in the coming weeks to discuss the proposed transaction.

 

On July 13, 2010, Mr. Weisman and representatives of Retail Ventures management, Houlihan Lokey and Baker Hostetler reviewed updated information prepared by Retail Ventures management regarding Retail Ventures’ contingent liabilities and certain updated DSW financial projections, and discussed those and other matters in preparation for a July 20, 2010 meeting to be held among Mr. Weisman, Mr. Robbins, as chairman of the DSW committee, the Retail Ventures committee’s and DSW committee’s respective financial and legal advisors, and selected members of management of Retail Ventures and of DSW.

 

At the July 20, 2010 meeting, Mr. Weisman, with the assistance of Houlihan Lokey, Baker Hostetler and representatives of Retail Ventures management, and Mr. Robbins, with the assistance of Goldman Sachs, Katten Muchin and members of DSW management, discussed in detail their respective views on the rationale for a merger of Retail Ventures into DSW, Retail Ventures’ assets and contingent liabilities, DSW’s dual-class capital structure, and the exchange ratio of DSW common shares for Retail Ventures common shares. At the conclusion of the meeting, a substantial gap between the parties’ viewpoints remained, and each party undertook to review its position and to consider the other’s viewpoint.

 

The Retail Ventures committee held a meeting on July 27, 2010, in which Mr. Weisman informed the committee that he had had a discussion with Mr. Robbins, subsequent to the July 20, 2010 meeting described above, regarding the transaction terms. Mr. Weisman reported on and discussed the gap between the Retail Ventures committee’s and the DSW committee’s respective viewpoints on, among other things, the treatment of Retail Ventures’ contingent liabilities, the retention of DSW’s dual-class capital structure, and the exchange ratio for a merger. Mr. Weisman also noted that he had had a separate discussion with certain representatives of the Schottenstein Affiliates regarding exchange ratios for the proposed merger that might be acceptable to them. The Retail Ventures committee discussed considerations relating to an appropriate exchange ratio and Retail Ventures’ alternatives to pursuing the merger, and determined that Mr. Weisman should continue discussions with Mr. Robbins in an effort to find mutually acceptable ground for a merger.

 

On July 28, 2010, the DSW committee, along with the other DSW independent directors and Goldman Sachs, met to discuss the status of the proposed merger transaction with Mr. Jordan and representatives of Katten Muchin. At the meeting, the DSW committee received and discussed an update on the current status of the negotiations between the parties, an update on DSW’s due diligence investigation of Retail Ventures, including a detailed review of Retail Ventures’ actual and contingent liabilities, an updated preliminary financial analysis from Goldman Sachs relating to the proposed transaction, and an overview based on publicly available information on the financial performance of Syms Corp, which had assumed certain Filene’s Basement lease tenancy obligations of which Retail Ventures is a guarantor.

 

At the meeting, the DSW committee reviewed and approved terms of an updated proposal, which included an exchange ratio of either 0.41 if the DSW class B common shares were maintained or 0.425 if the

DSW class B common shares were eliminated. The offer was contingent on Retail Ventures finding a way to limit the risk of its contingent liabilities, such as through insurance or settlement.

 

The Retail Ventures committee next met on August 3, 2010, with representatives of Houlihan Lokey and Baker Hostetler participating at the committee’s invitation. Mr. Weisman reported that Mr. Robbins spoke with him on August, 2, 2010 regarding the DSW committee’s proposal referred to above. Mr. Weisman reported that he had responded that Retail Ventures would require a 0.45 exchange ratio, with retention of the dual-class capital structure. The Houlihan Lokey representatives reviewed and discussed analyses based on information provided by Retail Ventures’ management regarding the potential impact of various exchange ratios and the existing DSW dual-class capital structure on the possible post-merger ownership and voting interests of Retail Ventures’ shareholders, including of the unaffiliated Retail Ventures shareholders, in DSW. Following substantial discussion among the Retail Ventures committee with the assistance of Houlihan Lokey, the Retail Ventures committee directed Mr. Weisman to confirm to DSW the Retail Ventures committees’ counterproposal of 0.45 DSW common shares for each Retail Ventures common share, and also to discuss the counterproposal with the Schottenstein Affiliates.

 

On August 17, 2010, the DSW committee, along with the other DSW independent directors and representatives of Katten Muchin and Goldman Sachs, met to discuss the proposed transaction. Mr. Robbins first updated the committee on the status of his discussions with Mr. Weisman. The committee next received updated preliminary financial analyses from Goldman Sachs, which included financial analyses of the transaction at various exchange ratios. After discussion, the committee approved a revised proposal to Retail Ventures that included a 0.43 exchange ratio for a transaction in which all shareholders of Retail Ventures would receive DSW class B common shares, with the DSW class B common shares converting into DSW class A common shares after three years.

 

At a meeting of the Retail Ventures committee held on August 19, 2010, in which representatives of Houlihan Lokey and Baker Hostetler participated at the committee’s invitation, Mr. Weisman reported that in a conversation subsequent to the committee’s August 3, 2010 meeting, Mr. Robbins had proposed a merger with a 0.41 exchange ratio if DSW’s dual-class capital structure were retained indefinitely, or with a 0.43 exchange ratio if the dual-class capital structure were retained for only three years following consummation of the merger. The meeting participants discussed that proposal, the likely confusion inherent in a short-term retention of a dual-class structure, alternative voting ratios in a dual-class structure, and the financial effect to the unaffiliated Retail Ventures shareholders of various merger exchange ratios. At the conclusion of these discussions, the Retail Ventures committee confirmed its intention to continue its efforts to seek greater value in any merger transaction it may undertake with DSW.

 

The Retail Ventures board of directors held a special meeting on August 30, 2010, at which Mr. Schottenstein reported that Retail Ventures and DSW had been approached by a third party about the possibility of an acquisition transaction, though no specific transaction terms or structure had been discussed. Following discussion of that overture, the Retail Ventures board (including the members of the Retail Ventures committee) determined to authorize the execution of a confidentiality agreement with the third party to permit the sharing of relevant information in connection with exploration of a possible transaction. Later that day, at a special meeting of the DSW board of directors, Mr. Schottenstein provided the same report, and the DSW board (including the members of the DSW committee) also determined to authorize the execution of a confidentiality agreement for that purpose. During the course of September 2010, both Retail Ventures and DSW responded to information requests from the third party, but no discussion of transaction terms was initiated.

 

On August 31, 2010, the DSW committee, along with the other DSW independent directors, met to discuss recent developments, including an apparent impasse in the negotiations with Retail Ventures. The committee reconvened the following day, along with representatives of Katten Muchin to further discuss recent developments and next steps. The DSW committee agreed to make itself available to the Retail Ventures committee for further negotiations if requested by the Retail Ventures committee, but not to initiate any discussion. The committee also agreed to suspend Goldman Sachs’ engagement until such time as further negotiations occurred.

On September 12, 2010, the DSW board of directors held a regularly scheduled board meeting. At the meeting, an update of the current status of the discussions with Retail Ventures was presented to the board. Following this meeting, Mr. Schottenstein and Mr. Robbins, in his capacity as chairman of the DSW committee, spoke regarding the possibility of a merger involving a 0.44 exchange ratio and the retention of DSW’s current dual-class structure.

 

The Retail Ventures committee next met on September 23, 2010, with representatives of Houlihan Lokey and Baker Hostetler, as well as representatives of Retail Ventures management and Skadden Arps, participating at the committee’s invitation. At this meeting, among other things, Mr. McGrady reported, at Mr. Weisman’s request, that Mr. Robbins had stated that the DSW committee was not prepared to accept an exchange ratio of 0.44. An extended discussion ensued regarding the Retail Ventures committee’s views as to whether such an exchange ratio would be acceptable, the value to be achieved through a merger on those terms and whether more favorable terms could be achieved. The committee expressed a desire to present those terms to the DSW committee and DSW board of directors with a comprehensive explanation of Retail Ventures’ rationale for a merger on those terms. At the conclusion of this discussion, the Retail Ventures committee directed Mr. Weisman to request an opportunity to address the DSW board at a forthcoming DSW board meeting.

 

On September 28, 2010, the DSW committee reengaged Goldman Sachs to seek its advice with respect to a proposed transaction.

 

Beginning in October 2010, Retail Ventures and its legal advisors had discussions with the NYSE regarding the transaction in light of the fact that the transaction would involve the issuance of high vote shares.

 

On October 12, 2010, the DSW committee, along with the other DSW independent directors, met with representatives of Goldman Sachs and Katten Muchin to discuss the status of the proposed merger transaction. Following this meeting, at a regular meeting of the DSW board of directors, and at the DSW board’s invitation in response to Mr. Weisman’s request, Mr. Weisman presented a revised merger proposal on behalf of the Retail Ventures committee. The proposal included:

 

 

At the conclusion of the presentation of the proposal, Mr. Schottenstein indicated to those present that the Schottenstein Affiliates would, in their capacity as shareholders of Retail Ventures, support a merger with an exchange ratio of 0.44. Mr. Weisman, Ms. Eveillard, and Mr. McGrady, who had accompanied Mr. Weisman at the DSW board’s invitation, highlighted the benefits to DSW of the proposed transaction, including an increased public float of DSW common shares, elimination of duplicate corporate overhead and public reporting structures, the ability of DSW to settle Retail Ventures’ outstanding PIES in cash instead of DSW common shares, and its anticipated limited impact on Retail Ventures’ tax attributes.

 

Following the presentation of Retail Ventures’ proposal, Messrs. Weisman and McGrady and Ms. Eveillard left the meeting, and the DSW board of directors discussed the proposal. Following this discussion, the DSW committee, along with the other DSW independent directors, met with Goldman Sachs and Katten Muchin to discuss the proposal. This discussion included a review of the status of due diligence and the fact that the current estimation of the risk-weighted exposure for Retail Ventures’ contingent liabilities was lower than earlier estimates, the expectation that the amount of the contingent liabilities associated with the Value City bankruptcy would become quantified and likely resolved before the merger agreement was executed, and the DSW committee’s understanding that a special-purpose audit of a statement of Retail Ventures’ net assets would be conducted. The DSW committee also recognized that the recent increase in DSW’s class A common share price meant that a transaction at an exchange ratio of 0.435 likely would be accretive even if DSW

settled the PIES using DSW common shares. The DSW committee determined that it would accept in principle a transaction under the following terms:

 

 

Mr. Robbins presented this proposal to Mr. Weisman and Ms. Eveillard immediately following the meeting.

 

At a meeting of the Retail Ventures committee held on October 13, 2010, in which representatives of Houlihan Lokey and Baker Hostetler and Mr. McGrady participated at the committee’s invitation, Messrs. Weisman and McGrady and Ms. Eveillard described the events that transpired at the October 12, 2010 DSW board of directors meeting and the terms of the merger proposal that emerged. Mr. Weisman also reported that representatives of the Schottenstein Affiliates, upon being informed of the new merger proposal, had indicated that those terms would be acceptable. Following discussion of those events and terms, the Retail Ventures committee directed Mr. Weisman and the committee’s legal and financial advisors to negotiate a merger agreement reflecting the described terms and other customary and appropriate terms for transactions of that nature with the DSW committee and its advisors. During this meeting, Mr. Weisman also reported that he had requested the DSW board to consider declaring and paying a $1.00 per share special dividend to DSW shareholders before December 31, 2010, in light of Retail Ventures’ need for cash for 2011 operating expenses.

 

On October 20, 2010, Skadden Arps, in collaboration with Baker Hostetler, delivered an initial draft of a merger agreement to Katten Muchin.

 

On October 22, 2010, Katten Muchin delivered to Retail Ventures’ counsel a list of issues in response to the merger agreement draft, including issues relating to post-closing DSW board of directors membership, the treatment of Retail Ventures options, warrants and other derivative securities, a rights plan for preserving Retail Ventures’ tax attributes, shareholder approval matters, the parties’ pre-closing conduct of business, a “material adverse effect” definition, Retail Ventures’ contingent liabilities, a special-purpose audit of a statement of Retail Ventures’ net assets and a cap on its liabilities, and transaction closing conditions. On October 25, 2010, Baker Hostetler, Katten Muchin, Ms. Davis, Mr. Jordan and Skadden Arps discussed the listed issues, and Katten Muchin delivered a revised merger agreement draft to Baker Hostetler and Skadden Arps on October 28, 2010.

 

In late October 2010, Ms. Davis apprised the Retail Ventures committee, and Retail Ventures’ and the Retail Ventures committee’s respective advisors, of an action filed in bankruptcy court by Value City’s liquidating trustee against Retail Ventures and DSW, among others, alleging that all monies flowing from Value City to Retail Ventures and DSW in the year prior to the filing of Value City’s bankruptcy petition were voidable preferences, and seeking substantial monetary recoveries from Retail Ventures and from DSW.

 

On November 9, 2010, Skadden Arps circulated a revised draft of the merger agreement prepared by Baker Hostetler and Skadden Arps, reflecting the Retail Ventures committee’s and Retail Ventures’ and their advisors’ responses to the October 28, 2010 DSW draft’s treatment of the issues discussed on October 25, 2010. The DSW committee met to discuss the status of the merger agreement on November 14, 2010. At this meeting, representatives of Katten Muchin reviewed several of the open issues with the committee. The DSW committee then discussed several other issues relating to the proposed transaction, including an amendment of

DSW’s amended articles of incorporation, the treatment of options and warrants issued by Retail Ventures, the possible adoption by DSW of a shareholder rights plan designed to mitigate the risk of ownership changes impacting DSW’s tax attributes after the proposed merger, the potential mitigation of Retail Ventures’ contingent liabilities, and a possible loan from DSW to Retail Ventures to fund Retail Ventures operations through the close of the transaction.

 

On November 15, 2010, Katten Muchin, Baker Hostetler, Mr. Weisman, Mr. McGrady, Ms. Davis and Skadden Arps discussed the November 9, 2010 draft of the merger agreement, with a focus during the discussion on DSW’s insistence on a special-purpose audit of Retail Ventures’ net assets, excluding its investment in DSW. The call participants also discussed whether, in the absence of a DSW cash dividend being declared and paid, DSW would consider making a loan to Retail Ventures to assist Retail Ventures in meeting its cash needs. On November 16, 2010, Katten Muchin circulated another revised draft of the merger agreement.

 

On November 18, 2010, the DSW committee and representatives of Goldman Sachs and Katten Muchin discussed the status of the draft merger agreement and various open issues, including the definition of material adverse effect, the proposed special-purpose audit of a statement of net assets of Retail Ventures, exclusive of Retail Ventures’ investment in DSW, representations and warranties regarding Retail Ventures’ assets and liabilities, and conditions to closing. The DSW committee then discussed other issues relating to the proposed transaction, including the possibility of DSW declaring a cash dividend prior to closing the transaction and issues relating to lending Retail Ventures money to fund its operations through the closing of the transaction.

 

Also on November 18, 2010, at a regularly-scheduled meeting, the DSW board of directors discussed, with representatives of Goldman Sachs and Katten Muchin present at the DSW board’s invitation, the status of the proposed transaction and the open issues. Mr. Schottenstein reported at the meeting that the third party whose expression of interest he had reported at DSW’s August 30, 2010 board of directors meeting had determined not to pursue a transaction with Retail Ventures or DSW.

 

On December 2, 2010, Mr. McGrady and Ms. Davis, with the approval of the Retail Ventures committee, discussed a number of open merger agreement issues with Mr. Jordan in an effort to develop recommended resolutions of those issues for review by the Retail Ventures committee and the DSW committee. The issues discussed included a material adverse effect definition, the vote required for Retail Ventures to approve the merger, the proposed special-purpose audit of a statement of Retail Ventures’ net assets, and whether DSW would make a loan to Retail Ventures to address Retail Ventures’ short-term cash needs. The Retail Ventures committee met on December 7 and 8, 2010 to discuss the suggested resolutions of the issues, with representatives of Baker Hostetler in attendance at both meetings and representatives of Houlihan Lokey and Skadden Arps in attendance at the December 7, 2010 meeting. The December 7, 2010 meeting participants also discussed a report from Mr. McGrady that Retail Ventures had agreed orally to a settlement of the Value City action filed in late October 2010, which would require a payment of $3.64 million to the Value City bankruptcy estate.

 

Katten Muchin circulated a revised draft of the merger agreement on December 9, 2010, reflecting the DSW committee’s views on resolution of the issues discussed on December 2, 2010. Baker Hostetler communicated with Mr. Weisman, Houlihan Lokey and Skadden Arps on December 12, 2010 regarding the issues that would require further discussion, which were chiefly those relating to Retail Ventures’ liabilities, the material adverse effect definition and the proposed special-purpose audit.

 

On December 14, 2010, DSW management forwarded to Retail Ventures management, and Retail Ventures management forwarded to the Retail Ventures committee, Baker Hostetler and Skadden Arps, an initial draft of an engagement letter for the proposed special-purpose audit of a statement of Retail Ventures’ net assets, exclusive of its investment in DSW. On December 22, 2010, DSW management delivered to Retail Ventures management, and Retail Ventures management forwarded to the Retail Ventures committee, Baker Hostetler and Skadden Arps, an initial draft of a credit agreement for a proposed loan by DSW to Retail Ventures of up to $20 million to assist Retail Ventures in meeting its cash needs, in lieu of payment by DSW of the cash dividend that Mr. Weisman had suggested at DSW’s October 12, 2011 board of directors meeting. Also on December 22, 2010, representatives of Katten Muchin and Baker Hostetler conferred in an effort to

resolve the remaining merger agreement issues. Baker Hostetler circulated a revised draft of the merger agreement on December 27, 2010, and a revised draft of the proposed special-purpose audit engagement letter reflecting Baker Hostetler’s comments was circulated on December 31, 2010.

 

On January 3, 2011, Katten Muchin circulated a revised draft of the merger agreement, and Baker Hostetler, Mr. Weisman, on behalf of the Retail Ventures committee, Retail Ventures management and Skadden Arps exchanged communications regarding the merger agreement issues pertaining to the proposed special-purpose audit.

 

On January 6, 2011, the DSW committee met with its advisors and the independent directors of DSW’s board of directors to consider a substantially final draft of the merger agreement. Prior to the meeting, the members of the DSW committee and the independent directors had been furnished a draft and summary of the merger agreement and other information related to the proposed transaction. At this meeting, the DSW committee considered the proposed related-party loan to Retail Ventures and, along with the DSW independent directors, also discussed the following items:

 

 

Representatives of DSW and Retail Ventures and of the respective committees exchanged further communications regarding the material adverse effect definition and the proposed special-purpose audit on January 7 and 18, 2011. The Retail Ventures committee met on January 20, 2011, to discuss those issues, the feasible timing for execution of a merger agreement, and Retail Ventures’ consideration, in the context of its near-term cash needs, of a loan from one of the Schottenstein Affiliates in light of several issues related to the potential loan from DSW, as described below. Mr. Weisman reported to the Retail Ventures committee that the settlement of the Value City action had been approved by the bankruptcy court, and that absent an appeal the approval would become final and not subject to further challenge as of February 4, 2011, and Retail Ventures would have to make the agreed-upon settlement payment by February 10, 2011. The Retail Ventures committee determined, based on its understanding of when the DSW committee and the DSW board of directors would be prepared to meet to approve the merger agreement and merger, to meet on February 3, 2011 for a comprehensive review of the proposed transaction and its legal and financial implications, followed by February 7, 2011 meetings of the Retail Ventures committee and board of directors to consider approval of the transaction assuming all open issues had been resolved by that date. The Retail Ventures committee also discussed its recognition that no commercial or third party lender would be likely to extend a loan to Retail Ventures within a time period and on terms that would permit Retail Ventures to make payment of the Value City settlement amount and meet its other near-term cash needs.

 

In collaboration with Baker Hostetler and at its request, Skadden Arps circulated a revised draft of the merger agreement to the committees and their representatives on January 21, 2011. On January 25, 2011, Katten Muchin signified that all merger agreement issues except those relating to the special-purpose audit had been resolved, and Baker Hostetler circulated to the committees and their representatives proposed merger agreement provisions relating to the special-purpose audit.

 

Discussions between Katten Muchin and Baker Hostetler regarding the scope and nature of, and Retail Ventures’ and DSW’s rights and obligations regarding, the special-purpose audit continued between January 26 and February 2, 2011.

On January 27, 2011, the Retail Ventures audit committee met to consider Retail Ventures’ loan alternatives , a $20 million credit facility from DSW that would become payable upon termination of the merger agreement, or a $30 million credit facility from a Schottenstein Affiliate (SEI) that would be available for a period of two years (but maturing on consummation of the merger). The Retail Ventures audit committee, following discussions with Skadden Arps and, at the suggestion of the Retail Ventures committee, with Houlihan Lokey, determined that the SEI credit facility was the preferable option for several reasons, including Retail Ventures’ continuing need for liquidity if the merger with DSW were not consummated, Retail Ventures’ need for cash in the near term in light of the forthcoming Value City settlement payment obligation, the potential need to request a supplement to the original IRS Private Letter Ruling if the DSW loan were selected, and the amount of each of the proposed credit facilities.

 

On February 3, 2011, the Retail Ventures committee met with representatives of Baker Hostetler and Houlihan Lokey, with the remaining members of the Retail Ventures board of directors, Mr. McGrady, Ms. Davis, Skadden Arps, and Jeffry Swanson and Irwin Bain, as representatives of the Schottenstein Affiliates, in attendance at the committee’s invitation. Prior to the meeting, all members of the Retail Ventures board of directors had been furnished a draft and summary of the merger agreement and other information regarding the proposed transaction. Baker Hostetler reviewed the Retail Ventures special committee’s and Retail Ventures committee’s authority and highlights of their actions, with a focus on, among other items, the Retail Ventures committee’s actions with respect to the proposed DSW merger and the strategic alternatives considered by the committee, following which Skadden Arps, at Baker Hostetler’s request, presented a detailed summary of the merger agreement. Houlihan Lokey then reviewed and discussed its updated financial analysis of the proposed transaction and confirmed that it believed it would be in a position, at the Retail Ventures committee’s scheduled February 7, 2011 meeting, to render its opinion with respect to whether the exchange ratio in the merger was fair, from a financial point of view, to the unaffiliated Retail Ventures shareholders.

 

The Retail Ventures management personnel, Retail Ventures directors who were not members of the Retail Ventures committee, and Messrs. Swanson and Bain were then excused from the meeting. The Retail Ventures committee then reviewed proposed resolutions to be adopted by the committee at its February 7 meeting, and, with the assistance of Houlihan Lokey and Baker Hostetler, discussed whether the committee was prepared to recommend that the Retail Ventures board of directors approve the proposed merger and the merger agreement, including in its discussion a review of the factors and considerations set forth under the heading “Recommendation of the Retail Ventures Committee and Board of Directors” beginning on page 6. The Retail Ventures committee also acknowledged, with approval, the Retail Ventures audit committee’s determination to secure a credit facility for Retail Ventures’ cash needs from SEI rather than from DSW.

 

Immediately following the conclusion of the Retail Ventures committee’s meeting, the Retail Ventures board of directors, with representatives of Skadden Arps and Baker Hostetler, Mr. McGrady, Ms. Davis, Mr. Swanson and Mr. Bain in attendance, met to consider the Retail Ventures committee’s preliminary recommendations with respect to the proposed merger and the merger agreement and the Retail Ventures audit committee’s recommendations with respect to a loan from SEI. Mr. Weisman, on behalf of the Retail Ventures committee, reported on the matters presented and discussed at the Retail Ventures committee’s meeting. The Retail Ventures board of directors then heard a report from Mr. Sonnenberg, on behalf of the Retail Ventures audit committee, regarding a proposed loan from SEI, following which Skadden Arps summarized the proposed terms of the credit facility with SEI that had been negotiated. Skadden Arps also provided the board with a summary of the shareholder rights plan to be considered by the board of directors for adoption in connection with entering into the merger agreement. The Retail Ventures board of directors then reviewed proposed resolutions to be considered for adoption at its February 7, 2011 meeting.

 

Between February 3 and 7, 2011, representatives of Retail Ventures’ management, Baker Hostetler and Katten Muchin conducted discussions, and resolved the remaining open issues, concerning the merger agreement provisions relating to the special-purpose audit of a statement of Retail Ventures’ net assets, exclusive of its investment in DSW. Retail Ventures’ settlement of the Value City action became final on February 4, 2011.

The Retail Ventures committee met again on February 7, 2011, with Baker Hostetler and Houlihan Lokey, as well as Mr. McGrady and Skadden Arps, participating at the committee’s invitation. Mr. McGrady confirmed the absence of any material development affecting Retail Ventures or DSW subsequent to February 3, 2011, and Baker Hostetler confirmed and explained the resolution of the merger agreement issues pertaining to the special-purpose audit of a statement of Retail Ventures’ net assets. Houlihan Lokey then rendered its oral opinion to the Retail Ventures committee (which was confirmed in writing by delivery of its written opinion dated February 7, 2011) to the effect that, as of February 7, 2011, and based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in its opinion, the exchange ratio pursuant to the merger agreement was fair, from a financial point of view, to the unaffiliated Retail Ventures shareholders. The Retail Ventures committee reviewed briefly the considerations that it had discussed in detail at its February 3, 2011 meeting, determined that the merger was advisable and fair to and in the best interests of Retail Ventures and its unaffiliated and other shareholders, and voted unanimously to adopt resolutions approving the merger and the merger agreement and recommending that the Retail Ventures board of directors approve the merger and the merger agreement and present them to the Retail Ventures shareholders for their approval and adoption.

 

Immediately following the conclusion of the Retail Ventures committee’s meeting, the Retail Ventures board of directors met to consider approval of the merger and the merger agreement, with representatives of Skadden Arps, Baker Hostetler and Houlihan Lokey participating at the board’s invitation. Mr. Weisman, on behalf of the Retail Ventures committee, reported on the matters presented and discussed and actions taken at the Retail Ventures committee’s meeting and, following discussion, the Retail Ventures board of directors determined that the merger was advisable and fair to and in the best interests of Retail Ventures and its unaffiliated and other shareholders, and voted unanimously to approve the merger and the merger agreement and to present them to the Retail Ventures shareholders for their approval and adoption. The Retail Ventures board also adopted the shareholder rights plan as previously presented to the board at the February 3, 2011 meeting.

 

On February 8, 2011, the DSW committee, along with the independent directors of DSW’s board of directors, held a meeting to be updated on events since the previous meeting and review the final version of the merger agreement. Representatives of Katten Muchin and Goldman Sachs and Mr. Jordan were also present. Prior to the meeting, the members of the DSW committee and the independent directors had been furnished a draft and summary of the merger agreement and other information related to the proposed transaction. At this meeting, Goldman Sachs rendered its oral opinion to the DSW committee (which was confirmed in writing by delivery of its written opinion dated February 8, 2011) to the effect that as of February 8, 2011, and based upon and subject to the factors and assumptions set forth therein, the exchange ratio pursuant to the merger agreement was fair from a financial point of view to DSW. After discussion, including consideration of the factors described in “Recommendation of the Board of Directors and Reasons for the Merger,” beginning on page 6 the DSW audit/special committee unanimously deemed it advisable and in the best interests of DSW and its shareholders to recommend to the DSW independent directors that the merger is advisable and fair to and in the best interests of DSW and its shareholders, including the unaffiliated DSW shareholders, and unanimously recommended that the independent members of the DSW board of directors adopt the merger agreement, approve the merger and recommend that the shareholders of DSW vote for the adoption of the merger agreement and approval of the merger.

 

At the same meeting, the independent members of the DSW board of directors, acting upon the recommendation of the DSW committee, unanimously approved the merger and adopted the merger agreement and the other transactions contemplated by the merger agreement, and recommended that the shareholders of DSW vote in favor of the adoption of the merger agreement and approval of the merger.

 

Shortly thereafter, the DSW board of directors ratified, approved and adopted the actions of the DSW committee and the DSW independent directors in connection with the merger, recommended that the DSW shareholders adopt the merger agreement and approve the merger and the issuance of DSW class A common shares and DSW class B common shares, subject to shareholder approval and the completion of the merger, adopted and approved the amended and restated articles of incorporation, and authorized the preparation, execution and filing of this joint proxy statement/prospectus.

On February 8, 2011, after all required parties approved the transaction, DSW, Merger Sub and Retail Ventures executed the merger agreement.

 

Because a transaction involving the combination of Retail Ventures and DSW could simplify DSW’s capital ownership and enhance the trading liquidity of DSW class A common shares by increasing the public float, the DSW committee and the independent members of the DSW board of directors determined that it was in the best interests of DSW to evaluate the merger initially suggested by Retail Ventures, and to pursue the negotiations of the proposed transaction. Following such negotiations, the DSW committee and the independent members of the DSW board of directors concluded that the transaction was in the best interests of DSW and the unaffiliated DSW shareholders. In determining the fairness of the merger and unanimously recommending adoption of the merger agreement to the independent members of the DSW board of directors, the DSW committee also considered a number of additional factors which, in the opinion of the members of the DSW committee, supported the DSW committee’s recommendation, including:

 

 

The DSW committee also considered a variety of risks and other potentially negative factors concerning the merger. The material risks and potentially negative factors considered by the DSW committee were as follows:

 

 

 

The DSW committee and the independent directors of the DSW board of directors concluded, however, that these risks and potentially negative factors were outweighed by the potential benefits of the merger. The DSW committee also considered that the Schottenstein Affiliates, after the merger, will have significant direct voting power in DSW, and there may be less transparency with respect to their interest in DSW since such control will be exercised through private ownership. The foregoing discussion of the information and factors considered and given weight by the DSW committee in connection with the fairness of the merger to DSW and unaffiliated DSW shareholders is not intended to be exhaustive but is believed to include all material factors considered by the DSW committee. The DSW committee did not find it practicable to assign, and did not assign, relative weights to the individual factors considered in reaching its conclusions as to the fairness of the proposed merger to DSW and unaffiliated DSW shareholders. Rather, its fairness determination was made after consideration of all of the foregoing factors as a whole.

 

The DSW committee oversaw the performance of financial and legal due diligence by DSW management and its advisors and conducted an extensive review, evaluation and negotiation of the terms and conditions of the merger on behalf of DSW. The DSW committee, after giving careful consideration to the presentation made by Goldman Sachs, determined by a unanimous vote at a meeting on February 8, 2011, that the merger is advisable, fair to, and in the best interests of DSW and the unaffiliated DSW shareholders.

 

On February 8, 2011, the DSW committee recommended unanimously to the independent members of the DSW board of directors that they approve the merger agreement and the merger and the issuance of DSW class A common shares and DSW class B common shares. The independent members of the DSW board of directors adopted the conclusions and analysis of the DSW committee regarding the fairness of the transaction, and following the DSW committee’s recommendation, the independent members of the DSW board of directors, as well as the DSW board of directors as a whole, determined that the merger is advisable, fair to, and in the best interests of DSW and the unaffiliated DSW shareholders, approved the merger agreement, the merger and the issuance of the DSW class A common shares and DSW class B common shares, and recommended that holders of DSW common shares adopt the merger agreement and approve the merger and the issuance of DSW class A and DSW class B common shares.

 

The Retail Ventures committee considered many factors in making its determination that the merger agreement and the merger are advisable and recommending approval by the Retail Ventures board of directors and adoption by the Retail Ventures shareholders. In arriving at its determination, the Retail Ventures committee consulted with independent legal and financial advisors to the Retail Ventures committee, as well as Retail Ventures’ management, legal advisors and other representatives, and considered the following factors as generally supporting its recommendation:

 

 

 

The Retail Ventures committee also identified and considered potential risks and other potentially negative factors of the transaction, including the following:

 

 

 

The Retail Ventures committee concluded, however, that these risks and potentially negative factors were outweighed by the expected benefits of the merger. The foregoing discussion and the discussion under “Background of the Merger” are not intended to be exhaustive, but rather include the material factors considered by the Retail Ventures committee and board of directors in evaluating the proposed merger. The Retail Ventures committee oversaw the performance of financial and legal due diligence by Retail Ventures’ management with the assistance of its and Retail Ventures’ respective advisors and conducted an extensive review, evaluation and negotiation of the terms and conditions of the merger on behalf of Retail Ventures. In view of the large number of factors considered by the Retail Ventures committee and board of directors in connection with the evaluation of the merger and the merger agreement and the complexity of these matters, the Retail Ventures committee and board of directors did not consider it practicable, nor did it attempt, to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision, nor did it evaluate whether these factors were of equal importance. Rather, the Retail Ventures committee and board of directors made their recommendations based on the totality of information presented and the investigation conducted by each of them. In addition, individual directors may have given different weight to the various factors.

 

On February 7, 2011, the Retail Ventures committee determined unanimously that the merger is the strategic alternative for Retail Ventures that will best maximize value for the unaffiliated Retail Ventures shareholders and other shareholders, and recommended unanimously that the Retail Ventures board of directors (1) approve the merger agreement and the merger, (2) declare the advisability of the merger agreement, and (3) recommend that the Retail Ventures shareholders adopt the merger agreement and approve the merger. Based on the Retail Ventures committee’s determination and recommendation and other factors it deemed relevant, on February 7, 2011, the Retail Ventures board of directors determined unanimously that the merger agreement and the merger are advisable and in the best interests of Retail Ventures shareholders, approved the merger agreement and the merger, and recommended that the Retail Ventures shareholders adopt the merger agreement and approve of the merger. The Retail Ventures’ board of directors recommends that the Retail Ventures shareholders vote “FOR” the proposal to adopt the merger agreement and approve the merger at the Retail Ventures special meeting.

 

Goldman Sachs rendered its opinion to the DSW committee that, as of February 8, 2011, and based upon and subject to the factors and assumptions set forth therein, the exchange ratio pursuant to the merger agreement was fair from a financial point of view to DSW.

 

The full text of the written opinion of Goldman Sachs, dated February 8, 2011, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Appendix B to this joint proxy statement/prospectus. Goldman Sachs provided its opinion for the information and assistance of the DSW committee in

connection with its consideration of the merger. The Goldman Sachs opinion does not constitute a recommendation as to how any holder of DSW common shares should vote or make any election with respect to the merger or any other matter.

 

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

 

 

Goldman Sachs also held discussions with members of the senior managements of DSW and Retail Ventures regarding their assessment of the past and current business operations, financial condition and future prospects of Retail Ventures and with the members of senior management of DSW regarding their assessment of the past and current business operations, financial condition and future prospects of DSW and the strategic rationale for, and the potential benefits of, the merger; reviewed the reported price and trading activity for the DSW class A common shares and the Retail Ventures common shares; compared certain financial and stock market information for DSW and Retail Ventures with similar information for certain other companies, the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations; and performed such other studies and analyses, and considered such other factors, as Goldman Sachs deemed appropriate.

 

For purposes of rendering its opinion, Goldman Sachs relied upon and assumed, without assuming any responsibility for independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by Goldman Sachs, and Goldman Sachs does not assume any responsibility for any such information. In that regard, Goldman Sachs assumed with the consent of the DSW committee that the Forecasts, including the NOL Analyses and the Retail Ventures Liability Analyses, have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the DSW committee. Goldman Sachs has not made an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of DSW or Retail Ventures or any of their respective subsidiaries and, except for the NOL Analyses and Retail Ventures Liability Analyses, Goldman Sachs has not been furnished with any such evaluation or appraisal. Goldman Sachs assumed that all governmental, regulatory or other opinions, consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on DSW or Retail Ventures or on the expected benefits of the merger in any way meaningful to Goldman Sachs’ analysis. Goldman Sachs also assumed that the merger will be consummated on the terms set forth in the merger agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis. Goldman Sachs also assumed that the DSW class A common shares and DSW class B common shares are equivalent from a financial point of view.

 

Goldman Sachs’ opinion does not address the underlying business decision of DSW to engage in the merger, or the relative merits of the merger as compared to any strategic alternatives that may be available to DSW; nor does it address any legal, regulatory, tax or accounting matters. Goldman Sachs’ opinion addresses

only the fairness from a financial point of view to DSW, as of February 8, 2011, of the exchange ratio pursuant to the merger agreement. Goldman Sachs does not express any view on, and Goldman Sachs’ opinion does not address, any other term or aspect of the merger agreement or the merger or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered into or amended in connection with the merger, including, without limitation, the fairness of the merger to, or any consideration received in connection therewith by, the holders of any class of securities, creditors, or other constituencies of DSW; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of DSW or Retail Ventures, or any class of such persons in connection with the merger, whether relative to the exchange ratio pursuant to the merger agreement or otherwise. Goldman Sachs is not expressing any opinion as to the prices at which DSW common shares or the PIES will trade at any time or as to the impact of the merger on the solvency or viability of DSW or Retail Ventures or the ability of DSW or Retail Ventures to pay their respective obligations when they come due. Goldman Sachs’ opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Goldman Sachs as of, February 8, 2011, and Goldman Sachs assumes no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after February 8, 2011. Goldman Sachs’ advisory services and its opinion were provided for the information and assistance of the DSW committee in connection with its consideration of the merger and Goldman Sachs’ opinion does not constitute a recommendation as to how any holder of DSW common shares should vote or make any election with respect to the merger or any other matter. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.

 

The following is a summary of the material financial analyses delivered by Goldman Sachs to the DSW committee in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses may include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before February 7, 2011, which was the last business day prior to the date that Goldman Sachs delivered its opinion to the DSW committee, and is not necessarily indicative of current market conditions.

 

Illustrative Value to DSW of the Merger

 

Goldman Sachs reviewed the value of the DSW common shares to be issued in the merger and the DSW class B common shares held by Retail Ventures to be acquired by Merger Sub in the merger, in each case based on the closing trading price per DSW class A common share as of February 2, 2011. Based on this review, the illustrative value of the DSW class B common shares held by Retail Ventures and to be acquired by Merger Sub in the merger exceeded the illustrative value of the shares issued in the merger by $31 million. Goldman Sachs then adjusted this illustrative value of $31 million to take into account the net actual and contingent liabilities of Retail Ventures (including risk weighted exposures) that would be assumed by Merger Sub in the merger, based on the Retail Ventures Liability Analyses, and the projected present value of the net operating losses and tax credits of Retail Ventures, based on the NOL Analyses, that DSW will obtain upon consummation of the merger. Goldman Sachs calculated these adjustments under two scenarios. First, Goldman Sachs attributed a present value to the net operating losses and tax credits that assumed no limitations arising under section 382 of the Internal Revenue Code, based on the NOL Analyses, and a discount rate of 13.0% based on DSW’s estimated cost of equity. Second, Goldman Sachs attributed a present value to the net operating losses and tax credits that assumed limitations from a pre-merger ownership shift arising under section 382 of the Internal Revenue Code, based on the NOL Analyses, and a discount rate of 6.0% based on DSW’s estimated cost of debt. This analysis resulted in a range of illustrative values of the merger to DSW from $83 million to $105 million.

Pro Forma Financial Analysis

 

Goldman Sachs calculated the illustrative pro forma financial impact of the merger on the estimated fully diluted earnings per share (“EPS”) of DSW for fiscal year 2011, based on the Forecasts, assuming that the merger closed at the end of fiscal year 2010 with full year impact of share or cash settlement of the PIES issued by Retail Ventures and excluding any one-time items and mark-to-market gains or losses arising from the PIES and warrants issued by Retail Ventures. First, Goldman Sachs calculated this impact based on the assumption that the PIES issued by Retail Ventures would be settled at maturity through the issuance of DSW common shares. Under this first scenario, the merger would be 1.9% accretive to DSW’s shareholders on an EPS basis in fiscal year 2011. Second, Goldman Sachs calculated this impact based on the assumption that the PIES issued by Retail Ventures would be settled in cash at maturity through the payment of cash based on a price per share of DSW common shares equal to $37.93. Under this second scenario, the merger would be 10.6% accretive to DSW’s shareholders on an EPS basis in fiscal year 2011.

 

Illustrative (Discount)/Premium to Intrinsic Value of Retail Ventures

 

Goldman Sachs reviewed the value of the DSW common shares held by Retail Ventures, excluding shares underlying the PIES, based on the closing trading price of DSW class A common shares on February 2, 2011. Goldman Sachs then adjusted this value to take into account the net actual and contingent liabilities of Retail Ventures (including potential risk-weighted exposures) based on the Retail Ventures Liability Analyses. After this adjustment, the illustrative intrinsic value of Retail Ventures was approximately $762 million, and the market value of the DSW common share consideration, based on the closing trading price per DSW class A common share on February 2, 2011, that would be received by the shareholders of Retail Ventures in the merger represented a 2.1% premium to Retail Ventures’ $762 million illustrative intrinsic value. Goldman Sachs then further adjusted this illustrative intrinsic value to take into account the present value of the net operating losses and tax credits of Retail Ventures, based on the NOL Analyses. Goldman Sachs calculated these adjustments under two scenarios. Under the first scenario, Goldman Sachs assumed that the net operating losses and tax credits of Retail Ventures were subject to limitations arising from a pre-merger ownership shift under section 382 of the Internal Revenue Code, based on the NOL Analyses and a discount rate of 6%. Under this first scenario, the illustrative intrinsic value of Retail Ventures, after taking into account the present value of the net operating losses and tax credits of Retail Ventures, was approximately $858 million, and the market value of the DSW share consideration, based on the closing trading price per share of DSW class A common shares on February 2, 2011, that would be received by the shareholders of Retail Ventures in the merger represented a 9.3% discount to Retail Ventures’ $858 million illustrative intrinsic value. Under the second scenario, Goldman Sachs assumed that the net operating losses and tax credits of Retail Ventures were not subject to limitations arising under section 382 of the Internal Revenue Code, based on the NOL Analyses and a discount rate of 13%. Under this second scenario, the illustrative intrinsic value of Retail Ventures, after taking into account the present value of the net operating losses and tax credits of Retail Ventures, was approximately $879 million, and the market value of the DSW share consideration, based on the closing trading price per DSW class A common share on February 2, 2011, that would be received by the shareholders of Retail Ventures in the merger represented a 11.6% discount to Retail Ventures’ $879 million illustrative intrinsic value.

 

Selected Transactions Analysis

 

Goldman Sachs analyzed certain information relating to the following selected transactions, each of which involved the acquisition by a publicly traded company of its principal shareholder (listed first in each case below) in a stock-for-stock transaction:

 

 

 

None of the businesses or companies that participated in these selected transactions are directly comparable to DSW’s current businesses and operations or Retail Ventures.

 

Goldman Sachs calculated the illustrative (discount)/premium received by the shareholders of each principal shareholder in these selected transactions relative to the intrinsic value of the principal shareholder, based on publicly available information and the market value of the stock consideration used by the acquiror. The illustrative (discounts)/premiums to the shareholders of the principal shareholders, relative to the intrinsic values of the principal shareholders, in these selected transactions ranged from a 14.6% discount to a 0% premium, with a median of a 0.8% discount.

 

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses.

 

Goldman Sachs prepared these analyses for purposes of providing its opinion to the DSW committee that, as of February 8, 2011 and based upon and subject to the factors and assumptions set forth therein, the exchange ratio pursuant to the merger agreement was fair from a financial point of view to DSW. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of DSW, Retail Ventures, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.

 

The exchange ratio was determined through arm’s-length negotiations between DSW and Retail Ventures and was approved by the DSW committee. Goldman Sachs provided advice to the DSW committee during these negotiations. Goldman Sachs did not, however, recommend any specific exchange ratio to DSW or the DSW committee or recommend that any specific exchange ratio constituted the only appropriate exchange ratio for the transaction.

 

As described above, Goldman Sachs’ opinion to the DSW committee was one of many factors taken into consideration by the DSW committee in making its determination to approve the merger agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with its opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Appendix B to this joint proxy statement/prospectus.

 

Goldman Sachs and its affiliates are engaged in investment banking and financial advisory services, commercial banking, securities trading, investment management, principal investment, financial planning, benefits counseling, risk management, hedging, financing, brokerage activities and other financial and non-financial activities and services for various persons and entities. In the ordinary course of these activities and services, Goldman Sachs and its affiliates may at any time make or hold long or short positions and investments, as well as actively trade or effect transactions, in the equity, debt and other securities (or related derivative securities) and financial instruments (including bank loans and other obligations) of DSW, Retail Ventures, third parties, including SSC, an affiliate of Retail Ventures, and any of their respective affiliates or any currency or commodity that may be involved in the transaction contemplated by the merger agreement for their own account and for the accounts of their customers. Goldman Sachs has acted as financial advisor to the DSW committee in connection with, and has participated in certain of the negotiations leading to, the merger. Goldman Sachs has received fees and expects to receive additional fees for Goldman Sachs’ services in connection with the merger, the principal portion of which is contingent upon consummation of the merger,

and DSW has agreed to reimburse Goldman Sachs’ expenses arising, and indemnify Goldman Sachs’ against certain liabilities that may arise, out of Goldman Sachs’ engagement. Goldman Sachs may also in the future provide investment banking services to DSW, Retail Ventures, SSC and their respective affiliates for which Goldman Sachs’ Investment Banking Division may receive compensation.

 

The DSW committee selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the merger. Pursuant to a letter agreement dated February 19, 2010, the DSW committee engaged Goldman Sachs to act as its financial advisor in connection with the contemplated merger. Pursuant to the terms of this engagement letter, DSW has agreed to pay Goldman Sachs a transaction fee of $4 million, a principal portion of which is payable upon consummation of the merger. In addition, DSW has agreed to reimburse Goldman Sachs for its expenses arising, and indemnify Goldman Sachs against certain liabilities that may arise, out of its engagement.

 

On February 7, 2011, Houlihan Lokey rendered its oral opinion to the Retail Ventures committee (which was confirmed in writing by delivery of Houlihan Lokey’s written opinion dated February 7, 2011), as to the fairness, from a financial point of view, to the unaffiliated shareholders, as of February 7, 2011, of the exchange ratio provided for in the merger pursuant to the merger agreement, based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in preparing its opinion.

 

Houlihan Lokey’s opinion was directed to the Retail Ventures committee and Retail Ventures’ board of directors. Houlihan Lokey’s opinion only addressed the fairness from a financial point of view to the unaffiliated Retail Ventures shareholders, as of February 7, 2011, of the exchange ratio provided for in the merger pursuant to the merger agreement and did not address any other aspect or implication of the merger. The summary of Houlihan Lokey’s opinion in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of its written opinion, which is included as Appendix C to this joint proxy statement/prospectus and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in preparing its opinion. However, Houlihan Lokey’s opinion and the summary of its opinion and the related analyses set forth in this joint proxy statement/prospectus are not intended to be, and do not constitute, a recommendation to the Retail Ventures committee, Retail Ventures’ board of directors or any shareholder as to how to act or vote with respect to the merger or related matters, including, without limitation, whether or not any holder of Retail Ventures common shares should elect to receive DSW class B common shares in lieu of DSW class A common shares in the merger. In arriving at its opinion, Houlihan Lokey, among other things:

 

1. reviewed a draft, dated February 7, 2011, of the merger agreement;

 

2. reviewed certain publicly available business and financial information relating to Retail Ventures and DSW that Houlihan Lokey deemed to be relevant;

 

3. reviewed certain information relating to the historical, current and future operations, financial condition and prospects of Retail Ventures and DSW made available to Houlihan Lokey by Retail Ventures and DSW, including (a) estimated monthly cash flow for Retail Ventures prepared by the management of Retail Ventures through January 31, 2012, which we refer to as the Retail Ventures Budget, (b) estimates with respect to the net operating loss carryforwards, which we refer to as the Estimated NOLs, of Retail Ventures available to offset federal income taxes prepared by management of Retail Ventures, as well as projections regarding DSW’s ability to utilize such NOLs prepared by management of DSW, referred to as the Estimated NOL Projections, (c) estimates with respect to certain contingent liabilities of Retail Ventures associated with discontinued businesses of Retail Ventures prepared by management of Retail Ventures, which we refer to as the Contingent Liability Estimates, and (d) financial projections prepared by the management of DSW relating to DSW for the fiscal years ending January 2011 through January 2016, which we refer to as DSW Projections;

4. spoke with certain members of management of each of Retail Ventures and DSW and certain of their representatives and advisors regarding the respective businesses, operations, financial condition and prospects of each of Retail Ventures and DSW, the merger and related matters;

 

5. compared the financial and operating performance of DSW with that of other public companies that Houlihan Lokey deemed to be relevant;

 

6. reviewed the current and historical market prices and trading volume for certain of Retail Ventures’ and DSW’s publicly traded securities, and the current and historical market prices and trading volume for the publicly traded securities of certain other companies that Houlihan Lokey deemed to be relevant; and

 

7. conducted such other financial studies, analyses and inquiries and considered such other information and factors as Houlihan Lokey deemed appropriate.

 

Houlihan Lokey relied upon and assumed, without independent verification, the accuracy and completeness of all data, material and other information furnished, or otherwise made available, to it, discussed with or reviewed by it, or publicly available, and did not assume any responsibility with respect to such data, material and other information. In addition, the managements of Retail Ventures and DSW advised Houlihan Lokey, and Houlihan Lokey assumed, that (i) the Retail Ventures Budget, the Estimated NOLs and the Contingent Liability Estimates reviewed by Houlihan Lokey were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of management of Retail Ventures as to (A) the future cash flow of Retail Ventures through January 31, 2012, (B) the net operating loss carryforwards of Retail Ventures available to offset federal and state income taxes, and (C) the contingent liabilities of Retail Ventures associated with discontinued businesses, respectively and (ii) the NOL Projections and DSW Projections reviewed by Houlihan Lokey were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of management of DSW as to (A) DSW’s ability to utilize Retail Ventures’ Estimated NOLs and (B) the future financial results and condition of DSW, respectively, and Houlihan Lokey expressed no opinion with respect to any of such estimates or projections or the assumptions on which they were based. For purposes of Houlihan Lokey’s analyses and its opinion, Houlihan Lokey assumed with Retail Ventures’ consent that if the merger is not consummated, Retail Ventures would elect to pay the principal due at maturity on its 6.625% Mandatorily Exchangeable Notes due September 15, 2011 (the “PIES”) in DSW class B common shares. Retail Ventures advised Houlihan Lokey, and for purposes of its analyses and its opinion Houlihan Lokey assumed, that the value of the assets of Retail Ventures other than DSW class B common shares (but including the value of the proceeds from the exercise of outstanding options and warrants to acquire Retail Ventures common shares) less the value of Retail Ventures’ liabilities (contingent or otherwise) excluding its liabilities under the PIES (which, as set forth above, Houlihan Lokey assumed, in the absence of the merger, Retail Ventures will satisfy at maturity with DSW class B common shares) was estimated to be a net liability of approximately $9 million as of the estimated closing date of the merger. In addition, for purposes of its analyses and its opinion, Houlihan Lokey assumed with Retail Ventures’ consent that (i) based on management of Retail Ventures’ then current estimates with respect to the future financial performance of Retail Ventures, Retail Ventures would be unable to utilize its Estimated NOLs to offset Retail Ventures’ future tax liabilities and (ii) to the extent held by unaffiliated Retail Ventures shareholders, DSW class B common shares are economically equivalent to DSW class A common shares. Furthermore, Retail Ventures advised Houlihan Lokey and Houlihan Lokey assumed that, to the extent DSW is able to utilize the Estimated NOLs to offset its future tax liabilities, holders of Retail Ventures common shares would indirectly benefit in proportion to their percentage ownership of DSW after giving effect to the merger. Houlihan Lokey relied upon and assumed, without independent verification, that there had been no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of Retail Ventures or DSW since the respective dates of the most recent financial statements and other information, financial or otherwise, provided to it that would be material to its analyses or its opinion, and that there was no information or any facts that would make any of the information reviewed by Houlihan Lokey incomplete or misleading. Houlihan Lokey evaluated the fairness to the unaffiliated Retail Ventures shareholders, from a financial point of view, of the exchange ratio provided for in the merger pursuant to the merger agreement primarily on the basis that the unaffiliated Retail Ventures shareholders will, after giving effect to the merger, directly own approximately the

same or a greater number of DSW common shares than they indirectly own through their ownership of Retail Ventures common shares as well as, among other things, have the opportunity to benefit through their ownership of DSW common shares from DSW’s ability to utilize Retail Ventures’ Estimated NOLs.

 

Houlihan Lokey relied upon and assumed, without independent verification, that (a) the representations and warranties of all parties to the merger agreement and all other related documents and instruments that are referred to therein are true and correct, (b) each party to the merger agreement and such other related documents and instruments would fully and timely perform all of the covenants and agreements required to be performed by such party, (c) all conditions to the consummation of the merger would be satisfied without waiver thereof, and (d) the merger would be consummated in a timely manner in accordance with the terms described in the merger agreement and such other related documents and instruments, without any amendments or modifications thereto. Houlihan Lokey also assumed, with Retail Ventures’ consent, that the merger would be treated as a tax-free transaction. Houlihan Lokey also relied upon and assumed, without independent verification, that (i) the merger would be consummated in a manner that complies in all respects with all applicable federal and state statutes, rules and regulations, and (ii) all governmental, regulatory, and other consents and approvals necessary for the consummation of the merger would be obtained and that no delay, limitations, restrictions or conditions would be imposed or amendments, modifications or waivers made that would result in the disposition of any assets of Retail Ventures or DSW, or otherwise have an effect on Retail Ventures or DSW or any expected benefits of the merger that would be material to Houlihan Lokey’s analyses or its opinion. In addition, Houlihan Lokey relied upon and assumed, without independent verification, that the final form of the merger agreement would not differ in any respect from the draft of the merger agreement identified above that would be material to its analysis.

 

Furthermore, in connection with its opinion, Houlihan Lokey was not requested to make, and did not make, any physical inspection or independent appraisal or evaluation of any of the assets, properties or liabilities (fixed, contingent, derivative, off-balance-sheet or otherwise) of Retail Ventures, DSW or any other party, nor was Houlihan Lokey provided with any such appraisal or evaluation. Houlihan Lokey did not estimate, and expressed no opinion regarding, the liquidation value of any entity or business. Houlihan Lokey did not undertake any independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which Retail Ventures or DSW was or may be a party or was or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which Retail Ventures or DSW was or may be a party or was or may be subject.

 

Houlihan Lokey was not requested to, and did not, solicit any indications of interest from third parties with respect to the securities, assets, businesses or operations of Retail Ventures or any other party, or any alternatives to the merger. Houlihan Lokey’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it as of, the date of its opinion. Houlihan Lokey did not undertake, and is under no obligation, to update, revise, reaffirm or withdraw its opinion, or otherwise comment on or consider events occurring or coming to its attention after the date of its opinion. Houlihan Lokey did not express any opinion as to what the value of DSW class A common shares or DSW class B common shares actually would be when issued pursuant to the merger or the price or range of prices at which Retail Ventures common shares, DSW class A common shares or DSW class B common shares may be purchased or sold at any time. Houlihan Lokey assumed that the DSW class A common shares to be issued in the merger to the holders of Retail Ventures common shares will be listed on the New York Stock Exchange.

 

Houlihan Lokey’s opinion was furnished for the use and benefit of the Retail Ventures committee and the Retail Ventures board of directors (solely in their capacity as such) in connection with their consideration of the merger and may not be used for any other purpose without Houlihan Lokey’s prior written consent. Houlihan Lokey’s opinion should not be construed as creating any fiduciary duty on Houlihan Lokey’s part to any party. Houlihan Lokey’s opinion was not intended to be, and does not constitute, a recommendation to the Retail Ventures committee, the Retail Ventures board of directors, any security holder or any other person as to how to act or vote with respect to any matter relating to the merger, including, without limitation, whether or not any holder of Retail Ventures common shares should elect to receive DSW class B common shares in lieu of DSW class A common shares in the merger.

Houlihan Lokey’s opinion only addressed the fairness to the unaffiliated Retail Ventures shareholders, from a financial point of view, of the exchange ratio provided for in the merger pursuant to the merger agreement and did not address any other aspect or implication of the merger or any agreement, arrangement or understanding entered in connection therewith or otherwise. In addition, Houlihan Lokey’s opinion did not express an opinion as to or otherwise address, among other things: (i) the underlying business decision of the Retail Ventures committee, Retail Ventures board of directors, Retail Ventures, DSW, their respective security holders or any other party to proceed with or effect the merger, (ii) the terms of any arrangements, understandings, agreements or documents related to, or the form, structure or any other portion or aspect of, the merger or otherwise (other than the exchange ratio to the extent expressly specified in the opinion), (iii) the fairness of any portion or aspect of the merger to the holders of any class of securities, creditors or other constituencies of Retail Ventures, DSW, or to any other party, except if and only to the extent expressly set forth in the last sentence of Houlihan Lokey’s opinion, (iv) the relative merits of the merger as compared to any alternative business strategies that might exist for Retail Ventures, DSW or any other party or the effect of any other transaction in which Retail Ventures, DSW or any other party might engage, (v) the fairness of any portion or aspect of the merger to any one class or group of Retail Ventures’, DSW’s or any other party’s security holders vis-à-vis any other class or group of Retail Ventures’, DSW’s or such other party’s security holders (including, without limitation, the allocation of any consideration amongst or within such classes or groups of security holders), (vi) whether or not Retail Ventures, DSW, their respective security holders or any other party is receiving or paying reasonably equivalent value in the merger, (vii) the solvency, creditworthiness or fair value of Retail Ventures, DSW or any other participant in the merger, or any of their respective assets, under any applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or similar matters, or (viii) the fairness, financial or otherwise, of the amount, nature or any other aspect of any compensation to or consideration payable to or received by any officers, directors or employees of any party to the merger, any class of such persons or any other party, relative to the exchange ratio or otherwise. Furthermore, no opinion, counsel or interpretation is intended in matters that require legal, regulatory, accounting, insurance, tax or other similar professional advice. It was assumed that such opinions, counsel or interpretations had been or would be obtained from the appropriate professional sources. Furthermore, Houlihan Lokey relied, with the Committee’s consent, on the assessments by the Retail Ventures committee, Retail Ventures’ board of directors, Retail Ventures, DSW and their respective advisors, as to all legal, regulatory, accounting, insurance and tax matters with respect to Retail Ventures, DSW and the merger. The issuance of Houlihan Lokey’s opinion was approved by a committee authorized to approve opinions of such nature.

 

In preparing its opinion to the Retail Ventures committee and Retail Ventures’ board of directors, Houlihan Lokey performed a variety of analyses, including those described below. The summary of Houlihan Lokey’s analyses provided below is not a complete description of the analyses underlying Houlihan Lokey’s opinion. The preparation of a fairness opinion is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytical methods employed and the adaptation and application of these methods to the unique facts and circumstances presented. As a consequence, neither a fairness opinion nor its underlying analyses is readily susceptible to summary description. Houlihan Lokey arrived at its opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any individual analysis, methodology or factor. Accordingly, Houlihan Lokey believes that its analyses and the following summary must be considered as a whole and that selecting portions of its analyses, methodologies and factors or focusing on information presented in tabular format, without considering all analyses, methodologies and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying Houlihan Lokey’s analyses and opinion. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques.

 

In performing its analyses, Houlihan Lokey considered general business, economic, industry and market conditions, financial and otherwise, and other matters as they existed on, and could be evaluated as of, the date of the opinion. Houlihan Lokey’s analyses involved judgments and assumptions with regard to industry performance, general business, economic, regulatory, market and financial conditions and other matters, many of which are beyond the control of Retail Ventures and DSW, such as the impact of competition on the

business of Retail Ventures and DSW and on the industry generally, industry growth and the absence of any adverse material change in the financial condition and prospects of Retail Ventures, DSW or the industry or in the markets generally. No company, transaction or business used in Houlihan Lokey’s analyses for comparative purposes is identical to Retail Ventures, DSW or the proposed merger and an evaluation of the results of those analyses is not entirely mathematical. Houlihan Lokey believes that mathematical derivations (such as determining average and median) of financial data are not by themselves meaningful and should be considered together with qualities, judgments and informed assumptions. The estimates contained in Retail Ventures’ analyses and the implied exchange ratio reference range values indicated by Houlihan Lokey’s analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, any analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond the control of Retail Ventures. Much of the information used in, and accordingly the results of, Houlihan Lokey’s analyses are inherently subject to substantial uncertainty.

 

Houlihan Lokey’s opinion was provided to the Retail Ventures committee in connection with its consideration of the proposed merger and was only one of many factors considered by the Retail Ventures committee and Retail Ventures’ board of directors in evaluating the proposed merger. Neither Houlihan Lokey’s opinion nor its analyses were determinative of the exchange ratio or of the views of the Retail Ventures committee or management with respect to the merger or the exchange ratio. The type and amount of consideration payable in the merger were determined through negotiation between Retail Ventures and DSW, and the decision to enter into the merger was solely that of the Retail Ventures committee and Retail Ventures’ board of directors.

 

The following is a summary of the material analyses reviewed by Houlihan Lokey with the Retail Ventures committee in connection with Houlihan Lokey’s opinion rendered on February 7, 2011. The order of the analyses does not represent relative importance or weight given to those analyses by Houlihan Lokey. The analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the analyses. Considering the data in the tables below without considering the full narrative description of the analyses, as well as the methodologies underlying, and the assumptions, qualifications and limitations affecting, each analysis, could create a misleading or incomplete view of Houlihan Lokey’s analyses.

 

Unless the context indicates otherwise, equity values used in the trading price ratio analysis described below were calculated using the closing price of Retail Ventures and DSW’s class A common shares as of January 31, 2011. Accordingly, this information may not reflect current or future market conditions.

 

Historical Trading Price Ratio Analyses.  Houlihan Lokey observed the following historical trading price ratios of Retail Ventures common shares and DSW class A common shares based on the closing prices of such shares as of January 31, 2011, and the average closing prices of such shares for the 30 and 90-day period ending January 31, 2011, as well as the high and low trading price ratios of Retail Ventures common shares and DSW class A common shares based on the closing prices of such shares for the 90 day period ended January 31, 2011, in each case as compared to the exchange ratio provided for in the merger of 0.435 of a share of DSW class A common shares or DSW class B common shares per Retail Ventures common share:

 

 

 

Indirect DSW Share Ownership Analyses.  Houlihan Lokey observed the following indirect ownership ratios of Retail Ventures common shares and DSW common shares based on the number of outstanding Retail Ventures common shares and the number of DSW common shares owned by Retail Ventures, less the current, maximum and minimum number of DSW common shares required to satisfy Retail Ventures’ obligations under the PIES and less Retail Ventures’ estimated net liability of $9 million divided by the current price of DSW’s class A common shares, as compared to the exchange ratio provided for in the merger of 0.435 of a share of DSW class A common shares or class B common shares per Retail Ventures common share:

 

 

 

 

Other Considerations

 

Houlihan Lokey observed that without giving effect to the proposed merger (i) Retail Ventures shareholders currently have an indirect ownership of between 0.418 and 0.438 DSW common shares per Retail Ventures common share depending upon the number of DSW common shares that may be required to satisfy Retail Ventures’ obligations under the PIES, (ii) Retail Ventures has significant NOLs and that Houlihan Lokey had been advised that Retail Ventures did not believe it would be able to utilize the NOLs to offset future tax liabilities, (iii) Retail Ventures would satisfy its obligations with respect to the PIES at maturity with DSW common shares and (iv) Retail Ventures had an estimated net liability of approximately $9 million calculated as set forth above. Houlihan Lokey also observed that as a result of the proposed merger, Retail Ventures shareholders would, in addition to the direct receipt of DSW common shares in accordance with the exchange

ratio, benefit from DSW’s ability to utilize Retail Ventures’ NOLs, subject to applicable limitations, and DSW’s ability to satisfy Retail Ventures’ obligations under the PIES in cash rather than with DSW common shares if DSW deemed appropriate. For illustrative purposes, Houlihan Lokey also compared the value of the DSW common shares to be received by unaffiliated Retail Ventures shareholders per Retail Ventures common share, based on the Exchange Ratio and closing trading prices of DSW class A common shares on January 31, 2011 and the 30 and 90 day average trading prices up to January 31, 2011 to the closing trading prices of Retail Ventures common shares on the corresponding dates and periods. Houlihan Lokey conducted this analysis under two scenarios, attributing no value to the NOLs and attributing a proportion of the estimated net present value of the NOLs based upon the percentage of the outstanding DSW common shares that would be owned by Retail Ventures shareholder after giving effect to the transaction. Houlihan Lokey observed that the value of the DSW common shares to be received per Retail Ventures common share, as set for above, without giving effect to the NOLs, as compared to the Retail Ventures trading prices over the periods described above represented a discount of 4.0% to a premium of 3.3%. Houlihan Lokey observed that the value of the DSW common shares to be received, giving effect to the NOLs, as compared to the Retail Ventures trading prices over the periods described above represented a premium of 4.1% to a premium of 11.1%.

 

Other Matters

 

Houlihan Lokey was engaged by the Retail Ventures committee to provide financial advisory services to the Retail Ventures committee in connection with its consideration of the proposed merger. The Retail Ventures committee engaged Houlihan Lokey based on Houlihan Lokey’s experience and reputation. Houlihan Lokey is regularly engaged to provide advisory services in connection with mergers and acquisitions, financings, and financial restructurings. Pursuant to the engagement letter, Retail Ventures will pay Houlihan Lokey aggregate fees of $750,000 for its services, a portion of which became payable upon the delivery of Houlihan Lokey’s opinion, regardless of the conclusion reached therein. No portion of Houlihan Lokey’s fee is contingent upon the successful completion of the merger. Retail Ventures has also agreed to reimburse Houlihan Lokey for certain expenses and to indemnify Houlihan Lokey, its affiliates and certain related parties against certain liabilities and expenses, including certain liabilities under the federal securities laws arising out of or relating to Houlihan Lokey’s engagement.

 

In the ordinary course of business, certain of Houlihan Lokey’s affiliates, as well as investment funds in which they may have financial interests, may acquire, hold or sell, long or short positions, or trade or otherwise effect transactions, in debt, equity, and other securities and financial instruments (including loans and other obligations) of, or investments in, Retail Ventures, DSW, or any other party that may be involved in the merger and their respective affiliates or any currency or commodity that may be involved in the merger.

 

Houlihan Lokey has in the past provided investment banking, financial advisory and other financial services to Retail Ventures, Schottenstein Stores Corporation, Schottenstein RVI, LLC, members of the Schottenstein family, and/or one or more of their respective affiliates and/or portfolio companies for which Houlihan Lokey has received compensation, including, among other things, having acted as financial advisor to a special committee of the Board of Directors of Retail Ventures in connection with the disposition of certain assets of Retail Ventures in 2009. Houlihan Lokey and certain of its affiliates may provide investment banking, financial advisory and other financial services to Retail Ventures, DSW, Schottenstein Stores Corporation, Schottenstein RVI, LLC, members of the Schottenstein family, other participants in the merger or certain of their respective affiliates and/or portfolio companies in the future, for which Houlihan Lokey and such affiliates may receive compensation. In addition, Houlihan Lokey and certain of its affiliates, as well as its and their respective employees, may have committed to invest in private equity or other investment funds managed or advised by participants in the merger or certain of their respective affiliates, and in portfolio companies of such funds, and may have co-invested with participants in the merger or certain of their respective affiliates and/or portfolio companies, and may do so in the future. Furthermore, in connection with bankruptcies, restructurings, and similar matters, Houlihan Lokey and certain of its affiliates may have in the past acted, may currently be acting and may in the future act as financial advisor to debtors, creditors, equity holders, trustees and other interested parties (including, without limitation, formal and informal committees or

groups of creditors) that may have included or represented and may include or represent, directly or indirectly, or may be or have been adverse to, participants in the merger or certain of their respective affiliates and/or portfolio companies, for which advice and services Houlihan Lokey and such affiliates have received and may receive compensation.

 

DSW shareholders considering the recommendation of DSW’s board of directors regarding the merger should be aware that certain directors and executive officers of DSW have interests in the merger that are different from, or in addition to, the interests of DSW shareholders generally. The DSW committee, the independent members of the DSW board, and the DSW board of directors were aware of these interests and considered them when they approved the merger agreement and the merger and the issuance of DSW class A common shares and DSW class B common shares, and recommended that the unaffiliated DSW shareholders adopt the merger agreement and approve the merger and the issuance of DSW class A common shares and DSW class B common shares.

 

Retail Ventures shareholders considering the recommendation of Retail Ventures’ board of directors regarding the merger should be aware that certain directors and executive officers of Retail Ventures have certain interests in the merger that are different from, or in addition to, the interests of Retail Ventures shareholders generally. The Retail Ventures committee and the Retail Ventures board of directors were aware of these interests and considered them when they approved the merger agreement and the merger and recommended that the Retail Ventures shareholders adopt the merger agreement and approve the merger.

 

Interests of Jay L. Schottenstein and Other Directors and Officers of DSW and Retail Ventures

 

Jay L. Schottenstein is chairman of the board of directors of DSW and was its chief executive officer until April 2009. He is also chairman of the board of Retail Ventures and Schottenstein Stores Corporation, referred to as SSC. Mr. Schottenstein beneficially owns 27,387,326 Retail Ventures common shares, representing 52.7% of the outstanding shares as of January 29, 2011. This includes (i) 195,300 common shares beneficially owned by Mr. Schottenstein individually; (ii) 1,260,000 common shares beneficially owned by SSC (Mr. Schottenstein serves as a director, chairman of the board, president and chief executive officer of SSC); (iii) 17,946,766 common shares and 1,731,460 common shares which are issuable upon the exercise of warrants beneficially owned by SRVI (Mr. Schottenstein serves as the manager of SRVI); (iv) 6,201,300 common shares beneficially owned by SEI (Mr. Schottenstein is the chairman of SEI); and (v) 52,500 common shares owned by Glosser Brothers Acquisition, Inc. (Mr. Schottenstein serves as chairman and president of Glosser Brothers Acquisition, Inc. and Mr. Schottenstein expressly disclaims beneficial ownership of these shares).

 

Mr. Schottenstein beneficially owned 2,086,515 DSW class A common shares, representing 12.2% of the outstanding class A common shares as of January 29, 2011. This includes (i) 350,100 class A common shares held by various family trusts for which Mr. Schottenstein serves as trustee and is therefore deemed to beneficially own such shares; (ii) 328,915 class A common shares beneficially owned by SRVI, LLC, which are issuable upon the exercise of warrants; (iii) 1,292,900 class A common shares beneficially owned by SEI; and (iv) 114,600 class A common shares that Mr. Schottenstein has a right to purchase within 60 days of January 29, 2011.

 

Harvey L. Sonnenberg is a member of the board of directors of Retail Ventures and DSW. Mr. Sonnenberg beneficially owned 82,500 Retail Ventures common shares, which represent approximately 0.2% of the outstanding Retail Ventures common shares as of January 29, 2011, and 20,796 DSW class A common shares, which represent approximately 0.1% of the outstanding DSW class A common shares as of January 29, 2011.

 

Heywood Wilansky is a member of the board of directors of DSW who served as a member of the board of directors of Retail Ventures until July 2009, and as president and chief executive officer of Retail Ventures until January 2009. As of January 29, 2011, Mr. Wilansky beneficially owned no Retail Ventures common shares, and 25,000 DSW class A common shares, which represent approximately 0.2% of the outstanding DSW class A common shares.

James A. McGrady is the chief executive officer, president, chief financial officer and treasurer of Retail Ventures and a vice president of DSW. As of January 29, 2011, Mr. McGrady beneficially owned 311,000 Retail Ventures common shares, which represent approximately 0.6% of the outstanding Retail Ventures common shares, and 20,500 DSW class A common shares, which represent approximately 0.1% of the outstanding DSW class A common shares.

 

James D. Robbins, is a member of the board of directors of DSW and chairman of the DSW committee. As of January 29, 2011, Mr. Robbins’ spouse beneficially owned 94 Retail Ventures common shares, which represent less than 0.1% of the outstanding Retail Ventures common shares.

 

One member of the Retail Ventures board of directors at the effective time of the merger who is not currently a director of DSW will become a director of DSW. DSW and Retail Ventures anticipate that this director will be Henry L. Aaron.

 

Interests of Directors and Executive Officers of Retail Ventures, Inc.

 

Treatment of Equity Awards.  The two executive officers of Retail Ventures each hold equity incentive compensation awards denominated in common shares of Retail Ventures, but all such awards are presently vested. Certain of the directors of Retail Ventures hold unvested options to purchase common shares of Retail Ventures that will vest in connection with the merger. The following table sets forth, for each director, as of January 29, 2011, the number of shares subject to his or her unvested options and the weighted-average exercise price of such options.

 

 

Retention and Severance Obligations.  Each executive officer of Retail Ventures, Mr. McGrady and Ms. Davis, is a party to an employment agreement with Retail Ventures and participates in a retention bonus plan approved by the Retail Ventures compensation committee on February 3, 2011. Each of the employment agreements provides for a one-year post-termination non-competition period and a two-year post-termination non-solicitation and non-interference period and customary confidentiality, non-disparagement and cooperation requirements.

 

Pursuant to the retention bonus plan, each executive officer will receive a monthly retention bonus of $10,000 for each full and partial month in which he or she remains employed with Retail Ventures from March 1, 2011 through February 29, 2012. The maximum amount of the retention bonus payable to each executive officer for the twelve-month period is $120,000.

 

The employment agreement with Mr. McGrady provides that upon a termination without “cause” he generally will be entitled to: (i) continued payment of base salary for 12 months (for a maximum payment of $200,000 at his present base salary); (ii) payment of any declared but unpaid incentive bonus; and (iii) continuation of his health insurance coverage for 12 months. Mr. McGrady will also be entitled under the employment agreement to retention payments of $10,000 per month until and including July 1, 2013 if he is terminated by Retail Ventures or if he resigns provided that, if requested by Retail Ventures, he enters into a mutually agreeable consulting agreement with Retail Ventures for a period up to and including July 31, 2013.

 

The employment agreement with Ms. Davis provides that upon a termination without “cause” she generally will be entitled to: (i) continued payment of base salary for 12 months (for a maximum payment of $360,000 at her present base salary); (ii) reimbursement for the cost of maintaining continuing health insurance coverage for a period of no more then 12 months; (iii) the pro rata share of any cash incentive bonus that she would have otherwise received for the year of termination had she remained employed; and (iv) an additional year of vesting service credit for equity incentive compensation award purposes.

See also the section entitled “— Material Agreements and Relationships Between the Parties” beginning on page 57.

 

Committee Compensation

 

The DSW committee consists of four disinterested and independent directors, Messrs. Robbins, Miller, and Tanenbaum, and Ms. Lau. DSW’s board of directors authorized the compensation for the members of the DSW committee and each of the independent directors, in addition to the reimbursement of expenses and payment of all other fees that they receive as members of the DSW board of directors. The DSW board of directors determined that each member of the committee and each independent director will receive remuneration in the amount of $3,000 per meeting attended in consideration of his or her acting in such capacity, and the chairman of the DSW committee will receive a $25,000 cash retainer. The approved compensation for the members of the DSW committee was not, and is not, contingent upon the approval of the merger proposal and completion of the merger or any other transaction involving DSW.

 

The Retail Ventures committee consists of three disinterested and independent directors, Messrs. Weisman and Ring and Ms. Eveillard. Retail Ventures’ board of directors authorized the compensation for the members of the Retail Ventures committee in addition to the reimbursement of expenses and payment of all other fees that they receive as members of the Retail Ventures board of directors. The Retail Ventures board of directors determined that each member receive remuneration in the amount of $5,000 per month of service on the committee in consideration of his or her acting in such capacity, and Mr. Weisman receive $10,000 per month in consideration of his role as chairman. On February 3, 2011, in light of the increased time and effort that Mr. Weisman had devoted to the negotiations of the proposed transaction and the view that this increased workload would continue until closing of the merger, the Retail Ventures compensation committee approved a one-time payment of $25,000 to Mr. Weisman and an increase in his monthly retainer to $15,000, beginning in February of 2011. The approved compensation for the members of the Retail Ventures committee was not, and is not, contingent upon the approval of the merger proposal and completion of the merger or any other transaction involving Retail Ventures.

 

Indemnification and Insurance

 

The merger agreement provides that from and after the effective time of the merger, DSW will indemnify and hold harmless all past and present directors and officers and employees of Retail Ventures to the same extent such persons are indemnified as of the date of the merger agreement by Retail Ventures pursuant to Retail Ventures’ articles of incorporation, code of regulations, or indemnification agreements in existence on the date of the merger agreement arising out of acts or omissions in their capacity as directors or officers or employees of Retail Ventures or any subsidiary occurring at or prior to the effective time of the merger.

 

For six years following the effective time of the merger, DSW will purchase and maintain a “tail” directors’ and officers’ liability insurance policy for the persons who, as of the date of the merger agreement or as of the effective time of the merger, are covered by Retail Ventures’ existing directors’ and officers’ liability insurance, with respect to claims arising from facts or events which occurred at or before the effective time of the merger, with substantially the same coverage and amounts and terms and conditions as the existing policies of directors’ and officers’ liability insurance maintained by Retail Ventures, or the maximum coverage available on substantially equivalent terms for a cost not to exceed $1.75 million.

 

In addition to the merger agreement and the merger, certain additional agreements, relationships, and transactions have existed and will continue to exist among DSW, Retail Ventures and their respective affiliates, which are described in Item 13, “Certain Relationships, Related Transactions and Director Independence” in DSW’s Annual Report on Form 10-K for the fiscal year ended January 30, 2010, which was filed by DSW on March 24, 2010, and Item 13, “Certain Relationships, Related Transactions and Director Independence” in Retail Ventures’ Annual Report on Form 10-K for the fiscal year ended January 30, 2010, which was filed by Retail Ventures on April 14, 2010, as amended on October 12, 2010, and in each case incorporated by

reference in this joint proxy statement/prospectus. Please see the section entitled “Where You Can Find More Information; Incorporation by Reference” beginning on page 126 for how you can obtain information incorporated by reference in this joint proxy statement/prospectus. The following updates such descriptions for new matters occurring since January 30, 2010 and to describe the impact of the merger.

 

Non-Continuing Agreements

 

The following agreements will be terminated as of the effective time of the merger, or such other date specified below:

 

Loan Agreement.  SEI, an affiliate of SSC and Retail Ventures, is obligated, pursuant to a loan agreement entered into immediately prior to the execution of the merger agreement, to lend up to $30 million to Retail Ventures to provide for the ongoing working capital and general business needs of Retail Ventures for the term of the loan. Retail Ventures made a one-time commitment fee payment to SEI in the amount of $2,625,000. Interest will accrue on the unpaid balance of the loan at a rate of LIBOR plus 5% per year, unless a default occurs under the loan agreement, in which case interest will accrue at a rate of LIBOR plus 7% per year. The loan agreement contemplates that the loan will mature on the earlier of February 8, 2013, or two days after the consummation of the merger. The amount outstanding as of the date this joint proxy statement/prospectus is first mailed to shareholders is $[    l    ] of which $3.64 million was paid to settle a lawsuit filed by Value City and to satisfy Retail Ventures’ obligations arising under the settlement agreement and release with Value City entered into on December 21, 2010.

 

Amended and Restated Shared Services Agreement.  Effective March 17, 2008, DSW entered into an amended and restated shared services agreement with Retail Ventures and its subsidiaries. Under this agreement, DSW provides Retail Ventures and its subsidiaries with services relating to risk management, tax, financial services, benefits administration, payroll and information technology.

 

Exchange Agreement.  In connection with DSW’s initial public offering in July 2005, DSW and Retail Ventures entered into an exchange agreement. The exchange agreement provides that if Retail Ventures desires to exchange all or a portion of the DSW class B common shares held by it for DSW class A common shares, DSW will issue to Retail Ventures an equal number of duly authorized, validly issued, fully paid and nonassessable DSW class A common shares in exchange for the DSW class B common shares of DSW held by Retail Ventures. Retail Ventures may make one or more requests for such exchange, covering all or a part of the DSW class B common shares that it holds.

 

Footwear Fixture Agreement.  In connection with the completion of DSW’s initial public offering in July 2005, DSW and Retail Ventures entered into an agreement related to DSW’s patented footwear display fixtures. DSW agreed to sell to Retail Ventures, upon its request, the fixtures covered by the patents at the cost associated with obtaining and delivering them. In addition, DSW has agreed to pay Retail Ventures a percentage of any net profit DSW may receive should DSW ever market and sell the fixtures to third parties.

 

Partially-Continuing Agreement

 

Master Separation Agreement.  The master separation agreement, dated July 5, 2005, between DSW and Retail Ventures will be terminated as of the effective time of the merger, except for certain provisions that provide registration rights to the Schottenstein Affiliates (other than DSW) as holders of DSW common shares after the merger.

 

Continuing Agreements

 

Tax Separation Agreement.  The tax separation agreement provides that DSW is exclusively responsible for preparing any tax return with respect to Retail Ventures’ consolidated group or any combined group. For purposes related to an applicable statute of limitations, DSW and Retail Ventures have no plans to terminate this agreement in connection with the merger.

For fiscal years after fiscal 2007, DSW and Retail Ventures ceased reimbursing each other for the benefits or detriments derived from combined and unitary state and local filing positions. In fiscal 2009, Retail Ventures contributed tax benefits to DSW resulting in non-cash capital contributions of $4.7 million.

 

Continuing Agreements between DSW and the Schottenstein Affiliates

 

Leases and Subleases

 

 

Merchandise Transactions with the Schottenstein Affiliates.  DSW purchases merchandise from Schottenstein Affiliates from time to time. During fiscal 2009, DSW purchased merchandise from Schottenstein Affiliates in an amount immaterial to its financial statements. Any merchandise purchases from such sources are on terms at least as favorable to DSW as could be obtained in an arm’s length transaction with an unaffiliated third party.

 

Corporate Services Agreement with SSC.  DSW receives services from SSC pursuant to a corporate services agreement between Retail Ventures and SSC. The agreement sets forth the costs of shared services, including specified legal, advertising, import, real estate, travel expense, and administrative services. For fiscal 2009, DSW’s allocated portion of the amount it paid to SSC was in an amount immaterial to its financial statements.

 

Until July 2004, DSW was self-insured through its participation in a self-insurance program maintained by SSC. While DSW no longer participates in the program, it remains liable for liabilities incurred by DSW under the program. Under the program, SSC charged Retail Ventures amounts based, among other factors, on loss experience and its actual payroll and related costs for administering the program. For fiscal year 2009,

DSW’s allocated portion of the amount Retail Ventures paid SSC was in an amount immaterial to the financial statements.

 

Registration Rights Agreement.  DSW entered into a registration rights agreement with certain Schottenstein Affiliates, under which DSW agreed to register in specified circumstances the DSW class A common shares issued to such Schottenstein Affiliates upon exercise of warrants, and such Schottenstein Affiliates and Millenium will be entitled to participate in the registrations initiated by other entities. Under this agreement, such Schottenstein Affiliates (together with transferees of at least 15% of its interest in registrable DSW common shares) may request up to five demand registrations with respect to the DSW class A common shares issued to it upon exercise of its warrants provided that no party may request more than two demand registrations, except that such Schottenstein Affiliates may each request up to three demand registrations. The agreement also grants such Schottenstein Affiliates and Millennium the right to include these DSW class A common shares in an unlimited number of other registrations of any of DSW’s securities initiated by DSW or on behalf of DSW’s other shareholders (other than a demand registration made under the agreement).

 

Taryn Rose.  In January 2010, DSW invested approximately $1.2 million into an entity that purchased certain assets of Taryn Rose, a luxury comfortable shoe brand. In exchange for its $1.2 million investment, DSW received a 19.9% interest in the entity. The 80.1% owner of the entity is a Schottenstein Affiliate.

 

Corporate Opportunities.  Following the merger, the Schottenstein Affiliates will remain a substantial shareholder of DSW. SSC is engaged in the same or similar activities or lines of business as DSW and has interests in the same areas of corporate opportunities. Pursuant to DSW’s Amended and Restated Articles of Incorporation, after the merger, SSC will continue to have the right to engage in the same businesses as DSW, to do business with DSW’s suppliers and customers and to employ any of DSW’s officers or employees. In the event that SSC or any of its directors or officers who is also one of DSW’s directors or officers learns about a potential transaction or business opportunity which DSW is financially able to undertake, which is in DSW’s line of business, which is of practical advantage to DSW and in which DSW has an interest or a reasonable expectancy, but which may also be appropriate for SSC, the following provisions will continue to apply:

 

 

 

Upon completion of the merger, each Retail Ventures common share outstanding immediately prior to the effective time of the merger will be canceled and converted automatically into the right to receive 0.435 fully paid and non-assessable DSW class A common shares, unless the shareholder properly and timely elects to receive an equal number of DSW class B common shares in lieu of DSW class A common shares. DSW will not issue any fractional shares in connection with the merger. Instead, each holder of Retail Ventures common shares who would otherwise be entitled to receive a fraction of a DSW common share will receive cash,

without interest, in an amount equal to the fraction multiplied by the closing price of DSW class A common shares on the NYSE on the last trading day immediately preceding the closing date of the merger. See the section entitled “The Merger — Effect on Awards Outstanding Under Retail Ventures Equity Plans” beginning on page 61 for a description of the treatment of stock options, stock appreciation rights and other awards under Retail Ventures’ equity plans.

 

No later than the mailing of this joint proxy statement/prospectus, each Retail Ventures common shareholder will be mailed an election form that will permit the holder to elect to receive DSW class B common shares in lieu of DSW class A common shares as merger consideration. All Retail Ventures common shareholders who do not complete an election form will become entitled to receive the merger consideration in the form of DSW class A common shares. The deadline for completing an election form is 5:00 p.m., New York time, on the fifth business day prior to the effective time of the merger. DSW will publicly announce the anticipated deadline at least 10 business days prior to the anticipated effective time of the merger. If the effective time of the merger is delayed to a subsequent date, the election deadline will be delayed by the same number of days, and DSW will promptly announce any such delay and, when determined, the rescheduled election deadline. Any election form may be revoked or changed by the person submitting the election form by written notice received prior to the election deadline.

 

Promptly following the effective time of the merger, the exchange agent will mail to each record holder of Retail Ventures common shares a letter of transmittal and instructions for surrendering the record holder’s share certificates in exchange for certificates representing the DSW class A common shares or DSW class B common shares issuable to such holder pursuant to the merger. Retail Ventures shareholders who hold their shares in book entry form also will receive instructions for the exchange of their shares for the merger consideration from the exchange agent. Following the completion of the merger, Retail Ventures will not register any transfers of Retail Ventures common shares on its share transfer books.

 

Those holders of Retail Ventures common shares who properly surrender their Retail Ventures share certificates (or uncertificated shares) in accordance with the exchange agent’s instructions will receive (a) the DSW class A common shares or DSW class B common shares issuable to them pursuant to the merger, (b) cash, without interest, in lieu of any fractional DSW class A common share or DSW class B common share issuable to such holders, and (c) dividends or other distributions, if any, to which they are entitled under the terms of the merger agreement.

 

At the effective time of the merger, options to purchase Retail Ventures common shares, stock appreciation rights based on Retail Ventures common shares, and all other outstanding Retail Ventures stock awards will be converted into options to purchase DSW class A common shares, stock appreciation rights based on DSW class A common shares, and stock awards based on DSW class A common shares, respectively. The number of DSW class A common shares issuable upon the exercise of such converted awards will be equal to the number of Retail Ventures common shares that were issuable upon exercise of the award under the applicable Retail Ventures equity plan immediately prior to the effective time of the merger, multiplied by the exchange ratio, rounded down to the nearest whole share. The per share exercise price of such converted awards (if any) will be the per share exercise price of the award under the applicable Retail Ventures equity plan immediately prior to the effective time of the merger, divided by the exchange ratio, rounded up to the nearest whole cent.

 

Merger Sub will assume by operation of law, as of the effective time of the merger, the warrants issued by Retail Ventures to purchase either Retail Ventures common shares or DSW class A common shares held by Retail Ventures to the extent such warrants remain outstanding immediately prior to the effective time of the merger. Following the effective time of the merger, the right to exercise such warrants for DSW class A common shares will continue in accordance with the terms of the warrants. Following the effective time of the merger, each warrant to purchase either Retail Ventures common shares or DSW class A common shares will, in accordance with the terms of the warrants, represent the right to purchase a number of DSW class A common shares equal to the number of Retail Ventures common shares that could have been purchased pursuant to such warrant immediately prior to the effective time of the merger, multiplied by the exchange ratio, rounded down to the nearest whole share. The per share exercise price of each warrant will be the exercise price applicable under such warrant for Retail Ventures common shares immediately prior to the effective time of the merger, divided by the exchange ratio, rounded up to the nearest whole cent.

 

Merger Sub will assume, as of the effective time of the merger, by supplemental indenture and supplemental agreement, all of Retail Ventures’ obligations with respect to the PIES.

 

At the effective time of the merger, the board of directors of DSW will be increased to 12 members and will include a director of Retail Ventures who is not currently a director of DSW. DSW and Retail Ventures anticipate that this director will be Henry L. Aaron. The management of DSW is not expected to change in connection with the merger.

 

The following is a discussion of the material U.S. federal income tax consequences of the merger to U.S. persons who hold Retail Ventures common shares. The discussion which follows is based on the Code, Treasury regulations issued under the Code, and judicial and administrative interpretations thereof, all as in effect as of the date of this joint proxy statement/prospectus and all of which are subject to change at any time, possibly with retroactive effect. The discussion applies only to shareholders who hold Retail Ventures common shares as a capital asset within the meaning of section 1221 of the Code. The discussion assumes that the merger will be completed in accordance with the merger agreement and as further described in this joint proxy statement/prospectus. This discussion is not a complete description of all of the consequences of the merger, and, in particular, may not address U.S. federal income tax considerations applicable to Retail Ventures shareholders subject to special treatment under U.S. federal income tax law, including, without limitation:

 

 

 

In addition, tax consequences arising under state, local and foreign laws or under federal laws other than federal income tax laws, are not addressed in this joint proxy statement/prospectus.

 

Retail Ventures shareholders are strongly urged to consult with their own tax advisors regarding the tax consequences of the merger to them, including the effects of U.S. federal, state, local, foreign and other tax laws.

 

Tax Consequences of the Merger to Retail Ventures Shareholders

 

It is a condition to the obligation of Retail Ventures to complete the merger that the IRS Private Letter Rulings remain in full force and effect or that Retail Ventures receive a written opinion from tax counsel to Retail Ventures to the effect that the merger will be treated as a “reorganization” within the meaning of section 368(a) of the Code. It is a condition to the obligation of DSW to effect the merger that the IRS Private Letter Rulings remain in full force and effect or that DSW receive a written opinion from tax counsel to DSW to the effect that the merger will be treated as a “reorganization” within the meaning of section 368(a) of the Code. Neither Retail Ventures nor DSW currently intends to waive this opinion condition to its obligation to effect the merger. If either Retail Ventures or DSW does waive this opinion condition after the registration statement is declared effective, and if the U.S. federal income tax consequences of the merger to Retail Ventures shareholders have materially changed, Retail Ventures and DSW will recirculate the joint proxy statement/prospectus and resolicit the shareholder votes of Retail Ventures and DSW. Although a private letter ruling from the IRS generally is binding on the IRS, if the factual representations or assumptions made in the IRS Private Letter Ruling requests are untrue or incomplete in any material respect, we will not be able to rely on the rulings. Further, any opinion provided by tax counsel of Retail Ventures or DSW would rely on assumptions, representations and covenants, which may include assumptions regarding the absence of changes in existing facts and law and the completion of the merger in the manner contemplated by the merger agreement and representations contained in representation letters of officers of Retail Ventures, DSW and Merger Sub. If any of those representations, covenants or assumptions is inaccurate, tax counsel may be unable to render the required opinion and the merger may not be completed or the tax consequences of the merger could differ from those discussed here. An opinion of counsel represents counsel’s best legal judgment and is not binding on the IRS, or any court, nor does it preclude the IRS from adopting a contrary position.

 

Provided that the merger qualifies as a reorganization within the meaning of section 368(a) of the Code, for U.S. federal income tax purposes, in general:

 

 

Retail Ventures shareholders who hold Retail Ventures shares with differing bases or holding periods should consult their tax advisors with regard to identifying the bases or holding periods of the particular DSW common shares received in the merger.

 

The discussion of material U.S. federal income tax consequences set forth above is not intended to be a complete analysis or description of all potential U.S. federal income tax consequences of the merger. Moreover, the discussion set forth above does not address tax consequences that may vary with, or are contingent upon, individual circumstances. In addition, the discussion set forth above does not address any non-income tax or any foreign, state or local tax consequences of the merger and does not address the tax consequences of any transaction other than the merger.

 

The pending transaction between DSW and Retail Ventures will be accounted for as a reverse merger with Retail Ventures as the accounting acquirer and DSW as the accounting acquiree (which is the surviving entity for legal purposes). As this is a common control transaction under ASC 805, Business Combinations, the transaction will be accounted for as an equity transaction in accordance with ASC 810, Consolidation, the acquisition of a noncontrolling interest and will not require purchase accounting.

 

Furthermore, because Retail Ventures is treated as the continuing reporting entity for accounting purposes, the reports filed by DSW, as the surviving corporation in the transaction, after the date of the transaction will be prepared as if Retail Ventures were the legal successor to its reporting obligation as of the date of the transaction. Accordingly, prior period financial information presented in the DSW financial statements will reflect the historical activity of Retail Ventures.

 

It is a condition to the merger that at or prior to the effective time, the DSW class A common shares which may be issued to Retail Ventures shareholders pursuant to the merger agreement and the DSW class A common shares to be reserved for issuance upon the exercise, vesting, or payment under any Retail Ventures stock award are approved for listing on the NYSE, subject to official notice of issuance. The DSW class A common shares will continue to be listed on the NYSE under the symbol “DSW.”

 

DSW class B common shares will not be listed on any securities exchange, such as the NYSE or Nasdaq Stock Market.

 

DSW Shareholders

 

If the merger agreement is adopted and the merger is approved, a holder of DSW common shares who does not vote in favor of adopting the merger agreement and approving the merger may be entitled to seek relief as a dissenting shareholder under section 1701.85 of the ORC.

 

The following is a summary of the principal steps a DSW shareholder must take to perfect dissenting shareholders’ rights under the ORC. This summary is qualified by reference to section 1701.85 and other provisions of the ORC. Any shareholder contemplating exercise of such person’s dissenting shareholders’ rights is urged to carefully review the provisions of section 1701.85 and to consult an attorney, since failure to follow fully and precisely the procedural requirements of the statute may result in termination or waiver of

such rights. A copy of section 1701.85 of the ORC is attached to this joint proxy statement/prospectus as Appendix E and is incorporated herein by reference.

 

To perfect dissenting shareholders’ rights, a dissenting DSW shareholder must satisfy each of the following conditions and must otherwise comply with section 1701.85:

 

 

DSW and a dissenting shareholder may come to an agreement as to the fair cash value of the dissenting shareholder’s DSW common shares. If DSW and any dissenting shareholder cannot agree upon the fair cash value of the DSW common shares, then either DSW or the dissenting shareholder may, within three months after service of the dissenting shareholder’s demand for fair cash value, file a petition in the Court of Common Pleas in Franklin County, Ohio for a determination that the shareholder is entitled to exercise dissenting shareholders’ rights and to determine the fair cash value of the DSW common shares. The cost of the proceeding, including reasonable compensation to the appraisers to be fixed by the court, will be assessed as the court considers equitable.

 

“Fair cash value” is the amount that a willing seller, under no compulsion to sell, would be willing to accept, and that a willing buyer, under no compulsion to purchase, would be willing to pay. In no event will the fair cash value be in excess of the amount specified in the dissenting shareholder’s demand. Fair cash value is determined as of the day before the meeting to adopt the merger agreement and approval of the

merger. The amount of the fair cash value excludes any appreciation or depreciation in market value of the shares resulting from the merger. The fair cash value of the shares may be higher, the same as, or lower than the market value of the shares on the date of the merger. Shareholders should be aware that investment banking opinions as to the fairness, from a financial point of view, of the consideration payable in a merger are not opinions as to, and do not in any way address, fair cash value under section 1701.85 of the ORC.

 

Payment of the fair cash value must be made within 30 days after the later of the final determination of such value or the closing date of the merger. Such payment shall be made only upon simultaneous surrender to DSW of the share certificates for which such payment is made.

 

A dissenting shareholder’s rights to receive the fair cash value of such person’s DSW common shares will terminate if:

 

 

All rights accruing from DSW common shares, including voting and dividend and distribution rights, are suspended from the time a dissenting shareholder makes a demand for payment with respect to such shares until the termination or satisfaction of the rights and obligations of the dissenting shareholder and DSW arising from such demand. During this period of suspension, any dividend or distribution paid on the common shares will be paid to the record owner as a credit upon the fair cash value thereof. If a shareholder’s dissenters’ rights are terminated other than by purchase by DSW of the dissenting shareholder’s common shares, then at the time of termination all rights will be restored and all distributions that would have been made, but for suspension, will be made.

 

Retail Ventures Shareholders

 

If the merger agreement is adopted and the merger is approved, a holder of Retail Ventures common shares who does not vote in favor of adopting the merger agreement and approving the merger may be entitled to seek relief as a dissenting shareholder under section 1701.85 of the ORC.

 

The following is a summary of the principal steps a Retail Ventures shareholder must take to perfect dissenting shareholders’ rights under the ORC. This summary is qualified by reference to section 1701.85 and other provisions of the ORC. Any shareholder contemplating exercise of dissenting shareholders’ rights is urged to carefully review the provisions of section 1701.85 and to consult an attorney, since failure to follow fully and precisely the procedural requirements of the statute may result in termination or waiver of such rights. A copy of section 1701.85 of the ORC is attached to this joint proxy statement/prospectus as Appendix E and is incorporated herein by reference.

 

To perfect dissenting shareholders’ rights, a dissenting Retail Ventures shareholder must satisfy each of the following conditions and must otherwise comply with section 1701.85:

 

 

 

Retail Ventures and a dissenting shareholder may come to an agreement as to the fair cash value of the dissenting shareholder’s Retail Ventures common shares. If Retail Ventures and any dissenting shareholder cannot agree upon the fair cash value of the Retail Ventures common shares, then either Retail Ventures or the dissenting shareholder may, within three months after service of the dissenting shareholder’s demand for fair cash value, file a petition in the Court of Common Pleas in Franklin County, Ohio for a determination that the shareholder is entitled to exercise dissenting shareholders’ rights and to determine the fair cash value of the common shares. The cost of the proceeding, including reasonable compensation to the appraisers to be fixed by the court, will be assessed as the court considers equitable.

 

“Fair cash value” is the amount that a willing seller, under no compulsion to sell, would be willing to accept, and that a willing buyer, under no compulsion to purchase, would be willing to pay. In no event will the fair cash value be in excess of the amount specified in the dissenting shareholder’s demand. Fair cash value is determined as of the day before the meeting to adopt the merger agreement and approve the merger. The amount of the fair cash value excludes any appreciation or depreciation in market value of the shares resulting from the merger. The fair cash value of the shares may be higher, the same as, or lower than the value that Retail Ventures shareholders would be entitled to receive under the terms of the merger agreement. Shareholders should be aware that investment banking opinions as to the fairness, from a financial point of view, of the consideration payable in a merger are not opinions as to, and do not in any way address, fair cash value under section 1701.85 of the ORC.

 

Payment of the fair cash value must be made within 30 days after the later of the final determination of such value or the closing date of the merger. Such payment shall be made only upon simultaneous surrender to Retail Ventures of the share certificates for which such payment is made.

A dissenting shareholder’s rights to receive the fair cash value of their Retail Ventures common shares will terminate if:

 

 

All rights accruing from Retail Ventures common shares, including voting and dividend and distribution rights, are suspended from the time a dissenting shareholder makes a demand for payment with respect to such shares until the termination or satisfaction of the rights and obligations of the dissenting shareholder and Retail Ventures arising from such demand. During this period of suspension, any dividend or distribution paid on the common shares will be paid to the record owner as a credit upon the fair cash value thereof. If a shareholder’s dissenters’ rights are terminated other than by purchase by Retail Ventures of the dissenting shareholder’s common shares, then at the time of termination all rights will be restored and all distributions that would have been made, but for suspension, will be made.

 

 

To complete the merger, DSW and Retail Ventures are required to maintain the effectiveness of the IRS Private Letter Rulings, which are described in the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 10, and DSW is required to obtain the approval of the listing of the DSW class A common shares to be issued in the merger on the NYSE. DSW and Retail Ventures currently are not aware of additional material governmental consents, approvals, or filings that are required prior to the parties’ consummation of the merger, and the merger is not subject to the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. If additional material consents, approvals, or filings are required to complete the merger, it is presently contemplated that such consents, approvals or filings will be sought or made. The parties’ obligations to complete the merger are conditioned upon the absence of any injunction prohibiting the merger.

 

DSW and Retail Ventures will seek to complete the merger in the second quarter of DSW’s 2011 fiscal year. While DSW and Retail Ventures currently do not expect any action by a regulatory authority to enjoin or prohibit the merger or otherwise impose conditions upon or changes to the merger, there can be no assurance that there will not be any such actions, conditions or changes, and any such actions, conditions or changes could have the effect of delaying completion of the merger or imposing additional costs on the parties or limiting revenues following the merger.

 

 

Purported shareholders of Retail Ventures have filed a putative shareholder class action lawsuit in an Ohio state court against Retail Ventures and its directors and chief executive officer, referred to, collectively, as the Retail Ventures defendants, and DSW. The lawsuit alleges, among other things, that Retail Ventures and its directors breached their fiduciary duties by approving the merger agreement, and that Retail Ventures’ chief executive officer and DSW aided and abetted in these alleged breaches of fiduciary duty. The complaint seeks, among other things, to enjoin the shareholder vote on the merger, as well as money damages. While the Retail Ventures defendants and DSW believe the lawsuits are without merit and intend to defend vigorously against these claims, the outcome of any such litigation is inherently uncertain. If a dismissal is not granted or a settlement is not reached, the lawsuit could prevent or delay the completion of the merger and result in substantial costs to Retail Ventures and DSW. In addition, the defense or settlement of any lawsuit or claim that remains unresolved at the time the merger closes could adversely affect DSW’s business, financial condition or results of operations.

 

The following summary describes certain aspects of the merger, including material provisions of the merger agreement. This summary may not include all of the information about the merger agreement that is important to you. The following description of the merger agreement is subject to, and qualified in its entirety by reference to, the Agreement and Plan of Merger, which is attached to this joint proxy statement/prospectus as Appendix A and is incorporated by reference in this joint proxy statement/prospectus. We urge you to read the merger agreement carefully and in its entirety.

 

The merger agreement and the following summary have been included to provide you with information regarding the terms of the merger agreement and are not intended to provide you with any factual information about any party to the merger agreement, including any information about their condition (financial or otherwise). Specifically, although the merger agreement contains representations and warranties of each of DSW, Retail Ventures, and Merger Sub, the assertions embodied in those representations and warranties were made for purposes of the merger agreement and the closing conditions under the merger agreement and are subject to qualifications and limitations agreed to by the respective parties in connection with negotiating the terms of the merger agreement, including exceptions and other information contained in the confidential disclosure schedules that the parties exchanged in connection with signing the merger agreement that are not included in this joint proxy statement/prospectus. In addition, certain representations and warranties were made as of a specific date, may be subject to a contractual standard of materiality different from what might be viewed as material to shareholders or may have been used for purposes of allocating risk between the respective parties rather than establishing matters of fact. Moreover, information concerning the subject matter of such representations and warranties may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in public disclosures. Accordingly, you should not look to or rely on such representations and warranties for information about the parties to the merger agreement. You should read the merger agreement together with the other information in this joint proxy statement/prospectus and that we publicly file in reports and statements with the SEC. See the section entitled “Where You Can Find More Information; Incorporation by Reference” beginning on page 126.

 

Each of the independent members of the DSW board of directors, the Retail Ventures board of directors and the sole member of Merger Sub approved the merger agreement, which provides for the merger of Retail Ventures with and into Merger Sub, with Merger Sub surviving the merger as a wholly owned subsidiary of DSW.

 

The merger will become effective when a certificate of merger is filed with the Ohio Secretary of State (or at a later time as specified in the certificate of merger). DSW and Retail Ventures will cause the certificate of merger to be filed as soon as practicable on or after the closing, which will take place on the second business day after the satisfaction or (to the extent permitted by applicable law) waiver of the parties’ conditions to completion of the merger, or on such other date as agreed to by DSW and Retail Ventures. See the section entitled “— Conditions to the Completion of the Merger” beginning on page 80.

 

Upon completion of the merger, each Retail Ventures common share outstanding immediately prior to the effective time of the merger will be canceled and automatically converted into the right to receive 0.435 fully paid and non-assessable DSW class A common shares, or if the shareholder properly and timely elects to do so, the shareholder may receive an equal number of DSW class B common shares in lieu of DSW class A common shares, plus any cash payable in respect of any fractional DSW common shares, as described below in the section entitled “— Fractional Shares” beginning on page 70.

After the merger is effective, each holder of a certificate or book entry position formerly representing Retail Ventures common shares will no longer have any rights as a shareholder of Retail Ventures with respect to the shares, except for the right to receive the merger consideration.

 

The exchange ratio will be appropriately adjusted if, at any time between the signing of the merger agreement and the effective time of the merger, there is any change in the number or class of the outstanding shares of DSW or Retail Ventures, by reason of any stock split, reverse stock split, stock dividend, reorganization, recapitalization, reclassification or other like change with a record date during that period.