UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
R
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Fiscal Year Ended January 29, 2011

OR

£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934


Commission file number 1-32545

DSW INC.
(Exact name of registrant as specified in its charter)

Ohio
 
31-0746639
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
810 DSW Drive, Columbus, Ohio
 
43219
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code (614) 237-7100

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:
 
Name of each exchange on which registered:
Class A Common Shares, without par value
 
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
£   Yes   R No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
 
£   Yes   R   No

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
£   Yes   £   No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
 
£

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 definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer   £

Accelerated Filer   R

Non-accelerated Filer   £
(Do not check if smaller reporting company)

Smaller reporting company   £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

£ Yes         R No
 
The aggregate market value of voting stock held by non-affiliates of the registrant computed by reference to the price at which such voting stock was last sold, as of July 31, 2010, was $442,727,627.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 16,812,217 Class A Common Shares and 27,382,667 Class B Common Shares were outstanding at March 1, 2011.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s Proxy Statement relating to fiscal 2010 for the Annual Meeting of Shareholders to be held on May 19, 2011 are incorporated by reference into Part III.
 
 
 
 
 
TABL E OF CONTENTS

Item No.
 
Page  
     
PART I
 
2
 
7
 
15
 
15
 
15
 
16
PART II
 
17
 
19
 
20
 
30
 
30
 
   30
 
30
 
31
PART III
 
32
 
32
 
32
 
33
 
33
PART IV
 
34
 
35

 
i

TABLE OF CONTENTS TO FINANCIAL STATEMENTS

F-1
F-2
F-3
F-4
F-5
F-6
   
E-1

 
ii

PART I

All references to “we,” “us,” “our,” “DSW” or the “Company” in this Annual Report on Form 10-K mean DSW Inc. and its wholly-owned subsidiaries, except where it is made clear that the term only means DSW Inc. DSW Class A Common Shares are listed for trading under the ticker symbol “DSW” on the New York Stock Exchange (“NYSE”).

All references to “Retail Ventures”, or “RVI”, in this Annual Report on Form 10-K mean Retail Ventures, Inc. and its subsidiaries, except where it is made clear that the term only means the parent company. DSW is a controlled subsidiary of Retail Ventures. RVI Common Shares are listed for trading under the ticker symbol “RVI” on the NYSE.

We own many trademarks and service marks. This Annual Report on Form 10-K may contain trade dress, tradenames and trademarks of other companies. Use or display of other parties’ trademarks, trade dress or tradenames is not intended to and does not imply a relationship with the trademark, trade dress or tradename owner.

Cautionary Statement Regarding Forward-Looking Information for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

Some of the statements in this Annual Report on Form 10-K contain forward-looking statements which reflect our current views with respect to, among other things, future events and financial performance. You can identify these forward-looking statements by the use of forward-looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of those words or other comparable words. Any forward-looking statements contained in this Annual Report on Form 10-K are based upon current plans, estimates, expectations and assumptions relating to our operations, results of operations, financial condition, growth strategy and liquidity. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to numerous risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.  In addition to other factors discussed elsewhere in this report, including those factors described under "Part I, Item 1A. Risk Factors," some important factors that could cause actual results, performance or achievements for DSW to differ materially from those discussed in forward-looking statements include, but are not limited to, the following:

 
·
our success in opening and operating new stores on a timely and profitable basis;
 
·
continuation of supply agreements and the financial condition of our leased business partners;
 
·
disruption of our distribution and fulfillment operations;
 
·
failure to retain our key executives or attract qualified new personnel;
 
·
our competitiveness with respect to style, price, brand availability and customer service;
 
·
our reliance on our “DSW Rewards” program to drive traffic, sales and loyalty;
 
·
maintaining good relationships with our vendors;
 
·
our ability to anticipate and respond to fashion trends;
 
·
fluctuation of our comparable sales and quarterly financial performance;
 
·
uncertain general economic conditions;
 
·
risks inherent to international trade with countries that are major manufacturers of footwear;
 
·
risks related to our cash and investments;
 
·
risks related to RVI’s lease of an office facility;
 
·
the anticipated benefits of the proposed merger with RVI taking longer to realize or not being achieved in their entirety;
 
·
the proposed merger with RVI being more expensive to complete than anticipated, including as a result of unexpected factors or events;
 
·
the possibility of adverse publicity or litigation related to the proposed merger with RVI, including an adverse outcome thereof and the costs and expenses associated therewith; and
 
·
the risk that the proposed merger with RVI will not close, will be delayed or not close when expected.

If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results, performance or achievements may vary materially from what we have projected. Furthermore, new factors emerge from time to time and it is not possible for management to predict all such factors, nor can it assess the impact of any such factor on the business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, DSW undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.


IT E M 1. BUSINESS.

General

DSW is a leading U.S. branded footwear specialty retailer operating 311 shoe stores in 39 states and dsw.com as of January 29, 2011. We offer a wide assortment of better-branded dress, casual and athletic footwear for women and men, as well as accessories through our DSW stores and dsw.com. In addition, we operate 352 leased departments for four other retailers as of January 29, 2011. Our typical DSW customers are brand, value, quality and style-conscious shoppers who have a passion for footwear and accessories. Our core focus is to create a distinctive shopping experience that satisfies both the rational and emotional shopping needs of our DSW customers by offering them a vast, exciting assortment of in-season styles combined with the convenience and value they desire. Our DSW stores average approximately 22,000 square feet and carry approximately 24,000 pairs of shoes. We believe this combination of assortment, convenience and value differentiates us from our competitors and appeals to consumers from a broad range of socioeconomic and demographic backgrounds.

Please see our consolidated financial statements and the notes thereto in Item 8 of this Annual Report on Form 10-K for financial information about our two reportable segments: the DSW segment, which includes DSW stores and dsw.com, and the leased department segment.

Corporate History

We were incorporated in the state of Ohio on January 20, 1969 and opened our first DSW store in Dublin, Ohio in 1991. In 1998, a predecessor of Retail Ventures purchased DSW and affiliated shoe businesses from Schottenstein Stores Corporation (“SSC”) and Nacht Management, Inc. In July 2005, we completed an initial public offering (“IPO”) of our Class A Common Shares, selling approximately 16.2 million shares at an offering price of $19.00 per share. As of January 29, 2011, Retail Ventures owned approximately 27.4 million of our Class B Common Shares, or approximately 62% of our total outstanding shares and approximately 93% of the combined voting power of our outstanding Common Shares.

Proposed Merger with RVI

On February 8, 2011, DSW, DSW MS LLC, a wholly owned subsidiary of DSW (“DSW Merger LLC”) and Retail Ventures entered into an Agreement and Plan of Merger, pursuant to which Retail Ventures will merge with and into DSW Merger LLC, with DSW Merger LLC continuing after the merger as the surviving entity and a wholly owned subsidiary of DSW. Retail Ventures’ board of directors and the independent members of DSW’s board of directors have approved the merger agreement based on the recommendation of a special committee of each board of directors and have recommended that the shareholders of Retail Ventures and DSW, respectively, adopt the merger agreement and the merger.

Upon the closing of the merger, each outstanding Retail Ventures common share will be converted into the right to receive 0.435 DSW Class A Common Shares, unless the holder properly and timely elects to receive a like amount of DSW Class B Common Shares in lieu of DSW Class A Common Shares. All compensatory awards based on or comprised of Retail Ventures common shares, such as stock options, stock appreciation rights and restricted stock, will be converted into and become, respectively, awards based on or comprised of DSW Class A Common Shares, in each case on terms substantially identical to those in effect immediately prior to the effective time of the merger, in accordance with the 0.435 exchange ratio.

It is expected that the merger will qualify as a tax-free reorganization for U.S. federal income tax purposes, so that, in general, none of DSW, Retail Ventures, DSW Merger LLC or any of the Retail Ventures shareholders will recognize any gain or loss in the transaction, except that Retail Ventures shareholders will generally recognize gain or loss with respect to cash received in lieu of fractional shares of DSW Class A or Class B Common Shares.

The merger agreement provides that DSW Merger LLC will assume, as of the effective time of the merger, by supplemental indenture and supplemental agreement, all of Retail Ventures’ obligations with respect to certain 6.625% mandatorily exchangeable notes due September 15, 2011, known as Premium Income Exchangeable Securities or PIES, and will assume by operation of law warrants issued by Retail Ventures to purchase DSW Class A Common Shares outstanding immediately prior to the effective time of the merger.

Upon the closing of the merger, one of Retail Ventures' current board members will be appointed to DSW’s board of directors.

The parties have made customary representations and warranties and agreed to customary covenants in the merger agreement. The transaction is not subject to any financing condition. The completion of the merger is conditioned upon, among other things:

 
·
adoption of the merger agreement and the merger by (i) the holders of a majority of the outstanding DSW Class A Common Shares and Class B Common Shares, voting together as a class, (ii) the holders of a majority of the unaffiliated DSW Class A Common Shares (i.e., those holders other than Retail Ventures, SSC, which controls a majority of the voting power of Retail Ventures, and their respective affiliates), voting together as a class, and (iii) the holders of a majority of outstanding Retail Ventures common shares;


 
·
adoption of amended and restated articles of incorporation of DSW, which will amend the current articles of incorporation to allow holders of Class B Common Shares to convert such shares into Class A Common Shares, among other amendments, by (i) the holders of a majority of the DSW Class A Common Shares and DSW Class B Common Shares, voting together as a class, and (ii) the holders of a majority of the DSW Class A Common Shares, voting as a separate class; and

 
·
approval of the issuance of DSW Class A Common Shares and Class B Common Shares to Retail Ventures shareholders by the holders of a majority of the DSW Class A Common Shares and DSW Class B Common Shares, voting together as a class.

In addition, DSW and Retail Ventures have agreed not to initiate, solicit, encourage, or knowingly facilitate the making of any proposal or offer with respect to certain specified acquisition proposals. The merger agreement may be terminated by DSW and Retail Ventures under certain circumstances, including by DSW or Retail Ventures if, among other requirements, the terminating party has received certain specified superior proposals, has not violated its obligations under the merger agreement with respect to any superior proposal, and pays an amount equal to the reasonably documented transaction expenses of the other party, not to exceed $10 million.

Litigation Relating to the Proposed Merger

Purported shareholders of Retail Ventures have filed two putative shareholder class action lawsuits in an Ohio state court against Retail Ventures and its directors and in one case, its chief executive officer (referred to, collectively, as the Retail Ventures defendants), and DSW and in one case, DSW Merger LLC (referred to, collectively, as the DSW defendants). The lawsuits allege, among other things, that Retail Ventures and its directors breached their fiduciary duties by approving the merger agreement, and that in one case, Retail Ventures’ chief executive officer and DSW, and in the other that Retail Ventures and DSW, aided and abetted in these alleged breaches of fiduciary duty. The complaints seek, among other things, to enjoin the shareholder vote on the merger, as well as monetary damages. The Retail Ventures defendants and the DSW defendants intend to defend vigorously against these claims.
 
See “Risk Factors” for risk factors related to the proposed merger.

Competitive Strengths

We believe that our leading market position is driven by our competitive strengths: the breadth of our branded product offerings, our distinctive and convenient shopping experience, the value proposition offered to customers and our financial strength.

The Breadth of Our Product Offerings

Our goal is to excite our customers with an assortment of shoes that fulfill a broad range of style and fashion preferences. DSW stores and dsw.com sell a large assortment of better-branded and private label merchandise. We purchase directly from more than 450 domestic and foreign vendors, primarily in-season footwear found in specialty and department stores and branded make-ups (shoes made exclusively for a retailer), with the assortment at each store geared toward the particular demographics of the location. A typical DSW store carries approximately 24,000 pairs of shoes in approximately 2,000 styles compared to a significantly smaller product offering at typical department stores. We also offer a complementary assortment of handbags, hosiery and other accessories which appeal to our brand- and fashion-conscious customers.

Distinctive and Convenient Shopping Experience

We provide our customers with the highest level of convenience based on our belief that customers should be empowered to control and personalize their shopping experiences. In stores, our merchandise is displayed on the selling floor with self-service fixtures to enable customers to view and touch the merchandise. We believe this shopping experience provides our customers with maximum convenience as they are able to browse and try on merchandise without feeling rushed or pressured to make a purchasing decision. We also provide our customers with a cross-channel shopping experience through dsw.com by offering additional styles and sizes. Our stores and dsw.com are organized in a logical manner that groups together similar styles such as dress, casual, seasonal and athletic merchandise for easy browsing.


The Value Proposition Offered to Customers

Through our buying organization, we are able to provide customers with high quality, in-season fashion styles at prices that are competitive with the typical sale price found at specialty retailers and department stores. We generally employ a consistent pricing strategy that provides customers with the same price on our merchandise from the day it arrives in store until it enters our planned clearance rotation. Our pricing strategy differentiates us from our competitors who usually price and promote merchandise at discounts available only for limited time periods. We find that customers appreciate having the power to shop for value when it is most convenient for them, rather than waiting for a sale event.

In order to provide additional value to our customers, we maintain a loyalty program, “DSW Rewards”, which rewards customers for shopping, both in stores and online at dsw.com. “DSW Rewards” members earn reward certificates that offer discounts on future purchases. Reward certificates expire six months after being issued. Members also receive promotional offers, gifts with purchase and free shipping on purchases over a certain dollar threshold at dsw.com. We employ a variety of methods, including email, direct mail and social media, to communicate exclusive and public offers to our customers.
 
As of January 29, 2011, approximately 16 million members enrolled in “DSW Rewards” have made at least one purchase over the course of the last two fiscal years as compared to approximately 13 million members as of January 30, 2010. In fiscal 2010, shoppers in the loyalty program generated approximately 87% of DSW store and dsw.com sales versus approximately 84% of DSW store and dsw.com sales in fiscal 2009.

Financial Strength

Our operating model is focused on assortment, convenience and value. We believe that the growth we have achieved in the past is attributable to our operating model and management’s focus on store-level profitability and economic payback. Over the five fiscal years ended January 29, 2011, our net sales have grown at a compound annual growth rate of 10%. In addition, we have consistently generated positive operating cash flows and profitable operating results. We intend to continue our focus on net sales, operating cash flows and operating profit as we pursue our growth strategy. We believe cash generated from DSW operations, together with our current levels of cash and investments of $385.2 million as of January 29, 2011, should be sufficient to maintain our ongoing operations, support seasonal working capital requirements and fund capital expenditures related to projected business growth for the foreseeable future.

Growth Strategy

Our growth strategy is to continue to strengthen our position as a leading better-branded footwear retailer by pursuing the following primary strategies for growth in sales and profitability: expanding our business, driving sales through enhanced merchandising and investment in our infrastructure.

Expanding Our Business

We plan to open approximately 15 to 20 DSW stores in fiscal 2011 and plan to open 10 to 15 DSW stores in each of the following three to five years. Our plan is to open stores in both new and existing markets, with the primary focus on power strip centers and to reposition existing stores as opportunities arise. Depending on the market, we also consider regional malls, lifestyle centers and urban street locations. In general, our evaluation of potential new stores integrates information on demographics, co-tenancy, retail traffic patterns, site visibility and accessibility, store size and configuration and lease terms. Our growth strategy includes analysis of every major metropolitan area in the country with the objective of understanding demand for our products in each market over time and our ability to capture that demand. The analysis also looks at current penetration levels in markets we serve and our expected deepening of those penetration levels as we continue to grow and become the shoe retailer of choice in each market.

We plan to increase dsw.com sales through serving customers in areas where we do not currently operate stores and offering current customers additional styles and sizes not available in their local store. We continue to focus on the growth of dsw.com by increasing site efficiency with a faster check-out process and improved product pages, offering online exclusive merchandise and reaching our customers through social media. In our leased business, we continue to refine our merchandise assortment to best meet the needs of our different leased business customers, and we are actively pursuing opportunities with new leased business partners.


Driving Sales through Enhanced Merchandising

Our merchandising group constantly monitors current fashion trends as well as historical sales trends to identify popular styles and styles that may become popular in the upcoming season. We track store performance and sales trends on a weekly basis and have a flexible buying process that allows us to reorder successful styles and cancel underperforming styles throughout each season. To keep our product mix fresh and on target, we test new fashions and actively monitor sell-through rates. We also aim to improve the quality and breadth of existing vendor offerings and identify new vendor and category opportunities. Our merchandising initiative will continue investments in planning, allocation and distribution systems to improve inventory and markdown management.

Investment in Infrastructure

As we grow our business and fill in markets to their full potential, we believe we will improve our profitability by leveraging our cost structure in areas of regional management, supply chain and overhead functions. Additionally, we intend to continue investing in our infrastructure to improve our operating and financial performance. Most significantly, we believe continued investment in information systems will enhance our efficiency in areas such as merchandise planning and allocation, inventory management, distribution, labor management and point of sale functions.

Leased Departments

We also operate leased departments for four retailers. We have renewable supply agreements to merchandise the shoe departments in Stein Mart, Inc., Gordmans Stores, Inc., Filene’s Basement and Frugal Fannie’s Fashion Warehouse stores through December 2012, January 2013, January 2013 and April 2012, respectively. Filene’s Basement stores have been operated by a subsidiary of Syms Corp (“Syms”) since its purchase of 23 Filene’s Basement stores in June 2009. We own the merchandise and the fixtures (except for Filene’s Basement, where we only own the merchandise), record sales of merchandise net of returns and sales tax and provide management oversight. Our leased business partners provide the sales associates and retail space. We pay a percentage of net sales as rent. As of January 29, 2011, we supplied merchandise to 263 Stein Mart stores, 68 Gordmans stores, 20 Filene’s Basement stores and one Frugal Fannie’s store.

Merchandise Suppliers and Mix

We believe we have good relationships with our vendors. We purchase merchandise directly from more than 450 domestic and foreign vendors. Our vendors include suppliers who either manufacture their own merchandise or supply merchandise manufactured by others, or both. Most of our domestic vendors import a large portion of their merchandise from abroad. We have quality control programs under which our DSW buyers are involved in establishing standards for quality and fit and our store personnel examine incoming merchandise in regards to color, material and overall quality. As our sales volumes continue to grow, we believe there will continue to be adequate sources available to acquire a sufficient supply of quality goods in a timely manner and on satisfactory economic terms. During fiscal 2010, 2009 and 2008, merchandise supplied by our top three vendors accounted for approximately 20%, 21% and 20% of our net sales.

We separate our DSW merchandise into four primary categories: women’s footwear; men’s footwear; athletic footwear; and accessories. While shoes are the main focus of DSW, we also offer a complementary assortment of handbags, hosiery and other accessories. The following table sets forth the approximate percentage of our sales attributable to each merchandise category for the fiscal years below:

Category
 
Fiscal 2010
   
Fiscal 2009
   
Fiscal 2008
 
Women’s
    66 %     66 %     66 %
Men’s
    15 %     15 %     15 %
Athletic
    13 %     13 %     14 %
Accessories and Other
    6 %     6 %     5 %

Distribution

Our primary distribution center is located in an approximately 700,000 square foot facility in Columbus, Ohio. The design of the distribution center facilitates the prompt delivery of priority purchases and fast-selling footwear so we can take full advantage of each selling season. To further ensure prompt delivery, we engage a third party logistics service provider to receive orders originating from suppliers on the West Coast and some imports entering at a West Coast port of entry through our West Coast bypass. Shipments are shipped either from our West Coast bypass or our primary distribution center to our pool points and on to stores. We continue to evaluate expansion of the bypass process for applicability in other parts of the country. We also have a fulfillment center in Columbus, Ohio to process orders for dsw.com, which are shipped directly to customers using a third party shipping provider.


Competition

We view our primary competitors to be department stores and brand-oriented discounters. However, the fragmented shoe market means we face competition from many sources. We also compete with mall-based shoe stores, national chains, independent shoe retailers, single-brand specialty retailers, online shoe retailers and multi-channel specialty retailers. We believe shoppers prefer our breathtaking assortment, irresistible value and convenience. Many of our competitors generally offer a more limited assortment at higher initial prices in a less convenient format than DSW and without the benefits of the “DSW Rewards” program. In addition, we believe that we successfully compete against retailers who have attempted to duplicate our format because they typically offer assortments with fewer recognizable brands and more styles from prior seasons, unlike DSW’s current on-trend merchandise.

Intellectual Property

We have registered a number of trademarks and service marks in the United States and internationally, including DSW® and DSW Shoe Warehouse®. The renewal dates for these U.S. trademarks are April 25, 2015 and May 23, 2015, respectively. We believe that our trademarks and service marks, especially those related to the DSW concept, have significant value and are important to building our name recognition. To protect our brand identity, we have also protected the DSW trademark in several foreign countries.

We also hold patents related to our unique store fixtures, which gives us greater efficiency in stocking and operating those stores that currently have the fixtures. We aggressively protect our patented fixture designs, as well as our packaging, store design elements, marketing slogans and graphics.

Associates

As of January 29, 2011, we employed approximately 10,500 associates. None of our associates are covered by any collective bargaining agreements. We offer competitive wages, paid time off, comprehensive medical and dental insurance, vision care, company-paid and supplemental life insurance programs, associate-paid long-term and short-term disability insurance and a 401(k) plan to our full-time associates and some of our part-time associates. We have not experienced any work stoppages, and we consider our relations with our associates to be good.

Seasonality
 
Our business is subject to seasonal merchandise trends when our customers’ interest in new seasonal styles increases. Spring styles are new in the first quarter, and fall styles are new in the third quarter. Unlike many other retailers, we have not historically experienced a significantly large increase in net sales during our fourth quarter associated with the winter holiday season.

Available Information

DSW electronically files reports with the Securities and Exchange Commission ("SEC"), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to such reports. The public may read and copy any materials that DSW files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site that contains reports, proxy statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. Additionally, information about DSW, including its reports filed with or furnished to the SEC, is available through DSW’s website at www.dswinc.com. Such reports are accessible at no charge through DSW’s website and are made available as soon as reasonably practicable after such material is filed with or furnished to the SEC.

We have included our website addresses throughout this filing as textual references only. The information contained on our websites is not incorporated into this Form 10-K.


ITEM 1A. RISK FACTORS.

In addition to the other information in this Annual Report on Form 10-K, shareholders or prospective investors should carefully consider the following risk factors when evaluating DSW. If any of the events described below occurs, our business, financial condition and results of operations and future growth prospects could be negatively affected.

Risks Relating to Our Business

We opened nine stores in fiscal 2010, plan to open 15 to 20 stores in fiscal 2011 and plan to open ten to fifteen stores each year for the following three to five years, which could strain our resources and have a material adverse effect on our business and financial performance.

Our continued and future growth largely depends on our ability to successfully open and operate new DSW stores on a profitable basis. During fiscal 2010, 2009 and 2008, we opened 9, 9 and 41 new DSW stores, respectively. We plan to open 15 to 20 stores in fiscal 2011 and plan to open 10 to 15 stores each year for the following three to five years. As of January 29, 2011, we have signed leases for an additional 9 stores opening in fiscal 2011 and 2012. During fiscal 2010, the average investment in capital, inventory and new store expenses required to open a typical new DSW store was approximately $1.8 million.

This continued expansion could place increased demands on our financial, managerial, operational and administrative resources. We may not achieve our planned expansion on a timely and profitable basis or achieve results in new locations similar to those achieved in existing locations in prior periods. Our ability to open and operate new DSW stores on a timely and profitable basis depends on many factors, including, among others, our ability to:   identify suitable markets and sites for new store locations with financially stable co-tenants and landlords; negotiate favorable lease terms; build-out or refurbish sites on a timely and effective basis; obtain sufficient levels of inventory to meet the needs of new stores; obtain sufficient financing and capital resources or generate sufficient operating cash flows from operations to fund growth;   open new stores at costs not significantly greater than those anticipated;   successfully open new DSW stores in markets in which we currently have few or no stores;   control the costs of other capital investments associated with store openings; hire, train and retain qualified managers and store personnel; and successfully integrate new stores into our existing infrastructure, operations, management and distribution systems or adapt such infrastructure, operations and systems to accommodate our growth.

As a result, we may be unable to open new stores at the rates expected or at all. If we fail to successfully implement our growth strategy, the opening of new DSW stores could be delayed or prevented, could cost more than anticipated and could divert resources from other areas of our business, any of which could have a material adverse effect on our business, financial condition and results of operations.

To the extent that we open new DSW stores in our existing markets, we may experience reduced net sales in existing stores in those markets. As our store base increases, our stores will become more concentrated in the markets we serve. As a result, the number of customers and financial performance of individual stores may decline and the average sales per square foot at our stores may be reduced. This could have a material adverse effect on our business, financial condition and results of operations.

We have entered into Supply Agreements with Stein Mart, Gordmans and Filene’s Basement. If Stein Mart, Gordmans or Filene’s Basement were to terminate our supply agreements, close a significant number of stores or liquidate, it could have a material adverse effect on our business and financial performance.

Our supply agreements are typically for multiple years with automatic renewal options as long as either party does not give notice of intent not to renew. For Stein Mart, Gordmans and Filene’s Basement, our contractual termination dates are December 2012, January 2013 and January 2013, respectively. In addition, the agreements contain provisions that may trigger an earlier termination. For fiscal 2010, the sales from our leased business segment represent approximately 7.8% of our total company sales. In the event of the loss of one of these leased supply agreements, it is unlikely that we would be able to proportionately reduce expenses to the reduction of sales.

The performance of our leased departments is highly dependant on the performance of Stein Mart, Gordmans and Filene’s Basement. In fiscal 2009,   Filene’s Basement filed for bankruptcy protection and its assets were purchased by a subsidiary of Syms, which now operates stores under the Filene’s Basement name. If Stein Mart, Gordmans or Filene’s Basement were to terminate our supply agreements, close a significant number of stores or liquidate, it could have a material adverse effect on our business and financial performance.


We rely on our good relationships with vendors to purchase better-branded merchandise at favorable prices. If these relationships were to be impaired, we may not be able to obtain a sufficient assortment of merchandise at attractive prices, and we may not be able to respond promptly to changing fashion trends, either of which could have a material adverse effect on our competitive position, our business and financial performance.

We do not have long-term supply agreements or exclusive arrangements with any vendors and, therefore, our success depends on maintaining good relationships with our vendors. Our growth strategy depends to a significant extent on the willingness and ability of our vendors to supply us with sufficient inventory to stock our stores. If we fail to maintain our relationships with our existing vendors or to enhance the quality of merchandise they supply us, and if we cannot maintain or acquire new vendors of in-season better-branded merchandise, our ability to obtain a sufficient amount and variety of merchandise at favorable prices may be limited, which could have a negative impact on our competitive position. In addition, our inability to stock our DSW stores with in-season merchandise at attractive prices could result in lower net sales and decreased customer interest in our stores, which could adversely affect our financial performance.

During fiscal 2010, merchandise supplied to DSW by three key vendors accounted for approximately 20% of our net sales. The loss of or a reduction in the amount of merchandise made available to us by any one of these vendors could have an adverse effect on our business.

We may be unable to anticipate and respond to fashion trends and consumer preferences in the markets in which we operate, which could have a material adverse effect on our business, financial condition and results of operations.

Our merchandising strategy is based on identifying each region’s customer base and having the proper mix of products in each store to attract our target customers in that region. This requires us to anticipate and respond to numerous and fluctuating variables in fashion trends and other conditions in the markets in which our stores are situated. A variety of factors will affect our ability to maintain the proper mix of products in each store, including:   variations in local economic conditions, which could affect our customers’ discretionary spending and their price sensitivity;   unanticipated fashion trends; our success in developing and maintaining vendor relationships that provide us access to in-season merchandise at attractive prices; our success in distributing merchandise to our stores in an efficient manner; and   changes in weather patterns, which in turn affect consumer preferences.

If we are unable to anticipate and fulfill the merchandise needs of each region, we may experience decreases in our net sales and may be forced to increase markdowns in relation to slow-moving merchandise, either of which could have a material adverse effect on our business, financial condition and results of operations.

Our operations are affected by seasonal variability.

Our business is subject to seasonal merchandise trends when our customers’ interest in new seasonal styles increases. Spring styles are new in the first quarter, and fall styles are new in the third quarter. As a result of seasonal merchandise trends, any factors negatively affecting us during these periods, including adverse weather, the timing and level of markdowns, fashion trends or unfavorable economic conditions, could have a material adverse effect on our financial condition, operating cash flow and results of operations for the entire year.

Our sales and quarterly financial performance may fluctuate for a variety of reasons, which could result in a decline in the price of our Class A Common Shares.

Our business is sensitive to customers’ spending patterns, which in turn are subject to prevailing regional and national economic conditions and the general level of economic activity. Our comparable store sales and quarterly results of operations have fluctuated in the past, and we expect them to continue to fluctuate in the future. A variety of other factors affect our sales and quarterly financial performance, including:   challenging U.S. economic conditions and, in particular, the retail sales environment; changes in our merchandising strategy; timing and concentration of new DSW store openings and related new store and other start-up costs;   levels of new store expenses associated with new DSW stores; changes in our merchandise mix; changes in and regional variations in demographic and population characteristics;   timing of promotional events; seasonal fluctuations due to weather conditions; and actions by our competitors.

Accordingly, our results for any one fiscal quarter are not necessarily indicative of the results to be expected for any other quarter, and comparable store sales for any particular future period may increase or decrease. Our future financial performance may fall below the expectations of securities analysts and investors. In that event, the price of our Class A Common Shares may decline. For more information on our results of operations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”


We are reliant on our information systems and the loss or disruption of services could affect our ability to implement our growth strategy and have a material adverse effect on our business.

Our information systems are an integral part of our growth strategy in efficiently operating our business, in managing the operations of a growing store base and dsw.com and resolving security risks related to our electronic processing and transmission of confidential customer information. The capital required to keep our information systems operating at peak performance may be higher than anticipated and could strain our capital resources, management of any upgrades and our ability to protect ourselves from any future security breaches. In addition, any significant disruption of our data center could have a material adverse effect on those operations dependent on those systems, most specifically, store operations, dsw.com, our distribution and fulfillment centers and our merchandising team.

While we maintain business interruption and property insurance, in the event our data center was to be shut down, our insurance may not be sufficient to cover the impact to the business, or insurance proceeds may not be paid timely.

The loss or disruption of our distribution and fulfillment centers could have a material adverse effect on our business and operations.

For DSW stores and leased departments, the majority of our inventory is shipped directly from suppliers to our primary distribution center in Columbus, Ohio, where the inventory is then processed, sorted and shipped to one of our pool locations located throughout the country and then on to our stores. Through a third party, we also operate a west coast bypass where shipments bypass our primary distribution center and go directly to one of our pool locations from the west coast bypass. For dsw.com, our inventory is shipped directly from our fulfillment center to customers’ homes. Our operating results depend on the orderly operation of our receiving and distribution process, which in turn depends on third-party vendors’ adherence to shipping schedules and our effective management of our distribution facilities. We may not anticipate all the changing demands that our expanding operations will impose on our receiving and distribution system, and events beyond our control, such as disruptions in operations due to catastrophic events, labor disagreements or shipping problems, may result in delays in the delivery of merchandise to our stores.

While we maintain business interruption and property insurance, in the event our distribution and fulfillment centers were to be shut down for any reason or if we were to incur higher costs and longer lead times in connection with a disruption at our distribution and fulfillment centers, our insurance may not be sufficient, and insurance proceeds may not be paid timely.

Our failure to retain our existing senior management team and to continue to attract qualified new personnel could adversely affect our business.

Our business requires disciplined execution at all levels of our organization to ensure that we continually have sufficient inventories of assorted brand name merchandise at below traditional retail prices. This execution requires an experienced and talented management team. If we were to lose the benefit of the experience, efforts and abilities of any of our key executive and buying personnel, our business could be materially adversely affected. We have entered into employment agreements with several of these officers. Furthermore, our ability to manage our retail expansion will require us to continue to train, motivate and manage our employees and to attract, motivate and retain additional qualified managerial and merchandising personnel. Competition for these types of personnel is intense, and we may not be successful in attracting, assimilating and retaining the personnel required to grow and operate our business profitably.

We may be unable to compete favorably in our highly competitive market.

The retail footwear market is highly competitive with few barriers to entry. We compete against a diverse group of retailers, both small and large, including department stores, mall-based shoe stores, national chains, independent shoe retailers, single-brand specialty retailers, online shoe retailers, multi-channel specialty retailers and brand-oriented discounters. Some of our competitors are larger and have substantially greater resources than we do. Our success depends on our ability to remain competitive with respect to style, price, brand availability and customer service. The performance of our competitors, as well as a change in their pricing policies as a result of the current economic environment, marketing activities and other business strategies, could have a material adverse effect on our business, financial condition, results of operations and our market share.

We are dependent on our “DSW Rewards” program to drive traffic, sales and loyalty.

“DSW Rewards” is a customer loyalty program that we rely on to drive customer traffic, sales and loyalty. “DSW Rewards” members earn reward certificates that offer discounts on future purchases. In fiscal 2010, shoppers in the loyalty program generated approximately 87% of DSW store and dsw.com sales versus approximately 84% of DSW store and dsw.com sales in fiscal 2009. As of January 29, 2011, approximately 16 million members enrolled in “DSW Rewards” have made at least one purchase over the course of the last two fiscal years, compared to approximately 13 million members as of January 30, 2010. In the event that our “DSW Rewards” members do not continue to shop at DSW or the number of members decreases, it could have a material adverse effect on our sales and results of operations.


Uncertain economic conditions in the United States and other world events have adversely affected consumer confidence and consumer spending habits.

Consumer spending habits, including spending for the footwear and related accessories that we sell, are affected by, among other things, prevailing economic conditions, levels of employment, salaries and wage rates, prevailing interest rates, income tax rates and policies, consumer confidence and consumer perception of economic conditions. In addition, consumer purchasing patterns may be influenced by consumers’ disposable income. Consumer confidence is also affected by the domestic and international political situation. The outbreak or escalation of war, natural disasters, or the occurrence of terrorist acts or other hostilities in or affecting the United States, could lead to a decrease in spending by consumers. In an economic slowdown, we could experience lower net sales than expected on a quarterly or annual basis and be forced to delay or slow our retail expansion plans. Reduced sales may result in reduced operating cash flows if we are not able to appropriately manage inventory levels or leverage expenses. These negative economic conditions may also affect future profitability and may cause us to reduce the number of future store openings, impair long-lived assets or impair goodwill.

Uncertain economic conditions are also impacting credit card processors and financial institutions which hold our credit card receivables. We depend on credit card processors to obtain payments for us. In the event a credit card processor ceases operations or the financial institution holding our funds fails, there can be no assurance that we would be able to access funds due to us on a timely basis, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We rely on foreign sources for our merchandise, and our business is therefore subject to risks associated with international trade.

We purchase merchandise from domestic and foreign vendors. In addition, many of our domestic vendors import a large portion of their merchandise from abroad, primarily from China, Brazil and Italy. We believe that almost all the merchandise we purchased during fiscal 2010 was manufactured outside the United States. For this reason, we face risks inherent in purchasing from foreign suppliers, such as: economic and political instability in countries where these suppliers are located; international hostilities or acts of war or terrorism affecting the United States or foreign countries from which our merchandise is sourced; increases in shipping costs; transportation delays and interruptions, including increased inspections of import shipments by domestic authorities; work stoppages; adverse fluctuations in currency exchange rates; U.S. laws affecting the importation of goods, including duties, tariffs and quotas and other non-tariff barriers; expropriation or nationalization; changes in local government administration and governmental policies; changes in import duties or quotas; compliance with trade and foreign tax laws; and local business practices, including compliance with local laws and with domestic and international labor standards.

We require our vendors to operate in compliance with applicable laws and regulations and our internal requirements. However, we do not control our vendors or their labor and business practices. The violation of labor or other laws by one of our vendors could have an adverse effect on our business.

We expect to experience cost increases from product sources in China.

We expect to experience increases in our cost of goods from vendors that source their goods from southern China due to increasing labor and commodity costs. Our vendors are working to reduce this pressure by shifting production to northern China and other countries, where costs remain lower, as well as concentrating on improving production efficiency. We expect that our supply chain and merchandising initiatives will help protect overall margin to mitigate these cost increases. However, cost increases could be higher than expected or we could fail to achieve planned benefits from our merchandising initiatives, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Restrictions in our secured revolving credit facility could limit our operational flexibility.

We have a $100 million secured revolving credit facility with a term expiring June 2014. Under this facility, we and our subsidiary, DSW Shoe Warehouse, Inc. (“DSWSW”), are co-borrowers, with all other subsidiaries listed as guarantors. This facility is subject to a borrowing base restriction and provides for borrowings at variable interest rates as defined in the agreement. The credit facility is secured by a lien on substantially all of our and our subsidiaries’ personal property assets with certain exclusions and may be used to provide funds for general corporate purposes, to refinance existing letters of credit outstanding under our previous credit arrangement, to provide for our ongoing working capital requirements, and to make permitted acquisitions. The credit facility provides for a sub-limit to foreign borrowers that could subject us to foreign currency rate risk. In addition, the secured revolving credit facility contains restrictive covenants relating to our management and the operation of our business. These covenants, among other things, limit or restrict our ability to grant liens on our assets, incur additional indebtedness, pay cash dividends and redeem our stock, limit our capital expenditures to $75 million annually, enter into transactions with affiliates and merge or consolidate with another entity. These covenants could restrict our operational flexibility, and any failure to comply with these covenants or our payment obligations would limit our ability to borrow under the secured revolving credit facility and, in certain circumstances, may allow the lenders thereunder to require repayment.


The investment of our cash and investments are subject to risks that could affect the liquidity of these investments.

 As of January 29, 2011 we had cash and investments of $385.2 million. A portion of these are held as cash in operating accounts that are with third party financial institutions. While we regularly monitor the cash balances in our operating accounts and when possible adjust the balances as appropriate to be within Federal Deposit Insurance Corporation (“FDIC”) insurance limits, these cash balances could be lost or inaccessible if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, we have experienced no loss or lack of access to our cash and equivalents.

While we generally invest in lower risk investments, investment risk has been and may further be exacerbated by credit and liquidity issues that have affected various sectors of the financial markets. As the financial markets have become more volatile, it has been increasingly difficult to invest in highly rated, low risk investments. We can provide no assurance that access to our cash and investments, their earning potential or our ability to invest in highly rated, low risk investments will not be impacted by adverse conditions in the financial markets. These market risks associated with our cash and investments may have an adverse effect on our business, financial condition, liquidity and results of operations .

Risks Relating to our Proposed Merger with Retail Ventures

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, which 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 Retail Ventures common shares or DSW Class A 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.   Generally, waiver by DSW of a condition to closing of the merger will require approval of the special committee of the DSW board of directors. Neither Retail Ventures nor DSW 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 that market price. A substantial delay in satisfying the conditions to closing the merger, including obtaining the required approvals, or the imposition of any unfavorable terms, conditions or restrictions in obtaining a waiver to such conditions, could have a material adverse effect on the anticipated benefits of 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 Retail Ventures common shares or DSW Class A Common Shares. Also, there may be the uncertainty regarding whether the merger will be completed (including uncertainty regarding whether the conditions to closing will be met), which could impact Retail Ventures’ and DSW’s relationships with their employees, suppliers and partners. These restrictions and uncertainties could have an adverse impact on Retail Ventures’ and DSW’s business, operations and financial condition and could result in a decline in the market price of Retail Ventures common shares or DSW Class A Common Shares or an increase in the volatility of these market prices.

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, 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 or 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.


DSW is currently subject to litigation relating to the proposed merger.

Purported shareholders of Retail Ventures have filed two putative shareholder class action lawsuits in an Ohio state court against Retail Ventures and its directors and in one case, its chief executive officer, referred to, collectively, as the Retail Ventures defendants, and DSW and in one case, DSW Merger LLC, referred to, collectively, as the DSW defendants. The lawsuits allege, among other things, that Retail Ventures and its directors breached their fiduciary duties by approving the merger agreement; and that in one case, Retail Ventures’ chief executive officer and DSW, and in the other that Retail Ventures and DSW aided and abetted in these alleged breaches of fiduciary duty. The complaints seek, among other things, to enjoin the shareholder vote on the merger, as well as monetary damages. While the Retail Ventures defendants and the DSW defendants 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 lawsuits 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.

Risks Relating to our Relationship with and Separation from Retail Ventures

Our amended articles of incorporation, amended and restated code of regulations and Ohio state law contain provisions that may have the effect of delaying or preventing a change in control of DSW. This could adversely affect the value of our Common Shares.

Our amended articles of incorporation authorize our board of directors to issue up to 100,000,000 preferred shares and to determine the powers, preferences, privileges, rights, including voting rights, qualifications, limitations and restrictions on those shares, without any further vote or action by the shareholders. The rights of the holders of our Class A Common Shares will be subject to, and may be adversely affected by, the rights of the holders of any preferred shares that may be issued in the future. The issuance of preferred shares could have the effect of delaying, deterring or preventing a change in control and could adversely affect the voting power of our Common Shares.

In addition, provisions of our amended articles of incorporation, amended and restated code of regulations and Ohio law, together or separately, could discourage potential acquisition proposals, delay or prevent a change in control and limit the price that certain investors might be willing to pay in the future for our Common Shares. Among other things, these provisions establish a staggered board, require a supermajority vote to remove directors, and establish certain advance notice procedures for nomination of candidates for election as directors and for shareholder proposals to be considered at shareholders’ meetings.

We are currently controlled directly by Retail Ventures and indirectly by SSC and its affiliates, whose interests may differ from our other shareholders.

As of January 29, 2011, Retail Ventures, a public corporation, owns 100% of our outstanding Class B Common Shares, which represents approximately 62.0% of our outstanding Common Shares, including director stock units. These shares collectively represent approximately 92.9% of the combined voting power of our outstanding Common Shares.

As of January 29, 2011, SSC and its affiliates, in the aggregate, owned approximately 50.6% of the outstanding Retail Ventures Common Shares and beneficially owned approximately 52.3% of the outstanding Retail Ventures Common Shares (assumes the issuance of 1,731,460 Retail Ventures Common Shares issuable upon the exercise of warrants held by SSC and its affiliates). SSC and its affiliates that own Retail Ventures Common Shares are privately held entities controlled by Jay L. Schottenstein, Chairman of our Board of Directors, and members of his immediate family. Given their respective ownership interests, Retail Ventures and, indirectly, SSC and its affiliates, control or substantially influence the outcome of all matters submitted to our shareholders for approval, including, the election of directors, mergers or other business combinations, and acquisitions or dispositions of assets. The interests of Retail Ventures, SSC and their affiliates may differ from or be opposed to the interests of our other shareholders, and its control may have the effect of delaying or preventing a change in control that may be favored by other shareholders.

SSC and Retail Ventures or their affiliates may compete directly against us.

Corporate opportunities may arise in the area of potential competitive business activities that may be attractive to Retail Ventures, SSC and/or its affiliates and us. Our amended and restated articles of incorporation provide that Retail Ventures and SSC are under no obligation to communicate or offer any corporate opportunity to us. In addition, Retail Ventures and SSC and/or its affiliates have the right to engage in similar activities as us, do business with our suppliers and customers and, except as limited by the master separation agreement, employ or otherwise engage any of our officers or employees. SSC and its affiliates engage in a variety of businesses, including, but not limited to, business and inventory liquidations, apparel companies and real estate acquisitions. The provisions of the separation agreement also outline how corporate opportunities are to be assigned in the event that our, Retail Ventures’ or SSC’s directors and officers learn of corporate opportunities.


Some of our directors and officers also serve as directors and officers of Retail Ventures, and may have conflicts of interest because they may own Retail Ventures stock or options to purchase Retail Ventures stock, or they may receive cash- or equity-based awards based on the performance of Retail Ventures.

Some of our directors and officers also serve as directors or officers of Retail Ventures and may own Retail Ventures stock or options to purchase Retail Ventures stock, or they may be entitled to participate in the Retail Ventures incentive plans. Jay L. Schottenstein is our Chairman of the Board of Directors and Chairman of the Board of Directors of Retail Ventures; Harvey L. Sonnenberg is a director of DSW and of Retail Ventures; and James A. McGrady is a Vice President of DSW and the Chief Executive Officer, President, Chief Financial Officer and Treasurer of Retail Ventures. The Retail Ventures incentive plans provide cash- and equity-based compensation to employees based on Retail Ventures’ performance. These employment arrangements and ownership interests or cash- or equity-based awards could create, or appear to create, potential conflicts of interest when directors or officers who own Retail Ventures stock or stock options or who participate in these incentive plans are faced with decisions that could have different implications for Retail Ventures than they do for us. These potential conflicts of interest may not be resolved in our favor.

If our existing shareholders or holders of rights to purchase our Common Shares sell the shares they own, or if Retail Ventures distributes our Common Shares to its shareholders, it could adversely affect the price of our Class A Common Shares.

The market price of our Class A Common Shares could decline as a result of market sales by our existing shareholders, including Retail Ventures, or a distribution of our Common Shares to Retail Ventures’ shareholders or the perception that such sales or distributions will occur. These sales or distributions also might make it difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. We cannot predict the size of future sales of our Common Shares.

As of January 29, 2011, there were 16,643,698 Class A Common Shares of DSW outstanding. Additionally, there were 161,267 director stock units outstanding as of January 29, 2011 that were issued pursuant to the terms of DSW’s equity incentive plan. The remaining 27,382,667 Class B Common Shares outstanding are restricted securities within the meaning of Rule 144 under the Securities Act but will be eligible for resale subject to applicable volume, manner of sale, holding period and other limitations of Rule 144.

SSC and its affiliates and Millennium Partners, L.P., or Millennium, have the right to acquire Class A Common Shares of DSW from Retail Ventures pursuant to warrant agreements they have with Retail Ventures. All of these Common Shares are eligible for future sale, subject to the applicable volume, manner of sale, holding period and other limitations of Rule 144. Retail Ventures has registration rights with respect to its DSW Common Shares in specified circumstances pursuant to the master separation agreement. In addition, SSC and its affiliates have the right to require that we register for resale in specified circumstances the Class A Common Shares issued to them upon exercise of their warrants, and each of these entities and Millennium will be entitled to participate in registrations initiated by the other entities.

The agreements we entered into with Retail Ventures in connection with our initial public offering could restrict our operations and adversely affect our financial condition.

We and Retail Ventures have entered into a number of agreements governing our separation from and our future relationship with Retail Ventures, including a master separation agreement, an Amended and Restated Shared Services Agreement and a tax separation agreement, in the context of our relationship to Retail Ventures. Accordingly, the terms and provisions of these agreements may be less favorable to us than terms and provisions we could have obtained in arm’s length negotiations with unaffiliated third parties. The tax separation agreement governs the respective rights, responsibilities, and obligations of Retail Ventures and us with respect to tax liabilities and benefits, tax attributes, tax contests and other matters regarding taxes and related tax returns.

Although Retail Ventures has informed us that it does not currently intend or plan to undertake a spin-off of our stock to Retail Ventures’ shareholders, we and Retail Ventures have agreed to set forth our respective rights, responsibilities and obligations with respect to any possible spin-off in the tax separation agreement. If Retail Ventures were to decide to pursue a possible spin-off, we have agreed to cooperate with Retail Ventures and to take any and all actions reasonably requested by Retail Ventures in connection with such a transaction.

The PIES (Premium Income Exchangeable Securities) issued by Retail Ventures may adversely affect the market price for DSW Class A Common Shares.

In fiscal 2006, Retail Ventures issued 2,875,000 units of its 6.625% Mandatorily Exchangeable Notes due September 15, 2011, or PIES (Premium Income Exchangeable Securities) in the aggregate principal amount of $143,750,000. In the third quarter of fiscal 2008, Retail Ventures repurchased 200,000 units of PIES, which are still considered outstanding and can be resold by Retail Ventures.


Except to the extent Retail Ventures exercises its cash settlement option, the PIES are mandatorily exchangeable, on the maturity date, into Class A Common Shares of DSW, no par value per share, which are issuable upon exchange of DSW Class B Common Shares, no par value per share, beneficially owned by Retail Ventures. On the maturity date, each holder of the PIES will receive a number of DSW Class A Common Shares per $50 principal amount of PIES equal to the “exchange ratio” described in the offering prospectus, or if Retail Ventures elects, the cash equivalent thereof or a combination of cash and DSW Class A Common Shares.
 
The market price of our Class A Common Shares is likely to be influenced by the PIES issued by Retail Ventures. For example, the market price of our Class A Common Shares could become more volatile and could be depressed by (a) investors’ anticipation of the potential resale in the market of a substantial number of additional DSW Class A Common Shares received upon exchange of the PIES, (b) possible sales of our Class A Common Shares by investors who view the PIES as a more attractive means of equity participation in us than owning our Class A Common Shares and (c) hedging or arbitrage trading activity that may develop involving the PIES and our Class A Common Shares.

We may be prevented from issuing stock to raise capital, to effectuate acquisitions or to provide equity incentives to members of our management and board of directors.

Retail Ventures is subject to contractual obligations with its warrantholders to retain enough DSW Common Shares to be able to satisfy its obligations to deliver such shares to its warrantholders if the warrantholders elect to exercise their warrants in full for DSW Class A Common Shares. Retail Ventures is also subject to contractual obligations with the holders of the PIES to retain enough DSW Common Shares to be able to satisfy its obligations to deliver shares to the holders of the PIES. These restrictions may prevent us from issuing additional equity securities to raise capital, to effectuate acquisitions or to provide management or director equity incentives.

Our prior and continuing relationship with Retail Ventures exposes us to risks attributable to Retail Ventures’ businesses.

Retail Ventures is obligated to indemnify us for losses that a party may seek to impose upon us or our affiliates for liabilities relating to the Retail Ventures business that are incurred through a breach of the master separation agreement or any ancillary agreement by Retail Ventures, if such losses are attributable to Retail Ventures in connection with our initial public offering or are not expressly assumed by us under the master separation agreement. Any claims made against us that are properly attributable to Retail Ventures in accordance with these arrangements require us to exercise our rights under the master separation agreement to obtain payment from Retail Ventures. We are exposed to the risk that, in these circumstances, Retail Ventures cannot, or will not, make the required payment. If this were to occur, our business and financial performance could be adversely affected.

Possible future sales of Class A Common Shares by Retail Ventures, SSC and its affiliates and Millennium could adversely affect prevailing market prices for the Class A Common Shares.

Retail Ventures may sell any and all of the Common Shares held by it subject to applicable securities laws and the restrictions set forth below. In addition, SSC and its affiliates and Millennium have the right to acquire from Retail Ventures Class A Common Shares of DSW. Sales or distribution by Retail Ventures, SSC and its affiliates and Millennium of a substantial number of Class A Common Shares in the public market or to their respective shareholders, or the perception that such SSC and its affiliates and Millennium sales or distributions could occur, could adversely affect prevailing market prices for the Class A Common Shares.

Retail Ventures has not advised us that it currently intends to dispose of the Common Shares owned by it, excluding the sale of 320,000 Class B Common Shares to DSW in fiscal 2009, and except to the extent necessary to satisfy its obligations, including obligations under the PIES and obligations under warrants it has granted to SSC and its affiliates and Millennium. In addition, Retail Ventures is subject to contractual obligations with its warrantholders to retain enough DSW Common Shares to be able to satisfy its obligations to deliver such shares to its warrantholders if the warrantholders elect to exercise their warrants in full for DSW Class A Common Shares. Retail Ventures is also subject to contractual obligations with the holders of the PIES to retain enough DSW Common Shares to be able to satisfy its obligations to deliver shares to the holders of the PIES. In addition, in the event that the PIES were to be accelerated, a payment which is required to be paid to the PIES holders by RVI can be satisfied by, in lieu of paying cash, using additional Class A Common Shares upon compliance with the terms of the instruments governing the PIES. Shares delivered upon the settlement of the PIES will generally be freely tradable by the former PIES holders as a result of having been registered in connection with the initial issuance of the PIES.

If Retail Ventures were to require funds to service or refinance its indebtedness or to fund its operations in the future and could not obtain capital from alternative sources, it could seek to sell some or all of the Common Shares of DSW that it holds in order to obtain such funds. On January 15, 2010, we entered into a share purchase agreement with RVI pursuant to which RVI sold to us 320,000 Class B Common Shares, without par value, of DSW, for an aggregate amount of $8.0 million.


Similarly, SSC and its affiliates and Millennium are not subject to any contractual obligation to retain Class A Common Shares they may acquire from Retail Ventures. As a result, there can be no assurance concerning the period of time during which Retail Ventures, SSC and its affiliates and Millennium will maintain their respective beneficial ownership of Common Shares in the future. Retail Ventures and SSC and its affiliates (and any party to whom either of them transfers at least 15% of their interest in registrable DSW Common Shares) will have registration rights with respect to their respective Common Shares, which would facilitate any future distribution, and SSC and its affiliates and Millennium will be entitled to participate in the registrations initiated by the other entities.

RVI has a long-term lease and DSW has agreed to pay a portion of the expense related to the lease.

RVI is party to a lease for an office facility in Columbus, Ohio (the "Premises") as of September 2003. In April 2005, RVI sublet the Premises to a third-party at a rent that was lower than the rent charged to RVI under the lease. RVI remains liable under the lease through the lease expiration date in 2024. DSW agreed to pay $0.5 million annually to RVI to partially reimburse its loss under the lease. After the merger, DSW will assume RVI’s responsibilities under the lease. In the event the third-party subtenant defaults under the sublease or vacates the premises, the amount of this increased expense could be material and may have a negative impact on our results of operations and financial position.

IT E M 1B. UNRESOLVED STAFF COMMENTS.

None.

ITE M 2. PROPERTIES.

All DSW stores, our distribution and fulfillment centers, a trailer parking lot and our office facility are leased or subleased. As of January 29, 2011, we leased or subleased 21 DSW stores, our corporate office, our primary distribution center, a trailer parking lot and our dsw.com fulfillment center from entities affiliated with SSC. The remaining DSW stores are leased from unrelated entities. Most of the DSW store leases provide for a minimum annual rent plus a percentage of gross sales over specified breakpoints and are for a fixed term with options for three to five extension periods, each of which is for a period of four or five years, exercisable at our option.

As of January 29, 2011, we operated 311 DSW stores in 39 states in the United States. The following table shows the number of our DSW stores by state.

Alabama
    2  
Kentucky
    3  
New York
    18  
Arizona
    7  
Louisiana
    2  
North Carolina
    6  
Arkansas
    1  
Maine
    1  
Ohio
    15  
California
    29  
Maryland
    11  
Oklahoma
    2  
Colorado
    10  
Massachusetts
    12  
Oregon
    3  
Connecticut
    4  
Michigan
    14  
Pennsylvania
    16  
Delaware
    1  
Minnesota
    8  
Rhode Island
    1  
Florida
    22  
Mississippi
    1  
Tennessee
    5  
Georgia
    14  
Missouri
    5  
Texas
    30  
Illinois
    15  
Nebraska
    2  
Utah
    3  
Indiana
    7  
Nevada
    3  
Virginia
    13  
Iowa
    1  
New Hampshire
    2  
Washington
    6  
Kansas
    2  
New Jersey
    10  
Wisconsin
    4  
                   
Total
    311  

Our primary distribution facility, our principal executive office and our dsw.com fulfillment center are located in Columbus, Ohio. The lease for our distribution center and our executive office space expires in December 2021 and has three renewal options with terms of five years each. The lease for our dsw.com fulfillment center expires in September 2017 and has two renewal options with terms of five years each.

ITEM 3. LEGAL PROCEEDINGS.

Value City Litigation- On December 21, 2010, Value City and Retail Ventures entered into a Settlement and Release Agreement, pursuant to which Retail Ventures and DSW collectively agreed to pay $3.6 million to Value City, of which DSW paid $0.8 million, and Value City agreed to file a dismissal of its claims against Retail Ventures and DSW in bankruptcy court and to fully release Retail Ventures and DSW from all claims and obligations.


Litigation relating to the proposed merger of DSW and RVI - Purported shareholders of Retail Ventures have filed two putative shareholder class action lawsuits in an Ohio state court against Retail Ventures and its directors and in one case, its chief executive officer, referred to, collectively, as the Retail Ventures defendants, and DSW and in one case, DSW Merger LLC, referred to, collectively, as the DSW defendants. The lawsuits allege, among other things, that Retail Ventures and its directors breached their fiduciary duties by approving the merger agreement and that in one case, Retail Ventures' chief executive officer and DSW, and in the other that Retail Ventures and DSW aided and abetted in these alleged breaches of fiduciary duty. The complaints seek, among other things, to enjoin the shareholder vote on the merger, as well as monetary damages. While the Retail Ventures defendants and the DSW defendants 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 lawsuits 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.

Other legal proceedings - We are involved in various legal proceedings that are incidental to the conduct of our business. We estimate the range of liability related to pending litigation where the amount of the range of loss can be estimated. We record our best estimate of a loss when the loss is considered probable. When a liability is probable and there is a range of estimated loss, we record the most likely estimated liability related to the claim. In the opinion of management, the amount of any potential liability with respect to these proceedings will not be material to our results of operations or financial condition. As additional information becomes available, we will assess the potential liability related to our pending litigation and revise the estimates as needed. Revisions in our estimates and the amount of potential liability could materially impact our future results of operations and financial condition.

ITEM 4.
REMOVED AND RESERVED.


PART II

ITEM 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our Class A Common Shares are listed for trading under the ticker symbol “DSW” on the NYSE. As of March 1, 2011, there were 12 holders of record of our Class A Common Shares and one holder of record of our Class B Common Shares, Retail Ventures. The following table sets forth the high and low sales prices of our Class A Common Shares as reported on the NYSE for each respective quarter:

   
High
   
Low
 
Fiscal 2009:
           
First Quarter
  $ 11.70     $ 6.66  
Second Quarter
    13.82       9.30  
Third Quarter
    22.43       11.99  
Fourth Quarter
    27.44       18.62  
Fiscal 2010:
               
First Quarter
  $ 33.49     $ 24.14  
Second Quarter
    31.55       20.96  
Third Quarter
    33.97       22.65  
Fourth Quarter
    41.84       32.76  

We currently do not plan to pay cash dividends on our Common Shares during fiscal 2011. We did not pay cash dividends in fiscal 2010 and fiscal 2009. Presently, we expect that all of our future earnings will be retained for development of our business. The payment of any future dividends will be at the discretion of our board of directors and will depend upon, among other things, future earnings, operations, capital requirements, our general financial condition and general business conditions. Our credit facility restricts the payment of dividends by us or our subsidiaries, up to the aggregate amount of up to 50% of the previous year’s net income, for a maximum of $50.0 million, provided that we meet the minimum cash requirement set forth in our facility.

DSW made no purchases of its Common Shares during the fourth quarter of fiscal 2010, including repurchases of shares to satisfy tax withholdings for stock option exercises.


Performance Graph

The following graph compares our cumulative total stockholder return of our Class A Common Shares with the cumulative total return of the S&P MidCap 400 Index and the S&P Retailing Index, both of which are published indexes. This comparison includes the period beginning January 28, 2006 and ending on January 29, 2011.
 

 
The comparison of the cumulative total returns for each investment assumes $100 was invested on January 28, 2006 and that all dividends were reinvested.

   
Fiscal years ended
 
Company / Index
 
1/28/06
   
2/3/07
   
2/2/08
   
1/31/09
   
1/30/10
   
1/29/11
 
DSW Inc.
  $ 100.00     $ 149.98     $ 69.06     $ 37.34     $ 90.16     $ 124.54  
S&P MidCap 400 Index
    100.00       107.97       105.56       66.53       95.38       127.30  
S&P Retailing Index
    100.00       113.98       93.78       58.53       91.04       115.61  


ITEM 6 . SELECTED FINANCIAL DATA.

The following table sets forth, for the periods presented, various selected financial information. Such selected consolidated financial data should be read in conjunction with our Consolidated Financial Statements, including the notes thereto, set forth in Item 8 of this Annual Report on Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in Item 7 of this Annual Report on Form 10-K.

   
For the fiscal years ended (1)
 
   
1/29/11
   
1/30/10
   
1/31/09
   
2/02/08
   
2/03/07
 
   
(dollars in thousands, except per share and net sales per average gross square foot)
 
Statement of Income Data: (2)
                             
Net sales (3)
  $ 1,822,376     $ 1,602,605     $ 1,462,944     $ 1,405,615     $ 1,279,060  
Gross profit (4)
  $ 565,681     $ 467,492     $ 379,099     $ 370,135     $ 366,351  
Depreciation and amortization
  $ 47,825     $ 46,260     $ 36,336     $ 25,055     $ 20,686  
Operating profit
  $ 173,583     $ 93,455     $ 42,813     $ 81,321     $ 100,714  
Net income
  $ 107,624     $ 54,741     $ 26,902     $ 53,775     $ 65,464  
Diluted earnings per share
  $ 2.40     $ 1.23     $ 0.61     $ 1.21     $ 1.48  
                                         
Balance Sheet Data:
                                       
Total assets
  $ 1,008,897     $ 850,756     $ 721,197     $ 693,882     $ 608,303  
Working capital (5)
  $ 463,465     $ 382,271     $ 295,721     $ 282,717     $ 298,704  
Current ratio (6)
    2.8       2.7       2.9       2.7       2.9  
Total shareholders’ equity
  $ 640,764     $ 524,881     $ 465,584     $ 433,480     $ 374,579  
Long-term obligations
  $ 0     $ 0     $ 0     $ 0     $ 0  
                                         
Other Data:
                                       
Capital expenditures
  $ 52,298     $ 21,785     $ 80,974     $ 102,451     $ 42,407  
Number of DSW stores: (7)
                                       
Beginning of period
    305       298       259       223       199  
New stores
    9       9       41       37       29  
Closed/re-categorized stores (7)
    (3 )     (2 )     (2 )     (1 )     (5 )
End of period
    311       305       298       259       223  
Comparable DSW stores (units) (8)
    293       249       217       192       163  
DSW total square footage (9)
    6,972,049       6,839,975       6,749,690       6,142,685       5,534,243  
Average gross square footage (10)
    6,928,324       6,840,199       6,454,396       5,814,398       5,271,748  
Net sales per average gross square foot (11)
  $ 228     $ 203     $ 196     $ 212     $ 218  
Number of leased departments at end of period
    352       356       377       378       360  
Total comparable store sales change (8)
    13.2 %     3.2 %     (5.9 %)     (0.8 %)     2.5 %
____________
(1)
See Note 14 for a discussion of the impact of the proposed merger on DSW’s consolidated financial statements.

(2)
Fiscal 2006 was based on a 53 week year. All other fiscal years are based on a 52 week year.

(3)
Includes net sales of leased departments and dsw.com.

(4)
Gross profit is defined as net sales less cost of sales. Cost of sales includes the cost of merchandise, which includes markdowns and shrinkage. Also included in the cost of sales are expenses associated with warehousing (including depreciation), distribution and store occupancy (excluding depreciation and including impairments).

(5)
Working capital represents current assets less current liabilities.

(6)
Current ratio represents current assets divided by current liabilities.


(7)
One combination DSW/Filene’s Basement store was re-categorized as a DSW store at the beginning of fiscal 2010.

(8)
DSW stores, dsw.com and leased departments are comparable when in operation for at least 14 months at the beginning of the fiscal year. Stores or leased departments, as the case may be, are added to the comparable base at the beginning of the year and are dropped for comparative purposes in the quarter that they are closed.

(9)
DSW total square footage represents the total amount of square footage for DSW stores only; it does not reflect square footage of leased departments.

(10)
Average gross square footage represents the monthly average of square feet for DSW stores only for each period presented and consequently reflects the effect of opening stores in different months throughout the period.

(11)
Net sales per average gross square foot is the result of dividing net sales for DSW stores only for the period presented by average gross square footage calculated as described in note 10 above.

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

This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. Please see “Cautionary Statement” on page 1 for a discussion of the uncertainties, risks and assumptions associated with these statements. You should read the following discussion in conjunction with our historical consolidated financial statements and the notes thereto appearing elsewhere in this Annual Report on Form 10-K. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those listed under “Risk Factors” and included elsewhere in this Annual Report on Form 10-K.

Results of Operations

Fiscal 2010 Overview

During fiscal 2010, we generated a 13.2% increase in comparable sales and a 13.7% increase in total sales. The increase in comparable sales was driven by an increase in transactions, as more customers visited our stores and dsw.com, and a higher percentage of those customers made purchases. All merchandise categories reported strong performance, with no single category driving the overall sales increase.

In fiscal 2010, DSW Inc. merchandise margin rate improved over the prior year driven by spring performance. Sales volume exceeded our expectations during the spring season of fiscal 2010, which resulted in a reduction of markdown activity and improved merchandise margins. This improvement was partially offset in the fall season due to a challenging comparison against record merchandise margin rates in the comparable period. The reduction in the fall season margin rate was expected as a result of our inventory being positioned to achieve double digit comparable sales growth and still represented the second highest fall season margin rate since DSW became a public company.

Expense savings initiatives drove reductions in occupancy expense versus last year despite adding six additional stores, net of closings. Improved merchandise margin rates and significantly leveraged occupancy expenses led to a record gross profit rate of 31.0%.

We experienced significant leverage in our operating expenses which increased 4.8% in comparison to the 13.7% increase in sales. As a result of sales growth, improved merchandise margins and expense management, operating profit for fiscal 2010 as a percentage of net sales improved 370 basis points over the prior year to 9.5%.

We have continued making investments in our business that are critical to long-term growth. During fiscal 2010, we invested $52.3 million in capital expenditures compared to $21.8 million during fiscal 2009. Our capital expenditures were primarily related to opening new stores, remodeling existing stores and improving our information technology infrastructure. As of January 29, 2011, our cash and short-term investments balance was $335.2 million. We had $50.0 million in long-term investments and had no long-term debt.


As of January 29, 2011, we operated 311 DSW stores, dsw.com and leased departments in 263 Stein Mart stores, 68 Gordmans stores, 20 Filene’s Basement stores and one Frugal Fannie’s store. We manage our operations in three operating segments, defined as DSW stores, dsw.com and leased departments. DSW stores and dsw.com are aggregated and presented as one reportable segment, the DSW segment.

The following table represents selected components of our historical consolidated results of operations, expressed as percentages of net sales:

 
 
For the fiscal years ended
 
   
January 29,
2011
   
January 30,
2010
   
January 31,
2009
 
Net sales
    100.0 %     100.0 %     100.0 %
Cost of sales
    (69.0 )     (70.8 )     (74.1 )
Gross profit
    31.0       29.2       25.9  
Operating expenses
    (21.5 )     (23.4 )     (23.0 )
Operating profit
    9.5       5.8       2.9  
Interest income, net
    0.1       0.1       0.2  
Non-operating income (expense), net
    0.1       (0.2 )     (0.1 )
Earnings before income taxes
    9.7       5.7       3.0  
Income tax provision
    (3.8 )     (2.3 )     (1.2 )
Net income
    5.9 %     3.4 %     1.8 %

Fiscal Year Ended January 29, 2011 (Fiscal 2010) Compared to Fiscal Year Ended January 30, 2010 (Fiscal 2009)

Net Sales. Sales for fiscal 2010   increased by 13.7% from fiscal 2009. The following table summarizes the increase in our net sales:
 
   
For the fiscal year ended January 29, 2011
 
   
(in millions)
 
Net sales for the fiscal year ended January 30, 2010
  $ 1,602.6  
Increase in comparable store sales
    206.6  
Net increase from non-comparable and closed store sales
    13.2  
Net sales for the fiscal year ended January 29, 2011
  $ 1,822.4  

The following table summarizes our sales by segment and in total:
   
For the fiscal years ended
 
   
January 29, 2011
   
January 30, 2010
 
   
(in millions)
 
DSW
  $ 1,680.9     $ 1,455.0  
Leased departments
    141.5       147.6  
Total DSW Inc.
  $ 1,822.4     $ 1,602.6  

The following table summarizes our comparable store sales change by reportable segment and in total:

   
Fiscal year ended
 
   
January 29, 2011
 
DSW
    14.0 %
Leased departments
    4.6 %
Total DSW Inc.
    13.2 %


Beginning in fiscal 2010, dsw.com is included in the change in comparable sales. The increase in comparable sales was primarily a result of an increase in transactions driven by more customers visiting our stores and dsw.com, and a higher percentage of those customers making a purchase. For the DSW segment, all merchandise categories had positive comparable sales. DSW segment comparable sales increased in women's footwear by 15.0%, men's by 13.1%, athletic by 9.8% and accessories by 18.9%.

Gross Profit. Gross profit is defined as net sales less cost of sales. Gross profit increased as a percentage of net sales from 29.2% in fiscal 2009 to 31.0% in fiscal 2010. By segment and in total, gross profit as a percentage of net sales was:
 
   
For the fiscal years ended
 
   
January 29, 2011
   
January 30, 2010
 
DSW
    31.9 %     30.2 %
Leased departments
    21.4 %     19.1 %
Total DSW Inc.
    31.0 %     29.2 %

DSW segment merchandise margin, gross profit excluding occupancy and warehousing expenses, a non-GAAP measure, was 44.7% as a percentage of net sales for both fiscal 2010 and 2009. Sales volume exceeded our expectations during the spring season of fiscal 2010, which resulted in a reduction of markdown activity and improved merchandise margins. This improvement was offset in the fall season due to a challenging comparison against record merchandise margin rates in the comparable period. The reduction in the fall season margin rate was expected as a result of our inventory being positioned to achieve double digit comparable sales growth. Store occupancy expense for the DSW segment decreased as a percentage of net sales to 11.1% for fiscal 2010 from 12.9% for last year primarily as a result of increased average store sales and decreased in dollars as a result of expense saving initiatives.

Gross profit for the leased department segment increased as a percentage of net sales for fiscal 2010 due to a reduction in markdown activity due to continued enhancements to the clearance markdown process and aligning our inventory position to sales demand.

Operating Expenses. Operating expenses as a percentage of net sales were 21.5% and 23.4% for fiscal 2010 and fiscal 2009, respectively. We increased our marketing expenses to drive sales and have continued investing in our infrastructure resulting in additional depreciation expense. Even with those increases, operating expenses for the year leveraged as a result of the sales increase compared to last year and a reduction in total overhead expenses driven by expense savings initiatives.

Interest Income, Net. Interest income, net of interest expense, was 0.1% as a percentage of net sales for both fiscal 2010 and 2009. The increase in interest income was primarily a result of the reversals of interest reserves related to uncertain tax positions which were released during fiscal 2010.

Non-operating Income (Expense), Net. Non-operating income, net of non-operating expense, for fiscal 2010 resulted from a gain on the sale of a fully impaired auction rate security which was sold during fiscal 2010. Non-operating expense for fiscal 2009 resulted from other-than-temporary impairments related to auction rate securities partially offset by realized gains related to the sale of preferred shares.

Income Taxes. Our effective tax rate for fiscal 2010 was 39.3%, compared to 40.4% for fiscal 2009. The reduction in the effective tax rate was primarily due to a reduction of a valuation allowance on our fully impaired auction rate security which was sold during fiscal 2010.
 
Net Income. For fiscal 2010, net income increased 96.6%, compared to fiscal 2009 and represented 5.9% and 3.4% of net sales, respectively. This increase was primarily the result of an increase in gross profit partially offset by an increase in operating expenses.
 
Fiscal Year Ended January 30, 2010 (Fiscal 2009) Compared to Fiscal Year Ended January 31, 2009 (Fiscal 2008)

Net Sales. Sales for fiscal 2009   increased by 9.5% from fiscal 2008. The following table summarizes the increase in our net sales:
 

   
For the fiscal year ended January 30, 2010
 
   
(in millions)
 
Net sales for the fiscal year ended January 31, 2009
  $ 1,462.9  
Increase in comparable store sales
    42.8  
Net increase from non-comparable and closed store sales
    96.9  
Net sales for the fiscal year ended January 30, 2010
  $ 1,602.6  

The following table summarizes our sales by segment and in total:
   
For the fiscal years ended
 
   
January 30, 2010
   
January 31, 2009
 
   
(in millions)
 
DSW
  $ 1,455.0     $ 1,298.9  
Leased departments
    147.6       164.0  
Total DSW Inc.
  $ 1,602.6     $ 1,462.9  

The following table summarizes our comparable store sales change by segment and in total:
   
Fiscal year ended
 
   
January 30, 2010
 
DSW
    4.0 %
Leased departments
    (3.6 %)
Total DSW Inc.
    3.2 %

The increase in comparable store sales was primarily a result of an increase in traffic and average unit retail. DSW segment comparable sales increased in women's footwear by 4.9%, athletic footwear by 1.8% and accessories by 12.6% and decreased in men’s footwear by 3.8%.

Gross Profit. Gross profit is defined as net sales less cost of sales. Gross profit increased as a percentage of net sales from 25.9% in fiscal 2008 to 29.2% in fiscal 2009. By segment and in total, gross profit as a percentage of net sales was:
 
   
For the fiscal years ended
 
   
January 30, 2010
   
January 31, 2009
 
DSW
    30.2 %     27.1 %
Leased departments
    19.1 %     16.6 %
Total DSW Inc.
    29.2 %     25.9 %

The increase in DSW segment gross profit was primarily a result of an increase of 190 basis points in merchandise margin and a decrease of 120 basis points in store occupancy expense. DSW segment merchandise margin, gross profit excluding warehousing and store occupancy, a non-GAAP measure, for fiscal 2009 increased as a percentage of net sales to 44.7% from 42.8% for fiscal 2008 as the result of a decrease in markdown activity. Store occupancy expense for the DSW segment as a percentage of net sales decreased to 12.9% for fiscal 2009 from 14.1% for fiscal 2008 as a result of increased average store sales, a reduction in store impairments and disposals of property and equipment and rent concessions from landlords.

As a percentage of net sales, gross profit for the leased department segment increased to 19.1% for fiscal 2009 from 16.6% for fiscal 2008 due to decreased markdowns. The decrease in markdowns was a result of continued enhancements to the clearance markdown process and aligning our inventory position to sales demand.

Operating Expenses. Operating expenses as a percentage of net sales were 23.4% and 23.0% for fiscal 2009 and 2008, respectively. Improved operating results increased bonus expense as a percentage of net sales by 110 basis points. The increase in bonus expense was partially offset by 70 basis points of leverage in other operating expenses as a percentage of net sales. Further, decreases in store, new store and overhead expenses as a percentage of net sales were offset by a 60 basis point increase in marketing expense and a 40 basis point increase in depreciation expense. Store expenses decreased as a percentage of net sales by 60 basis points. New store expenses as a percentage of net sales decreased by 30 basis points due to DSW opening 32 fewer stores in fiscal 2009 compared to fiscal 2008. Overhead expenses, excluding bonus expense, decreased as a percentage of net sales by 80 basis points.


Interest Income, Net. Interest income, net of interest expense, was 0.1% and 0.2%, respectively, as a percentage of net sales for fiscal 2009 and 2008. While cash and short-term investments increased as compared to fiscal 2008, the increase was offset by a decrease in interest rates.

Non-operating Income (Expense), Net. Non-operating income (expense), net for fiscal 2009 represents other-than-temporary impairments on our auction rate securities net of realized gains related to the sale of preferred shares, which were the underlying assets of two auction rate securities.   Non-operating expense, net for fiscal 2008 represents other-than-temporary impairments of our auction rate securities.

Income Taxes. Our effective tax rate for fiscal 2009 was 40.4%, compared to 39.3% for fiscal 2008. The increase in the effective tax rate was primarily a result of the valuation allowance related to other-than-temporary impairments.
 
Net Income. For fiscal 2009, net income increased 103.5%, compared to fiscal 2008 and represented 3.4% and 1.8% of net sales, respectively. This increase was primarily the result of an increase in gross profit partially offset by an increase in operating expenses.
 
Liquidity and Capital Resources

Overview

Our primary ongoing cash flow requirements are for inventory purchases, capital expenditures in connection with our expansion, improving our information systems, the remodeling of existing stores and infrastructure growth. Our working capital and inventory levels typically build seasonally. We believe that we have sufficient financial resources and access to financial resources at this time. We are committed to a cash management strategy that maintains liquidity to adequately support the operation of the business, our growth strategy and to withstand unanticipated business volatility. We believe that cash generated from DSW operations, together with our current levels of cash and investments as well as availability under our revolving credit facility, will be sufficient to maintain our ongoing operations, support seasonal working capital requirements and fund capital expenditures related to projected business growth for the foreseeable future.

$100 Million Credit Facility. On June 30, 2010, we entered into a $100 million secured revolving credit facility (the “Credit Facility”) with a term of four years that will expire on June 30, 2014. This facility replaced an existing $150 million secured revolving credit facility (the “Previous Credit Facility”) that expired July 5, 2010. Under the Credit Facility, we and our subsidiary, DSW Shoe Warehouse, Inc. (“DSWSW”), are co-borrowers, with all other subsidiaries listed as guarantors. The Credit Facility may be increased by up to $75 million upon our request and approval by increasing lenders and subject to customary conditions. The Credit Facility provides for swing loans of up to $10 million and the issuance of letters of credit up to $50 million. The Credit Facility is secured by a lien on substantially all of our personal property assets and our subsidiaries with certain exclusions and may be used to provide funds for general corporate purposes, to refinance existing letters of credit outstanding under our previous credit arrangement, to provide for our ongoing working capital requirements, and to make permitted acquisitions. Revolving credit loans bear interest under the Credit Facility at our option under: (A) a base rate option at a rate per annum equal to the highest of (i) the Federal Funds Open Rate (as defined in the Credit Agreement), plus 0.5%, (ii) the Agent’s prime rate, and (iii) the Daily LIBOR Rate (as defined in the Credit Agreement) plus 1.0%, plus in each instance an applicable margin based upon our revolving credit availability; or (B) a LIBOR option at rates equal to the one, two, three, or six month LIBOR rates, plus an applicable margin based upon our revolving credit availability. Swing loans bear interest under the base rate option. Our right to obtain advances under the credit facility is limited by a borrowing base. In addition, the Credit Facility contains restrictive covenants relating to the Company’s management and the operation of the Company’s business. These covenants, among other things, limit or restrict our ability to grant liens on our assets, incur additional indebtedness, enter into transactions with affiliates, merge or consolidate with another entity, redeem our stock and limit cash dividends up to the aggregate amount of 50% of the previous year’s net income, not to exceed $50.0 million. Additional covenants limit our payments for capital expenditures to $75.0 million in any fiscal year, and if we have direct borrowings greater than $25.0 million, our credit facility also requires that we maintain a fixed charge coverage ratio of not less than 1.1 to 1.0. We paid $46.7 million for capital expenditures in fiscal 2010. As of January 29, 2011, we were not required to calculate the fixed charge coverage ratio as we did not have direct borrowings greater than $25.0 million. We had availability under the Credit Facility of $80.8 million, outstanding letters of credit of $19.2 million and were in compliance with all covenants related to the Credit Facility.


Net Working Capital. Net working capital is defined as current assets less current liabilities. Net working capital increased $81.2 million to $463.5 million as of January 29, 2011 from $382.3 million as of January 30, 2010. The increase in net working capital was primarily related to the increase in cash and short-term investments as a result of operating cash flow and a planned inventory increase. The increase in current assets was partially offset by an increase in accounts payable primarily related to the inventory increase. As of January 29, 2011 and January 30, 2010, the current ratio was 2.8 and 2.7, respectively.

Net working capital increased $86.6 million to $382.3 million as of January 30, 2010 from $295.7 million as of January 31, 2009. The increase in net working capital was primarily related to the increase in cash and short-term investments as a result of operating cash flow and a planned inventory increase. The increase in current assets was partially offset by an increase in accounts payable primarily related to the inventory increase, accrued bonus related to improved operating results and accrued taxes related to the increase in earnings before income taxes. As of January 30, 2010 and January 31, 2009, the current ratio was 2.7 and 2.9, respectively.

Operating Activities

Net cash provided by operations in fiscal 2010 decreased to $140.9 million from $164.5 million for fiscal 2009. Net income increased $52.9 million but was offset by income tax related items and the planned inventory increase net of the related increase in accounts payable.

Net cash provided by operations in fiscal 2009 was $164.5 million, compared to $97.1 million for fiscal 2008. The increase in net cash provided by operations during fiscal 2009 was primarily due to the increase in net income and changes in net working capital.

We operate all our stores, our distribution and fulfillment centers and our office facilities from leased facilities. All lease obligations are accounted for as operating leases. We disclose the minimum payments due under operating leases in the notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Although our plan of continued expansion could place increased demands on our financial, managerial, operational and administrative resources and result in increased demands on management, we do not believe that our anticipated growth plan will have an unfavorable impact on our operations or liquidity. Uncertainty in the United States economy could result in reductions in customer traffic and comparable sales in our existing stores with the resultant increase in inventory levels and markdowns. Reduced sales may result in reduced operating cash flows if we are not able to appropriately manage inventory levels or leverage expenses. These potential negative economic conditions may also affect future profitability and may cause us to reduce the number of future store openings, impair goodwill or impair long-lived assets.

Investing Activities

For fiscal 2010, cash used in investing activities amounted to $176.1 million compared to $87.5 million for fiscal 2009. During fiscal 2010, $302.4 million of cash was used to purchase available-for-sale and held-to-maturity securities while $173.0 million of cash was generated by the sale of available-for-sale and held-to-maturity securities. We have increased our investment in longer term investments to increase our return. None of our investments have terms longer than two years. During fiscal 2010, we made $52.3 million in capital expenditures. Of this incurred amount, we incurred $34.6 million related to stores, $8.4 million related to supply chain projects and warehouses and $9.3 million related to information technology and infrastructure.

For fiscal 2009, cash used in investing activities amounted to $87.5 million compared to $104.1 million for fiscal 2008. During fiscal 2009, $224.0 million of cash was used to purchase available-for-sale and held-to-maturity securities while $160.7 million of cash was generated by the sale of available-for-sale and held-to-maturity securities. During fiscal 2009, we made $21.8 million in capital expenditures. Of this incurred amount, we incurred $10.4 million related to stores, $5.7 million related to supply chain projects and warehouses and $5.7 million related to information technology and infrastructure.


We expect to spend approximately $70 million for capital expenditures in fiscal 2011. Our future investments will depend primarily on the number of stores we open and remodel, infrastructure and information technology programs that we undertake and the timing of these expenditures. In fiscal 2010, we opened nine new DSW stores. We plan to open approximately 15 to 20 stores in fiscal 2011. During fiscal 2010, the average investment required to open a typical new DSW store was approximately $1.8 million, prior to construction and tenant allowances. Of this amount, gross inventory typically accounted for $0.6 million, fixtures and leasehold improvements typically accounted for $0.9 million and new store advertising and other new store expenses typically accounted for $0.3 million.

Financing Activities

For fiscal 2010, net cash provided by financing activities of $3.8 million was primarily related to the proceeds received from exercises of stock options. For fiscal 2009, net cash used in financing activities of $6.7 million was primarily related to the purchase of our Class B Common Shares from RVI. Net cash provided by financing activities was less than $0.1 million for fiscal 2008.

Contractual Obligations

We have the following minimum commitments under contractual obligations, as defined by the SEC. A “purchase obligation” is defined as an agreement to purchase goods or services that is enforceable and legally binding on us and that specifies all significant terms, including: fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions; and the approximate timing of the transaction. Other long-term liabilities are defined as long-term liabilities that are reflected on our balance sheet in accordance with generally accepted accounting principles, or GAAP. Based on this definition, the table below includes only those contracts which include fixed or minimum obligations. It does not include normal purchases, which are made in the ordinary course of business.

The following table provides aggregated information about contractual obligations and other long-term liabilities as of January 29, 2011 (amounts in thousands):

   
Payments due by Period
 
Contractual Obligations
 
Total
   
Less Than
1 Year
   
1 - 3
Years
   
3 -5
Years
   
More Than
5 Years
 
Operating lease obligations (1)
  $ 899,527     $ 132,827     $ 250,970     $ 218,300     $ 297,430  
Construction commitments (2)
    3,402       3,402                          
Purchase obligations (3)
    14,195       3,347       6,400       4,448          
Uncertain tax positions (4)
    3,249                               3,249  
Total
  $ 920,373     $ 139,576     $ 257,370     $ 222,748     $ 300,679  

(1)
Many of our operating leases require us to pay contingent rent based on sales, common area maintenance costs and real estate taxes. Contingent rent, costs and taxes vary year by year and are based almost entirely on actual amounts incurred. As such, they are not included in the lease obligations presented above. Other non-current liabilities of $95.6 million are primarily comprised of deferred rent liabilities, construction and tenant allowances, and uncertain tax positions. Deferred rent, which is included in non-current liabilities, is excluded from this table as our payment obligations are included in the operating lease obligations. Construction and tenant allowances, which are included in non-current liabilities, are not contractual obligations as the balance represents cash allowances from landlords, which are deferred and amortized on a straight-line basis over the non-cancellable terms of the lease.

(2)
Construction commitments include capital items to be purchased for projects that were under construction, or for which a lease had been signed, as of January 29, 2011.

(3)
Many of our purchase obligations are cancelable by us without payment or penalty, and we have excluded such obligations.


(4)
The amount of obligations related to uncertain tax positions as of January 29, 2011 were $3.2 million, including approximately $0.3 million of accrued interest and penalties. Uncertain tax positions are positions taken or expected to be taken on an income tax return that may result in additional payments to tax authorities. We may not be required to settle these obligations. Uncertain tax positions are included in the “More than 5 Years” column as we are not able to reasonably estimate the timing of the potential future payments.

We had outstanding letters of credit that totaled approximately $19.2 million as of January 29, 2011. If certain conditions are met under these arrangements, we would be required to satisfy the obligations in cash. Due to the nature of these arrangements and based on historical experience and future expectations, we do not expect to make any significant payment outside of terms set forth in these arrangements.

As of January 29, 2011, we have entered into various construction commitments, including capital items to be purchased for projects that were under construction, or for which a lease has been signed. Our obligations under these commitments aggregated to approximately $3.4 million as of January 29, 2011. In addition, as of January 29, 2011, we have signed 9 lease agreements for new store locations opening in fiscal 2011 and fiscal 2012 with total annual rent of approximately $5.6 million. In connection with the new lease agreements, we expect to receive a total of approximately $5.3 million of construction and tenant allowance reimbursements for expenditures at these locations.

Recent Accounting Pronouncements

Recent Accounting Pronouncements and their impact on DSW are disclosed in Note 1 to the Consolidated Financial Statements included in this Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

As discussed in Note 1 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, the preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates and judgments, including, but not limited to, those related to inventory valuation, depreciation, amortization, recoverability of long-lived assets (including intangible assets), estimates for self-insurance reserves for health and welfare, workers’ compensation and casualty insurance, investments, income taxes and revenue recognition. We base these estimates and judgments on our historical experience and other factors we believe to be relevant, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The process of determining significant estimates is fact-specific and takes into account factors such as historical experience, current and expected economic conditions, product mix, and in some cases, actuarial and appraisal techniques. We constantly re-evaluate these significant factors and make adjustments where facts and circumstances dictate.

While we believe that our historical experience and other factors considered provide a meaningful basis for the accounting policies applied in the preparation of the consolidated financial statements, we cannot guarantee that our estimates and assumptions will be accurate. As the determination of these estimates requires the exercise of judgment, actual results inevitably will differ from those estimates, and such differences may be material to our consolidated financial statements.

We believe the following represent the most significant accounting policies, critical estimates and assumptions, among others, used in the preparation of our consolidated financial statements:

 
•
Revenue Recognition. Revenues from merchandise sales are recognized upon customer receipt of merchandise, are net of returns through period end and sales tax and are not recognized until collectability is reasonably assured. For dsw.com, we estimate a time lag for shipments to record revenue when the customer receives the goods. We believe a one day change in our estimate would not materially impact our revenue. Net sales also include revenue from shipping and handling while the related costs are included in cost of sales.


 
•
Cost of Sales and Merchandise Inventories. Merchandise inventories are stated at net realizable value, determined using the first-in, first-out basis, or market, using the retail inventory method. The retail method is widely used in the retail industry due to its practicality. Under the retail inventory method, the valuation of inventories at cost and the resulting gross profits are calculated by applying a calculated cost to retail ratio to the retail value of inventories. The cost of the inventory reflected on the balance sheet is decreased by charges to cost of sales at the time the retail value of the inventory is lowered through the use of markdowns, which are reductions in prices due to customers’ perception of value. Hence, earnings are negatively impacted as the merchandise is marked down prior to sale.

Inherent in the calculation of inventories are certain significant management judgments and estimates, including setting the original merchandise retail value, markdowns, and estimates of losses between physical inventory counts, or shrinkage, which combined with the averaging process within the retail method, can significantly impact the ending inventory valuation at cost and the resulting gross profit.

We record a reduction to inventories and charge to cost of sales for shrinkage. Shrinkage is calculated as a percentage of sales from the last physical inventory date. Our estimates are based on both our historical experience as well as recent physical inventory results. Physical inventory counts are taken on an annual basis and have supported our shrinkage estimates. If our estimate of shrinkage, on a cost basis, were to increase or decrease 0.5% as a percentage of DSW Inc. sales, it would result in a decrease or increase of approximately $3.9 million to operating profit.

Markdowns establish a new cost basis for our inventory. Changes in facts or circumstances do not result in the reversal of previously recorded markdowns or an increase in the newly established cost basis. Our markdown reserve requires management to make assumptions regarding customer preferences, fashion trends and consumer demand.

Our cost of sales includes the cost of merchandise, which includes markdowns and shrinkage. We also include in the cost of sales expenses associated with warehousing (including depreciation), distribution and store occupancy (excluding depreciation and including impairments). Warehousing costs are comprised of labor, benefits and other labor-related costs associated with the operations of the distribution and fulfillment centers. The non-labor costs associated with warehousing include rent, depreciation, insurance, utilities, maintenance and other operating costs that are passed to us from the landlord. Distribution costs include the transportation of merchandise to the distribution and fulfillment centers, from the distribution center to our stores and from the fulfillment center to the customer. Store occupancy costs include rent, utilities, repairs, maintenance, insurance, janitorial costs and occupancy-related taxes, which are primarily real estate taxes passed to us by our landlords.
 
 
•
Investments. Our investments are valued using a market-based approach using level 1 and 2 inputs. Our equity investment is recorded at cost and reviewed for impairment using an income approach valuation model that uses level 3 inputs such as the financial condition and future prospects of the entity. We evaluate our investments for impairment and whether impairment is other-than-temporary. In determining whether impairment has occurred, we review information about the underlying investment that is publicly available and assess our ability to hold the securities for the foreseeable future. Based on the nature of the impairment(s), we would record temporary impairments as unrealized losses in other comprehensive income or other-than-temporary impairments in earnings. The investment is written down to its current market value at the time the impairment is deemed to have occurred.

 
•
Asset Impairment and Long-lived Assets. We periodically evaluate the carrying amount of our long-lived assets, primarily property and equipment, and finite life intangible assets when events and circumstances warrant such a review to ascertain if any assets have been impaired. The carrying amount of a long-lived asset or asset group is considered impaired when the carrying value of the asset or asset group exceeds the expected future cash flows from the asset. Our reviews are conducted at the lowest identifiable level, which includes a store. The impairment loss recognized is the excess of the carrying amount of the asset or asset group over its fair value, based on projected discounted cash flows using a discount rate determined by management. Any impairment loss realized is included in cost of sales. We believe as of January 29, 2011 that the long-lived assets’ carrying amounts and useful lives are appropriate. To the extent these future projections or our strategies change, the conclusion regarding impairment may differ from our current estimates.


 
•
Self-insurance Reserves. We record estimates for certain health and welfare, workers’ compensation and casualty insurance costs that are self-insured programs. Self-insurance reserves include actuarial estimates of both claims filed, carried at their expected ultimate settlement value, and claims incurred but not yet reported. Our liability represents an estimate of the ultimate cost of claims incurred as of the balance sheet date. Estimates for health and welfare, workers’ compensation and general liability are calculated utilizing claims development estimates based on historical experience and other factors. We have purchased stop loss insurance to limit our exposure to any significant exposure on a per person basis for health and welfare and on a per claim basis for workers’ compensation and casualty insurance. Although we do not anticipate the amounts ultimately paid will differ significantly from our estimates, self-insurance reserves could be affected if future claim experience differs significantly from the historical trends and the actuarial assumptions. For example, for workers’ compensation and liability future claims estimates, a 1% increase or decrease to the assumptions for claims costs and loss development factors would increase or decrease our self-insurance accrual by less than $0.1 million.

 
•
Customer Loyalty Program. We maintain a customer loyalty program for the DSW stores and dsw.com in which program members earn reward certificates that result in discounts on future purchases. Upon reaching the target-earned threshold, the members receive reward certificates for these discounts which expire six months after being issued. We accrue the anticipated redemptions of the discount earned at the time of the initial purchase. To estimate these costs, we make assumptions related to customer purchase levels and redemption rates based on historical experience. If our redemption rate were to increase or decrease by 5%, it would result in a decrease or increase of approximately $1.8 million to operating profit.

 
•
Income Taxes. We determine the aggregate amount of income tax expense to accrue and the amount which will be currently payable based upon tax statutes of each jurisdiction we do business in. In making these estimates, we adjust income based on a determination of generally accepted accounting principles for items that are treated differently by the applicable taxing authorities. Deferred tax assets and liabilities, as a result of these differences, are reflected on our balance sheet for temporary differences that will reverse in subsequent years. A valuation allowance is established against deferred tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized. If our management had made these determinations on a different basis, our tax expense, assets and liabilities could be different.

Off-Balance Sheet Arrangements

As of January 29, 2011, we have not entered into any “off-balance sheet” arrangements, as that term is described by the SEC.

Fiscal Year

We follow a 52/53-week fiscal year that ends on the Saturday nearest to January 31 in each year. Fiscal 2010, 2009 and 2008 each consisted of 52 weeks.

Separation Agreements

In connection with the completion of our initial public offering in July 2005, we entered into several agreements with Retail Ventures in connection with the separation of our business from the Retail Ventures group. After the transfer of shared services in fiscal 2008, we amended the shared services agreement and the tax separation agreement.

Master Separation Agreement. The master separation agreement contains key provisions relating to the separation of our business from Retail Ventures. The master separation agreement requires us to exchange information with Retail Ventures, follow certain accounting practices and resolve disputes with Retail Ventures in a particular manner. We also have agreed to maintain the confidentiality of certain information and preserve available legal privileges. The separation agreement also contains provisions relating to the allocation of the costs of our initial public offering, indemnification, non-solicitation of employees and employee benefit matters.

Under the master separation agreement, we agreed to effect up to one demand registration per calendar year of our Common Shares, whether Class A or Class B, held by Retail Ventures, if requested by Retail Ventures. We have also granted Retail Ventures the right to include its Common Shares of DSW in an unlimited number of other registrations of such shares initiated by us or on behalf of our other shareholders.


Amended and Restated Shared Services Agreement. Effective March 17, 2008, we entered into an Amended and Restated Shared Services Agreement with RVI and its subsidiaries. Pursuant to the terms of the Amended and Restated Shared Services Agreement, DSW provides RVI and its subsidiaries with key services relating to risk management, tax, financial services, benefits administration, payroll and information technology. The current term of the Amended and Restated Shared Services Agreement expired at the end of fiscal 2010, was extended automatically for fiscal 2011 and will be extended automatically for additional one-year terms unless terminated by one of the parties. With respect to each shared service, we cannot reasonably anticipate whether the services will be shared for a period shorter or longer than the initial term.

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 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.

ITEM 7A . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our cash and equivalents have maturities of 90 days or fewer. At times, cash and equivalents may be in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. We also have investments in various short-term and long-term investments. Our available-for-sale investments generally renew every 7 days and we also have held-to-maturity investments that have terms greater than 365 days. These financial instruments may be subject to interest rate risk through lost income should interest rates increase during their term to maturity and thus may limit our ability to invest in higher income investments.

As of January 29, 2011, there was no long-term debt outstanding. Future borrowings, if any, would bear interest at rates in accordance with our credit facility and would be subject to interest rate risk. Because we have no outstanding debt, we do not believe that a hypothetical adverse change of 1% in interest rates would have a material effect on our financial position.

ITE M 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Our financial statements and the Report of Independent Registered Public Accounting Firm thereon are filed pursuant to this Item 8 and are included in this report beginning on page F-1.

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

None.

ITEM 9A . CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded, as of the end of the period covered by this Annual Report, that such disclosure controls and procedures were effective.


Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America.

Management assessed the effectiveness of our internal control system as of January 29, 2011. In making its assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework . Based on this assessment, management concluded that it maintained effective internal control over financial reporting, as of January 29, 2011.

Deloitte & Touche LLP, our independent registered public accounting firm, has issued an attestation report covering our internal control over financial reporting, as stated in its report which begins on page F-1 of this Annual Report.

Changes in Internal Control over Financial Reporting

No change was made in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

IT E M 9B. OTHER INFORMATION.

None.


PART III

I TEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

In accordance with General Instruction G(3), the information contained under the captions “EXECUTIVE OFFICERS”, “ELECTION OF DIRECTORS” and “OTHER DIRECTOR INFORMATION, COMMITTEES OF DIRECTORS AND CORPORATE GOVERNANCE INFORMATION” in our definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 19, 2011, to be filed with the SEC pursuant to Regulation 14A promulgated under the Exchange Act (the “Proxy Statement”), is incorporated herein by reference to satisfy the remaining information required by this Item.

ITE M 11. EXECUTIVE COMPENSATION.

In accordance with General Instruction G(3), the information contained under the captions “COMPENSATION OF MANAGEMENT” and “OTHER DIRECTOR INFORMATION, COMMITTEES OF DIRECTORS AND CORPORATE GOVERNANCE INFORMATION” in the Proxy Statement is incorporated herein by reference. The “REPORT OF THE COMPENSATION COMMITTEE” shall not be deemed to be incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS.

In accordance with General Instruction G(3), the information contained under the captions “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” and “OTHER DIRECTOR INFORMATION, COMMITTEES OF DIRECTORS AND CORPORATE GOVERNANCE INFORMATION”, in the Proxy Statement is incorporated herein by reference.

EQUITY COMPENSATION PLAN TABLE

The following table sets forth additional information as of January 29, 2011, about our Class A Common Shares that may be issued upon the exercise of options and other rights under our existing equity compensation plans and arrangements, divided between plans approved by our shareholders and plans or arrangements not submitted to our shareholders for approval. The information includes the number of shares covered by, and the weighted average exercise price of, outstanding options, warrants and other rights and the number of shares remaining available for future grants, excluding the shares to be issued upon exercise of outstanding options, warrants, and other rights.

 
 
 
 
 
Plan Category
 
 
Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)
   
 
Weighted-average exercise price of outstanding options, warrants and rights (b)
   
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))(c)
 
Equity compensation plans approved by security holders (1)
    3,093,847 (2)   $ 20.04       4,029,429  
Equity compensation plans not approved by security holders
    N/A       N/A       N/A  
Total
    3,093,847     $ 20.04       4,029,429  
 
(1)
DSW Inc. 2005 Equity Incentive Plan.
 
(2)
Includes 2,656,955 shares issuable pursuant to the exercise of outstanding stock options, 275,625 shares issuable pursuant to restricted stock units, and 161,267 shares issuable pursuant to director stock units. Since the restricted stock units and director stock units have no exercise price, they are not included in the weighted average exercise price calculation in column (b).
 

ITEM 13 . CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

In accordance with General Instruction G(3), the information contained under the caption “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” in the Proxy Statement is incorporated herein by reference.

I TEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

In accordance with General Instruction G(3), the information contained under the caption “AUDIT AND OTHER SERVICE FEES” in the Proxy Statement is incorporated herein by reference.


PART IV

ITE M 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

15(a)(1) Financial Statements

The documents listed below are filed as part of this Form 10-K:

 
Page in
Form 10-K
Report of Independent Registered Public Accounting Firm
F-1
Consolidated Balance Sheets as of January 29, 2011 and January 30, 2010
F-2
Consolidated Statements of Income for the years ended January 29, 2011, January 30, 2010 and January 31, 2009
F-3
Consolidated Statements of Shareholders’ Equity for the years ended January 29, 2011, January 30, 2010 and January 31, 2009
F-4
Consolidated Statements of Cash Flows for the years ended January 29, 2011, January 30, 2010 and January 31, 2009
F-5
Notes to Consolidated Financial Statements
F-6

15(a)(2) Consolidated Financial Statement Schedules:

Schedules not filed are omitted because of the absence of the conditions under which they are required or because the required information is included in the financial statements or the notes thereto.

15(a)(3) and (b) Exhibits:

See Index to Exhibits which begins on page E-1.

15(c) Additional Financial Statement Schedules:

None.


SIGN ATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
DSW INC.
 
       
March 22, 2011
By:
/s/ Douglas J. Probst
 
   
Douglas J. Probst, Executive Vice President and Chief Financial Officer
 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.

Signature
 
Title
 
Date
         
/s/ Michael R. MacDonald
 
President and Chief Executive Officer and Director
 
March 22, 2011
Michael R. MacDonald
 
(Principal Executive Officer)
   
         
/s/ Douglas J. Probst
 
Executive Vice President and Chief Financial Officer
 
March 22, 2011
Douglas J. Probst
 
(Principal Financial and Accounting Officer)
   
         
*
 
Chairman of the Board and Director
 
March 22, 2011
Jay L. Schottenstein
       
         
*
 
Director
 
March 22, 2011
Elaine J. Eisenman
       
         
*
 
Director
 
March 22, 2011
Carolee Friedlander
       
         
*
 
Director
 
March 22, 2011
Joanna T. Lau
       
         
*
 
Director
 
March 22, 2011
Roger S. Markfield
       
         
*
 
Director
 
March 22, 2011
Philip B. Miller
       
         
*
 
Director
 
March 22, 2011
James D. Robbins
       
         
*
 
Director
 
March 22, 2011
Harvey L. Sonnenberg
       
         
*
 
Director
 
March 22, 2011
Allan J. Tanenbaum
       
         
*
 
Director
 
March 22, 2011
Heywood Wilansky
       

*By:
/s/ Douglas J. Probst
 
 
Douglas J. Probst, (Attorney-in-fact)
 


REPOR T OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of DSW Inc.
Columbus, Ohio

We have audited the accompanying consolidated balance sheets of DSW Inc. and its subsidiaries (the "Company") as of January 29, 2011 and January 30, 2010, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended January 29, 2011. We also have audited the Company's internal control over financial reporting as of January 29, 2011 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of DSW Inc. and its subsidiaries as of January 29, 2011 and January 30, 2010, and the results of their operations and their cash flows for each of the three years in the period ended January 29, 2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 29, 2011, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/s/ DELOITTE & TOUCHE LLP

Columbus, Ohio
March 22, 2011


D S W INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
 
   
January 29, 2011
   
January 30, 2010
 
ASSETS
Cash and equivalents
  $ 93,617     $ 125,020  
Short-term investments
    241,557       164,265  
Accounts receivable, net
    12,433       5,406  
Accounts receivable from related parties, net
    81       123  
Inventories
    309,013       262,284  
Prepaid expenses and other current assets
    29,945       20,762  
Deferred income taxes
    30,535       29,130  
Total current assets
    717,181       606,990  
                 
Property and equipment - at cost:
               
Furniture, fixtures and equipment
    260,790       235,460  
Leasehold improvements
    178,349       158,687  
Total property and equipment
    439,139       394,147  
Less accumulated depreciation
    (228,748 )     (187,723 )
Property and equipment, net
    210,391       206,424  
Long-term investments
    49,987       1,151  
Goodwill
    25,899       25,899  
Deferred income taxes and other assets
    5,439       10,292  
Total assets
  $ 1,008,897     $ 850,756  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable
  $ 148,648     $ 119,064  
Accounts payable to related parties
    1,074       1,495  
Accrued expenses:
               
Compensation
    25,017       26,244  
Taxes
    15,438       28,882  
Gift cards and merchandise credits
    22,571       17,774  
Other
    40,968       31,260  
Total current liabilities
    253,716       224,719  
                 
Deferred income taxes
    18,828          
Other non-current liabilities
    95,589       101,156  
                 
Commitments and contingencies
               
                 
Shareholders’ equity:
               
Class A Common Shares, no par value; 170,000,000 authorized; 16,804,965 and 16,508,581 issued and outstanding, respectively
    314,382       306,123  
Class B Common Shares, no par value; 100,000,000 authorized; 27,382,667 and 27,382,667 issued and outstanding, respectively
               
Preferred Shares, no par value; 100,000,000 authorized; no shares issued or outstanding
               
Retained earnings
    326,382       218,758  
Total shareholders’ equity
    640,764       524,881  
Total liabilities and shareholders’ equity
  $ 1,008,897     $ 850,756  

The accompanying Notes are an integral part of the Consolidated Financial Statements.

 
F-2

DSW INC .
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JANUARY 29, 2011, JANUARY 30, 2010 AND JANUARY 31, 2009
(in thousands, except per share amounts)

   
January 29, 2011
   
January 30, 2010
   
January 31, 2009
 
Net sales
  $ 1,822,376     $ 1,602,605     $ 1,462,944  
Cost of sales
    (1,256,695 )     (1,135,113 )     (1,083,845 )
Operating expenses
    (392,098 )     (374,037 )     (336,286 )
Operating profit
    173,583       93,455       42,813  
Interest expense
    (1,036 )     (1,414 )     (794 )
Interest income
    3,232       2,217       3,400  
Interest income, net
    2,196       803       2,606  
Non-operating income (expense), net
    1,500       (2,367 )     (1,134 )
Earnings before income taxes
    177,279       91,891       44,285  
Income tax provision
    (69,655 )     (37,150 )     (17,383 )
Net income
  $ 107,624     $ 54,741     $ 26,902  
                         
Basic and diluted earnings per share:
                       
Basic
  $ 2.45     $ 1.24     $ 0.61  
Diluted
  $ 2.40     $ 1.23     $ 0.61  
Shares used in per share calculations:
                       
Basic
    44,016       44,093       43,998  
Diluted
    44,918       44,517       44,218  

The accompanying Notes are an integral part of the Consolidated Financial Statements.

 
F-3
 
DSW INC .
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
YEARS ENDED JANUARY 29, 2011, JANUARY 30, 2010 AND JANUARY 31, 2009
  (in thousands )

   
Number of
                               
   
Class A
Common
Shares
   
Class B
Common
Shares
   
Class A
Common
Shares
   
Class B
Common
Shares
   
Retained
Earnings
   
Accumulated Other Comprehensive (Loss)/Income
   
 
Total
 
Balance, February 2, 2008
    16,264       27,703     $ 288,365     $ 0     $ 145,115     $ 0     $ 433,480  
Net income
                                    26,902               26,902  
Unrealized loss on available-for-sale securities
                                            (655 )     (655 )
Total comprehensive income
                                                    26,247  
Stock units granted
    45               606                               606  
Exercise of stock options
    1               17                               17  
Vesting of restricted stock units, net of settlement of taxes
    6               (26 )                             (26 )
Non-cash capital contribution from RVI
                    787                               787  
Tax shortfall related to restricted stock unit exercises
                    (49 )                             (49 )
Stock-based compensation expense, before related tax effects
                    4,522                               4,522  
Balance, January 31, 2009
    16,316       27,703     $ 294,222     $ 0     $ 172,017     $ (655 )   $ 465,584  
Net income
                                    54,741               54,741  
Unrealized loss on available-for-sale securities
                                            (99 )     (99 )
Total comprehensive income
                                                    54,642  
Reclassification of unrealized losses on available-for-sale securities to an other-than-temporary impairment
                                            754       754  
Stock units granted
    47               599                               599  
Exercise of stock options
    91               1,323                               1,323  
Vesting of restricted stock units, net of settlement of taxes
    55               (179 )                             (179 )
Non-cash capital contribution from RVI
                    4,670                               4,670  
Stock-based compensation expense, before related tax effects
                    5,488                               5,488  
Purchase of DSW Class B Common Shares from RVI
            (320 )                     (8,000 )             (8,000 )
Balance, January 30, 2010
    16,509       27,383     $ 306,123     $ 0     $ 218,758     $ 0     $ 524,881  
Net income
                                    107,624               107,624  
Stock units granted
    32               858                               858  
Exercise of stock options
    236               3,379                               3,379  
Vesting of restricted stock units, net of settlement of taxes
    28               (281 )                             (281 )
Adjustment to non-cash capital contribution from RVI
                    (896 )                             (896 )
Excess tax benefit related to stock options exercised
                    1,175                               1,175  
Stock-based compensation expense, before related tax effects
                    4,024                               4,024  
                                                         
Balance, January 29, 2011
    16,805       27,383     $ 314,382     $ 0     $ 326,382     $ 0     $ 640,764  

The accompanying Notes are an integral part of the Consolidated Financial Statements.

 
F-4

D SW INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 29, 2011, JANUARY 30, 2010 AND JANUARY 31, 2009
(in thousands)

   
January 29, 2011
   
January 30, 2010
   
January 31, 2009
 
Cash flows from operating activities:
                 
Net income
  $ 107,624     $ 54,741     $ 26,902  
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Depreciation and amortization
    47,825       46,260       36,336  
Amortization of debt issuance costs
    159       118       118  
Stock-based compensation expense
    4,024       5,488       4,522  
Deferred income taxes
    11,694       (12,105 )     (889 )
Loss on disposal of assets
    1,621       1,024       1,676  
Impairment charges on long-lived assets
            856       3,339  
Grants of director stock units
    858       599       606  
Other-than-temporary impairment charges on investments
            2,895       1,134  
Other
    (2,996 )     (238 )     (4,066 )
Change in working capital, assets and liabilities:
                       
Accounts receivable
    (7,510 )     (1,662 )     3,693  
Inventories
    (46,729 )     (18,276 )     18,029  
Prepaid expenses and other assets
    (3,496 )     3,775       (1,656 )
Accounts payable
    26,650       26,666       (15,112 )
Proceeds from construction and tenant allowances
    5,875       7,106       16,106  
Accrued expenses
    (4,650 )     47,206       6,371  
Net cash provided by operating activities
    140,949       164,453       97,109  
                         
Cash flows from investing activities:
                       
Cash paid for property and equipment
    (46,735 )     (23,080 )     (82,191 )
Purchases of available-for-sale investments
    (27,957 )     (200,002 )     (205,558 )
Purchases of held-to-maturity investments
    (274,425 )     (23,983 )     (2,000 )
Maturities and sales of available-for-sale investments
    77,009       153,753       183,604  
Maturities and sales of held-to-maturity investments
    96,011       6,925       2,000  
Activity related to equity investment – related party
    199       (1,151 )        
Acquisition of tradename
    (225 )                
Net cash used in investing activities
    (176,123 )     (87,538 )     (104,145 )
                         
Cash flows from financing activities:
                       
Proceeds from exercise of stock options
    3,379       1,323       17  
Debt issuance costs
    (783 )                
Excess tax benefit – related to stock option exercises
    1,175                  
Purchase of DSW Class B Common Shares from RVI
            (8,000 )        
Net cash provided by (used in) financing activities
    3,771       (6,677 )     17  
Net (decrease) increase in cash and equivalents
    (31,403 )     70,238       (7,019 )
Cash and equivalents, beginning of period
    125,020       54,782       61,801  
Cash and equivalents, end of period
  $ 93,617     $ 125,020     $ 54,782  
                         
Supplemental disclosures of cash flow information:
                       
Cash paid during the period for:
                       
Income taxes
  $ 82,098     $ 23,050     $ 13,399  
Non-cash investing and operating activities:
                       
Balance of accounts payable and accrued expenses due to property and equipment purchases
  $ 7,522     $ 1,962     $ 3,282  
Adjustment to and non-cash capital contribution from RVI
  $ (896 )   $ 4,670     $ 787  
(Decrease) in accounts payable related to recovery from RVI of shared service asset impairment
          $ (1,818 )        
Amortization of investment premiums and discounts
  $ 3,035                  

The accompanying Notes are an integral part of the Consolidated Financial Statements.

 
F-5

D SW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SIGNIFICANT ACCOUNTING POLICIES

Business Operations- DSW Inc. (“DSW”) and its wholly-owned subsidiaries are herein referred to collectively as DSW or the “Company”. DSW’s Class A Common Shares are listed on the New York Stock Exchange under the ticker symbol “DSW”. As of January 29, 2011, Retail Ventures, Inc. (“RVI” or “Retail Ventures”) owned approximately 62.0% of DSW’s outstanding Common Shares, including director stock units, representing approximately 92.9% of the combined voting power of DSW’s outstanding Common Shares.

DSW is managed in three operating segments: DSW stores, dsw.com and leased departments. DSW stores and dsw.com are aggregated and presented as one reportable segment, the DSW segment. DSW stores and dsw.com offer a wide assortment of better-branded dress, casual and athletic footwear for men and women, as well as handbags and accessories. As of January 29, 2011, DSW operated a total of 311 stores located throughout the United States. During fiscal 2010, 2009 and 2008, DSW opened 9, 9 and 41 new DSW stores, respectively, and closed 4, 2 and 2 DSW stores, respectively. In fiscal 2010, DSW also recategorized one combination DSW/Filene’s Basement store from a leased department to a DSW store. In fiscal 2008, DSW launched dsw.com.

DSW also operates leased departments for four retailers in its leased department segment. As of January 29, 2011, DSW supplied merchandise to 263 Stein Mart stores, 68 Gordmans stores, 20 Filene’s Basement stores and one Frugal Fannie’s store. The Company’s renewable supply agreements to merchandise leased departments in Stein Mart, Gordmans, Filene’s Basement and Frugal Fannie’s stores are effective through December 2012, January 2013, January 2013 and April 2012, respectively. During fiscal 2010, 2009 and 2008, DSW added 6, 3 and 12 new leased departments, respectively, and ceased operations in 9, 24 and 13 leased departments, respectively. DSW owns the merchandise and the fixtures (except for Filene’s Basement, where DSW only owns the merchandise), records sales of merchandise, net of returns and sales tax and provides management oversight. The retailers provide the sales associates and retail space. DSW pays a percentage of net sales as rent.

Fiscal Year- The Company’s fiscal year ends on the Saturday nearest January 31. Fiscal 2010, 2009 and 2008 each consisted of 52 weeks. Unless otherwise stated, references to years in this report relate to fiscal years rather than calendar years.

Use of Estimates- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Significant estimates are required as a part of inventory valuation, depreciation, amortization, recoverability of long-lived assets and intangible assets and establishing reserves for self-insurance. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, actual results could differ from these estimates.

Financial Instruments- The following assumptions were used to estimate the fair value of each class of financial instruments:

Cash and Equivalents - Cash and equivalents represent cash, money market funds and highly liquid investments with original maturities of three months or fewer at the date of purchase and credit card receivables, which generally settle within three days. Amounts due from banks for credit card transactions totaled $11.1 million and $8.6 million as of January 29, 2011 and January 30, 2010, respectively. The carrying amounts of cash and equivalents approximate fair value.

The Company reviews cash balances on a bank by bank basis to identify book overdrafts. Book overdrafts occur when the amount of outstanding checks exceed the cash deposited at a bank. The Company reclassifies book overdrafts, if any, to accounts payable.

Investments - Investments are classified as available-for-sale or held-to-maturity securities based on the Company’s intent. All income generated from these investments is recorded as interest income.

The Company evaluates its investments for impairment and whether impairment is other-than-temporary. In fiscal 2010 and 2009, the Company recognized realized gains of $1.5 million for the sale of a fully impaired auction rate security and $0.5 million related to the sale of preferred shares, respectively, as non-operating income. In fiscal 2009, the Company recognized other-than-temporary impairments related to auction rate securities of $2.9 million, excluding realized gains of $0.5 million, as non-operating expense. In fiscal 2008, the Company recognized other-than-temporary impairments $1.1 million as non-operating expense related to the impairment of auction rate securities. The Company did not recognize any impairment on investments during fiscal 2010 or gains in fiscal 2008. Please see Note 5 for additional discussion of the Company’s investments.


DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounts Receivable - Accounts receivable are classified as current assets because the average collection period is generally shorter than one year. The carrying amount approximates fair value because of the relatively short average maturity of the instruments and no significant change in interest rates.

Concentration of Credit Risk- Financial instruments, which principally subject the Company to concentration of credit risk, consist of cash, equivalents and investments. The Company invests excess cash when available through financial institutions in money market accounts and term investments. At times, such amounts may be in excess of Federal Deposit Insurance Corporation (“ FDIC”) insurance limits and the Company mitigates the risks by utilizing multiple banks.

Concentration of Vendor Risk- During fiscal 2010, 2009 and 2008, merchandise supplied to the Company by three key vendors accounted for approximately 20%, 21% and 20% of net sales, respectively.

Allowance for Doubtful Accounts-   The Company monitors its exposure for credit losses and records related allowances for doubtful accounts. Allowances are estimated based upon specific accounts receivable balances, where a risk of default has been identified. As of January 29, 2011 and January 30, 2010, the Company’s allowances for doubtful accounts were $0.4 million and $1.3 million, respectively. The reduction in fiscal 2010 is related to the release of the Company’s claim related to the Value City bankruptcy estate in December 2010.  The following table summarizes the activity related to the Company’s allowance for doubtful accounts:
 
Fiscal years ended
 
Beginning balance
   
Expenses
   
Deductions
   
Ending balance
 
   
(in thousands)
 
January 29, 2011
  $ 1,342       125       (1,062 )   $ 405  
January 30, 2010
    778       869       (305 )     1,342  
January 31, 2009
    399       1,207       (828 )     778  

Inventories -   Merchandise inventories are stated at net realizable value, determined using the first-in, first-out basis, or market, using the retail inventory method. The retail method is widely used in the retail industry due to its practicality. Under the retail inventory method, the valuation of inventories at cost and the resulting gross profits are calculated by applying a calculated cost to retail ratio to the retail value of inventories. The cost of the inventory reflected on the balance sheet is decreased by charges to cost of sales at the time the retail value of the inventory is lowered through the use of markdowns, which are reductions in prices due to customers’ perception of value. Hence, earnings are negatively impacted as the merchandise is marked down prior to sale.

Inherent in the calculation of inventories are certain significant management judgments and estimates, including setting the original merchandise retail value, markdowns, and estimates of losses between physical inventory counts, or shrinkage, which combined with the averaging process within the retail method, can significantly impact the ending inventory valuation at cost and the resulting gross profit.

DSW records a reduction to inventories and charge to cost of sales for shrinkage. Shrinkage is calculated as a percentage of sales from the last physical inventory date. Estimates are based on both historical experience as well as recent physical inventory results. Physical inventory counts are taken on an annual basis and have supported the Company’s shrinkage estimates.

Markdowns establish a new cost basis for inventory. Changes in facts or circumstances do not result in the reversal of previously recorded markdowns or an increase in the newly established cost basis. The markdown reserve requires management to make assumptions regarding customer preferences, fashion trends and consumer demand.


DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property and Equipment- Property and equipment are stated at cost less accumulated depreciation determined by the straight-line method over the expected useful lives of the assets. The straight-line method is used to amortize such capitalized costs over the lesser of the expected useful life of the asset or the life of the lease. The estimated useful lives by class of asset are:

Furniture, fixtures and equipment
3 to 10 years
Leasehold improvements
Shorter of the non-cancellable term of the lease or 10 years

Asset Impairment and Long-Lived Assets- The Company periodically evaluates the carrying amount of its long-lived assets, primarily property and equipment, and finite life intangible assets when events and circumstances warrant such a review to ascertain if any assets have been impaired. The carrying amount of a long-lived asset or asset group is considered impaired when the carrying value of the asset or asset group exceeds the expected future cash flows from the asset or asset group. The Company reviews are conducted at the lowest identifiable level, which includes a store. The impairment loss recognized is the excess of the carrying value of the asset or asset group over its fair value, based on discounted cash flow analysis using a discount rate determined by management. Should an impairment loss be realized, it will be included in cost of sales. There were no impairment charges in fiscal 2010. The Company expensed $0.9 million and $3.3 million in fiscal 2009 and 2008, respectively, of identified assets where the recorded value could not be supported by projected future cash flows. The impairment charges were recorded within the DSW reportable segment.

Goodwill- Goodwill represents the excess cost over the estimated fair values of net assets including identifiable intangible assets of businesses acquired. As of both January 29, 2011 and January 30, 2010, the balance of goodwill related to the DSW stores was $25.9 million. Goodwill is tested for impairment at least annually. Management evaluates the fair value of the reporting unit using market-based analysis to review market capitalization as well as reviewing a discounted cash flow analysis using management’s assumptions. Several factors could result in an impairment charge such as failure to achieve sufficient levels of cash flow at the reporting unit level or a significant and sustained decline in DSW’s stock price. Significant judgment is necessary to determine the underlying cause of the decline and whether stock price declines are related to the market or specifically to the Company. The Company has never recorded goodwill impairment.

Tradenames and Other Intangible Assets, net- Tradenames and other intangible assets, net are primarily comprised of values assigned to tradenames at the time of RVI’s acquisition of the Company. As of January 29, 2011 and January 30, 2010, the gross balance of tradenames was $13.0 million and $12.8 million, respectively. During fiscal 2010, DSW purchased a merchandise tradename for the amount of $0.2 million, amortizable over five years, and an indefinite lived tradename for less than $0.1 million. Accumulated amortization for tradenames was $10.9 million and $10.0 million as of January 29, 2011 and January 30, 2010, respectively. The average useful lives of tradenames and other intangible assets, net are 14 years and 15 years as of January 29, 2011 and January 30, 2010, respectively.

Amortization expense for fiscal 2010 was $0.9 million. Future amortization expense associated with the net carrying amount of intangible assets as of January 29, 2011 is $0.9 million for both fiscal 2011 and fiscal 2012, $0.3 million in fiscal 2013 and less than $0.1 million in both fiscal 2014 and fiscal 2015.

Equity Investments- The Company accounts for equity investments using the equity method of accounting when it exercises significant influence over the investment. If the Company does not exercise significant influence, the Company accounts for the investment using the cost method of accounting.

Self-insurance Reserves- The Company records estimates for certain health and welfare, workers compensation and casualty insurance costs that are self-insured programs. Self-insurance reserves include actuarial estimates of both claims filed, carried at their expected ultimate settlement value, and claims incurred but not yet reported. The liability represents an estimate of the ultimate cost of claims incurred as of the balance sheet date. Estimates for health and welfare, workers’ compensation and general liability are calculated utilizing claims development estimates based on historical experience and other factors. The Company has purchased stop loss insurance to limit its exposure to any significant exposure on a per person basis for health and welfare and on a per claim basis for workers compensation and general liability. The self-insurance reserves were $2.3 million and $2.8 million as of January 29, 2011 and January 30, 2010, respectively.


DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Customer Loyalty Program- The Company maintains a customer loyalty program for the DSW stores and dsw.com in which program members earn reward certificates that result in discounts on future purchases. Upon reaching the target-earned threshold, the members receive reward certificates for these discounts which expire six months after being issued. The Company accrues the anticipated redemptions of the discount earned at the time of the initial purchase. To estimate these costs, DSW makes assumptions related to customer purchase levels and redemption rates based on historical experience. The accrued liability included in other accrued expenses as of January 29, 2011 and January 30, 2010 was $12.4 million and $9.0 million, respectively.

Deferred Rent- Many of the Company’s operating leases contain predetermined fixed increases of the minimum rentals during the initial lease terms. For these leases, the Company recognizes the related rental expense on a straight-line basis over the non-cancellable terms of the lease. The Company records the difference between the amounts charged to expense and the rent paid as deferred rent and begins amortizing such deferred rent upon the delivery of the lease location by the lessor. The deferred rent included in other non-current liabilities was $32.2 million and $32.3 million as of January 29, 2011 and January 30, 2010, respectively.

Construction and Tenant Allowances- The Company receives cash allowances from landlords, which are deferred and amortized on a straight-line basis over the non-cancellable terms of the lease as a reduction of rent expense. Construction and tenant allowances are included in other non-current liabilities and were $60.4 million and $59.7 million as of January 29, 2011 and January 30, 2010, respectively.

Comprehensive Income- For fiscal 2009, total comprehensive income was $54.6 million. In fiscal 2009, DSW reclassified its unrealized loss to an other-than-temporary impairment and recognized the impairment charge in earnings. For fiscal 2010, comprehensive income was equal to net income.
 
Sales and Revenue Recognition - Revenues from merchandise sales are recognized upon customer receipt of merchandise, are net of returns through period end and sales tax and are not recognized until collectability is reasonably assured. For dsw.com, the Company estimates a time lag for shipments to record revenue when the customer receives the goods and also includes revenue from shipping and handling in net sales while the related costs are included in cost of sales.

Revenue from gift cards is deferred and recognized upon redemption of the gift card. The Company’s policy is to recognize income from breakage of gift cards when the likelihood of redemption of the gift card is remote. The Company recognized $1.1 million, $1.1 million and $0.8 million as other operating income from gift card breakage during fiscal 2010, 2009 and 2008, respectively.

As of January 29, 2011, the Company supplies footwear, under supply arrangements, to four retailers. Sales for these leased departments are net of returns through period end and sales tax, as reported by the lessor, and are included in net sales. Leased department sales represented 7.8%, 9.2% and 11.2% of total net sales for fiscal 2010, 2009 and 2008, respectively.

Cost of Sale s - In addition to the cost of merchandise, which includes markdowns and shrinkage, the Company includes in the cost of sales expenses associated with warehousing (including depreciation), distribution and store occupancy (excluding depreciation and including impairments). Warehousing costs are comprised of labor, benefits and other labor-related costs associated with the operations of the distribution and fulfillment centers. The non-labor costs associated with warehousing include rent, depreciation, insurance, utilities, maintenance and other operating costs that are passed to the Company from the landlord. Distribution costs include the transportation of merchandise to the distribution and fulfillment centers, from the distribution center to the Company’s stores and from the fulfillment center to the customer. Store occupancy costs include rent, utilities, repairs, maintenance, insurance, janitorial costs and occupancy-related taxes, which are primarily real estate taxes passed to the Company by its landlords.

Operating Expenses - Operating expenses include expenses related to store management and store payroll costs, advertising, leased department operations, store depreciation and amortization, new store advertising and other new store costs (which are expensed as incurred) and corporate expenses. Corporate expenses include expenses related to buying, information technology, depreciation expense for corporate cost centers, marketing, legal, finance, outside professional services, customer service center expenses, allocable costs to and from Retail Ventures, payroll and benefits for associates and payroll taxes. Corporate level expenses are primarily attributable to operations at the corporate offices in Columbus, Ohio.


DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-Based Compensation- The fair value of options granted is estimated on the date of grant using the Black-Scholes option pricing model. See Note 3 for a detailed discussion of stock-based compensation.

New Store Costs- Costs associated with the opening of stores are expensed as incurred. New store costs expensed were $2.8 million, $1.6 million and $6.2 million for fiscal 2010, 2009 and 2008, respectively.

Marketing Expense- The production cost of television advertising is expensed when the advertising first takes place. All other marketing costs are expensed as incurred. Marketing costs were $46.5 million, $42.2 million and $30.3 million in fiscal 2010, 2009 and 2008, respectively.

Other Operating Income- Other operating income consists primarily of income from consignment sales, income from gift card breakage and insurance proceeds and is included in operating expenses in the income statement. The amount recorded in fiscal 2010, 2009 and 2008 was $7.3 million, $5.1 million and $4.2 million, respectively.

Non-operating Income (Expense), Net - Non-operating income (expense), net includes other-than-temporary impairments related to investments and realized gains on disposition of investments.

Legal Proceedings and Claims- The Company is involved in various legal proceedings that are incidental to the conduct of its business. DSW records a reserve for estimated losses when the loss is probable and the amount can be reasonably estimated. See Note 10 for a discussion of legal proceedings.

Income Taxes- Income taxes are accounted for using the asset and liability method. Under this method, deferred income taxes arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. A valuation allowance is established against deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of January 29, 2011 and January 30, 2010, the Company had valuation allowances of $0.8 million and $1.4 million, respectively.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued updates to existing guidance related to fair value measurements. As a result of these updates, entities will be required to provide enhanced disclosures about transfers into and out of level 1 and level 2 classifications, provide separate disclosures about purchases, sales, issuances and settlements relating to the tabular reconciliation of beginning and ending balances of the level 3 classification and provide greater disaggregation for each class of assets and liabilities that use fair value measurements. Except for the detailed level 3 disclosures, the new standard was effective for the Company for the first quarter of fiscal 2010. The requirement related to level 3 fair value measurements is effective for the Company for interim and annual reporting periods beginning after January 29, 2011. The adoption of the effective portions of this new standard did not have a material impact to the Company’s consolidated financial statements and the Company does not expect a material impact to its consolidated financial statements related to the level 3 fair value disclosures.

2.    RELATED PARTY TRANSACTIONS

RVI- Under the terms of the Amended and Restated Shared Services Agreement, DSW provides shared finance, information technology and human resources services to RVI. In fiscal 2010 and 2009, DSW charged RVI $1.1 million and $0.7 million, respectively, for these services. In fiscal 2008, DSW charged RVI and its now former subsidiary $6.4 million. In both fiscal 2010 and 2009, RVI charged DSW for a reimbursement of $0.5 million related to the expenses of an office facility leased by RVI, which is the only remaining charge from RVI to DSW. In fiscal 2008, RVI charged DSW $4.7 million for shared services, management fees and expenses related to an office facility. These cost allocations were determined on a basis that the Company and RVI consider to be reasonable reflections of the use of services provided or the benefit received by the Company. These shared service expenses and income were included in operating expenses. Accounts payable to RVI of less than $0.1 million and $1.0 million as of January 29, 2011 and January 30, 2010, respectively, were primarily related to shared services and other intercompany transactions. During fiscal 2010, accounts payable were reduced by $0.5 million due to RVI’s reimbursement of certain DSW leasehold improvement expenditures.


DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In fiscal 2010, DSW had an adjustment to its non-cash capital contribution from RVI of a reduction of $0.9 million. In fiscal 2009 and 2008, RVI contributed tax benefits to DSW resulting in non-cash capital contributions of $4.7 million and $0.8 million, respectively.
 
On January 15, 2010, the Company entered into a share purchase agreement with RVI, pursuant to which RVI sold to DSW 320,000 Class B Common Shares, without par value, of DSW, for an aggregate amount of $8.0 million.

Schottenstein Stores Corporation (“SSC”)- SSC and its affiliates are the majority shareholders of RVI. The Company leases certain store, office space and distribution center locations owned by entities affiliated with SSC. Accounts receivable from and payable to affiliates principally result from commercial transactions with entities owned by or affiliated with SSC or intercompany transactions with SSC and normally settle in the form of cash in 30 to 60 days. These related party balances as of both January 29, 2011 and January 30, 2010, were related party receivables of $0.1 million and as of January 29, 2011 and January 30, 2010 were related party payables of $1.0 million and $0.5 million.

In fiscal 2009, DSW made an equity investment of $1.2 million, and the majority interest is held by an affiliate of SSC. DSW received a return of capital of $0.2 million in fiscal 2010. There was no income statement impact in fiscal 2010 or 2009 related to this investment.

Other - Purchases from related parties were $0.4 million, $0.2 million and $0.1 million in fiscal 2010, 2009 and 2008, respectively.

3.    STOCK-BASED COMPENSATION

The Company has a 2005 Equity Incentive Plan (“the Plan”) that provides for the issuance of equity awards to purchase up to 7.6 million common shares. The Plan covers stock options, restricted stock units and director stock units. Eligible recipients include key employees of the Company and affiliates, as well as directors of the Company. Options generally vest 20% per year on a cumulative basis. Options granted under the Plan generally remain exercisable for a period of ten years from the date of grant. Prior to fiscal 2005, the Company did not have a stock option plan or any equity units outstanding. As of January 29, 2011, 4.0 million shares are available for additional grants under the Plan.

Stock Options- DSW uses the Black-Scholes option-pricing model to value stock-based compensation expense. This model assumes that the estimated fair value of options is amortized over the options’ vesting periods and the compensation costs are included in operating expenses in the consolidated statements of income. DSW recognizes compensation expense for stock option awards granted subsequent to the adoption of ASC 718 Compensation – Stock Compensation (“ASC 718”) and time-based restricted stock awards on a straight-line basis over the requisite service period of the award. Prior to the adoption of ASC 718, compensation expense for stock option awards granted was recorded using an accelerated method.

Forfeitures of options are estimated at the grant date based on historical rates of DSW’s stock option activity and reduce the compensation expense recognized. The risk-free interest rate is based on the yield for U.S. Treasury securities with a remaining life equal to the expected term of the options at the grant date. Expected volatility is based on the historical volatility of the DSW Common Shares. The expected term of options granted is derived from historical data on DSW stock option exercises. The expected dividend yield is zero, which is based on DSW’s intention of not declaring dividends to shareholders combined with the limitations on declaring dividends as set forth in DSW’s credit facility.


DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table illustrates the weighted-average assumptions used in the Black-Scholes option-pricing model for options granted in each of the periods presented:

   
Fiscal years ended
 
   
January 29, 2011
   
January 30, 2010
   
January 31, 2009
 
Assumptions:
                 
Risk-free interest rate
    2.5 %     1.9 %     2.7 %
Year end volatility of DSW common stock
    56.9 %     57.6 %     48.5 %
Expected option term
 
4.9 years
   
4.9 years
   
4.9 years
 
Dividend yield
    0.0 %     0.0 %     0.0 %

DSW expensed $3.7 million, $4.2 million and $3.8 million, respectively, in fiscal 2010, 2009 and 2008 related to stock options. The weighted average grant date fair value of each option granted in fiscal 2010, 2009 and 2008 was $13.40, $5.10 and $5.77 respectively. As of January 29, 2011, the total compensation cost related to nonvested options not yet recognized was approximately $9.4 million, with a weighted average expense recognition period remaining of 3.3 years. The following tables summarize the Company’s stock option plan and related per share weighted average exercise prices (“WAEP”), weighted average remaining contract life and aggregate intrinsic value (shares and intrinsic value in thousands):

   
Fiscal years ended
 
   
January 29, 2011
   
January 30, 2010
   
January 31, 2009
 
   
Shares
   
WAEP
   
Shares
   
WAEP
   
Shares
   
WAEP
 
Outstanding beginning of year
    2,504     $ 18.20       2,125     $ 22.04       1,520     $ 28.65  
Granted
    522     $ 26.56       946     $ 10.17       1,112     $ 12.87  
Exercised
    (236 )   $ 14.35       (91 )   $ 14.55       (1 )   $ 12.92  
Forfeited
    (133 )   $ 21.26       (476 )   $ 20.21       (506 )   $ 21.85  
Outstanding end of year
    2,657     $ 20.04       2,504     $ 18.20       2,125     $ 22.04  
Options exercisable end of year
    1,029     $ 22.25       773     $ 23.26       533     $ 24.77  

             
Weighted Average
Remaining
 
Aggregate
Intrinsic
 
As of January 29, 2011:
 
Shares
   
WAEP
 
Contract Life
 
Value
 
Options exercisable
    1,029     $ 22.25  
6 years
  $ 13,043  
Options expected to vest
    1,432     $ 18.61  
8 years
  $ 21,931  
Options vested and expected to vest
    2,461     $ 20.14  
7 years
  $ 34,974  

The aggregate intrinsic value is calculated as the amount by which the fair value of the underlying common shares exceeds the option exercise price. The total intrinsic value of options exercised during fiscal 2010 and 2009 was $4.6 million and $0.4 million, respectively. This amount was immaterial in fiscal 2008. The total fair value of options that vested during fiscal 2010, 2009 and 2008 was $4.2 million, $4.3 million and $3.6 million, respectively.

Restricted Stock Units-   Restricted stock units generally cliff vest at the end of four years from the date of grant and are settled immediately upon vesting. Compensation cost is measured at fair value on the grant date and recorded over the vesting period. Fair value is determined by multiplying the number of units granted by the grant date market price. DSW expensed $0.3 million, $1.3 million and $0.7 million, respectively, in fiscal 2010, 2009 and 2008 related to restricted stock units. The weighted average exercise price for all restricted stock units is zero. The aggregate intrinsic value is calculated as the amount by which the fair value of the underlying common shares exceeds the exercise price. The total intrinsic value of restricted stock units that vested during fiscal 2010, 2009 and 2008 was $1.0 million, $0.8 million and $0.1 million, respectively. The total fair value of restricted stock units that vested during fiscal 2010, 2009 and 2008 was $0.6 million, $1.7 million and $0.2 million, respectively. As of January 29, 2011, the total compensation cost related to nonvested restricted stock units not yet recognized was approximately $1.6 million with a weighted average expense recognition period remaining of 2.4 years.


DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables summarize DSW’s restricted stock units and weighted average grant date fair value (“GDFV”) for the periods presented and aggregate intrinsic value (units and intrinsic value in thousands):

   
Fiscal years ended
 
   
January 29, 2011
   
January 30, 2010
   
January 31, 2009
 
   
Units
   
GDFV
   
Units
   
GDFV
   
Units
   
GDFV
 
Outstanding beginning of year
    267     $ 12.61       226     $ 17.51       151     $ 23.92  
Granted
    59     $ 26.56       180     $ 10.39       158     $ 12.61  
Vested
    (39 )   $ 16.17       (75 )   $ 19.77       (8 )   $ 26.61  
Forfeited
    (11 )   $ 14.80       (64 )   $ 15.30       (75 )   $ 19.08  
Outstanding end of year
    276     $ 14.97       267     $ 12.61       226     $ 17.51  

             
Weighted Average
Remaining
 
Aggregate
Intrinsic
 
As of January 29, 2011:
 
Units
   
GDFV
 
Contract Life
 
Value
 
Restricted stock units expected to vest
    212     $ 14.97  
2 years
  $ 7,063  

Director Stock Units-   DSW issues stock units to directors who are not employees of DSW or RVI. During fiscal 2010, 2009 and 2008, DSW granted 31,562, 46,504 and 45,265 director stock units, respectively, and expensed $0.9 million, $0.6 million and $0.6 million, respectively, related to these grants. Stock units are automatically granted to each director who is not an employee of DSW or RVI on the date of each annual meeting of shareholders for the purpose of electing directors. The number of stock units granted to each non-employee director is calculated by dividing one-half of the director’s annual retainer (including committee retainer fees but excluding any amount paid for service as the chair of a board committee) by the fair market value of a share of the DSW Class A Common Shares on the date of the annual meeting. In addition, each director eligible to receive compensation for board service may elect to have the cash portion of such directors’ compensation paid in the form of stock units. Stock units granted to directors vest immediately and are settled upon the director terminating service from the board. Stock units granted to directors which are not subject to forfeiture are considered to be outstanding for the purposes of computing basic earnings per share. The exercise price of the director stock units is zero. As of January 29, 2011, 161,267 director stock units had been issued and no director stock units had been settled.

4.
LEASES

The Company leases stores, distribution and fulfillment centers and office facilities under various arrangements with related and unrelated parties. Such leases expire through 2027 and in most cases provide for renewal options. Generally, the Company is required to pay base rent, real estate taxes, maintenance, insurance and contingent rentals based on sales in excess of specified levels. As of January 29, 2011 and January 30, 2010, the Company had no capital leases.

As of January 29, 2011, the Company leased or had other agreements with entities affiliated with SSC for 21 store locations, one office facility, a trailer parking lot, one fulfillment center and one distribution center for a total annual minimum rent of $11.5 million and additional contingent rents based on aggregate sales in excess of specified sales for the store locations. Under supply agreements, the Company pays contingent rents based on sales for the leased departments it operates.


DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents future minimum lease payments required under the aforementioned leases, exclusive of real estate taxes, insurance and maintenance costs, as of January 29, 2011:

 
 
 
Operating Leases
 
Fiscal years
 
Total
   
Unrelated
Party
   
Related
Party
 
   
(in thousands)
 
2011
  $ 132,827     $ 119,434     $ 13,393  
2012
    128,752       114,614       14,138  
2013
    122,218       108,103       14,115  
2014
    116,267       102,154       14,113  
2015
    102,033       87,983       14,050  
Future years
    297,430       239,065       58,365  
Total minimum lease payments
  $ 899,527     $ 771,353     $ 128,174  

The following table presents the composition of rental expense for the periods presented:

   
Fiscal years ended
 
 
 
January 29, 2011
   
January 30, 2010
   
January 31, 2009
 
   
(in thousands)
 
Minimum rentals:
                 
Unrelated parties
  $ 108,961     $ 110,545     $ 104,516  
Related parties
    11,548       10,887       10,824  
Contingent rentals:
                       
Unrelated parties
    31,539       31,871       28,261  
Related parties
                    11,967  
Total
  $ 152,048     $ 153,303     $ 155,568  

5. 
INVESTMENTS
 
The Company determines the balance sheet classification of its investments at the time of purchase and evaluates the classification at each balance sheet date. If the Company has the intent and ability to hold the investments to maturity, investments are classified as held-to-maturity. Held-to-maturity securities are stated at amortized cost plus accrued interest. Otherwise, investments are classified as available-for-sale. The majority of the Company’s short-term available-for-sale investments generally have renewal dates of every 7 days and longer stated maturities. Despite the long-term nature of the stated contractual maturities of these short-term investments, the Company has the ability to liquidate these securities shortly after the renewal dates. For short-term held-to-maturity investments, amortized cost approximates fair value. In addition to short-term investments, the Company has invested in certain longer term bonds to receive higher returns. These long-term investments have maturities greater than one year but shorter than two years and are classified as held-to-maturity.  As of January 29, 2011, DSW’s long-term held-to-maturity investments have a gross unrealized loss of $0.1 million and immaterial gross unrealized gains.
 
 
In fiscal 2010, DSW sold its fully impaired auction rate security for a gain of $1.5 million, and the Company also received a return of capital of $0.2 million related to its related party equity investment. In fiscal 2009, the Company received preferred shares as distributions-in-kind on two of its auction rate securities. DSW sold these preferred shares during fiscal 2009 for realized gains of $0.5 million, excluding other-than-temporary impairments previously recorded. For fiscal 2009, the Company recorded a full other-than-temporary impairment related to its auction rate security due to the unfavorable financial condition of the underlying issuer.


DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table discloses the major categories of the Company’s investments as of the periods presented:
 
   
Short-term investments
   
Long-term investments
 
   
January 29, 2011
   
January 30, 2010
   
January 29, 2011
   
January 30, 2010
 
   
(in thousands)
 
Available-for-sale:
                       
Tax exempt, tax advantaged and taxable bonds
  $ 93,996     $ 124,107              
Tax exempt commercial paper
    4,000       8,100              
Certificates of deposit
            15,000              
Auction rate securities
                        $ 2,500  
Other-than-temporary impairment included in earnings
                          (2,500 )
Total available-for-sale investments
    97,996       147,207             0  
                               
Held-to-maturity:
                             
Term notes
    143,561       17,058                
Bonds
                  $ 49,035          
                                 
Equity investment – related party
                    952       1,151  
                                 
Total investments
  $ 241,557     $ 164,265     $ 49,987     $ 1,151  
 
6. 
FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Therefore, fair value is a market-based measurement based on assumptions of the market participants. As a basis for these assumptions, DSW classifies its fair value measurements under the following fair value hierarchy:

 
·
Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that are publicly accessible. Active markets have frequent transactions with enough volume to provide ongoing pricing information.
 
·
Level 2 inputs are other than level 1 inputs that are directly or indirectly observable. These can include unadjusted quoted prices for similar assets or liabilities in active markets, unadjusted quoted prices for identical assets or liabilities in inactive markets, or other observable inputs.
 
·
Level 3 inputs are unobservable inputs.

The following table presents financial assets and liabilities measured at fair value on a recurring basis as of the periods presented:
   
   
As of January 29, 2011
   
As of January 30, 2010
 
   
Total
   
Level 1
   
Level 2
   
Level 3
   
Total
   
Level 1
   
Level 2
   
Level 3
 
   
(in thousands)
 
Cash and equivalents
  $ 93,617     $ 93,617                 $ 125,020     $ 125,020              
Short-term investments
    241,557             $ 241,557             164,265             $ 164,265        
Long-term investments
    49,867               48,915     $ 952       1,151                     $ 1,151  
    $ 385,041     $ 93,617     $ 290,472     $ 952     $ 290,436     $ 125,020     $ 164,265     $ 1,151  
 
Cash and equivalents primarily represent cash deposits and investments in money market funds held with financial institutions, as well as credit card receivables that generally settle within three days. Available-for-sale and held-to maturity investments are valued using a market-based approach using level 2 inputs such as prices of similar assets in active markets. Equity investments are evaluated for other-than-temporary impairment using level 3 inputs such as the financial condition and future prospects of the entity.
 

DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the activity related to level 3 fair value measurements for the periods presented:
 
   
Fiscal years ended
 
   
January 29, 2011
   
January 30, 2010
 
   
Short-term investments
   
Long-term investments
   
Short-term investments
   
Long-term investments
 
   
(in thousands)
 
Carrying value at the beginning of the period
  $ 0     $ 1,151     $ 1,845     $ 1,266  
Purchase of equity investment
                            1,151  
Return of capital from equity investment
            (199 )                
Transfer out of level 3
                            (1,266 )
Transfers between short-term and long-term investments
                    (1,845 )     1,845  
Reclassification of unrealized losses on available-for-sale securities to an other-than-temporary impairment
                            655  
Other-than-temporary impairment included in earnings
                            (2,500 )
Carrying value at the end of the period
  $ 0     $ 952     $ 0     $ 1,151  

Long-lived assets held and used with a carrying amount of $1.9 million were written down to their fair value of $1.0 million, resulting in an impairment charge of $0.9 million, which was included in earnings for fiscal 2009. There were no impairment charges in fiscal 2010.

The Company periodically evaluates the carrying amount of its long-lived assets, primarily property and equipment, and finite life intangible assets when events and circumstances warrant such a review to ascertain if any assets have been impaired. The carrying amount of a long-lived asset or asset group is considered impaired when the carrying value of the asset or asset group exceeds the expected future cash flows from the asset or asset group. The Company reviews are conducted at the lowest identifiable level, which includes a store. The impairment loss recognized is the excess of the carrying value of the asset or asset group over its fair value, based on a discounted cash flow analysis using a discount rate determined by management. Should an impairment loss be realized, it will be included in cost of sales.
 
7. 
DSW $100 MILLION CREDIT FACILITY
 
On June 30, 2010, the Company entered into a $100 million secured revolving credit facility (the “Credit Facility”) with a term of four years that will expire on June 30, 2014. This facility replaced an existing $150 million secured revolving credit facility (the “Previous Credit Facility”) that expired July 5, 2010. Under the Credit Facility, the Company and its subsidiary, DSW Shoe Warehouse, Inc. (“DSWSW”), are co-borrowers, with all other subsidiaries listed as guarantors. The Credit Facility may be increased by up to $75 million upon the Company’s request and approval by increasing lenders and subject to customary conditions. The Credit Facility provides for swing loans of up to $10 million and the issuance of letters of credit up to $50 million. The Credit Facility is secured by a lien on substantially all of the Company’s personal property assets and its subsidiaries with certain exclusions and may be used to provide funds for general corporate purposes, to refinance existing letters of credit outstanding under the Company’s previous credit arrangement, to provide for the Company’s ongoing working capital requirements, and to make permitted acquisitions. Revolving credit loans bear interest under the Credit Facility at the Company’s option under: (A) a base rate option at a rate per annum equal to the highest of (i) the Federal Funds Open Rate (as defined in the Credit Agreement), plus 0.5%, (ii) the Agent’s prime rate, and (iii) the Daily LIBOR Rate (as defined in the Credit Agreement) plus 1.0%, plus in each instance an applicable margin based upon the Company’s revolving credit availability; or (B) a LIBOR option at rates equal to the one, two, three, or six month LIBOR rates, plus an applicable margin based upon the Company’s revolving credit availability. Swing loans bear interest under the base rate option. The Company’s right to obtain advances under the credit facility is limited by a borrowing base. In addition, the Credit Facility contains restrictive covenants relating to the Company’s management and the operation of the Company’s business. These covenants, among other things, limit or restrict the Company’s ability to grant liens on its assets, incur additional indebtedness, enter into transactions with affiliates, merge or consolidate with another entity, redeem its stock and limit cash dividends up to the aggregate amount of 50% of the previous year’s net income, not to exceed $50.0 million. Additional covenants limit payments for capital expenditures to $75.0 million in any fiscal year, and if the Company has direct borrowings greater than $25.0 million, the credit facility also requires that the Company maintain a fixed charge coverage ratio of not less than 1.1 to 1.0. DSW paid $46.7 million for capital expenditures in fiscal 2010. The Company was not required to calculate a fixed charge coverage ratio in fiscal 2010.


DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of January 29, 2011, the Company had no outstanding borrowings, had availability under the Credit Facility of $80.8 million and had outstanding letters of credit of $19.2 million. As of January 30, 2010 under its previous credit facility, the Company had no outstanding borrowings, had availability under the facility of $132.6 million and had outstanding letters of credit of $17.4 million. DSW is in compliance with the covenants under the Credit Facility.

Total interest expense was $1.0 million, $1.4 million and $0.8 million for fiscal 2010, 2009 and 2008, respectively, and included fees, such as commitment and line of credit fees, of $0.5 million in each respective period.

8. 
EARNINGS PER SHARE

Basic earnings per share are based on net income and a simple weighted average of Class A and Class B Common Shares and director stock units outstanding. Diluted earnings per share are calculated using the treasury stock method and reflect the potential dilution of Class A Common Shares related to outstanding stock options and restricted stock units. The numerator for the diluted earnings per share calculation is net income. The denominator is the weighted average diluted shares outstanding.

 
 
Fiscal years ended
 
   
January 29, 2011
   
January 30, 2010
   
January 31, 2009
 
   
(in thousands)
 
Weighted average shares outstanding
    44,016       44,093       43,998  
Assumed exercise of dilutive stock options
    622       134          
Restricted stock units
    280       290       220  
Number of shares for computation of dilutive earnings per share
    44,918       44,517       44,218  

Options to purchase 0.9 million, 0.5 million and 2.1 million common shares were outstanding as of January 29, 2011, January 30, 2010 and January 31, 2009, respectively, but were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares for the period and, therefore, the effect would be anti-dilutive.

9. 
OTHER BENEFIT PLANS

The Company participates in a 401(k) Plan. Eligible employees may contribute up to thirty percent of their compensation to the 401(k) Plan, on a pre-tax basis, subject to Internal Revenue Service limitations. As of the first day of the month following an employee’s completion of one year of service as defined under the terms of the 401(k) Plan, the Company matches employee deferrals, 100% on the first 3% of eligible compensation deferred and 50% on the next 2% of eligible compensation deferred. Additionally, the Company may contribute a discretionary profit sharing amount to the Plan each year but has not for the past three fiscal years. The Company incurred costs associated with the Plan of $1.9 million, $1.8 million and $1.9 million for fiscal 2010, 2009 and 2008, respectively.


DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. 
LEGAL PROCEEDINGS

The Company is involved in various legal proceedings that are incidental to the conduct of its business. The Company estimates the range of liability related to pending litigation where the amount of the range of loss can be estimated. The Company records its best estimate of a loss when the loss is considered probable. When a liability is probable and there is a range of estimated loss, the Company records the most likely estimated liability related to the claim. In the opinion of management, the amount of any potential liability with respect to current legal proceedings will not be material to the Company’s results of operations or financial condition. As additional information becomes available, the Company will assess the potential liability related to its pending litigation and revise the estimates as needed. Revisions in its estimates and the amount of potential liability could materially impact the Company’s future results of operations and financial condition.

On January 23, 2008, Retail Ventures disposed of an 81% ownership interest in its Value City Department Stores business to VCHI Acquisition Co., a newly formed entity owned by VCDS Acquisition Holdings, LLC, Emerald Capital Management LLC, and Crystal Value, LLC. On October 26, 2008, Value City filed for bankruptcy and discontinued operations. On December 21, 2010, Value City and Retail Ventures entered into a Settlement and Release Agreement, pursuant to which Retail Ventures and DSW collectively agreed to pay $3.6 million to Value City, of which DSW paid $0.8 million, and Value City agreed to file a dismissal of its claims against Retail Ventures and DSW in bankruptcy court and to fully release Retail Ventures and DSW from all claims and obligations. The settlement is included in other accrued expenses as of January 29, 2011.

See Note 14 for litigation related to DSW’s proposed merger with RVI.

11. 
SEGMENT REPORTING

DSW has two reportable segments: the DSW segment, which includes DSW stores and dsw.com, and the leased department segment. DSW stores and dsw.com have been aggregated and are presented as one reportable segment, the DSW segment, based on their similar economic characteristics, products, production processes, target customers and distribution methods. The Company has identified such segments based on internal management reporting and management responsibilities and measures segment profit as gross profit, which is defined as net sales less cost of sales. All operations are located in the United States. The goodwill balance of $25.9 million outstanding as of January 29, 2011 and January 30, 2010 is recorded in the DSW segment related to the DSW stores operating segment. The following tables present segment information for the Company’s two reportable segments:

 
 
DSW
   
Leased
departments
   
DSW Inc.
 
   
(in thousands)
 
As of and for the fiscal year ended January 29, 2011
 
Net sales
  $ 1,680,889     $ 141,487     $ 1,822,376  
Gross profit
    535,384       30,297       565,681  
Capital expenditures
    52,178       120       52,298  
Total assets
    925,250       83,647       1,008,897  
                         
As of and for the fiscal year ended January 30, 2010
 
Net sales
  $ 1,455,044     $ 147,561     $ 1,602,605  
Gross profit
    439,347       28,145       467,492  
Capital expenditures
    21,701       84       21,785  
Total assets
    784,213       66,543       850,756  
                         
As of and for the fiscal year ended January 31, 2009
 
Net sales
  $ 1,298,886     $ 164,058     $ 1,462,944  
Gross profit
    351,899       27,200       379,099  
Capital expenditures
    80,670       304       80,974  


DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The following table sets forth the approximate percentage of DSW sales attributable to each merchandise category:

Category
 
Fiscal 2010
   
Fiscal 2009
   
Fiscal 2008
 
Women’s
    66 %     66 %     66 %
Men’s
    15 %     15 %     15 %
Athletic
    13 %     13 %     14 %
Accessories and Other
    6 %     6 %     5 %

12
.   INCOME TAXES

Income Tax Provision- The following table presents the composition of the income tax provision for the periods presented:

   
Fiscal years ended
 
   
January 29,
2011
   
January 30,
2010
   
January 31,
2009
 
Current:
 
(in thousands)
 
Federal
  $ 50,263     $ 41,923     $ 16,178  
State and local
    7,698       7,332       2,094  
      57,961       49,255       18,272  
Deferred:
                       
Federal
    10,369       (10,378 )     174  
State and local
    1,325       (1,727 )     (1,063 )
      11,694       (12,105 )     (889 )
Income tax provision
  $ 69,655     $ 37,150     $ 17,383  

Rate Reconciliation- The following table presents a reconciliation of the expected income taxes based upon the statutory rate:

   
Fiscal years ended
 
   
January 29,
2011
   
January 30,
2010
   
January 31,
2009
 
   
(in thousands)
 
Income tax expense at federal statutory rate
  $ 62,048     $ 32,162     $ 15,500  
State and local taxes-net
    6,774       3,332       1,032  
Other
    833       1,656       851  
Income tax provision
  $ 69,655     $ 37,150     $ 17,383  

Deferred Tax Assets and Liabilities- The following tables present the deferred tax assets and liabilities recorded on the Company’s balance sheet as of the periods presented:

 
 
January 29,
2011
   
January 30,
2010
 
   
(in thousands)
 
Current deferred tax asset
  $ 30,535     $ 29,130  
Non-current deferred asset
            5,657  
Total deferred tax asset
  $ 30,535     $ 34,787  
                 
Non-current deferred tax liability
    (18,828 )        
Total net deferred tax asset
  $ 11,707     $ 34,787  


DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
   
January 29,
2011
   
January 30,
2010
 
   
(in thousands)
 
Deferred tax assets:
           
Basis differences in inventory
  $ 5,917     $ 5,314  
Construction and tenant allowances
    3,741       4,178  
Accrued rent
    12,068       12,529  
Stock-based compensation – restricted stock and director stock units
    2,345       2,406  
Accrued expenses
    6,362       5,209  
Stock-based compensation – non-qualified stock options
    4,405       4,443  
Benefit from uncertain tax positions
    2,129       9,015  
Unredeemed gift cards
    1,387       1,749  
Auction rate securities impairment
            1,370  
Capital loss carryforward
    785          
Other
    4,144       4,335  
      43,283       50,548  
Deferred tax liabilities:
               
Prepaid expenses
    (2,726 )     (4,030 )
Basis differences in property and equipment
    (27,687 )     (10,095 )
Other
    (378 )     (266 )
      (30,791 )     (14,391 )
                 
Less: valuation allowance
    (785 )     (1,370 )
                 
Total – net deferred tax asset
  $ 11,707     $ 34,787  

The valuation allowances relate to capital loss carryforward and unrealized loss on available-for-sale securities, as the Company believes that it is more likely than not that these benefits will not be realized.

Uncertain Tax Positions- As of January 29, 2011, January 30, 2010 and January 31, 2009, unrecognized tax benefits of $0.9 million, $0.8 million and $0.9 million, respectively, of the total unrecognized tax benefits of $2.9 million, $9.0 million and $1.3 million, respectively, would affect the Company’s effective tax rate if recognized. The following table presents the reconciliation of the beginning and ending amount of unrecognized tax benefits as of the periods presented:

   
January 29,
2011
   
January 30,
2010
   
January 31,
2009
 
   
(in thousands)
 
Beginning balance
  $ 9,039     $ 1,277     $ 3,028  
(Decreases) – tax positions taken in a prior period
    (7,666 )     (208 )     (1,760 )
Increases – tax positions taken in the current period
    1,526       7,970       9  
Ending balance
  $ 2,899     $ 9,039     $ 1,277  

While it is expected that the amount of unrecognized tax benefits will change in the next 12 months, any changes are not expected to have a material impact on DSW’s financial position, results of operations or cash flows.

Consistent with its historical financial reporting, the Company has elected to classify interest expense related to income tax liabilities, when applicable, as part of interest expense in its consolidated statement of income rather than income tax expense. The Company will continue to classify income tax penalties as part of operating expenses in its consolidated statement of income. As of January 29, 2011 and January 30, 2010, $0.3 million and $1.9 million, respectively, was accrued for the payment of interest and penalties.


DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company is no longer subject to U.S federal income tax examination for years prior to 2008. In general, the Company is no longer subject to state tax examination for fiscal years prior to 2007. The Company estimates the range of possible changes that may result from any current and future tax examinations to be insignificant at this time.

13.  QUARTERLY FINANCIAL DATA (UNAUDITED)

   
Thirteen weeks ended
 
   
May 1,
2010
   
July 31,
2010
   
October 30,
2010
   
January 29,
2011
 
   
(in thousands, except per share data)
 
Net sales
  $ 449,537     $ 415,120     $ 489,269     $ 468,450  
Cost of sales
    (302,172 )     (289,402 )     (330,049 )     (335,072 )
Operating expenses
    (98,220 )     (87,623 )     (104,148 )     (102,107 )
Operating profit
    49,145       38,095       55,072       31,271  
Interest expense
    (252 )     (236 )     (211 )     (337 )
Interest income
    1,037       373       1,256       566  
Interest income, net
    785       137       1,045       229  
Non-operating income
                    1,500          
Earnings before income taxes
    49,930       38,232       57,617       31,500  
Income tax provision
    (19,746 )     (14,778 )     (22,104 )     (13,027 )
Net income
  $ 30,184     $ 23,454       35,513     $ 18,473  
                                 
Earnings per share: (1)
                               
Basic
  $ 0.69     $ 0.53     $ 0.81     $ 0.42  
Diluted
  $ 0.67     $ 0.52     $ 0.79     $ 0.41  

   
Thirteen weeks ended
 
   
May 2,
2009
   
August 1,
2009
   
October 31,
2009
   
January 30,
2010
 
   
(in thousands, except per share data)
 
Net sales
  $ 385,846     $ 369,490     $ 444,621     $ 402,648  
Cost of sales
    (280,865 )     (271,702 )     (297,462 )     (285,084 )
Operating expenses
    (92,878 )     (86,427 )     (102,438 )     (92,294 )
Operating profit
    12,103       11,361       44,721       25,270  
Interest expense
    (183 )     (188 )     (176 )     (867 )
Interest income
    437       766       621       393  
Interest income (expense), net
    254       578       445       (474 )
Non-operating (expense) income, net
    (395 )     528       (754 )     (1,746 )
Earnings before income taxes
    11,962       12,467       44,412       23,050  
Income tax provision
    (4,817 )     (4,900 )     (17,781 )     (9,652 )
Net income
  $ 7,145     $ 7,567     $ 26,631     $ 13,398  
                                 
Earnings per share: (1)
                               
Basic
  $ 0.16     $ 0.17     $ 0.60     $ 0.30  
Diluted
  $ 0.16     $ 0.17     $ 0.60     $ 0.30  
 
(1)
The earnings per share calculations for each quarter are based upon the applicable weighted average shares outstanding for each period and may not necessarily be equal to the full year share amount.


DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14.  SUBSEQUENT EVENTS

Proposed merger of DSW and RVI - On February 8, 2011, DSW, DSW MS LLC, a wholly owned subsidiary of DSW (“DSW Merger LLC”) and Retail Ventures entered into an Agreement and Plan of Merger, pursuant to which Retail Ventures will merge with and into DSW Merger LLC, with DSW Merger LLC continuing after the merger as the surviving entity and a wholly owned subsidiary of DSW (the “merger”). Retail Ventures’ board of directors and the independent members of DSW’s board of directors have approved the merger agreement based on the recommendation of a special committee of each board of directors and have recommended that the shareholders of Retail Ventures and DSW, respectively, adopt the merger agreement and the merger.

Upon the closing of the merger, each outstanding Retail Ventures common share will be converted into the right to receive 0.435 DSW Class A Common Shares, unless the holder properly and timely elects to receive a like amount of DSW Class B Common Shares in lieu of DSW Class A Common Shares. All compensatory awards based on or comprised of Retail Ventures common shares, such as stock options, stock appreciation rights and restricted stock, will be converted into and become, respectively, awards based on or comprised of DSW Class A Common Shares, in each case on terms substantially identical to those in effect immediately prior to the effective time of the Merger, in accordance with the 0.435 exchange ratio.

It is expected that the merger will qualify as a tax-free reorganization for U.S. federal income tax purposes, so that, in general, none of DSW, Retail Ventures, DSW Merger LLC or any of the Retail Ventures shareholders will recognize any gain or loss in the transaction, except that Retail Ventures shareholders will generally recognize gain or loss with respect to cash received in lieu of fractional shares of DSW Class A or Class B Common Shares.

The merger agreement provides that DSW Merger LLC will assume, as of the effective time of the merger, by supplemental indenture and supplemental agreement, all of Retail Ventures’ obligations with respect to certain 6.625% mandatorily exchangeable notes due September 15, 2011, known as Premium Income Exchangeable Securities or PIES, and will assume by operation of law warrants issued by Retail Ventures to purchase DSW Class A Common Shares outstanding immediately prior to the effective time of the merger. DSW and RVI expect to complete the merger in the second quarter of fiscal 2011.

Upon the closing of the merger, one of Retail Ventures' current board members will be appointed to DSW’s board of directors.

The parties have made customary representations and warranties and agreed to customary covenants in the merger agreement. The transaction is not subject to any financing condition. The completion of the Merger is conditioned upon, among other things:
 
 
·
adoption of the merger agreement and the merger by (i) the holders of a majority of the outstanding DSW Class A Common Shares and Class B Common Shares, voting together as a class, (ii) the holders of a majority of the unaffiliated DSW Class A Common Shares (i.e., those holders other than Retail Ventures, SSC, which controls a majority of the voting power of Retail Ventures, and their respective affiliates), voting together as a class, and (iii) the holders of a majority of outstanding Retail Ventures common shares;
 
 
·
adoption of amended and restated articles of incorporation of DSW, which will amend the current articles of incorporation to allow holders of Class B Common Shares to convert such shares into Class A Common Shares, among other amendments, by (i) the holders of a majority of the DSW Class A Common Shares and DSW Class B Common Shares, voting together as a class, and (ii) the holders of a majority of the DSW Class A Common Shares, voting as a separate class; and
 
 
·
approval of the issuance of DSW Class A Common Shares and Class B Common Shares to Retail Ventures shareholders by the holders of a majority of the DSW Class A Common Shares and DSW Class B Common Shares, voting together as a class.

In addition, DSW and Retail Ventures have agreed not to initiate, solicit, encourage, or knowingly facilitate the making of any proposal or offer with respect to certain specified acquisition proposals. The merger agreement may be terminated by DSW and Retail Ventures under certain circumstances, including by DSW or Retail Ventures if, among other requirements, the terminating party has received certain specified superior proposals, has not violated its obligations under the merger agreement with respect to any superior proposal, and pays an amount equal to the reasonably documented transaction expenses of the other party, not to exceed $10 million.


DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 Accounting Standard Codification (“ASC”) 805, Business Combinations , the transaction will be accounted for as an equity transaction in accordance with ASC 810, Consolidation as the acquisition of a noncontrolling interest and will not require purchase accounting. Legally, Retail Ventures will merge into a subsidiary of DSW. For financial reporting purposes, the transaction will be accounted for as if Retail Ventures acquired the outstanding noncontrolling interest in DSW. Furthermore, because Retail Ventures will be 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 consolidated financial statements will generally reflect the historical activity of Retail Ventures.
 
Litigation relating to the proposed merger of DSW and RVI - Purported shareholders of Retail Ventures have filed two putative shareholder class action lawsuits in an Ohio state court against Retail Ventures and its directors and in one case, its chief executive officer (referred to, collectively, as the Retail Ventures defendants), and DSW and that in one case, DSW Merger LLC (referred to, collectively, as the DSW defendants). The lawsuit alleges, among other things, that Retail Ventures and its directors breached their fiduciary duties by approving the merger agreement and in one case, Retail Ventures’ chief executive officer and DSW, and in the other that Retail Ventures and DSW aided and abetted in these alleged breaches of fiduciary duty. The complaints seek, among other things, to enjoin the shareholder vote on the merger, as well as monetary damages. The Retail Ventures defendants and the DSW defendants intend to defend vigorously against these claims.


INDEX TO EXHIBITS

Exhibit
No.
 
Description
2.1
 
Agreement and Plan of Merger, dated February 8, 2011, among DSW Inc., DSW MS LLC, and Retail Ventures, Inc. Incorporated by reference to Exhibit 2.1 to DSW's Form 8-K/A (file no. 1-32545) filed February 25, 2011.
3.1
 
Amended Articles of Incorporation of the registrant. Incorporated by reference to the same exhibit to Form 10-K (file no. 1-32545) filed April 13, 2006.
3.2
 
Amended and Restated Code of Regulations of the registrant. Incorporated by reference to the same exhibit to Form 10-K (file no. 1-32545) filed April 13, 2006.
4.1
 
Specimen Class A Common Shares certificate. Incorporated by reference to Exhibit 4.1 to DSW’s Form S-1 (Registration No. 333-134227) filed on May 17, 2006 and amended on June 23, 2006, July 17, 2006, August 2, 2006 and August 7, 2006.
4.2
 
Second Amended and Restated Registration Rights Agreement, dated as of July 5, 2005, by and among Retail Ventures, Inc., Cerberus Partners, L.P., Schottenstein Stores Corporation and Back Bay Funding LLC. Incorporated by reference to Exhibit 4.2 to Retail Ventures’ Form 8-K (file no. 1-10767) filed July 11, 2005.
4.3
 
Exchange Agreement, dated July 5, 2005, by and between Retail Ventures, Inc. and DSW Inc. Incorporated by reference to Exhibit 10.4 to Retail Ventures’ Form 8-K (file no. 1-10767) filed July 11, 2005.
4.5
 
Amended Common Stock Purchase Warrant issued by Retail Ventures, Inc. to Schottenstein Stores Corporation. Incorporated by reference to Exhibit 4.2 to Retail Ventures’ Form 8-K (file no. 1-10767) filed October 19, 2005.
4.6
 
Form of Term Loan Warrant issued by Retail Ventures, Inc. to Millennium Partners, L.P. Incorporated by reference to Exhibit 4.1 to Retail Ventures’ Form 10-Q (file no. 1-10767) filed December 8, 2005.
10.1
 
Corporate Services Agreement, dated June 12, 2002, between Retail Ventures and Schottenstein Stores Corporation. Incorporated by reference to Exhibit 10.6 to Retail Ventures’ Form 10-Q (file no. 1-10767) filed June 18, 2002.
10.1.1
 
Amendment to Corporate Services Agreement, dated July 5, 2005, among Retail Ventures, Schottenstein Stores Corporation and Schottenstein Management Company, together with Side Letter Agreement, dated July 5, 2005, among Schottenstein Stores Corporation, Retail Ventures, Inc., Schottenstein Management Company and DSW Inc. related thereto. Incorporated by reference to Exhibit 5 to Retail Ventures’ Form 8-K (file no. 1-10767) filed July 11, 2005.
10.2
 
Employment Agreement, dated March 4, 2005, between Deborah L. Ferrée and DSW Inc.**#
10.2.1
 
First Amendment to Employment Agreement, dated December 31, 2007, between Deborah L. Ferrée and DSW Inc. Incorporated by reference to Exhibit 10.2.1 to Form 10-K (file no. 1-32545) filed April 17, 2008. #
10.4
 
Employment Agreement, dated June 1, 2005, between Douglas J. Probst and DSW Inc.**#
10.4.1
 
First Amendment to Employment Agreement, dated December 31, 2007, between Douglas J. Probst and DSW Inc. Incorporated by reference to Exhibit 10.4.1 to Form 10-K (file no. 1-32545) filed April 17, 2008.#
10.6
 
Employment Agreement, dated June 26, 2005, between Derek Ungless and DSW Inc. Incorporated by reference to the same exhibit to Form 10-K (file no. 1-32545) filed April 13, 2006.#
10.6.1
 
First Amendment to Employment Agreement, dated December 31, 2007, between Derek Ungless and DSW Inc. Incorporated by reference to Exhibit 10.6.1 to Form 10-K (file no. 1-32545) filed April 17, 2008.#
10.7
 
Summary of Director Compensation. Incorporated by reference to Exhibit 10.2 to DSW’s Form 10-Q (file no. 1-32545) filed December 13, 2007.#
10.7.1
 
Summary of Director Compensation. Incorporated by reference to Exhibit 10.2 to DSW’s Form 10-Q (file no. 1-32545) filed September 1, 2010.#
 
$100,000,000 Revolving Credit Facility Credit Agreement, between DSW Inc. and DSW Shoe Warehouse, Inc., as the Borrowers, and PNC Bank, National Association., as Administrative Agent, PNC Capital Markets LLC, as Sole Book Runner and Sole Lead Arranger, Bank of America, N.A, as Syndication Agent and Documentation Agent, and Fifth Third Bank and Wells Fargo Retail Finance, LLC as Managing Agents. *
10.15
 
Lease, dated March 22, 2000, by and between East Fifth Avenue, LLC, an affiliate of Schottenstein Stores Corporation, as landlord, and Shonac, as tenant, re: warehouse facility and corporate headquarters. Incorporated by reference to Exhibit 10.60 to Retail Ventures’ Form 10-K (file no. 1-10767) filed April 28, 2000.
10.23
 
DSW Inc. 2005 Equity Incentive Plan. Incorporated by reference to Exhibit 10.23 to Form 10-Q (file no. 1-32545) filed June 4, 2009.#


10.23.1
 
Form of Restricted Stock Units Award Agreement for Employees. Incorporated by reference to Exhibit 10.23.1 to Form 10-Q (file no. 1-32545) filed June 4, 2009.#
10.23.2
 
Form of Stock Units for automatic grants to non-employee directors. Incorporated by reference to Exhibit 10.23.2 to Form 10-Q (file no. 1-32545) filed June 4, 2009.#
10.23.3
 
Form of Stock Units for conversion of non-employee directors’ cash retainer.**#
10.23.4
 
Form of Non-Employee Directors’ Cash Retainer Deferral Election Form.**#
10.23.5
 
Form of Nonqualified Stock Option Award Agreement for Consultants.**#
10.23.6
 
Form of Nonqualified Stock Option Award Agreement for Employees. Incorporated by reference to Exhibit 10.23.6 to Form 10-Q (file no. 1-32545) filed June 4, 2009.#
10.24
 
DSW Inc. 2005 Cash Incentive Compensation Plan. Incorporated by reference to Appendix B to Form DEF 14A (file no. 1-32545) filed April 8, 2009.#
10.25
 
Master Separation Agreement, dated July 5, 2005, between Retail Ventures, Inc. and DSW. Incorporated by reference to Exhibit 10.1 to Retail Ventures’ Form 8-K (file no. 1-10767) filed July 11, 2005.
10.26
 
Amended and Restated Shared Services Agreement, dated as of October 29, 2006, between Retail Ventures, Inc. and DSW. Incorporated by reference to Exhibit 10.7 to DSW’s Form 10-Q (file no. 1-32545) filed December 6, 2006.
10.26.1
 
Amendment No. 1 to Amended and Restated Shared Services Agreement between DSW Inc. and Retail Ventures, Inc., dated as of March 17, 2008. Incorporated by reference to Exhibit 10.2 to Form 8-K (file no. 1-32545) filed August 28, 2008.
10.27
 
Tax Separation Agreement, dated July 5, 2005, among Retail Ventures, Inc. and its affiliates and DSW Inc. and its affiliates. Incorporated by reference to Exhibit 10.3 to Retail Ventures’ Form 8-K (file no. 1-10767) filed July 11, 2005.
10.27.1
 
Amendment No. 1 to Tax Separation Agreement between DSW Inc. and Retail Ventures, Inc., dated as of March 17, 2008. Incorporated by reference to Exhibit 10.3 to Form 8-K (file no. 1-32545) filed August 28, 2008.
10.29
 
Lease, dated August 30, 2002, by and between Jubilee Limited Partnership, an affiliate of Schottenstein Stores Corporation, and Shonac Corporation, re: Troy, MI DSW store. Incorporated by reference to Exhibit 10.44 to Retail Ventures’ Form 10-K (file no. 1-10767) filed April 29, 2004.
10.29.1
 
Assignment and Assumption Agreement, dated October 23, 2002, between Shonac Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee re: Troy, MI DSW store. Incorporated by reference to Exhibit 10.29.1 to Retail Ventures’ Form 10-K/A (file no. 1-10767) filed May 12, 2005.
10.30
 
Lease, dated October 8, 2003, by and between Jubilee Limited Partnership, an affiliate of Schottenstein Stores Corporation, and Shonac Corporation, re: Denton, TX DSW store. Incorporated by reference to Exhibit 10.46 to Retail Ventures’ Form 10-K (file no. 1-10767) filed April 29, 2004.
10.30.1
 
Assignment and Assumption Agreement, dated December 18, 2003 between Shonac Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee re: Denton, TX DSW store. Incorporated by reference to Exhibit 10.30.1 to Retail Ventures’ Form 10-K/A (file no. 1-10767) filed May 12, 2005.
10.30.2
 
Lease Amendment, dated February 1, 2010 between Jubilee Limited Partnership, an affiliate of Schottenstein Stores Corporation, and DSW Shoe Warehouse, Inc. re: Denton, TX DSW store. Incorporated by reference to the same exhibit to Form 10-K (file no. 1-32545) filed March 24, 2010.
10.31
 
Lease, dated October 28, 2003, by and between JLP-RICHMOND LLC, an affiliate of Schottenstein Stores Corporation, and Shonac Corporation, re: Richmond, VA DSW store. Incorporated by reference to Exhibit 10.47 to Retail Ventures’ Form 10-K (file no. 1-10767) filed April 29, 2004.
10.31.1
 
Assignment and Assumption Agreement, dated December 18, 2003 between Shonac Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee re: Richmond, VA DSW store. Incorporated by reference to Exhibit 10.31.1 to Retail Ventures’ Form 10-K/A (file no. 1-10767) filed May 12, 2005.
10.32
 
Lease, dated May 2000, by and between Jubilee-Richmond LLC, an affiliate of Schottenstein Stores Corporation, and DSW Shoe Warehouse, Inc. (as assignee of Shonac Corporation), re: Glen Allen, VA DSW store. Incorporated by reference to Exhibit 10.49 to Retail Ventures’ Form 10-K (file no. 1-10767) filed April 14, 2005.
10.33
 
Lease, dated February 28, 2001, by and between Jubilee-Springdale, LLC, an affiliate of Schottenstein Stores Corporation, and Shonac Corporation d/b/a DSW Shoe Warehouse, re: Springdale, OH DSW store. Incorporated by reference to Exhibit 10.50 to Retail Ventures’ Form 10-K (file no. 1-10767) filed April 14, 2005.
10.33.1
 
Assignment and Assumption Agreement, dated May 11, 2001, between Shonac Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee re: Springdale, OH DSW store. Incorporated by reference to Exhibit 10.50.1, to Retail Ventures’ Form 10-K/A (file no. 1-10767) filed May 12, 2005.


10.34
 
Agreement of Lease, dated 1997, between Shoppes of Beavercreek Ltd., an affiliate of Schottenstein Stores Corporation, and Shonac corporation (assignee of Schottenstein Stores Corporation d/b/a Value City Furniture through Assignment of Tenant’s Leasehold Interest and Amendment No. 1 to Agreement of Lease, dated February 28, 2001), re: Beavercreek, OH DSW store. Incorporated by reference to Exhibit 10.51 to Retail Ventures’ Form 10-K (file no. 1-10767) filed April 14, 2005.
10.34.1
 
Assignment and Assumption Agreement, dated May 11, 2001, between Shonac Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee re: Beavercreek, OH DSW store. Incorporated by reference to Exhibit 10.51.1 to Retail Ventures’ Form 10-K/A (file no. 1-10767) filed May 12, 2005.
10.35
 
Lease, dated February 28, 2001, by and between JLP-Chesapeake, LLC, an affiliate of Schottenstein Stores Corporation, and Shonac Corporation, re: Chesapeake, VA DSW store. Incorporated by reference to Exhibit 10.52 to Retail Ventures’ Form 10-K (file no. 1-10767) filed April 14, 2005.
10.35.1
 
Assignment and Assumption Agreement, dated May 11, 2001, between Shonac Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee re: Chesapeake, VA DSW store. Incorporated by reference to Exhibit 10.52.1 to Retail Ventures’ Form 10-K/A (file no. 1-10767) filed May 12, 2005.
10.36
 
Ground Lease Agreement, dated April 30, 2002, by and between Polaris Mall, LLC, a Delaware limited liability company, and Schottenstein Stores Corporation-Polaris LLC, an affiliate of Schottenstein Stores Corporation, as modified by Sublease Agreement, dated April 30, 2002, by and between Schottenstein Stores Corporation-Polaris LLC, as sublessor, and DSW Shoe Warehouse, Inc., as sublessee (assignee of Shonac Corporation), re: Columbus, OH (Polaris) DSW store. Incorporated by reference to Exhibit 10.53 to Retail Ventures’ Form 10-K (file no. 1-10767) filed April 14, 2005.
10.36.1
 
Assignment and Assumption Agreement, dated August 6, 2002, between Shonac Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee, re: Columbus, OH (Polaris) DSW store. Incorporated by reference to Exhibit 10.53.1 to Retail Ventures’ Form 10-K/A (file no. 1-10767) filed May 12, 2005.
10.37
 
Lease, dated August 30, 2002, by and between JLP-Cary, LLC, an affiliate of Schottenstein Stores Corporation, and Shonac Corporation, re: Cary, NC DSW store. Incorporated by reference to Exhibit 10.54 to Retail Ventures’ Form 10-K (file no. 1-10767) filed April 14, 2005.
10.37.1
 
Assignment and Assumption Agreement, dated October 23, 2002, between Shonac Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee, re: Cary, NC DSW store. Incorporated by reference to Exhibit 10.54.1 to Retail Ventures’ Form 10-K/A (file No. 1-10767) filed May 12, 2005.
10.38
 
Lease, dated August 30, 2002, by and between JLP-Madison, LLC, an affiliate of Schottenstein Stores Corporation, and Shonac Corporation, re: Madison, TN DSW store. Incorporated by reference to Exhibit 10.55 to Retail Ventures’ Form 10-K (file no. 1-10767) filed April 14, 2005.
10.38.1
 
Assignment and Assumption Agreement, dated October 23, 2002, between Shonac Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee, re: Madison, TN DSW store. Incorporated by reference to Exhibit 10.55.1 to Retail Ventures’ Form 10-K/A (file no. 1-10767) filed May 12, 2005.
10.39
 
Sublease, dated May 2000, by and between Schottenstein Stores Corporation, as sublessor, and Shonac Corporation d/b/a DSW Shoe Warehouse, Inc., as sublessee, re: Pittsburgh, PA DSW store. Incorporated by reference to Exhibit 10.48 to Retail Ventures’ Form 10-K (file no. 1-10767) filed April 14, 2005.
10.39.1
 
Assignment and Assumption Agreement, dated January 8, 2001, between Shonac Corporation, as assignor, and DSW Shoe Warehouse, Inc. as assignee, re: Pittsburgh, PA DSW store. Incorporated by reference to Exhibit 10.48.1 to Retail Ventures’ Form 10-K/A (file no. 1-10767) filed May 12, 2005.
10.40
 
Lease, dated September 24, 2004, by and between K&S Maple Hill Mall, L.P., an affiliate of Schottenstein Stores Corporation, and Shonac Corporation, re: Kalamazoo, MI DSW store. Incorporated by reference to Exhibit 10.58 to Retail Ventures’ Form 10-K (file no. 1-10767) filed April 14, 2005.
10.40.1
 
Assignment and Assumption Agreement, dated February 28, 2005, between Shonac Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee, re: Kalamazoo, MI DSW store. Incorporated by reference to Exhibit 10.58.1 to Retail Ventures’ Form 10-K/A (file no. 1-10767) filed May 12, 2005.
10.41
 
Lease, dated November 2004, by and between KSK Scottsdale Mall, L.P., an affiliate of Schottenstein Stores Corporation, and Shonac Corporation, re: South Bend, IN DSW store. Incorporated by reference to Exhibit 10.59 to Retail Ventures’ Form 10-K (file no. 1-10767) filed April 14, 2005.


10.41.1
 
Assignment and Assumption Agreement, dated March 18, 2005, between KSK Scottsdale Mall, L.P., an affiliate of Schottenstein Stores Corporation and DSW Shoe Warehouse, Inc., re: South Bend, IN DSW store. Incorporated by reference to the same exhibit to Form 10-K (file no. 1-32545) filed March 24, 2010.
10.41.2
 
Lease Amendment, dated February 1, 2010, between Shonac Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee, re: South Bend, IN DSW store. Incorporated by reference to Exhibit 10.59.1 to Retail Ventures’ Form 10-K/A (file no. 1-10767) filed May 12, 2005.
10.42
 
Sublease Agreement, dated June 12, 2000, by and between Jubilee Limited Partnership, an affiliate of Schottenstein Stores Corporation, and Shonac Corporation, re: Fairfax, VA DSW store.**
10.42.1
 
Assignment and Assumption Agreement, dated January 8, 2001, between Shonac Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee, re: Fairfax, VA DSW store.**
10.43
 
Lease, dated March 1, 1994, between Jubilee Limited Partnership, an affiliate of Schottenstein Stores Corporation, and Value City Department Stores, Inc., as modified by First Lease Modification, dated November 1, 1994, re: Merrillville, IN DSW store. Incorporated by reference to Exhibit 10.44 to Retail Ventures’ Form 10-K (file no. 1-10767) filed April 14, 2005.**
10.43.1
 
Assignment and Assumption Agreement, dated January 17, 2008, between Value City Department Stores LLC, as assignor, and DSW Shoe Warehouse, Inc., as assignee, re: Merrillville, IN DSW Store. Incorporated by reference to Exhibit 10.43.1 to Form 10-K (file no. 1-32545) filed April 17, 2008.
10.44
 
Form of Indemnification Agreement between DSW Inc. and its officers and directors.**
10.45
 
Agreement of Lease, dated April 7, 2006, by and between JLP-Harvard Park, LLC, an affiliate of Schottenstein Stores Corporation, and DSW Inc., re: Chagrin Highlands, Warrendale, Ohio DSW store. Incorporated by reference to the same exhibit to Form 10-K (file no. 1-32545) filed April 13, 2006.
10.46
 
Agreement of Lease, dated June 30, 2006, between JLPK – Levittown NY LLC, an affiliate of Schottenstein Stores Corporation and DSW Inc., re: Levittown, NY DSW store. Incorporated by reference to Exhibit 10.1 to Form 10-Q (file no. 1-32545) filed December 6, 2006.
10.47
 
Agreement of Lease, dated November 27, 2006, between JLP – Lynnhaven VA LLC, an affiliate of Schottenstein Stores Corporation and DSW Inc., re: Lynnhaven, Virginia DSW store. Incorporated by reference to Exhibit 10.2 to Form 10-Q (file no. 1-32545) filed December 6, 2006.
10.48
 
Agreement of Lease, dated November 30, 2006, between 4300 Venture 34910 LLC, an affiliate of Schottenstein Stores Corporation, and DSW Inc., re: Home office. Incorporated by reference to Exhibit 10.3 to Form 10-Q (file no. 1-32545) filed December 6, 2006.
10.48.1
 
Lease Amendment, dated October 1, 2007, between 4300 Ventures 34910 LLC, an affiliate of Schottenstein Stores Corporation, and DSW Inc., re: Home office. Incorporated by reference to Exhibit 10.2 to Form 8-K (file no. 1-32545) filed March 6, 2008.
10.49
 
Agreement of Lease, dated November 30, 2006, between 4300 East Fifth Avenue LLC, an affiliate of Schottenstein Stores Corporation, and DSW Inc., re: Trailer Parking spaces for home office. Incorporated by reference to Exhibit 10.4 to Form 10-Q (file no. 1-32545) filed December 6, 2006.
10.49.1
 
Lease Amendment, dated October 1, 2007, between 4300 East Fifth Avenue LLC, an affiliate of Schottenstein Stores Corporation, and DSW Inc., re: Trailer Parking spaces for home office. Incorporated by reference to Exhibit 10.3 to Form 8-K (file no. 1-32545) filed March 6, 2008.
10.50
 
Lease Amendment, dated November 30, 2006 between 4300 Venture 6729 LLC, an affiliate of Schottenstein Stores Corporation, and DSW Inc., re: warehouse and corporate headquarters. Incorporated by reference to Exhibit 10.5 to Form 10-Q (file no. 1-32545) filed December 6, 2006.
10.50.1
 
Second Lease Amendment, dated October 1, 2007 between 4300 Venture 6729 LLC, an affiliate of Schottenstein Stores Corporation, and DSW Inc., re: warehouse and corporate headquarters. Incorporated by reference to Exhibit 10.4 to Form 8-K (file no. 1-32545) filed March 6, 2008.
10.52
 
Amended and Restated Supply Agreement dated May 30, 2006, between DSW Inc. and Stein Mart, Inc. Incorporated by reference to Exhibit 10.1 to DSW’s Form 8-K (file no. 1-32545) filed June 5, 2006.
10.53
 
Employment Agreement, dated July 13, 2006, between DSW Inc. and Harris Mustafa. Incorporated by reference to Exhibit 10.1 to DSW’s Form 8-K (file no. 1-32545) filed July 13, 2006.
10.53.1
 
First Amendment to Employment Agreement, dated December 31, 2007, between Harris Mustafa and DSW Inc. Incorporated by reference to Exhibit 10.53.1 to Form 10-K (file no. 1-32545) filed April 17, 2008. #

 
10.54
 
Agreement of Lease, dated December 15, 2006, between American Signature, Inc., an affiliate of Schottenstein Stores Corporation, and DSW Shoe Warehouse, Inc., re: Langhorne, Pennsylvania DSW store. Incorporated by reference to Exhibit 10.54 to Form 10-K (file no. 1-32545) filed April 5, 2007.
10.55
 
Nonqualified Deferred Compensation Plan. Incorporated by reference to Exhibit 10.1 to DSW’s Form 10-Q (file no. 1-32545) filed December 13, 2007. #
10.56
 
Agreement of Lease, dated October 1, 2007, between 4300 Venture 34910 LLC, an affiliate of Schottenstein Stores Corporation and eTailDirect LLC re: fulfillment center. Incorporated by reference to Exhibit 10.1 to Form 8-K (file no. 1-32545) filed March 6, 2008.
10.56.1
 
Lease Amendment to Agreement of Lease, dated September 29, 2009, between 4300 Venture 34910 LLC, an affiliate of Schottenstein Stores Corporation and eTailDirect LLC re: fulfillment center. Incorporated by reference to Exhibit 10.1 to Form 10-Q (file no. 1-32545) filed December 3, 2009.
 
Lease Amendment to Agreement of Lease, dated November 30, 2010, between 4300 Venture 34910 LLC, an affiliate of Schottenstein Stores Corporation and eTailDirect LLC re: fulfillment center.*
10.58
 
Guaranty by DSW Inc. to 4300 Venture 34910 LLC, an affiliate of Schottenstein Stores Corporation re: Lease, dated October 1, 2007 between 4300 Venture 34910 LLC, an affiliate of Schottenstein Stores Corporation and eTailDirect LLC re: new fulfillment center for the business of ETD. Incorporated by reference to Exhibit 10.5 to Form 8-K (file no. 1-32545) filed March 6, 2008.
10.59
 
Transfer and Assignment Agreement among Retail Ventures, Inc., Retail Ventures Services, Inc., DSW Inc., and Filene’s Basement, Inc., dated as of March 17, 2008. Incorporated by reference to Exhibit 10.1 to Form 8-K (file no. 1-32545) filed August 28, 2008.
10.61
 
Employment Agreement, dated March 27, 2009, between William L. Jordan and DSW Inc. Incorporated by reference to Exhibit 10.60 to Form 10-K (file no. 1-32545) filed April 1, 2009. #
10.62
 
Employment Agreement, dated March  25, 2009, between Michael R. MacDonald and DSW Inc. Incorporated by reference to Exhibit 10.1 to Form 8-K (file no. 1-32545) filed March 25, 2009.#
10.63
 
Settlement Agreement, dated as of September 25, 2009, by and among Retail Ventures, Inc., DSW Inc., FB Liquidating Estate, Inc., FB Services LLC, FB Leasing Services LLC and the Official Committee of Unsecured Creditors. Incorporated by reference to Exhibit 10.2 to Form 10-Q (file no. 1-32545) filed December 3, 2009.
10.64
 
Lease, dated August 26, 2010, by and between JLP Nashua NH LLC, an affiliate of Schottenstein Stores Corporation, and DSW Shoe Warehouse, Inc., re: Nashua, NH store. Incorporated by reference to Exhibit 10.1 to Form 10-Q (file no. 1-32545) filed December 1, 2010.
 
Lease, dated June 27, 2006, by and between Kimschott Factoria Mall LLC, an affiliate of Schottenstein Stores Corporation, and DSW Inc., re: Bellevue, WA.*
 
Employment Agreement, dated December 11, 2007, between Carrie S. McDermott and DSW Inc. #*
 
List of Subsidiaries.*
 
Consent of Independent Registered Public Accounting Firm.*
 
Powers of Attorney.*
 
Rule 13a-14(a)/15d-14(a) Certification - Principal Executive Officer.*
 
Rule 13a-14(a)/15d-14(a) Certification - Principal Financial Officer.*
 
Section 1350 Certification - Principal Executive Officer.*
 
Section 1350 Certification - Principal Financial Officer.*
____________
*
Filed herewith.
**
Previously filed as the same Exhibit Number to DSW’s Form S-1 (Registration Statement No. 333-123289) filed with the Securities and Exchange Commission on March 14, 2005 and amended on May 9, 2005, June 7, 2005, June 15, 2005 and June 29, 2005, and incorporated herein by reference.
#
Management contract or compensatory plan or arrangement.
 
 
E-5
EXHIBIT 10.11

$100,000,000   REVOLVING CREDIT FACILITY
 

CREDIT AGREEMENT

by and among

DSW INC.
DSW SHOE WAREHOUSE, INC.
as Borrowers

THE GUARANTORS PARTY HERETO

THE LENDERS PARTY HERETO

PNC BANK, NATIONAL ASSOCIATION
as Administrative Agent

PNC CAPITAL MARKETS LLC
as Sole Book Runner and Sole Lead Arranger

BANK OF AMERICA, N.A.
as Syndication Agent and Documentation Agent

and

FIFTH THIRD BANK and
WELLS FARGO RETAIL FINANCE, LLC
as Managing Agents
 

Dated as of June 30, 2010

 
 
 

TABLE OF CONTENTS
 
         
       
Page
         
1.
CERTAIN DEFINITIONS
1
 
1.1
Certain Definitions.
1
 
1.2
Construction.
32
 
1.3
Accounting Principles.
32
         
2.
REVOLVING CREDIT AND SWING LOAN FACILITIES
33
 
2.1
Revolving Credit Commitments.
33
   
2.1.1
Revolving Credit Loans.
33
   
2.1.2
Swing Loan Commitment.
33
 
2.2
 
Nature of Lenders' Obligations with Respect to Revolving Credit Loans; Permitted Overadvances.
34
   
2.2.1
Nature of Lenders' Obligations with Respect to Revolving Credit Loans.
34
   
2.2.2
Permitted Overadvances.
34
 
2.3
Commitment Fees.
34
 
2.4
Simplified Borrowing Base and Borrowing Base; Permitted Short Term Loans.
35
   
2.4.1
Simplified Borrowing Base and Borrowing Base.
35
   
2.4.2
Permitted Short Term Loans.
35
 
2.5
Revolving Credit Loan Requests; Swing Loan Requests.
35
   
2.5.1
Revolving Credit Loan Requests.
36
   
2.5.2
Swing Loan Requests.
36
 
2.6
Making Revolving Credit Loans and Swing Loans; Presumptions by the Administrative Agent; Repayment of Revolving Credit Loans; Borrowings to Repay Swing Loans.
36
   
2.6.1
Making Revolving Credit Loans.
36
   
2.6.2
Presumptions by the Administrative Agent.
37
   
2.6.3
Making Swing Loans.
37
   
2.6.4
Repayment of Revolving Credit Loans.
37
   
2.6.5
Borrowings to Repay Swing Loans.
37
   
2.6.6
Trigger Event Election Period.
38
 
2.7
Notes.
38
 
2.8
Use of Proceeds.
38
 
2.9
Letter of Credit Subfacility.
38
   
2.9.1
Issuance of Letters of Credit.
38
   
2.9.2
Letter of Credit Fees.
40
   
2.9.3
Disbursements, Reimbursement.
40
   
2.9.4
Repayment of Participation Advances.
42
   
2.9.5
Documentation.
42
   
2.9.6
Determinations to Honor Drawing Requests.
43
   
2.9.7
Nature of Participation and Reimbursement Obligations.
43
   
2.9.8
Indemnity.
44
   
2.9.9
Liability for Acts and Omissions
45

 
i
 

   
2.9.10
Issuing Lender Reporting Requirements
46
   
2.9.11
Cash Collateral
46
 
2.10
Increase in Revolving Credit Commitments.
46
   
2.10.1
Increasing Lenders and New Lenders.
46
   
2.10.2
Repayment of Outstanding Loans; Borrowing of New Loans.
48
   
2.10.3
Outstanding Letters of Credit. Repayment of Outstanding Loans; Borrowing of New Loans.
48
 
2.11
Reduction of Revolving Credit Commitment
48
   
2.11.1
Revolving Credit Commitments
48
   
2.11.2
Canadian Commitments
48
   
2.11.3
Deemed Termination of Canadian Commitments
48
         
3.
INTEREST RATES
49
 
3.1
Interest Rate Options.
49
   
3.1.1
Revolving Credit Interest Rate Options; Swing Line Interest Rate.
49
   
3.1.2
Rate Quotations.
50
 
3.2
Interest Periods.
50
   
3.2.1
Amount of Borrowing Tranche.
50
   
3.2.2
Renewals.
50
 
3.3
Interest and Fees After Default.
50
   
3.3.1
Letter of Credit Fees, Interest Rate.
50
   
3.3.2
Other Obligations.
50
   
3.3.3
Acknowledgment.
50
 
3.4
LIBOR Rate Unascertainable; Illegality; Increased Costs; Deposits Not Available.
50
   
3.4.1
Unascertainable.
51
   
3.4.2
Illegality; Increased Costs; Deposits Not Available.
51
   
3.4.3
Administrative Agent's and Lenders’ Rights.
51
 
3.5
Selection of Interest Rate Options.
52
 
3.6
Interest Act (Canada)
52
         
4.
PAYMENTS
52
 
4.1
Payments.
52
 
4.2
Pro Rata Treatment of Lenders; Repayment of Advances.
53
   
4.2.1
Pro Rata Treatment of Lenders.
53
   
4.2.2
Repayment of Advances.
53
 
4.3
Sharing of Payments by Lenders.
53
 
4.4
Presumptions by Administrative Agent.
54
 
4.5
Interest Payment Dates.
54
 
4.6
Voluntary Prepayments.
55
   
4.6.1
Right to Prepay.
55
   
4.6.2
Replacement of a Lender.
55
 
4.7
Mandatory Prepayments.
56
   
4.7.1
Disposition of Assets; Indebtedness.
56
   
4.7.2
Borrowing Base Exceeded; Canadian Borrowing Base Exceeded.
57

 
ii
 

   
4.7.3
Receipt and Application of Payment.
57
   
4.7.4
Application Among Interest Rate Options.
57
 
4.8
Increased Costs.
57
   
4.8.1
Increased Costs Generally.
57
   
4.8.2
Capital Requirements.
58
   
4.8.3
Certificates for Reimbursement; Repayment of Outstanding Loans; Borrowing of New Loans.
58
   
4.8.4
Delay in Requests.
58
 
4.9
Taxes.
59
   
4.9.1
Payments Free of Taxes.
59
   
4.9.2
Payment of Other Taxes by the Borrowers.
59
   
4.9.3
Indemnification by the Borrowers; Treatment of Certain Refunds.
59
   
4.9.4
Evidence of Payments.
60
   
4.9.5
Status of Lenders.
60
 
4.10
Indemnity.
61
 
4.11
Settlement Date Procedures.
62
         
5.
REPRESENTATIONS AND WARRANTIES
62
 
5.1
Representations and Warranties.
62
   
5.1.1
Organization and Qualification; Power and Authority; Compliance With Laws; Title to Properties; Event of Default.
62
   
5.1.2
Subsidiaries and Owners; Investment Companies.
63
   
5.1.3
Validity and Binding Effect.
63
   
5.1.4
No Conflict; Material Agreements; Consents.
63
   
5.1.5
Litigation.
64
   
5.1.6
Financial Statements.
64
   
5.1.7
Margin Stock.
64
   
5.1.8
Full Disclosure.
65
   
5.1.9
Taxes.
65
   
5.1.10
Patents, Trademarks, Copyrights, Licenses, Etc.
65
   
5.1.11
Liens in the Collateral.
65
   
5.1.12
Insurance.
65
   
5.1.13
ERISA Compliance.
66
   
5.1.14
Environmental Matters.
66
   
5.1.15
Solvency.
66
   
5.1.16
Labor Matters.
66
   
5.1.17
DDAs; Credit Card Arrangements.
67
 
5.2
Updates to Schedules.
67
         
6.
CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT
67
 
6.1
First Loans and Letters of Credit.
68
   
6.1.1
Deliveries.
68
   
6.1.2
Other Conditions Precedent.
69
   
6.1.3
Payment of Fees and Expenses.
70
 
6.2
Each Loan or Letter of Credit.
70

 
iii
 

 
6.3
Initial Loans or Letters of Credit – Canadian Borrower.
70
         
7.
COVENANTS
70
 
7.1
Affirmative Covenants.
70
   
7.1.1
Preservation of Existence, Etc.
70
   
7.1.2
Payment of Liabilities, Including Taxes, Etc.
70
   
7.1.3
Maintenance of Insurance.
71
   
7.1.4
Maintenance of Properties and Leases.
71
   
7.1.5
Visitation Rights.
71
   
7.1.6
Keeping of Records and Books of Account.
72
   
7.1.7
Compliance with Laws; Use of Proceeds.
72
   
7.1.8
Further Assurances.
72
   
7.1.9
Anti-Terrorism Laws.
72
   
7.1.10
Cash Management.
73
 
7.2
Negative Covenants.
74
   
7.2.1
Indebtedness.
74
   
7.2.2
Liens; Lien Covenants.
76
   
7.2.3
Guaranties.
76
   
7.2.4
Loans and Investments.
76
   
7.2.5
Dividends and Related Distributions.
77
   
7.2.6
Liquidations, Mergers, Consolidations, Amalgamations, Acquisitions.
77
   
7.2.7
Dispositions of Assets or Subsidiaries.
77
   
7.2.8
Affiliate Transactions.
78
   
7.2.9
Subsidiaries, Partnerships and Joint Ventures.
78
   
7.2.10
Continuation of or Change in Business.
79
   
7.2.11
Fiscal Year.
79
   
7.2.12
Issuance of Stock.
79
   
7.2.13
Changes in Organizational Documents.
79
   
7.2.14
Capital Expenditures.
79
   
7.2.15
Minimum Fixed Charge Coverage Ratio.
79
   
7.2.16
Agreements Restricting Dividends.
80
   
7.2.17
DDAs; Credit Card Processors
80
   
7.2.18
Negative Pledges
80
 
7.3
Reporting Requirements.
80
   
7.3.1
Quarterly Financial Statements; Monthly Financial Statements.
80
   
7.3.2
Annual Financial Statements.
80
   
7.3.3
Certificate of the Borrowers.
81
   
7.3.4
Simplified Borrowing Base Certificates; Borrowing Base Certificates.
81
   
7.3.5
Minimum Cash Requirement; DDAs
81
   
7.3.6
Notices.
81
         
8.
DEFAULT
 
83
 
8.1
Events of Default.
83
   
8.1.1
Payments Under Loan Documents.
83

 
iv
 

   
8.1.2
Breach of Warranty.
83
   
8.1.3
Breach of Certain Covenants.
83
   
8.1.4
Breach of Other Covenants.
84
   
8.1.5
Defaults in Indebtedness; Leases.
84
   
8.1.6
Final Judgments or Orders.
84
   
8.1.7
Loan Document Unenforceable.
84
   
8.1.8
Uninsured Losses; Proceedings Against Assets.
84
   
8.1.9
Events Relating to Plans and Benefit Arrangements.
84
   
8.1.10
Change of Control.
85
   
8.1.11
Relief Proceedings.
85
 
8.2
Consequences of Event of Default.
85
   
8.2.1
Events of Default Other Than Bankruptcy, Insolvency or Reorganization Proceedings.
85
   
8.2.2
Bankruptcy, Insolvency or Reorganization Proceedings.
86
   
8.2.3
Set-off.
86
   
8.2.4
Application of Proceeds.
86
         
9.
THE ADMINISTRATIVE AGENT
89
 
9.1
Appointment and Authority.
89
 
9.2
Rights as a Lender.
89
 
9.3
Exculpatory Provisions.
90
 
9.4
Reliance by Administrative Agent.
91
 
9.5
Delegation of Duties.
91
 
9.6
Resignation of Administrative Agent.
91
 
9.7
Non-Reliance on Administrative Agent and Other Lenders.
92
 
9.8
No Other Duties, etc.
92
 
9.9
Administrative Fee.
92
 
9.10
Authorization to Release Collateral and Guarantors.
92
 
9.11
No Reliance on Administrative Agent's Customer Identification Program.
93
 
9.12
Defaulting Lender.
93
   
9.12.1
Failure or Refusal to Comply with Lender Obligations.
93
   
9.12.2
Non-Defaulting Lender Rights.
94
   
9.12.3
Indemnification.
94
   
9.12.4
Risk Participation.
94
         
10.
MISCELLANEOUS
95
 
10.1
Modifications, Amendments or Waivers.
95
   
10.1.1
Increase of Commitment.
95
   
10.1.2
Extension of Payment; Reduction of Principal Interest or Fees; Modification of Terms of Payment.
95
   
10.1.3
Release of Collateral or Guarantor.
95
   
10.1.4
Availability.
96
   
10.1.5
Miscellaneous.
96
 
10.2
No Implied Waivers; Cumulative Remedies.
96
 
10.3
Expenses; Indemnity; Damage Waiver.
96
   
10.3.1
Costs and Expenses.
96

 
v
 

   
10.3.2
Indemnification by the Loan Parties.
97
   
10.3.3
Reimbursement by Lenders.
98
   
10.3.4
Waiver of Consequential Damages, Etc.
98
   
10.3.5
Payments.
98
 
10.4
Holidays.
98
 
10.5
Notices; Effectiveness; Electronic Communication.
99
   
10.5.1
Notices Generally.
99
   
10.5.2
Electronic Communications.
99
   
10.5.3
Change of Address, Etc.
100
 
10.6
Severability.
100
 
10.7
Duration; Survival.
100
 
10.8
Successors and Assigns.
100
   
10.8.1
Successors and Assigns Generally.
100
   
10.8.2
Assignments by Lenders.
100
   
10.8.3
Register.
102
   
10.8.4
Participations.
102
   
10.8.5
Limitations upon Participant Rights Successors and Assigns Generally.
103
   
10.8.6
Certain Pledges; Successors and Assigns Generally.
103
 
10.9
Publicity
103
 
10.10
Confidentiality.
103
   
10.10.1
General.
103
   
10.10.2
Sharing Information With Affiliates of the Lenders.
104
 
10.11
Counterparts; Integration; Effectiveness.
104
   
10.11.1
Counterparts; Integration; Effectiveness.
104
 
10.12
CHOICE OF LAW; SUBMISSION TO JURISDICTION; WAIVER OF VENUE; SERVICE OF PROCESS; WAIVER OF JURY TRIAL.
104
   
10.12.1
Governing Law.
104
   
10.12.2
SUBMISSION TO JURISDICTION.
105
   
10.12.3
WAIVER OF VENUE.
105
   
10.12.4
SERVICE OF PROCESS.
105
   
10.12.5
WAIVER OF JURY TRIAL.
105
 
10.13
Patriot Act Notice; Proceeds of Crime Act.
106
 
10.14
Additional Waivers.
106
   
10.14.1
Joint and Several Liability.
106
   
10.14.2
No Reduction of Obligations.
106
   
10.14.3
Additional Waivers.
107
   
10.14.4
Subordination.
107
 
10.15
Obligations Upon Receipt of Indefeasible Payment In Full.
108
 
10.16
Limitation Of Canadian Borrower’s Liability.
109
 
10.17
Judgment Currency.
109
   
10.17.1
Judgment Currency
109
   
10.17.2
Change in Exchange Rate
109
   
10.17.3
Canadian Liabilities
110
   
10.17.4
Rate of Exchange
110
 
10.18
Language.
110

 
vi
 

LIST OF SCHEDULES AND EXHIBITS


SCHEDULES

SCHEDULE 1.1(A)
-
PRICING GRID
SCHEDULE 1.1(B)
-
COMMITMENTS OF LENDERS AND ADDRESSES FOR NOTICES
SCHEDULE 1.1(C)
-
QUALIFIED CREDIT CARD RECEIVABLES
SCHEDULE 1.1(D)
-
QUALIFIED INVENTORY
SCHEDULE 1.1(E)
-
EXISTING LETTERS OF CREDIT
SCHEDULE 1.1(P)
-
PERMITTED LIENS
SCHEDULE 5.1.1
-
QUALIFICATIONS TO DO BUSINESS
SCHEDULE 5.1.2
-
SUBSIDIARIES
SCHEDULE 5.1.14
-
ENVIRONMENTAL DISCLOSURES
SCHEDULE 5.1.16
-
LABOR MATTERS
SCHEDULE 5.1.17.1
-
DDAs
SCHEDULE 5.1.17.2
-
CREDIT CARD PROCESSORS
SCHEDULE 6.1.1
-
OPINION OF COUNSEL
SCHEDULE 7.1.3
-
INSURANCE REQUIREMENTS RELATING TO COLLATERAL
SCHEDULE 7.2.1
-
PERMITTED INDEBTEDNESS
SCHEDULE 7.2.8
-
AFFILIATE TRANSACTIONS

EXHIBITS
 
EXHIBIT 1.1(A)
-
ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 1.1(C)
-
COLLATERAL ASSIGNMENT
EXHIBIT 1.1(G)(1)
-
GUARANTOR JOINDER
EXHIBIT 1.1(G)(2)
-
GUARANTY AGREEMENT
EXHIBIT 1.1(G)(3)
-
BORROWER JOINDER
EXHIBIT 1.1(N)(1)
-
REVOLVING CREDIT NOTE
EXHIBIT 1.1(N)(2)
-
SWING LOAN NOTE
EXHIBIT 1.1(S)
-
SECURITY AGREEMENT
EXHIBIT 2.5.1
-
LOAN REQUEST
EXHIBIT 2.5.2
-
SWING LOAN REQUEST
EXHIBIT 2.10
-
LENDER JOINDER
EXHIBIT 7.3.3
-
COMPLIANCE CERTIFICATE
EXHIBIT 7.3.4.1
-
SIMPLIFIED BORROWING BASE CERTIFICATE
EXHIBIT 7.3.4.2
-
BORROWING BASE CERTIFICATE

 
vii
 

CREDIT AGREEMENT

THIS CREDIT AGREEMENT (as hereafter amended, the " Agreement ") is dated as of June 30, 2010 and is made by and among DSW INC., an Ohio corporation (“ DSW ”), DSW SHOE WAREHOUSE, INC., a Missouri corporation (“ DSW Shoe ”, and together with DSW, individually, a " Borrower ", and collectively, the “ Borrowers ”, as hereinafter further defined), each of the GUARANTORS (as hereinafter defined), the LENDERS (as hereinafter defined), and PNC BANK, NATIONAL ASSOCIATION, in its capacity as administrative agent for the Lenders under this Agreement (hereinafter referred to in such capacity as the " Administrative Agent ").
 
The Borrowers have requested the Lenders to provide a revolving credit facility to the Borrowers in an aggregate original principal amount not to exceed $100,000,000, which may be increased in accordance with the terms of Section 2.10 [Increase in Revolving Credit Commitments] hereof and a sub-facility in favor of the Canadian Borrower (defined below) in an aggregate original principal amount not to exceed $10,000,000.  In consideration of their mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, the parties hereto covenant and agree as follows:

1.            CERTAIN DEFINITIONS

1.1            Certain Definitions.   In addition to words and terms defined elsewhere in this Agreement, the following words and terms shall have the following meanings, respectively, unless the context hereof clearly requires otherwise:

Account shall mean “accounts” as defined in the UCC (or as regards to the Canadian Borrower, the PPSA) , and also shall mean any account, contract right, general intangible, chattel paper, instrument or document representing any right to payment for goods sold or services rendered, whether or not earned by performance and whether or not evidenced by a contract, instrument or document, which is now owned or hereafter acquired by a Loan Party.  All Accounts, whether Qualified Credit Card Receivables or not, shall be subject to the Administrative Agent’s and the Lenders' Prior Security Interest.

Account Debtor shall mean any Person who is or who may become obligated to a Loan Party under, with respect to, or on account of, an Account.

Acquisition shall mean, with respect to any Person (a) an investment in, or a purchase of a controlling interest in, the equity interests of any other Person, (b) a purchase or other acquisition of all or substantially all of the assets or properties of, another Person or of any business unit of another Person, (c) any merger, consolidation or amalgamation of such Person with any other Person or other transaction or series of transactions resulting in the acquisition of all or substantially all of the assets, or a controlling interest in the equity interests, of any Person, or (d) any acquisition of any store locations of any Person for an aggregate purchase price of $5,000,000 or more, in each case in any transaction or group of transactions which are part of a common plan.

 
 
 

Administrative Agent shall mean PNC Bank, National Association, and its successors and assigns.

Administrative Fee shall have the meaning specified in Section 9.9 [Administrative Fee].

Affiliate as to any Person shall mean any other Person (i) which directly or indirectly controls, is controlled by, or is under common control with such Person, (ii) which beneficially owns or holds ten percent (10.0%) or more of any class of the voting or other equity interests of such Person, or (iii) ten percent (10.0%) or more of any class of voting interests or other equity interests of which is beneficially owned or held, directly or indirectly, by such Person.

Agreement shall have the meaning specified in the preamble hereof.

Alternate Source shall have the meaning specified in the definition of “Federal Funds Open Rate” or “LIBOR Rate”, as applicable.

Anti-Terrorism Laws shall mean any Laws relating to terrorism or money laundering, including Executive Order No. 13224, the USA Patriot Act, the Laws comprising or implementing the Bank Secrecy Act, and the Laws administered by the United States Treasury Department's Office of Foreign Asset Control (as any of the foregoing Laws may from time to time be amended, renewed, extended, or replaced).

Applicable Commitment Fee Rate shall mean the percentage rate per annum based on the Average Daily Revolving Credit Availability for the immediately preceding fiscal quarter according to the pricing grid on Schedule 1.1(A) below the heading "Commitment Fee."

Applicable Letter of Credit Fee Rate shall mean the following percentage rate per annum based upon Average Daily Revolving Credit Availability then in effect according to the pricing grid on Schedule 1.1(A) :  (a) with respect to Standby Letters of Credit, the percentage rate per annum applicable to Revolving Credit Loans to which the LIBOR Rate Option or the BA Rate Option, as applicable, applies, and (b) with respect to Commercial Letters of Credit, the percentage rate per annum equal to fifty percent (50%) of the percentage rate per annum applicable to Revolving Credit Loans to which the LIBOR Rate Option or the BA Rate Option, as applicable, applies.

Applicable Margin shall mean, as applicable:

(A)           the percentage spread to be added to the Base Rate applicable to Revolving Credit Loans under the Base Rate Option based on the Average Daily Revolving Credit Availability according to the pricing grid on Schedule 1.1(A) below the heading "Revolving Credit Base Rate Spread", or

(B)           the percentage spread to be added to the LIBOR Rate applicable to Revolving Credit Loans under the LIBOR Rate Option based on the Average Daily Revolving Credit Availability according to the pricing grid on Schedule 1.1(A) below the heading "Revolving Credit LIBOR Rate Spread";

 
- 2 -
 

(C)           the percentage spread to be added to the Canadian Prime Rate applicable to Revolving Credit Loans under the Canadian Prime Rate Option based on the Average Daily Revolving Credit Availability according to the pricing grid on Schedule 1.1(A) below the heading "Revolving Credit Canadian Prime Rate Spread"; or

(D)           the percentage spread to be added to the BA Rate applicable to Revolving Credit Loans under the BA Rate Option based on the Average Daily Revolving Credit Availability according to the pricing grid on Schedule 1.1(A) below the heading "Revolving Credit BA Rate Spread".

Approved Fund shall mean any fund that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

Arranger shall mean PNC Capital Markets LLC, and its successors and assigns, in its capacity as sole book runner and sole lead arranger.

Assignment and Assumption Agreement shall mean an assignment and assumption agreement entered into by a Lender and an assignee permitted under Section 10.8 [Successors and Assigns], in substantially the form of Exhibit 1.1(A) or, with respect to any assignment by any Canadian Lender, in such other form as is reasonably acceptable to the Administrative Agent.

Authorized Officer shall mean, with respect to any Loan Party, the Chief Executive Officer, President, Chief Financial Officer, Treasurer or Assistant Treasurer of such Loan Party or such other individuals, designated by written notice to the Administrative Agent from the Borrowers, authorized to execute notices, reports and other documents on behalf of the Loan Parties required hereunder.  The Borrowers may amend such list of individuals from time to time by giving written notice of such amendment to the Administrative Agent.

Auto-Extension Letter of Credit shall have the meaning specified in Section 2.9.1 [Issuance of Letters of Credit].

Average Daily Revolving Credit Availability shall mean, at any time of determination, the average daily Revolving Credit Availability for the immediately preceding fiscal quarter.

BA Equivalent Loan shall mean any Loan to the Canadian Borrower in CD$ bearing interest at a rate determined by reference to the BA Rate in accordance with the provisions of Article II.

BA Equivalent Loan Borrowing shall mean any Borrowing comprised of BA Equivalent Loans.

BA Rate shall mean, for the Interest Period of each BA Equivalent Loan, the rate of interest per annum equal to the annual rates applicable to CD$ bankers’ acceptances having an identical or comparable term as the bankers’ acceptances proposed to be issued displayed and identified as such on the display referred to as the "CDOR Page" (or any display substituted therefor) of Reuter Monitor Money Rates Service as at approximately 10:00 A.M. on such day (or, if such day is not a Business Day, as of 10:00 A.M. on the immediately preceding Business Day), provided that if such rates do not appear on CDOR Page at such time on such date, the rate for such date will be the annual discount rate (rounded upward to the nearest whole multiple of 1/100 of 1%) as of 10:00 A.M. on such day at which The Toronto-Dominion Bank is then offering to purchase CD$ bankers’ acceptances accepted by it having such specified term (or a term as closely as possible comparable to such specified term).  In the event that the Administrative Agent is unable to obtain any such quotation as provided above, it will be deemed that a BA Rate pursuant to a BA Equivalent Loan Borrowing cannot be obtained.

 
- 3 -
 

BA Rate Option shall mean the option of the Canadian Borrower to have Loans bear interest at the rate and under the terms set forth in Section 3.1.1(iv) [Revolving Credit BA Rate Option].

Bankruptcy Code means each of (i) Title 11, U.S.C., as now or hereafter in effect, or any successor thereto, and (ii) the Bankruptcy and Insolvency Act (Canada), the Companies' Creditors Arrangement Act (Canada) and the Winding-up and Restructuring Act (Canada), as now or hereafter in effect, or any successor thereto.

Base Rate shall mean, for any day, a fluctuating per annum rate of interest equal to the highest of (a) the Federal Funds Open Rate, plus one-half of one percent (0.5%), and (b) the Prime Rate, and (c) the Daily LIBOR Rate, plus one percent (1.0%).  Any change in the Base Rate (or any component thereof) shall take effect at the opening of business on the day such change occurs.

Base Rate Option shall mean the option of the Borrowers to have Loans bear interest at the rate and under the terms set forth in Section 3.1.1(i) [Revolving Credit Base Rate Option].

Blocked Account shall have the meaning specified in Section 7.1.10 [Cash Management].

Blocked Account Agreement shall mean with respect to an account established by a Loan Party, an agreement, in form and substance satisfactory to the Administrative Agent, establishing control (as defined in the UCC) of such account by the Administrative Agent and whereby the bank maintaining such account agrees, upon the occurrence of a Trigger Event Election or the occurrence and continuance of an Event of Default, to comply only with the instructions originated by the Administrative Agent without the further consent of any Loan Party.

Blocked Account Bank shall mean each bank with whom DDAs are maintained in which any funds of any of the Loan Parties from one or more DDAs are concentrated and with whom a Blocked Account Agreement has been, or is required to be, executed in accordance with the terms hereof.

 
- 4 -
 

Borrower Joinder shall mean a joinder by a Person as a Borrower under the Loan Documents in the form of Exhibit 1.1(G)(3) , or, with respect to a joinder by the Canadian Borrower, in such other form as is reasonably acceptable to the Administrative Agent.

Borrowers shall mean each of (a) DSW Inc., a corporation organized and existing under the laws of the State of Ohio, (b) DSW Shoe Warehouse, Inc., a corporation organized and existing under the laws of the State of Missouri, and (c) each other Person which joins this Agreement as a Borrower after the date hereof.

Borrowing Base shall mean at any time:

(a) ninety percent (90%) of Qualified Credit Card Receivables of the Domestic Borrowers, plus

(b) the lesser of (i) sixty-five percent (65%) of the book value (determined in accordance with GAAP) of Qualified Inventory of the Domestic Borrowers at cost (determined in accordance with GAAP), or (ii) eighty-five percent (85%) of the appraised net orderly liquidation value expressed as a percentage of cost (as used in this definition, “ NOLV ”) of Qualified Inventory of the Domestic Borrowers multiplied by the cost (determined in accordance with GAAP) of Qualified Inventory of the Domestic Borrowers, minus

(c) reserves deemed appropriate by the Administrative Agent.

Following the occurrence of a Borrowing Base Trigger Event, until such time as the Administrative Agent shall have obtained and reviewed an updated audit and appraisal, in each case in form and substance satisfactory to the Administrative Agent, NOLV shall be based upon the audit and appraisal delivered to the Administrative Agent pursuant to Section 7.1.5.2 hereof.  Notwithstanding anything to the contrary, the Administrative Agent may, in its sole discretion, (i) increase the level of any reserves, or define or maintain such other reserves, as the Administrative Agent may deem necessary or appropriate, and (ii) reduce the advance percentages for Qualified Credit Card Receivables and Qualified Inventory, in the case of this clause (ii) upon the Administrative Agent’s receipt and review of such updated audit and appraisal to the extent that, in the Administrative Agent’s reasonable opinion, such updated audit and appraisal evidence a material change from the audit and appraisal delivered to the Administrative Agent pursuant to Section 7.1.5.2 hereof.  Any such change shall become effective immediately upon written notice from the Administrative Agent to the Borrowers for the purpose of calculating the Borrowing Base hereunder.

Borrowing Base Certificate shall have the meaning specified in Section 7.3.4(ii) [Simplified Borrowing Base Certificates; Borrowing Base Certificates].

Borrowing Base Trigger Event shall mean the occurrence of any of the following events:  (i) the occurrence of a Trigger Event Election, (ii) the occurrence of an Event of Default, or (iii) the failure of the Domestic Borrowers to have on hand the Minimum Cash Requirement.

 
- 5 -
 

Borrowing Date shall mean, with respect to any Loan, the date for the making thereof or the renewal or conversion thereof at or to the same or a different Interest Rate Option, which shall be a Business Day.

Borrowing Tranche shall mean specified portions of Loans outstanding as follows:  (i) any Loans to which a LIBOR Rate Option applies which become subject to the same Interest Rate Option under the same Loan Request by the Borrowers and which have the same Interest Period shall constitute one Borrowing Tranche, (ii) all Loans to which a Base Rate Option applies shall constitute one Borrowing Tranche, (iii) any Loans to which a BA Rate Option applies which become subject to the same Interest Rate Option under the same Loan Request by the Borrowers and which have the same Interest Period shall constitute one Borrowing Tranche, and (iv) all Loans to which a Canadian Prime Rate Option applies shall constitute one Borrowing Tranche.

Business Day shall mean any day other than a Saturday or Sunday or a legal holiday on which commercial banks are authorized or required to be closed for business in Pittsburgh, Pennsylvania and if the applicable Business Day relates to any Loan to which the LIBOR Rate Option applies, such day must also be a day on which dealings are carried on in the London interbank market; provided further that when used in connection with any Loan to the Canadian Borrower, the term “Business Day” shall also exclude any day on which banks are authorized or required by law to be closed in Toronto, Ontario, Canada.

Canadian Availability means, as of any date of determination thereof by the Administrative Agent, the result, if a positive number, of (a) the lesser of (i) CD$10,000,000 or (ii) the Canadian Borrowing Base, minus (b) the Revolving Facility Usage by the Canadian Borrower, minus (c) the aggregate amount of all then outstanding and unpaid trade payables and other obligations of the Canadian Borrower which are more than sixty (60) days past due as of such time (it being understood that to the extent that the time for payment of any such trade payables and other obligations has been extended in writing by the applicable creditor, such trade payables and other obligations shall not be deemed to be past due until the extended date for payment has passed); provided that Canadian Availability shall be reduced by that amount necessary in order that Revolving Credit Availability will not be exceeded.  In calculating Canadian Availability at any time and for any purpose under this Agreement, the Canadian Borrower shall certify to the Administrative Agent that all of its accounts payable and taxes are being paid on a timely basis.

Canadian Borrower means a direct or indirect wholly owned Subsidiary of DSW to be hereafter formed under the laws of the Province of Ontario, Canada, which joins this Agreement as the Canadian Borrower after the date hereof.

Canadian Borrowing Base shall mean at any time:

(a) ninety percent (90%) of Qualified Credit Card Receivables of the Canadian Borrower, plus

(b) the lesser of (i) sixty-five percent (65%) of the book value (determined in accordance with GAAP) of Qualified Inventory of the Canadian Borrower at cost (determined in accordance with GAAP), or (ii) eighty-five percent (85%) of the appraised net orderly liquidation value expressed as a percentage of cost (as used in this definition, “ NOLV ”) of Qualified Inventory of the Canadian Borrower multiplied by the cost (determined in accordance with GAAP) of Qualified Inventory of the Canadian Borrower, minus

 
- 6 -
 

(c) reserves deemed appropriate by the Administrative Agent.

Following the occurrence of a Borrowing Base Trigger Event, until such time as the Administrative Agent shall have obtained and reviewed an updated audit and appraisal, in each case in form and substance satisfactory to the Administrative Agent, NOLV shall be based upon the audit and appraisal of the Domestic Borrowers delivered to the Administrative Agent pursuant to Section 7.1.5.2 hereof.  Notwithstanding anything to the contrary, the Administrative Agent may, in its sole discretion, (i) increase the level of any reserves, or define or maintain such other reserves, as the Administrative Agent may deem necessary or appropriate, and (ii) reduce the advance percentages for Qualified Credit Card Receivables and Qualified Inventory, in the case of this clause (ii) upon the Administrative Agent’s receipt and review of an audit and appraisal for the Canadian Borrower to the extent that, in the Administrative Agent’s reasonable opinion, such updated audit and appraisal evidence a material change from the audit and appraisal delivered of the Domestic Borrowers to the Administrative Agent pursuant to Section 7.1.5.2 hereof.  Any such change shall become effective immediately upon written notice from the Administrative Agent to the Borrowers for the purpose of calculating the Canadian Borrowing Base hereunder.

Canadian Commitment shall mean, as to any Canadian Lender at any time, the amount initially set forth opposite its name on Schedule 1.1(B) in the column labeled "Amount of Canadian Commitment for Revolving Credit Loans," as such Commitment is thereafter assigned or modified and Canadian Commitments shall mean the aggregate Canadian Commitments of all of the Canadian Lenders.

Canadian Lender initially means PNC Canada.  Any Person may be a Canadian Lender only if it is a financial institution that is listed on Schedule I, II or III of the Bank Act (Canada) or is not a foreign bank for purposes of the Bank Act (Canada), and if such financial institution is not resident in Canada and is not deemed to be resident in Canada for purposes of the Income Tax Act (Canada), then such financial institution deals at arm’s length with the Canadian Borrower for purposes of the Income Tax Act (Canada).

Canadian Liabilities shall mean any obligation or liability of the Canadian Borrower, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, under or in connection with (i) this Agreement, the Notes,   or any other Loan Document whether to the Administrative Agent, any of the Canadian Lenders or their Affiliates provided for under such Loan Documents (including all interest, fees, expenses, indemnities and other amounts that accrue after the commencement of any case or proceeding by or against the Canadian Borrower or any of its Subsidiaries under the Bankruptcy Code, whether or not allowed in such case or proceeding), (ii) any Lender Provided Interest Rate Hedge to the Canadian Borrower and (iii) any Other Lender Provided Financial Service Product provided to the Canadian Borrower.

 
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Canadian Prime Rate means the higher of (a) the annual rate of interest established from time to time by PNC Canada as its reference rate of interest for loans made in CD$ to Canadian customers and designated as its “prime” rate, which rate may not be the lowest or most favorable rate then being charged commercial borrowers or others by PNC Canada, and (b) the BA Rate applicable to Canadian dollar banker’s acceptances having a term of one month as displayed on the “CDOR Page” or otherwise as determined pursuant to the definition of “BA Rate” plus one percent (1%) per annum.  Any change in the Canadian Prime Rate shall take effect at the opening of business on the day such change is announced.

Canadian Prime Rate Option shall mean the option of the Canadian Borrower to have Loans bear interest at the rate and under the terms set forth in Section 3.1.1(iii) [Revolving Credit Canadian Prime Rate Option].

Capital Expenditures shall mean the expenditure of funds or the incurrence of liabilities which may be capitalized in accordance with GAAP.

Capital Lease shall mean any lease which may be capitalized in accordance with GAAP.

Cash Collateralize shall mean to pledge and deposit with or deliver to Administrative Agent, for the benefit of the Issuing Lender and the Lenders, as collateral for the Letter of Credit Obligations, cash in an amount equal to 105% of the sum of (i) the maximum amount then or at any time thereafter available to be drawn or otherwise outstanding in respect of the then outstanding Letters of Credit, plus (ii) the aggregate Reimbursement Obligations and Letter of Credit Borrowings.  Such cash collateral shall be maintained in blocked, non-interest-bearing deposit accounts maintained by, and in the name of, the Administrative Agent.

CD$ shall mean Canadian dollars.

Change in Law shall mean the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any Law, (b) any change in any Law or in the administration, interpretation or application thereof by any Official Body or (c) the making or issuance of any request, guideline or directive (whether or not having the force of Law) by any Official Body.

CIP Regulations shall have the meaning specified in Section 9.11 [No Reliance on Administrative Agent’s Customer Identification Program].

Closing Date shall mean the Business Day on which the first Loan shall be made, which shall be June 30, 2010.

Code shall mean the Internal Revenue Code of 1986, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect.

Collateral shall mean (a) the collateral under the (i) Security Agreement, (ii) the Collateral Assignment, and (iii) the Blocked Account Agreements, and (b) any cash collateral referred to in the definition of “Cash Collateralize”; provided however , Collateral shall not include the Excluded Property; provided further that any assets of the Canadian Borrower shall secure only the Canadian Liabilities.

 
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Collateral Access Agreement shall mean an agreement reasonably satisfactory in form and substance to the Administrative Agent executed by (a) a bailee or other Person in possession of Collateral, and (b) any landlord of real estate leased by any Loan Party, pursuant to which such Person (i) acknowledges the Administrative Agent’s Lien on the Collateral, (ii) releases or subordinates such Person’s Liens in the Collateral held by such Person or located on such real estate, (iii) provides the Administrative Agent with access to the Collateral held by such bailee or other Person or located in or on such Real Estate, (iv) as to any landlord, provides the Administrative Agent with a reasonable time to sell and dispose of the Collateral from such Real Estate, and (v) makes such other agreements with the Administrative Agent as the Administrative Agent may reasonably require.

Collateral Assignment shall mean the Collateral Assignment in the form of Exhibit 1.1(C) , or, with respect to the Canadian Borrower, in such other form as is reasonably acceptable to the Administrative Agent.

Collateral Documents shall have the meaning specified in Section 5.1.11 [Liens in the Collateral].

Commercial Letter of Credit shall mean any letter of credit which is a commercial letter of credit issued in respect of the purchase of goods or services by one or more of the Loan Parties in the ordinary course of their business.

Commitment shall mean as to any Lender the aggregate of its Revolving Credit Commitment and Canadian Commitment and, in the case of PNC, its Swing Loan Commitment, and Commitments shall mean the aggregate of the Revolving Credit Commitments, Canadian Commitments and Swing Loan Commitment of all of the Lenders, including, without limitation, any increased Commitments of any Lender pursuant to Section 2.10 hereof.

Commitment Fee shall have the meaning specified in Section 2.3 [Commitment Fees].

Compliance Certificate shall have the meaning specified in Section 7.3.3 [Certificate of the Borrowers].

Concentration Account shall have the meaning specified in Section 7.1.10 [Cash Management].

Consolidated EBITDA for any period of determination shall mean (i) the sum of net income, depreciation, amortization, other non-cash charges to net income, interest expense and income tax expense minus (ii) non-cash credits to net income, in each case of DSW and its Subsidiaries for such period determined and consolidated in accordance with GAAP.

Credit Card Notification shall have the meaning specified in Section 7.1.10 [Cash Management].

 
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Credit Card Receivables shall mean each Account together with all income, payments and proceeds thereof, owed by a major credit or debit card issuer (including, but not limited to, Visa, MasterCard and American Express and such other issuers approved by the Administrative Agent) to a Loan Party resulting from charges by a customer of a Loan Party on credit or debit cards issued by such issuer in connection with the sale of goods by a Loan Party, or services performed by a Loan Party, in each case in the ordinary course of its business.

Daily LIBOR Rate shall mean, for any day, the rate per annum determined by the Administrative Agent by dividing (x) the Published Rate by (y) a number equal to 1.00 minus the LIBOR Reserve Percentage on such day.

DDA shall mean each checking, savings or other demand deposit account maintained by any of the Loan Parties.  All funds in each DDA shall be conclusively presumed to be Collateral and proceeds of Collateral and the Administrative Agent and the Lenders shall have no duty to inquire as to the source of the amounts on deposit in any DDA.

Defaulting Lender shall mean any Lender that (a) has failed to fund any portion of the Loans, participations with respect to Letters of Credit, or participations in Swing Line Loans required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder unless such failure has been cured and all interest accruing as a result of such failure has been fully paid in accordance with the terms hereof, (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, unless the subject of a good faith dispute or unless such failure has been cured and all interest accruing as a result of such failure has been fully paid in accordance with the terms hereof, (c) has failed at any time to comply with the provisions of Section 4.3 with respect to purchasing participations from the other Lenders, whereby such Lender’s share of any payment received, whether by setoff or otherwise, is in excess of its Ratable Share of such payments due and payable to all of the Lenders, or (d) has since the date of this Agreement been deemed insolvent by an Official Body or become the subject of a bankruptcy, receivership, monitorship, conservatorship or insolvency proceeding, or has a parent company that since the date of this Agreement been deemed insolvent by an Official Body or become the subject of a bankruptcy, receivership, monitorship, conservatorship or insolvency proceeding.

Deteriorating Lender shall mean any Defaulting Lender or any Lender (a) which has defaulted in fulfilling its obligations under one or more other syndicated credit facilities, or (b) as to which a Person that controls such Lender has been deemed insolvent or become the subject of a bankruptcy, insolvency or similar proceeding.

Determination Date shall mean the date upon which each of the following has occurred:

(a)           The Commitments have been terminated by the Required Lenders upon the occurrence of an Event of Default (or are deemed terminated upon the occurrence of an Event of Default of the type described in Section 8.1.11 [Relief Proceedings]); and

 
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(b)           The Obligations and/or the Canadian Liabilities have been declared to be due and payable (or has become automatically due and payable) and have not been paid in accordance with the terms of this Agreement.

Dollar, Dollars, U.S. Dollars and the symbol $ shall mean lawful money of the United States of America.

Domestic Borrower shall mean all Borrowers other than the Canadian Borrower.

Domestic Lender shall mean all Lenders other than the Canadian Lender.

Domestic Subsidiary shall mean any Subsidiary that is organized under the laws of the United States of America, any State thereof or the District of Columbia.(excluding, for the avoidance of doubt, any Subsidiary organized under the laws of Puerto Rico or any other territory).

Drawing Date shall have the meaning specified in Section 2.9.3 [Disbursements, Reimbursement].

DSW shall mean DSW Inc., a corporation organized and existing under the laws of the State of Ohio.

DSW Shoe shall mean DSW Shoe Warehouse, Inc., a corporation organized and existing under the laws of the State of Missouri.

Environmental Laws shall mean all applicable federal, state, local, tribal, territorial, provincial and foreign Laws (including common law), constitutions, statutes, treaties, regulations, rules, ordinances and codes and any consent decrees, settlement agreements, judgments, orders, directives, policies or programs issued by or entered into with an Official Body pertaining or relating to: (i) pollution or pollution control; (ii) protection of human health from exposure to regulated substances; (iii) protection of the environment and/or natural resources; (iv) employee safety in the workplace; (v) the presence, use, management, generation, manufacture, processing, extraction, treatment, recycling, refining, reclamation, labeling, packaging, sale, transport, storage, collection, distribution, disposal or release or threat of release of regulated substances; (vi) the presence of contamination; (vii) the protection of endangered or threatened species; and (viii) the protection of environmentally sensitive areas.

Equity Interests shall have the meaning specified in Section 5.1.2 [Subsidiaries and Owners; Investment Companies].

Equivalent Amount means, on any date, the rate at which CD$ may be exchanged into Dollars, determined by reference to the Bank of Canada noon rate as published on the Reuters Screen BOFC on the immediately preceding Business Day.  In the event that such rate does not appear on such Reuters page, “Equivalent Amount” shall mean, on any date, the amount of Dollars into which an amount of CD$ may be converted or the amount of CD$ into which an amount of Dollars may be converted, in either case, at, in the case of the Canadian Borrower, PNC Canada’s spot buying rate in Toronto as at approximately 12:00 noon (Toronto time) on such date and, in the case of a Domestic Borrower, the Administrative Agent’s spot buying rate in New York as at approximately 12:00 noon (New York City time) on the immediately preceding Business Day.

 
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ERISA shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect.

ERISA Affiliate shall mean any trade or business (whether or not incorporated) under common control with any Borrower and are treated as a single employer under Section 414 of the Code.

ERISA Event shall mean (a) a reportable event (under Section 4043 of ERISA and regulations thereunder) with respect to a Pension Plan; (b) a withdrawal by a Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by a Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Borrower or any ERISA Affiliate; or (g) with respect to the Canadian Borrower, the existence with respect to any Plan of any due but un-remitted contribution, whether or not waived.

ERISA Group shall mean the Borrowers and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control and all other entities which, together with the Borrowers, are treated as a single employer under Section 414 of the Internal Revenue Code.

Eurocurrency Liabilities shall have the meaning specified in the definition of “LIBOR Reserve Percentage”.

Event of Default shall mean any of the events described in Section 8.1 [Events of Default] and referred to therein as an "Event of Default."

Excluded Property shall mean any of the following property of any Loan Party: (i) all rights, priorities and privileges relating to any real property in which any Loan Party has an interest and any leases or sub-leases of any real property; (ii) all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including domain names, copyrights, copyright licenses, patents, patent licenses, trademarks, trademark licenses and trade secrets, and any right to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom; (iii) depository accounts used solely for payroll, medical expenses and payments, pension benefits, employee withholding or other benefits, taxes, and stock options; (iv) interests in life insurance; (v) goods or other tangible property not located in the US or Canada; and (vi) interests or investments in joint ventures, the constituent documents or shareholder or member agreements of or for which prohibit the granting of collateral.

 
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Excluded Taxes shall mean, with respect to the Administrative Agent, any Lender, the Issuing Lender or any other recipient of any payment to be made by or on account of any obligation of any Loan Party hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the Laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which any Loan Party is located and (c) in the case of a Foreign Lender, any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new lending office) or is attributable to such Foreign Lender's failure or inability (other than as a result of a Change in Law) to comply with Section 4.9.5 [Status of Lenders], except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from any Loan Party with respect to such withholding tax pursuant to Section 4.9.1 [Payment Free of Taxes].

Executive Order No. 13224 shall mean the Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, as the same has been, or shall hereafter be, renewed, extended, amended or replaced.

Existing Letters of Credit shall mean each of the letters of credit issued or deemed issued under the Existing Loan Agreement and described on Schedule 1.1(E) .

Existing Loan Agreement shall mean that certain Loan and Security Agreement dated as of July 5, 2005, by and among the Borrowers, PNC (as successor by merger to National City Business Credit, Inc.), as administrative agent and collateral agent, PNC (as successor by merger  to National City Bank), as Letter of Credit Issuer, and the other parties thereto, as amended and in effect immediately prior to the Closing Date.

Expiration Date shall mean, with respect to the Revolving Credit Commitments, June 30, 2014.

Federal Funds Effective Rate for any day shall mean the rate per annum (based on a year of 360 days and actual days elapsed and rounded upward to the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any successor) on such day as being the weighted average of the rates on overnight federal funds transactions arranged by federal funds brokers on the previous trading day, as computed and announced by such Federal Reserve Bank (or any successor) in substantially the same manner as such Federal Reserve Bank computes and announces the weighted average it refers to as the "Federal Funds Effective Rate" as of the date of this Agreement; provided , if such Federal Reserve Bank (or its successor) does not announce such rate on any day, the "Federal Funds Effective Rate" for such day shall be the Federal Funds Effective Rate for the last day on which such rate was announced.

 
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Federal Funds Open Rate for any day shall mean the rate per annum (based on a year of 360 days and actual days elapsed) which is the daily federal funds open rate as quoted by ICAP North America, Inc. (or any successor) as set forth on the Bloomberg Screen BTMM for that day opposite the caption "OPEN" (or on such other substitute Bloomberg Screen that displays such rate), or as set forth on such other recognized electronic source used for the purpose of displaying such rate as selected by the Administrative Agent (for purposes of this definition, an " Alternate Source ") (or if such rate for such day does not appear on the Bloomberg Screen BTMM (or any substitute screen) or on any Alternate Source, or if there shall at any time, for any reason, no longer exist a Bloomberg Screen BTMM (or any substitute screen) or any Alternate Source, a comparable replacement rate determined by the Administrative Agent at such time (which determination shall be conclusive absent manifest error); provided however, that if such day is not a Business Day, the Federal Funds Open Rate for such day shall be the "open" rate on the immediately preceding Business Day.  If and when the Federal Funds Open Rate changes, the rate of interest with respect to any advance to which the Federal Funds Open Rate applies will change automatically without notice to the Borrowers, effective on the date of any such change.

Fee Letter shall mean the letter agreement, dated May 18, 2010, among the Domestic Borrowers, the Administrative Agent and the Arranger.

Financial Statement Accounts shall mean, for the Domestic Borrowers and the Canadian Borrower, respectively, “accounts receivable, net of bad debt reserves”, as shown on such Loan Party’s consolidating balance sheet, calculated in accordance with GAAP.

Financial Statement Inventory shall mean, for the Domestic Borrowers and the Canadian Borrower, respectively, “inventories”, as shown on such Loan Party’s consolidating balance sheet, calculated in accordance with GAAP.

Fixed Charge Coverage Ratio shall mean, for DSW and its Subsidiaries on a consolidated basis, as of any date of determination, the ratio of (a) Consolidated EBITDA, minus Capital Expenditures, minus income taxes paid in cash, minus dividends and other distributions on account of, and repurchases of, DSW’s capital stock, for the applicable period then ending taken as one accounting period, to (b) Fixed Charges, for the applicable period then ending taken as one accounting period.

Fixed Charges shall mean, without duplication, the sum of the following for the Loan Parties on a consolidated basis: (a) Interest Expense, plus (b) scheduled payments of principal on Indebtedness (including Capital Leases but excluding the Revolving Credit Loans).

Foreign Lender shall mean any Lender that is organized under the Laws of a jurisdiction other than that in which any Loan Party is resident for tax purposes.  For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

Foreign Subsidiary shall mean any Subsidiary other than a Domestic Subsidiary.

GAAP shall mean generally accepted accounting principles as are in effect from time to time, subject to the provisions of Section 1.3 [Accounting Principles], and applied on a consistent basis both as to classification of items and amounts provided that , with respect to Foreign Subsidiaries organized under the laws of Canada, “GAAP” shall mean principles which are consistent with those promulgated or adopted by the Canadian Institute of Chartered Accountants and its predecessors (or successors) in effect and applicable to the accounting period in respect of which reference to GAAP is being made.

 
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General Security Agreement shall mean a General Security Agreement between the Canadian Borrower and its Subsidiaries and the Administrative Agent, in form and substance reasonably satisfactory to the Administrative Agent.

Guarantor shall mean, (a) with respect to the Obligations of the Domestic Borrowers, each of the parties to this Agreement which is designated as a "Guarantor" on the signature page hereof and each other Person which joins this Agreement as a Guarantor after the date hereof, and (b) with respect to the Canadian Liabilities, each of the Domestic Borrowers and their Subsidiaries, each Subsidiary of the Canadian Borrower and each other Person which joins this Agreement as a Guarantor after the date hereof.

Guarantor Joinder shall mean a joinder by a Person as a Guarantor under the Loan Documents in the form of Exhibit 1.1(G)(1) or, with respect to the Canadian Liabilities, in such other form as is reasonably acceptable to the Administrative Agent.

Guaranty of any Person shall mean any obligation of such Person guaranteeing or in effect guaranteeing any liability or obligation of any other Person in any manner, whether directly or indirectly, including any agreement to indemnify or hold harmless any other Person, any performance bond or other suretyship arrangement and any other form of assurance against loss, except (i) endorsement of negotiable or other instruments for deposit or collection in the ordinary course of business, (ii) warranties made in the ordinary course of business, (iii) liabilities to any lessor by a Loan Party, (iv) indemnities in contracts of Indebtedness permitted hereunder, and (v) indemnities in respect of statutory obligations, bonding, brokerage, financial contracts, acquisitions, divestures and other customary business contracts.

Guaranty Agreement shall mean the Continuing Agreement of Guaranty and Suretyship in substantially the form of Exhibit 1.1(G)(2) (or, with respect to the Canadian Liabilities, in such other form as is reasonably acceptable to the Administrative Agent) executed and delivered by each of the Guarantors.

ICC shall have the meaning specified in Section 10.11.1 [Governing Law].

Increasing Lender shall have the meaning specified in Section 2.10.1 [Increasing Lenders and New Lenders].

Indebtedness shall mean, as to any Person at any time, any and all indebtedness, obligations or liabilities (whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, or joint or several) of such Person for or in respect of:  (i) borrowed money, (ii) amounts raised under or liabilities in respect of any note purchase or acceptance credit facility, (iii) reimbursement obligations (contingent or otherwise) under any letter of credit agreement, (iv) obligations under any currency swap agreement, interest rate swap, cap, collar or floor agreement or other interest rate management device, (v) any other transaction (including forward sale or purchase agreements, Capital Leases and conditional sales agreements) having the commercial effect of a borrowing of money entered into by such Person to finance its operations or capital requirements (but not including trade payables and accrued expenses and liabilities with respect to operating leases incurred in the ordinary course of business which are not represented by a promissory note or other evidence of indebtedness and which are not more than sixty (60) days past due), or (vi) any Guaranty of Indebtedness for borrowed money.

 
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Indemnified Taxes shall mean Taxes other than Excluded Taxes.

Indemnitee shall have the meaning specified in Section 10.3.2 [Indemnification by the Loan Parties].

Information shall mean all information received from the Loan Parties or any of their Subsidiaries pursuant to the Loan Documents relating to the Loan Parties or any of such Subsidiaries or any of their respective businesses, other than any such information that is available to the Administrative Agent, any Lender or the Issuing Lender on a non-confidential basis prior to disclosure by the Loan Parties or any of their Subsidiaries.

Insolvency Proceeding shall mean, with respect to any Person, (a) a case, action or proceeding with respect to such Person (i) under the Bankruptcy Code, (ii) before any court or any other Official Body under any bankruptcy, insolvency, reorganization or other similar Law now or hereafter in effect, or (iii) for the appointment of a receiver, monitor, interim monitor, liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar official) of any Loan Party or otherwise relating to the liquidation, dissolution, winding-up or relief of such Person, or (b) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors, or other, similar arrangement in respect of such Person's creditors generally or any substantial portion of its creditors; undertaken under any Law.

Intercompany Subordination Agreement shall mean a Subordination Agreement among the Loan Parties and each of their Subsidiaries which is not a Loan Party, in form and substance reasonably acceptable to the Administrative Agent.

Interest Expense shall mean total interest expense generated during the period in question (including attributable to conditional sales contracts, Capital Leases and other title retention agreements in accordance with GAAP) of DSW and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness including accrued interest and interest paid in kind and capitalized interest, fees, commissions, discounts and other fees owed with respect to letters of credit and bankers’ acceptance financing, and net costs under Interest Rate Hedges.

Interest Period shall mean the period of time selected by the Borrowers in connection with (and to apply to) any election permitted hereunder by the Borrowers to have Revolving Credit Loans bear interest under the LIBOR Rate Option or, with respect to the Canadian Borrower, the BA Rate Option.  Subject to the last sentence of this definition, such period shall be one, two, three or six Months. Such Interest Period shall commence on the effective date of such Interest Rate Option, which shall be (i) the Borrowing Date if the Borrowers are requesting new Loans, or (ii) the date of renewal of or conversion to the LIBOR Rate Option or BA Rate Option, as applicable, if the Borrowers are renewing or converting to the LIBOR Rate Option or BA Rate Option applicable to outstanding Loans.  Notwithstanding the second sentence hereof: (A) any Interest Period which would otherwise end on a date which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, and (B) the Borrowers shall not select, convert to or renew an Interest Period for any portion of the Loans that would end after the Expiration Date.

 
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Interest Rate Hedge shall mean an interest rate exchange, collar, cap, swap, adjustable strike cap, adjustable strike corridor or similar agreements entered into by DSW or any of its Subsidiaries in order to provide protection to, or minimize the impact upon, the Borrowers, the Guarantors and/or their Subsidiaries of increasing floating rates of interest applicable to Indebtedness.

Interest Rate Option shall mean any LIBOR Rate Option, Base Rate Option, BA Rate Option or Canadian Prime Rate Option.

Inventory shall mean “inventory” as defined in the UCC and, as regards the Canadian Borrower, includes all “inventory” as defined in the PPSA , and also shall mean any and all goods, merchandise and other personal property, including, without limitation, goods in transit, wheresoever located and whether now owned or hereafter acquired by any Loan Party which are or may at any time be held as raw materials, finished goods, work-in-process, supplies or materials used or consumed in the such Loan Party's business or held for sale or lease, including, without limitation, (a) all such property the sale or other disposition of which has given rise to Accounts and which has been returned to or repossessed or stopped in transit by such Loan Party, and (b) all packing, shipping and advertising materials relating to all or any such property.  All Inventory, whether Qualified Inventory or not, shall be subject to the Administrative Agent’s and the Lenders' Prior Security Interest.

IRS shall mean the Internal Revenue Service.

ISP98 shall have the meaning specified in Section 10.12.1 [Governing Law].

Issuing Lender shall mean PNC, in its individual capacity as issuer of Letters of Credit hereunder, and any other Lender that DSW, Administrative Agent (each of whose consent shall not be unreasonably withheld or delayed) and such other Lender may agree may from time to time to issue Letters of Credit hereunder.

Joint Venture shall mean a corporation, partnership, limited liability company or other entity in which any Person other than the Loan Parties and their Subsidiaries holds, directly or indirectly, an equity interest.

Judgment Conversion Date shall have the meaning set forth in Section 10.17 [Judgment Currency].

Judgment Currency shall have the meaning set forth in Section 10.17 [Judgment Currency].

 
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Law shall mean any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order, injunction, writ, decree, bond, judgment, authorization or approval, lien or award by or settlement agreement with any Official Body.

Lender Provided Interest Rate Hedge shall mean an Interest Rate Hedge which is provided by any Lender or its Affiliate and with respect to which the Administrative Agent confirms: (i) is documented in a standard International Swap Dealer Association Agreement, and (ii) provides for the method of calculating the reimbursable amount of the provider's credit exposure in a reasonable and customary manner.

Lenders shall mean the financial institutions named on Schedule 1.1(B) and their respective successors and assigns as permitted hereunder, each of which is referred to herein as a Lender.  For the purpose of any Loan Document which provides for the granting of a security interest or other Lien to the Lenders or to the Administrative Agent for the benefit of the Lenders as security for the Obligations or Canadian Liabilities, respectively, "Lenders" shall include any Affiliate of a Lender to which such Obligation is owed.

Letter of Credit shall mean each Existing Letter of Credit and shall also have the meaning specified in Section 2.9.1 [Issuance of Letters of Credit].

Letter of Credit Borrowing shall have the meaning specified in Section 2.9.3 [Disbursements, Reimbursement].

Letter of Credit Fee shall have the meaning specified in Section 2.9.2 [Letter of Credit Fees].

Letter of Credit Obligation shall mean, as of any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit on such date (if any Letter of Credit shall increase in amount automatically in the future, such aggregate amount available to be drawn shall currently give effect to any such future increase) plus the aggregate Reimbursement Obligations and Letter of Credit Borrowings on such date.

Letter of Credit Sublimit shall have the meaning specified in Section 2.9.1 [Issuance of Letters of Credit].

LIBOR Rate shall mean, with respect to the Loans comprising any Borrowing Tranche to which the LIBOR Rate Option applies for any Interest Period, the interest rate per annum determined by the Administrative Agent by dividing (the resulting quotient rounded upwards, if necessary, to the nearest 1/100th of 1% per annum) (i) the rate which appears on the Bloomberg Page BBAM1 (or on such other substitute Bloomberg page that displays rates at which U.S. Dollar deposits are offered by leading banks in the London interbank deposit market), or the rate which is quoted by another source selected by the Administrative Agent which has been approved by the British Bankers' Association as an authorized information vendor for the purpose of displaying rates at which U.S. Dollar deposits are offered by leading banks in the London interbank deposit market (for purposes of this definition, an " Alternate Source "), at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period as the London interbank offered rate for U.S. Dollars for an amount comparable to such Borrowing Tranche and having a borrowing date and a maturity comparable to such Interest Period (or if there shall at any time, for any reason, no longer exist a Bloomberg Page BBAM1 (or any substitute page) or any Alternate Source, a comparable replacement rate determined by the Administrative Agent at such time (which determination shall be conclusive absent manifest error)), by (ii) a number equal to 1.00 minus the LIBOR Reserve Percentage.  LIBOR may also be expressed by the following formula:

 
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London interbank offered rates quoted by Bloomberg
LIBOR Rate    =
or appropriate successor as shown on Bloomberg Page BBAM1
1.00 - LIBOR Reserve Percentage

The LIBOR Rate shall be adjusted with respect to any Loan to which the LIBOR Rate Option applies that is outstanding on the effective date of any change in the LIBOR Reserve Percentage as of such effective date.  The Administrative Agent shall give prompt notice to the Borrowers of the LIBOR Rate as determined or adjusted in accordance herewith, which determination shall be conclusive absent manifest error.

LIBOR Rate Option shall mean the option of the Domestic Borrowers to have Loans bear interest at the rate and under the terms set forth in Section 3.1.1(ii) [Revolving Credit LIBOR Rate Option].

LIBOR Reserve Percentage shall mean as of any day the maximum percentage in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as " Eurocurrency Liabilities ").

Lien shall mean any mortgage, deed of trust, pledge, lien, security interest, charge or other encumbrance or security arrangement of any nature whatsoever, and, with respect to the Canadian Borrower, also includes any prior claim or deemed trust in, on or of such asset, whether voluntarily or involuntarily given, including any conditional sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the effect of, security and any filed financing statement or other notice of any of the foregoing (whether or not a lien or other encumbrance is created or exists at the time of the filing).

Liquidation Percentage shall mean, for any Lender, a fraction, the numerator of which is such Lender's Revolving Credit Commitment (including its Canadian Commitment) on the Determination Date and the denominator of which is the total Revolving Credit Commitments (including Canadian Commitments) of all Lenders on the Determination Date.

Loan Documents shall mean this Agreement, the Fee Letter, the Collateral Assignment, the Guaranty Agreement, the Intercompany Subordination Agreement, the Notes, the Blocked Account Agreements, the Security Agreement, the General Security Agreement, the Simplified Borrowing Base Certificates, the Borrowing Base Certificates, the Compliance Certificates and any other instruments, certificates or documents delivered in connection herewith or therewith.

 
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Loan Parties shall mean the Borrowers and the Guarantors.

Loan Party Equity Interests shall have the meaning specified in Section 5.1.2 [Subsidiaries and Owners; Investment Companies].

Loan Request shall have the meaning specified in Section 2.5 [Revolving Credit Loan Requests; Swing Loan Requests].

Loans shall mean collectively and Loan shall mean separately all Revolving Credit Loans and Swing Loans or any Revolving Credit Loan or Swing Loan.

Material Adverse Change shall mean any set of circumstances or events which (a) has or could reasonably be expected to have any material adverse effect whatsoever upon the validity or enforceability of this Agreement or any other Loan Document, (b) is or could reasonably be expected to be material and adverse to the business, properties, assets, financial condition, or results of operations of the Loan Parties taken as a whole, (c) impairs materially or could reasonably be expected to impair materially the ability of the Loan Parties taken as a whole to duly and punctually pay or perform any of the Obligations, or (d) impairs materially or could reasonably be expected to impair materially the ability of the Administrative Agent or any of the Lenders, to the extent permitted, to enforce their legal remedies pursuant to this Agreement or any other Loan Document.

Minimum Cash Requirement shall mean, as of any date of determination, cash and cash equivalents, and other short-term investments (as determined in accordance with GAAP), of not less than $125,000,000.

Month , with respect to an Interest Period under the LIBOR Rate Option or BA Rate Option, shall mean the interval between the days in consecutive calendar months numerically corresponding to the first day of such Interest Period.  If any LIBOR Rate Interest Period or BA Rate Interest Period begins on a day of a calendar month for which there is no numerically corresponding day in the month in which such Interest Period is to end, the final month of such Interest Period shall be deemed to end on the last Business Day of such final month.

Multiemployer Plan shall mean any employee benefit plan which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to which any Borrower or any member of the ERISA Group is then making or accruing an obligation to make contributions or, within the preceding five Plan years, has made or had an obligation to make such contributions.

Net Proceeds shall mean:

(a) with respect to any sale of assets by any Loan Party or any of its Subsidiaries, or any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of (and payments in lieu thereof),  any property or asset of any Loan Party or any of its Subsidiaries, the excess, if any, of (i) the sum of cash and cash equivalents received in connection with such transaction (including any cash or cash equivalents received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) over (ii) the sum of (A) the principal amount of any Indebtedness that is secured by the applicable asset by a Lien permitted hereunder which is senior to the Administrative Agent’s Lien on such asset and that is required to be repaid (or to establish an escrow for the future repayment thereof) in connection with such transaction (other than Indebtedness under the Loan Documents), plus (B) taxes paid or payable in connection therewith, provided that after the occurrence of a Trigger Event Election or an Event of Default, such taxes shall not reduce the amounts constituting Net Proceeds, plus (C) the reasonable and customary out-of-pocket expenses incurred by such Loan Party or such Subsidiary in connection with such transaction (including, without limitation, appraisals, and brokerage, legal, title and recording or transfer tax expenses and commissions) paid by any Loan Party to third parties (other than Affiliates)); and

 
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(b)           with respect to the incurrence or issuance of any Indebtedness by any Loan Party or any of its Subsidiaries, the excess of (i) the sum of the cash and cash equivalents received in connection with such transaction over (ii) the underwriting discounts and commissions, and other reasonable and customary out-of-pocket expenses, incurred by such Loan Party or such Subsidiary (other than to an Affiliate) in connection therewith.

New Lender shall have the meaning specified in Section 2.10.1 [Increasing Lenders and New Lenders].

NOLV shall have the meaning specified in the definition of “Borrowing Base” or “Canadian Borrowing Base”, as applicable.

Non-Consenting Lender shall have the meaning specified in Section 10.1 [Modifications, Amendments or Waivers].

Non-Extension Notice Date shall have the meaning specified in Section 2.9.1 [Issuance of Letters of Credit].

Notes shall mean, collectively, the promissory notes in the form of Exhibit 1.1(N)(1) (or, with respect to the Canadian Borrower, in such other form as is reasonably acceptable to the Administrative Agent) evidencing the Revolving Credit Loans, and in the form of Exhibit 1.1(N)(2) evidencing the Swing Loan.

Obligation shall mean any obligation or liability of any of the Loan Parties, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, under or in connection with (i) this Agreement, the Notes,   the Letters of Credit, the Fee Letter or any other Loan Document whether to the Administrative Agent, any of the Lenders or their Affiliates provided for under such Loan Documents (including all interest, fees, expenses, indemnities and other amounts that accrue after the commencement of any case or proceeding by or against any Domestic Borrower or any of its Subsidiaries under the Bankruptcy Code, whether or not allowed in such case or proceeding), (ii) any Lender Provided Interest Rate Hedge, and (iii) any Other Lender Provided Financial Service Product.  Without limiting the foregoing, for purposes of clarity, whenever used herein the term “Obligations” shall include all Canadian Liabilities.

 
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Official Body shall mean the government of the United States of America, Canada or any other nation, or of any political subdivision thereof, whether state, local, territorial or provincial, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).

Overadvance shall mean the making of a Loan or the issuing of a Letter of Credit to the extent that, immediately after such event, Revolving Credit Availability is less than zero, or, with respect to the Canadian Borrower, Canadian Availability is less than zero.

Other Lender Provided Financial Service Product shall mean agreements or other arrangements under which any Lender or Affiliate of a Lender provides any of the following products or services to any of the Loan Parties: (i) (a) credit cards, (b) credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH transactions, (f) cash management, including controlled disbursement, accounts or services, (g) foreign currency exchange, or (h) such other similar agreements or arrangements as, with respect to this clause (h), are mutually agreed by the Administrative Agent and DSW, and (ii) following the occurrence of a Trigger Event Election or an Event of Default, wire transfer services.

Other Taxes shall mean all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.

Order shall have the meaning specified in Section 2.9.9 [Liability for Acts and Omissions].

Participant has the meaning specified in Section 10.8.4 [Participations].

Participation Advance shall have the meaning specified in Section 2.9.3 [Disbursements, Reimbursement].

Payment Date shall mean the first day of each calendar quarter after the date hereof and on the Expiration Date or upon acceleration of the Notes.

Payment In Full shall mean the indefeasible payment in full in cash of the Loans and other Obligations hereunder, termination of the Commitments and expiration or termination of all Letters of Credit (or with respect to any undrawn Letters of Credit, the full Cash Collateralization thereof or the supporting thereof by another letter of credit from an issuing bank and on terms reasonably satisfactory to the Issuing Lender and the Administrative Agent).

PBGC shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any successor.

Pension Plan shall mean any "employee pension benefit plan" (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained any Borrower or any ERISA Affiliate or to which any Borrower or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any times during the immediately preceding five plan years.

 
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Permitted Acquisition shall mean (a) the Acquisition described in a certain confidential side letter of even date herewith, or (b) an Acquisition in which all of the following conditions are satisfied:

(i)             No Event of Default or Potential Default then exists or would arise from the consummation of such Acquisition;

(ii)            Such Acquisition shall have been approved by the Board of Directors of the Person (or similar governing body if such Person is not a corporation) which is the subject of such Acquisition and such Person shall not have announced that it will oppose such Acquisition or shall not have commenced any action which alleges that such Acquisition shall violate applicable Law;

(iii)           The Borrowers shall have furnished the Administrative Agent with ten (10) Business Days’ prior written notice of such intended Acquisition and shall have furnished the Administrative Agent with a current draft of the Acquisition Documents (and final copies thereof as and when executed), a summary of any due diligence undertaken by the Loan Parties in connection with such Acquisition, appropriate financial statements of the Person which is the subject of such Acquisition, pro forma projected financial statements for the twelve (12) month period following such Acquisition after giving effect to such Acquisition (including balance sheets, cash flows and income statements by month for the acquired Person, individually, and on a consolidated basis with all Loan Parties), and such other information as the Administrative Agent may reasonably require, all of which shall be reasonably satisfactory to the Administrative Agent;

(iv)           Either (i) the legal structure of the Acquisition shall be reasonably acceptable to the Administrative Agent in its discretion, or (ii) the Loan Parties shall have provided the Administrative Agent with a favorable solvency opinion from an unaffiliated third party valuation firm reasonably satisfactory to the Administrative Agent;

(v)           After giving effect to the Acquisition, if the Acquisition is an Acquisition of equity interests, a Loan Party shall acquire and own, directly or indirectly, a majority of the equity interests in the Person being acquired and shall control a majority of any voting interests or shall otherwise control the governance of the Person being acquired;

(vi)           Any assets acquired shall be utilized in, and if the Acquisition involves a merger, consolidation, amalgamation or stock acquisition, the Person which is the subject of such Acquisition shall be engaged in, a business otherwise permitted to be engaged in by a Loan Party under this Agreement;

(vii)           If the Person which is the subject of such Acquisition will be maintained as a Subsidiary of a Loan Party, or if the assets acquired in an Acquisition will be transferred to a Subsidiary which is not then a Loan Party, such Subsidiary shall have been joined as a Borrower or as a Guarantor hereunder, as the Administrative Agent shall determine, and the Administrative Agent shall have received a first priority security and/or mortgage interest in such Subsidiary’s equity interests and property of such Subsidiary and of the same nature as constitutes Collateral under the Collateral Documents; and

 
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(viii)         unless the Domestic Borrowers shall have on hand the Minimum Cash Requirement immediately prior to and after giving effect to such Acquisition and no Trigger Event Election shall have occurred, (A) the total consideration paid for all such Acquisitions (whether in cash, tangible property, notes or other property) shall not exceed in the aggregate the sum of $25,000,000 in any fiscal year, and (B) Revolving Credit Availability immediately prior to, and after giving effect to, such Acquisition is greater than $50,000,000, or such Acquisition shall have been approved in writing by the Required Lenders.

Permitted Investments shall mean any Investment that is permitted by DSW’s investment policy as in effect on the Closing Date or as thereafter modified with the consent of the Required Lenders (such consent not to be unreasonably withheld or delayed); provided that in no event shall any auction rate securities constitute a Permitted Investment hereunder; provided further that (a) Permitted Investments consisting of (i) corporate bonds may not exceed twenty-five percent (25%) of all Permitted Investments, (ii) preferred stock shall not exceed $10,000,000 in the aggregate outstanding at any time, and (iii) corporate owned life insurance policies shall not exceed $5,000,000 in the aggregate outstanding at any time.

Permitted Liens shall mean:

(i)             Liens for taxes, assessments, or similar charges, incurred in the ordinary course of business and which are not yet due and payable;

(ii)            Pledges or deposits made in the ordinary course of business to secure payment of workmen's compensation, or to participate in any fund in connection with workmen's compensation, unemployment insurance, old-age pensions or other social security programs;

(iii)           Statutory Liens of mechanics, materialmen, warehousemen, carriers, or other like Liens, securing obligations incurred in the ordinary course of business that are not yet due and payable, Liens of customs brokers, freight forwarders and common carriers incurred in the ordinary course of business that are not overdue and which attach solely to the property in their possession, and Liens of landlords securing obligations to pay lease payments that are not yet due and payable or in default;

(iv)           Good-faith pledges or deposits made in the ordinary course of business to secure performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, not in excess of the aggregate amount due thereunder, or to secure statutory obligations, or surety, appeal, indemnity, performance or other similar bonds required in the ordinary course of business;

(v)            Encumbrances consisting of zoning restrictions, easements or other restrictions on the use of real property, none of which materially impairs the use of such property or the value thereof, and none of which is violated in any material respect by existing or proposed structures or land use;

 
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(vi)           Liens, security interests and mortgages in favor of the Administrative Agent for the benefit of the Lenders and their Affiliates securing the Obligations and/or the Canadian Liabilities (including Lender Provided Interest Rate Hedges and Other Lender Provided Financial Services Obligations);

(vii)          Liens on property leased by any Loan Party or Subsidiary of a Loan Party under Capital Leases and operating leases permitted in Section 7.2.14 [Capital Expenditures] securing obligations of such Loan Party or Subsidiary to the lessor under such leases;

(viii)         Any Lien existing on the date of this Agreement and described on Schedule 1.1(P) , provided that the principal amount secured thereby is not hereafter increased, and no additional assets become subject to such Lien;

(ix)            Purchase Money Security Interests and Capital Leases; provided that the aggregate amount of loans and deferred payments secured by such Purchase Money Security Interests and Capital Leases shall not exceed $20,000,000 at any time outstanding (excluding for the purpose of this computation any loans or deferred payments secured by Liens described on Schedule 1.1(P) );

(x)             Liens on unearned insurance premiums in connection with insurance premium financing in the ordinary course of business;

(xi)            Liens in favor of landlords on leasehold improvements financed by allowances or advances provided by such landlords pursuant to lease arrangements;

(xii)           Liens in favor of consignors on (A) inventory consigned by such consignors to a Loan Party, and (B) proceeds of such inventory; and

(xiii)         The following, (A) if the validity or amount thereof is being contested in good faith by appropriate and lawful proceedings diligently conducted so long as levy and execution thereon have been stayed and continue to be stayed or (B) if a final judgment is entered and such judgment is discharged within forty-five (45) days of entry, and in either case they do not affect the Collateral or, in the aggregate, materially impair the ability of any Loan Party to perform the Obligations (or with respect to the Canadian Borrower, the Canadian Liabilities) hereunder or under the other Loan Documents:

(1)            Claims or Liens for taxes, assessments or charges due and payable and subject to interest or penalty; provided that the applicable Loan Party maintains such reserves or other appropriate provisions as shall be required by GAAP and pays all such taxes, assessments or charges forthwith upon the commencement of proceedings to foreclose any such Lien;

(2)            Claims, Liens or encumbrances upon, and defects of title to, real or personal property other than the Collateral, including any attachment of personal or real property or other legal process prior to adjudication of a dispute on the merits;

(3)            Claims or Liens of mechanics, materialmen, warehousemen, carriers, or other statutory nonconsensual Liens; or

 
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(4)           Liens resulting from final judgments or orders described in Section 8.1.6 [Final Judgments or Orders].

Permitted Overadvance shall mean an Overadvance made by the Administrative Agent in its discretion following the occurrence of a Trigger Event Election or an Event of Default, which:

(a)           Is made to maintain, protect or preserve the Collateral and/or the Administrative Agent’s, the Lenders’ and the Issuing Lender’s rights under the Loan Documents, including to preserve the Loan Parties’ business assets and infrastructure (such as the payment of insurance premiums, taxes, necessary suppliers, rent and payroll);

(b)           Is made to fund an orderly liquidation or wind-down of the Loan Parties’ assets or business in a bankruptcy or another insolvency proceeding (whether or not occurring prior to or after the commencement of such a bankruptcy or insolvency proceeding);

(c)           Is made to enhance the likelihood of, or to maximize the amount of, repayment of any Obligation;

(d)           Is made to pay any other amount chargeable to any Loan Party hereunder; or

(e)           Is otherwise made for the benefit of the Administrative Agent, the Lenders and the Issuing Lender, collectively; and

(f)           Together with all other Permitted Overadvances then outstanding, shall not (i) exceed five percent (5%) of the Borrowing Base or the Canadian Borrowing Base, as applicable, at any time or (ii) unless a Liquidation is occurring, remain outstanding for more than forty-five (45) consecutive Business Days, unless in each case, the Required Lenders otherwise agree,

provided however, that the foregoing shall not (i) modify or abrogate any of the provisions of Section 2.9.3 regarding the Lenders’ obligations with respect to Letters of Credit or of the provisions of Section 2.6.5 regarding the Lenders’ obligations with respect to Swing Loans, or (ii) result in any claim or liability against the Administrative Agent (regardless of the amount of any Overadvance) for Unintentional Overadvances, and such Unintentional Overadvances shall not reduce the amount of Permitted Overadvances allowed hereunder, and further provided that in no event shall the Administrative Agent make an Overadvance, if after giving effect thereto, (i) the Revolving Facility Usage would exceed the Revolving Credit Commitments (as in effect prior to any termination of the Commitments pursuant to Section 2.11 [Reduction of Revolving Credit Commitment]), or (ii) with respect to the Canadian Borrower, the Revolving Facility Usage of the Canadian Borrower would exceed the Canadian Commitments (in each case as in effect prior to any termination of the Commitments pursuant to Section 2.11 [Reduction of Revolving Credit Commitment]).

Permitted Short Term Loans shall have the meaning specified in Section 2.4.2 [Permitted Short Term Loans].

 
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Person shall mean any individual, corporation, partnership, limited liability company, association, joint-stock company, trust, unincorporated organization, joint venture, government or political subdivision or agency thereof, or any other entity.

Plan shall mean at any time (a) an employee pension benefit plan (including a Multiple Employer Plan, but not a Multiemployer Plan) which is covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code and either (i) is maintained by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained by any entity which was at such time a member of the ERISA Group for employees of any entity which was at such time a member of the ERISA Group or (b) in respect of the Canadian Borrower, any pension benefit or retirement savings plan maintained by the Canadian Borrower and its Subsidiaries for its employees or its former employees to which the Canadian Borrower or any of its Subsidiaries contribute or are required to contribute with respect to which the Canadian Borrower or any of its Subsidiaries has incurred or may incur liability, including contingent liability.

PNC shall mean PNC Bank, National Association, its successors and assigns.

PNC Canada shall mean PNC Bank Canada Branch, its successors and assigns.

Potential Default shall mean any event or condition which with notice or passage of time, or both, would constitute an Event of Default.

PPSA shall mean the Personal Property Security Act of Ontario (or any successor statute) or similar legislation of any other Canadian jurisdiction, including, without limitation, the Civil Code of Quebec, the laws of which are required by such legislation to be applied in connection with the issue, perfection, enforcement, opposability, priority, validity or effect of security interests.

Prime Rate shall mean the interest rate per annum announced from time to time by the Administrative Agent at its Principal Office as its then prime rate, which rate may not be the lowest or most favorable rate then being charged commercial borrowers or others by the Administrative Agent.  Any change in the Prime Rate shall take effect at the opening of business on the day such change is announced.

Principal Office shall mean the main banking office of the Administrative Agent in Pittsburgh, Pennsylvania.

Prior Security Interest shall mean a valid and enforceable perfected first-priority security interest under the UCC or PPSA, as applicable, in the Collateral which is subject only to statutory Liens for taxes not yet due and payable, Purchase Money Security Interests or other Permitted Liens having priority by operation of Law.

Published Rate shall mean the rate of interest published each Business Day in The Wall Street Journal " Money Rates " listing under the caption "London Interbank Offered Rates" for a one month period (or, if no such rate is published therein for any reason, then the Published Rate shall be the rate at which U.S. Dollar deposits are offered by leading banks in the London interbank deposit market for a one month period as published in another publication selected by the Administrative Agent).

 
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Purchase Money Security Interest shall mean Liens upon tangible personal property securing loans to any Loan Party or Subsidiary of a Loan Party or deferred payments by such Loan Party or Subsidiary for the purchase of such tangible personal property.

Qualified Credit Card Receivables shall have the meaning specified in Schedule 1.1(c) .

Qualified Inventory shall have the meaning specified in Schedule 1.1(d) .

Ratable Share shall mean (a) with respect to the Canadian Lenders, the proportion that a Lender's Canadian Commitment bears to the Canadian Commitments of all of the Canadian Lenders, provided that if the Canadian Commitments have terminated or expired, the Ratable Shares shall be determined based upon the Canadian Commitments most recently in effect, giving effect to any assignments, (b) with respect to the Lenders (other than the Canadian Lenders), the proportion that a Lender's Commitment (excluding its Canadian Commitment and Swing Loan Commitment) bears to the Commitments (excluding its Canadian Commitment and Swing Loan Commitment) of all of the Lenders (other than the Canadian Lenders), provided further that if the Commitments have terminated or expired, the Ratable Shares shall be determined based upon the Commitments (excluding the Canadian Commitment and Swing Loan Commitment) most recently in effect, giving effect to any assignments, and (c) with respect to all Lenders, the proportion that a Lender's Commitment (excluding the Swing Loan Commitment) bears to the Commitments (excluding the Swing Loan Commitment) of all of the Lenders; and further provided that if the Commitments have terminated or expired, the Ratable Shares shall be determined based upon the Commitments (excluding the Swing Loan Commitment) most recently in effect, giving effect to any assignments.

Reimbursement Obligation shall have the meaning specified in Section 2.9.3 [Disbursements, Reimbursement].

Related Parties shall mean, with respect to any Person, such Person's Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Person's Affiliates.

Relief Proceeding shall mean any proceeding seeking a decree or order for relief in respect of any Loan Party or Subsidiary of a Loan Party in a voluntary or involuntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect (including, without limitation, the Bankruptcy Code), or for the appointment of a receiver, monitor, interim monitor, liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar official) of any Loan Party or Subsidiary of a Loan Party for any substantial part of its property, or for the winding-up or liquidation of its affairs, or an assignment for the benefit of its creditors.
 
 
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Required Lenders shall mean
 
(A)           If there exists fewer than three (3) Lenders, all Lenders (other than any Defaulting Lender), and

(B)           If there exist three (3) or more Lenders, Lenders (other than any Defaulting Lender or any Deteriorating Lender) having more than fifty percent (50%) of the aggregate amount of the Revolving Credit Commitments of the Lenders (excluding any Defaulting Lender) or, after the termination of the Revolving Credit Commitments, the outstanding Revolving Credit Loans and Ratable Share of Letter of Credit Obligations of the Lenders (excluding any Defaulting Lender or any Deteriorating Lender).

Required Share shall have the meaning specified in Section 4.11 [Settlement Date Procedures].

Revolving Credit Availability shall mean, as of any date of determination thereof by the Administrative Agent with respect to the Domestic Borrowers, the result, if a positive number, of (a) the lesser of (i) the Revolving Credit Commitments, or (ii) (A) until the occurrence of a Borrowing Base Trigger Event, the Simplified Borrowing Base, or (B) thereafter, the Borrowing Base, minus (b) the Revolving Facility Usage, minus (c) the aggregate amount of all then outstanding and unpaid trade payables and other obligations of Domestic Borrowers which are more than sixty (60) days past due as of such time (it being understood that to the extent that the time for payment of any such trade payables and other obligations has been extended in writing by the applicable creditor, such trade payables and other obligations shall not be deemed to be past due until the extended date for payment has passed).  In calculating Revolving Credit Availability at any time and for any purpose under this Agreement, the Borrowers shall certify to the Administrative Agent that all accounts payable and taxes are being paid on a timely basis.

Revolving Credit Commitment shall mean, as to any Lender at any time, the amount initially set forth opposite its name on Schedule 1.1(B) in the column labeled "Amount of Commitment for Revolving Credit Loans," as such Commitment is thereafter assigned or modified and Revolving Credit Commitments shall mean the aggregate Revolving Credit Commitments of all of the Lenders.

Revolving Credit Loans shall mean collectively and Revolving Credit Loan shall mean separately all Revolving Credit Loans or any Revolving Credit Loan made by the Lenders or one of the Lenders to the Borrowers pursuant to Section 2.1 [Revolving Credit Commitments] or Section 2.9.3 [Disbursements, Reimbursement].

Revolving Facility Usage shall mean at any time the sum of the outstanding Revolving Credit Loans, the outstanding Swing Loans, and the Letter of Credit Obligations.

Security Agreement shall mean the Security Agreement in substantially the form of Exhibit 1.1(S) executed and delivered by each of the Loan Parties to the Administrative Agent for the benefit of the Lenders.

Settlement Date shall mean each Business Day on which the Administrative Agent elects to effect settlement pursuant Section 4.11 [Settlement Date Procedures].

 
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Simplified Borrowing Base shall mean at any time the sum of (i) sixty percent (60%) of the Financial Statement Accounts, plus (ii) fifty percent (50%) of the Financial Statement Inventory, in each case determined in accordance with GAAP.

Simplified Borrowing Base Certificate shall have the meaning specified in Section 7.3.4(i) [Simplified Borrowing Base Certificates; Borrowing Base Certificates].

Solvent shall mean, with respect to any Person on any date of determination, taking into account such right of reimbursement, contribution or similar right available to such Person from other Persons, that on such date (i) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (ii) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (iii) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (iv) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (v) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged.  In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.  The determination of the sum of a Person's properties at a fair valuation or the present fair saleable value of a Person's properties shall be made on a going concern basis unless, at the time of such determination, the liquidation of the business in which such properties are used or useful is in process or is demonstrably imminent.

Standby Letter of Credit shall mean a Letter of Credit issued to support obligations of one or more of the Loan Parties, contingent or otherwise, which finance the working capital and business needs of the Loan Parties incurred in the ordinary course of business.

Statements shall have the meaning specified in Section 5.1.6(i) [ Historical Statements ].

Subordinated Indebtedness shall mean Indebtedness which is expressly subordinated in right of payment to prior Payment In Full and which is in form and on terms approved in writing by the Administrative Agent.

Subsidiary of any Person at any time shall mean any corporation, trust, partnership, any limited liability company or other business entity (i) of which more than fifty percent (50%) of the outstanding voting securities or other interests normally entitled to vote for the election of one or more directors or trustees (regardless of any contingency which does or may suspend or dilute the voting rights) is at such time owned directly or indirectly by such Person or one or more of such Person's Subsidiaries, or (ii)  which is controlled or capable of being controlled by such Person or one or more of such Person's Subsidiaries.

 
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Subsidiary Equity Interests shall have the meaning specified in Section 5.1.2 [Subsidiaries and Owners; Investment Companies].

Substantial Liquidation shall mean either (a) the liquidation of substantially all of the Collateral, or (b) the sale or other disposition of substantially all of the Collateral by the Loan Parties.

Swing Loan Commitment shall mean PNC's commitment to make Swing Loans to the Domestic Borrowers pursuant to Section 2.1.2 [Swing Loan Commitment] hereof in an aggregate principal amount up to $10,000,000.

Swing Loan Note shall mean the Swing Loan Note of the Domestic Borrowers in the form of Exhibit 1.1(N)(2) evidencing the Swing Loans, together with all amendments, extensions, renewals, replacements, refinancings or refundings thereof in whole or in part.

Swing Loan Request shall mean a request for Swing Loans made in accordance with Section 2.5.2 [Swing Loan Requests] hereof.

Swing Loans shall mean collectively and Swing Loan shall mean separately all Swing Loans or any Swing Loan made by PNC to the Domestic Borrowers pursuant to Section 2.1.2 [Swing Loan Commitment] hereof.

Taryn Rose shall mean the investment by DSW in JLPDS-TRI LLC and its Subsidiaries.

Taxes shall mean all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Official Body, including any interest, additions to tax or penalties applicable thereto.

Trigger Event shall mean any of the following events: (i) Revolving Credit Availability is less than $50,000,000 (including Letter of Credit Outstandings), and (ii) the making of a Loan (other than a Permitted Short Term Loan) hereunder.  A Trigger Event shall be deemed to be continuing at all times following the occurrence of a Trigger Event Election.

Trigger Event Election shall mean, with respect to any Trigger Event, the Required Lenders’ election to cause the Borrowers to be subject to the Borrowing Base rather than the Simplified Borrowing Base in accordance with Section 2.4.1 [Simplified Borrowing Base and Borrowing Base].

Trigger Event Election Period shall have the meaning specified in Section 2.4.1 [Simplified Borrowing Base and Borrowing Base].

UCC shall mean the Uniform Commercial Code as in effect from time to time in the State of Ohio; provided , however , that if a term is defined in Article 9 of the Uniform Commercial Code differently than in another Article thereof, the term shall have the meaning set forth in Article 9; provided further that, if by reason of mandatory provisions of law, perfection, or the effect of perfection or non-perfection, of a security interest in any Collateral or the availability of any remedy hereunder is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of Ohio, “ UCC ” shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection or availability of such remedy, as the case may be.
 
 
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UCP shall have the meaning specified in Section 10.11.1 [Governing Law].

Unintentional Overadvance shall mean an Overadvance which, to the Administrative Agent’s knowledge, did not constitute an Overadvance when made but which has become an Overadvance  resulting from changed circumstances beyond the control of the Administrative Agent, the Lenders and the Issuing Lender, including, without limitation, a reduction in the value of property or assets included in the Borrowing Base or the Canadian Borrowing Base or misrepresentation by the Loan Parties.

USA Patriot Act shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56, as the same has been, or shall hereafter be, renewed, extended, amended or replaced.

1.2            Construction.   Unless the context of this Agreement otherwise clearly requires, the following rules of construction shall apply to this Agreement and each of the other Loan Documents: (i) references to the plural include the singular, the plural, the part and the whole and the words "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation"; (ii) the words "hereof," "herein," "hereunder," "hereto" and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document as a whole; (iii) article, section, subsection, clause, schedule and exhibit references are to this Agreement or other Loan Document, as the case may be, unless otherwise specified; (iv) reference to any Person includes such Person's successors and assigns; (v) reference to any agreement, including this Agreement and any other Loan Document together with the schedules and exhibits hereto or thereto, document or instrument means such agreement, document or instrument as amended, modified, replaced, substituted for, superseded or restated; (vi) relative to the determination of any period of time, "from" means "from and including," "to" means "to but excluding," and "through" means "through and including"; (vii) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights, (viii) section headings herein and in each other Loan Document are included for convenience and shall not affect the interpretation of this Agreement or such Loan Document, and (ix) unless otherwise specified, all references herein to times of day shall be references to Eastern Time .

1.3            Accounting Principles.   Except as otherwise provided in this Agreement, all computations and determinations as to accounting or financial matters and all financial statements to be delivered pursuant to this Agreement shall be made and prepared in accordance with GAAP (including principles of consolidation where appropriate), and all accounting or financial terms shall have the meanings ascribed to such terms by GAAP; provided , however , that all accounting terms used in Section 7.2 [Negative Covenants] (and all defined terms used in the definition of any accounting term used in Section 7.2 [Negative Covenants] shall have the meaning given to such terms (and defined terms) under GAAP as in effect on the date hereof applied on a basis consistent with those used in preparing Statements referred to in Section 5.1.6(i) [Historical Statements].  In the event of any change after the date hereof in GAAP, and if such change would affect the computation of any of the financial covenants set forth in Section 7.2 [Negative Covenants], then the parties hereto agree to endeavor, in good faith, to agree upon an amendment to this Agreement that would adjust such financial covenants in a manner that would preserve the original intent thereof , provided that , until so amended such financial covenants shall continue to be computed in accordance with GAAP prior to such change therein.

 
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2.              REVOLVING CREDIT AND SWING LOAN FACILITIES

2.1            Revolving Credit Commitments.

2.1.1          Revolving Credit Loans.  Subject to the terms and conditions hereof and relying upon the representations and warranties herein set forth, each Domestic Lender severally agrees to make Revolving Credit Loans to the Domestic Borrowers and each Canadian Lender severally agrees to make Revolving Credit Loans to the Canadian Borrower at any time or from time to time on or after the date hereof to the Expiration Date; provided that after giving effect to each such Loan, (i) the aggregate amount of Revolving Credit Loans from such Lender shall not exceed such Lender's Revolving Credit Commitment or Canadian Commitment, as applicable, minus such Lender's Ratable Share of the outstanding Swing Loans and Letter of Credit Obligations, (ii) the Revolving Facility Usage of the Domestic Borrowers shall not exceed (x) with respect to any such Loan other than a Permitted Short Term Loan, the lesser of (a) the Revolving Credit Commitments, and (b) (1) until the occurrence of a Borrowing Base Trigger Event, the Simplified Borrowing Base, or (2) thereafter, the Borrowing Base, minus , in each case the Revolving Facility Usage of the Canadian Borrower, or (y) with respect to any such Loan that is a Permitted Short Term Loan, the Revolving Credit Commitments minus outstanding Letter of Credit Obligations, minus the Revolving Facility Usage of the Canadian Borrower.  Within such limits of time and amount and subject to the other provisions of this Agreement, the Borrowers may borrow, repay and reborrow pursuant to this Section 2.1 , and (iii) the aggregate outstanding amount of the Revolving Credit Loans to the Canadian Borrower shall not at any time exceed Canadian Availability.

2.1.2          Swing Loan Commitment.  Subject to the terms and conditions hereof and relying upon the representations and warranties herein set forth, and in order to facilitate loans and repayments between Settlement Dates, PNC may, at its option, cancelable at any time for any reason whatsoever, make swing loans (the " Swing Loans ") to the Domestic Borrowers at any time or from time to time after the date hereof to, but not including, the Expiration Date, in an aggregate principal amount up to but not in excess of $10,000,000 (the " Swing Loan Commitment "), provided that after giving effect to such Loan, the Revolving Facility Usage shall not exceed the lesser of (a) the Revolving Credit Commitments, and (b) (1) until the occurrence of a Borrowing Base Trigger Event, the Simplified Borrowing Base, or (2) thereafter, the Borrowing Base, minus , in each case the Revolving Facility Usage of the Canadian Borrower.  Within such limits of time and amount and subject to the other provisions of this Agreement, the Domestic Borrowers may borrow, repay and reborrow pursuant to this Section 2.1.2 .  No Permitted Short Term Loan shall be a Swing Loan hereunder.

 
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2.2            Nature of Lenders' Obligations with Respect to Revolving Credit Loans; Permitted Overadvances.

2.2.1         Nature of Lenders' Obligations with Respect to Revolving Credit Loans.  Each Lender shall be obligated to participate in each request for Revolving Credit Loans pursuant to Section 2.5 [Revolving Credit Loan Requests; Swing Loan Requests] in accordance with its Ratable Share.  The aggregate of each Lender's Revolving Credit Loans outstanding hereunder to the Borrowers at any time shall never exceed its Revolving Credit Commitment or Canadian Commitment, as applicable, minus its Ratable Share of the outstanding Swing Loans and Letter of Credit Obligations.  The obligations of each Lender hereunder are several.  The failure of any Lender to perform its obligations hereunder shall not affect the Obligations of the Borrowers to any other party nor shall any other party be liable for the failure of such Lender to perform its obligations hereunder.  The Lenders shall have no obligation to make Revolving Credit Loans hereunder on or after the Expiration Date.

2.2.2         Permitted Overadvances.  The Administrative Agent, the Lenders and Issuing Lender shall have no obligation to make any Loan or to provide any Letter of Credit if an Overadvance would result.  The Administrative Agent may, in its discretion, make Permitted Overadvances without the consent of the Borrowers, the Lenders and the Issuing Lender and the Borrowers and each Lender shall be bound thereby.  Any Permitted Overadvance (other than one made with respect to the Canadian Borrower) may constitute a Swing Loan. A Permitted Overadvance is for the account of the Borrowers and shall constitute a Revolving Credit Loan to which the Base Rate Option (or, with respect to the Canadian Borrower, the Canadian Prime Rate Option) applies and an Obligation and shall be repaid by the Domestic Borrowers or Canadian Borrower, as applicable, on demand.  The making of any such Permitted Overadvance on any one occasion shall not obligate the Administrative Agent or any Lender to make or permit any Permitted Overadvance on any other occasion or to permit such Permitted Overadvances to remain outstanding. The making by the Administrative Agent of a Permitted Overadvance shall not modify or abrogate any of the provisions of Section 2.9.3 regarding the Lenders’ obligations to purchase participations with respect to Letter of Credits or of Section 2.6.5 regarding the Lenders’ obligations to purchase participations with respect to Swing Loans.  The Administrative Agent shall have no liability for, and no Borrower, Lender or Issuing Bank shall have the right to, or shall, bring any claim of any kind whatsoever against the Administrative Agent with respect to Unintentional Overadvances regardless of the amount of any such Overadvance(s).

2.3            Commitment Fees.   Accruing from the date hereof until the Expiration Date, the Borrowers agree to pay to the Administrative Agent for the account of each Lender according to its Ratable Share, a nonrefundable commitment fee (the " Commitment Fee ") equal to the Applicable Commitment Fee Rate (computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) multiplied by the average daily difference between the amount of (i) with respect to the Domestic Borrowers, (A) the Revolving Credit Commitments (for purposes of this computation, PNC's Swing Loans shall be deemed to be borrowed amounts under its Revolving Credit Commitment) and (B) the Revolving Facility Usage of the Domestic Borrowers, and (ii) with respect to the Canadian Borrower, (A) the Canadian Commitments and (B) the Revolving Facility Usage of the Canadian Borrower; provided , however , that any Commitment Fee accrued with respect to the Revolving Credit Commitment or Canadian Commitment of a Defaulting Lender during the period prior to the time such Lender became a Defaulting Lender and unpaid at such time shall not be payable by the Borrowers so long as such Lender shall be a Defaulting Lender except to the extent that such Commitment Fee shall otherwise have been due and payable by the Borrowers prior to such time; and provided further that no Commitment Fee shall accrue with respect to the Revolving Commitment or Canadian Commitment of a Defaulting Lender so long as such Lender shall be a Defaulting Lender.  Subject to the proviso in the directly preceding sentence, all Commitment Fees shall be payable in arrears on each Payment Date.

 
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2.4            Simplified Borrowing Base and Borrowing Base; Permitted Short Term Loans.

2.4.1          Simplified Borrowing Base and Borrowing Base .  From and after the Closing Date until the occurrence of a Borrowing Base Trigger Event, the Domestic Borrowers and the Canadian Borrower shall be subject to the Simplified Borrowing Base (as calculated for the Domestic Borrowers or the Canadian Borrower, as applicable) rather than the Borrowing Base or the Canadian Borrowing Base.  From and after the occurrence of a Borrowing Base Trigger Event, until the Expiration Date, the Domestic Borrowers shall be subject to the Borrowing Base and the Canadian Borrower shall be subject to the Canadian Borrowing Base, as applicable, rather than the Simplified Borrowing Base.   With respect to each Borrowing Base Trigger Event, the Required Lenders may, in their reasonable discretion, make a Trigger Event Election by notifying the Borrowers of such Trigger Event Election within five (5) Business Days following the Lenders’ receipt of written notice of the occurrence of such Borrowing Base Trigger Event (which notice the Administrative Agent agrees to promptly furnish upon its obtaining knowledge thereof) (with respect to each Borrowing Base Trigger Event, the period commencing on the date on which the Lenders receive such notice and terminating on the earlier to occur of (i) a Trigger Event Election, or (ii) the expiration of such five (5) Business Day period, is herein referred to as a “ Trigger Event Election Period ”).  The failure of the Required Lenders to provide a notice with respect to such Trigger Event during the applicable Trigger Event Election Period shall constitute a waiver of the Required Lenders’ right to make a Trigger Event Election with respect to such Trigger Event.  No such waiver shall affect the Required Lenders’ right to make a Trigger Event Election following the occurrence of any other Trigger Event.

2.4.2          Permitted Short Term Loans .  The Domestic Borrowers shall be permitted to request, and the Lenders shall make, short term Revolving Credit Loans hereunder (each, a “ Permitted Short Term Loan ”) in an amount not to exceed $25,000,000 (exclusive of Letter of Credit Outstandings), provided that (i) immediately prior to and after giving effect to the making of any such Permitted Short Term Loan, the Domestic Borrowers shall have on hand the Minimum Cash Requirement, (ii) no Trigger Event Election, Potential Default or Event of Default shall have occurred and be continuing or would result from the making of such Permitted Short Term Loan, (iii) no Permitted Short Term Loan shall be outstanding for more than ten (10) consecutive Business Days at any time and (iv) no Permitted Short Term Loan previously made in accordance with this Section 2.4.2 may continue to remain outstanding at any time where the Domestic Borrowers do not have on hand the Minimum Cash Requirement.  No more than two (2) Permitted Short Term Loans shall be permitted during any fiscal year.  Each Permitted Short Term Loan shall be a Revolving Credit Loan to which the Base Rate Option applies.

2.5            Revolving Credit Loan Requests; Swing Loan Requests.

 
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2.5.1          Revolving Credit Loan Requests .  Except as otherwise provided herein, the Borrowers may from time to time prior to the Expiration Date request the Lenders to make Revolving Credit Loans, or renew or convert the Interest Rate Option applicable to existing Revolving Credit Loans to Section 3.2 [Interest Periods], by delivering to the Administrative Agent, not later than 1:00 p.m., (i) three (3) Business Days prior to the proposed Borrowing Date with respect to the making of Revolving Credit Loans to which the LIBOR Rate Option or BA Rate Option applies or the conversion to or the renewal of the LIBOR Rate Option or BA Rate Option for any Loans; and (ii) the same Business Day of the proposed Borrowing Date with respect to the making of a Revolving Credit Loan to which the Base Rate Option or the Canadian Prime Rate Option applies or the last day of the preceding Interest Period with respect to the conversion to the Base Rate Option or the Canadian Prime Rate Option for any Loan, of a duly completed request therefor substantially in the form of Exhibit 2.5.1 (or, with respect to the Canadian Borrower, in such other form as is reasonably acceptable to the Administrative Agent) or a request by telephone immediately confirmed in writing by letter, facsimile or telex in such form (each, a " Loan Request "), it being understood that the Administrative Agent may rely on the authority of any individual making such a telephonic request without the necessity of receipt of such written confirmation.  Each Loan Request shall be irrevocable and shall specify the aggregate amount of the proposed Loans comprising each Borrowing Tranche, and, if applicable, the Interest Period, which amounts shall be in (x) integral multiples of $500,000 and not less than $1,000,000 for each Borrowing Tranche under the LIBOR Rate Option and integral multiples of CD$500,000 and not less than CD$1,000,000 for each Borrowing Tranche under the BA Rate Option, and (y) integral multiples of $100,000 and not less than $500,000 for each Borrowing Tranche under the Base Rate Option or integral multiples of CD$100,000 and not less than CD$500,000 for each Borrowing Tranche under the Canadian Prime Rate Option.

2.5.2         Swing Loan Requests .  Except as otherwise provided herein, the Domestic Borrowers may from time to time prior to the Expiration Date request PNC to make Swing Loans by delivery to PNC not later than 1:00 p.m. on the proposed Borrowing Date of a duly completed request therefor substantially in the form of Exhibit 2.5.2 hereto or a request by telephone immediately confirmed in writing by letter, facsimile or telex (each, a " Swing Loan Request "), it being understood that the Administrative Agent may rely on the authority of any individual making such a telephonic request without the necessity of receipt of such written confirmation.  Each Swing Loan Request shall be irrevocable and shall specify the proposed Borrowing Date and the principal amount of such Swing Loan, which shall be in integral multiples of $100,000.

2.6            Making Revolving Credit Loans and Swing Loans; Presumptions by the Administrative Agent; Repayment of Revolving Credit Loans; Borrowings to Repay Swing Loans.

2.6.1          Making Revolving Credit Loans.   The Administrative Agent shall, promptly after receipt by it of a Loan Request pursuant to Section 2.5 [Revolving Credit Loan Requests; Swing Loan Requests], notify the applicable Lenders of its receipt of such Loan Request specifying the information provided by the Borrowers and the apportionment among the Lenders of the requested Revolving Credit Loans as reasonably determined by the Administrative Agent in accordance with Section 2.2.1 [Nature of Lenders' Obligations with Respect to Revolving Credit Loans].  Each Lender shall remit the principal amount of each Revolving Credit Loan to the Administrative Agent such that the Administrative Agent is able to, and the Administrative Agent shall, to the extent the Lenders have made funds available to it for such purpose and subject to Section 6.2 [Each Loan or Letter of Credit], fund such Revolving Credit Loans to the Domestic Borrowers in U.S. Dollars and to the Canadian Borrower in CD$ and immediately available funds at the Principal Office prior to 1:00 p.m., on the applicable Borrowing Date; provided that if any Lender fails to remit such funds to the Administrative Agent in a timely manner, the Administrative Agent may elect in its sole discretion to fund with its own funds the Revolving Credit Loans of such Lender on such Borrowing Date, and such Lender shall be subject to the repayment obligation in Section 2.6.2 [Presumptions by the Administrative Agent].

 
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2.6.2          Presumptions by the Administrative Agent.   Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Loan that such Lender will not make available to the Administrative Agent such Lender's share of such Loan, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.6.1 [Making Revolving Credit Loans] and may, in reliance upon such assumption, make available to the applicable Borrowers a corresponding amount.  In such event, if a Lender has not in fact made its share of the applicable Loan available to the Administrative Agent, then the applicable Lender and the Domestic Borrowers or the Canadian Borrower, as applicable, severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrowers to but excluding the date of payment to the Administrative Agent, at (i) in the case of a payment to be made by such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation (ii) in the case of a payment to be made by the Domestic Borrowers, the interest rate applicable to Loans under the Base Rate Option, and (iii) in the case of a payment to be made by the Canadian Borrower, the interest rate applicable to Loans under the Canadian Prime Rate Option or the BA Rate Option, as applicable.  If such Lender pays its share of the applicable Loan to the Administrative Agent, then the amount so paid shall constitute such Lender's Loan.  Any payment by the Borrowers shall be without prejudice to any claim any Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.

2.6.3          Making Swing Loans .  So long as PNC elects to make Swing Loans, PNC shall, after receipt by it of a Swing Loan Request pursuant to Section 2.5.2 , [Swing Loan Requests] fund such Swing Loan to the Domestic Borrowers in U.S. Dollars and immediately available funds at the Principal Office prior to 4:00 p.m. on the Borrowing Date.

2.6.4          Repayment of Revolving Credit Loans.   The Borrowers shall repay the Revolving Credit Loans together with all outstanding interest thereon on the Expiration Date; provided that the Domestic Borrowers shall repay each Permitted Short Term Loan together with all outstanding interest thereon no later than the earlier to occur of (i) the tenth (10 th ) Business Day following the Lenders’ making of such Permitted Short Term Loan, and (ii) the first date on which the Domestic Borrowers shall not have on hand the Minimum Cash Requirement following the Lenders’ making of such Permitted Short Term Loan.

2.6.5          Borrowings to Repay Swing Loans .  PNC may, at its option, exercisable at any time for any reason whatsoever, demand repayment of the Swing Loans, and each Domestic Lender shall make a Revolving Credit Loan in an amount equal to such Lender's Ratable Share of the aggregate principal amount of the outstanding Swing Loans, plus, if PNC so requests, accrued interest thereon, provided that no Domestic Lender shall be obligated in any event to make Revolving Credit Loans in excess of its unused Revolving Credit Commitment after deducting therefrom its Ratable Share of Letter of Credit Obligations and other Revolving Credit Loans then outstanding.  Revolving Credit Loans made pursuant to the preceding sentence shall bear interest at the Base Rate Option and shall be deemed to have been properly requested in accordance with Section 2.5.1 [Revolving Credit Loan Requests] without regard to any of the requirements of that provision.  PNC shall provide notice to the Domestic Lenders (which may be telephonic or written notice by letter, facsimile or telex) that such Revolving Credit Loans are to be made under this Section 2.6.5 and of the apportionment among the Domestic Lenders, and the Domestic Lenders shall be unconditionally obligated to fund such Revolving Credit Loans (whether or not the conditions specified in Section 2.5.1 [Revolving Credit Loan Requests] are then satisfied) by the time PNC so requests, which shall not be earlier than 1:00 p.m. on the Business Day next after the date the Domestic Lenders receive such notice from PNC.

 
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2.6.6          Trigger Event Election Period.   Notwithstanding anything to the contrary, the Borrowers shall not be permitted to request, and the Lenders shall not be obligated to make, any Loans (including, without limitation, Permitted Short Term Loans and Swing Loans) during any Trigger Event Election Period.
 
2.7            Notes.   The Obligation of the Borrowers to repay the aggregate unpaid principal amount of the Revolving Credit Loans and Swing Loans made to it by each Lender, together with interest thereon, shall be evidenced by a revolving credit Note (to the extent requested by such Lender) and a swing Note, dated the Closing Date payable to the order of such Lender in a face amount equal to the Revolving Credit Commitment, Canadian Commitment or Swing Loan Commitment, as applicable, of such Lender.

2.8            Use of Proceeds.   The proceeds of the Loans shall be used to (i) refinance Indebtedness of the Borrowers under the Existing Loan Agreement, (ii) pay fees and expenses associated with the financing contemplated herein, (iii) finance any Permitted Acquisition, (iv) provide for the ongoing working capital requirements and for other general corporate purposes of the Borrowers, in the case of each of clauses (i), (ii), (iii) and (iv) to the extent permitted hereunder.

2.9            Letter of Credit Subfacility.

2.9.1          Issuance of Letters of Credit.   Borrowers may at any time prior to the Expiration Date request the issuance of a Standby Letter of Credit or a Commercial Letter of Credit (each, a " Letter of Credit ") on behalf of itself or, with respect to the Domestic Borrowers only, another Loan Party, or the amendment or extension of an existing Letter of Credit, by delivering or having such other Loan Party deliver to the Issuing Lender (with a copy to the Administrative Agent) a completed application and agreement for letters of credit, or request for such amendment or extension, as applicable, in such form as the Issuing Lender may specify from time to time by no later than 1:00 p.m. at least two (2) Business Days, or such shorter period as may be agreed to by the Issuing Lender, in advance of the proposed date of issuance.  Promptly after receipt of any letter of credit application, the Issuing Lender shall confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit application and if not, the Issuing Lender will provide Administrative Agent with a copy thereof.  Unless the Issuing Lender has received notice from any Lender, Administrative Agent or any Loan Party, at least one day prior to the requested date of issuance, amendment or extension of the applicable Letter of Credit, that one or more applicable conditions in Section 6 [Conditions of Lending and Issuance of Letters of Credit] is not satisfied, then, subject to the terms and conditions hereof and in reliance on the agreements of the other Lenders set forth in this Section 2.9 , the Issuing Lender or any of the Issuing Lender's Affiliates will issue a Letter of Credit or agree to such amendment or extension; provided that each Letter of Credit shall (A) have a maximum maturity of twelve (12) months from the date of issuance, and (B) in no event expire later than the date which is 364 days after the Expiration Date; and provided further that in no event shall (i) the Letter of Credit Obligations exceed, at any one time, $50,000,000 (the " Letter of Credit Sublimit ") or (ii) the Revolving Facility Usage of the Domestic Borrowers exceed, at any one time, the lesser of (a) the Revolving Credit Commitments, and (b) (i) until the occurrence of a Borrowing Base Trigger Event, the Simplified Borrowing Base of the Domestic Borrowers, or (ii) thereafter, the Borrowing Base, or (iii) the Revolving Facility Usage by the Canadian Borrower exceed, at any one time, the lesser of (a) the Canadian Commitments, and (b) (i) until the occurrence of a Borrowing Base Trigger Event, the Simplified Borrowing Base of the Canadian Borrower, or (ii) thereafter, the Canadian Borrowing Base.  Each request by the Borrowers for the issuance, amendment or extension of a Letter of Credit shall be deemed to be a representation by the Borrowers that the Borrowers shall be in compliance with the preceding sentence and with Section 6 [Conditions of Lending and Issuance of Letters of Credit] after giving effect to the requested issuance, amendment or extension of such Letter of Credit.  Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to the beneficiary thereof, the Issuing Lender will also deliver to Borrowers and Administrative Agent a true and complete copy of such Letter of Credit or amendment.  The Borrowers, the Administrative Agent, the Lenders and the Issuing Lender agree that the Existing Letters of Credit shall be deemed Letters of Credit hereunder as if issued by an Issuing Lender.

 
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If the Borrowers so request in any applicable application for a Letter of Credit, the Issuing Lender may, in its reasonable discretion, agree to issue a Standby Letter of Credit that has automatic extension provisions (each, an “ Auto-Extension Letter of Credit ”); provided that any such Auto-Extension Letter of Credit must permit the Issuing Lender to prevent any such extension at least once in each twelve-month period (commencing with the date of issuance of such Standby Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day (the “ Non-Extension Notice Date ” ) in each such twelve-month period to be agreed upon at the time such Standby Letter of Credit is issued.  Unless otherwise directed by the Issuing Lender, the Borrowers shall not be required to make a specific request to the Issuing Lender for any such extension.  Once an Auto-Extension Letter of Credit has been issued, the Lenders shall be deemed to have authorized (but may not require) the Issuing Lender to permit the extension of such Standby Letter of Credit at any time to an expiry date not later than the Letter of Credit Expiration Date; provided , however , that the Issuing Lender shall not permit any such extension if (A) the Issuing Lender has determined that it would not be permitted, or would have no obligation, at such time to issue such Standby Letter of Credit in its revised form (as extended) under the terms hereof, or (B) it has received notice (which may be by telephone or in writing) on or before the day that is five (5) Business Days before the Non-Extension Notice Date (1) from the Administrative Agent that the Required Lenders have elected not to permit such extension or (2) from the Administrative Agent, any Lender or the Borrowers that one or more of the applicable conditions specified in Section 6.2 [Each Loan or Letter of Credit] is not then satisfied, and in each such case directing the Issuing Lender not to permit such extension.

 
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Notwithstanding any other provision hereof, the Issuing Lender shall not be required to issue any Letter of Credit, if (a) any Lender is at such time a Defaulting Lender or a Deteriorating Lender hereunder, unless the Issuing Lender has entered into satisfactory arrangements with the Borrowers or such Defaulting Lender or Deteriorating Lender to eliminate the Issuing Lender's risk with respect to such Defaulting Lender or Deteriorating Lender (it being understood that the Issuing Lender shall consider the Borrowers or such Defaulting Lender or Deteriorating Lender providing cash collateral to the Administrative Agent, for the benefit of the Issuing Lender, to secure such Defaulting Lender’s or Deteriorating Lender’s Ratable Share of the Letter of Credit, a satisfactory arrangement), or (b) any order, judgment or decree of any Official Body or arbitrator shall by its terms purport to enjoin or restrain the Issuing Lender from issuing the Letter of Credit, or any Law applicable to the Issuing Lender or any request or directive (whether or not having the force of Law) from any Official Body with jurisdiction over the Issuing Lender shall prohibit, or request that the Issuing Lender refrain from, the issuance of letters of credit generally or the Letter of Credit in particular or shall impose upon the Issuing Lender with respect to the Letter of Credit any restriction, reserve or capital requirement (for which the Issuing Lender is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the Issuing Lender any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the Issuing Lender in good faith deems material to it.

2.9.2          Letter of Credit Fees .   The Domestic Borrowers and the Canadian Borrower shall pay (i) to the Administrative Agent for the ratable account of the Domestic Lenders or Canadian Lenders, as applicable, a fee (the " Letter of Credit Fee ") equal to the Applicable Letter of Credit Fee Rate, and (ii) to the Issuing Lender for its own account a fronting fee equal to one-quarter of one percent (0.25%) per annum (in each case computed on the basis of a year of 360 days and actual days elapsed), which fees shall be computed on the daily average Letter of Credit Obligations of the Domestic Borrowers and the Canadian Borrower, as applicable, and shall be payable quarterly in arrears on each Payment Date following issuance of each Letter of Credit.  The Domestic Borrowers and the Canadian Borrower shall also pay to the Issuing Lender for the Issuing Lender's sole account the Issuing Lender's then in effect customary fees and administrative expenses payable with respect to the Letters of Credit as the Issuing Lender may generally charge or incur from time to time in connection with the issuance, maintenance, amendment (if any), assignment or transfer (if any),   negotiation, and administration of Letters of Credit.

2.9.3          Disbursements, Reimbursement .   Immediately upon the issuance of each Letter of Credit, (a) each Domestic Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Lender a participation in such Letter of Credit issued for the account of a Domestic Borrower and each drawing thereunder in an amount equal to such Lender's Ratable Share of the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively, and (b) each Canadian Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Lender a participation in such Letter of Credit issued for the account of the Canadian Borrower and each drawing thereunder in an amount equal to such Lender's Ratable Share of the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively.

 
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2.9.3.1                In the event of any request for a drawing under a Letter of Credit by the beneficiary or transferee thereof, the Issuing Lender will promptly notify the applicable Borrowers and the Administrative Agent thereof.  Provided that it shall have received such notice, the applicable Borrowers shall reimburse (such obligation to reimburse the Issuing Lender shall sometimes be referred to as a " Reimbursement Obligation ") the Issuing Lender prior to 1:00 p.m. on each date that an amount is paid by the Issuing Lender under any Letter of Credit (each such date, a " Drawing Date ") by paying to the Administrative Agent for the account of the Issuing Lender an amount equal to the amount so paid by the Issuing Lender.  In the event the applicable Borrowers fail to reimburse the Issuing Lender (through the Administrative Agent) for the full amount of any drawing under any Letter of Credit by 1:00 p.m. on the Drawing Date, the Administrative Agent will promptly notify each Domestic Lender and Canadian Lender thereof, as applicable, and the applicable Borrowers shall be deemed to have requested that Revolving Credit Loans be made by the applicable Lenders under the Base Rate Option or Canadian Prime Rate Option to be disbursed on the Drawing Date under such Letter of Credit, subject to the amount of the unutilized portion of the Revolving Credit Commitment and subject to the conditions set forth in Section 6.2 [Each Loan or Letter of Credit] other than any notice requirements.  Any notice given by the Administrative Agent or the Issuing Lender pursuant to this Section 2.9.3.1 may be oral if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.

2.9.3.2                Each Domestic Lender or Canadian Lender, as applicable, shall upon any notice pursuant to Section 2.9.3.1 make available to the Administrative Agent for the account of the Issuing Lender an amount in immediately available funds equal to its Ratable Share of the amount of the drawing, whereupon the participating Lenders shall (subject to Section 2.9.3 [Disbursement; Reimbursement]) each be deemed to have made a Revolving Credit Loan under the Base Rate Option or Canadian Prime Rate Option to the applicable Borrowers in that amount.  If any Lender so notified fails to make available to the Administrative Agent for the account of the Issuing Lender the amount of such Lender's Ratable Share of such amount by no later than 1:00 p.m. on the Drawing Date, then interest shall accrue on such Lender's obligation to make such payment, from the Drawing Date to the date on which such Lender makes such payment (i) at a rate per annum equal to the Federal Funds Effective Rate during the first three (3) days following the Drawing Date and (ii) at a rate per annum equal to the rate applicable to Loans under the Revolving Credit Base Rate Option or Canadian Prime Rate Option, as applicable, on and after the fourth day following the Drawing Date.  The Administrative Agent and the Issuing Lender will promptly give notice (as described in Section 2.9.3.1 above) of the occurrence of the Drawing Date, but failure of the Administrative Agent or the Issuing Lender to give any such notice on the Drawing Date or in sufficient time to enable any Lender to effect such payment on such date shall not relieve such Lender from its obligation under this Section 2.9.3.2 .

2.9.3.3                With respect to any unreimbursed drawing that is not converted into Revolving Credit Loans under the Base Rate Option or Canadian Prime Rate Option to the applicable Borrowers in whole or in part as contemplated by Section 2.9.3.1 , because of the Borrowers’ failure to satisfy the conditions set forth in Section 6.2 [Each Loan or Letter of Credit] other than any notice requirements, or for any other reason, the Borrowers shall be deemed to have incurred from the Issuing Lender a borrowing (each a " Letter of Credit Borrowing ") in the amount of such drawing.  Such Letter of Credit Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the rate per annum applicable to the Revolving Credit Loans under the Base Rate Option or Canadian Prime Rate Option, as applicable.  Each Lender's payment to the Administrative Agent for the account of the Issuing Lender pursuant to Section 2.9.3 [Disbursements, Reimbursement] shall be deemed to be a payment in respect of its participation in such Letter of Credit Borrowing (each a " Participation Advance ") from such Lender in satisfaction of its participation obligation under this Section 2.9.3 .

 
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2.9.4          Repayment of Participation Advances.

2.9.4.1                Upon (and only upon) receipt by the Administrative Agent for the account of the Issuing Lender of immediately available funds from the applicable Borrowers (i) in reimbursement of any payment made by the Issuing Lender under the Letter of Credit with respect to which any Lender has made a Participation Advance to the Administrative Agent, or (ii) in payment of interest on such a payment made by the Issuing Lender under such a Letter of Credit, the Administrative Agent on behalf of the Issuing Lender will pay to each Lender, in the same funds as those received by the Administrative Agent, the amount of such Lender's Ratable Share of such funds, except the Administrative Agent shall retain for the account of the Issuing Lender the amount of the Ratable Share of such funds of any Lender that did not make a Participation Advance in respect of such payment by the Issuing Lender.

2.9.4.2                If the Administrative Agent is required at any time to return to any Loan Party, or to a trustee, receiver, monitor, interim monitor, liquidator, custodian, or any official in any Insolvency Proceeding, any portion of any payment made by any Loan Party to the Administrative Agent for the account of the Issuing Lender pursuant to this Section in reimbursement of a payment made under the Letter of Credit or interest or fee thereon, each Domestic Lender or Canadian Lender, as applicable, shall, on demand of the Administrative Agent, forthwith return to the Administrative Agent for the account of the Issuing Lender the amount of its Ratable Share of any amounts so returned by the Administrative Agent plus interest thereon from the date such demand is made to the date such amounts are returned by such Lender to the Administrative Agent, at a rate per annum equal to the Federal Funds Effective Rate in effect from time to time.

2.9.5          Documentation.   Each Loan Party agrees to be bound by the terms of the Issuing Lender's application and agreement for Letters of Credit and the Issuing Lender's written regulations and customary practices relating to Letters of Credit, though such interpretation may be different from such Loan Party's own.  In the event of a conflict between such application or agreement and this Agreement, this Agreement shall govern.  It is understood and agreed that, except in the case of gross negligence or willful misconduct (as determined by a final non-appealable judgment of a court of competent jurisdiction), the Issuing Lender shall not be liable for any error, negligence and/or mistakes, whether of omission or commission, in following any Loan Party's instructions or those contained in the Letters of Credit or any modifications, amendments or supplements thereto.

 
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2.9.6          Determinations to Honor Drawing Requests.   In determining whether to honor any request for drawing under any Letter of Credit by the beneficiary thereof, the Issuing Lender shall be responsible only to determine that the documents and certificates required to be delivered under such Letter of Credit have been delivered and that they comply on their face with the requirements of such Letter of Credit.

2.9.7          Nature of Participation and Reimbursement Obligations.   Each Lender's obligation in accordance with this Agreement to make the Revolving Credit Loans or Participation Advances, as contemplated by Section 2.9.3 [Disbursements, Reimbursement], as a result of a drawing under a Letter of Credit, and the Obligations of the Borrowers to reimburse the Issuing Lender upon a draw under a Letter of Credit, shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Section 2.9 under all circumstances, including the following circumstances:

(i)             any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the Issuing Lender or any of its Affiliates, any Borrower or any other Person for any reason whatsoever, or which any Loan Party may have against the Issuing Lender or any of its Affiliates, any Lender or any other Person for any reason whatsoever;

(ii)            the failure of any Loan Party or any other Person to comply, in connection with a Letter of Credit Borrowing, with the conditions set forth in Section 2.1 [Revolving Credit Commitments], Section 2.5 [Revolving Credit Loan Requests; Swing Loan Requests], Section 2.6 [Making Revolving Credit Loans and Swing Loans; Etc.] or Section 6.2 [Each Loan or Letter of Credit] or as otherwise set forth in this Agreement for the making of a Revolving Credit Loan, it being acknowledged that such conditions are not required for the making of a Letter of Credit Borrowing and the obligation of the Lenders to make Participation Advances under Section 2.9.3 [Disbursements, Reimbursement];

(iii)           any lack of validity or enforceability of any Letter of Credit;

(iv)           any claim of breach of warranty that might be made by any Loan Party or any Lender against any beneficiary of a Letter of Credit, or the existence of any claim, set-off, recoupment, counterclaim, crossclaim, defense or other right which any Loan Party or any Lender may have at any time against a beneficiary, successor beneficiary any transferee or assignee of any Letter of Credit or the proceeds thereof (or any Persons for whom any such transferee may be acting), the Issuing Lender or its Affiliates or any Lender or any other Person, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between any Loan Party or Subsidiaries of a Loan Party and the beneficiary for which any Letter of Credit was procured);

(v)           the lack of power or authority of any signer of (or any defect in or forgery of any signature or endorsement on) or the form of or lack of validity, sufficiency, accuracy, enforceability or genuineness of any draft, demand, instrument, certificate or other document presented under or in connection with any Letter of Credit, or any fraud or alleged fraud in connection with any Letter of Credit, or the transport of any property or provision of services relating to a Letter of Credit, in each case even if the Issuing Lender or any of its Affiliates has been notified thereof;

 
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(vi)           payment by the Issuing Lender or any of its Affiliates under any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit;

(vii)          the solvency of, or any acts or omissions by, any beneficiary of any Letter of Credit, or any other Person having a role in any transaction or obligation relating to a Letter of Credit, or the existence, nature, quality, quantity, condition, value or other characteristic of any property or services relating to a Letter of Credit;

(viii)         any failure by the Issuing Lender or any of its Affiliates to issue any Letter of Credit in the form requested by any Loan Party, unless the Issuing Lender has received written notice from such Loan Party of such failure within three Business Days after the Issuing Lender shall have furnished such Loan Party and the Administrative Agent a copy of such Letter of Credit and such error is material and no drawing has been made thereon prior to receipt of such notice;

(ix)           any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of any Loan Party or Subsidiaries of a Loan Party;

(x)            any breach of this Agreement or any other Loan Document by any party thereto;

(xi)           the occurrence or continuance of an Insolvency Proceeding with respect to any Loan Party;

(xii)           the fact that an Event of Default or a Potential Default shall have occurred and be continuing;

(xiii)          the fact that the Expiration Date shall have passed or this Agreement or the Commitments hereunder shall have been terminated; and

(xiv)         any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, other than circumstances described in clauses (A) or (B) of Section 2.9.8 [Indemnity].

2.9.8          Indemnity.  Each Borrower hereby agrees to protect, indemnify, pay and save harmless the Issuing Lender and any of its Affiliates that has issued a Letter of Credit from and against any and all claims, demands, liabilities, damages, taxes, penalties, interest, judgments, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel and allocated costs of internal counsel) which the Issuing Lender or any of its Affiliates may incur or be subject to as a consequence, direct or indirect, of the issuance of any Letter of Credit, other than as a result of (A) the gross negligence or willful misconduct of the Issuing Lender as determined by a final non-appealable judgment of a court of competent jurisdiction or (B) the wrongful dishonor by the Issuing Lender or any of Issuing Lender's Affiliates of a proper demand for payment made under any Letter of Credit, except if such dishonor resulted from any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Official Body. Notwithstanding anything to the contrary contained herein, the Canadian Borrower's obligation to pay and indemnify shall be limited to matters, fees, expenses charges and disbursement, or losses, claims, damages and liabilities which the Administrative Agent determines in its reasonable judgment to be properly attributable or allocable to the Canadian Borrower.

 
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2.9.9          Liability for Acts and Omissions  As between any Loan Party and the Issuing Lender, or the Issuing Lender's Affiliates, such Loan Party assumes all risks of the acts and omissions of, or misuse of the Letters of Credit by, the respective beneficiaries of such Letters of Credit.  In furtherance and not in limitation of the foregoing, the Issuing Lender shall not be responsible for any of the following, including any losses or damages to any Loan Party or other Person or property relating therefrom:  (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for an issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged (even if the Issuing Lender or its Affiliates shall have been notified thereof); (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) the failure of the beneficiary of any such Letter of Credit, or any other party to which such Letter of Credit may be transferred, to comply fully with any conditions required in order to draw upon such Letter of Credit or any other claim of any Loan Party against any beneficiary of such Letter of Credit, or any such transferee, or any dispute between or among any Loan Party and any beneficiary of any Letter of Credit or any such transferee; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of the Issuing Lender or its Affiliates, as applicable, including any act or omission of any Official Body, and none of the above shall affect or impair, or prevent the vesting of, any of the Issuing Lender's or its Affiliates rights or powers hereunder.  Nothing in the preceding sentence shall relieve the Issuing Lender from liability for the Issuing Lender's gross negligence or willful misconduct (as determined by a final non-appealable judgment of a court of competent jurisdiction) in connection with actions or omissions described in such clauses (i) through (viii) of such sentence.  In no event shall the Issuing Lender or its Affiliates be liable to any Loan Party for any indirect, consequential, incidental, punitive, exemplary or special damages or expenses (including without limitation attorneys' fees), or for any damages resulting from any change in the value of any property relating to a Letter of Credit.

Without limiting the generality of the foregoing, the Issuing Lender and each of its Affiliates (i) may rely on any oral or other communication believed in good faith by the Issuing Lender or such Affiliate to have been authorized or given by or on behalf of the applicant for a Letter of Credit, (ii) may honor any presentation if the documents presented appear on their face substantially to comply with the terms and conditions of the relevant Letter of Credit; (iii) may honor a previously dishonored presentation under a Letter of Credit, whether such dishonor was pursuant to a court order, to settle or compromise any claim of wrongful dishonor, or otherwise, and shall be entitled to reimbursement to the same extent as if such presentation had initially been honored, together with any interest paid by the Issuing Lender or its Affiliate; (iv) may honor any drawing that is payable upon presentation of a statement advising negotiation or payment, upon receipt of such statement (even if such statement indicates that a draft or other document is being delivered separately), and shall not be liable for any failure of any such draft or other document to arrive, or to conform in any way with the relevant Letter of Credit; (v) may pay any paying or negotiating bank claiming that it rightfully honored under the laws or practices of the place where such bank is located; and (vi) may settle or adjust any claim or demand made on the Issuing Lender or its Affiliate in any way related to any order issued at the applicant's request to an air carrier, a letter of guarantee or of indemnity issued to a carrier or any similar document (each an " Order ") and honor any drawing in connection with any Letter of Credit that is the subject of such Order, notwithstanding that any drafts or other documents presented in connection with such Letter of Credit fail to conform in any way with such Letter of Credit.

 
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In furtherance and extension and not in limitation of the specific provisions set forth above, any action taken or omitted by the Issuing Lender or its Affiliates under or in connection with the Letters of Credit issued by it or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not put the Issuing Lender or its Affiliates under any resulting liability to the Borrowers or any Lender.

2.9.10       Issuing Lender Reporting Requirements .  The Issuing Lender shall, on the first Business Day of each month, provide to Administrative Agent and Borrowers a schedule of the Letters of Credit issued by it, in form and substance reasonably satisfactory to Administrative Agent, showing the date of issuance of each Letter of Credit, the account party, the original face amount (if any), and the expiration date of any Letter of Credit outstanding at any time during the preceding month, and any other information relating to such Letter of Credit that the Administrative Agent may request.

2.9.11        Cash Collateral .  Without limiting and in addition to the provisions of Section 8.2.1 [Events of Default Other Than Bankruptcy, Insolvency or Reorganization Proceedings], upon the request of Administrative Agent, (i) if the Issuing Lender has honored any full or partial drawing request under any Letter of Credit and such drawing has resulted in an Letter of Credit Borrowing, or (ii) if, on the Expiration Date, any Letter of Credit Obligation for any reason remains outstanding, the Domestic Borrowers or the Canadian Borrower, as applicable, shall, in each case, immediately Cash Collateralize the then outstanding amount of all Letter of Credit Obligations.  The Borrowers hereby grant to the Administrative Agent, for the benefit of the Issuing Lender and the Lenders, a security interest in all cash collateral pledged pursuant to this Section or otherwise under this Agreement provided that any cash collateral of the Canadian Borrower shall secure only the Canadian Liabilities.

2.10          Increase in Revolving Credit Commitments.
 
2.10.1       Increasing Lenders and New Lenders.   The Domestic Borrowers may at any time request that (1) the current Domestic Lenders increase their Revolving Credit Commitments (any current Domestic Lender which elects to increase its Revolving Credit Commitment shall be referred to as an " Increasing Lender ") or (2) one or more new lenders (each a " New Lender ") join this Agreement and provide a Revolving Credit Commitment hereunder, subject to the following terms and conditions:

 
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(i)             No Obligation to Increase .  No current Domestic Lender shall be obligated to increase its Revolving Credit Commitment and any increase in the Revolving Credit Commitment by any current Domestic Lender shall be in the reasonable discretion of such current Lender; or

(ii)             Minimum Increase Amount; Number of Requests .  Each request for an increase in the Revolving Credit Commitments shall be in an amount of not less than $25,000,000, and the Domestic Borrowers may make not more than three (3) such requests from and after the Closing Date.
 
(iii)            Maximum Amount of All Increases .  The aggregate amount of all increases in the Revolving Credit Commitments requested hereunder shall not exceed $75,000,000.

(iv)            Resolutions; Opinion .  The Borrowers shall deliver to the Administrative Agent on or before the effective date of such increase the following documents in a form reasonably acceptable to the Administrative Agent: (1) certifications of their corporate secretaries with attached resolutions certifying that the increase in the Revolving Credit Commitment has been approved by such Borrowers, and (2) an opinion of counsel addressed to the Administrative Agent and the Lenders addressing the authorization and execution of the Loan Documents by, and enforceability of the Loan Documents against, the Loan Parties.

(v)             Notes .  The Domestic Borrowers shall execute and deliver (1) to each Increasing Lender so requesting, a replacement revolving credit Note reflecting the new amount of such Increasing Lender's Revolving Credit Commitment after giving effect to the increase (and the prior Note issued to such Increasing Lender shall be deemed to be terminated) and (2) to each New Lender so requesting, a revolving credit Note reflecting the amount of such New Lender's Revolving Credit Commitment.

(vi)            Approval of New Lenders .  Any New Lender shall be subject to the approval of the Administrative Agent and the Domestic Borrowers (which approval of the Domestic Borrowers shall not be unreasonably withheld or delayed).

(vii)           Increasing Lenders .  Each Increasing Lender shall confirm its agreement to increase its Revolving Credit Commitment pursuant to an acknowledgement in a form acceptable to the Administrative Agent, signed by it and the Domestic Borrowers and delivered to the Administrative Agent at least five (5) days before the effective date of such increase.

(viii)          New Lenders – Joinder .  Each New Lender shall execute a lender joinder in substantially the form of Exhibit 2.10 pursuant to which such New Lender shall join and become a party to this Agreement and the other Loan Documents with a Revolving Credit Commitment in the amount set forth in such lender joinder.

 
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2.10.2        Repayment of Outstanding Loans; Borrowing of New Loans.   On the effective date of such increase, the Domestic Borrowers shall repay all Loans then outstanding, subject to the Domestic Borrowers’ indemnity obligations under Section 4.10 [Indemnity]; provided that it may borrow new Loans with a Borrowing Date on such date. Each of the Domestic Lenders shall participate in any new Loans made on or after such date in accordance with their respective Ratable Shares after giving effect to the increase in Revolving Credit Commitments contemplated by this Section 2.10 .

2.10.3        Outstanding Letters of Credit. Repayment of Outstanding Loans; Borrowing of New Loans.   On the effective date of such increase, each Increasing Lender and each New Lender (i) will be deemed to have purchased a participation in each then outstanding Letter of Credit equal to its Ratable Share of such Letter of Credit and the participation of each other Lender in such Letter of Credit shall be adjusted accordingly and (ii) will acquire (and will pay to the Administrative Agent, for the account of each Lender, in immediately available funds, an amount equal to) its Ratable Share of all outstanding Participation Advances.

2.11          Reduction of Revolving Credit Commitment .  The Domestic Borrowers shall have the right at any time after the Closing Date upon five (5) days' prior written notice to the Administrative Agent to permanently reduce (ratably among the Domestic Lenders in proportion to their Ratable Shares) the Revolving Credit Commitments, in whole multiples of $5,000,000, or to terminate completely the Revolving Credit Commitments, without penalty or premium except as hereinafter set forth; provided that any such reduction or termination shall be accompanied by prepayment of the Loans, together with outstanding Commitment Fees, the full amount of interest accrued on the principal sum to be prepaid (and all amounts referred to in Section 4.10 [Indemnity] hereof) to the extent necessary to cause the aggregate Revolving Facility Usage after giving effect to such prepayments to be equal to or less than the Revolving Credit Commitments as so reduced or terminated.  Any notice to reduce or terminate the Revolving Credit Commitments under this Section 2.11 shall be irrevocable.

2.11.2        Canadian Commitments . The Canadian Borrower shall have the right at any time after the Closing Date upon five (5) days' prior written notice to the Administrative Agent to permanently reduce (ratably among the Canadian Lenders in proportion to their Ratable Shares) the Canadian Commitments, in whole multiples of CD$5,000,000, or to terminate completely the Canadian Commitments, without penalty or premium except as hereinafter set forth; provided that any such reduction or termination shall be accompanied by prepayment of the Loans, together with outstanding Commitment Fees, the full amount of interest accrued on the principal sum to be prepaid (and all amounts referred to in Section 4.10 [Indemnity] hereof) to the extent necessary to cause the aggregate Revolving Facility Usage of the Canadian Borrower after giving effect to such prepayments to be equal to or less than the Canadian Commitments as so reduced or terminated.  Any notice to reduce or terminate the Canadian Commitments under this Section 2.11 shall be irrevocable.
 
 
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2.11.3        Deemed Termination of Canadian Commitments . In the event that the Domestic Borrowers terminate the Domestic Commitments, the Canadian Commitments shall be deemed to have also been terminated, without any further action by the Domestic Borrowers or the Canadian Borrower.
 
3.              INTEREST RATES

3.1            Interest Rate Options.   The Borrowers shall pay interest in respect of the outstanding unpaid principal amount of the Loans as selected by it from the Base Rate Option, the LIBOR Rate Option, the Canadian Prime Rate Option or the BA Rate Option set forth below applicable to the Loans, it being understood that, subject to the provisions of this Agreement, the Borrowers may select different Interest Rate Options and different Interest Periods to apply simultaneously to the Loans comprising different Borrowing Tranches and may convert to or renew one or more Interest Rate Options with respect to all or any portion of the Loans comprising any Borrowing Tranche; provided that there shall not be at any one time outstanding more than six (6) Borrowing Tranches in the aggregate among all of the Loans and provided further that if an Event of Default or Potential Default exists and is continuing, the Borrowers may not request, convert to, or renew the LIBOR Rate Option or the BA Rate Option, as applicable, for any Loans and the Required Lenders may demand that all existing Borrowing Tranches bearing interest under the LIBOR Rate Option or the BA Rate Option, as applicable, shall be converted immediately to the Base Rate Option or the Canadian Prime Rate Option, as applicable, subject to the obligation of the Borrowers to pay any indemnity under Section 4.10 [Indemnity] in connection with such conversion.  If at any time the designated rate applicable to any Loan made by any Lender exceeds such Lender's highest lawful rate, the rate of interest on such Lender's Loan shall be limited to such Lender's highest lawful rate.

3.1.1          Revolving Credit Interest Rate Options; Swing Line Interest Rate.   The Borrowers shall have the right to select from the following Interest Rate Options applicable to the Revolving Credit Loans:

(i)             Revolving Credit Base Rate Option :  With respect to Loans to the Domestic Borrowers only, a fluctuating rate per annum (computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) equal to the Base Rate plus the Applicable Margin, such interest rate to change automatically from time to time effective as of the effective date of each change in the Base Rate;

(ii)             Revolving Credit LIBOR Rate Option :  With respect to Loans to the Domestic Borrowers only, a rate per annum (computed on the basis of a year of 360 days and actual days elapsed) equal to the LIBOR Rate plus the Applicable Margin;

(iii)            Revolving Credit Canadian Prime Rate Option :  With respect to Loans to the Canadian Borrower only, a fluctuating rate per annum (computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) equal to the Canadian Prime Rate plus the Applicable Margin, such interest rate to change automatically from time to time effective as of the effective date of each change in the Base Rate; or
 
(iv)            Revolving Credit BA Rate Option :  With respect to Loans to the Canadian Borrower only, a rate per annum (computed on the basis of a year of 360 days and actual days elapsed) equal to the BA Rate plus the Applicable Margin.
 
Subject to Section 3.3 [Interest and Fees After Default], only the Base Rate Option applicable to Revolving Credit Loans shall apply to the Swing Loans.
 
 
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3.1.2          Rate Quotations.   The Borrowers may call the Administrative Agent on or before the date on which a Loan Request is to be delivered to receive an indication of the rates then in effect, but it is acknowledged that such projection shall not be binding on the Administrative Agent or the Lenders nor affect the rate of interest which thereafter is actually in effect when the election is made.

3.2            Interest Periods.   At any time when the Borrowers shall select, convert to or renew a LIBOR Rate Option or BA Rate Option, as applicable, the Borrowers shall notify the Administrative Agent thereof at least three (3) Business Days prior to the effective date of such LIBOR Rate Option or such BA Rate Option, as applicable, by delivering a Loan Request.  The notice shall specify an Interest Period during which such Interest Rate Option shall apply.  Notwithstanding the preceding sentence, the following provisions shall apply to any selection of, renewal of, or conversion to a LIBOR Rate Option or a BA Rate Option, as applicable:

3.2.1          Amount of Borrowing Tranche.   Each Borrowing Tranche of Loans under the LIBOR Rate Option shall be in integral multiples of $500,000 and not less than $1,000,000 and Each Borrowing Tranche of Loans under the BARate Option shall be in integral multiples of CD$500,000 and not less than CD$1,000,000; and

3.2.2          Renewals.   In the case of the renewal of a LIBOR Rate Option or a BA Rate Option, as applicable, at the end of an Interest Period, the first day of the new Interest Period shall be the last day of the preceding Interest Period, without duplication in payment of interest for such day.

3.3            Interest and Fees After Default.   To the extent permitted by Law, upon the occurrence of an Event of Default and until such time such Event of Default shall have been cured or waived, and at the discretion of the Administrative Agent or upon written demand by the Required Lenders to the Administrative Agent:

3.3.1          Letter of Credit Fees, Interest Rate.   The Letter of Credit Fees and the rate of interest for each Loan otherwise applicable pursuant to Section 2.9.2 [Letter of Credit Fees] or Section 3.1 [Interest Rate Options], respectively, shall be increased by two percent (2.0%) per annum;

3.3.2          Other Obligations.   Each other Obligation hereunder (excluding Lender Provided Interest Rate Hedges and Other Lender Provided Financial Service Products) if not paid when due shall bear interest at a rate per annum equal to the sum of the rate of interest applicable under the Revolving Credit Base Rate Option or the Canadian Prime Rate Option, as applicable, plus an additional two percent (2.0%) per annum from the time such Obligation becomes due and payable and until it is paid in full; and
 
3.3.3          Acknowledgment.   Each Borrower acknowledges that the increase in rates referred to in this Section 3.3 reflects, among other things, the fact that such Loans or other amounts have become a substantially greater risk given their default status and that the Lenders are entitled to additional compensation for such risk; and all such interest shall be payable by Borrowers upon demand by Administrative Agent.

3.4            LIBOR Rate Unascertainable ; Illegality; Increased Costs; Deposits Not Available .
 
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3.4.1          Unascertainable.   If on any date on which a LIBOR Rate or BA Rate would otherwise be determined, the Administrative Agent shall have reasonably determined that:

(i)             adequate and reasonable means do not exist for ascertaining such LIBOR Rate or BA Rate, or

(ii)            a contingency has occurred which materially and adversely affects the London interbank eurodollar market relating to the LIBOR Rate,

then the Administrative Agent shall have the rights specified in Section 3.4.3 [Administrative Agent's and Lenders’ Rights].

3.4.2         Illegality; Increased Costs; Deposits Not Available.   If at any time any Lender shall have reasonably determined that:

(i)             the making, maintenance or funding of any Loan to which a LIBOR Rate Option or a BA Rate Option applies has been made impracticable or unlawful by compliance by such Lender in good faith with any Law or any interpretation or application thereof by any Official Body or with any request or directive of any such Official Body (whether or not having the force of Law), or

(ii)            such LIBOR Rate Option or BA Rate Option will not adequately and fairly reflect the cost to such Lender of the establishment or maintenance of any such Loan, or

(iii)           after making all reasonable efforts, deposits of the relevant amount in Dollars for the relevant Interest Period for a Loan, or to banks generally, to which a LIBOR Rate Option applies, respectively, are not available to such Lender with respect to such Loan, or to banks generally, in the interbank eurodollar market,

then the Administrative Agent shall have the rights specified in Section 3.4.3 [Administrative Agent's and Lenders’ Rights].

3.4.3          Administrative Agent's and Lenders’ Rights.   In the case of any event specified in Section 3.4.1 [Unascertainable] above, the Administrative Agent shall promptly so notify the Lenders and the Borrowers thereof, and in the case of an event specified in Section 3.4.2 [Illegality; Increased Costs; Deposits Not Available] above, such Lender shall promptly so notify the Administrative Agent and endorse a certificate to such notice as to the specific circumstances of such notice, and the Administrative Agent shall promptly send copies of such notice and certificate to the other Lenders and the Borrowers.  Upon such date as shall be specified in such notice (which shall not be earlier than the date such notice is given), the obligation of (A) the Lenders, in the case of such notice given by the Administrative Agent, or (B) such Lender, in the case of such notice given by such Lender, to allow the Borrowers to select, convert to or renew a LIBOR Rate Option or a BA Rate Option shall be suspended until the Administrative Agent shall have later notified the Borrowers, or such Lender shall have later notified the Administrative Agent, of the Administrative Agent's or such Lender's, as the case may be, determination that the circumstances giving rise to such previous determination no longer exist.  If at any time the Administrative Agent makes a determination under Section 3.4.1 [Unascertainable] and the Borrowers have previously notified the Administrative Agent of their selection of, conversion to or renewal of a LIBOR Rate Option or a BA Rate Option and such Interest Rate Option has not yet gone into effect, such notification shall be deemed to provide for selection of, conversion to or renewal of the Base Rate Option or the Canadian Prime Rate Option otherwise available with respect to such Loans.  If any Lender notifies the Administrative Agent of a determination under Section 3.4.2 [Illegality; Increased Costs; Deposits Not Available], the Borrowers shall, subject to the Borrowers’ indemnification Obligations under Section 4.10 [Indemnity], as to any Loan of the Lender to which a LIBOR Rate Option or a BA Rate Option applies, on the date specified in such notice either convert such Loan to the Base Rate Option or the Canadian Prime Rate Option otherwise available with respect to such Loan or prepay such Loan in accordance with Section 4.6 [Voluntary Prepayments].  Absent due notice from the Borrowers of conversion or prepayment, such Loan shall automatically be converted to the Base Rate Option or the Canadian Prime Rate Option otherwise available with respect to such Loan upon such specified date.

 
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3.5            Selection of Interest Rate Options.   If the Borrowers fail to select a new Interest Period to apply to any Borrowing Tranche of Loans under the LIBOR Rate Option or the BA Rate Option at the expiration of an existing Interest Period applicable to such Borrowing Tranche in accordance with the provisions of Section 3.2 [Interest Periods], the Borrowers shall be deemed to have converted such Borrowing Tranche to the Revolving Credit Base Rate Option or the Canadian Prime Rate Option, as applicable, commencing upon the last day of the existing Interest Period.

3.6            Interest Act (Canada ) .  For the purposes of the Interest Act (Canada) and disclosure thereunder, whenever interest to be paid hereunder is to be calculated on the basis of a year of 360 days or any other period of time that is less than a calendar year, the yearly rate of interest to which the rate determined pursuant to such calculation is equivalent is the rate so determined multiplied by the actual number of days in the calendar year in which the same is to be ascertained and divided by either 360 or such other period of time, as the case may be.  Calculations of interest shall be made using the nominal rate method of calculation, and will not be calculated using the effective rate method of calculation or any other basis that gives effect to the principle of deemed reinvestment of interest.
 
4.              PAYMENTS

4.1            Payments.   All payments and prepayments to be made in respect of principal, interest, Commitment Fees, Letter of Credit Fees, Administrative Fee or other fees or amounts due from the Borrowers hereunder shall be payable prior to 1:00 p.m. on the date when due without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Borrowers, and without set-off, counterclaim or other deduction of any nature, and an action therefor shall immediately accrue.  Such payments shall be made to the Administrative Agent at its Principal Office for the account of PNC with respect to the Swing Loans in U.S. Dollars and to the Administrative Agent at the Principal Office  for the ratable accounts of the applicable Lenders with respect to the Revolving Credit Loans in the currency in which such Revolving Credit Loans were made, and in each case in immediately available funds, and the Administrative Agent shall promptly distribute such amounts to the Lenders in immediately available funds; provided that in the event payments are received by 1:00 p.m. by the Administrative Agent with respect to the Loans and such payments are not distributed to the applicable Lenders on the same day received by the Administrative Agent, the Administrative Agent shall pay the applicable Lenders the Federal Funds Effective Rate with respect to the amount of such payments for each day held by the Administrative Agent and not distributed to such Lenders.  The Administrative Agent's and each Lender's statement of account, ledger or other relevant record shall, in the absence of manifest error, be conclusive as the statement of the amount of principal of and interest on the Loans and other amounts owing under this Agreement and shall be deemed an "account stated."
 
 
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4.2            Pro Rata Treatment of Lenders; Repayment of Advances.
 
4.2.1         Pro Rata Treatment of Lenders.   Each borrowing of Revolving Credit Loans shall be allocated to each Lender according to its Ratable Share, and each selection of, conversion to or renewal of any Interest Rate Option and each payment or prepayment by the Borrowers with respect to principal, interest, Commitment Fees, Letter of Credit Fees, or other fees (except for the Administrative Fee and the Issuing Lender's fronting fee) or amounts due from the Borrowers hereunder to the Lenders with respect to the Commitments and Loans, shall (except as otherwise may be provided with respect to a Defaulting Lender and except as provided in Section 3.4.3 [Administrative Agent's and Lenders’ Rights] in the case of an event specified in Section 3.4 [LIBOR Rate Unascertainable; Etc.], Section 4.6.2 [Replacement of a Lender] or Section 4.8 [Increased Costs]) be payable ratably among the Lenders entitled to such payment in accordance with the amount of principal, interest, Commitment Fees, Letter of Credit Fees, and other fees or amounts then due or payable such Lenders as set forth in this Agreement.  Notwithstanding any of the foregoing, each borrowing or payment or prepayment by the Borrowers of principal, interest, fees or other amounts from the Borrowers with respect to Swing Loans shall be made by or to PNC according to Section 2.6.5 [Borrowings to Repay Swing Loans].

4.2.2          Repayment of Advances.   If the Administrative Agent is required at any time to return to any Loan Party, or to a trustee, receiver, monitor, interim monitor, liquidator, custodian, or any official in any Insolvency Proceeding, any portion of any payment made by any Loan Party to the Administrative Agent for the account of any Lender pursuant to this Section, such Lender shall, on demand of the Administrative Agent, forthwith return to the Administrative Agent for the account of the Administrative Agent any amounts so returned by the Administrative Agent plus interest thereon from the date such demand is made to the date such amounts are returned by such Lender to the Administrative Agent, at a rate per annum equal to the Federal Funds Effective Rate in effect from time to time.
 
4.3            Sharing of Payments by Lenders.   If any Lender shall, by exercising any right of setoff, counterclaim or banker's lien, by receipt of voluntary payment, by realization upon security, or by any other non-pro rata source, obtain payment in respect of any principal of or interest on any of its Loans or other obligations hereunder resulting in such Lender's receiving payment of a proportion of the aggregate amount of its Loans and accrued interest thereon or other such obligations greater than the pro-rata share of the amount such Lender is entitled thereto, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Loans and such other obligations of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and other amounts owing them, provided that:
 
 
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(i)             any amounts of the Canadian Borrower so offset shall be applied solely to the Canadian Liabilities and any participations purchased by a Canadian Lender shall solely be participations in the Canadian Liabilities of other Canadian Lenders;

(ii)            if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, together with interest or other amounts, if any, required by Law (including court order) to be paid by the Lender or the holder making such purchase; and

(iii)           the provisions of this Section 4.3 shall not be construed to apply to (x) any payment made by the Borrowers pursuant to and in accordance with the express terms of the Loan Documents or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or Participation Advances to any assignee or participant, other than to any Loan Party or any Subsidiary thereof (as to which the provisions of this Section 4.3 shall apply).

Each Loan Party consents to the foregoing and agrees, to the extent it may effectively do so under applicable Law, that any Lender acquiring a participation pursuant to the foregoing arrangements may, during the continuance of an Event of Default, exercise against each Loan Party rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of each Loan Party in the amount of such participation.
Any Lender that fails at any time to comply with the provisions of this Section 4.3 shall be deemed a Defaulting Lender until such time as it performs its obligations hereunder and is not otherwise a Defaulting Lender for any other reason.
 
4.4            Presumptions by Administrative Agent.   Unless the Administrative Agent shall have received notice from any Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Lender hereunder that such Borrower will not make such payment, the Administrative Agent may assume that the Borrowers have made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the applicable Lenders or the Issuing Lender, as the case may be, the amount due.  In such event, if the Borrowers have not in fact made such payment, then each of the Lenders or the Issuing Lender, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or the Issuing Lender, with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate reasonably determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
 
4.5            Interest Payment Dates.   Interest on Loans to which the Base Rate Option or the Canadian Prime Rate Option applies shall be due and payable in arrears on each Payment Date.  Interest on Loans to which the LIBOR Rate Option or the BA Rate Option applies shall be due and payable on the last day of each Interest Period for those Loans and, if such Interest Period is longer than three (3) Months, also on the 90th day of such Interest Period.  Interest on mandatory prepayments of principal under Section 4.7 [Mandatory Prepayments] shall be due on the date such mandatory prepayment is due.  Interest on the principal amount of each Loan or other monetary Obligation shall be due and payable on demand after such principal amount or other monetary Obligation becomes due and payable (whether on the stated Expiration Date, upon acceleration or otherwise).
 
 
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4.6            Voluntary Prepayments.
 
4.6.1          Right to Prepay.   The Borrowers shall have the right at their option from time to time to prepay the Loans in whole or part without premium or penalty (except as provided in Section 4.6.2 [Replacement of a Lender] below, in Section 4.8 [Increased Costs] and Section 4.10 [Indemnity]).  Whenever the Borrowers desire to prepay any part of the Loans, they shall provide a prepayment notice to the Administrative Agent by 1:00 p.m. at least one (1) Business Day prior to the date of prepayment of the Revolving Credit Loans or no later than 1:00 p.m. on the date of prepayment of Swing Loans, setting forth the following information:

(w)           the date, which shall be a Business Day, on which the proposed prepayment is to be made;

(x)            a statement indicating the application of the prepayment between the Revolving Credit Loans and Swing Loans;

(y)           a statement indicating the application of the prepayment between Loans to which the Base Rate Option or the Canadian Prime Rate Option, as applicable, applies and Loans to which the LIBOR Rate Option or the BA Rate Option, as applicable, applies; and
 
(z)            the total principal amount of such prepayment, which shall not be less than the lesser of (i) the Revolving Facility Usage or (ii) $100,000 for any Swing Loan or $500,000 for any Revolving Credit Loan (or CD$500,000 for any Revolving Credit Loan owing by the Canadian Borrower).
 
All prepayment notices shall be irrevocable.  The principal amount of the Loans for which a prepayment notice is given, together with interest on such principal amount except with respect to Loans to which the Base Rate Option or Canadian Prime Rate Option, as applicable, applies, shall be due and payable on the date specified in such prepayment notice as the date on which the proposed prepayment is to be made.  Except as provided in Section 3.4.3 [Administrative Agent's and Lenders’ Rights], if the Borrowers prepay a Loan but fail to specify the applicable Borrowing Tranche which the Borrowers are prepaying, the prepayment shall be applied first to Loans to which the Base Rate Option or the Canadian Prime Rate Option, as applicable, applies, then to Loans to which the LIBOR Rate Option or the BA Rate Option, as applicable, applies.  Any prepayment hereunder shall be subject to the Borrowers’ Obligation to indemnify the Lenders under Section 4.10 [Indemnity].
 
4.6.2          Replacement of a Lender.   In the event any Lender or the Issuing Lender (i) gives notice under Section 3.4 [LIBOR Rate Unascertainable, Etc.], (ii) requests compensation under Section 4.8 [Increased Costs], or requests that the Borrowers to pay any additional amount to any Lender or Issuing Lender or any Official Body for the account of any Lender or Issuing Lender pursuant to Section 4.9 [Taxes], (iii) is a Defaulting Lender or Deteriorating Lender, (iv) becomes subject to the control of an Official Body (other than normal and customary supervision), or (v) is a Non-Consenting Lender referred to in Section 10.1 [Modifications, Amendments or Waivers], then in any such event the Borrowers may, at their sole expense, upon notice to such Lender and the Administrative Agent, require such Lender or Issuing Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.8 [Successors and Assigns]), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:
 
 
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(i)            the Borrowers shall have paid to the Administrative Agent the assignment fee specified in Section 10.8 [Successors and Assigns];

(ii)           such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and Participation Advances, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 4.10 [Indemnity]) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrowers (in the case of all other amounts);

(iii)           in the case of any such assignment resulting from a claim for compensation under Section 4.8.1 [Increased Costs Generally] or payments required to be made pursuant to Section 4.9 [Taxes], such assignment will result in a reduction in such compensation or payments thereafter; and

(iv)           such assignment does not conflict with applicable Law.

A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrrowers to require such assignment and delegation cease to apply.
 
4.7            Mandatory Prepayments.

4.7.1         Disposition of Assets; Indebtedness.   Within five (5) Business Days of any sale of assets in excess of $2,500,000 in the aggregate in any fiscal year [authorized] by Section 7.2.7(v) or Section 7.2.7(vi) [Disposition of Assets or Subsidiaries], the Borrowers shall make a mandatory prepayment of principal on the Revolving Credit Loans equal to the Net Proceeds of such sale, together with accrued interest on such principal amount; provided that prior to the occurrence of an Event of Default or a Trigger Event Election, the Borrowers may, in lieu of making such mandatory prepayment, utilize such Net Proceeds for purposes of replacing the assets in respect of which such Net Proceeds were received within 180 days of the occurrence of such sale.  Within five (5) Business Days of any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of (and payments in lieu thereof), any property or asset of any Loan Party, except as provided in Schedule 7.1.3 , the Borrowers shall make a mandatory prepayment of principal on the Revolving Credit Loans equal to the Net Proceeds received by the Loan Parties in connection therewith, together with accrued interest on such principal amount.  Within five (5) Business Days of the incurrence by any Loan Party of any Indebtedness other than Indebtedness described in Section 7.2.1 [Indebtedness], the Borrowers shall make a mandatory prepayment of principal on the Revolving Credit Loans equal to the Net Proceeds of such Indebtedness received by the Loan Parties, together with accrued interest on such principal amount.  All prepayments pursuant to this Section 4.7.1 shall not reduce the Revolving Credit Commitments hereunder. All prepayments pursuant to this Section 4.7.1 made by the Canadian Borrower or its Subsidiaries shall be applied solely to the Canadian Liabilities.
 
 
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4.7.2          Borrowing Base Exceeded; Canadian Borrowing Base Exceeded.   From and after the occurrence of a Trigger Event Election or an Event of Default, whenever the Revolving Facility Usage exceeds the lesser of (i) the Revolving Credit Commitments, and (ii) the Borrowing Base, the Borrowers shall make, within one (1) Business Day after the Borrowers learn of such excess and whether or not the Administrative Agent has given notice to such effect, a mandatory prepayment of principal equal to the excess of the outstanding principal balance of the Revolving Credit Loans over the Borrowing Base, together with accrued interest on such principal amount, and, if necessary thereafter, Cash Collateralize the outstanding Letter of Credit Obligations in an aggregate amount equal to such excess.  From and after the occurrence of a Trigger Event Election or an Event of Default, whenever the Revolving Facility Usage of the Canadian Borrower exceeds the lesser of (i) the Canadian Commitments, and (ii) the Canadian Borrowing Base, the Canadian Borrower shall make, within one (1) Business Day after the Canadian Borrower learns of such excess and whether or not the Administrative Agent has given notice to such effect, a mandatory prepayment of principal equal to the excess of the outstanding principal balance of the Revolving Credit Loans with respect to the Canadian Borrower over the Canadian Borrowing Base, together with accrued interest on such principal amount, and, if necessary thereafter, Cash Collateralize the outstanding Letter of Credit Obligations in an aggregate amount equal to such excess.

4.7.3          Receipt and Application of Payment.   The Borrowers shall prepay the Loans in accordance with the provisions of Section 7.1.10 [Cash Management].
 
4.7.4          Application Among Interest Rate Options.   All prepayments required pursuant to this Section 4.7 shall first be applied among the Interest Rate Options to the principal amount of the Loans subject to the Base Rate Option or the Canadian Prime Rate Option, as applicable, then to Loans subject to a LIBOR Rate Option or a BA Rate Option, as applicable.  In accordance with Section 4.10 [Indemnity], the Borrowers shall indemnify the Lenders for any loss or expense incurred with respect to any such prepayments applied against Loans subject to a LIBOR Rate Option or a BA Rate Option, as applicable, on any day other than the last day of the applicable Interest Period.

4.8            Increased Costs.

4.8.1          Increased Costs Generally.   If any Change in Law shall:

(i)             impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement reflected in the LIBOR Rate) or the Issuing Lender;
 
 
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(ii)           subject any Lender or the Issuing Lender to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any participation in a Letter of Credit or any Loan under the LIBOR Rate Option or BA Rate Option made by it, or change the basis of taxation of payments to such Lender or the Issuing Lender in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 4.9 [Taxes] and the imposition of, or any change in the rate of, any Excluded Tax payable by such Lender or the Issuing Lender); or

(iii)           impose on any Lender, the Issuing Lender or the London interbank market any other condition, cost or expense affecting this Agreement or any Loan under the LIBOR Rate Option made by such Lender or any Letter of Credit or participation therein;

and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Loan under the LIBOR Rate Option or BA Rate Option (or of maintaining its obligation to make any such Loan), or to increase the cost to such Lender or the Issuing Lender of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender or the Issuing Lender hereunder (whether of principal, interest or any other amount) then, upon request of such Lender or the Issuing Lender, the Borrowers will pay to such Lender or the Issuing Lender, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Lender, as the case may be, for such additional costs incurred or reduction suffered.

4.8.2          Capital Requirements.   If any Lender or the Issuing Lender determines that any Change in Law affecting such Lender or the Issuing Lender or any lending office of such Lender or such Lender's or the Issuing Lender's holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's or the Issuing Lender's capital or on the capital of such Lender's or the Issuing Lender's holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the Issuing Lender, to a level below that which such Lender or the Issuing Lender or such Lender's or the Issuing Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's or the Issuing Lender's policies and the policies of such Lender's or the Issuing Lender's holding company with respect to capital adequacy), then from time to time the Borrowers will pay to such Lender or the Issuing Lender, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Lender or such Lender's or the Issuing Lender's holding company for any such reduction suffered.
 
4.8.3         Certificates for Reimbursement; Repayment of Outstanding Loans; Borrowing of New Loans.   A certificate of a Lender or the Issuing Lender setting forth the amount or amounts necessary to compensate such Lender or the Issuing Lender or its holding company, as the case may be, as specified in Section 4.8.1 [Increased Costs Generally] or Section 4.8.2 [Capital Requirements] and delivered to the Borrowers shall be conclusive absent manifest error.  The Borrowers shall pay such Lender or the Issuing Lender, as the case may be, the amount shown as due on any such certificate within ten (10) days after receipt thereof.

4.8.4         Delay in Requests.   Failure or delay on the part of any Lender or the Issuing Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's or the Issuing Lender's right to demand such compensation, provided that the Borrowers shall not be required to compensate a Lender or the Issuing Lender pursuant to this Section for any increased costs incurred or reductions suffered more than nine months prior to the date that such Lender or the Issuing Lender, as the case may be, notifies the Borrowers of the Change in Law giving rise to such increased costs or reductions and of such Lender's or the Issuing Lender's intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine (9) month period referred to above shall be extended to include the period of retroactive effect thereof).
 
 
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4.9            Taxes.

4.9.1          Payments Free of Taxes.   Any and all payments by or on account of any obligation of the Borrowers hereunder or under any other Loan Document shall be made free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes; provided that if the Borrowers shall be required by applicable Law to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, Lender or Issuing Lender, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrowers shall make such deductions and (iii) the Borrowers shall timely pay the full amount deducted to the relevant Official Body in accordance with applicable Law.

4.9.2          Payment of Other Taxes by the Borrowers.   Without limiting the provisions of Section 4.9.1 [Payments Free of Taxes] above, the Borrowers shall timely pay any Other Taxes to the relevant Official Body in accordance with applicable Law.

4.9.3          Indemnification by the Borrowers; Treatment of Certain Refunds.
 
4.9.3.1                 Indemnification By the Borrowers.   The Borrowers shall indemnify the Administrative Agent, each Lender and the Issuing Lender, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent, such Lender or the Issuing Lender, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Official Body.  A certificate as to the amount of such payment or liability delivered to the Borrowers by a Lender or the Issuing Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender or the Issuing Lender, shall be conclusive absent manifest error.

4.9.3.2                 Treatment of Certain Refunds.   If the Administrative Agent, any Lender or the Issuing Lender determines, in its sole discretion, that it has received a refund of any Indemnified Taxes or Other Taxes as to which it has been indemnified by the Borrowers or with respect to which the Borrowers have paid additional amounts pursuant to Section 4.9.3.1 [Indemnification By the Borrowers], it shall pay to the Borrowers an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrowers under this Section with respect to the Indemnified Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent, such Lender or the Issuing Lender, as the case may be, and without interest (other than any interest paid by the relevant Official Body with respect to such refund), provided that the Borrowers, upon the request of the Administrative Agent, such Lender or the Issuing Lender, agree to repay the amount paid over to the Borrowers (plus any penalties, interest or other charges imposed by the relevant Official Body) to the Administrative Agent, such Lender or the Issuing Lender in the event that the Administrative Agent, such Lender or the Issuing Lender is required to repay such refund to such Official Body.  This Section 4.9.3.2 shall not be construed to require the Administrative Agent, any Lender or the Issuing Lender to make available its tax returns (or any other information relating to its taxes that it deems confidential) to the Borrowers or any other Person.
 
 
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4.9.4          Evidence of Payments.   As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrowers to an Official Body, the Borrowers shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Official Body evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

4.9.5         Status of Lenders.   Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the Law of the jurisdiction in which any Borrower is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any other Loan Document shall deliver to the Borrowers (with a copy to the Administrative Agent), at the time or times prescribed by applicable Law or reasonably requested by the Borrowers or the Administrative Agent, such properly completed and executed documentation prescribed by applicable Law as will permit such payments to be made without withholding or at a reduced rate of withholding.  Notwithstanding the submission of such documentation claiming a reduced rate of or exemption from U.S. withholding tax, the Administrative Agent shall be entitled to withhold United States federal income taxes at the full thirty percent (30%) withholding rate if in its reasonable judgment it is required to do so under the due diligence requirements imposed upon a withholding agent under § 1.1441-7(b) of the United States Income Tax Regulations.  Further, the Administrative Agent is indemnified under § 1.1461-1(e) of the United States Income Tax Regulations against any claims and demands of any Lender or assignee or participant of a Lender for the amount of any tax it deducts and withholds in accordance with regulations under § 1441 of the Internal Revenue Code.  In addition, any Lender, if requested by the Borrowers or the Administrative Agent, shall deliver such other documentation prescribed by applicable Law or reasonably requested by the Borrowers or the Administrative Agent as will enable the Borrowers or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.
 
Without limiting the generality of the foregoing, in the event that any Borrower is resident for tax purposes in the United States of America, any Foreign Lender shall deliver to the Borrowers and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of the Borrowers or the Administrative Agent, but only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable:
 
 
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(i)             two (2) duly completed valid originals of IRS Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States of America is a party,

(ii)            two (2) duly completed valid originals of IRS Form W-8ECI,

(iii)           in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section 881(c) of the Code, (x) a certificate to the effect that such Foreign Lender is not (A) a "bank" within the meaning of section 881(c)(3)(A) of the Code, (B) a "10 percent shareholder" of any Loan Party within the meaning of section 881(c)(3)(B) of the Code, or (C) a "controlled foreign corporation" described in section 881(c)(3)(C) of the Code and (y) two duly completed valid originals of IRS Form W-8BEN,

(iv)           any other form prescribed by applicable Law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable Law to permit the Borrowers to determine the withholding or deduction required to be made, or

(v)           To the extent that any Lender is not a Foreign Lender, such Lender shall submit to the Administrative Agent two (2) originals of an IRS Form W-9 or any other form prescribed by applicable Law demonstrating that such Lender is not a Foreign Lender.

4.10          Indemnity.   In addition to the compensation or payments required by Section 4.8 [Increased Costs] or Section 4.9 [Taxes], the Borrowers shall indemnify each Lender against all liabilities, losses or expenses (including loss of anticipated profits, any foreign exchange losses and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan, from fees payable to terminate the deposits from which such funds were obtained or from the performance of any foreign exchange contract) which such Lender sustains or incurs as a consequence of any:
 
(i)             payment, prepayment, conversion or renewal of any Loan to which a LIBOR Rate Option or BA Rate Option applies on a day other than the last day of the corresponding Interest Period (whether or not such payment or prepayment is mandatory, voluntary or automatic and whether or not such payment or prepayment is then due),

(ii)            attempt by any Borrower to revoke (expressly, by later inconsistent notices or otherwise) in whole or part any Loan Requests under Section 2.5 [Revolving Credit Loan Requests; Swing Loan Requests] or Section 3.2 [Interest Periods] or notice relating to prepayments under Section 4.6 [Voluntary Prepayments],

(iii)           claims of, or amounts paid by the Administrative Agent, any Lender or any Affiliate of any Lender to a Blocked Account Bank or other Person which has entered into a control agreement (including, without limitation, a Blocked Account Agreement) with the Administrative Agent, any Lender or any Affiliate of any Lender hereunder; or
 
 
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(iv)           default by any Borrower in the performance or observance of any covenant or condition contained in this Agreement or any other Loan Document, including any failure of any Borrower to pay when due (by acceleration or otherwise) any principal, interest, Commitment Fee or any other amount due hereunder.

If any Lender sustains or incurs any such loss or expense, it shall from time to time notify the Borrowers of the amount determined in good faith by such Lender (which determination may include such assumptions, allocations of costs and expenses and averaging or attribution methods as such Lender shall deem reasonable) to be necessary to indemnify such Lender for such loss or expense.  Such notice shall set forth in reasonable detail the basis for such determination.  Such amount shall be due and payable by the Borrowers to such Lender ten (10) Business Days after such notice is given.

4.11            Settlement Date Procedures .  In order to minimize the transfer of funds between the Lenders and the Administrative Agent, the Borrowers may borrow, repay and reborrow Swing Loans and PNC may make Swing Loans as provided in Section 2.1.2 [Swing Loan Commitments] hereof during the period between Settlement Dates.  The Administrative Agent shall notify each Lender of its Ratable Share of the total of the Revolving Credit Loans and the Swing Loans (each a " Required Share ").  On such Settlement Date, each Lender shall pay to the Administrative Agent the amount equal to the difference between its Required Share and its Revolving Credit Loans, and the Administrative Agent shall pay to each Lender its Ratable Share of all payments made by the Borrowers to the Administrative Agent with respect to the Revolving Credit Loans.  The Administrative Agent shall also effect settlement in accordance with the foregoing sentence on the proposed Borrowing Dates for Revolving Credit Loans and may at its option effect settlement on any other Business Day.  These settlement procedures are established solely as a matter of administrative convenience, and nothing contained in this Section 4.11 shall relieve the Lenders of their obligations to fund Revolving Credit Loans on dates other than a Settlement Date pursuant to Section 2.1.2 [Swing Loan Commitment].  The Administrative Agent may at any time at its option for any reason whatsoever require each Lender to pay immediately to the Administrative Agent such Lender's Ratable Share of the outstanding Revolving Credit Loans and each Lender may at any time require the Administrative Agent to pay immediately to such Lender its Ratable Share of all payments made by the Borrowers to the Administrative Agent with respect to the Revolving Credit Loans.
 
5.            REPRESENTATIONS AND WARRANTIES

5.1            Representations and Warranties.   The Loan Parties, jointly and severally, represent and warrant to the Administrative Agent and each of the Lenders as follows:

5.1.1          Organization and Qualification; Power and Authority; Compliance With Laws; Title to Properties; Event of Default.   Each Loan Party and each Subsidiary of each Loan Party (i) is a corporation, partnership or limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, (ii) has the lawful power to own or lease its properties and to engage in the business it presently conducts or proposes to conduct, (iii) is duly licensed or qualified and in good standing in each jurisdiction listed on Schedule 5.1.1 and in all other jurisdictions where the property owned or leased by it or the nature of the business transacted by it or both makes such licensing or qualification necessary, except where the failure to be so licensed, qualified and in good standing is not reasonably likely to result in a Material Adverse Change, (iv) has full power to enter into, execute, deliver and carry out this Agreement and the other Loan Documents to which it is a party, to incur the Indebtedness contemplated by the Loan Documents and to perform its Obligations under the Loan Documents to which it is a party, and all such actions have been duly authorized by all necessary proceedings on its part, (v) is in compliance in all material respects with all applicable Laws (other than Environmental Laws which are specifically addressed in Section 5.1.14 [Environmental Matters]) in all jurisdictions in which any Loan Party or Subsidiary of any Loan Party is presently or will be doing business except where the failure to do so would not constitute a Material Adverse Change, and (vi) has good and, as to real property, marketable title to or valid leasehold interest in all properties, assets and other rights which it purports to own or lease or which are reflected as owned or leased on its books and records, free and clear of all Liens and encumbrances except Permitted Liens.  No Event of Default or Potential Default exists or is continuing.
 
 
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5.1.2          Subsidiaries and Owners; Investment Companies.   As of the Closing Date, Schedule 5.1.2 states (i) the name of each of the Loan Parties’ Subsidiaries, its jurisdiction of organization and the amount, percentage and type of equity interests in such Subsidiary (the " Subsidiary Equity Interests "), (ii) the name of each holder of an equity interest in each Loan Party (other than DSW), the amount, percentage and type of such equity interest (the " Loan Party Equity Interests "), and (iii) any options,   warrants or other rights outstanding to purchase any such equity interests referred to in clause (i) or (iii) (collectively the " Equity Interests ").  Each Loan Party and each Subsidiary of each Loan Party has good and marketable title to all of the Subsidiary Equity Interests it purports to own, free and clear in each case of any Lien and all such Subsidiary Equity Interests have been validly issued, fully paid and nonassessable.  None of the Loan Parties or Subsidiaries of any Loan Party is an "investment company" registered or required to be registered under the Investment Company Act of 1940 or under the "control" of an "investment company " as such terms are defined in the Investment Company Act of 1940 and shall not become such an "investment company" or under such "control."
 
5.1.3          Validity and Binding Effect.   This Agreement and each of the other Loan Documents (i) has been duly and validly executed and delivered by each Loan Party, and (ii) constitutes, or will constitute, legal, valid and binding obligations of each Loan Party which is or will be a party thereto, enforceable against such Loan Party in accordance with its terms.

5.1.4          No Conflict; Material Agreements; Consents.   Neither the execution and delivery of this Agreement or the other Loan Documents by any Loan Party nor the consummation of the transactions herein or therein contemplated or compliance with the terms and provisions hereof or thereof by any of them will conflict with, constitute a default under or result in any breach of (i) the terms and conditions of the certificate of incorporation, bylaws, certificate of limited partnership, partnership agreement, certificate of formation, limited liability company agreement or other organizational documents of any Loan Party or (ii) in any material respect, any Law or any agreement or instrument or order, writ, judgment, injunction or decree to which any Loan Party or any of its Subsidiaries is a party or by which it or any of its Subsidiaries is bound or to which it is subject, or result in the creation or enforcement of any Lien, charge or encumbrance whatsoever upon any property (now or hereafter acquired) of any Loan Party or any of its Subsidiaries (other than Liens granted under the Loan Documents).  There is no default under such material agreement (referred to above) and none of the Loan Parties or their Subsidiaries is bound by any contractual obligation, or subject to any restriction in any organization document, or any requirement of Law which is reasonably likely to result in a Material Adverse Change.  No consent, approval, exemption, order or authorization of, or a registration or filing with, any Official Body or any other Person is required by any Law or any agreement in connection with the execution, delivery and carrying out of this Agreement and the other Loan Documents.
 
 
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5.1.5          Litigation.   There are no actions, suits, proceedings or investigations pending or, to the knowledge of any Loan Party, threatened against such Loan Party or any Subsidiary of such Loan Party at law or in equity before any Official Body which individually or in the aggregate are reasonably likely to  result in any Material Adverse Change.  None of the Loan Parties or any Subsidiaries of any Loan Party is in violation of any order, writ, injunction or any decree of any Official Body which is reasonably likely to  result in any Material Adverse Change.

5.1.6          Financial Statements .
 
(i)              Historical Statements .  The Borrowers have delivered to the Administrative Agent copies of their audited consolidated year-end financial statements for and as of the end of the Borrowers’ fiscal year ended January 30, 2010.  In addition, the Borrowers have delivered to the Administrative Agent copies of their unaudited consolidated interim financial statements for the fiscal year to date and as of the end of the fiscal quarter ended May 1, 2010 (all such annual and interim statements being collectively referred to as the " Statements ").  The Statements were compiled from the books and records maintained by the Borrowers’ management, are correct and complete and fairly represent the consolidated financial condition of the Borrowers and their Subsidiaries as of the respective dates thereof and the results of operations for the fiscal periods then ended and have been prepared in accordance with GAAP consistently applied, subject (in the case of the interim statements) to normal year-end audit adjustments.
 
(ii)             Accuracy of Financial Statements .  As of the respective dates of the Statements, no Loan Party nor any Subsidiary of any Loan Party has any liabilities, contingent or otherwise, or forward or long-term commitments that are not disclosed in the Statements or in the notes thereto, and except as disclosed therein there are no unrealized or anticipated losses from any commitments of any Loan Party or any Subsidiary of any Loan Party which may cause a Material Adverse Change.  Since January 30, 2010,   no Material Adverse Change has occurred.

5.1.7          Margin Stock.   None of the Loan Parties or any Subsidiaries of any Loan Party engages or intends to engage principally, or as one of its important activities, in the business of extending credit for the purpose, immediately, incidentally or ultimately, of purchasing or carrying margin stock (within the meaning of Regulation U, T or X as promulgated by the Board of Governors of the Federal Reserve System).  No part of the proceeds of any Loan has been or will be used, immediately, incidentally or ultimately, to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock or which is inconsistent with the provisions of the regulations of the Board of Governors of the Federal Reserve System.  None of the Loan Parties or any Subsidiary of any Loan Party holds or intends to hold margin stock in such amounts that more than twenty-five percent (25%) of the reasonable value of the assets of any Loan Party or Subsidiary of any Loan Party are or will be represented by margin stock.
 
 
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5.1.8          Full Disclosure.   Neither this Agreement nor any other Loan Document, nor any certificate, statement, agreement or other documents furnished to the Administrative Agent or any Lender in connection herewith or therewith, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein, in light of the circumstances under which they were made, not misleading.  There is no fact known to any Loan Party which, individually or in the aggregate, is reasonably likely to result in a Material Adverse Change except for those which have been disclosed to the Administrative Agent and the Lenders prior to or at the date hereof in connection with the transactions contemplated hereby.

5.1.9         Taxes.   All federal, state, territorial, provincial and material  local and other tax returns required to have been filed with respect to each Loan Party and each Subsidiary of each Loan Party have been filed, and payment or adequate provision has been made for the payment of all taxes, fees, assessments and other governmental charges which have or may become due pursuant to said returns or to assessments received, except to the extent that such taxes, fees, assessments and other charges are being contested in good faith by appropriate proceedings diligently conducted and for which such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made.

5.1.10        Patents, Trademarks, Copyrights, Licenses, Etc.   Each Loan Party and each Subsidiary of each Loan Party owns or possesses all the material patents, trademarks, service marks, trade names, copyrights, licenses, registrations, franchises, permits and rights necessary to own and operate its properties and to carry on its business as presently conducted and planned to be conducted by such Loan Party or Subsidiary, without known possible, alleged or actual conflict with the rights of others, other than where any such failure or conflict is not reasonably likely to result in a Material Adverse Change.
 
5.1.11       Liens in the Collateral.   The Liens in the Collateral granted to the Administrative Agent for the benefit of the Lenders pursuant to the Collateral Assignment, the Blocked Account Agreements, and the Security Agreement (collectively, the " Collateral Documents ") constitute and will continue to constitute Prior Security Interests (other than with respect to any DDAs not then subject to a Blocked Account Agreement).  All filing fees and other expenses in connection with the perfection of such Liens have been or will be paid by the Loan Parties in accordance with Section 10.3.1 [Costs and Expenses] hereof.

5.1.12        Insurance.   The properties of each Loan Party and each of its Subsidiaries are insured pursuant to policies and other bonds which are valid and in full force and effect and which provide adequate coverage from reputable and financially sound insurers in amounts sufficient to insure the assets and risks of each such Loan Party and Subsidiary in accordance with prudent business practice in the industry of such Loan Parties and Subsidiaries.
 
 
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5.1.13        ERISA Compliance .   In each instance set forth in this Section 5.1.13, except for those instances which are not reasonably likely to result in a Material Adverse Change:

(i)             Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state Laws.  Each Plan that is intended to qualify under Section 401(a) of the Code (A)(1) has received a favorable determination letter from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto, or (2) is relying on a letter from the IRS issued to the sponsor of a pre-approved Plan, and, (B) to the best knowledge of the Borrowers, nothing has occurred which would prevent, or cause the loss of, such qualification.  Each Borrower and each ERISA Affiliate have made in all material respects all required contributions to each Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan.

(ii)            No ERISA Event has occurred or, based upon facts known to the Loan Parties as of the Closing Date, is reasonably likely to occur; (a) no Pension Plan has any unfunded pension liability (i.e. excess of benefit liabilities over the current value of that Pension Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan for the applicable plan year); (b) no Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (c) no Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (d) no Borrower nor any ERISA Affiliate has engaged in a transaction that is reasonably likely to be subject to Sections 4069 or 4212(c) of ERISA.

5.1.14        Environmental Matters.   Each Loan Party is and, to the knowledge of each respective Loan Party and each of its Subsidiaries is and has been in compliance with applicable Environmental Laws, other than any noncompliance which when aggregated with all such noncompliance is not reasonably likely to result in a Material Adverse Change and except as disclosed on Schedule 5.1.14 ; provided that such matters so disclosed are not reasonably likely in the aggregate to result in a Material Adverse Change.
 
5.1.15       Solvency.   Before and after giving effect to each Loan and each issuance of a Letter of Credit hereunder, each of the Loan Parties is, on a consolidated basis, Solvent.
 
 
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5.1.16       Labor Matters.   In each instance set forth in this Section 5.1.16, except for those matters which are not reasonably likely to result in a Material Adverse Change, (a) there are no strikes, lockouts, slowdowns or other material labor disputes against any Loan Party or any Subsidiary thereof pending or, to the knowledge of any Loan Party, threatened, (b) the hours worked by and payments made to employees of the Loan Parties comply with the Fair Labor Standards Act and any other applicable federal, state, provincial, territorial, local or foreign Law dealing with such matters, (c).no Loan Party or any of its Subsidiaries has incurred any liability or obligation under the Worker Adjustment and Retraining Act or similar state Law, (d) all payments due from any Loan Party and its Subsidiaries, or for which any claim may be made against any Loan Party or any of its Subsidiaries, on account of wages and employee health and welfare insurance and other benefits, have been paid or properly accrued in accordance with GAAP as a liability on the books of such Loan Party, (e) except as set forth on Schedule 5.1.16 , no Loan Party or any Subsidiary is a party to or bound by any collective bargaining agreement, management agreement, employment agreement, bonus, restricted stock, stock option, or stock appreciation plan or agreement or any similar plan, agreement or arrangement, (f) there are no representation proceedings pending or, to any Loan Party’s knowledge, threatened to be filed with the National Labor Relations Board, and no labor organization or group of employees of any Loan Party or any Subsidiary has made a pending demand for recognition, (g) there are no complaints, unfair labor practice charges, grievances, arbitrations, unfair employment practices charges or any other claims or complaints against any Loan Party or any Subsidiary pending or, to the knowledge of any Loan Party, threatened to be filed with any Official Body or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment of any employee of any Loan Party or any of its Subsidiaries, and (h) the consummation of the transactions contemplated by the Loan Documents will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which any Loan Party or any of its Subsidiaries is bound.

5.1.17        DDAs; Credit Card Arrangements.

5.1.17.1               DDAs.   Annexed hereto as Schedule 5.1.17.1 is a list of all DDAs maintained by the Loan Parties as of the Closing Date, which Schedule includes, with respect to each DDA (i) the name and address of the depository; (ii) the account number(s) maintained with such depository; (iii) a contact person at such depository, and (iv) the identification of each Blocked Account Bank.

5.1.17.2               Credit Card Arrangements.   Annexed hereto as Schedule 5.1.17.2 is a list describing all arrangements as of the Closing Date to which any Loan Party is a party with respect to the processing and/or payment to such Loan Party of the proceeds of any credit card charges and debit card charges for sales made by such Loan Party.
 
5.2            Updates to Schedules.   Should any of the information or disclosures provided on any of the Schedules attached hereto become outdated or incorrect in any material respect, the Borrowers shall promptly provide the Administrative Agent in writing with such revisions or updates to such Schedule as may be necessary or appropriate to update or correct same.  No Schedule shall be deemed to have been amended, modified or superseded by any such correction or update, nor shall any breach of warranty or representation resulting from the inaccuracy or incompleteness of any such Schedule be deemed to have been cured thereby, unless and until the Required Lenders, in their sole and absolute discretion, shall have accepted in writing such revisions or updates to such Schedule.

6.              CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT

The obligation of each Lender to make Loans and of the Issuing Lender to issue Letters of Credit hereunder is subject to the performance by each of the Loan Parties of its Obligations to be performed hereunder at or prior to the making of any such Loans or issuance of such Letters of Credit and to the satisfaction of the following further conditions:
 
 
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6.1            First Loans and Letters of Credit.

6.1.1          Deliveries.   On the Closing Date, the Administrative Agent shall have received each of the following in form and substance reasonably satisfactory to the Administrative Agent:

(i)           A certificate of each of the Loan Parties signed by an Authorized Officer of each Borrower, dated the Closing Date stating that (v) all representations and warranties of the Loan Parties set forth in this Agreement are true and correct in all material respects as of the Closing Date, except to the extent such representations and warranties are modified by “materiality” or “Material Adverse Change” or words of similar import, in which case they are true and correct in all respects, (w) the Loan Parties are in compliance with each of the covenants and conditions hereunder, (x) no Potential Default or Event of Default exists, and (y) no Material Adverse Change has occurred since January 30, 2010;

(ii)           A Simplified Borrowing Base Certificate prepared as of the Closing Date in substantially the form of Exhibit 7.3.4.1 , showing the sum of Revolving Credit Availability plus the Borrowers’ cash and cash equivalents then on hand, in each case after giving effect to the Loans to be made on the Closing Date and consummation of the transactions contemplated hereby (including repayment of Indebtedness under the Existing Loan Agreement (including in respect of any outstanding letters of credit issued thereunder) and payment of fees and expenses owing on the Closing Date), of at least $300,000,000;
 
(iii)           A certificate dated the Closing Date and signed by the Secretary or an Assistant Secretary of each of the Loan Parties, certifying as appropriate as to: (a) all action taken by each Loan Party in connection with this Agreement and the other Loan Documents; (b) the names of the Authorized Officers authorized to sign the Loan Documents and their true signatures; and (c) copies of its organizational documents as in effect on the Closing Date certified by the appropriate state official where such documents are filed in a state office together with certificates from the appropriate state officials as to the continued existence and good standing of each Loan Party in each state where organized or qualified to do business;

(iv)           This Agreement and each of the other Loan Documents signed by an Authorized Officer of each Loan Party and all appropriate financing statements and appropriate stock powers and certificates and other documents, instruments and agreements evidencing the pledged Collateral, and evidence of filing of all Collateral Documents as may be necessary to reflect valid and perfected first priority Liens in the Collateral;

(v)           A written opinion of each of Porter Wright Morris & Arthur LLP and Sonnenschein Nath & Rosenthal LLP, counsel for the Loan Parties, each dated as of the Closing Date and opining as to the matters set forth in Schedule 6.1.1 ;

(vi)           Evidence that adequate insurance required to be maintained under this Agreement is in full force and effect, with additional insured and lender loss payable endorsements attached thereto in form and substance satisfactory to the Administrative Agent and its counsel naming the Administrative Agent as additional insured and lender loss payee;
 
 
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(vii)          A duly completed Compliance Certificate as of the last day of the fiscal quarter of DSW most recently ended prior to the Closing Date, signed by an Authorized Officer of DSW;

(viii)         All material consents required to effectuate the transactions contemplated hereby;

(ix)           Evidence that the Existing Loan Agreement has been terminated, and all outstanding obligations thereunder have been paid and all Liens securing such obligations have been released;

(x)            Results of searches or other evidence reasonably satisfactory to the Administrative Agent (in each case dated as of a date reasonably satisfactory to the Administrative Agent) indicating the absence of Liens on the assets of the Loan Parties, except for Permitted Liens and Liens for which termination statements and releases reasonably satisfactory to the Administrative Agent are being tendered concurrently with such extension of credit or other arrangements reasonably satisfactory to the Administrative Agent for the delivery of such termination statements and releases have been made;

(xi)           An executed Collateral Access Agreement or other lien waiver agreement from the lessor, or other applicable Person for the fulfillment center and the main distribution center as required under the Security Agreement; and

(xii)           Such other documents, instruments and agreements in connection with such transactions as the Administrative Agent or its counsel may reasonably request.

6.1.2          Other Conditions Precedent.   On the Closing Date, each of the following conditions precedent shall have been satisfied in a manner acceptable to the Administrative Agent:
 
(i)             The Administrative Agent shall have received and be satisfied with such financial or other information as reasonably requested by the Administrative Agent.

(ii)            The Administrative Agent shall have received and be satisfied with such other due diligence materials (including, without limitation, in respect of ERISA, and labor matters) as reasonably requested by the Administrative Agent.

(iii)           There shall not be pending any litigation or other proceeding, the result of which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Change.

(iv)           There shall have been no Material Adverse Change since January 30, 2010.
 
 
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6.1.3          Payment of Fees and Expenses.   The Borrowers shall have paid all fees and expenses invoiced to the Borrowers and payable on or before the Closing Date as required by this Agreement, the Fee Letter or any other Loan Document.
 
6.2            Each Loan or Letter of Credit.   At the time of making any Loans or issuing, extending or increasing any Letters of Credit and after giving effect to the proposed extensions of credit and the application of proceeds therefrom: (i) the representations, warranties of the Loan Parties shall then be true and correct in all material respects as of the date of such extension of credit, except to the extent such representations and warranties (1) relate to an earlier date, in which case they are true and correct in all material respects as of such earlier date, or (2) are modified by “materiality” or “Material Adverse Change” or words of similar import, in which case they are true and correct in all such respects, (ii) no Event of Default or Potential Default shall have occurred and be continuing, (iii) the making of the Loans or issuance, extension or increase of such Letter of Credit shall not contravene any Law applicable to any Loan Party or Subsidiary of any Loan Party or any of the Lenders, and (iv) the Borrowers shall have delivered to the Administrative Agent a duly executed and completed Loan Request or Swing Loan Request, as applicable, or to the Issuing Lender an application for a Letter of Credit, as the case may be.

6.3            Initial Loans or Letters of Credit – Canadian Borrower.   On or prior to the time of the Canadian Lenders’ making the initial Loans to the Canadian Borrower or the Issuing Lender’s issuing the initial Letter of Credit for the account of the Canadian Borrower, the Canadian Borrower shall join this Agreement as the Canadian Borrower and shall have complied in all respects with the requirements of Section 7.2.9 [Subsidiaries, Partnerships and Joint Ventures] with respect to the joinder of a Subsidiary as a Borrower hereto and all other conditions set forth in this Section 6 [Conditions of Lending and Issuance of Letters of Credit] with respect to the Canadian Borrower and its Subsidiaries shall have been satisfied.

7.              COVENANTS

The Loan Parties, jointly and severally, covenant and agree that until Payment In Full, the Loan Parties shall comply at all times with the following covenants:

7.1            Affirmative Covenants.
 
7.1.1          Preservation of Existence, Etc.   Each Loan Party shall, and shall cause each of its Subsidiaries to, maintain its legal existence as a corporation, limited partnership or limited liability company and its license or qualification and good standing (a) in its jurisdiction of incorporation or organization, and (b) in each other jurisdiction in which its ownership or lease of property or the nature of its business makes such license or qualification necessary, except as otherwise expressly permitted in Section 7.2.6 [Liquidations, Mergers, Consolidations, Amalgamations, Acquisitions] and, with respect to clause (b), except where the failure to so maintain any license or qualification is not reasonably likely to result in a Material Adverse Change.
 
 
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7.1.2          Payment of Liabilities, Including Taxes, Etc.   Each Loan Party shall, and shall cause each of its Subsidiaries to, duly pay and discharge all liabilities in the aggregate in excess of $1,000,000 to which it is subject or which are asserted against it, promptly as and when the same shall become due and payable, including all taxes,   assessments and governmental charges upon it or any of its properties, assets, income or profits, prior to the date on which penalties attach thereto, except to the extent that (A) the validity or amount of any such liability (including taxes, assessments or charges) is being contested in good faith by appropriate and lawful proceedings diligently conducted so long as levy and execution thereon have been stayed and continue to be stayed or (B) if a final judgment is entered, such judgment is discharged within forty-five (45) days of entry, and in either case, such contesting or judgment does not affect the Collateral or, in the aggregate, materially impair the ability of any Loan Party to perform its Obligations hereunder or under the other Loan Documents; provided that the applicable Loan Party maintains such reserves or other appropriate provisions as shall be required by GAAP and pays all such taxes, assessments or charges forthwith upon the commencement of proceedings to foreclose any such Lien.

7.1.3          Maintenance of Insurance.   Each Loan Party shall, and shall cause each of its Subsidiaries to, insure its properties and assets against loss or damage by fire and such other insurable hazards as such assets are commonly insured (including fire, extended coverage, property damage, workers' compensation, public liability and business interruption insurance) and against other risks (including errors and omissions) in such amounts as similar properties and assets are insured by prudent companies in similar circumstances carrying on similar businesses, and with reputable and financially sound insurers, including self-insurance to the extent customary, all reasonably satisfactory to the Administrative Agent.  The Loan Parties shall comply with the covenants and provide the endorsement set forth on Schedule 7.1.3 relating to property and related insurance policies covering the Collateral.

7.1.4          Maintenance of Properties and Leases.   Each Loan Party shall, and shall cause each of its Subsidiaries to, maintain in good repair, working order and condition (ordinary wear and tear excepted) in accordance with the general practice of other businesses of similar character and size, all of those properties useful or necessary to its business, and from time to time, such Loan Party will make or cause to be made all appropriate repairs, renewals or replacements thereof.

7.1.5          Visitation Rights.
 
7.1.5.1                 General .  Each Loan Party shall, and shall cause each of its Subsidiaries to, permit any of the officers or authorized employees or representatives of the Administrative Agent or any of the Lenders to visit and inspect any of its properties and to examine and make excerpts from its books and records and discuss its business affairs, finances and accounts with its officers, all in such detail and at such times and as often as any of the Lenders may reasonably request, provided that each Lender shall provide the Borrowers and the Administrative Agent with reasonable notice prior to any visit or inspection.  Following the occurrence of a Borrowing Base Trigger Event, the Administrative Agent may undertake or cause to be undertaken by third parties satisfactory to the Administrative Agent and the Arranger, in each case at the Borrowers’ expense, such audits and appraisals as the Administrative Agent may require from time to time in the Administrative Agent’s reasonable discretion.  The Administrative Agent shall use reasonable efforts to minimize expenses and shall furnish estimates of the expenses in respect of audits and appraisals to be undertaken after the Closing Date under the Loan Documents.  The Administrative Agent agrees (i) to advise the Borrowers upon its becoming aware that actual expenses in respect of such audits and appraisals will likely exceed the estimates previously provided therefor, and (ii) that the Administrative Agent shall not charge the Borrowers’ account with respect to such expenses until the Borrowers have had a reasonable opportunity to review the invoices with respect thereto, it being understood that all such expenses with respect to the audits and appraisals shall be paid as and when due hereunder.
 
 
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7.1.5.2                 Post-Closing Covenant .  In addition to the Administrative Agent’s rights set forth in Section 7.1.5.1, the Loan Parties shall cooperate with and assist the Administrative Agent and its representatives in order that the Administrative Agent may cause, in each case at the Borrowers’ expense, one (1) audit of the Loan Parties’ business and one (1) appraisal of the Loan Parties’ Inventory to be prepared by third parties reasonably satisfactory to the Administrative Agent and the Arranger and completed and delivered to the Administrative Agent within sixty (60) days following the Closing Date.

7.1.6          Keeping of Records and Books of Account .   Each Loan Party shall, and shall cause each of its Subsidiaries to, maintain and keep proper books of record and account which enable the Loan Parties and their Subsidiaries to issue financial statements in accordance with GAAP and as otherwise required by applicable Laws of any Official Body having jurisdiction over any Loan Party or any Subsidiary of any Loan Party, and in which full, true and correct entries shall be made in all material respects of all its dealings and business and financial affairs.

7.1.7          Compliance with Laws; Use of Proceeds.   Each Loan Party shall, and shall cause each of its Subsidiaries to, comply with all applicable Laws, including all Environmental Laws, in all respects; provided that it shall not be deemed to be a violation of this Section 7.1.7 if any failure to comply with any Law would not result in fines, penalties, remediation costs, other similar liabilities or injunctive relief which in the aggregate are reasonably likely to constitute a Material Adverse Change.  The Loan Parties will use the Letters of Credit and the proceeds of the Loans only in accordance with Section 2.8 [Use of Proceeds] and as permitted by applicable Law.
 
7.1.8          Further Assurances.   Each Loan Party shall, from time to time, at its expense, faithfully preserve and protect the Administrative Agent's Lien on and Prior Security Interest in the Collateral whether now owned or hereafter acquired as a continuing first priority perfected Lien, subject only to Permitted Liens having priority by operation of Law, and shall do such other acts and things as the Administrative Agent in its reasonable discretion may deem necessary or advisable from time to time in order to preserve, perfect and protect the Liens granted under the Loan Documents and to exercise and enforce its rights and remedies thereunder with respect to the Collateral.

7.1.9          Anti-Terrorism Laws.    None of the Loan Parties is or shall be (i) a Person with whom any Lender is restricted from doing business under Executive Order No. 13224 or any other Anti-Terrorism Law, (ii) engaged in any business involved in making or receiving any contribution of funds, goods or services to or for the benefit of such a Person or in any transaction that evades or avoids, or has the purpose of evading or avoiding, the prohibitions set forth in any Anti-Terrorism Law, or (iii) otherwise in violation of any Anti-Terrorism Law.  The Loan Parties shall provide to the Lenders any certifications or information that a Lender requests to confirm compliance by the Loan Parties with Anti-Terrorism Laws .
 
 
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7.1.10        Cash Management .

7.1.10.1              On or prior to the Closing Date, the Loan Parties shall:

(i)             deliver to the Administrative Agent copies of notifications (each, a “ Credit Card Notification ”), each in form and substance reasonably satisfactory to the Administrative Agent, which have been executed on behalf of such Loan Party and delivered to such Loan Party’s credit card clearinghouses and processors listed on Schedule 5.1.17.1 ; and

(ii)           enter into a Blocked Account Agreement in form and substance reasonably satisfactory to the Administrative Agent with each Blocked Account Bank on terms consistent with the provisions of Section 7.1.10.3 hereof (collectively, the “ Blocked Accounts ”).

7.1.10.2              The Loan Parties shall ACH or wire transfer no less frequently than daily (and whether or not there are then any outstanding Obligations) to a Blocked Account all amounts in excess of $2,500 on deposit in each such DDA and all payments due from credit card processors.

7.1.10.3              Each Blocked Account Agreement shall require after the occurrence of a Trigger Event Election or an Event of Default the ACH or wire transfer no less frequently than daily (and whether or not there are then any outstanding Obligations) to the concentration account maintained at PNC or, with respect to the Canadian Borrower and its Subsidiaries, to the concentration account maintained at PNC Canada (each, as further described in a certain confidential side letter of even date herewith, a “ Concentration Account ”), of all cash receipts and collections, including, without limitation, the following:
 
(i)            all available cash receipts from the sale of Inventory (including without limitation, proceeds of credit card charges) and other assets (whether or not constituting Collateral);

(ii)           all proceeds of collections of Accounts;

(iii)          all Net Proceeds and all other cash payments received by a Loan Party from any Person or from any source or on account of any sale or other transaction or event;

(iv)          the then contents of each DDA (net of any minimum balance, not to exceed $2,500.00, as may be required to be kept in the subject DDA by the depository institution at which such DDA is maintained);

(v)           the then entire ledger balance of each Blocked Account (net of any minimum balance, not to exceed $2,500.00, as may be required to be kept in the subject Blocked Account by the Blocked Account Bank; and
 
 
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(iv)          all other proceeds of Collateral.

The Concentration Account shall at all times be under the sole dominion and control of the Administrative Agent or PNC Canada, as applicable.  The Loan Parties hereby acknowledge and agree that (i) the Loan Parties have no right of withdrawal from the Concentration Accounts, (ii) the funds on deposit in the Concentration Accounts shall at all times be collateral security for all of the Obligations or the Canadian Liabilities, as applicable, and (iii) the funds on deposit in the Concentration Accounts shall be applied as provided in this Agreement.  In the event that, notwithstanding the provisions of this Section 7.1.10 , any Loan Party receives or otherwise has dominion and control of any such proceeds or collections, such proceeds and collections shall be held in trust by such Loan Party for the Administrative Agent, shall not be commingled with any of such Loan Party’s other funds or deposited in any account of such Loan Party and shall, not later than the Business Day after receipt thereof, be deposited into a Concentration Account or dealt with in such other fashion as such Loan Party may be instructed by the Administrative Agent.

7.1.10.4              Upon the request of the Administrative Agent, the Loan Parties shall cause bank statements and/or other reports to be delivered to the Administrative Agent not less often than monthly, accurately setting forth all amounts deposited in each Blocked Account to ensure the proper transfer of funds as set forth above.

7.1.10.5              Each Loan Party hereby authorizes the Administrative Agent, after the occurrence and during the continuance of an Event of Default, to (i) notify any or all Account Debtors that the Accounts have been assigned to the Lenders and that the Lenders have a security interest therein, and (ii) direct such Account Debtors to make all payments due from them to the Loan Parties upon the Accounts directly to the Administrative Agent or to a lockbox designated by the Administrative Agent.  The Administrative Agent shall promptly furnish the Borrowers with a copy of any such notice sent.  Any such notice, in the Administrative Agent's sole discretion, may be sent on any Loan Party's stationery, in which event such Loan Party shall co-sign such notice with the Administrative Agent.  To the extent that any Law or custom or any contract or agreement with any Account Debtor requires notice to or the approval of the Account Debtor in order to perfect such assignment of a security interest in Accounts, each Loan Party agrees to give such notice or obtain such approval.
 
7.2            Negative Covenants.

7.2.1          Indebtedness.   Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time create, incur, assume or suffer to exist any Indebtedness, except:

(i)             Indebtedness under the Loan Documents;

(ii)            Existing Indebtedness as set forth on Schedule 7.2.1 (including any extensions or renewals thereof; provided there is no increase in the amount thereof or other significant change in the terms thereof unless otherwise specified on Schedule 7.2.1 ) ;
 
 
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(iii)           as and to the extent permitted pursuant to clause (ix) of the definition of “Permitted Liens”, Indebtedness incurred with respect to Purchase Money Security Interests and Capital Leases;

(iv)           Indebtedness of a Loan Party to another Loan Party;

(v)           Indebtedness of a Loan Party to a Subsidiary which is not a Loan Party which is subordinated pursuant to the Intercompany Subordination Agreement;

(vi)           Any (i) Lender Provided Interest Rate Hedge, (ii) other Interest Rate Hedge approved by the Administrative Agent, or (iii) Indebtedness under any Other Lender Provided Financial Services Product; provided , however, the Loan Parties and their Subsidiaries shall enter into a Lender Provided Interest Rate Hedge or another Interest Rate Hedge only for hedging (rather than speculative) purposes;

(vii)          Indebtedness in connection with Permitted Acquisitions (A) to sellers in an amount not to exceed $25,000,000 in the aggregate outstanding at any time, provided that such Indebtedness has a maturity of at least 180 days following the Expiration Date and is subordinated to the Obligations on terms reasonably acceptable to the Administrative Agent, and (B) as disclosed in a certain confidential side letter of even date herewith;

(viii)         Indebtedness in respect of financing of insurance premiums; incurred in the ordinary course of business;

(ix)           Indebtedness in respect to any Lender’s credit card program incurred in the ordinary course of business;

(x)            Indebtedness to customs brokers, freight forwarders, common carriers, landlords and like persons incurred in the ordinary course of business;
 
(xi)           Indebtedness with respect to indemnities, warranties, statutory obligations, and surety, appeal and supersedeas bonds incurred in the ordinary course of business and which is not overdue;

(xii)           Indebtedness consisting of obligations of a Loan Party or any Subsidiary under any lease (i) which is accounted for by the lessee thereof as an operating lease, and (ii) under which such lessee is intended to be the “owner” of the leased property for federal income tax purposes; and

(xiii)         other Indebtedness not specifically described herein in an aggregate principal amount not to exceed $20,000,000 in any fiscal year of the Borrowers.

Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner any Indebtedness, or make any payment in violation of any subordination terms of any Subordinated Indebtedness in excess of the sum of $2,500,000, except (a) as long as no Trigger Event Election has occurred and no Event of Default or Potential Default then exists or would arise therefrom and, after giving effect to any such payment, the Borrowers have on hand the Minimum Cash Requirement, regularly scheduled repayments, prepayments, repurchases, redemptions or defeasances of Indebtedness described in this Section 7.2.1 (other than Subordinated Indebtedness), and (b) as long as no Trigger Event Election has occurred and no Event of Default or Potential Event of Default then exists or would arise therefrom, and, after giving effect to any such payment, the Borrowers have on hand the Minimum Cash Requirement, repayments, defeasances and prepayments of Subordinated Indebtedness in accordance with the subordination terms thereof.
 
 
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7.2.2          Liens; Lien Covenants.   Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time create, incur, assume or suffer to exist any Lien on any of its property or assets, tangible or intangible, now owned or hereafter acquired, or agree or become liable to do so,   except Permitted Liens.

7.2.3          Guaranties.   Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time, directly or indirectly, become or be liable in respect of any Guaranty, or assume, guarantee, become surety for, endorse or otherwise agree, become or remain directly or contingently liable upon or with respect to any obligation or liability of any other Person, except for Guaranties of Indebtedness of the Loan Parties permitted hereunder.

7.2.4         Loans and Investments.    Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time make or suffer to remain outstanding any loan or advance to, or purchase, acquire or own any stock, bonds, notes or securities of, or any partnership interest (whether general or limited) or limited liability company interest in, or any other investment or interest in,   or make any capital contribution to, or make an Acquisition of, any other Person, or agree, become or remain liable to do any of the foregoing, except:

(i)             trade credit and similar advances extended on usual and customary terms in the ordinary course of business (including , without limitation, pursuant to any Loan Party’s leased departments, supply agreements or similar arrangements);
 
(ii)            advances to employees to meet expenses incurred by such employees in the ordinary course of business;

(iii)           Permitted Investments;

(iv)           Permitted Acquisitions;

(v)            loans, advances and investments in other Loan Parties;

(vi)           investments in Taryn Rose in an amount not to exceed $5,000,000 at any time outstanding;

(vii)          investments pursuant to a certain confidential side letter of even date herewith; and

(viii)         other investments not specifically described herein and not exceeding $20,000,000 in the aggregate in any fiscal year of the Borrowers.
 
 
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7.2.5          Dividends and Related Distributions.   Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, make or pay, or agree to become or remain liable to make or pay, any dividend or other distribution of any nature (whether in cash, property, securities or otherwise) on account of or in respect of its shares of capital stock, partnership interests or limited liability company interests on account of the purchase, redemption, retirement or acquisition of its shares of capital stock (or warrants, options or rights therefor), partnership interests or limited liability company interests, except:

(i)             dividends or other distributions payable to another Loan Party; and

(ii)            in any fiscal year of the Borrowers, dividends or other distributions, and share repurchases, share redemptions or retirements, in the aggregate of up to fifty percent (50%) of the Borrowers’ net income (as determined in accordance with GAAP) from the immediately preceding fiscal year, provided that (x) prior to and after giving effect to the making of such dividend or other distribution, no Trigger Event Election or Event of Default shall have occurred and the Borrowers shall have on hand the Minimum Cash Requirement, and (y) the aggregate amount of all such dividends or other distributions in such fiscal year does not exceed $50,000,000.

7.2.6          Liquidations, Mergers, Consolidations, Amalgamations, Acquisitions.   Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, dissolve, liquidate or wind-up its affairs, or become a party to any merger, consolidation or amalgamation, or acquire by purchase, lease or otherwise all or substantially all of the assets or capital stock of any other Person, except:

(i)             any Loan Party other than a Borrower may consolidate, merge or amalgamate with and into another Loan Party which is wholly-owned by one or more of the other Loan Parties; and

(ii)            Permitted Acquisitions;
 
(iii)           pursuant to a confidential side letter delivered to the Administrative Agent of even date herewith.

7.2.7         Dispositions of Assets or Subsidiaries.   Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, sell, convey, assign, lease, abandon or otherwise transfer or dispose of, voluntarily or involuntarily, any of its properties or assets, tangible or intangible (including sale, assignment, discount or other disposition of accounts, contract rights, chattel paper, equipment or general intangibles with or without recourse or of capital stock, shares of beneficial interest, partnership interests or limited liability company interests of a Subsidiary of such Loan Party), except:

(i)             transactions involving the sale of inventory in the ordinary course of business;

(ii)            any sale, transfer or lease of assets in the ordinary course of business which are no longer necessary or required in the conduct of such Loan Party's or such Subsidiary's business so long as no Event of Default shall have occurred and be continuing or will result therefrom;
 
 
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(iii)           any sale, transfer or lease of assets by any wholly owned Subsidiary of such Loan Party to another Loan Party;

(iv)           any sale, transfer or lease of assets in the ordinary course of business which are replaced by substitute assets acquired or leased within the parameters of Section 7.2.14 [Capital Expenditures] so long no Event of Default shall have occurred and be continuing or will result therefrom; provided such substitute assets are subject to the Administrative Agent’s and the Lenders' Prior Security Interest;

(v)           any other sale, transfer or lease of assets to another Person in an amount not to exceed $20,000,000 in the aggregate for all such other sales, transfers or leases in any fiscal year of the Borrowers so long as (a) a Trigger Event Election has not occurred and (b) no Potential Default or Event of Default shall have occurred and be continuing or will result therefrom (it being understood that following the earlier to occur of a Trigger Event Election or the occurrence of such Potential Default or Event of Default, any such sale, transfer of lease shall require the Required Lenders’ prior written consent);

(vi)           Licenses of intellectual property or licensed departments of a Loan Party or any of its Subsidiaries in the ordinary course of business; and

(vii)          Leases or subleases of leases.

7.2.8          Affiliate Transactions.   Except as disclosed on Schedule 7.2.8, each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, enter into or carry out any transaction with any Affiliate of any Loan Party (including purchasing property or services from or selling property or services to any Affiliate of any Loan Party or other Person) unless such transaction is not otherwise prohibited by this Agreement, is entered into in the ordinary course of business upon fair and reasonable arm's-length terms and conditions which are fully disclosed to the Administrative Agent and is in accordance with all applicable Law.
 
7.2.9          Subsidiaries, Partnerships and Joint Ventures.   Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to own or create directly or indirectly any Subsidiaries other than (i) any Subsidiary which has joined this Agreement as Guarantor on the Closing Date; and (ii) any Domestic Subsidiary formed or acquired after the Closing Date which joins this Agreement as a Borrower or as a Guarantor, and, to the extent not resulting in material adverse tax consequences, any Foreign Subsidiary formed or acquired after the Closing Date which joins this Agreement as a Borrower or as a Guarantor, in each case by delivering to the Administrative Agent (A) a signed Borrower Joinder or Guarantor Joinder, as appropriate; (B) documents in the forms described in Section 6.1 [First Loans] modified as appropriate; (C) documents necessary to grant and perfect the Prior Security Interests to the Administrative Agent for the benefit of the Lenders in the equity interests of, and Collateral held by, such Subsidiary; and (D) such diligence materials in respect of such Subsidiary (including, without limitation, “know your customer”, liens, ERISA and labor matters) as the Administrative Agent shall reasonably request.  Each of the Loan Parties shall not become or agree to become a party to a Joint Venture other than Permitted Investments and other investments permitted pursuant to Section 7.2.4 [Loans and Investments].  For purposes of clarity, any Subsidiary organized under the laws of Canada or any political subdivision thereof that is formed or acquired by the Canadian Borrower after the Closing Date shall join this Agreement as a Guarantor of the Canadian Liabilities in accordance with the terms of this Section 7.2.9.
 
 
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7.2.10        Continuation of or Change in Business.   Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, engage in any business other than (a) operation of designer and name brand shoe stores and related accessories, or (b) operation of licensed shoe departments, and any other business reasonably incidental thereto in each case, as to the existing business, substantially as conducted and operated by such Loan Party or Subsidiary during the present fiscal year,   and such Loan Party or Subsidiary shall not permit any material change in such business.

7.2.11        Fiscal Year.   No Loan Party shall, nor shall permit any Subsidiary of any Loan Party to, change its fiscal year from the fifty-two (52) or fifty-three (53) week period ending on the Saturday nearest to January 31 in such year.

7.2.12        Issuance of Stock.   Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, issue any additional shares of its capital stock or any options, warrants or other rights in respect thereof, except that (i) DSW may issue shares of its capital stock and options, warrants or other rights in respect thereof, and (ii) any other Loan Party or Subsidiary may issue to such Person’s immediate parent any shares of such Person’s capital stock or any options, warrants or other rights in respect thereof.

7.2.13        Changes in Organizational Documents.   Other than as disclosed in that certain confidential side letter of even date herewith, each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, amend in any material respect its certificate of incorporation (including any provisions or resolutions relating to capital stock), by-laws, certificate of limited partnership, partnership agreement, certificate of formation, limited liability company agreement or other organizational documents, without providing at least ten (10) Business Days' prior written notice to the Administrative Agent and the Lenders and, in the event any change (whether or not such change is deemed material by the Loan Parties) could reasonably be expected to materially adversely affect the interests of the Lenders as determined by the Administrative Agent in its sole discretion, obtaining the prior written consent of the Required Lenders.
 
7.2.14       Capital Expenditures.   Each of the Loan Parties shall not,   and shall not permit any of its Subsidiaries to, make any payments exceeding $75,000,000 in the aggregate in any fiscal year on account of any Capital Expenditures.

7.2.15       Minimum Fixed Charge Coverage Ratio.   From and after the occurrence of a Trigger Event Election, the Loan Parties shall not permit the Fixed Charge Coverage Ratio, calculated as of the end of each month for the twelve (12) fiscal months then ended, to be less than 1.1 to 1.0.
 
 
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7.2.16        Agreements Restricting Dividends.   Each of the Loan Parties covenants and agrees that it shall not, and shall not permit any of its Subsidiaries to, enter into any Agreement with any Person which restricts any of the Loan Parties' right to pay dividends or other distributions to any Borrower or any other Loan Party or to repay intercompany loans from any Borrower to any other Loan Party.

7.2.17        DDAs; Credit Card Processors .  No Loan Party shall open new Blocked Accounts unless the Loan Parties shall have delivered to the Administrative Agent appropriate Blocked Account Agreements consistent with the provisions of Section 7.1.10 [Cash Management] and otherwise reasonably satisfactory to the Administrative Agent.  No Loan Party shall maintain any bank accounts or enter into any agreements with credit card processors other than the ones expressly contemplated herein or in Section 7.1.10 [Cash Management].

7.2.18       Negative Pledges .  Each of the Loan Parties covenants and agrees that it shall not, and shall not permit any of its Subsidiaries to, enter into any Agreement with any Person which, in any manner, whether directly or contingently, prohibits, restricts or limits the right of any of the Loan Parties from granting any Liens to the Administrative Agent or the Lenders.

7.3            Reporting Requirements.   The Loan Parties will furnish or cause to be furnished to the Administrative Agent and each of the Lenders:

7.3.1          Quarterly Financial Statements ; Monthly Financial Statements.

(i)            Within forty-five (45) calendar days after the end of each of the first three fiscal quarters in each fiscal year, financial statements of DSW, consisting of a consolidated balance sheet, together with consolidating schedules with respect thereto, as of the end of such fiscal quarter and related consolidated and consolidating statements of income, stockholders' equity, retained earnings and cash flows for the fiscal quarter then ended and the fiscal year through that date, all in reasonable detail and certified (subject to normal year-end audit adjustments) by an Authorized Officer of DSW as having been prepared in accordance with GAAP, consistently applied, and setting forth in comparative form the respective financial statements for the corresponding date and period in the previous fiscal year.
 
(ii)           From and after the occurrence of a Trigger Event Election, within thirty (30) calendar days after the end of each of the first two fiscal months in each fiscal quarter, financial statements of DSW, consisting of a consolidated balance sheet, together with consolidating schedules with respect thereto as of the end of such fiscal month and related consolidated and consolidating statements of income, stockholders' equity, retained earnings and cash flows for the fiscal month then ended and the fiscal year through that date, all in reasonable detail and certified (subject to normal year-end audit adjustments) by an Authorized Officer of DSW as having been prepared in accordance with GAAP, consistently applied, and setting forth in comparative form the respective financial statements for the corresponding date and period in the previous fiscal year.

7.3.2          Annual Financial Statements.   Within ninety (90) days after the end of each fiscal year of DSW, financial statements of DSW consisting of a consolidated audited balance sheet as of the end of such fiscal year, together with consolidating schedules with respect thereto, and related consolidated and consolidating statements of income, stockholders' equity, retained earnings and cash flows for the fiscal year then ended, all in reasonable detail and setting forth in comparative form the financial statements as of the end of and for the preceding fiscal year, and certified by independent certified public accountants of nationally recognized standing reasonably satisfactory to the Administrative Agent.  The certificate or report of accountants shall be free of qualifications (other than any consistency qualification that may result from a change in the method used to prepare the financial statements as to which such accountants concur) and shall not indicate the occurrence or existence of any event, condition or contingency which would materially impair the prospect of payment or performance of any covenant, agreement or duty of any Loan Party under any of the Loan Documents.
 
 
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7.3.3         Certificate of the Borrowers.   Concurrently with the financial statements of DSW furnished to the Administrative Agent and to the Lenders pursuant to Section 7.3.1 [Quarterly Financial Statements; Monthly Financial Statements] and Section 7.3.2 [Annual Financial Statements], a certificate (each a “ Compliance Certificate ”) of DSW signed by an Authorized Officer thereof, in the form of Exhibit 7.3.3 .

7.3.4         Simplified Borrowing Base Certificates; Borrowing Base Certificates.

(i)             Prior to the occurrence of a Borrowing Base Trigger Event, as soon as available, but in any event within twenty (20) days following the end of each fiscal quarter, a certificate showing the Simplified Borrowing Base for each of the Domestic Borrowers and the Canadian Borrower (a “ Simplified Borrowing Base Certificate ”) as of the last day of such fiscal quarter, in the form of Exhibit 7.3.4.1 (or such other form as the Administrative Agent may reasonably require from time to time), appropriately completed, executed and delivered by an Authorized Officer of DSW.

(ii)            From and after the occurrence of a Borrowing Base Trigger Event, as soon as available:  by the twentieth (20 th ) Business Day of each month (or with such greater frequency as the Administrative Agent may require), a certificate showing the Borrowing Base and the Canadian Borrowing Base (a “ Borrowing Base Certificate ”) as of the last day of the immediately preceding month in the form of Exhibit 7.3.4.2 (or such other form as the Administrative Agent may reasonably require from time to time), appropriately completed, executed and delivered by an Authorized Officer of each of DSW and the Canadian Borrower, together with a detailed sales register, a cash receipts journal and a purchase journal showing sales, receipts and purchases for the preceding month.
 
7.3.5          Minimum Cash Requirement; DDAs .  No later than the twentieth (20 th ) day of each month, a certificate duly executed by the Borrowers certifying (i) that the Borrowers had on hand the Minimum Cash Requirement at all times during the immediately preceding month, together with supporting documentation evidencing such compliance, and (ii) as to the account numbers and depository banks with respect to any DDAs opened since the date of the last certification delivered pursuant to this Section 7.3.5, in each case in form and substance reasonably satisfactory to the Administrative Agent.

7.3.6          Notices.
 
 
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7.3.6.1                 Default .  Promptly after any Authorized Officer of DSW has learned of the occurrence of an Event of Default, a certificate signed by an Authorized Officer of such Loan Party setting forth the details of such Event of Default and the action which such Loan Party proposes to take with respect thereto.

7.3.6.2                 Litigation .  Promptly after the commencement thereof, notice of all actions, suits, proceedings or investigations before or by any Official Body or any other Person against any Loan Party or Subsidiary of any Loan Party which relate to the Collateral, involve a claim or series of claims in excess of $10,000,000 or which if adversely determined would constitute a Material Adverse Change.

7.3.6.3                 Organizational Documents .  Within the time limits set forth in and to the extent required pursuant to Section 7.2.13 [Changes in Organizational Documents], any amendment to the organizational documents of any Loan Party.

7.3.6.4                 Erroneous Financial Information .  Promptly in the event that any Loan Party or any of such Loan Party’s accountants conclude or advise that any previously issued financial statement, audit report or interim review should no longer be relied upon or that disclosure should be made or action should be taken to prevent future reliance.

7.3.6.5                 ERISA Event .  Promptly upon the occurrence of any ERISA Event.

7.3.6.6                 Change in Officers .  Promptly after the occurrence thereof, any change in any Loan Party’s President, chief executive officer, chief operating officer, and chief financial officer (without regard to the title(s) actually given to the Persons discharging the duties customarily discharged by officers with those titles).
 
7.3.6.7                 Material Adverse Change .  Promptly upon the occurrence of a Material Adverse Change.

7.3.6.8                 Change in Accountants .  Promptly upon the occurrence of any discharge by DSW of its present independent accountants or any withdrawal or resignation by such independent accountants from their acting in such capacity.

7.3.6.9                 Consignment or Other Arrangement .  Promptly following the occurrence thereof, any Loan Party’s entering into with any other Person (other than a Loan Party) a consignment arrangement or licensing or other similar agreement (whether for intellectual property, leased departments in stores or otherwise).

7.3.6.10               Leases; Licenses .  Concurrently with the delivery of the financial statements described in Section 7.3.1(i) [Quarterly Financial Statements] and Section 7.3.2 [Annual Financial Statements], any Loan Party’s entering into a Capital Lease, operating lease or license agreement during the three (3) month period ending as of the date of such financial statements.
 
 
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7.3.6.11               Trigger Event .  Promptly after any Authorized Officer of DSW has learned of the occurrence of a Trigger Event, a certificate signed by an Authorized Officer of DSW setting forth the details of such Trigger Event.

7.3.6.12               SEC Reports; Shareholder Communications .  (i) Promptly upon any Borrower’s filing any reports (including Forms 10-K, 10-Q and 8-K, registration statements and prospectuses and other shareholder communications) with the Securities and Exchange Commission, notice of such filing, and (ii) promptly upon their becoming available to DSW, copies of correspondence from the SEC, other than routine general communications from the SEC.

7.3.6.13               Other Reports .  Promptly upon their becoming available to the Loan Parties:

(i)             Annual Budget .  The annual budget and any forecasts or projections of the Loan Parties, to be supplied on the earlier of (a) five (5) Business Days following the approval thereof by DSW’s board of directors, or (b) March 31 of each year.

(ii)             Management Letters .  Any reports including management letters submitted to the Loan Parties by independent accountants in connection with any annual, interim or special audit.

(iii)            Other Information .  Such other reports and information as any of the Lenders may from time to time reasonably request to the extent the Loan Parties have the ability to generate such information based on their then current systems.
 
8.            DEFAULT

8.1            Events of Default.   An Event of Default shall mean the occurrence or existence of any one or more of the following events or conditions (whatever the reason therefor and whether voluntary, involuntary or effected by operation of Law):

8.1.1          Payments Under Loan Documents.   Any Loan Party shall fail to pay any principal of any Loan (including scheduled installments, mandatory prepayments or the payment due at maturity), Reimbursement Obligation or Letter of Credit or Obligation or any interest on any Loan, Reimbursement Obligation or Letter of Credit Obligation on the date on which such principal, interest or other amount becomes due in accordance with the terms hereof or thereof;

8.1.2          Breach of Warranty.   Any representation or warranty made at any time by any of the Loan Parties herein or by any of the Loan Parties in any other Loan Document, or in any certificate, other instrument or statement furnished pursuant to the provisions hereof or thereof, shall prove to have been false or misleading in any material respect as of the time it was made or furnished;

8.1.3          Breach of Certain Covenants.   Any of the Loan Parties shall default in the observance or performance of any covenant contained in Section 7.1.2 [Payment of Liabilities, Including Taxes, Etc.], Section 7.1.5 [Visitation Rights], Section 7.1.10 [Cash Management] or Section 7.2 [Negative Covenants];
 
 
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8.1.4          Breach of Other Covenants.   Any of the Loan Parties shall default in the observance or performance of any other covenant, condition or provision hereof or of any other Loan Document and such default shall continue unremedied for a period of ten (10) Business Days following the earlier to occur of (i) the Administrative Agent’s notifying an Authorized Officer of DSW of such default, or (ii) the obtaining of knowledge of such default by any Authorized Officer of any Loan Party;

8.1.5         Defaults in Indebtedness; Leases.   (a) A breach, default or event of default shall occur at any time under the terms of any other agreement involving borrowed money or the extension of credit or any other Indebtedness under which any Loan Party or Subsidiary of any Loan Party may be obligated as a borrower or guarantor in excess of $5,000,000 in the aggregate, or (b) a breach, default or event of default shall occur at any time under the terms of a lease pursuant to which a Loan Party is the lessee, where the aggregate of such lease and all other such leases with respect to which there exists a breach, default or event of default, constitutes more than five percent (5%) of all leases of the Loan Parties existing from time to time that could be terminated due to a default by a Loan Party thereunder (whether or not the subject creditor or lessor takes any action on account of such occurrence);

8.1.6          Final Judgments or Orders.   Any final judgments or orders for the payment of money in excess of $10,000,000 in the aggregate shall be entered against any Loan Party by a court having jurisdiction in the premises, which judgment is not discharged, vacated, bonded or stayed pending appeal within a period of forty-five (45) days from the date of entry;

8.1.7          Loan Document Unenforceable.   Except for Simplified Borrowing Base Certificates, Borrowing Base Certificates and Compliance Certificates that are customarily updated (and have been so updated) pursuant to the terms of this Agreement, any of the Loan Documents shall cease to be legal, valid and binding agreements enforceable against the party executing the same or such party's successors and assigns (as permitted under the Loan Documents) in accordance with the respective terms thereof or shall in any way be terminated (except in accordance with its terms) or become or be declared ineffective or inoperative as a result of any action or inaction by any Person other than the Administrative Agent, the Issuing Lender or any Lender, or shall in any way be challenged or contested or cease to give or provide the respective Liens, security interests, rights, titles, interests, remedies, powers or privileges intended to be created thereby;
 
8.1.8          Uninsured Losses; Proceedings Against Assets.   There shall occur any material uninsured damage to or loss, theft or destruction of any of the Collateral in excess of $5,000,000 or the Collateral or any other of the Loan Parties' or any of their Subsidiaries' assets with a book value (determined in accordance with GAAP) in excess of $5,000,000 in the aggregate are attached, seized, levied upon or subjected to a writ or distress warrant; or such come within the possession of any receiver, monitor, interim monitor, trustee, custodian or assignee for the benefit of creditors and the same is not cured within forty-five (45) days thereafter;

8.1.9          Events Relating to Plans and Benefit Arrangements.   (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of any Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount that is reasonably likely to result in a Material Adverse Change, (ii) any Borrower or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount that is reasonably likely to result in a Material Adverse Change, (iii) or any similar event or condition shall occur or exist with respect to a Plan with respect to the Canadian Borrower that could, in the Administrative Agent’s judgment, subject the Canadian Borrower or any of its Subsidiaries to any tax, penalty or other liabilities under the Pension Benefits Act (Ontario) or any other applicable Laws, in an aggregate amount that is reasonably likely to result in a Material Adverse Change, or (iv) the Canadian Borrower or any of its Subsidiaries is in default with respect to required payments to a Plan or any Lien arises (save for contribution amounts not yet due) in connection with any Plan in an aggregate amount that is reasonably likely to result in a Material Adverse Change.
 
 
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8.1.10        Change of Control.  Except as provided in a confidential side letter of even date herewith, (i) any person or group of persons (within the meaning of Sections 13(d) or 14(a) of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership of (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) twenty-five percent (25%) or more of the voting capital stock of any Loan Party; or (ii) within a period of twelve (12) consecutive calendar months, individuals who were directors of a Loan Party on the first day of such period shall cease to constitute a majority of the board of directors of such Loan Party other than in respect of any death, disability, resignation, or replacement of any director by a majority of such directors or replacement directors.
 
8.1.11        Relief Proceedings.   (i) A Relief Proceeding shall have been instituted against any Loan Party and such Relief Proceeding shall remain undismissed or unstayed and in effect for a period of forty-five (45) consecutive days or such court shall enter a decree or order granting any of the relief sought in such Relief Proceeding, (ii) any Loan Party institutes, or takes any action in furtherance of, a Relief Proceeding, or (iii) any Loan Party ceases to be Solvent or admits in writing its inability to pay its debts as they mature.

8.2            Consequences of Event of Default.

8.2.1         Events of Default Other Than Bankruptcy, Insolvency or Reorganization Proceedings.   If an Event of Default specified under Sections 8.1.1 through 8.1.10 shall occur and be continuing, the Lenders and the Administrative Agent shall be under no further obligation to make Loans and the Issuing Lender shall be under no obligation to issue Letters of Credit and the Administrative Agent may, and upon the request of the Required Lenders, shall (i) by written notice to the Borrowers, declare the unpaid principal amount of the Notes then outstanding and all interest accrued thereon, any unpaid fees and all other Indebtedness of the Borrowers to the Lenders hereunder and thereunder to be forthwith due and payable, and the same shall thereupon become and be immediately due and payable to the Administrative Agent for the benefit of each Lender without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, and (ii) require the Borrowers to, and the Borrowers shall thereupon, Cash Collateralize all outstanding Letters of Credit, and each Borrower hereby pledges to the Administrative Agent and the Lenders, and grants to the Administrative Agent and the Lenders a security interest in, all such cash as security for such Obligations; and
 
 
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8.2.2          Bankruptcy, Insolvency or Reorganization Proceedings.   If an Event of Default specified under Section 8.1.11 [Relief Proceedings] shall occur, the Lenders shall be under no further obligations to make Loans hereunder and the Issuing Lender shall be under no obligation to issue Letters of Credit and the unpaid principal amount of the Loans then outstanding and all interest accrued thereon, any unpaid fees and all other Indebtedness of the Borrowers to the Lenders hereunder and thereunder shall be immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived; and

8.2.3          Set-off.   If an Event of Default shall have occurred and be continuing, with the prior written consent of the Administrative Agent or the Required Lenders, each Lender, the Issuing Lender, and each of their respective Affiliates and any Participant of such Lender or Affiliate which has agreed in writing to be bound by the provisions of Section 4.3 [Sharing of Payments] is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender, the Issuing Lender or any such Affiliate or Participant to or for the credit or the account of any Loan Party against any and all of the Obligations of such Loan Party now or hereafter existing under this Agreement or any other Loan Document to such Lender, the Issuing Lender, Affiliate or Participant, irrespective of whether or not such Lender, Issuing Lender, Affiliate or Participant shall have made any demand under this Agreement or any other Loan Document and although such Obligations of the Borrowers or such other Loan Party may be contingent or unmatured or are owed to a branch or office of such Lender or the Issuing Lender different from the branch or office holding such deposit or obligated on such Indebtedness.  Notwithstanding the foregoing, any amounts of the Canadian Borrower so offset shall be applied solely to the Canadian Liabilities. The rights of each Lender, the Issuing Lender and their respective Affiliates and Participants under this Section are in addition to other rights and remedies that such Lender, the Issuing Lender or their respective Affiliates and Participants may have under any Loan Document in respect of any obligation or liability arising in connection with this Agreement or any other Loan Document.  Each Lender and the Issuing Lender agrees to notify the Borrowers and the Administrative Agent promptly after any such setoff and application; provided that the failure to give such notice shall not affect the validity of such setoff and application; and
 
8.2.4         Application of Proceeds.   From and after the date on which the Administrative Agent has taken any action pursuant to this Section 8.2 and until all Obligations of the Loan Parties have been paid in full, any and all proceeds received by the Administrative Agent from any sale or other disposition of the Collateral, or any part thereof, or the exercise of any other remedy by the Administrative Agent, shall be applied as follows:

8.2.4.1                With respect to Collateral and Payments from the Domestic Borrowers and Guarantors:
 
 
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First , to payment of that portion of the Obligations (other than Canadian Liabilities) constituting fees, indemnities, costs and expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and amounts payable under Section 3.4 ) payable to the Administrative Agent;

Second , to payment of that portion of the Obligations (other than Canadian Liabilities) constituting indemnities, costs and expenses, and other amounts (other than principal, interest and fees) payable to the Domestic Lenders and the Issuing Lender (including costs and expenses to the respective Domestic Lenders and the Issuing Lender and amounts payable under Section 3.4 ), ratably among them in proportion to the amounts described in this clause Second payable to them;

Third , to the extent not previously reimbursed by the Domestic Lenders, to payment to the Administrative Agent of that portion of the Obligations constituting principal and accrued and unpaid interest on any Permitted Overadvances (other than those made to the Canadian Borrower);

Fourth , to the extent that Swing Loans have not been refinanced by a Revolving Credit Loan provided by the Domestic Lenders pursuant to Section 2.6.5 , payment to the Swing Lender of that portion of the Obligations constituting accrued and unpaid interest on the Swing Loans;

Fifth , to the extent that Swing Loans have not been refinanced by a Revolving Credit Loan provided by the Domestic Lenders pursuant to Section 2.6.5 , to payment to the Swing Lender of that portion of the Obligations constituting unpaid principal of the Swing Loans;
 
Sixth , to payment of that portion of the Obligations constituting accrued and unpaid interest on the Revolving Credit Loans, Reimbursement Obligations, Letter of Credit Borrowings and other Obligations (excluding the Canadian Liabilities and any Obligations of the type specified in clauses (ii) and (iii) of the definition thereof), and fees (including Letter of Credit Fees), ratably among the Domestic Lenders and the Issuing Lender in proportion to the respective amounts described in this clause Sixth payable to them;

Seventh , to payment of that portion of the Obligations constituting unpaid principal of the Revolving Credit Loans, Reimbursement Obligations and Letter of Credit Borrowings (other than, in each case, Canadian Liabilities), ratably among the Domestic Lenders and the Issuing Lender in proportion to the respective amounts described in this clause Seventh held by them;

Eighth , to the Administrative Agent for the account of the Issuing Lender, to Cash Collateralize the aggregate undrawn amount of Letters of Credit issued on behalf or for the account of the Domestic Borrowers or Guarantors;

Ninth , to payment of all other Obligations (including without limitation the cash collateralization of any unliquidated indemnification obligations but excluding the Canadian Liabilities and any Obligations of the type specified in clauses (ii) and (iii) of the definition thereof), ratably among the Administrative Agent, the Issuing Lender and the Domestic Lenders in proportion to the respective amounts described in this clause Ninth held by them;
 
 
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Tenth , to payment of the Obligations of the type specified in clauses (ii) and (iii) of the definition thereof, ratably among the Administrative Agent, the Issuing Lender and the Domestic Lenders in proportion to the respective amounts described in this clause Tenth held by them;

Eleventh , to payment of the Canadian Liabilities in the order set forth in Section 8.2.4.2 hereof;

Last , the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Loan Parties or as otherwise required by Law.

Subject to Section 2.9.3 , amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit issued on behalf or for the account of the Domestic Borrowers or Guarantors pursuant to clause Eighth above shall be applied to satisfy drawings under such Letters of Credit as they occur.  If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above.

8.2.4.2                With respect to Collateral and Payments From the Canadian Borrower:
 
First , to payment of that portion of the Canadian Liabilities constituting fees, indemnities, costs and expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and amounts payable under Section 3.4 ) payable to the Administrative Agent;

Second , to payment of that portion of the Canadian Liabilities constituting indemnities, costs and expenses, and other amounts (other than principal, interest and fees) payable to the Canadian Lenders and the Issuing Lender (including costs and expenses to the respective Canadian Lenders and the Issuing Lender and amounts payable under Section 3.4 ), ratably among them in proportion to the amounts described in this clause Second payable to them;

Third , to the extent not previously reimbursed by the Canadian Lenders, to payment to the Administrative Agent of that portion of the Canadian Liabilities constituting principal and accrued and unpaid interest on any Permitted Overadvances to the Canadian Borrower;

Fourth , to payment of that portion of the Canadian Liabilities constituting accrued and unpaid interest on the Revolving Credit Loans, Reimbursement Obligations, Letter of Credit Borrowings, in each case, made to or for the account of the Canadian Borrower, and fees (including Letter of Credit Fees), ratably among the Canadian Lenders and the Issuing Lender in proportion to the respective amounts described in this clause Fourth payable to them;
 
 
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Fifth , to payment of that portion of the Canadian Liabilities constituting unpaid principal of the Revolving Credit Loans, Reimbursement Obligations and Letter of Credit Borrowings, in each case, made to or for the account of the Canadian Borrower, ratably among the Canadian Lenders and the Issuing Lender in proportion to the respective amounts described in this clause Fifth held by them;

Sixth , to the Administrative Agent for the account of the Issuing Lender, to Cash Collateralize the aggregate undrawn amount of Letters of Credit issued on behalf or for the account of the Canadian Borrower;

Seventh , to payment of all other Canadian Liabilities (including without limitation the cash collateralization of any unliquidated indemnification obligations, ratably among the Administrative Agent, the Issuing Lender and the Canadian Lenders in proportion to the respective amounts described in this clause Seventh held by them;

Eighth , to payment of the Canadian Liabilities of the type specified in clauses (ii) and (iii) of the definition thereof, ratably among the Administrative Agent, the Issuing Lender and the Canadian Lenders in proportion to the respective amounts described in this clause Tenth held by them;

Last , the balance, if any, after all of the Canadian Lenders have been indefeasibly paid in full, to the Canadian Borrower or as otherwise required by Law.
 
Subject to Section 2.9.3 , amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit issued for the account of the Canadian Borrower pursuant to clause Sixth above shall be applied to satisfy drawings under such Letters of Credit as they occur.  If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Canadian Liabilities, if any, in the order set forth above.

9.            THE ADMINISTRATIVE AGENT

9.1            Appointment and Authority.   Each of the Lenders and the Issuing Lender hereby irrevocably appoints PNC to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto.  The provisions of this Section 9 are solely for the benefit of the Administrative Agent, the Lenders and the Issuing Lender, and none of the Borrowers or any other Loan Party shall have rights as a third party beneficiary of any of such provisions.

9.2            Rights as a Lender.   The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity.  Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with any Loan Party or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.
 
 
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9.3            Exculpatory Provisions.   The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents.  Without limiting the generality of the foregoing, the Administrative Agent:

(a)           shall not be subject to any fiduciary or other implied duties, regardless of whether a Potential Default or Event of Default has occurred and is continuing;

(b)           shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents); provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable Law; and

(c)           shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to any Loan Party or any Affiliate of any Loan Party that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.
 
The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Section 10.1 [Modifications, Amendments or Waivers] and Section 8.2 [Consequences of Event of Default]) or (ii) in the absence of its own gross negligence or willful misconduct.  The Administrative Agent shall be deemed not to have knowledge of any Potential Default or Event of Default unless and until notice describing such Potential Default or Event of Default is given to the Administrative Agent by the Borrowers, a Lender or the Issuing Lender.

The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Potential Default or Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Section 6 [Conditions of Lending and Issuance of Letters of Credit] or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.
 
 
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9.4            Reliance by Administrative Agent.   The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person.  The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon.  In determining compliance with any condition hereunder to the making of a Loan, or the issuance of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or the Issuing Lender, the Administrative Agent may presume that such condition is satisfactory to such Lender or the Issuing Lender unless the Administrative Agent shall have received notice to the contrary from such Lender or the Issuing Lender prior to the making of such Loan or the issuance of such Letter of Credit.  The Administrative Agent may consult with legal counsel (who may be counsel for the Loan Parties), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

9.5            Delegation of Duties.   The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent.  The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties.  The exculpatory provisions of this Section 9 shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.
 
9.6              Resignation of Administrative Agent.   The Administrative Agent may at any time give notice of its resignation to the Lenders, the Issuing Lender and the Borrowers.  Upon receipt of any such notice of resignation, the Required Lenders shall have the right, with approval from the Borrowers (so long as no Event of Default has occurred and is continuing), to appoint a successor, such approval not to be unreasonably withheld or delayed.  If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may on behalf of the Lenders and the Issuing Lender, appoint a successor Administrative Agent; provided that if the Administrative Agent shall notify the Borrowers and the Lenders that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (i) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders or the Issuing Lender under any of the Loan Documents, the retiring Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (ii) all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender and the Issuing Lender directly, until such time as the Required Lenders appoint a successor Administrative Agent as provided for above in this Section 9.6 .  Upon the acceptance of a successor's appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent, and the retiring Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section).  The fees payable by the Borrowers to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed among the Borrowers and such successor.  After the retiring Administrative Agent's resignation hereunder and under the other Loan Documents, the provisions of this Section 9 and Section 10.3 [Expenses; Indemnity; Damage Waiver] shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.
 
 
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If PNC resigns as Administrative Agent under this Section 9.6 , PNC shall also resign as an Issuing Lender.  Upon the appointment of a successor Administrative Agent hereunder, such successor shall (i) succeed to all of the rights, powers, privileges and duties of PNC as the retiring Issuing Lender and Administrative Agent and PNC shall be discharged from all of its respective duties and obligations as Issuing Lender and Administrative Agent under the Loan Documents, and (ii) issue letters of credit in substitution for the Letters of Credit issued by PNC, if any, outstanding at the time of such succession or make other arrangement satisfactory to PNC to effectively assume the obligations of PNC with respect to such Letters of Credit.
 
9.7            Non-Reliance on Administrative Agent and Other Lenders.   Each Lender and the Issuing Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement.  Each Lender and the Issuing Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.

9.8            No Other Duties, etc.   Anything herein to the contrary notwithstanding, none of the Syndication Agent, the Documentation Agent or the Managing Agents listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as a Lender or an Issuing Lender hereunder.

9.9            Administrative Fee.   The Borrowers shall pay to the Administrative Agent a nonrefundable fee (the " Administrative Fee ") under the terms of the Fee Letter.

9.10           Authorization to Release Collateral and Guarantors.   The Lenders and Issuing Lenders authorize the Administrative Agent to release (i) any Collateral consisting of assets or equity interests sold or otherwise disposed of in a sale or other disposition or transfer permitted under Section 7.2.7 [Disposition of Assets or Subsidiaries] or Section 7.2.6 [Liquidations, Mergers, Consolidations, Amalgamations, Acquisitions], and (ii) any Guarantor from its obligations under the Guaranty Agreement if the ownership interests in such Guarantor are sold or otherwise disposed of or transferred to persons other than Loan Parties or Subsidiaries of the Loan Parties in a transaction permitted under Section 7.2.7 [Disposition of Assets or Subsidiaries] or Section 7.2.6 [Liquidations, Mergers, Consolidations, Amalgamations, Acquisitions].  The Administrative Agent shall have no liability whatsoever to any Lender or Issuing Lender as a result of any release of Collateral by it as permitted (or which the Administrative Agent in good faith believes to be permitted) by this Agreement or any other Loan Document.
 
 
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9.11           No Reliance on Administrative Agent's Customer Identification Program.   Each Lender acknowledges and agrees that neither such Lender, nor any of its Affiliates, participants or assignees, may rely on the Administrative Agent to carry out such Lender's, Affiliate's, participant's or assignee's customer identification program, or other obligations required or imposed under or pursuant to the USA Patriot Act or the regulations thereunder, including the regulations contained in 31 CFR 103.121 (as hereafter amended or replaced, the " CIP Regulations "), or any other Anti-Terrorism Law, including any programs involving any of the following items relating to or in connection with any of the Loan Parties, their Affiliates or their agents, the Loan Documents or the transactions hereunder or contemplated hereby: (i) any identity verification procedures, (ii) any recordkeeping, (iii) comparisons with government lists, (iv) customer notices or (v) other procedures required under the CIP Regulations or such other Laws.
 
9.12           Defaulting Lender.

9.12.1        Failure or Refusal to Comply with Lender Obligations.   If for any reason any Lender shall become a Defaulting Lender or shall fail or refuse to abide by its obligations under this Agreement, including without limitation its obligation to make available to the Administrative Agent its Ratable Share of any Loans, expenses or setoff or purchase its Ratable Share of a participation interest in the Swing Loans or Letter of Credit Borrowings and such failure is not cured within one (1) Business Day after receipt from the Administrative Agent of written notice thereof, then, in addition to the rights and remedies that may be available to the Administrative Agent and the other Lenders, the Loan Parties or any other party at law or in equity, and not in limitation thereof, (i) such Defaulting Lender’s right to participate in the administration of, or decision-making rights related to, the Obligations, this Agreement or the other Loan Documents shall be suspended during the pendency of such failure or refusal, and (ii) a Defaulting Lender shall be deemed to have assigned any and all payments due to it from the Loan Parties, whether on account of outstanding Loans, interest, fees or otherwise, to the remaining non-Defaulting Lenders for application to, and reduction of, their proportionate shares of all outstanding Obligations until, as a result of application of such assigned payments the Lenders’ respective Ratable Shares of all outstanding Obligations shall have returned to those in effect immediately prior to such delinquency and without giving effect to the nonpayment causing such delinquency, and (iii) at the option of the Administrative Agent, any amount payable to such Defaulting Lender hereunder (whether on account of principal, interest, fees or otherwise) shall, in lieu of being distributed to such Defaulting Lender, be retained by the Administrative Agent as cash collateral for future funding obligations of the Defaulting Lender in respect of any Loan or existing or future participating interest in any Swing Loan or Letter of Credit.  The Defaulting Lender’s decision-making and participation rights and rights to payments as set forth in clauses (i) and (ii) hereinabove shall be restored only upon the payment by the Defaulting Lender of its Ratable Share of any Obligations, any participation obligation, or expenses as to which it is delinquent, together with interest thereon at a rate per annum equal to the rate applicable to Loans under the Revolving Credit Base Rate Option from the date when originally due until the date upon which any such amounts are actually paid.
 
 
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9.12.2        Non-Defaulting Lender Rights.   The non-Defaulting Lenders shall also have the right, but not the obligation, in their respective, sole and absolute discretion, to cause the termination and assignment, without any further action by the Defaulting Lender for no cash consideration ( pro rata , based on the respective Commitments of those Lenders electing to exercise such right), of the Defaulting Lender’s Commitment to fund future Loans.  Upon any such purchase of the Ratable Percentage of any Defaulting Lender, the Defaulting Lender’s share in future Credit Extensions and its rights under the Loan Documents with respect thereto shall terminate on the date of purchase, and the Defaulting Lender shall promptly execute all documents reasonably requested to surrender and transfer such interest, including, if so requested, an Assignment and Acceptance.

9.12.3        Indemnification.   Each Defaulting Lender shall indemnify the Administrative Agent and each non-Defaulting Lender from and against any and all loss, damage or expenses, including but not limited to reasonable attorneys’ fees and funds advanced by the Administrative Agent or by any non-Defaulting Lender, on account of a Defaulting Lender’s failure to timely fund its Ratable Share of a Loan or to otherwise perform its obligations under the Loan Documents.
 
9.12.4        Risk Participation.
 
9.12.4.1              Upon the earlier of Substantial Liquidation or the Determination Date, if all Canadian Liabilities have not been repaid in full, then the Domestic Lenders shall purchase from the Canadian Lenders (on the date of Substantial Liquidation or the Determination Date, as applicable) such portion of the Canadian Liabilities so that each Lender shall, after giving effect to any such purchases, hold its Liquidation Percentage of all outstanding Canadian Liabilities and all other Obligations.
 
9.12.4.2              Upon the earlier of Substantial Liquidation or the Determination Date, if all Obligations of the Domestic Borrowers (other than those relating to the Canadian Liabilities) have not been repaid in full, then the Canadian Lenders shall purchase from the Domestic Lenders (on the date of Substantial Liquidation or the Determination Date, as applicable) such portion of such Obligations so that each Lender shall, after giving effect to any such purchases, hold its Liquidation Percentage of all outstanding Obligations of the Domestic Borrowers and the Canadian Liabilities.

9.12.4.3              All purchases of Obligations under this Section 9.12.4 shall be at par, for cash, with no premium, discount or reduction.
 
 
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9.12.4.4              No Lender shall be responsible for any default of any other Lender in respect of any other Lender's obligations under this Section 9.12.4, nor shall the obligations of any Lender hereunder be increased as a result of such default of any other Lender.  Each Lender shall be obligated to the extent provided herein regardless of the failure of any other Lender to fulfill its obligations hereunder.

9.12.4.5              Each Lender shall execute such instruments, documents and agreements and do such other actions as may be necessary or proper in order to carry out more fully the provisions and purposes of this Section 9.12.4 and the purchase of Obligations or the Canadian Liabilities, as applicable, as provided herein.

9.12.4.6              The obligations of each Lender under this Section 9.12.4 are irrevocable and unconditional and shall not be subject to any qualification or exception whatsoever including, without limitation, lack of validity or enforceability of this Agreement or any of the Loan Documents or the existence of any claim, setoff, defense or other right which any Loan Party may have at any time against any of the Lenders.

9.12.4.7              No fees required to be paid on any assignment pursuant to Section 10.8.2(iv) of this Agreement shall be payable in connection with any assignment under this Section 9.12.4.

10.            MISCELLANEOUS

10.1          Modifications, Amendments or Waivers.   With the written consent of the Required Lenders, the Administrative Agent, acting on behalf of all the Lenders, and the Borrowers, on behalf of the Loan Parties, may from time to time enter into written agreements amending or changing any provision of this Agreement or any other Loan Document or the rights of the Lenders or the Loan Parties hereunder or thereunder, or may grant written waivers or consents hereunder or thereunder.  Any such agreement, waiver or consent made with such written consent shall be effective to bind all the Lenders and the Loan Parties; provided , that no such agreement, waiver or consent may be made which will:
 
10.1.1        Increase of Commitment.   Increase the amount of the Revolving Credit Commitment or Canadian Commitment of any Lender hereunder without the consent of such Lender;

10.1.2        Extension of Payment; Reduction of Principal Interest or Fees; Modification of Terms of Payment.   Whether or not any Loans are outstanding, extend the Expiration Date or the time for payment of principal or interest of any Loan (excluding the due date of any mandatory prepayment of a Loan), the Commitment Fee or any other fee payable to any Lender, or reduce the principal amount of or the rate of interest borne by any Loan or reduce the Commitment Fee or any other fee payable to any Lender, without the consent of each Lender directly affected thereby;

10.1.3        Release of Collateral or Guarantor.   Except for sales of assets permitted by Section 7.2.7 [Disposition of Assets or Subsidiaries], release all or substantially all of the Collateral or any Guarantor from its Obligations under the Guaranty Agreement without the consent of all Lenders (other than Defaulting Lenders); or
 
 
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10.1.4        Availability.   Modify the definition of “Simplified Borrowing Base”, “Borrowing Base”, “Revolving Credit Availability”, “Canadian Availability”, “Canadian Borrowing Base” or any component definition thereof such the amounts available for borrowing by the Borrowers hereunder would be increased thereby, without the consent of all Lenders (other than Defaulting Lenders); or

10.1.5        Miscellaneous .   Amend Section 4.2 [Pro Rata Treatment of Lenders; Repayment of Advances], Section 9.3 [Exculpatory Provisions, Etc.], Section 4.3 [Sharing of Payments by Lenders] or this Section 10.1 , or alter any provision regarding the pro rata treatment of the Lenders or requiring all Lenders to authorize the taking of any action or reduce any percentage specified in the definition of Required Lenders, in each case without the consent of all of the Lenders (other than Defaulting Lenders);

provided that no agreement, waiver or consent which would modify the interests, rights or obligations of the Administrative Agent or the Issuing Lender may be made without the written consent of the Administrative Agent or the Issuing Lender, as applicable, provided , further that, if in connection with any proposed waiver, amendment or modification referred to in Sections 10.1.1 through 10.1.5 above, the consent of the Required Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained (each a " Non-Consenting Lender "), then the Borrowers shall have the right to replace any such Non-Consenting Lender with one or more replacement Lenders pursuant to Section 4.6.2 [Replacement of a Lender].   Notwithstanding anything to the contrary herein, no Deteriorating Lender or Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or Consent hereunder, except that the Commitment of such Lender may not be increased or extended without the consent of such Lender.
 
10.2          No Implied Waivers; Cumulative Remedies.   No course of dealing and no delay or failure of the Administrative Agent or any Lender in exercising any right, power, remedy or privilege under this Agreement or any other Loan Document shall affect any other or future exercise thereof or operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any further exercise thereof or of any other right, power, remedy or privilege.  The rights and remedies of the Administrative Agent and the Lenders under this Agreement and any other Loan Documents are cumulative and not exclusive of any rights or remedies which they would otherwise have.

10.3          Expenses; Indemnity; Damage Waiver.

 
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10.3.1       Costs and Expenses.   The Loan Parties shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent, the Arranger and their respective Affiliates (including the reasonable fees, charges and disbursements of counsel for the Administrative Agent and the Arranger), and shall pay all fees and time charges and disbursements for attorneys who may be employees of the Administrative Agent or the Arranger, in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all out-of-pocket expenses incurred by the Issuing Lender in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder, (iii) all out-of-pocket expenses incurred by the Administrative Agent, the Arranger, any Lender or the Issuing Lender (including the reasonable fees, charges and disbursements of any counsel for the Administrative Agent, the Arranger, any Lender or the Issuing Lender), and shall pay all fees and time charges for attorneys who may be employees of the Administrative Agent, the Arranger, any Lender or the Issuing Lender, in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit, and (iv) all reasonable out-of-pocket expenses of the Administrative Agent's regular employees and agents engaged periodically to perform audits of the Loan Parties' books, records and business properties.  The Administrative Agent shall use reasonable efforts to minimize expenses and shall furnish estimates of the expenses in respect of audits and appraisals to be undertaken after the Closing Date under the Loan Documents.  The Administrative Agent agrees (i) to advise the Borrowers upon its becoming aware that actual expenses in respect of such audits and appraisals will likely exceed the estimates previously provided therefor, and (ii) that the Administrative Agent shall not charge the Borrowers’ account with respect to such expenses until the Borrowers have had a reasonable opportunity to review the invoices with respect thereto, it being understood that all such expenses with respect to the audits and appraisals shall be paid as and when due hereunder.  The Administrative Agent agrees to provide the Borrowers with (i) a preliminary billing statement five (5) days before any payments referenced therein are due, and (ii) a final billing statement one (1) day before any payments referenced therein are due, it being understood that all such payments shall be made as and when due hereunder.

10.3.2       Indemnification by the Loan Parties.   The Loan Parties shall indemnify the Administrative Agent (and any sub-agent thereof), each Lender and the Issuing Lender, and each Related Party of any of the foregoing Persons (each such Person being called an " Indemnitee ") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or by the Borrowers or any other Loan Party arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance or nonperformance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the Issuing Lender to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) breach of representations, warranties or covenants of the Loan Parties under the Loan Documents, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, including any such items or losses relating to or arising under Environmental Laws or pertaining to environmental matters, whether based on contract, tort or any other theory, whether brought by a third party or by any Borrower or any other Loan Party, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by any Borrower or any other Loan Party against an Indemnitee for breach in bad faith of such Indemnitee's obligations hereunder or under any other Loan Document, if such Borrower or such other Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction. Notwithstanding anything to the contrary herein, the Canadian Borrower's obligation to pay and indemnify shall be limited to matters, fees, expenses charges and disbursement, or losses, claims, damages and liabilities which the Administrative Agent determines in its reasonable judgment to be properly attributable or allocable to the Canadian Borrower.
 
 
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10.3.3        Reimbursement by Lenders.   To the extent that any Loan Party for any reason fails to indefeasibly pay any amount required under Section 10.3.1 [Costs and Expenses] or Section 10.3.2 [Indemnification by the Loan Parties] to be paid by it to the Administrative Agent (or any sub-agent thereof), the Issuing Lender or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), the Issuing Lender or such Related Party, as the case may be, such Lender's Ratable Share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent) or the Issuing Lender in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent) or Issuing Lender in connection with such capacity.
 
10.3.4        Waiver of Consequential Damages, Etc.   To the fullest extent permitted by applicable Law, no Loan Party shall assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof.  No Indemnitee referred to in Section 10.3.2 [Indemnification by Loan Parties] shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby unless as a result of the Indemnitee’s gross negligence or willful misconduct, as determined by a final non-appealable judgment of a court of competent jurisdiction.

10.3.5        Payments.   All amounts due under this Section shall be payable not later than ten (10) days after (i) written demand therefor and (ii) the furnishing to an Authorized Officer of DSW of supporting documentation.

10.4          Holidays.   Whenever payment of a Loan to be made or taken hereunder shall be due on a day which is not a Business Day such payment shall be due on the next Business Day (except as provided in Section 3.2 [Interest Periods]) and such extension of time shall be included in computing interest and fees, except that the Loans shall be due on the Business Day preceding the Expiration Date if the Expiration Date is not a Business Day.  Whenever any payment or action to be made or taken hereunder (other than payment of the Loans) shall be stated to be due on a day which is not a Business Day, such payment or action shall be made or taken on the next following Business Day, and such extension of time shall not be included in computing interest or fees, if any, in connection with such payment or action.
 
 
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10.5          Notices; Effectiveness; Electronic Communication.

10.5.1        Notices Generally.   Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in Section 10.5.2 [Electronic Communications]), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier (i) if to a Lender, to it at its address set forth in its administrative questionnaire, or (ii) if to any other Person, to it at its address set forth on Schedule 1.1(B) .

Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient).  Notices delivered through electronic communications to the extent provided in Section 10.5.2 [Electronic Communications], shall be effective as provided in such Section.
 
10.5.2        Electronic Communications.   Notices and other communications to the Lenders and the Issuing Lender hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices to any Lender or the Issuing Lender if such Lender or the Issuing Lender, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication.  Each of the Administrative Agent or any Loan Party may, in such Person’s discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.  Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender's receipt of an acknowledgement from the intended recipient (such as by the "return receipt requested" function, as available, return e-mail or other written acknowledgement); provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.
 
 
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10.5.3        Change of Address, Etc.   Any party hereto may change its address, e-mail address or telecopier number for notices and other communications hereunder by notice to the other parties hereto.

10.6          Severability.   The provisions of this Agreement are intended to be severable.  If any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction.

10.7          Duration; Survival .   All representations and warranties of the Loan Parties contained herein or made in connection herewith shall survive the execution and delivery of this Agreement, the completion of the transactions hereunder and Payment In Full.  All covenants and agreements of the Loan Parties contained herein relating to the payment of principal, interest, premiums, additional compensation or expenses and indemnification, including those set forth in the Notes, Section 4 [Payments] and Section 10.3 [Expenses; Indemnity; Damage Waiver], shall survive Payment In Full.  All other covenants and agreements of the Loan Parties shall continue in full force and effect from and after the date hereof and until Payment In Full.

10.8          Successors and Assigns.

10.8.1       Successors and Assigns Generally.   The provisions of this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns permitted hereby, except that no Borrower or any other Loan Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of Section 10.8.2 [Assignments by Lenders], (ii) by way of participation in accordance with the provisions of Section 10.8.4 [Participations], or (iii) by way of pledge or assignment of a security interest subject to the restrictions of Section 10.8.6 [Certain Pledges; Successors and Assigns Generally] (and any other attempted assignment or transfer by any party hereto shall be null and void).  Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in Section 10.8.4 [Participations] and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
 
10.8.2       Assignments by Lenders.   Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that any such assignment shall be subject to the following conditions:

(i)              Minimum Amounts .

(A)           in the case of an assignment of the entire remaining amount of the assigning Lender's Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and
 
 
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(B)           in any case not described in clause (i)(A) of this Section 10.8.2 , the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption Agreement with respect to such assignment is delivered to the Administrative Agent or, if "Trade Date" is specified in the Assignment and Assumption Agreement, as of the Trade Date) shall not be less than $5,000,000, in the case of any assignment in respect of the Revolving Credit Commitment of the assigning Lender, unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrowers otherwise consent (each such consent not to be unreasonably withheld or delayed).

(ii)             Proportionate Amounts .  Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement with respect to the Loan or the Commitment assigned.

(iii)            Required Consents .  No consent shall be required for any assignment except for the consent of the Administrative Agent (which shall not be unreasonably withheld or delayed) and:
 
(A)           the consent of the Borrowers (such consent not to be unreasonably withheld or delayed) shall be required unless (x) an Event of Default has occurred and is continuing at the time of such assignment or (y) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; provided that the Borrowers shall be deemed to have consented to any such assignment unless they shall object thereto by written notice to the Administrative Agent within five (5) Business Days after having received notice thereof; and

(B)           the consent of the Issuing Lender (such consent not to be unreasonably withheld or delayed) shall be required for any assignment that increases the obligation of the assignee to participate in exposure under one or more Letters of Credit (whether or not then outstanding).

(iv)            Assignment and Assumption Agreement .  The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption Agreement, together with a processing and recordation fee of $3,500, and the assignee, if it is not a Lender, shall deliver to the Administrative Agent an administrative questionnaire provided by the Administrative Agent.

(v)            No Assignment to Loan Parties .  No such assignment shall be made to any Loan Party or any of any Loan Party's Affiliates or Subsidiaries.

(vi)            No Assignment to Natural Persons .  No such assignment shall be made to a natural person.

Subject to acceptance and recording thereof by the Administrative Agent pursuant to Section 10.8.3 [Register], from and after the effective date specified in each Assignment and Assumption Agreement, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption Agreement, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption Agreement, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption Agreement covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Section 3.4 [LIBOR Rate Unascertainable; Illegality; Increased Costs; Deposits Not Available], Section 4.8 [Increased Costs], and Section 10.3 [Expenses, Indemnity; Damage Waiver]   with respect to facts and circumstances occurring prior to the effective date of such assignment.  Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 10.8.2 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 10.8.4 [Participations].
 
 
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10.8.3        Register.   The Administrative Agent, acting solely for this purpose as an agent of the Borrowers, shall maintain a record of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans owing to, each Lender pursuant to the terms hereof from time to time.  Such register shall be conclusive, and the Borrowers, the Administrative Agent and the Lenders may treat each Person whose name is in such register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary.  Such register shall be available for inspection by any Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
 
10.8.4        Participations.   Provided that such Lender obtains a confidentiality and non-disclosure agreement prior to any sale of a participation, any Lender may at any time, without the consent of, or notice to, the Loan Parties or the Administrative Agent, sell participations to any Person (other than a natural person, any competitor of any Loan Party (but such limitation shall apply only if no Event of Default then exists) or any Loan Party or any of any Loan Party's Affiliates or Subsidiaries) (each, a " Participant ") in all or a portion of such Lender's rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Loan Parties, the Administrative Agent and the Lenders, the Issuing Lender shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement.

Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver with respect to Section 10.1.1 [Increase of Commitment, Etc.], Section 10.1.2 [Extension of Payment, Etc.], or Section 10.1.3 [Release of Collateral or Guarantor]).  Subject to Section 10.8.5 [Limitations upon Participant Rights Successors and Assigns Generally], each Loan Party agrees that each Participant shall be entitled to the benefits of Section 3.4 [LIBOR Rate Unascertainable; Illegality; Increased Costs; Deposits Not Available] and Section 4.8 [Increased Costs]   to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 10.8.2 [Assignments by Lenders].  To the extent permitted by Law, each Participant also shall be entitled to the benefits of Section 8.2.3 [Setoff]   as though it were a Lender; provided such Participant agrees to be subject to Section 4.3 [Sharing of Payments by Lenders]   as though it were a Lender.
 
 
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10.8.5       Limitations upon Participant Rights Successors and Assigns Generally.   A Participant shall not be entitled to receive any greater payment under Section 4.8 [Increased Costs], Section 4.9 [Taxes] or Section 10.3 [Expenses; Indemnity; Damage Waiver]   than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrowers’ prior written consent.  A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 4.9 [Taxes]   unless the Loan Parties are notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Loan Parties, to comply with Section 4.9.5 [Status of Lenders]   as though it were a Lender.

10.8.6        Certain Pledges; Successors and Assigns Generally.   Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
 
10.9          Publicity .  Each Loan Party consents to the publication by the Administrative Agent of customary trade advertising material in tombstone format relating to the financing transactions contemplated by this Agreement using any Loan Party’s name, logo or trademark.  The Administrative Agent shall provide a draft of any advertising material to the Borrowers for approval reasonably in advance of the publication thereof (but the approval of the Borrowers of such material shall not be unreasonably delayed or withheld).  The Administrative Agent reserves the right to provide to industry trade organizations information necessary and customary for inclusion in league table measurements.

10.10       Confidentiality.

10.10.1     General.   Each of the Administrative Agent, the Lenders and the Issuing Lender agrees to maintain the confidentiality of the Information, except that Information may be disclosed (i) to its Affiliates and to its and its Affiliates' respective partners, directors, officers, employees, agents, advisors and other representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (ii) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (iii) to the extent required by applicable Laws or regulations or by any subpoena or similar legal process, (iv) to any other party hereto, (v) as required in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (vi) subject to an agreement containing provisions substantially the same as those of this Section, to (A) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (B) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to any Loan Party and its obligations, (vii) with the consent of the Borrowers or (viii) to the extent such Information (Y) becomes publicly available other than as a result of a breach of this Section or (Z) becomes available to the Administrative Agent, any Lender, the Issuing Lender or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrowers or the other Loan Parties.  Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
 
 
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10.10.2      Sharing Information With Affiliates of the Lenders.   Each Loan Party acknowledges that from time to time financial advisory, investment banking and other services may be offered or provided to the Loan Parties or one or more of their Affiliates (in connection with this Agreement or otherwise) by any Lender or by one or more Subsidiaries or Affiliates of such Lender and each of the Loan Parties hereby authorizes each Lender to share any information delivered to such Lender by such Loan Party and its Subsidiaries pursuant to this Agreement to any such Subsidiary or Affiliate subject to the provisions of Section 10.10.1 [General].
 
10.11         Counterparts; Integration; Effectiveness.

10.11.1     Counterparts; Integration; Effectiveness.   This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  This Agreement and the other Loan Documents, and any separate letter agreements with respect to fees payable to the Administrative Agent, constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof including any prior confidentiality agreements and commitments.  Except as provided in Section 6 [Conditions Of Lending And Issuance Of Letters Of Credit], this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto.  Delivery of an executed counterpart of a signature page of this Agreement by telecopy or e-mail shall be effective as delivery of a manually executed counterpart of this Agreement.

10.12        CHOICE OF LAW; SUBMISSION TO JURISDICTION; WAIVER OF VENUE; SERVICE OF PROCESS; WAIVER OF JURY TRIAL.

10.12.1      Governing Law.   This Agreement shall be deemed to be a contract under the Laws of the State of Ohio without regard to its conflict of laws principles.  Each Standby Letter of Credit issued under this Agreement shall be subject either to the rules of the Uniform Customs and Practice for Documentary Credits, as most recently published by the International Chamber of Commerce (the " ICC ") at the time of issuance (" UCP ") or the rules of the International Standby Practices (ICC Publication Number 590) (" ISP98 "), as determined by the Issuing Lender, and each Commercial Letter of Credit shall be subject to UCP, and in each case to the extent not inconsistent therewith, the Laws of the State of Ohio without regard to is conflict of laws principles.
 
 
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10.12.2      SUBMISSION TO JURISDICTION.   EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF OHIO SITTING IN FRANKLIN COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF OHIO, EASTERN DIVISION, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH OHIO STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT.  EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, ANY LENDER OR THE ISSUING LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST ANY BORROWER OR ANY OTHER LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
 
10.12.3      WAIVER OF VENUE.   EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN THIS SECTION 10.12 .  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT AND AGREES NOT ASSERT ANY SUCH DEFENSE.

10.12.4      SERVICE OF PROCESS.   EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.5 [NOTICES; EFFECTIVENESS; ELECTRONIC COMMUNICATION].  NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.

10.12.5      WAIVER OF JURY TRIAL.   EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, ADMINISTRATIVE AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
 
 
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10.13        Patriot Act Notice; Proceeds of Crime Act.   Each Lender that is subject to the USA Patriot Act and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies Loan Parties that pursuant to the requirements of the USA Patriot Act and the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada) (the “ Proceeds of Crime Act ”), it is required to obtain, verify and record information that identifies the Loan Parties, which information includes the name and address of Loan Parties and other information that will allow such Lender or Administrative Agent, as applicable, to identify the Loan Parties in accordance with the USA Patriot Act and the Proceeds of Crime Act.  Each Loan Party is in compliance, in all material respects, with the Patriot Act and the Proceeds of Crime Act. No part of the proceeds of the Loans will be used by the Loan Parties, directly or indirectly, for any purpose which would contravene or breach the Proceeds of Crime Act or for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.
 
10.14         Additional Waivers.

10.14.1     Joint and Several Liability.   The Obligations are the joint and several obligation of each Loan Party provided that the Canadian Borrower and its Subsidiaries shall be liable only for the Canadian Liabilities. To the fullest extent permitted by Law, the obligations of each Loan Party shall not be affected by (i) the failure of the Administrative Agent, the Issuing Lender or any Lender to assert any claim or demand or to enforce or exercise any right or remedy against any other Loan Party under the provisions of this Agreement, any other Loan Document or otherwise, (ii) any rescission, waiver, amendment or modification of, or any release from any of the terms or provisions of, this Agreement or any other Loan Document, or (iii) the failure to perfect any security interest in, or the release of, any of the Collateral or other security held by or on behalf of the Administrative Agent, the Issuing Lender or any Lender.

10.14.2      No Reduction of Obligations.   The obligations of each Loan Party  shall not be subject to any reduction, limitation, impairment or termination for any reason (other than the indefeasible payment in full in cash of the Obligations (including the Canadian Liabilities) after the termination of the Commitments), including any claim of waiver, release, surrender, alteration or compromise of any of the Obligations, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of any of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Loan Party hereunder shall not be discharged or impaired or otherwise affected by the failure of the Administrative Agent, the Issuing Lender or any Lender to assert any claim or demand or to enforce any remedy under this Agreement, any other Loan Document or any other agreement, by any waiver or modification of any provision of any thereof, any default, failure or delay, willful or otherwise, in the performance of any of the Obligations, or by any other act or omission that may or might in any manner or to any extent vary the risk of any Loan Party or that would otherwise operate as a discharge of any Loan Party as a matter of law or equity (other than the indefeasible payment in full in cash of all the Obligations (including the Canadian Liabilities) after the termination of the Commitments).
 
 
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10.14.3     Additional Waivers.   To the fullest extent permitted by Law, each Loan Party waives any defense based on or arising out of any defense of any other Loan Party or the unenforceability of the Obligations or any part thereof from any cause, or the cessation from any cause of the liability of any other Loan Party, other than the indefeasible payment in full in cash of all the Obligations and Canadian Liabilities and the termination of the Commitments. The Administrative Agent, the Issuing Lender and the Lenders, at their election, may foreclose on any security held by one or more of them by one or more judicial or non-judicial sales, accept an assignment of any such security in lieu of foreclosure, compromise or adjust any part of the Obligations, make any other accommodation with any other Loan Party, or exercise any other right or remedy available to them against any other Loan Party, without affecting or impairing in any way the liability of any Loan Party hereunder except to the extent that all the Obligations and Canadian Liabilities have been indefeasibly paid in full in cash and the Commitments have been terminated.  Each Loan Party waives any defense arising out of any such election even though such election operates, pursuant to Law, to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of such Loan Party against any other Loan Party, as the case may be, or any security.
 
10.14.4      Subordination.   Upon payment by any Loan Party of any Obligations, all rights of such Loan Party against any other Loan Party arising as a result thereof by way of right of subrogation, contribution, reimbursement, indemnity or otherwise shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full in cash of all the Obligations and the Canadian Liabilities and the termination of the Commitments. In addition, any indebtedness of any Loan Party now or hereafter held by any other Loan Party is hereby subordinated in right of payment to the prior indefeasible payment in full of the Obligations and Canadian Liabilities and no Loan Party will demand, sue for or otherwise attempt to collect any such indebtedness.  Each Loan Party waives and agrees it will not exercise any rights against any other Loan Party arising in connection with, or any Collateral securing, the Obligations (including rights of subrogation, contribution, reimbursement, indemnity and the like) until the Obligations and Canadian Liabilities have been indefeasibly paid in full in cash, and all Commitments have been terminated and all Letters of Credit have expired.  If any amount shall erroneously be paid to any Loan Party on account of (i) such subrogation, contribution, reimbursement, indemnity or similar right or (ii) any such indebtedness of any Loan Party, such amount shall be deemed to have been paid to such Loan Party for the benefit of, and shall be held in trust for the benefit of, the Administrative Agent and shall forthwith be paid to the Administrative Agent to be credited and applied upon the Obligations, whether matured or unmatured, in accordance with the terms of this Agreement.  Subject to the foregoing, to the extent that any Borrower shall, under this Agreement as a joint and several obligor, repay any of the Obligations constituting Revolving Credit Loans made to another Borrower hereunder or other Obligations incurred directly and primarily by any other Borrower (an " Accommodation Payment "), then the Borrower making such Accommodation Payment shall be entitled to contribution and indemnification from, and be reimbursed by, each of the other Borrowers in an amount, for each of such other Borrowers, equal to a fraction of such Accommodation Payment, the numerator of which fraction is such other Borrower's Allocable Amount and the denominator of which is the sum of the Allocable Amounts of all of the Borrowers.  As of any date of determination, the "Allocable Amount" of each Borrower shall be equal to the maximum amount of liability for Accommodation Payments which could be asserted against such Borrower hereunder without (a) rendering such Borrower (1) "insolvent" within the meaning of Section 101 (31) of the Bankruptcy Code described in clause (i) of the definition thereof, Section 2 of the Uniform Fraudulent Transfer Act (" UFTA ") or Section 2 of the Uniform Fraudulent Conveyance Act (" UFCA "), or (2) in the case of the Canadian Borrower, an “insolvent person” within the meaning of such term in the Bankruptcy Code described in clause (ii) of the definition thereof, (b) leaving such Borrower with unreasonably small capital or assets, within the meaning of Section 548 of the Bankruptcy Code described in clause (i) of the definition thereof, Section 4 of the UFTA, or Section 5 of the UFCA, or (c) leaving such Borrower unable to pay its debts as they become due within the meaning of Section 548 of the Bankruptcy Code described in clause (i) of the definition thereof or Section 4 of the UFTA, or Section 5 of the UFCA.

 
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10.15         Obligations Upon Receipt of Indefeasible Payment In Full .
 
Upon full, final and indefeasible payment in full in cash of the Obligations (including the Canadian Liabilities), the expiration of all Commitments and Letters of Credit, termination of the Commitments and expiration or termination of all Letters of Credit (or with respect to any undrawn Letters of Credit, the full Cash Collateralization thereof or the supporting thereof by another letter of credit from an issuing bank and on terms satisfactory to the Issuing Lender and the Administrative Agent), (i) all rights and remedies of each Loan Party and each Lender hereunder shall cease, so long as any payment so made and applied to the Obligations (including the Canadian Liabilities) is not thereafter recovered from or repaid by the Administrative Agent or any other Secured Party in whole or in part in any bankruptcy, insolvency or similar proceeding instituted by or against a Loan Party, whereupon this Agreement and the other Loan Documents shall be automatically reinstated without any further action by a Loan Party and the Administrative Agent and shall continue to be fully applicable to such Obligations (including the Canadian Liabilities) to the same extent as though the payment so recovered or repaid had never been originally made on such Obligations (including the Canadian Liabilities), and (ii) the Administrative Agent agrees to execute and/or deliver, as applicable, to DSW, in each case at the Loan Parties’ sole cost and expense, (1) all property pledged and delivered to the Administrative Agent under this Agreement or any other Loan Document (including without limitation stock or other certificates, notes receivable, certificates of title, direct pay notices to account debtors, change of address forms and other instruments, together with accompanying stock powers and allonges in the forms delivered to the Administrative Agent); (2) the original promissory notes executed in connection with the Obligations (including the Canadian Liabilities) marked “CANCELLED”; (3) all guaranty agreements, indemnification agreements and other accommodation agreements executed by any guarantor, marked “CANCELLED”; and (4) UCC-3 termination statements with respect to the UCC filings made by the Administrative Agent in respect of each Loan Party, as applicable, and  releases of any other liens or encumbrances filed against any property.
 
 
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In connection with the termination of this Agreement, the Administrative Agent may require such indemnities as it shall reasonably deem necessary or appropriate to protect the Administrative Agent, the Lenders and the Issuing Lender against (x) loss on account of credits previously applied to the Obligations that may subsequently be reversed or revoked, (y) any Obligations that may thereafter arise under Section 10.3.1 [Costs and Expenses] and Section 10.3.2 [Indemnification by the Loan Parties].

10.16         Limitation Of Canadian Borrower’s Liability. Notwithstanding anything to the contrary herein contained, the liability of the Canadian Borrower hereunder and under any other Loan Documents shall be limited to the Canadian Liabilities, and the Canadian Borrower shall have no liability whatsoever under the Loan Documents with respect to any other Obligations of the Domestic Borrowers.
 
10.17         Judgment Currency.
 
10.17.1      Judgment Currency . If, for the purpose of obtaining or enforcing judgment against the Canadian Borrower in any court in any jurisdiction, it becomes necessary to convert into any other currency (such other currency being hereinafter in this Section 10.17 referred to as the “Judgment Currency”) an amount due in CD$ or Dollars under this Agreement, the conversion will be made at the rate of exchange prevailing on the Business Day immediately preceding:

10.17.1.1             the date of actual payment of the amount due, in the case of any proceeding in the courts of the Province of Ontario or in the courts of any other jurisdiction that will give effect to such conversion being made on such date; or

10.17.1.2             the date on which the judgment is given, in the case of any proceeding in the courts of any other jurisdiction (the date as of which such conversion is made pursuant to this Section 10.17 being hereinafter in this Section 10.17 referred to as the “ Judgment Conversion Date ”).

10.17.2      Change in Exchange Rate . If, in the case of any proceeding in the court of any jurisdiction referred to in Section 10.17.1.2, there is a change in the rate of exchange prevailing between the Judgment Conversion Date and the date of actual payment of the amount due, the Canadian Borrower will pay such additional amount (if any, but in any event not a lesser amount) as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the rate of exchange prevailing on the date of payment, will produce the amount of CD$ or Dollars, as the case may be, which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial order at the rate of exchange prevailing on the Judgment Conversion Date.
 
 
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10.17.3      Canadian Liabilities . Any amount due from the Canadian Borrower under the provisions of Section 10.17.2 will be due as a separate debt and will not be affected by judgment being obtained for any other amounts due under or in respect of this Agreement.

10.17.4     Rate of Exchange . The term “rate of exchange” in this Section 10.17 means:

10.17.4.1            for a conversion of CD$ to the Judgment Currency, the reciprocal of the official noon rate of exchange published by the Bank of Canada for the date in question for the conversion of the Judgment Currency to CD$;

10.17.4.2            for a conversion of Dollars to the Judgment Currency when the Judgment Currency is CD$, the official noon rate of exchange published by the Bank of Canada for the date in question for the conversion of Dollars to CD$;

10.17.4.3            for a conversion of Dollars to the Judgment Currency when the Judgment Currency is not CD$, the effective rate obtained when a given amount of Dollars is converted to CD$ at the rate determined pursuant to this Section 10.17.4.2 and the result thereof is then converted to the Judgment Currency pursuant to Section 10.17.4.1; or
 
10.17.4.4            if a required rate is not so published by the Bank of Canada for any such date, the spot rate quoted by the Canadian Agent at Toronto, Canada at approximately noon (Toronto time) on that date in accordance with its normal practice for the applicable currency conversion in the wholesale market.

10.18        Language.
 
The parties herein have expressly requested that this Agreement and all related documents be drawn up in the English language.  A la demande expresse des parties aux présentes, cette convention et tout document y afférent ont été rédigés en langue anglaise.


[signature pages follow]

 
- 110 -
 

IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed this Agreement as of the day and year first above written.

ATTEST:
BORROWERS:
     
     
 
DSW INC.
     
 
By:
/s/Kurt Gatterdam
     
 
Name:
Kurt Gatterdam
     
 
Title:
Vice President and Treasurer
     
     
 
DSW SHOE WAREHOUSE, INC.
 
By:
/s/Kurt Gatterdam
     
 
Name:
Kurt Gatterdam
     
 
Title:
Vice President and Treasurer


Signature Page to Credit Agreement

 
 
 
 
 
GUARANTORS:
     
     
 
ETAILDIRECT LLC
   
 
By:
/s/Kurt Gatterdam
     
 
Name:
Kurt Gatterdam
     
 
Title:
Vice President and Treasurer
     
     
 
DSW INFORMATION TECHNOLOGY LLC
   
 
By:
/s/Kurt Gatterdam
     
 
Name:
Kurt Gatterdam
     
 
Title:
Vice President and Treasurer
     
     
 
BRAND CARD SERVICES LLC
   
 
By:
/s/Kurt Gatterdam
     
 
Name:
Kurt Gatterdam
     
 
Title:
Vice President and Treasurer
     
     
 
MINT STUDIO LLC
   
 
By:
/s/Kurt Gatterdam
     
 
Name:
Kurt Gatterdam
     
 
Title:
Vice President and Treasurer


Signature Page to Credit Agreement

 
 
 

 
PNC BANK, NATIONAL ASSOCIATION , as Administrative Agent, as a Lender and as Issuing Lender
     
     
 
By:
/s/ George M. Gevas
     
 
Name:
George M. Gevas
     
 
Title:
Senior Vice President
     
     
 
PNC BANK CANADA BRANCH , as a Canadian Lender
     
     
 
By:
/s/ Mike Danby
     
 
Name:
Mike Danby
     
 
Title:
Assistant Vice President


Signature Page to Credit Agreement

 
 
 
 
EXHIBIT 1.1(A)
 

ASSIGNMENT AND ASSUMPTION AGREEMENT

This ASSIGNMENT AND ASSUMPTION AGREEMENT (the " Assignment ") is dated as of the Effective Date set forth below and is entered into by and between [ Insert name of Assignor ] (the " Assignor ") and [ Insert name of Assignee ] (the " Assignee ").  Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below  (as amended, restated, supplemented or otherwise modified from time to time, the " Credit Agreement "), receipt of a copy of which is hereby acknowledged by the Assignee.  The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment as if set forth herein in full.

For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Agent as contemplated below, (i) the interest in and to all of the Assignor's rights and obligations under the Credit Agreement and any other documents or instruments delivered pursuant thereto that represents the amount and percentage interest identified below of all of the Assignor's outstanding rights and obligations under the respective facilities identified below (including, to the extent included in any such facilities, Letters of Credit and Swing Loans) and (ii) to the extent permitted to be assigned under applicable Law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned by the Assignor to the Assignee pursuant to clauses (i) and (ii) above being referred to herein collectively as the " Assigned Interest ").  Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment, without representation or warranty by the Assignor.

1.
Assignor:
______________________________

2.
Assignee:
______________________________ [and is an Affiliate 1 ]

3.
Borrowers:
DSW Inc. and DSW Shoe Warehouse, Inc., together with any other Person joining the Credit Agreement as a “Borrower” thereunder

4.
Agent:
PNC Bank, National Association, as administrative agent under the Credit Agreement

5.
Credit Agreement:
The Credit Agreement dated as of June 30, 2010 by, among others, the Borrowers party thereto, the Guarantors party thereto, the Lenders party thereto and the Agent, as administrative agent for the Lenders.
   
________________
1 Insert if applicable

 
 
 

6.            Assigned Interest:

Facility Assigned
Aggregate
Amount of Commitment/Loans
for all Lenders
Amount of Commitment/Loans Assigned 2
Percentage
Assigned of
Commitment/Loans 3
________________ 4
$_____________
$_____________
__________%
________________
$_____________
$_____________
__________%
________________
$_____________
$_____________
__________%

Effective Date:   _____________ ___, 20___ [TO BE INSERTED BY AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.] 5
   
________________
2 Subject to minimum amount requirement, if applicable, as set forth in Section 10.8.2(i) of the Credit Agreement
3   Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder.
4   Fill in the appropriate terminology for the types of facilities under the Credit Agreement that are being assigned under this Assignment (e.g. "Revolving Credit Commitment", "Swing Loan Commitment", etc.) The same percentage of each facility owned by the Assignor shall be assigned to the Assignee.
5 Assignor shall pay a fee of $3,500 to the Agent in connection with the Assignment.

 
2
 
 
EXHIBIT 1.1(A)
 

The terms set forth in this Assignment are hereby agreed to:

 
ASSIGNOR
 
[NAME OF ASSIGNOR]
     
  By:
 
   
Title:
     
 
ASSIGNEE
 
[NAME OF ASSIGNEE]
     
 
By:
 
   
Title:

 
 
 
 
EXHIBIT 1.1(A)
 
 
Consented to and Accepted:
 
     
PNC BANK, NATIONAL ASSOCIATION, as
 
Agent
 
     
By
   
 
Name:
 
 
Title:
 
     
     
[Consented to:] 6
 
     
DSW INC., as a Borrower
 
     
By
   
 
Name:
 
 
Title:
 
     
     
DSW SHOE WAREHOUSE, INC., as a Borrower
 
     
By
   
 
Name:
 
 
Title:
 
     
     
[OTHER BORROWER(S), as a Borrower]
 
     
By
   
 
Name:
 
 
Title:
 
     
     
[Consented to:] 7
 
     
PNC BANK, NATIONAL ASSOCIATION, as
 
Issuing Lender
 
     
By
   
 
Name:
 
 
Title:
 

________________
6   To the extent required under Sections 10.8.2(i)(B) and 10.8.2(iii)(A) of the Credit Agreement.
7   To the extent required under Section 10.8.2(iii)(B) of the Credit Agreement.
 
 
 
 
 
ANNEX 1


STANDARD TERMS AND CONDITIONS FOR ASSIGNMENT
AND ASSUMPTION AGREEMENT

Reference is made to the Credit Agreement (as amended, restated, supplemented or otherwise modified from time to time, the " Agreement ") dated as of June 30, 2010 by and among DSW Inc., DSW Shoe Warehouse, Inc. (together with each of the other Persons which become Borrowers under the Agreement from time to time each, a “ Borrower ”, and collectively, the “ Borrowers ”), the Guarantors party thereto, the Lenders party thereto and PNC Bank, National Association, as administrative agent for the Lenders (the “ Agent ”).  Capitalized terms used but not defined herein shall have the meanings given to them in the Agreement.

1.   Representations and Warranties .

1.1    Assignor .  The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with any Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other Loan Documents, or any Collateral thereunder, (iii) the financial condition of the Borrowers, any of their Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrowers, any of their Subsidiaries or Affiliates or any other Person of any of their respective Obligations under any Loan Document.

1.2.   Assignee .  The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all requirements, if any, of an eligible assignee under the Credit Agreement, (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Section 7.3 thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and to purchase the Assigned Interest on the basis of which it has made such analysis and decision, and (v) if Assignee is not incorporated or organized under the laws of the United States of America or any State thereof, attached to the Assignment is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.

2.    Payments .    From and after the Effective Date, the Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignee whether such amounts have accrued prior to or on or after the Effective Date.  The Assignor and the Assignee shall make all appropriate adjustments in payments by the Agent for periods prior to the Effective Date or with respect to the making of this assignment directly between themselves.

3.   General Provisions . This Assignment shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns.  This Assignment may be executed in any number of counterparts, which together shall constitute one instrument.  Delivery of an executed counterpart of a signature page of this Assignment by telecopy or e-mail shall be effective as delivery of a manually executed counterpart of this Assignment.  This Assignment shall be governed by, and construed in accordance with, the laws of the State of Ohio.

 
 
 

4.   Delivery .  If the Assignee is not a Lender, the Assignee shall deliver to the Agent an administrative questionnaire in form satisfactory to the Agent.

 
2
 

EXHIBIT 1.1(C)


COLLATERAL ASSIGNMENT OF CONTRACT RIGHTS
 
THIS COLLATERAL ASSIGNMENT OF CONTRACT RIGHTS (this “ Assignment ”) is made and entered into the 30th day of June, 2010, by the entities listed on the signature page hereto and each Person who hereafter becomes a Borrower or a Guarantor under the Credit Agreement (defined below) (subsequently joining this agreement) (each being individually referred to herein as an " Assignor " and collectively as the " Assignors ") in favor of PNC BANK, NATIONAL ASSOCIATION, a national banking association, as administrative agent for the Lenders referred to below (in such capacity, " Assignee ").

WITNESSETH:
 
WHEREAS, pursuant to that certain Credit Agreement dated as of even date herewith (as it may be hereafter amended, restated, supplemented or otherwise modified from time to time, the " Credit Agreement ") by, among others, (a) DSW INC., an Ohio corporation and DSW SHOE WAREHOUSE, INC., a Missouri corporation, as Borrowers (together with each of the other Persons which become Borrowers under the Credit Agreement from time to time, each, a “ Borrower ”, and collectively, the “ Borrowers ”),  (b) ETAILDIRECT LLC, a Delaware limited liability company, BRAND CARD SERVICES LLC, an Ohio limited liability company, DSW INFORMATION TECHNOLOGY LLC, an Ohio limited liability company and MINT STUDIO  LLC, an Ohio limited liability company, as Guarantors (together with each of the other Persons which become Guarantors under the Credit Agreement from time to time, each, a “ Guarantor ”, and collectively, the “ Guarantors ”), (c) the Lenders party thereto from time to time, and (d) the Assignee, the Lenders have agreed to provide Loans to the Borrowers and the Issuing Lender has agreed to issue Letters of Credit for the account of the Borrowers; and

WHEREAS, pursuant to that certain Security Agreement dated as of even date herewith (as it may hereafter be amended, restated, supplemented or otherwise modified from time to time, the “ Security Agreement ”) by the Assignors and the Agent, the Assignors have granted in favor of Assignee a security interest in certain of their assets as security for the Secured Obligations (as defined in the Security Agreement);

WHEREAS, as a supplement to and without limiting their obligations under the Security Agreement and the other Loan Documents (as defined in the Credit Agreement), in order to further evidence the grant of security interest provided in the Security Agreement, the parties hereto desire that Assignee be granted a collateral assignment of contract rights and security interest in all rights of Assignors under the documents, instruments and agreements described on Schedule I annexed hereto (each, an " Assigned Contract ", and collectively, the “ Assigned Contracts ”).
 
 
 
 
 
NOW, THEREFORE, in consideration of the promises and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are acknowledged by each Assignor, and intending to be legally bound, each Assignor assigns as collateral and grants a security interest to Assignee in all of its right, title and interest in and to each Assigned Contracts to which it is a party to the extent such Assigned Contract permits such assignment and to the fullest extent permitted by Law.

1.              Except as otherwise expressly defined herein, capitalized terms used in this Assignment shall have the respective meanings given to them in the Credit Agreement.
 
2.              As a supplement to and without limiting its obligations under the Security Agreement and the other Loan Documents, each Assignor does hereby collaterally assign to and grant a security interest to Assignee, its respective successors and assigns in all the rights, interests and privileges which such Assignor has or may have in or under the Assigned Contracts to which it is a party, including without limiting the generality of the foregoing, the present and continuing right after the occurrence and during the continuance of an Event of Default, in its own name, or in the name of such Assignor, or otherwise, but subject to the provisions and limitations of Sections 3 and 4 hereof, (i) to make claim for, enforce, perform, collect and receive any and all rights under the Assigned Contracts to which it is a party, (ii) to do any and all things which such Assignor is or may become entitled to do under the Assigned Contracts to which it is a party, and (iii) to make all waivers and agreements, give all notices, consents and releases and other instruments and to do any and all other things whatsoever which such Assignor is or may become entitled to do under the Assigned Contracts to which it is a party.
 
3.              The acceptance of this Assignment and the payment or performance under the Assigned Contracts shall not constitute a waiver of any rights of Assignee under the terms of the Notes, the Credit Agreement or any other Loan Documents, it being understood that, until an Event of Default shall have occurred and be continuing, and the exercise of Assignee's rights under Section 4 hereof, each Assignor shall have all rights to the Assigned Contracts to which it is a party and to retain, use and enjoy the same.
 
4.              Each Assignor, upon the occurrence and during the continuance of an Event of Default, hereby authorizes Assignee, at Assignee's option, to do all acts required or permitted under the Assigned Contracts as Assignee in its reasonable discretion may deem proper.  Each Assignor does hereby irrevocably constitute and appoint Assignee, while this Assignment remains in force and effect and, in each instance, to the full extent permitted by applicable Law, its true and lawful attorney in fact, coupled with an interest and with full power of substitution and revocation, for such Assignor and in its name, place and stead, to demand and enforce compliance with all the terms and conditions of the Assigned Contracts to which it is a party and all benefits accrued thereunder, whether at law, in equity or otherwise; provided, however, that Assignee shall not exercise any such power unless and until an Event of Default shall have occurred and be continuing.
 
5.              Assignee shall not be obligated to perform or discharge any obligation or duty to be performed or discharged by any Assignor under any Assigned Contract, each Assignor hereby agrees to indemnify Assignee for, and to save Assignee harmless from, any and all liability arising under any Assigned Contract, other than arising or resulting from Assignee's (or its agents’, employees’ or contractors’) gross negligence or willful misconduct.

 
-2-
 
 
6.           Each Assignor shall, upon Assignee’s reasonable request, use commercially reasonable efforts to cause the counterparty to each Assigned Contract to enter into an agreement with Assignee, in form and substance reasonably satisfactory to Assignee, pursuant to which such counterparty shall, among other things, agree to (i) provide Assignee with access to any premises owned or leased by such counterparty where any Collateral of such Assignor is located, (ii) keep such Collateral segregated from any other personal property located on such premises, and (iii) remit all proceeds of such Collateral received by such counterparty to Assignee for application to the Obligations.
 
7.           Each Assignor agrees that this Assignment and the designation and directions herein set forth are irrevocable, subject to termination of this Assignment (and reinstatement thereof) as provided in Section 10 hereof.
 
8.           Neither this Assignment nor any action or inaction on the part of Assignee shall constitute an assumption on the part of Assignee of any obligations or duties under any Assigned Contract.
 
9.           Each Assignor covenants and warrants that:
 
9.1           it has the power and authority to assign the Assigned Contracts to which it is a party and there have been no prior assignments of such Assigned Contracts other than in connection with the Existing Credit Agreement, which assignments are being terminated on the Closing Date;
 
9.2           each Assigned Contract is a valid contract, and that there are, to the extent ascertainable by such Assignor, no defaults on the part of any of the parties thereto as of the Closing Date;
 
9.3           it will not assign, pledge or otherwise encumber any Assigned Contract to which it is a party without the prior written consent of Assignee;
 
9.4           it will not cancel, terminate or accept any surrender of any Assigned Contract (except as may otherwise be permitted by the Credit Agreement) without having obtained the prior written consent of Assignee thereto (which consent shall not be unreasonably withheld or delayed), and it will not amend or modify the same directly or indirectly in any respect whatsoever, to the extent that any such amendment or modification could reasonably be expected to adversely affect or impair Assignor’s ability to realize the value of the Inventory or the proceeds from the sale of such Inventory;
 
9.5           it will (i) not waive or give any consent with respect to any default or material variation in the performance under any Assigned Contract, (ii) at all times take proper steps to enforce all of the provisions and conditions thereof, in each case under such clauses (a) and (b) to the extent that any such consent or failure to enforce could reasonably be expected to adversely affect or impair Assignor’s ability to realize the value of the Inventory at each location described in the Assigned Contact or the proceeds from the sale of such Inventory, and (iii) forthwith notify Assignee of any default under such Assigned Contract to the extent required by the Credit Agreement;
 
 
-3-
 

9.6           it will perform and observe, or cause to be performed and observed in all material respects, all of the terms, covenants and conditions on its part to be performed and observed with respect to the Assigned Contracts; and
 
9.7           it will execute from time to time any and all additional collateral assignments or instruments of further assurance to Assignee, as Assignee may at any time reasonably request.
 
10.           Upon indefeasible payment in full in cash of the Secured Obligations, termination of the Commitments and expiration or termination of all Letters of Credit (or with respect to any undrawn Letters of Credit, the full Cash Collateralization thereof or the supporting thereof by another letter of credit from an issuing bank and on terms satisfactory to the Issuing Lender and the Agent), this Assignment and all of Assignee's right, title and interest hereunder with respect to the Assigned Contracts shall terminate without regard to its conflicts of law principles; provided, however, that this Assignment and the Liens granted herein shall be reinstated if at any time payment, or any part thereof, of any Secured Obligation is rescinded or must otherwise be restored by the Administrative Agent or any other Secured Party (as defined in the Security Agreement) upon the bankruptcy or reorganization of any Assignor or otherwise.
 
11.           This Assignment shall inure to the benefit of Assignee, its respective successors and assigns, and shall be binding upon each Assignor, its successors, successors in title and assigns.
 
12.           This Assignment shall be deemed to be a contract under the laws of the State of Ohio without regard to its conflict of laws principles.
 
[remainder of page intentionally left blank]

 
-4-
 

IN WITNESS WHEREOF, the parties have duly executed this instrument under seal as of the day and year first above written.

ASSIGNORS:
DSW INC., as a Borrower
     
 
By:
/s/ Kurt Gatterdam 
 
Name:
Kurt Gatterdam
 
Title:
Treasurer 
     
     
 
DSW SHOE WAREHOUSE, INC., as a Borrower
     
 
By:
/s/ Kurt Gatterdam 
 
Name:
Kurt Gatterdam 
 
Title:
Treasurer   
     
     
 
ETAILDIRECT LLC, as a Guarantor
     
 
By:
/s/ Kurt Gatterdam 
 
Name:
Kurt Gatterdam 
 
Title:
Treasurer   
     
     
 
BRAND CARD SERVICES LLC, as a Guarantor
     
 
By:
/s/ Kurt Gatterdam   
 
Name:
Kurt Gatterdam 
 
Title:
Treasurer   
     
     
 
DSW INFORMATION TECHNOLOGY LLC, as a Guarantor
     
 
By:
/s/ Kurt Gatterdam   
 
Name:
Kurt Gatterdam 
 
Title:
Treasurer   
     
     
 
MINT STUDIO LLC, as a Guarantor
     
 
By:
/s/ Kurt Gatterdam   
 
Name:
Kurt Gatterdam 
 
Title:
Treasurer   


Signature Page to Collateral Assignment of Contract Rights

 
 
 

ASSIGNEE:
PNC BANK, NATIONAL ASSOCIATION, as Agent
     
 
By:
/s/ George M. Gevas 
 
Name:
George M. Gevas   
 
Title:
Senior Vice President 


Signature Page to Collateral Assignment of Contract Rights

 
 
 

Schedule I

Assigned Contracts

 
1.
Supply Agreement dated as of January 30, 2005 by and between DSW Inc. (f/k/a Shonac Corporation) and SYL, LLC (f/k/a Filene’s Basement, Inc.), as amended and in effect
 
 
 
2.
Supply Agreement (Combo Stores) dated as of January 30, 2005 by and between DSW Inc. (f/k/a Shonac Corporation) and SYL, LLC (f/k/a Filene’s Basement, Inc.), as amended and in effect

 
3.
Amended and Restated Supply Agreement dated as of May 30, 2006 by and between DSW Inc. and Stein Mart, Inc., as amended and in effect

 
4.
Supply Agreement dated as of June 10, 2004 by and between DSW Inc. (f/k/a Shonac Corporation) and Gordmans, Inc., as amended and in effect

 
5.
Supply Agreement dated as of September 16, 2003 by and between DSW Inc. (f/k/a Shonac Corporation) and Retail Therapy, LLC (d/b/a Frugal Fannie’s Fashion Warehouse), as amended and in effect


Schedule I to Collateral Assignment of Contract Rights
 
 
 
 
 
EXHIBIT 1.1(G)(1)


FORM OF
GUARANTOR JOINDER AND ASSUMPTION AGREEMENT

THIS GUARANTOR JOINDER AND ASSUMPTION AGREEMENT (this “ Joinder ”) is made as of ____________, 20__, by _____________________________________________________, a _____________________ [corporation/partnership/limited liability company] (the " New Guarantor ").

Background

Reference is made to (i) the Credit Agreement, dated as of June 30, 2010 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement "), by, among others, DSW Inc., DSW Shoe Warehouse, Inc. (together with each of the other Persons which become Borrowers under the Credit Agreement from time to time each, a “ Borrower ”, and collectively, the “ Borrowers ”), the Guarantors party thereto, the Lenders party thereto and PNC Bank, National Association, as administrative agent for the Lenders (the " Administrative  Agent "), (ii) the Continuing Agreement of Guaranty and Suretyship, dated as of June 30, 2010 (as amended, restated, supplemented or otherwise modified from time to time, the " Guaranty ") of Guarantors given to the Administrative Agent, the Lenders and the Issuing Lender (together with each of their respective Affiliates, collectively, the “ Secured Parties ”), (iii)  the Security Agreement, dated as of June 30, 2010 (as amended, restated, supplemented or otherwise modified from time to time, the " Security Agreement ") among the Loan Parties and the Administrative Agent for the benefit of the Secured Parties, and (iv) the other Loan Documents.

Agreement

Capitalized terms defined in the Credit Agreement are used herein as defined therein.

New Guarantor hereby becomes a Guarantor under the terms of the Credit Agreement and in consideration of the value of the synergistic and other benefits received by New Guarantor as a result of being or becoming affiliated with the Borrowers and the Guarantors, New Guarantor hereby agrees that effective as of the date hereof it hereby is, and shall be deemed to be, and assumes the Obligations of, a "Loan Party" and a "Guarantor", jointly and severally under the Credit Agreement, a "Guarantor," jointly and severally with the existing Guarantors under the Guaranty, a "Debtor" jointly and severally under the Security Agreement and a Loan Party or Guarantor, as the case may be, under each of the other Loan Documents to which the Loan Parties or Guarantors are a party; and, New Guarantor hereby agrees that from the date hereof and so long as any Loan or any Commitment of any Lender shall remain outstanding and until the indefeasible payment in full in cash of the Secured Obligations, expiration or termination of all Letters of Credit (or with respect to any undrawn Letters of Credit, the full Cash Collateralization thereof or the supporting thereof by another letter of credit from an issuing bank and on terms satisfactory to the Issuing Lender and the Administrative Agent), and the payment and performance of all other Obligations of the Loan Parties under the Loan Documents, New Guarantor shall perform, comply with, and be subject to and bound by each of the terms and provisions of the Credit Agreement, Guaranty, Security Agreement and each of the other Loan Documents jointly and severally with the existing parties thereto.  Without limiting the generality of the foregoing, New Guarantor hereby represents and warrants that (i) each of the representations and warranties set forth in Section 5 of the Credit Agreement applicable to a Loan Party is true and correct as to New Guarantor on and as of the date hereof (other than representations and warranties that relate solely to an earlier date, in which case such representations and warranties are true and accurate as of such earlier date) and (ii) New Guarantor has heretofore received a true and correct copy of the Credit Agreement, Guaranty, Security Agreement and each of the other Loan Documents (including any modifications thereof or supplements or waivers thereto) in effect on the date hereof.

 
 
 

New Guarantor hereby makes, affirms, and ratifies in favor of the Administrative Agent and the other Secured Parties the Credit Agreement, Guaranty, Security Agreement and each of the other Loan Documents given by the Guarantors to the Administrative Agent or any of the other Secured Parties, and to the extent that any changes in any representations, warranties, and covenants require any amendments to the schedules of any of such Loan Documents, such schedules are hereby updated, as evidenced by any supplemental schedules (if any) annexed to this Joinder.

Without limiting the foregoing, as security for the due and punctual payment and performance of the Secured Obligations in full, New Guarantor hereby agrees that the Secured Parties shall have, and New Guarantor hereby grants to and creates in favor of the Administrative Agent for the benefit of itself and the other Secured Parties, a continuing first priority Lien on, and security interest under the UCC in and to, the Collateral (as defined in the Security Agreement) subject only to Permitted Liens having priority by operation of Law.  New Guarantor further agrees that with respect to each item of Collateral as to which (i) the creation of a valid and enforceable security interest is not governed exclusively by the UCC or (ii) the perfection of a valid and enforceable first priority security interest therein under the UCC cannot be accomplished either by (a) the Administrative Agent taking possession thereof, (b) the Administrative Agent’s having “control”  (as defined in the UCC) thereof, or (c) by the filing in appropriate locations of appropriate UCC financing statements executed by New Guarantor, New Guarantor will at its expense execute and deliver to the Administrative Agent and hereby does authorize the Administrative Agent to execute and file such documents, agreements, notices, assignments and instruments and take such further actions as may be requested by the Administrative Agent from time to time for the purpose of creating, protecting and preserving a valid and perfected first priority Lien on such item, subject only to Permitted Liens having priority by operation of Law, enforceable against New Guarantor and all third parties to secure the Secured Obligations.

New Guarantor is simultaneously delivering to the Administrative Agent the documents, instruments and agreements, together with this Joinder, required under Sections 6.1.1 [Deliveries] and 7.2.9 [Subsidiaries, Partnership and Joint Ventures] of the Credit Agreement, and is otherwise satisfying the obligations of Sections 6.1.2 [Other Conditions Precedent] and 6.1.3 [Payment of Fees and Expenses] of the Credit Agreement.

 
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In furtherance of the foregoing, New Guarantor shall execute and deliver or cause to be executed and delivered at any time and from time to time such further instruments and documents and do or cause to be done such further acts as may be reasonably necessary in the reasonable opinion of the Administrative Agent to carry out more effectively the provisions and purposes of this Joinder and the other Loan Documents.

This Joinder shall be deemed to be a contract under the laws of the State of Ohio without regard to its conflict of laws principles.

The provisions of this Joinder are intended to be severable.  If any provision of this Joinder shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction.

This Joinder may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  This Joinder shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto.  Delivery of an executed counterpart of a signature page of this Joinder by telecopy or e-mail shall be effective as delivery of a manually executed counterpart of this Joinder.

[signature page follows]

 
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 [SIGNATURE PAGE 1 OF 2 OF GUARANTOR JOINDER AND ASSUMPTION AGREEMENT]

IN WITNESS WHEREOF, and intending to be legally bound hereby, the New Guarantor has duly executed this Joinder and delivered the same to the Administrative Agent for the benefit of the Secured Parties, as of the date and year first above.


ATTEST:
     
         
     
By:
 
Name:
   
Name:
 
Title:
   
Title:
 

 
 
 

 [SIGNATURE PAGE 2 OF 2 OF GUARANTOR JOINDER AND ASSUMPTION AGREEMENT]


Acknowledged and accepted:

PNC BANK, NATIONAL ASSOCIATION, as Administrative Agent


By:
   
Name:
   
Title:
   
 
 
 
 

EXHIBIT 1.1(G)(2)

FORM OF
CONTINUING AGREEMENT OF GUARANTY AND SURETYSHIP

This Continuing Agreement of Guaranty and Suretyship (this "Guaranty"), dated as of this 30 th day of June, 2010, is jointly and severally given by each of the undersigned and each of the other Persons which become Guarantors hereunder from time to time (each, a "Guarantor", and collectively, the "Guarantors") in favor of (i) PNC BANK, NATIONAL ASSOCIATION, as administrative agent for the Lenders (the "Administrative Agent") in connection with that Credit Agreement dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), by, among others, (a) DSW Inc., an Ohio corporation, and DSW Shoe Warehouse, Inc., a Missouri corporation, as Borrowers (together with each of the other Persons which become Borrowers under the Credit Agreement (defined below) from time to time each, a “Borrower”, and collectively, the “Borrowers”), (b) the Guarantors, (c) the Administrative Agent, and (d) the Lenders now or hereafter party thereto, (ii) the Lenders, and (iii) the Issuing Lender (together with the Administrative Agent, the Lenders, and each of their respective Affiliates, each, a “Secured Party”, and collectively, the “Secured Parties”).  Capitalized terms not otherwise defined herein shall have the respective meanings ascribed to them by the Credit Agreement and the rules of construction set forth in Section 1.2 [Construction] of the Credit Agreement shall apply to this Guaranty.

1.            Guarantied Obligations .  To induce the Administrative Agent and the Lenders to make loans and grant other financial accommodations to the Borrowers under the Credit Agreement, and to induce the Issuing Lender to issue Letters of Credit under the Credit Agreement, each Guarantor hereby jointly and severally unconditionally, and irrevocably, guaranties to each Secured Party; and becomes surety, as though it was a primary obligor for, the full and punctual payment and performance when due (whether on demand, at stated maturity, by acceleration, or otherwise and including any amounts which would become due but for the operation of an automatic stay under the federal bankruptcy code of the United States or any similar Laws of any country or jurisdiction) of all Obligations (including, without limitation, all Canadian Liabilities) from time to time of the Borrowers or any other Guarantor to any of the Secured Parties or any Affiliate of any Secured Party under or in connection with the Credit Agreement or any other Loan Document, whether for principal, interest, fees, indemnities, expenses, or otherwise, and all refinancings or refundings thereof, whether such obligations, liabilities, or indebtedness are direct or indirect, secured or unsecured, joint or several, absolute or contingent, due or to become due, whether for payment or performance, now existing or hereafter arising (and including Obligations (including, without limitation, Canadian Liabilities) arising or accruing after the commencement of any bankruptcy, insolvency, reorganization, or similar proceeding with respect to any Borrower or any Guarantor or which would have arisen or accrued but for the commencement of such proceeding, even if the claim for such obligation, liability, or indebtedness is not enforceable or allowable in such proceeding, and including all Obligations (including, without limitation, all Canadian Liabilities) arising from any extensions of credit under or in connection with the Loan Documents from time to time, regardless whether any such extensions of credit are in excess of the amount committed under or contemplated by the Loan Documents or are made in circumstances in which any condition to extension of credit is not satisfied) (all of the foregoing Obligations (including, without limitation, all Canadian Liabilities) are referred to herein collectively as the "Guarantied Obligations" and each as a "Guarantied Obligation").  Without limitation of the foregoing, any of the Guarantied Obligations shall be and remain Guarantied Obligations entitled to the benefit of this Guaranty if any Secured Party (or any one or more assignees or transferees thereof) from time to time assigns or otherwise transfers all or any portion of its respective rights and obligations under the Loan Documents, or any other Guarantied Obligations, to any other Person.   In furtherance of the foregoing, each Guarantor jointly and severally agrees as follows.

 
 
 
 
2.            Guaranty . Each Guarantor hereby promises to pay and perform all such Guarantied Obligations immediately upon demand of the Administrative Agent or the Required Lenders.   All payments made hereunder shall be made by each Guarantor in immediately available funds in United States Dollars and shall be made without setoff, counterclaim, withholding, or other deduction of any nature.  Each Guarantor hereby acknowledges and agrees that this Guaranty constitutes a guaranty of payment and performance when due of all Guarantied Obligations, and not of collection.

3.            Obligations Absolute .  The obligations of the Guarantors hereunder shall not be discharged or impaired or otherwise diminished by the failure, default, omission, or delay, willful or otherwise, by any Secured Party, or any Borrower or any other obligor on any of the Guarantied Obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of any Guarantor or would otherwise operate as a discharge of any Guarantor as a matter of law or equity.  Each of the Guarantors agrees that the Guarantied Obligations will be paid and performed strictly in accordance with the terms of the Loan Documents.  Each Guarantor agrees that the Guarantied Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon this Guaranty notwithstanding any extension or renewal of any Guarantied Obligation.  Without limiting the generality of the foregoing, each Guarantor hereby consents to, at any time and from time to time, and the joint and several obligations of each Guarantor hereunder shall not be diminished, terminated, or otherwise similarly affected by any of the following:

(a)           Any lack of genuineness, legality, validity, enforceability or allowability (in a bankruptcy, insolvency, reorganization or similar proceeding, or otherwise), or any avoidance or subordination, in whole or in part, of any Loan Document or any of the Guarantied Obligations and regardless of any Law, regulation or order now or hereafter in effect in any jurisdiction affecting any of the Guarantied Obligations, any of the terms of the Loan Documents, or any rights of any Secured Party or any other Person with respect thereto;
 
 
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(b)           Any increase, decrease, or change in the amount, nature, type or purpose of any of, or any release, surrender, exchange, compromise or settlement of any of the Guarantied Obligations (whether or not contemplated by the Loan Documents as presently constituted); any change in the time, manner, method, or place of payment or performance of, or in any other term of, any of the Guarantied Obligations; any execution or delivery of any additional Loan Documents; or any amendment, modification or supplement to, or refinancing or refunding of, any Loan Document or any of the Guarantied Obligations;

(c)           Any failure to assert any breach of or default under any Loan Document or any of the Guarantied Obligations; any extensions of credit in excess of the amount committed under or contemplated by the Loan Documents, or in circumstances in which any condition to such extensions of credit has not been satisfied; any other exercise or non-exercise, or any other failure, omission, breach, default, delay, or wrongful action in connection with any exercise or non-exercise, of any right or remedy against any Borrower or any other Person under or in connection with any Loan Document or any of the Guarantied Obligations; any refusal of payment or performance of any of the Guarantied Obligations, whether or not with any reservation of rights against any Guarantor; any application of collections (including but not limited to collections resulting from realization upon any direct or indirect security for the Guarantied Obligations) to other obligations, if any, not entitled to the benefits of this Guaranty, in preference to Guarantied Obligations entitled to the benefits of this Guaranty, or if any collections are applied to Guarantied Obligations, any application to particular Guarantied Obligations;

(d)           Any taking, exchange, amendment, modification, waiver, supplement, termination, subordination, compromise, release, surrender, loss, or impairment of, or any failure to protect, perfect, or preserve the value of, or any enforcement of, realization upon, or exercise of rights, or remedies under or in connection with, or any failure, omission, breach, default, delay, or wrongful action by any Secured Party, or any other Person in connection with the enforcement of, realization upon, or exercise of rights or remedies under or in connection with, or, any other action or inaction by any Secured Party, or any other Person in respect of, any direct or indirect security for any of the Guarantied Obligations, including without limitation, the release or substitution of any one or more endorsees, the Borrowers or other obligors.  As used in this Guaranty, "direct or indirect security" for the Guarantied Obligations, and similar phrases, includes any collateral security, guaranty, suretyship, letter of credit, capital maintenance agreement, put option, subordination agreement, or other right or arrangement of any nature providing direct or indirect assurance of payment or performance of any of the Guarantied Obligations, made by or on behalf of any Person;

(e)           Any merger, consolidation, liquidation, dissolution, winding-up, charter revocation, or forfeiture, or other change in, restructuring or termination of the corporate structure or existence of, any Borrower or any other Person; any bankruptcy, insolvency, reorganization or similar proceeding with respect to any Borrower or any other Person; or any action taken or election made by any Secured Party (including but not limited to any election under Section 1111(b)(2) of the United States Bankruptcy Code), any Borrower, or any other Person in connection with any such proceeding;
 
 
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(f)           Any defense, setoff, or counterclaim which may at any time be available to or be asserted by any Borrower or any other Person with respect to any Loan Document or any of the Guarantied Obligations; or any discharge by operation of Law or release of any Borrower or any other Person from the performance or observance of any Loan Document or any of the Guarantied Obligations;

(g)           Any other event or circumstance, whether similar or dissimilar to the foregoing, and whether known or unknown, which might otherwise constitute a defense available to, or limit the liability of, any Guarantor, a guarantor or a surety, excepting only full, strict, and indefeasible payment and performance of the Guarantied Obligations in full.

Each Guarantor acknowledges, consents, and agrees that new Guarantors may join in this Guaranty pursuant to Section 7.2.9 of the Credit Agreement and each Guarantor affirms that its obligations shall continue hereunder undiminished.

4.            Waivers, etc .  Each of the Guarantors hereby waives any defense to or limitation on its obligations under this Guaranty arising out of or based on any event or circumstance referred to in Section 3 hereof.  Without limitation and to the fullest extent permitted by applicable Law, each Guarantor waives each of the following:

(a)           All notices, disclosures and demand of any nature which otherwise might be required from time to time to preserve intact any rights against any Guarantor, including the following:  any notice of any event or circumstance described in Section 3 hereof; any notice required by any Law, regulation or order now or hereafter in effect in any jurisdiction; any notice of nonpayment, nonperformance, dishonor, or protest under any Loan Document or any of the Guarantied Obligations; any notice of the incurrence of any Guarantied Obligation; any notice of any default or any failure on the part of any Borrower or any other Person to comply with any Loan Document or any of the Guarantied Obligations or any direct or indirect security for any of the Guarantied Obligations; and any notice of any information pertaining to the business, operations, condition (financial or otherwise) or prospects of any Borrower or any other Person;

(b)           Any right to any marshalling of assets, to the filing of any claim against any Borrower or any other Person in the event of any bankruptcy, insolvency, reorganization or similar proceeding, or to the exercise against any Borrower or any other Person of any other right or remedy under or in connection with any Loan Document or any of the Guarantied Obligations or any direct or indirect security for any of the Guarantied Obligations; any requirement of promptness or diligence on the part of any Secured Party, or any other Person; any requirement to exhaust any remedies under or in connection with, or to mitigate the damages resulting from default under, any Loan Document or any of the Guarantied Obligations or any direct or indirect security for any of the Guarantied Obligations; any benefit of any statute of limitations; and any requirement of acceptance of this Guaranty or any other Loan Document, and any requirement that any Guarantor receive notice of any such acceptance;
 
 
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(c)           Any defense or other right arising by reason of any Law now or hereafter in effect in any jurisdiction pertaining to election of remedies (including but not limited to anti-deficiency Laws, "one action" Laws or the like), or by reason of any election of remedies or other action or inaction by any Secured Party (including but not limited to commencement or completion of any judicial proceeding or nonjudicial sale or other action in respect of collateral security for any of the Guarantied Obligations), which results in denial or impairment of the right of any Secured Party to seek a deficiency against any Borrower or any other Person or which otherwise discharges or impairs any of the Guarantied Obligations; and

(d)           Any and all defenses it may now or hereafter have based on principles of suretyship, impairment of collateral, or the like.

5.            Reinstatement . This Guaranty is a continuing obligation of the Guarantors and shall remain in full force and effect notwithstanding that no Guarantied Obligations may be outstanding from time to time and notwithstanding any other event or circumstance.  Upon termination of all Commitments, the expiration of all Letters of Credit and indefeasible payment in full in cash of all Guarantied Obligations, this Guaranty shall terminate; provided, however, that this Guaranty shall continue to be effective or be reinstated, as the case may be, any time any payment of any of the Guarantied Obligations is rescinded, recouped, avoided, or must otherwise be returned or released by any Secured Party upon or during the insolvency, bankruptcy, or reorganization of, or any similar proceeding affecting, any Loan Party or for any other reason whatsoever, all as though such payment had not been made and was due and owing.

6.            Agreement to Pay; Subrogation .  Upon payment by any Guarantor of any sums to the Administrative Agent in respect of the Guarantied Obligations as provided herein, all rights of such Guarantor against any other Guarantor arising as a result thereof by way of right of subrogation, contribution, reimbursement, indemnity or otherwise shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full in cash of all the Guarantied Obligations.  In addition, any indebtedness of the Borrowers or any other obligor now or hereafter held by any Guarantor is hereby subordinated in right of payment to the prior indefeasible payment in full in cash of all of the Guarantied Obligations.  Each Guarantor waives and agrees it will not exercise any rights against any Borrower or any other Guarantor arising in connection with, or any Collateral securing, the Guarantied Obligations (including rights of subrogation, contribution, reimbursement, indemnity and the like) until the Guarantied Obligations have been indefeasibly paid in full in cash, and all Commitments have been terminated and all Letters of Credit have expired.  If any amount shall be paid to any Guarantor by or on behalf of any Borrower or any other Guarantor by virtue of any right of subrogation, contribution, reimbursement, indemnity or the like, such amount shall be deemed to have been paid to such Guarantor for the benefit of, and shall be held in trust for the benefit of, the Secured Parties and shall forthwith be paid to the Administrative Agent to be credited and applied upon the Guarantied Obligations, whether matured or unmatured, in accordance with the terms of the Credit Agreement.

7.            No Stay .  Without limitation of any other provision of this Guaranty, if any declaration of default or acceleration or other exercise or condition to exercise of rights or remedies under or with respect to any Guarantied Obligation shall at any time be stayed, enjoined, or prevented for any reason (including but not limited to stay or injunction resulting from the pendency against any Borrower or any other Person of a bankruptcy, insolvency, reorganization or similar proceeding), the Guarantors agree that, for the purposes of this Guaranty and their obligations hereunder, the Guarantied Obligations shall be deemed to have been declared in default or accelerated, and such other exercise or conditions to exercise shall be deemed to have been taken or met.

 
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8.            Incorporation by Reference .  Each Guarantor agrees that each of the representations, warranties and covenants made by the Guarantors in the Credit Agreement are hereby incorporated by reference herein.

9.            Notices .  Each Guarantor agrees that all notices, statements, requests, demands and other communications under this Guaranty shall be given to such Guarantor at the address set forth on a Schedule to, or in a Guarantor Joinder given under, the Credit Agreement and in the manner provided in Section 10.5 [Notices, Effectiveness; Electronic Communication] of the Credit Agreement.  The Secured Parties may rely on any notice (whether or not made in a manner contemplated by this Guaranty) purportedly made by or on behalf of a Guarantor, and the Secured Parties shall have no duty to verify the identity or authority of the Person giving such notice.

10.            Counterparts; Telecopy Signatures .  This Guaranty may be executed in any number of counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument.  Each Guarantor acknowledges and agrees that a telecopy transmission to Administrative Agent or any Secured Party of signature pages hereof purporting to be signed on behalf of any Guarantor shall constitute effective and binding execution and delivery hereof by such Guarantor.

11.            Setoff, Default Payments by Borrower .

(a)           In the event that at any time any obligation of the Guarantors now or hereafter existing under this Guaranty shall have become due and payable, each of the Secured Parties shall have the right from time to time, with the prior written consent of the Administrative Agent or the Required Lenders, but without notice to any Guarantor, to set off against and apply to such due and payable amount any obligation of any nature of any Secured Party, or any subsidiary or Affiliate of any Secured Party, to any Guarantor, including but not limited to all deposits (whether time or demand, general or special, provisionally credited or finally credited, however evidenced) now or hereafter maintained by any Guarantor with such Secured Party.  Such right shall be absolute and unconditional in all circumstances and, without limitation, shall exist whether or not any Secured Party, shall have given any notice or made any demand under this Guaranty or under such obligation to the Guarantor, whether such obligation to the Guarantor is absolute or contingent, matured or unmatured (it being agreed that the Secured Parties, or any of them, may deem such obligation to be then due and payable at the time of such setoff), and regardless of the existence or adequacy of any collateral, guaranty, or other direct or indirect security or right or remedy available to the Secured Parties.  The rights of the Secured Parties under this Section are in addition to such other rights and remedies which the Secured Parties, or any of them, may have, and nothing in this Guaranty or in any other Loan Document shall be deemed a waiver of or restriction on the right of setoff or banker's lien of the Secured Parties, or any of them.  Each of the Guarantors hereby agrees that, to the fullest extent permitted by Law, any Affiliate or subsidiary of any Secured Party and any holder of a participation in any obligation of any Guarantor under this Guaranty, shall have the same rights of setoff as such Secured Party as provided in this Section (regardless whether such Affiliate or participant otherwise would be deemed a creditor of the Guarantor).

 
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(b)           Upon the occurrence and during the continuation of any Event of Default, if any amount shall be paid to any Guarantor by or for the account of any Borrower, such amount shall be held in trust for the benefit of each Secured Party and shall forthwith be paid to the Administrative Agent to be credited and applied to the Guarantied Obligations when due and payable.
 
12.            Construction .  The section and other headings contained in this Guaranty are for reference purposes only and shall not affect interpretation of this Guaranty in any respect.  This Guaranty has been fully negotiated between the applicable parties, each party having the benefit of legal counsel, and accordingly neither any doctrine of construction of guaranties or suretyships in favor of the guarantor or surety, nor any doctrine of construction of ambiguities in agreement or instruments against the party controlling the drafting thereof, shall apply to this Guaranty.
 
13.            Successors and Assigns .  This Guaranty shall be binding upon each Guarantor, its successors and assigns, and shall inure to the benefit of and be enforceable by the Administrative Agent or the Required Lenders, and their respective successors and permitted assigns provided, however, that no Guarantor may assign or transfer any of its rights or obligations hereunder or any interest herein and any such purported assignment or transfer shall be null and void.  Without limitation of the foregoing, the Secured Parties, or any of them (and any successive assignee or transferee), from time to time may assign or otherwise transfer all or any portion of its rights or obligations under the Loan Documents (including all or any portion of any commitment to extend credit), or any other Guarantied Obligations, to any other person and such Guarantied Obligations (including any Guarantied Obligations resulting from extension of credit by such other Person under or in connection with the Loan Documents) shall be and remain Guarantied Obligations entitled to the benefit of this Guaranty, and to the extent of its interest in such Guarantied Obligations such other Person shall be vested with all the benefits in respect thereof granted to the Secured Parties in this Guaranty or otherwise.
 
14.            Governing Law; Submission to Jurisdiction; Waiver of Jury Trial .
 
(a)            Governing Law .  This Guaranty shall be deemed to be a contract under the Laws of the State of Ohio without regard to its conflict of laws principles.
 
(b)            Certain Waivers .  Each Guarantor, and the Administrative Agent, by its acceptance hereof, hereby each:
 
(i)            Certain Waivers; Submission to Jurisdiction .  (1) IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF OHIO SITTING IN FRANKLIN COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF OHIO, EASTERN DIVISION, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH SUCH PERSON IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH OHIO STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT.  EACH SUCH PERSON AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING IN THIS GUARANTY OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT OR ANY OTHER SECURED PARTY MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT AGAINST ANY GUARANTOR OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.

 
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(2) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN THIS SECTION 14.  EACH GUARANTOR HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT AND AGREES NOT ASSERT ANY SUCH DEFENSE.

(3) IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.5 [NOTICES; EFFECTIVENESS; ELECTRONIC COMMUNICATION] OF THE CREDIT AGREEMENT.  NOTHING IN THIS GUARANTY WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.

(4) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH SUCH PERSON (A) CERTIFIES THAT NO REPRESENTATIVE, ADMINISTRATIVE AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO (OR ACCEPT) THIS GUARANTY AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 
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15.            Severability; Modification to Conform to Law .
 
(a)           It is the intention of the parties that this Guaranty be enforceable to the fullest extent permissible under applicable Law, but that the unenforceability (or modification to conform to such Law) of any provision or provisions hereof shall not render unenforceable, or impair, the remainder hereof.  If any provision in this Guaranty shall be held invalid or unenforceable in whole or in part in any jurisdiction, this Guaranty shall, as to such jurisdiction, be deemed amended to modify or delete, as necessary, the offending provision or provisions and to alter the bounds thereof in order to render it or them valid and enforceable to the maximum extent permitted by applicable Law, without in any manner affecting the validity or enforceability of such provision or provisions in any other jurisdiction or the remaining provisions hereof in any jurisdiction.
 
(b)           Without limitation of the preceding subsection (a), to the extent that applicable Law (including applicable Laws pertaining to fraudulent conveyance or fraudulent or preferential transfer) otherwise would render the full amount of the Guarantor's obligations hereunder invalid, voidable, or unenforceable on account of the amount of a Guarantor's aggregate liability under this Guaranty, then, notwithstanding any other provision of this Guaranty to the contrary, the aggregate amount of such liability shall, without any further action by any Secured Party or such Guarantor or any other Person, be automatically limited and reduced to the highest amount which is valid and enforceable as determined in such action or proceeding, which (without limiting the generality of the foregoing) may be an amount which is equal to the greater of:
 
(i)           the fair consideration actually received by such Guarantor under the terms and as a result of the Loan Documents and the value of the benefits described in Section 15 (b) hereof, including (and to the extent not inconsistent with applicable federal and state Laws affecting the enforceability of guaranties) distributions, commitments, and advances made to or for the benefit of such Guarantor with the proceeds of any credit extended under the Loan Documents, or
 
(ii)           the excess of (1) the amount of the fair value of the assets of such Guarantor as of the date of this Guaranty as determined in accordance with applicable federal and state Laws governing determinations of the insolvency of debtors as in effect on the date hereof, over (2) the amount of all liabilities of such Guarantor as of the date of this Guaranty, also as determined on the basis of applicable federal and state Laws governing the insolvency of debtors as in effect on the date hereof.
 
(c)           Notwithstanding anything to the contrary in this Section or elsewhere in this Guaranty, this Guaranty shall be presumptively valid and enforceable to its full extent in accordance with its terms, as if this Section (and references elsewhere in this Guaranty to enforceability to the fullest extent permitted by Law) were not a part of this Guaranty, and in any related litigation the burden of proof shall be on the party asserting the invalidity or unenforceability of any provision hereof or asserting any limitation on any Guarantor's obligations hereunder as to each element of such assertion.
 
16.            Additional Guarantors .  At any time after the initial execution and delivery of this Guaranty to the Secured Parties, additional Persons may become parties to this Guaranty and thereby acquire the duties and rights of being Guarantors hereunder by executing and delivering to the Administrative Agent a Guarantor Joinder pursuant to the Credit Agreement.  No notice of the addition of any Guarantor shall be required to be given to any pre-existing Guarantor and each Guarantor hereby consents thereto.
 
 
- 9 -
 
 
17.            Joint and Several Obligations .  The obligations and additional liabilities of the Guarantors under this Agreement are joint and several obligations of the Guarantors, and each Guarantor hereby waives to the full extent permitted by Law any defense it may otherwise have to the payment and performance of the Obligations that its liability hereunder is limited and not joint and several.  Each Guarantor acknowledges and agrees that (i) the foregoing waivers and those set forth below serve as a material inducement to the agreement of the Lenders to make the Loans, and the Issuing Lender to issue Letters of Credit, and (ii) the Secured Parties are relying on each specific waiver and all such waivers in entering into this Guaranty.  The undertakings of each Guarantor hereunder secure the obligations of itself and the other Guarantors.  The Administrative Agent may, or at the direction of the Required Lenders, shall, elect to enforce this Guaranty against any Guarantor without any duty or responsibility to pursue any other Guarantor and such an election by the Administrative Agent, shall not be a defense to any action the Administrative Agent may elect to take against any Guarantor.  Each of the Secured Parties hereby reserves all right against each Guarantor.
 
18.            Receipt of Credit Agreement, Other Loan Documents, Benefits .
 
(a)           Each Guarantor hereby acknowledges that it has received a copy of the Credit Agreement and the other Loan Documents and each Guarantor certifies that the representations and warranties made therein with respect to such Guarantor are true and correct.  Further, each Guarantor acknowledges and agrees to perform, comply with, and be bound by all of the provisions of the Credit Agreement and the other Loan Documents.
 
(b)           Each Guarantor hereby acknowledges, represents, and warrants that it receives synergistic benefits by virtue of its affiliation with the Borrowers and the other Guarantors and that it will receive direct and indirect benefits from the financing arrangements contemplated by the Credit Agreement and that such benefits, together with the rights of contribution and subrogation that may arise in connection herewith are a reasonably equivalent exchange of value in return for providing this Guaranty.
 
 
- 10 -
 

19.            Miscellaneous .  (a) Separate Agreement.  This Guaranty shall be construed as a separate agreement with respect to each Guarantor and may be amended, modified, supplemented, waived or released with respect to any Guarantor without the approval of any other Guarantor and without affecting the obligations of any other Guarantor hereunder. (b) Generality of Certain Terms. As used in this Guaranty, the terms "hereof," "herein," and terms of similar import refer to this Guaranty as a whole and not to any particular term or provision; the term "including," as used herein, is not a term of limitation and means "including without limitation." (c) Amendments, Waivers. No amendment to or waiver of any provision of this Guaranty, and no consent to any departure by any Guarantor herefrom, shall in any event be effective unless in a writing manually signed by or on behalf of the Administrative Agent.  Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.  No delay or failure of the Administrative Agent or the other Secured Parties, or any of them, in exercising any right or remedy under this Guaranty shall operate as a waiver thereof; nor shall any single or partial exercise of any such right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy.  The rights and remedies of the Administrative Agent and the other Secured Parties under this Guaranty are cumulative and not exclusive of any other rights or remedies available hereunder, under any other agreement or instrument, by law, or otherwise. (d) Telecommunications. Each Secured Party shall be entitled to rely on the authority of any individual making any telecopy or telephonic notice, request, or signature without the necessity of receipt of any verification thereof.  (e) Expenses.  Each Guarantor unconditionally agrees to pay all costs and expenses, including reasonable attorney's fees incurred by the Administrative Agent or any of the other Secured Parties in enforcing this Guaranty against any Guarantor and each Guarantor shall pay and indemnify each Secured Party for, and hold it harmless from and against, any and all obligations, liabilities, losses, damages, costs, expenses (including disbursements and reasonable legal fees of counsel to any Secured Party), penalties, judgments, suits, actions, claims, and disbursements imposed on, asserted against, or incurred by any Secured Party (A) relating to the preparation, negotiation, execution, administration, or enforcement of or collection under this Guaranty or any document, instrument, or agreement relating to any of the Obligations, including in any bankruptcy, insolvency, or similar proceeding in any jurisdiction or political subdivision thereof;  (B) relating to any amendment, modification, waiver, or consent hereunder or relating to any telecopy or telephonic transmission purporting to be by any Guarantor or Borrower;  (C) in any way relating to or arising out of this Guaranty, or any document, instrument, or agreement relating to any of the Guarantied Obligations, or any action taken or omitted to be taken by any Secured Party hereunder, and including those arising directly or indirectly from the violation or asserted violation by any Guarantor or Borrower or any Secured Party of any law, rule, regulation, judgment, order, or the like of any jurisdiction or political subdivision thereof (including those relating to environmental protection, health, labor, importing, exporting, or safety) and regardless whether asserted by any governmental entity or any other Person.  (f) Prior Understandings.  This Guaranty and the Credit Agreement constitute the entire agreement of the parties hereto with respect to the subject matter hereof and supersede any and all other prior and contemporaneous understandings and agreements.  (g)  Survival.  The provisions of Section 8, subparagraph (e) of this Section 19, and all other covenants, agreements, indemnities, representations and warranties of the Guarantors made in connection with this Guaranty shall survive, and shall not be waived by, the execution and delivery of this Guaranty, any investigation by or knowledge of the Secured Parties, or any of them, any extension of credit, or any other event or circumstance whatsoever.

[SIGNATURE PAGE FOLLOWS]
 
 
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[SIGNATURE PAGE 1 OF 1 OF CONTINUING AGREEMENT OF GUARANTY AND SURETYSHIP]

IN WITNESS WHEREOF, each Guarantor intending to be legally bound, has executed this Guaranty as of the date first above written with the intention that this Guaranty shall constitute a sealed instrument.

 
ETAILDIRECT LLC
       
       
 
By:
 
   
Name:
 
   
Title:
 
       
       
 
BRAND CARD SERVICES LLC
       
       
 
By:
 
   
Name:
 
   
Title:
 
       
       
 
DSW INFORMATION TECHNOLOGY LLC
       
       
 
By:
 
   
Name:
 
   
Title:
 
       
       
 
MINT STUDIO LLC
       
       
 
By:
 
   
Name:
 
   
Title:
 

 
 
 

EXHIBIT 1.1(G)(3)
 
 
FORM OF
BORROWER JOINDER AND ASSUMPTION AGREEMENT

THIS BORROWER JOINDER AND ASSUMPTION AGREEMENT (this “ Joinder ”) is made as of ____________, 20__, by _____________________________________________________, a _____________________ [corporation/partnership/limited liability company] (the " New Borrower ").

Background

Reference is made to (i) the Credit Agreement, dated as of June 30, 2010 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement "), by, among others, DSW Inc., DSW Shoe Warehouse, Inc. (together with each of the other Persons which become Borrowers under the Credit Agreement from time to time each, a “ Borrower ”, and collectively, the “ Borrowers ”), the Guarantors party thereto, the Lenders party thereto and PNC Bank, National Association, as administrative agent for the Lenders (the " Administrative  Agent "), (ii)  the Security Agreement, dated as of June 30, 2010 (as amended, restated, supplemented or otherwise modified from time to time, the " Security Agreement ") among the Loan Parties and the Administrative Agent for the benefit of the Lenders and the Issuing Lender (together with each of their respective Affiliates, collectively, the “ Secured Parties ”), (iii) the Fee Letter dated as of May 18, 2010 (as amended, restated, supplemented or otherwise modified from time to time, the " Fee Letter ") among the Borrowers and the Administrative Agent and (iv) the other Loan Documents.

Agreement

Capitalized terms defined in the Credit Agreement are used herein as defined therein.

New Borrower hereby becomes a Borrower under the terms of the Credit Agreement and in consideration of the value of the synergistic and other benefits received by New Borrower as a result of being or becoming affiliated with the Borrowers and the Guarantors, New Borrower hereby agrees that effective as of the date hereof it hereby is, and shall be deemed to be, and assumes the Obligations of, a "Loan Party" and a "Borrower", jointly and severally under the Credit Agreement, a "Debtor" jointly and severally under the Security Agreement and a Loan Party or Borrower, as the case may be, under each of the other Loan Documents to which the Loan Parties or Borrowers are a party; and, New Borrower hereby agrees that from the date hereof and so long as any Loan or any Commitment of any Lender shall remain outstanding and until the indefeasible payment in full in cash of the Secured Obligations, expiration or termination of all Letters of Credit (or with respect to any undrawn Letters of Credit, the full Cash Collateralization thereof or the supporting thereof by another letter of credit from an issuing bank and on terms satisfactory to the Issuing Lender and the Administrative Agent), and the payment and performance of all other Obligations of the Loan Parties under the Loan Documents, New Borrower shall perform, comply with, and be subject to and bound by each of the terms and provisions of the Credit Agreement, Security Agreement, Fee Letter and each of the other Loan Documents jointly and severally with the existing parties thereto.  Without limiting the generality of the foregoing, New Borrower hereby represents and warrants that (i) each of the representations and warranties set forth in Section 5 of the Credit Agreement applicable to a Loan Party is true and correct as to New Borrower on and as of the date hereof (other than representations and warranties that relate solely to an earlier date, in which case such representations and warranties are true and accurate as of such earlier date) and (ii) New Borrower has heretofore received a true and correct copy of the Credit Agreement, Security Agreement, Fee Letter and each of the other Loan Documents (including any modifications thereof or supplements or waivers thereto) in effect on the date hereof.

 
 
 
 
New Borrower hereby makes, affirms, and ratifies in favor of the Administrative Agent and the other Secured Parties the Credit Agreement, Security Agreement, Fee Letter and each of the other Loan Documents given by the Borrowers to the Administrative Agent or any of the other Secured Parties, and to the extent that any changes in any representations, warranties, and covenants require any amendments to the schedules of any of such Loan Documents, such schedules are hereby updated, as evidenced by any supplemental schedules (if any) annexed to this Joinder.

Without limiting the foregoing, as security for the due and punctual payment and performance of the Secured Obligations in full, New Borrower hereby agrees that the Secured Parties shall have, and New Borrower hereby grants to and creates in favor of the Administrative Agent for the benefit of itself and the other Secured Parties, a continuing first priority Lien on, and security interest under the UCC in and to, the Collateral (as defined in the Security Agreement) subject only to Permitted Liens having priority by operation of Law.  New Borrower further agrees that with respect to each item of Collateral as to which (i) the creation of a valid and enforceable security interest is not governed exclusively by the UCC or (ii) the perfection of a valid and enforceable first priority security interest therein under the UCC cannot be accomplished either by (a) the Administrative Agent taking possession thereof, (b) the Administrative Agent’s having “control”  (as defined in the UCC) thereof, or (c) by the filing in appropriate locations of appropriate UCC financing statements executed by New Borrower, New Borrower will at its expense execute and deliver to the Administrative Agent and hereby does authorize the Administrative Agent to execute and file such documents, agreements, notices, assignments and instruments and take such further actions as may be requested by the Administrative Agent from time to time for the purpose of creating, protecting and preserving a valid and perfected first priority Lien on such item, subject only to Permitted Liens having priority by operation of Law, enforceable against New Borrower and all third parties to secure the Secured Obligations.

New Borrower is simultaneously delivering to the Administrative Agent the documents, instruments and agreements, together with this Joinder, required under Sections 6.1.1 [Deliveries] and 7.2.9 [Subsidiaries, Partnership and Joint Ventures] of the Credit Agreement, and is otherwise satisfying the obligations of Sections 6.1.2 [Other Conditions Precedent] and 6.1.3 [Payment of Fees and Expenses] of the Credit Agreement.

 
- 2 -
 

In furtherance of the foregoing, New Borrower shall execute and deliver or cause to be executed and delivered at any time and from time to time such further instruments and documents and do or cause to be done such further acts as may be reasonably necessary in the reasonable opinion of the Administrative Agent to carry out more effectively the provisions and purposes of this Joinder and the other Loan Documents.

This Joinder shall be deemed to be a contract under the laws of the State of Ohio without regard to its conflict of laws principles.

The provisions of this Joinder are intended to be severable.  If any provision of this Joinder shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction.

This Joinder may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  This Joinder shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto.  Delivery of an executed counterpart of a signature page of this Joinder by telecopy or e-mail shall be effective as delivery of a manually executed counterpart of this Joinder.

[signature page follows]

 
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 [SIGNATURE PAGE 1 OF 2 OF BORROWER JOINDER AND ASSUMPTION AGREEMENT]

IN WITNESS WHEREOF, and intending to be legally bound hereby, the New Borrower has duly executed this Joinder and delivered the same to the Administrative Agent for the benefit of the Secured Parties, as of the date and year first above.


ATTEST:
     
         
     
By:
 
Name:
   
Name:
 
Title:
   
Title:
 
 
[SIGNATURE PAGE 2 OF 2 OF BORROWER JOINDER AND ASSUMPTION AGREEMENT]


Acknowledged and accepted:

PNC BANK, NATIONAL ASSOCIATION, as Administrative Agent


By:
   
Name:
   
Title:
   

 
 
 

EXHIBIT 1.1(N)(1)
 
 
FORM OF
REVOLVING CREDIT NOTE


$______________
Cleveland, Ohio
 
June 30 , 2010

FOR VALUE RECEIVED, the undersigned, DSW INC., an Ohio corporation and DSW SHOE WAREHOUSE, INC., a Missouri corporation (each, a “Borrower”, and collectively, the “Borrowers”), hereby promise to pay to the order of _________________________________ (the "Lender"), the lesser of (i) the principal sum of _____________________________________________________ (US$____________), or (ii) the aggregate unpaid principal balance of all Revolving Credit Loans made by the Lender to the Borrowers pursuant to the Credit Agreement dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), by, among others, the Borrowers, the Guarantors now or hereafter party thereto, the Lenders now or hereafter party thereto, and PNC Bank, National Association, as administrative agent (hereinafter referred to in such capacity as the “Administrative Agent”), payable by 12:00 noon Cleveland, Ohio time on the Expiration Date, together with interest on the unpaid principal balance hereof from time to time outstanding from the date hereof at the rate or rates per annum specified by the Borrowers pursuant to, or as otherwise provided in, the Credit Agreement.

Interest on the unpaid principal balance hereof from time to time outstanding from the date hereof will be payable at the times provided for in the Credit Agreement.  Upon the occurrence and during the continuation of an Event of Default, the Borrowers shall pay interest on the entire principal amount of the then outstanding Revolving Credit Loans evidenced by this Revolving Credit Note (this “Note”) and all other Obligations due and payable to the Lender pursuant to the Credit Agreement and the other Loan Documents at a rate per annum as set forth in Section 3.3 of the Credit Agreement.  Such interest rate will accrue before and after any judgment has been entered.

Subject to the provisions of the Credit Agreement, payments of both principal and interest shall be made without setoff, counterclaim, or other deduction of any nature at the office of the Administrative Agent located at 1965 East Sixth Street, Cleveland, Ohio 44114, unless otherwise directed in writing by the holder hereof, in lawful money of the United States of America in immediately available funds.

This Note is one of the Revolving Credit Notes referred to in, and is entitled to the benefits of, the Credit Agreement and other Loan Documents, including the representations, warranties, covenants, conditions, security interests, and Liens contained or granted therein.  The Credit Agreement among other things contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayment, in certain circumstances, on demand or otherwise, on account of principal hereof prior to maturity upon the terms and conditions therein specified.  Each Borrower waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Credit Agreement.

 
 
 

The liabilities of each Borrower, and of any endorser or guarantor of this Note, are joint and several, provided, however , the release by the Lender of any one or more such Persons shall not release any other Person obligated on account of this Note.  Each reference in this Note to the Borrower, any endorser, and any guarantor, is to such Person individually and also to all such Persons jointly.  No Person obligated on account of this Note may seek contribution from any other Person also obligated unless and until all of the Obligations have been paid in full in cash.

This Note shall bind each Borrower and its successors and assigns, and the benefits hereof shall inure to the benefit of the Lender and its successors and assigns.  All references herein to a "Borrower" and the "Lender" shall be deemed to apply to such Borrower and the Lender, respectively, and their respective successors and assigns as permitted under the Credit Agreement.

This Note and any other documents delivered in connection herewith and the rights and obligations of the parties hereto and thereto shall for all purposes be governed by and construed and enforced in accordance with the internal laws of the State of Ohio without giving effect to its conflicts of law principles.

Each Borrower acknowledges and agrees that delivery of an executed counterpart of a signature page to this Note by telecopy or e-mail shall be effective as delivery of a manually executed counterpart of this Note.

All capitalized terms used herein shall, unless otherwise defined herein, have the same meanings given to such terms in the Credit Agreement.

EACH BORROWER IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF OHIO SITTING IN FRANKLIN COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF OHIO, EASTERN DIVISION, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH OHIO STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT.  EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS NOTE OR ANY OTHER LOAN DOCUMENT AGAINST ANY BORROWER OR ANY OTHER LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.

 
- 2 -
 
 
EACH BORROWER IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO ABOVE.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT AND AGREES NOT TO ASSERT ANY SUCH DEFENSE.

EACH BORROWER IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.5 [NOTICES; EFFECTIVENESS; ELECTRONIC COMMUNICATION] OF THE CREDIT AGREEMENT.  NOTHING IN THIS NOTE WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.

EACH BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS NOTE OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH BORROWER (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT THE ADMINISTRATIVE AGENT AND THE LENDER, IN THE ESTABLISHMENT AND MAINTENANCE OF THEIR RESPECTIVE RELTATIONSHIP WITH THE BORROWERS CONTEMPLATED BY THIS NOTE, ARE EACH RELYING ON THE FOREGOING WAIVER.

[signature page follows]
 
 
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[SIGNATURE PAGE 1 OF 1 TO REVOLVING CREDIT NOTE]
 
 
IN WITNESS WHEREOF, and intending to be legally bound hereby, each of the undersigned has executed this Note by an A uthorized O fficer.
 
 
DSW INC.
     
     
 
By:
 
   
Name:
   
Title:
     
     
 
DSW SHOE WAREHOUSE, INC.
     
     
  By:  
   
Name:
   
Title:

 
 
 
 
EXHIBIT 1.1(N)(2)
FORM OF
SWING LOAN NOTE


$10,000,000
Cleveland, Ohio
 
June 30, 2010

FOR VALUE RECEIVED, the undersigned, DSW INC., an Ohio corporation and DSW SHOE WAREHOUSE, INC., a Missouri corporation (each, a “Borrower”, and collectively, the “Borrowers”), hereby promise to pay to the order of PNC BANK, NATIONAL ASSOCIATION (the "Lender"), the lesser of (i) the principal sum of TEN MILLION DOLLARS (US $10,000,000), or (ii) the aggregate unpaid principal balance of all Swing Loans made by the Lender to the Borrowers pursuant to Section 2.6.3 of the Credit Agreement dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), by, among others, the Borrowers, the Guarantors now or hereafter party thereto, the Lenders now or hereafter party thereto, and PNC Bank, National Association, as administrative agent (hereinafter referred to in such capacity as the “Administrative Agent”), payable with respect to each Swing Loan evidenced hereby on the earlier of (i) demand by the Lender or (ii) by 12:00 noon Cleveland, Ohio time on the Expiration Date, or at such other time specified in the Credit Agreement.

The Borrowers shall pay interest on the unpaid principal balance of each Swing Loan from time to time outstanding hereunder from the date hereof at the rate per annum and on the date(s) provided in the Credit Agreement.  Upon the occurrence and during the continuation of an Event of Default, the Borrowers shall pay interest on the entire principal amount of the then outstanding Swing Loans evidenced by this Swing Loan Note (this “Note”) and all other Obligations due and payable to the Lender pursuant to the Credit Agreement and the other Loan Documents at a rate per annum as set forth in Section 3.3 of the Credit Agreement.  Such interest rate will accrue before and after any judgment has been entered.

Subject to the provisions of the Credit Agreement, payments of both principal and interest shall be made without setoff, counterclaim or other deduction of any nature at the office of the Administrative Agent located at 1965 East Sixth Street, Cleveland, Ohio 44114, unless otherwise directed in writing by the holder hereof, in lawful money of the United States of America in immediately available funds.

This Note is the Swing Loan Note referred to in, and is entitled to the benefits of, the Credit Agreement and other Loan Documents, including the representations, warranties, covenants, conditions, security interests, and Liens contained or granted therein.  The Credit Agreement among other things contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayment, in certain circumstances, on demand or otherwise, on account of principal hereof prior to maturity upon the terms and conditions therein specified.  Each Borrower waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Credit Agreement.

 
 
 

Each Borrower acknowledges and agrees that the Lender may at any time and in its sole discretion demand payment of all amounts outstanding under this Note without prior notice to the Borrower.

The liabilities of each Borrower, and of any endorser or guarantor of this Note, are joint and several, provided, however , the release by the Lender of any one or more such Persons shall not release any other Person obligated on account of this Note.  Each reference in this Note to the Borrower, any endorser, and any guarantor, is to such Person individually and also to all such Persons jointly.  No Person obligated on account of this Note may seek contribution from any other Person also obligated unless and until all of the Obligations have been paid in full in cash.

This Note shall bind each Borrower and its successors and assigns, and the benefits hereof shall inure to the benefit of the Lender and its successors and assigns.  All references herein to a "Borrower" and the "Lender" shall be deemed to apply to such Borrower and the Lender, respectively, and their respective successors and assigns as permitted under the Credit Agreement.

This Note and any other documents delivered in connection herewith and the rights and obligations of the parties hereto and thereto shall for all purposes be governed by and construed and enforced in accordance with the internal laws of the State of Ohio without giving effect to its conflicts of law principles.

Each Borrower acknowledges and agrees that delivery of an executed counterpart of a signature page to this Note by telecopy or e-mail shall be effective as delivery of a manually executed counterpart of this Note.

All capitalized terms used herein shall, unless otherwise defined herein, have the same meanings given to such terms in the Credit Agreement.

EACH BORROWER IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF OHIO SITTING IN FRANKLIN COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF OHIO, EASTERN DIVISION, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH OHIO STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT.  EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS NOTE OR ANY OTHER LOAN DOCUMENT AGAINST ANY BORROWER OR ANY OTHER LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.

 
3
 

EACH BORROWER IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO ABOVE.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT AND AGREES NOT TO ASSERT ANY SUCH DEFENSE.

EACH BORROWER IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.5 [NOTICES; EFFECTIVENESS; ELECTRONIC COMMUNICATION] OF THE CREDIT AGREEMENT.  NOTHING IN THIS NOTE WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.

EACH BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS NOTE OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH BORROWER (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT THE ADMINISTRATIVE AGENT AND THE LENDER, IN THE ESTABLISHMENT AND MAINTENANCE OF THEIR RESPECTIVE RELTATIONSHIP WITH THE BORROWERS CONTEMPLATED BY THIS NOTE, ARE EACH RELYING ON THE FOREGOING WAIVER.

[signature page follows]

 
4
 
 
[SIGNATURE PAGE 1 OF 1 TO SWING LOAN NOTE]
 
IN WITNESS WHEREOF, and intending to be legally bound hereby, each of the undersigned has executed this Note by an Authorized Officer.

 
DSW INC.
     
     
 
By:
 
   
Name:
   
Title:
     
     
 
DSW SHOE WAREHOUSE, INC.
     
     
 
By:
 
   
Name:
   
Title:

 
 
 
 
EXHIBIT 1.1(S)

FORM OF
SECURITY AGREEMENT


THIS SECURITY AGREEMENT (the "Agreement"), dated as of June 30, 2010, is entered into by and among (a) DSW INC., an Ohio corporation and DSW SHOE WAREHOUSE, INC., a Missouri corporation, as Borrowers (together with each of the other Persons which become Borrowers under the Credit Agreement (defined below) from time to time each, a “Borrower”, and collectively, the “Borrowers”),  (b) ETAILDIRECT LLC, a Delaware limited liability company, BRAND CARD SERVICES LLC, an Ohio limited liability company, DSW INFORMATION TECHNOLOGY LLC, an Ohio limited liability company and MINT STUDIO  LLC, an Ohio limited liability company, as Guarantors (together with each of the other Persons which become Guarantors under the Credit Agreement from time to time each, a “Guarantor”, and collectively, the “Guarantors” and, together with the Borrowers, each, a "Debtor", and collectively, the "Debtors"), and (c) PNC BANK, NATIONAL ASSOCIATION, a national banking association, as administrative agent for the Lenders (the "Administrative Agent") in connection with that Credit Agreement, dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), by and among others, the Debtors, the Administrative Agent and the Lenders.

WITNESSETH THAT:

WHEREAS, the Debtors are (or will be with respect to after-acquired property) the legal and beneficial owners and the holders of the Collateral (as defined in Section 1 hereof); and

WHEREAS, pursuant to the Credit Agreement, the Administrative Agent and the Lenders have agreed to make certain Loans to, and the Issuing Lender has agreed to issue Letters of Credit for the account of, the Borrowers; and

WHEREAS, pursuant to that certain Guaranty dated as of even date herewith (as amended, restated, supplemented or otherwise modified from time to time, the “Guaranty”), executed by the Guarantors in favor of the Administrative Agent, the Lenders and the Issuing Lender (together with each of their respective Affiliates, collectively, the “Secured Parties”), the Guarantors have, jointly and severally unconditionally, and irrevocably, guaranteed the payment and performance of the Guarantied Obligations (as defined in the Guaranty); and

WHEREAS, the obligation of the Administrative Agent and the Lenders to make Loans, and the obligation of the Issuing Lender to issue Letters of Credit, under the Credit Agreement is subject to the condition, among others, that the Borrowers secure the Obligations, and the Guarantors secure the Guarantied Obligations, to the Secured Parties under the Credit Agreement, the other Loan Documents and otherwise as more fully described herein in the manner set forth herein.

NOW, THEREFORE, intending to be legally bound hereby, the parties hereto covenant and agree as follows:

 
 
 
 
1.           Terms which are defined in the Credit Agreement and not otherwise defined herein are used herein as defined therein and the rules of Construction set forth in Section 1.2 [Construction] of the Credit Agreement shall apply to this Agreement.  The following words and terms shall have the following meanings, respectively, unless the context hereof otherwise clearly requires:
 
(a)           "Collateral" means all of any Debtor's right, title and interest in, to and under the following described property of such Debtor (unless otherwise defined in the Credit Agreement, each capitalized term used in this Section 1(a) shall have in this Agreement the meaning given to it by the UCC):
 
(i)           all now existing and hereafter acquired or arising Accounts, Goods, General Intangibles, Payment Intangibles, Deposit Accounts, Chattel Paper (including, without limitation, Electronic Chattel Paper), Documents, Instruments, Software, Investment Property, Letters of Credit, Letter of Credit Rights, advices of credit, money, Commercial Tort Claims as listed in the Perfection Certificate (as the same is amended or supplemented from time to time), Equipment, Inventory, Fixtures, and Supporting Obligations, together with all products of and Accessions to, all Proceeds (including without limitation all insurance policies and proceeds thereof) of, and all books and records relating to any of the foregoing;
 
(ii)           to the extent, if any, not included in clause (i) above, each and every other item of personal property and fixtures, whether tangible or intangible, whether now existing or hereafter arising or acquired, including, without limitation, all licenses, contracts and agreements, and all collateral for the payment or performance of any contract or agreement, together with all products and Proceeds (including all insurance policies and proceeds) of any Accessions to any of the foregoing; and
 
(iii)           all present and future business records and information, including computer tapes and other storage media containing the same and computer programs and software (including without limitation, source code, object code and related manuals and documentation and all licenses to use such software) for accessing and manipulating such information;
 
provided, however, that no Collateral described in clauses (i) through (iii) of the definition thereof shall include any Excluded Property.

(b)            “Intellectual Property” shall mean all present and future:  trade secrets, know-how and other proprietary information; trademarks, trademark applications, internet domain names, service marks, trade dress, trade names, business names, designs, logos, slogans (and all translations, adaptations, derivations and combinations of the foregoing) indicia and other source and/or business identifiers, and all registrations or applications for registrations which have heretofore been or may hereafter be issued thereon throughout the world; copyrights and copyright applications; (including copyrights for computer programs) and all tangible and intangible property embodying the copyrights, unpatented inventions (whether or not patentable);  patents and patent applications; industrial design applications and registered industrial designs; license agreements related to any of the foregoing and income therefrom; books, records, writings, computer tapes or disks, flow diagrams, specification sheets, computer software, source codes, object codes, executable code, data, databases and other physical manifestations, embodiments or incorporations of any of the foregoing; all other intellectual property; and all common law and other rights throughout the world in and to all of the foregoing.
 
 
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(c)           "Receivables" means all of the Collateral except Intellectual Property, Documents, Software, Investment Property, Commercial Tort Claims, Fixtures, Equipment and Inventory.
 
(d)           "Secured Obligations" shall mean the Obligations and the Guarantied Obligations.
 
2.           As security for the due and punctual payment and performance of the Secured Obligations in full, each Debtor hereby agrees that the Administrative Agent, for the benefit of itself and the other  Secured Parties, shall have, and each Debtor hereby grants to and creates in favor of the Administrative Agent for the benefit of itself and the other Secured Parties, a continuing first priority Lien on, and security interest under the UCC in and to, the Collateral subject only to Permitted Liens having priority by operation of Law.  Without limiting the generality of Section 4 below, each Debtor further agrees that with respect to each item of Collateral as to which (i) the creation of a valid and enforceable security interest is not governed exclusively by the UCC or (ii) the perfection of a valid and enforceable first priority security interest therein under the UCC cannot be accomplished either by (a) the Administrative Agent taking possession thereof, (b) the Administrative Agent’s having “control” (as defined in the UCC) thereof, or (c) by the filing in appropriate locations of appropriate UCC financing statements executed by such Debtor, such Debtor will at its expense execute and deliver to the Administrative Agent and hereby does authorize the Administrative Agent to execute and file such documents, agreements, notices, assignments and instruments and take such further actions as may be reasonably requested by the Administrative Agent from time to time for the purpose of creating, protecting and preserving a valid and perfected first priority Lien on such item, subject only to Permitted Liens having priority by operation of Law, enforceable against such Debtor and all other third parties to secure the Secured Obligations.
 
3.           Each Debtor represents and warrants to the Administrative Agent and the other Secured Parties that (a) such Debtor has good title to its Collateral, (b) except for the security interest granted to and created in favor of the Administrative Agent for the benefit of itself and the other Secured Parties hereunder, and the Permitted Liens, all the Collateral is free and clear of any Lien, (c) each Debtor will defend the Collateral against all claims and demands of all persons at any time claiming the same or any interest therein except Permitted Liens, (d) each Account is genuine and enforceable in accordance with its terms and such Debtor will defend the same against all claims, demands, recoupment, setoffs, and counterclaims at any time asserted, other than reasonable and customary claims, demands, recoupment, setoffs, and counterclaims asserted in the ordinary course of business, (e) at the time any Account becomes subject to this Agreement, each such Account will be a good and valid Account representing a bona fide sale of goods or services by such Debtor and such goods will have been shipped to the respective account debtors or the services will have been performed for the respective account debtors (or for those on behalf of whom the account debtors are obligated on the Accounts) and no such Account will at such time be subject to any claim for credit, allowance, setoff, recoupment, defense, counterclaim or adjustment by any account debtor or otherwise, (f) the exact legal name of the Debtor is as set forth on the signature page hereto, (g) the state of incorporation, formation or organization as applicable, and organizational identification number, of such Debtor is as set forth on the Perfection Certificate attached hereto as Schedule A, and (h) no Debtor has possession of any property on consignment to that Debtor from a third party which is not a Debtor, except (i) as of the Closing Date, those listed on Exhibit C to the Perfection Certificate, and (ii) those as to which the Debtors notify the Administrative Agent in accordance with the provisions of the Credit Agreement.
 
 
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4.           Each Debtor will faithfully preserve and protect the Administrative Agent's security interest in the Collateral as a prior perfected security interest under the UCC, superior and prior to the rights of all third parties, except for holders of Permitted Liens having priority by operation of Law, and will do all such other acts and things and will, upon request therefor by the Administrative Agent, execute, deliver, file and record, and each Debtor hereby authorizes the Administrative Agent to so file, all such other documents and instruments, including, without limitation, financing statements (as further described in Section 5(m) hereof), security agreements, assignments and documents and powers of attorney with respect to the Collateral, and pay all filing fees and taxes related thereto, as the Administrative Agent in its reasonable discretion may deem reasonably necessary or advisable from time to time in order to attach, continue, preserve, perfect, and protect said security interest (including the filing at any time or times after the date hereof of financing statements under, and in the locations advisable pursuant to, the UCC); and, each Debtor hereby irrevocably appoints the Administrative Agent, its officers, employees and agents, or any of them, as attorneys-in-fact for such Debtor to execute, deliver, file and record such items for such Debtor and in such Debtor's name, place and stead.  This power of attorney, being coupled with an interest, shall be irrevocable for the life of this Agreement.
 
5.           Each Debtor agrees that each of the representations, warranties and covenants made by such Debtor in the Credit Agreement are hereby incorporated by reference herein, and each Debtor further jointly and severally covenants and agrees that:
 
(a)           it will defend, at its own cost and expense, the Administrative Agent's and the other Secured Parties’ right, title and Lien on and security interest in and to the Collateral and the proceeds thereof against the claims and demands of all Persons whomsoever, other than any Person claiming a right in the Collateral pursuant to an agreement between such Person and the Administrative Agent;
 
(b)           it will not suffer or permit to exist on any Collateral any Lien except for Permitted Liens;
 
(c)           it will not take or omit to take any action, the taking or the omission of which might result in a material alteration (except as permitted by the Credit Agreement) or impairment of the Collateral or of the Administrative Agent's rights under this Agreement;
 
 
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(d)           it will not sell, assign or otherwise dispose of any portion of the Collateral except as permitted in Section 7.2.7 [Dispositions of Assets or Subsidiaries] of the Credit Agreement;
 
(e)           it will (i) except for such Collateral delivered to the Administrative Agent pursuant to this Section or otherwise now or hereafter under the control of the Administrative Agent, obtain and maintain sole and exclusive possession of the Collateral, (ii) maintain its chief executive office and keep the Collateral and all records pertaining thereto at the locations specified on the Perfection Certificate attached hereto as Schedule A, unless it shall have given the Administrative Agent prior notice and taken any action reasonably requested by the Administrative Agent to maintain its security interest therein, (iii) notify the Administrative Agent if an Account becomes evidenced or secured by an Instrument, Chattel Paper, Electronic Chattel Paper and/or Transferable Records, and deliver to the Administrative Agent upon the Administrative Agent's request therefor all Collateral consisting of Instruments, Chattel Paper, Electronic Chattel Paper and/or Transferable Records promptly after such Debtor's receipt of a request therefor, (iv) deliver to the Administrative Agent possession of all Collateral the possession of which is required to perfect the Secured Parties’ Lien thereon or security interest therein or the possession of which grants priority over a Person filing a financing statement with respect thereto, (v) execute control agreements (including, without limitation, Blocked Account Agreements) and cause other Persons to execute acknowledgments in form and substance satisfactory to the Administrative Agent evidencing the Administrative Agent's control with respect to all Collateral the control or acknowledgment of which perfects the Administrative Agent's security interest therein, including Letters of Credit, Letter of Credit Rights, Electronic Chattel Paper, Deposit Accounts and Investment Property, and (vi) keep materially accurate and complete books and records concerning the Collateral and such other books and records as the Administrative Agent may from time to time reasonably require; and
 
(f)           it will promptly furnish to the Administrative Agent such information and documents relating to the Collateral as the Administrative Agent may reasonably request, including, without limitation, all invoices, Documents, contracts, Chattel Paper, Instruments and other writings pertaining to such Debtor's contracts or the performance thereof, all of the foregoing to be certified upon request of the Administrative Agent by an Authorized Officer of such Debtor;
 
(g)           it shall promptly (i) notify the Administrative Agent if any Account arises out of contracts with the United States or any department, agency or instrumentality thereof or any one or more of the states of the United States or any department, agency, or instrumentality thereof, and (ii) to the extent any such contract, when aggregated with all other contracts of the type described in clause (i) hereof, exceeds the face amount of $2,500,000, execute any instruments and take any steps required by the Administrative Agent so that all monies due and to become due under such contract shall be assigned to the Administrative Agent and notice of the assignment given to and acknowledged by the appropriate Official Body under the Federal Assignment of Claims Act;
 
(h)           such Debtor will not change its state of incorporation, formation or organization, or its organizational identification number, as applicable without providing ten (10) Business Days’ prior written notice the Administrative Agent;
 
 
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(i)        such Debtor will not change its name without providing ten (10) Business Days’ days prior written notice to the Administrative Agent;

(j)     If any Debtor fails to provide information to the Administrative Agent on a timely basis, the Administrative Agent shall not be liable or responsible to any party for any failure to maintain a perfected security interest in such Debtor’s property constituting Collateral, for which the Administrative Agent needed to have information relating to such changes.  The Administrative Agent shall have no duty to inquire about such changes if any Debtor does not inform the Administrative Agent of such changes, the parties acknowledging and agreeing that it would not be feasible or practical for the Administrative Agent to search for information on such changes if such information is not provided by any Debtor;

(k)     If any Debtor shall at any time acquire a Commercial Tort Claim that, when aggregated with all other Commercial Tort Claims of the Loan Parties exceeds $5,000,000, such Debtor shall promptly notify the Administrative Agent in a writing signed by such Debtor of the details thereof and grant to the Administrative Agent for the benefit of the Secured Parties in such writing a security interest therein and in the proceeds thereof, with such writing to be in form and substance satisfactory to the Administrative Agent and such writing shall constitute a supplement to the Perfection Certificate;

(l)     Except for the supply or consignment agreements in existence as of the Closing Date identified on Exhibit C to the Perfection Certificate, without the prior written consent of the Administrative Agent, no sale of Inventory shall be on consignment (other than between Debtors), approval, or under any other circumstances such that, with the exception of the Debtors’ customary return policy applicable to the return of inventory purchased by the Debtors’ retail customers in the ordinary course, such Inventory may be returned to a Debtor without the consent of the Administrative Agent; provided that no such consent of the Administrative Agent shall be required with respect to Inventory on consignment, approval or under such other circumstances having a value of less than $20,000,000 in the aggregate at any time; provided further that in all events the Debtors shall have complied with the notice requirements of Section 7.3.6.9 [Consignment or Other Arrangement] of the Credit Agreement; and

(m)     Each Debtor hereby authorizes the Administrative Agent to, at any time and from time to time, file in any one or more jurisdictions financing statements that describe the Collateral, together with continuation statements thereof and amendments thereto, without the signature of such Debtor and which contain any information required by the UCC or any other Law applicable to such jurisdiction for the sufficiency or filing office acceptance of any financing statements, continuation statements, or amendments.  Each Debtor agrees to furnish any such information to the Administrative Agent promptly upon request.  Any such financing statements, continuation statements, or amendments may be signed by Agent on behalf of such Debtor if the Administrative Agent so elects and may be filed at any time in any jurisdiction.

6.            Each Debtor assumes full responsibility for taking any and all necessary steps to preserve the Secured Parties' rights with respect to the Collateral against all Persons other than anyone asserting rights in respect of a Permitted Lien.  The Administrative Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Administrative Agent takes such action for that purpose as such Debtor shall request in writing, provided that such requested action will not, in the judgment of the Administrative Agent, impair the security interest in the Collateral created hereby or the Secured Parties' rights in, or the value of, the Collateral, and provided further that such written request is received by the Administrative Agent in sufficient time to permit the Administrative Agent to take the requested action .

 
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7.           No Discharge Until Indefeasible Payment of the Secured Obligations.
 
The pledge, security interests, and other Liens and the obligations of each Debtor hereunder shall not be discharged or impaired or otherwise diminished by any failure, default, omission, or delay, willful or otherwise, by the Administrative Agent, or any other obligor on any of the Secured Obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of such Debtor or which would otherwise operate as a discharge of such Debtor as a matter of law or equity.  Without limiting the generality of the foregoing, each Debtor hereby consents to, and the pledge, security interests, and other Liens given by such Debtor hereunder shall not be diminished, terminated, or otherwise similarly affected by any of the following at any time and from time to time:
 
(a)           Any lack of genuineness, legality, validity, enforceability, or allowability (in a bankruptcy, insolvency, reorganization or similar proceeding, or otherwise), or any avoidance or subordination, in whole or in part, of any Loan Document or any of the Secured Obligations and regardless of any Law now or hereafter in effect in any jurisdiction affecting any of the Secured Obligations, any of the terms of the Loan Documents, or any rights of the Administrative Agent or any other Person with respect thereto;
 
(b)           Any increase, decrease, or change in the amount, nature, type or purpose of any of the Secured Obligations (whether or not contemplated by the Loan Documents as presently constituted); any change in the time, manner, method, or place of payment or performance of, or in any other term of, any of the Secured Obligations; any execution or delivery of any additional Loan Documents; or any amendment, modification or supplement to, or refinancing or refunding of, any Loan Document or any of the Secured Obligations;
 
(c)           Any failure to assert any breach of or default under any Loan Document or any of the Secured Obligations; any extensions of credit in excess of the amount committed under or contemplated by the Loan Documents, or in circumstances in which any condition to such extensions of credit has not been satisfied; any other exercise or non-exercise, or any other failure, omission, breach, default, delay, or wrongful action in connection with any exercise or non-exercise, of any right or remedy against such Debtor or any other Person under or in connection with any Loan Document or any of the Secured Obligations; any refusal of payment or performance of any of the Secured Obligations, whether or not with any reservation of rights against any Debtor; or any application of collections (including collections resulting from realization upon any direct or indirect security for the Secured Obligations) to other obligations, if any, not entitled to the benefits of this Agreement, in preference to Secured Obligations or, if any collections are applied to Secured Obligations, any application to particular Secured Obligations;
 
 
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(d)           Any taking, exchange, amendment, modification, supplement, termination, subordination, release, loss, or impairment of, or any failure to protect, perfect, or preserve the value of, or any enforcement of, realization upon, or exercise of rights or remedies under or in connection with, or any failure, omission, breach, default, delay, or wrongful action by the Administrative Agent or any other Person in connection with the enforcement of, realization upon, or exercise of rights or remedies under or in connection with, or, any other action or inaction by the Administrative Agent or any other Person in respect of, any direct or indirect security for any of the Secured Obligations (including the Collateral).  As used in this Agreement, "direct or indirect security" for the Secured Obligations, and similar phrases, includes any collateral security, guaranty, suretyship, letter of credit, capital maintenance agreement, put option, subordination agreement, or other right or arrangement of any nature providing direct or indirect assurance of payment or performance of any of the Secured Obligations, made by or on behalf of any Person;
 
(e)           Any merger, consolidation, liquidation, dissolution, winding-up, charter revocation, or forfeiture, or other change in, restructuring or termination of the corporate structure or existence of, any Debtor or any other Person; any bankruptcy, insolvency, reorganization or similar proceeding with respect to any Debtor or any other Person; or any action taken or election (including any election under Section 1111(b)(2) of the United States Bankruptcy Code or any comparable Law of any jurisdiction) made by Agent or any Debtor or by any other Person in connection with any such proceeding;
 
(f)            Any defense, setoff, or counterclaim which may at any time be available to or be asserted by any Debtor or any other Person with respect to any Loan Document or any of the Secured Obligations; or any discharge by operation of Law or release of any Debtor or the Borrower or any other Person from the performance or observance of any Loan Document or any of the Secured Obligations;
 
(g)            Any other event or circumstance, whether similar or dissimilar to the foregoing, and whether known or unknown, which might otherwise constitute a defense available to, or limit the liability of a guarantor or a surety, including any Debtor, excepting only full, strict, and indefeasible payment and performance of the Secured Obligations in full.
 
8.            Waivers.
 
Each Debtor hereby waives any and all defenses which any Debtor may now or hereafter have based on principles of suretyship, impairment of collateral, or the like in respect of the Loan Documents and each Debtor hereby waives any defense to or limitation on its obligations under this Agreement arising out of or based on any event or circumstance referred to in the immediately preceding section hereof.  Without limiting the generality of the foregoing and to the fullest extent permitted by applicable law, each Debtor hereby further waives each of the following in respect of the Loan Documents:
 
 
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(a)           All notices, disclosures and demands of any nature which otherwise might be required from time to time to preserve intact any rights against such Debtor, including the following:  any notice of any event or circumstance described in the immediately preceding section hereof; any notice required by any law, regulation or order now or hereafter in effect in any jurisdiction; any notice of nonpayment, nonperformance, dishonor, or protest under any Loan Document or any of the Secured Obligations; any notice of the incurrence of any Secured Obligations; any notice of any default or any failure on the part of such Debtor or any other Person to comply with any Loan Document or any of the Secured Obligations or any requirement pertaining to any direct or indirect security for any of the Secured Obligations; and any notice or other information pertaining to the business, operations, condition (financial or otherwise), or prospects of the Borrowers or any other Person;
 
(b)           Any right to any marshalling of assets, to the filing of any claim against such Debtor or any other Person in the event of any bankruptcy, insolvency, reorganization, or similar proceeding, or to the exercise against such Debtor, or any other Person of any other right or remedy under or in connection with any Loan Document or any of the Secured Obligations or any direct or indirect security for any of the Secured Obligations; any requirement of promptness or diligence on the part of the Administrative Agent or any other Person; any requirement to exhaust any remedies under or in connection with, or to mitigate the damages resulting from default under, any Loan Document or any of the Secured Obligations or any direct or indirect security for any of the Secured Obligations; any benefit of any statute of limitations; and any requirement of acceptance of this Agreement or any other Loan Document, and any requirement that any Debtor receive notice of any such acceptance;
 
(c)           Any defense or other right arising by reason of any Law now or hereafter in effect in any jurisdiction pertaining to election of remedies (including anti-deficiency laws, "one action" laws, or the like), or by reason of any election of remedies or other action or inaction by the Administrative Agent (including commencement or completion of any judicial proceeding or nonjudicial sale or other action in respect of collateral security for any of the Secured Obligations), which results in denial or impairment of the right of the Administrative Agent to seek a deficiency against such Debtor or any other Person or which otherwise discharges or impairs any of the Secured Obligations.
 
9.           The Secured Obligations and additional liabilities of the Debtors under this Agreement are joint and several obligations of the Debtors, and each Debtor hereby waives to the full extent permitted by applicable Law any defense it may otherwise have to the payment and performance of the Secured Obligations that its liability hereunder is limited and not joint and several.  Each Debtor acknowledges and agrees that the foregoing waivers serve as a material inducement to the agreement of the Lenders to make the Loans, and the Issuing Lender to issue Letters of Credit, and that the Secured Parties are relying on each specific waiver and all such waivers in entering into this Agreement.  The undertakings of each Debtor hereunder secure the obligations of itself and the other Debtors.  The Administrative Agent may, and at the direction of the Required Lenders shall, elect to enforce this Agreement against any Debtor without any duty or responsibility to pursue any other Debtor and such an election shall not be a defense to any action the Secured Parties, or any of them, may elect to take against any Debtor.  Each of the Secured Parties hereby reserves all right against each Debtor.
 
 
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10.           (a)           At any time and from time to time whether or not an Event of Default then exists and without prior notice to or consent of any Debtor, the Administrative Agent may at its option take such actions as the Administrative Agent deems appropriate (i) to attach, perfect, continue, preserve and protect the Secured Parties' first priority security interest in or Lien on the Collateral, and/or (ii) subject to the terms of the Credit Agreement, to inspect, audit and verify the Collateral, including reviewing all of such Debtor's books and records and copying and making excerpts therefrom, and (iii) to add all liabilities, obligations, costs and expenses reasonably incurred in connection with the foregoing clauses (i) and (ii) to the Secured Obligations, to be paid by the Debtors to the Administrative Agent for the benefit of the Secured Parties in accordance with the terms of the Credit Agreement;
 
(b)          At any time and from time to time after an Event of Default exists and is continuing and without prior notice to or consent of any Debtor, the Administrative Agent may at its option take such action as the Administrative Agent deems appropriate (i) to maintain, repair, protect and insure the Collateral, and/or (ii) to perform, keep, observe and render true and correct any and all covenants, agreements, representations and warranties of any Debtor hereunder, (iii) to attach, continue preserve, perfect and protect the rights and interests granted to the Administrative Agent hereunder, (iv) to carry into effect the purposes hereof, and (v) to add all liabilities, obligations, costs and expenses reasonably incurred in connection with the foregoing clauses (i) through (iv) to the Secured Obligations, to be paid by any Debtor to the Administrative Agent for the benefit of the Secured Parties in accordance with the terms of the Credit Agreement.
 
11.           After there exists any Event of Default under the Credit Agreement:
 
(a)          The Administrative Agent shall have and may exercise all the rights and remedies available to a secured party under the UCC in effect at the time, and such other rights and remedies as may be provided pursuant to the Loan Documents, by Law and as set forth below, including without limitation to take over and collect all of any Debtor's Receivables and all other Collateral, and to this end each Debtor hereby appoints the Administrative Agent, its officers, employees and agents, as its irrevocable, true and lawful attorneys-in-fact with all necessary power and authority to (i) take possession immediately, with or without notice, demand, or legal process, of any of or all of the Collateral wherever found, and for such purposes, enter upon any premises upon which the Collateral may be found and remove the Collateral therefrom, (ii) require any Debtor to assemble the Collateral and deliver it to the Administrative Agent or to any place designated by the Administrative Agent at such Debtor’s expense, (iii) receive, open and dispose of all mail addressed to any Debtor and notify postal authorities to change the address for delivery thereof to such address as the Administrative Agent may designate, (iv) demand payment of the Receivables, (v) enforce payment of the Receivables by legal proceedings or otherwise, (vi) exercise all of any Debtor's rights and remedies with respect to the collection of the Receivables, (vii) settle, adjust, compromise, extend or renew the Receivables, (viii) settle, adjust or compromise any legal proceedings brought to collect the Receivables, (ix) to the extent permitted by applicable Law, sell or assign the Receivables upon such terms, for such amounts and at such time or times as the Administrative Agent deems advisable, (x) discharge and release the Receivables, (xi) take control, in any manner, of any item of payment or proceeds from any account debtor, (xii) prepare, file and sign any Debtor's name on any Proof of Claim in bankruptcy or similar document against any account debtor, (xiii) prepare, file and sign any Debtor's name on any notice of Lien, assignment or satisfaction of Lien or similar document in connection with the Receivables, (xiv) do all acts and things necessary, in the Administrative Agent's sole discretion, to fulfill any Debtor's obligations to the Secured Parties under the Credit Agreement or the other Loan Documents, (xv) endorse the name of any Debtor upon any check, Chattel Paper, Document, Instrument, invoice, freight bill, bill of lading or similar document or agreement relating to the Receivables or Inventory; (xvi) use any Debtor's stationery and sign such Debtor's name to verifications of the Receivables and notices thereof to account debtors; (xvii) access and use the information recorded on or contained in any data processing equipment or computer hardware or software relating to the Receivables, Inventory, or other Collateral or proceeds thereof to which any Debtor has access, (xviii) demand, sue for, collect, compromise and give acquittances for any and all Collateral, (xix) prosecute, defend or compromise any action, claim or proceeding with respect to any of the Collateral, and (xx) take such other action as the Administrative Agent may deem appropriate, including extending or modifying the terms of payment of any Debtor's debtors.  This power of attorney, being coupled with an interest, shall be irrevocable for the life of this Agreement.  To the extent permitted by Law, each Debtor hereby waives all claims of damages due to or arising from or connected with any of the rights or remedies exercised by the Administrative Agent pursuant to this Agreement, except claims arising from gross negligence or willful misconduct by the Administrative Agent, its officers, employees or agents, in each case as determined in a final, non-appealable judgment by a court of competent jurisdiction.
 
 
- 11 -
 

(b)           The Administrative Agent shall have the right to lease, sell, or otherwise dispose of all or any of the Collateral at public or private sale or sales for cash, credit or any combination thereof, with such notice as may be required by Law (it being agreed by each Debtor that, in the absence of any contrary requirement of Law, ten (10) days' prior notice of a public or private sale of Collateral (or, if the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, in which event such advance notice as may be practicable under the circumstances) shall be deemed reasonable notice), in lots or in bulk, for cash or on credit, as part of one or more going out of business sales, and in the Administrative Agent’s own right or by one or more agents and contractors, all as the Administrative Agent, in its sole discretion, may deem advisable.  Such sales may be adjourned from time to time with or without notice.  The Administrative Agent shall have the right to conduct such sales on any Debtor's premises (subject to such Debtor’s rights, if any, under the lease agreement applicable to such premises and any rights provided to the Administrative Agent pursuant to a Collateral Access Agreement, if any, with respect to such premises), at any exchange, broker’s board, at any of Administrative Agent’s offices, or elsewhere and shall have the right to use any Debtor's premises without charge for such sales for such time or times as the Administrative Agent may see fit.  The Administrative Agent and any agent or contractor, in conjunction with any such sale, may augment the Inventory with other goods (all of which other goods shall remain the sole property of the Administrative Agent or such agent or contractor).  Any amounts realized from the sale of such goods which constitute augmentations to the Inventory (net of an allocable share of the costs and expenses incurred in their disposition) shall be the sole property of the Administrative Agent or such agent or contractor and neither any Debtor nor any Person claiming under or in right of any Debtor shall have any interest therein.  The Administrative Agent and/or any other Secured Party, or any of their respective Affiliates, may be the purchaser, licensee, assignee or recipient of all or any part of the Collateral at public or, if permitted by Law, private sale and, in lieu of actual payment of such purchase price, may set off the amount of such price against the Secured Obligations.  Each purchaser, assignee, licensee or recipient at any such sale shall acquire the property sold, assigned or licensed absolutely free from any claim or right on the part of any Debtor, and each Debtor hereby waives, to the fullest extent permitted by Law, all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted.  To the fullest extent permitted by Law, each Debtor hereby waives any claims against the Administrative Agent arising by reason of the fact that the price at which any Collateral may have been sold, assigned or licensed at such a private sale was less than the price which might have been obtained at a public sale, even if the Administrative Agent accepts the first offer received and does not offer such Collateral to more than one offeree.

 
- 12 -
 

(c)           Each Debtor, at its cost and expense (including the cost and expense of any of the following referenced consents, approvals etc.) will promptly execute and deliver or cause the execution and delivery of, or assist the Administrative Agent in obtaining, all applications, certificates, instruments, registration statements, and all other documents and papers the Administrative Agent may reasonably request in connection with the obtaining of any consent, approval, registration, qualification, permit, license, accreditation, or authorization of any other Official Body or other Person necessary or appropriate for the effective exercise of any rights hereunder or under the other Loan Documents.  Without limiting the generality of the foregoing, each Debtor agrees that in the event the Administrative Agent on behalf of itself and/or the other Secured Parties shall exercise its rights hereunder or pursuant to the other Loan Documents, to sell, transfer, or otherwise dispose of, or vote, consent, operate, or take any other action in connection with any of the Collateral, such Debtor shall execute and deliver (or cause to be executed and delivered) all applications, certificates, assignments and other documents that the Administrative Agent reasonably requests to facilitate such actions and shall otherwise promptly, fully, and diligently cooperate with the Administrative Agent and any other Persons in making any application for the prior consent or approval of any Official Body or any other Person to the exercise by the Administrative Agent on behalf of itself and/or the other Secured Parties or any such rights relating to all or any of the Collateral.  Furthermore, because each Debtor agrees that the remedies at Law, of the Administrative Agent on behalf of itself and/or the other Secured Parties, for failure of such Debtor to comply with this Section 11 would be inadequate, and that any such failure would not be adequately compensable in damages, each Debtor agrees that this Section 11 may be specifically enforced.
 
(d)           The Administrative Agent may request, without limiting the rights and remedies of the Administrative Agent on behalf of itself and the other Secured Parties otherwise provided hereunder and under the other Loan Documents (including, without limitation, Section 7.1.10.5 of the Credit Agreement), that each Debtor do any of the following: (i) give the Administrative Agent on behalf of itself and the other Secured Parties specific assignments of the Receivables of such Debtor after such Receivables come into existence, and schedules of such Receivables, the form and content of such assignment and schedules to be satisfactory to the Administrative Agent, and (ii) in order to better secure the Administrative Agent on behalf of itself and the other Secured Parties, to the extent permitted by Law, enter into such control agreements (including, without limitation, lockbox agreements and Blocked Account Agreements) and establish such lockbox accounts and Blocked Accounts as the Administrative Agent may require, all at the sole expense of such Debtor and shall direct all payments from all payors due to such Debtor, to such lockbox accounts and Blocked Accounts.
 
 
- 13 -
 

(e)           For purposes of enabling the Administrative Agent, during the continuance of an Event of Default, to exercise rights and remedies under this Section 11 at such time as the Administrative Agent shall be lawfully entitled to exercise such rights and remedies, and for no other purpose, each Debtor hereby grants to the Administrative Agent, to the extent assignable, an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to such Debtor) to use, assign, license or sublicense any of the Intellectual Property or other Excluded Property constituting fee or leasehold interests in real estate (subject, with respect to any such leasehold interests, to such Debtor’s rights, if any, under the lease agreement applicable to such real estate and any rights provided to the Administrative Agent pursuant to a Collateral Access Agreement, if any, with respect to such real estate) now owned or hereafter acquired by such Debtor, wherever the same may be located, including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or printout hereof.  No Debtor shall knowingly use any Intellectual Property in a manner that violates the Intellectual Property rights of any other Person with respect to such Intellectual Property except, in each case, as is not reasonably likely to have, individually or in the aggregate, a Material Adverse Change.
 
12.           The Lien on and security interest in the Collateral granted to and created in favor of the Administrative Agent by this Agreement shall be for the benefit of the Administrative Agent and the other Secured Parties.  Each of the rights, privileges, and remedies provided to the Administrative Agent hereunder, under any other Loan Document, or otherwise by Law with respect to any Debtor's Collateral shall be exercised by the Administrative Agent only for its own benefit and the benefit of the other Secured Parties, and any Collateral or proceeds thereof held or realized upon at any time by the Administrative Agent shall be applied as set forth in Section 8.2.4 [Application of Proceeds] of the Credit Agreement.  Each Debtor shall remain liable to the Secured Parties for and shall pay to the Administrative Agent for the benefit of itself and the other Secured Parties any deficiency which may remain after such sale or collection.
 
13.           If the Administrative Agent repossesses or seeks to repossess any of the Collateral pursuant to the terms hereof because of the occurrence of an Event of Default, then to the extent it is commercially reasonable for the Administrative Agent to store any Collateral on any of any Debtor's premises (subject to such Debtor’s rights, if any, under the lease agreement applicable to such premises and any rights provided to the Administrative Agent pursuant to a Collateral Access Agreement, if any, with respect to such premises), each Debtor hereby agrees to lease to the Administrative Agent on a month-to-month tenancy for a period not to exceed one hundred twenty (120) days at the Administrative Agent's election, at a rental of One Dollar ($1.00) per month, the premises on which the Collateral is located, provided it is located on premises owned or leased by such Debtor.
 
14.           This Agreement is a Loan Document and shall be terminated pursuant to the terms and conditions of Section 10.15 [Obligations Upon Receipt of Indefeasible Payment In Full] of the Credit Agreement, subject to the reinstatement and other provisions of such Section.
 
 
- 14 -
 
 
15.           No failure or delay on the part of the Administrative Agent in exercising any right, remedy, power or privilege hereunder shall operate as a waiver thereof or of any other right, remedy, power or privilege of the Administrative Agent hereunder; nor shall any single or partial exercise of any such right, remedy, power or privilege preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.  No waiver of a single Event of Default shall be deemed a waiver of a subsequent Event of Default.  All waivers under this Agreement must be in writing.  The rights and remedies of the Administrative Agent under this Agreement are cumulative and in addition to any rights or remedies which it may otherwise have, and the Administrative Agent may enforce any one or more remedies hereunder successively or concurrently at its option.
 
16.           All notices, statements, requests and demands given to or made upon either party hereto in accordance with the provisions of this Agreement shall be given or made as provided in Section 10.5 [Notices; Effectiveness; Electronic Communication] of the Credit Agreement.
 
17.           Each Debtor agrees that, as to such Debtor, (i) the Perfection Certificate, and all schedules, amendments and supplements thereto, are and shall at all times remain a part of this Security Agreement, and (ii) as of the date hereof, all information contained on the Perfection Certificate attached hereto as Schedule A is accurate and complete in all material respects and contains no omission or misrepresentation.  Each Debtor shall, annually or with such greater frequency as may be required by the terms of the Credit Agreement, notify the Administrative Agent of any changes in the information set forth therein.
 
18.           Each Debtor acknowledges that the provisions of the Credit Agreement and of this Agreement giving the Administrative Agent rights of access to books, records and information concerning the Collateral and such Debtor's operations and providing the Administrative Agent access to such Debtor's premises are intended to afford the Administrative Agent with prompt access to current information concerning such Debtor and its activities, including without limitation, the value, nature and location of the Collateral so that the Administrative Agent can, among other things, make an appropriate determination after the occurrence of an Event of Default, whether and when to exercise its other remedies hereunder, under any of the other Loan Documents, and at Law, including without limitation, instituting a replevin action should any Debtor refuse to turn over any Collateral to the Administrative Agent.  Each Debtor further acknowledges that should such Debtor at any time fail to provide such information and access to the Administrative Agent as and when required pursuant to the terms of the Loan Documents, each Debtor acknowledges that the Administrative Agent would have no adequate remedy at Law to promptly obtain the same.  Each Debtor agrees that the provisions hereof may be specifically enforced by the Administrative Agent and waives any claim or defense in any such action or proceeding that the Administrative Agent has an adequate remedy at Law.
 
19.           This Agreement shall be binding upon and inure to the benefit of the Administrative Agent, the other Secured Parties, and their respective successors and assigns, and each Debtor and each of its respective successors and assigns, except that no Debtor may assign or transfer such Debtor's obligations hereunder or any interest herein.  No amendment, modification, supplement, termination or waiver of or to any provision hereof, nor consent to any departure by any Debtor therefrom, shall be effective unless the same shall be made in accordance with the terms of the Credit Agreement and unless in writing and signed by the Administrative Agent and the Debtors.  Any amendment, modification or supplement of or to any provision hereof, any waiver of any provision hereof and any consent to any departure by any Debtor from the terms of any provision hereof shall be effective only in the specific instance and for the specific purpose for which made or given.
 
 
- 15 -
 
 
20.           If any item of Collateral also constitutes collateral granted to Administrative Agent under any Loan Document other than the Credit Agreement, including, without limitation, any other Collateral Document, in the event of any conflict between the provisions hereof and the provisions of such other Loan Document in respect of such collateral, Administrative Agent, in its sole discretion, shall select which provision or provisions shall control.
 
21.           Nothing set forth in this Security Agreement shall relieve any Debtor from the performance of any term, covenant, condition or agreement on such Debtor’s part to be performed or observed under or in respect of any of the Collateral or from any liability to any Person under or in respect of any of the Collateral or shall impose any obligation on the Administrative Agent or any other Secured Party to perform or observe any such term, covenant, condition or agreement on such Debtor’s part to be so performed or observed or shall impose any liability on the Administrative Agent or any other Secured Party for any act or omission on the part of such Debtor relating thereto or for any breach of any representation or warranty on the part of such Debtor contained in this Security Agreement, the Credit Agreement or the other Loan Documents, or under or in respect of the Collateral or made in connection herewith or therewith.  The obligations of each Debtor contained in this Section 21 shall survive the termination hereof and the discharge of such Debtor’s other obligations under this Security Agreement, the Credit Agreement and the other Loan Documents.
 
22.           This Agreement shall be deemed to be a contract under the laws of the State of Ohio without regard to its conflict of laws principles.
 
23.           The provisions of this Agreement are intended to be severable.  If any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction.
 
24.           SUBMISSION TO JURISDICTION; WAIVER OF VENUE; SERVICE OF PROCESS.
 
(a)           EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF OHIO SITTING IN FRANKLIN COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF OHIO, EASTERN DIVISION, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH OHIO STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT.  EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT OR ANY OTHER SECURED PARTY MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST ANY DEBTOR OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
 
 
- 16 -
 

(b)           EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN THIS SECTION 24.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT AND AGREES NOT ASSERT ANY SUCH DEFENSE.
 
(c)           EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.5 [NOTICES; EFFECTIVENESS; ELECTRONIC COMMUNICATION] OF THE CREDIT AGREEMENT.  NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
 
25.           EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, ADMINISTRATIVE AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
 
 
- 17 -
 

26.           This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  This Agreement and the other Loan Documents, and any separate letter agreements with respect to fees payable to the Administrative Agent, constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof including any prior confidentiality agreements and commitments.  This Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto.  Delivery of an executed counterpart of a signature page of this Agreement by telecopy or e-mail shall be effective as delivery of a manually executed counterpart of this Agreement.
 
[SIGNATURE PAGE FOLLOWS]

 
- 18 -
 

[SIGNATURE PAGE 1 OF 3 TO SECURITY AGREEMENT]
 
 
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed and delivered this Agreement as of the day and year first above set forth.

 
BORROWERS:
       
       
 
DSW INC.
       
       
 
By:
 
   
Name:
 
   
Title:
 
       
       
 
DSW SHOE WAREHOUSE, INC.
       
       
 
By:
 
   
Name:
 
   
Title:
 
       
       
 
GUARANTORS:
       
       
 
ETAILDIRECT LLC
       
       
 
By:
 
   
Name:
 
   
Title:
 
       
       
 
BRAND CARD SERVICES LLC
       
       
 
By:
 
   
Name:
 
   
Title:
 

 
 
 

[SIGNATURE PAGE 2 OF 3 TO SECURITY AGREEMENT]


 
DSW INFORMATION TECHNOLOGY LLC
       
       
 
By:
 
   
Name:
 
   
Title:
 
       
       
 
MINT STUDIO LLC
       
       
  By:  
   
Name:
 
   
Title:
 
 
 
[SIGNATURE PAGE 3 OF 3 TO SECURITY AGREEMENT]


 
ADMINISTRATIVE AGENT:
       
       
 
PNC BANK, NATIONAL ASSOCIATION
       
       
 
By:
 
   
Name:
 
   
Title:
 
 
 
- 20 -
 
 
EXHIBIT 2.5.1
FORM OF
LOAN REQUEST

______, 20__


TO:
PNC Bank, National Association
 
P7-PFSC-05-W
 
500 First Avenue
 
Pittsburgh, Pennsylvania 15219
 
Attention:  Trina Barkley
 
Telephone:  (412) 768-0423
 
Telecopy:  (412) 705-2006


FROM:
The Borrowers (as defined below)

RE:
Credit Agreement dated as of June 30, 2010 (as amended, restated, supplemented or otherwise modified from time to time, the " Agreement ") by, among others, DSW Inc., DSW Shoe Warehouse, Inc. (together with each of the other Persons which become Borrowers under the Agreement from time to time each, a “Borrower”, and collectively, the “ Borrowers ”), the Guarantors party thereto, the Lenders party thereto and PNC Bank, National Association, as administrative agent for the Lenders (the " Administrative Agent ")


Capitalized terms not otherwise defined herein shall have the respective meanings ascribed to them by the Agreement.

A.
Pursuant to Section 2.5.1 of the Agreement, the undersigned Borrowers irrevocably request [check one line under 1(a) below and fill in blank space next to the line as appropriate]:

 
1.(a)
__
A new Revolving Credit Loan OR
 
__
A new Permitted Short Term Loan OR
 
__
Renewal of the LIBOR Rate Option applicable to an outstanding Revolving Credit Loan, originally made on __________ __, ____ OR
 
__
Conversion of the Base Rate Option applicable to an outstanding Revolving Credit Loan originally made on _____________ to a Loan to which the LIBOR Rate Option applies, OR

-  -
 
 
 

 
__
Conversion of the LIBOR Rate Option applicable to an outstanding Revolving Credit Loan originally made on __________ __, ____ to a Loan to which the Base Rate Option applies.

SUCH NEW, RENEWED OR CONVERTED LOAN SHALL BEAR INTEREST:

[Check one line under 1(b) below and fill in blank spaces in line next to line]:

 
1.(b)(i)
__
Under the Base Rate Option.  Such Loan shall have a Borrowing Date of __________, ___ (which date shall be (i) be the same Business Day as the Business Day of receipt by the Administrative Agent by 1:00 p.m., Cleveland, Ohio time, of this Loan Request for making a new Revolving Credit Loan to which the Base Rate Option applies, or (ii) the last day of the preceding LIBOR Rate Interest Period if a Loan to which the LIBOR Rate Option applies is being converted to a Loan to which the Base Rate Option applies) 8 .

OR

 
(ii)
__
Under the LIBOR Rate Option.  Such Loan shall have a Borrowing Date of _____________ (which date shall be (i) three (3) Business Days subsequent to the Business Day of receipt by the Administrative Agent by 1:00 p.m., Cleveland, Ohio time, of this Loan Request for making a new Revolving Credit Loan to which the LIBOR Rate Option applies, renewing a Loan to which the LIBOR Rate Option applies, or converting a Loan to which the Base Rate Option applies to a Loan to which the LIBOR Rate Option applies, or (ii) the same Business Day as the last day of the preceding Interest Period if a Loan to which the LIBOR Rate Option applies is being converted to a Loan to which the Base Rate Option applies).

 
2.
Such Loan is in the principal amount of U.S. $_____________ or the principal amount to be renewed or converted is U.S. $_____________
[for Revolving Credit Loans under Section 2.5.1 of the Credit Agreement not to be less than $1,000,000 and in increments of $500,000 if in excess of $1,000,000 for each Borrowing Tranche to which the LIBOR Rate Option applies and not less than $500,000 and in increments of $100,000 if in excess of $500,000  for each Borrowing Tranche to which the Base Rate Option applies] 9
 
________________
8 Each Permitted Short Term Loan shall be a Revolving Credit Loan to which the Base Rate Option applies.
9 No Permitted Short Term Loan shall be in excess of $25,000,000.00.

 
2
 

 
Such Loan shall have an Interest Period of [one, two, three, or six] Months.
 
_____________________________
 
B.
As of the date hereof and the date of making of the above-requested Loan (and after giving effect thereto):  (i) the Borrowers have performed and complied with all covenants and conditions of the Agreement; (ii) all of Borrowers’ representations and warranties therein are true and correct (except to the extent such representations and warranties:  (1) relate to an earlier date, in which case such they are true and correct in all material respects as of such earlier date, or (2) are modified by “materiality” or “Material Adverse Change” or words of similar import, in which case they are true and correct in all respects); (iii) no Event of Default or Potential Default has occurred and is continuing or shall exist; (iv) the making of such Loan shall not contravene any Law applicable to any Loan Party or Subsidiary of any Loan Party or any of the Lenders; and (v) the Revolving Facility Usage does not exceed (x) with respect to any such Loan other than a Permitted Short Term Loan, the lesser of (a) the Revolving Credit Commitments, and (b) the [Simplified Borrowing Base] 10 [Borrowing Base] 11 or (y) with respect to any such Loan that is a Permitted Short Term Loan, the Revolving Credit Commitments.
 

[SIGNATURE PAGE FOLLOWS]
 
________________
10 Applicable until the occurrence of a Borrowing Base Trigger Event
11 Applicable from and after the occurrence of a Borrowing Base Trigger Event
 
 
3
 

[SIGNATURE PAGE 1 OF 1 TO LOAN REQUEST]

Each of the undersigned certifies to the Administrative Agent as to the accuracy of the foregoing as of the date first written above.

 
DSW INC.
     
     
 
By:
 
 
Name:
 
 
Title:
 
     
     
 
DSW SHOE WAREHOUSE, INC.
     
     
 
By:
 
 
Name:
 
 
Title:
 
 
 
 
 
 
EXHIBIT 2.5.2

FORM OF
SWING LOAN REQUEST


______, 20__


TO:
PNC Bank, National Association (the “Swing Loan Lender”)
 
P7-PFSC-05-W
 
500 First Avenue
 
Pittsburgh, Pennsylvania 15219

 
 
 

 
Attention:  Trina Barkley
 
Telephone:  (412) 768-0423
 
Telecopy:  (412) 705-2006

FROM:
The Borrowers (as defined below)

RE:
Credit Agreement dated as of June 30, 2010 (as amended, restated, supplemented or otherwise modified from time to time, the " Agreement ") by, among others, DSW Inc., DSW Shoe Warehouse, Inc. (together with each of the other Persons which become Borrowers under the Agreement from time to time each, a “ Borrower ”, and collectively, the “ Borrowers ”), the Guarantors party thereto, the Lenders party thereto and PNC Bank, National Association, as administrative agent for the Lenders (the " Administrative Agent ")

Capitalized terms used but not defined herein shall have the meanings given to them in the Agreement.

Pursuant to Section 2.5.2 of the Agreement, each of the undersigned hereby makes the following Swing Loan Request:

1.
Aggregate Principal Amount of Swing Loans:  [amount shall be not less than $100,000 and in integral multiples of $100,000]
US$ ________________
     
2.
Proposed Borrowing Date:  [this Swing Loan Request must be received by the Swing Loan Lender by 1:00 p.m., Cleveland, Ohio time, on the proposed Borrowing Date]
_____________________

2.         As of the date hereof and the date of making of the above-requested Swing Loan (and after giving effect thereto): (i) the Borrowers have performed and complied with all covenants and conditions of the Agreement; (ii) all of Borrowers’ representations and warranties therein are true and correct (except to the extent such representations and warranties:  (1) relate to an earlier date, in which case such they are true and correct in all material respects as of such earlier date, or (2) are modified by “materiality” or “Material Adverse Change” or words of similar import, in which case they are true and correct in all respects); (iii) no Event of Default or Potential Default has occurred and is continuing or shall exist; (iv) the making of such Swing Loan shall not contravene any Law applicable to any Loan Party or Subsidiary of any Loan Party or any of the Lenders; and (v) the Revolving Facility Usage does not exceed the lesser of (a) the Revolving Credit Commitments, and (b) the [Simplified Borrowing Base] 12 [Borrowing Base] 13 .
 
[SIGNATURE PAGE FOLLOWS]
 
________________
12 Applicable until the occurrence of a Borrowing Base Trigger Event
13 Applicable from and after the occurrence of a Borrowing Base Trigger Event

 
- 2 -
 
 
[SIGNATURE PAGE 1 OF 1 TO SWING LOAN REQUEST]

Each of the undersigned hereby certifies to the Swing Loan Lender the accuracy of the foregoing as of the date first written above.

 
DSW INC.
     
     
 
By:
 
 
Name:
 
 
Title:
 
     
     
 
DSW SHOE WAREHOUSE, INC.
     
     
 
By:
 
 
Name:
 
 
Title:
 

 
- 4 -
 

EXHIBIT 2.10

LENDER JOINDER AND ASSUMPTION AGREEMENT

THIS LENDER JOINDER AND ASSUMPTION AGREEMENT (the " Joinder ") is made as of __________________, 20___ (the " Effective Date ") by ________________________ (the " Additional Lender ").

Background

Reference is made to the Credit Agreement dated as of June 30, 2010 (as amended, restated, supplemented or otherwise modified from time to time, the " Credit Agreement "), by, among others, DSW Inc., DSW Shoe Warehouse, Inc. (together with each of the other Persons which become Borrowers under the Credit Agreement from time to time each, a “ Borrower ” , and collectively, the “ Borrowers ”), the Guarantors party thereto, the Lenders party thereto and PNC Bank, National Association, as administrative agent for the Lenders (the " Administrative  Agent ").  Capitalized terms defined in the Credit Agreement are used herein as defined therein and the rules of construction set forth in Section 1.2 [Construction] of the Credit Agreement shall apply to this Joinder.

Agreement

1.              In consideration of the Administrative Agent's consent to the Additional Lender becoming a Lender pursuant to Section 2.10.1(vi) [Approval of New Lenders] of the Credit Agreement, the Additional Lender agrees that effective as of the Effective Date it shall become, and shall be deemed to be, a Lender under the Credit Agreement and each of the other Loan Documents and agrees that from the Effective Date and so long as the Additional Lender remains a party to the Credit Agreement, such Additional Lender shall assume the obligations of a Lender under and perform, comply with and be bound by each of the provisions of the Credit Agreement which are stated to apply to a Lender and shall be entitled to the benefits, rights and remedies set forth therein and in each of the other Loan Documents.

2.             The Additional Lender acknowledges and agrees that the Administrative Agent and each Lender make no representation or warranty and assume no responsibility with respect to: (i)  any statements, warranties or representations made in or in connection with the Credit Agreement or any of the other Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant thereto, or (ii) the financial condition of any Borrower or any other Loan Party or the performance or observance by any Borrower or any other Loan Party of any of its or their Obligations under the Credit Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant thereto.

3.             The Additional Lender: (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 7.3 [Reporting Requirements] of the Credit Agreement, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Joinder, (ii) agrees that it will, independently and without reliance upon the Administrative Agent or any Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement, (iii) appoints and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers under the Loan Documents as are delegated to the Administrative Agent by the terms thereof, (iv) agrees that it will become a party to and be bound by the Credit Agreement on the Effective Date as if it were an original Lender thereunder and will have the rights and obligations of a Lender thereunder and will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender, and (v) specifies as its address for notices the office set forth beneath its name on the signature pages hereof.

 
 
 

4.             Following the execution of this Joinder, it will be delivered to the Loan Parties and the Administrative Agent for acceptance and for recording by the Administrative Agent.  Upon such acceptance and recording, as of the Effective Date, (i) the Additional Lender shall be a party to the Credit Agreement and, to the extent provided in this Joinder, have the rights and obligations of a Lender thereunder and under the Loan Documents, and (ii) the Revolving Credit Commitment   of the Additional Lender shall be as set forth in Schedule I hereto.

5.             Upon such acceptance and recording from and after the Effective Date, the Administrative Agent shall make all payments under the Credit Agreement and the Obligations in respect and to the extent of the interest of the Additional Lender assumed hereby, including, all payments of principal, interest, fees, costs and expenses with respect thereto, as are allocated ratably to the Lenders.

6.             To the extent that any Revolving Credit Loans are outstanding as of the Effective Date, the Additional Lender shall make Revolving Credit Loans to the Borrowers on the Effective Date in an amount such that its share of all Revolving Credit Loans   outstanding (after giving effect to the Revolving Credit Loans   of the Additional Lender and assuming that no Lender failed to make Revolving Credit Loans) are in the same proportion as the Revolving Credit Commitment   of the Additional Lender bears to the Revolving Credit Commitments of all the Lenders (after giving effect to the Revolving Credit Commitment   of the Additional Lender).

7.             This Joinder shall be deemed to be a contract under the laws of the State of Ohio without regard to its conflict of laws principles.

8.             This Joinder may be signed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, and delivery of executed signature pages hereof by telecopy, email or other electronic transmission from one party to another shall constitute effective and binding execution and delivery of this Joinder by such party.

 
- 2 -
 

The Additional Lender is executing and delivering this Joinder as of the Effective Date and, without limiting any of the other provisions hereof, acknowledges that it shall: (A) share ratably in all Revolving Credit Loans borrowed by the Borrowers on and after the Effective Date; (B) participate in all new Revolving Credit Loans at the Base Rate Option and at the LIBOR Rate Option borrowed by the Borrowers on and after the Effective Date according to its ratable share of the Revolving Credit Commitments; (C) participate in all Swing Loans outstanding on the Effective Date and made by PNC thereafter according to its ratable share of the Revolving Credit Commitments; and (D) participate in all Letters of Credit outstanding on the Effective Date and issued by the Issuing Lender thereafter according to its ratable share of the Revolving Credit Commitments.

[SIGNATURE PAGE FOLLOWS]

 
- 3 -
 

 [SIGNATURE PAGE TO LENDER JOINDER AND ASSUMPTION AGREEMENT]


IN WITNESS WHEREOF, the Additional Lender has duly executed and delivered this Joinder as of the Effective Date.
 

 
[ADDITIONAL LENDER]
     
     
 
By:
 
 
Name:
 
 
Title:
 
 
 
 
Address for Notices:
 
     
     
     
     

 
 
 

[ACKNOWLEDGEMENT TO LENDER JOINDER AND ASSUMPTION AGREEMENT]

ACKNOWLEDGED:

PNC BANK, NATIONAL ASSOCIATION,
as Administrative Agent


By:
   
Name:
   

 
- 2 -
 

EXHIBIT 7.3.3

COMPLIANCE CERTIFICATE

____________________, 20__

PNC Bank, National Association, as Administrative Agent
500 First Avenue
Pittsburgh, Pennsylvania 15219

Ladies and Gentlemen:

I refer to the Credit Agreement dated as of June 30, 2010 (as amended, restated, supplemented or otherwise modified from time to time, the " Credit Agreement ") by, among others, DSW INC., an Ohio corporation and DSW SHOE WAREHOUSE, INC., a Missouri corporation (each, a “Borrower”, and collectively, the “ Borrowers ”), the GUARANTORS party thereto, the LENDERS party thereto, and PNC BANK, NATIONAL ASSOCIATION, as administrative agent (the " Administrative Agent ").  Unless otherwise defined herein, terms defined in the Credit Agreement are used herein with the same meanings.

I, ______________________, [Chief Executive Officer/President/Chief Financial Officer/Treasurer] of DSW, do hereby certify on behalf of the Borrowers as of the [quarter/month 1 /year] ended _________________, 201__ (the " Report Date "), as follows:

Maximum Capital Expenditures (Section 7.2.14 [Capital Expenditures]).  The total payments made by the Loan Parties and any of their respective Subsidiaries, in the aggregate, on account of any Capital Expenditures, in the fiscal year ending as of the Report Date is $______________, which does not exceed the permitted amount of $75,000,000 for such fiscal year.

Minimum Fixed Charge Coverage Ratio 15 (Section 7.2.15 [Minimum Fixed Charge Coverage Ratio]).  The ratio of: (A) Consolidated EBITDA minus Capital Expenditures, minus income taxes paid in cash, minus dividends and other distributions on account of, and repurchases of, DSW’s capital stock, for DSW and its Subsidiaries on a consolidated basis to (B) Fixed Charges of the Loan Parties on a consolidated basis for the twelve (12) fiscal months ending as of the Report Date, is _____ to 1.00, which is not less than the permitted ratio of 1.1 to 1.0 for the twelve (12) fiscal month period ending as of the Report Date.  Below are calculations showing such Fixed Charge Coverage Ratio:

The numerator of the Fixed Charge Coverage Ratio is computed as follows:
 
________________
14 Applicable from and after the occurrence of a Trigger Event Election.
15 Applicable from and after the occurrence of a Trigger Event Election.
 
 
 
 
 
Consolidated EBITDA for such twelve (12) fiscal month period, determined and consolidated in accordance with GAAP, and computed as follows:
 
   
(a)           net income
$__________
   
PLUS
 
   
(b)           depreciation
$__________
   
PLUS
 
   
(c)           amortization
$__________
   
PLUS
 
   
(d)           other non-cash charges to net income, interest expense and income tax expense
$__________
   
(e)           the sum of items (2)(A)(i)(a) through (2)(A)(i)(d) above equals:
$__________
   
MINUS
$__________
   
(f)            non-cash credits to net income
$__________
   
(g)           Consolidated EBITDA (Line (2)(A)(i)(e) minus Line (2)(A)(i)(f)):
$__________
   
MINUS
 
   
Capital Expenditures made during such twelve (12) fiscal month period, determined and consolidated in accordance with GAAP
$__________
   
MINUS
 
   
income taxes paid in cash during such twelve (12) fiscal month period, determined and consolidated in accordance with GAAP
$__________
   
MINUS
 
   
dividends and other distributions on account of, and repurchases of, DSW’s capital stock during such twelve (12) fiscal month period, determined and consolidated in accordance with GAAP
$__________
 
 
- 2 -
 
 
The difference of items (2)(A)(i)(g) minus (2)(A)(ii) minus (2)(A)(iii) is: $__________
   
The denominator of the Fixed Charge Coverage Ratio is Fixed Charges made during such twelve (12) fiscal month period, determined and consolidated in accordance with GAAP, and computed as follows:
 
   
Interest Expense   
$__________
   
PLUS
 
   
scheduled payments of principal on Indebtedness (including Capital Leases but excluding the Revolving Credit Loans)
$__________
   
the sum of items (2)(B)(i) through (2)(B)(ii) above equals: $__________
   
Fixed Charge Coverage Ratio equals the ratio of items (2)(A)(v) to (2)(B)(iii):
___ to 1.00
 
The Loan Parties are in compliance with, and since the most recently delivered Compliance Certificate's Report Date have at all times performed and complied with, all covenants and conditions of the Credit Agreement and the other Loan Documents; the representations and warranties of the Loan Parties contained in Section 5 [Representations and Warranties] of the Credit Agreement and in the other Loan Documents are true and correct in all material respects on and as of the date of this certificate with the same effect as though such representations and warranties had been made on and as of the date hereof (except to the extent such representations and warranties:  (1) relate to an earlier date, in which case such  they are true and correct in all material respects as of such earlier date, or (2) are modified by “materiality” or “Material Adverse Change” or words of similar import, in which case they are true and correct in all respects).

No event has occurred and is continuing which constitutes an Event of Default or a Potential Default.

Financial Statements .

 
- 3 -
 
 
[ Use following paragraph (A) for fiscal quarter-end financial statements ]

Attached hereto as Appendix I are the financial statements of DSW for the fiscal quarter ended _____________, consisting of a consolidated balance sheet, together with consolidating schedules with respect thereto, as of the end of such fiscal quarter and related consolidated and consolidating statements of income, stockholders' equity, retained earnings and cash flows for the fiscal quarter then ended and the fiscal year through that date, and setting forth in comparative form the respective financial statements for the corresponding date and period in the previous fiscal year (all of the foregoing, collectively, the “ Quarterly Financial Statements ”).  Such Quarterly Financial Statements have been prepared in accordance with the requirements of Section 7.3.1(i) [Quarterly Financial Statements; Monthly Financial Statements] of the Credit Agreement.

[ Use following paragraph (B) for fiscal month-end financial statements 16 ]

Attached hereto as Appendix I are the financial statements of DSW for the fiscal month ended _____________, consisting of a consolidated balance sheet, together with consolidating schedules with respect thereto as of the end of such fiscal month and related consolidated and consolidating statements of income, stockholders' equity, retained earnings and cash flows for the fiscal month then ended and the fiscal year through that date, and setting forth in comparative form the respective financial statements for the corresponding date and period in the previous fiscal year (all of the foregoing, collectively, the “ Monthly Financial Statements ”).  Such Monthly Financial Statements have been prepared in accordance with the requirements of Section 7.3.1(ii) [Quarterly Financial Statements; Monthly Financial Statements] of the Credit Agreement.

[ Use following paragraph (C) for fiscal year-end financial statements ]

________________
16 Applicable from and after the occurrence of a Trigger Event Election.

 
- 4 -
 

Attached hereto as Appendix I are the financial statements of DSW for the fiscal year ended _____________, consisting of a consolidated audited balance sheet as of the end of such fiscal year, together with consolidating schedules with respect thereto, and related consolidated and consolidating statements of income, stockholders' equity, retained earnings and cash flows for the fiscal year then ended, all in reasonable detail and setting forth in comparative form the financial statements as of the end of and for the preceding fiscal year and certified by independent certified public accountants of nationally recognized standing reasonably satisfactory to the Administrative Agent (all of the foregoing, collectively, the “ Annual Financial Statements ”).  The certificate or report of accountants is free of qualifications (other than any consistency qualification that may result from a change in the method used to prepare the financial statements as to which such accountants concur) and does not indicate the occurrence or existence of any event, condition or contingency which would materially impair the prospect of payment or performance of any covenant, agreement or duty of any Loan Party under any of the Loan Documents.  Such Annual Financial Statements have been prepared in accordance with the requirements of Section 7.3.2 [Annual Financial Statements] of the Credit Agreement.


[SIGNATURE PAGE FOLLOWS]

 
- 5 -
 

[SIGNATURE PAGE 1 OF 1 TO
COMPLIANCE CERTIFICATE]

IN WITNESS WHEREOF, the undersigned has executed this Compliance Certificate this _____ day of ____________, 201__.

     
     
     
 
By:
 
 
Name:
      
 
Title:
[Chief Executive Officer/
   
President/ Chief Financial
   
Officer/Treasurer]

 
 
 

APPENDIX I

[see attached]

Title:
   
     
     
BORROWERS:
 
     
DSW INC.
 
     
     
By:
   
Name:
   
Title:
   
     
     
DSW SHOE WAREHOUSE, INC.
 
     
     
By:
   
Name:
   
Title:
   

 
 
 

SCHEDULE 1

Commitments of Additional Lender After Giving Effect to
the Lender Joinder and Assumption Agreement


Lender
Amount of Commitment for Revolving Credit Loans
   

 
 
 

Exhibit 7.3.4.1
Simplified Borrowing Base Certificate
DSW Inc. and DSW Shoe Warehouse, Inc. (The Borrowers)


Revolving Line of Credit Availability: Simplified Borrowing Base Calculation
   
As of "Enter Date"
   
                 
($ in '000s)
Amount ($)
 
Advance Rate
   
Availability ($)
   
                 
Book Value of Inventory
      50 %      
(A)
                   
Book Value of Accounts Receivable, net
      60 %   $ -  
(B)
                     
Total Simplified Borrowing Base
            $ -  
(C)
                     
                     
                     
AVAILABILITY CALCULATION
                   
                     
Beginning Principal Balance
            $ -  
(u)
ADD:
Prior days advance
    $ -    
ADD:
Fees charged today
    $ -    
ADD:
LC'S CHARGED
    $ -    
LESS:
Prior day's paydown
    $ -    
                     
Ending principal balance
            $ -    
                     
ADD:
Est. accrued interest month to date
    $ -    
ADD:
Hedge/Swap
          $ -    
ADD:
Standby Letters of Credit
    $ -  
(x)
ADD:
Documentary Letters of Credit
    $ -  
(o)
                     
Total loan balance prior to request
            $ -  
(D)
                     
Net availability prior to today's request (C-E)
          $ -  
(E)
                     
 
ADVANCE REQUEST
    $ -  
(F)
                     
Net availability after today's request (E-F)
          $ -  
(G)

The undersigned, an Authorized Officer (as defined in the Agreement referred to below) of DSW Inc., an Ohio corporation (“DSW”), represents and warrants that (i) the foregoing information is true, complete and correct in every material respect and has bee
 
 
AUTHORIZED OFFICER
By:
 
 
Name:
 
 
Title:
 
 
 
- 2 -
 
 
Exhibit 7.3.4.2
Borrowing Base Certificate
DSW Inc. and DSW Shoe Warehouse, Inc. (The Borrowers)

REVOLVING LINE OF CREDIT AVAILABILITY CALCULATION AT COST

FAX TO:   _
             
Cert. No.
    230  
                           
                           
                           
Revolving Line of Credit Availability Calculation
                   
      Total Company       Minimum Draw            
                           
Gross availability (sum of all divisions' borrowing bases)
 
=
 
 (I)
  $ -            
                             
                             
                             
AVAILABILITY CALCULATION
05/29/10 W
                         
                             
Beginning Principal Balance
  $ -                      
ADD:
Prior days advance
  $ -                      
ADD:
Fees charged today
  $ -                      
ADD:
LC'S CHARGED
  $ -                      
LESS:
Prior day's paydown
  $ -                      
                               
Ending principal balance
  $ -                      
                               
ADD:
Actual interest
  $ -                      
ADD:
Swap/Hedge
  $ -                      
ADD:
Standby Letters of Credit
                           
ADD:
Documentary Letters of Credit
                     
                               
Total loan balance prior to request
  $ -  
(J)
                 
                               
Net availability prior to today's request (I-J)
 
(K)
                 
                             
ADVANCE REQUEST
  $ -  
(L)
                 
                             
Net availability after today's request (K-L)
  $ -  
(M)
                 

The undersigned, an Authorized Officer (as defined in the Agreement referred to below) of DSW Inc., an Ohio corporation (“DSW”), represents and warrants that (i) the foregoing information is true, complete and correct in every material respect and has bee
 
 
AUTHORIZED OFFICER
By:
 
 
Name:
 
 
Title:
 
 
 
- 3 -
EXHIBIT 10.56.2

SECOND LEASE AMENDMENT

THIS SECOND LEASE AMENDMENT (“Amendment”) is executed as of this 30th day of November, 2010, by and between 4300 VENTURE 34910 LLC, a Delaware limited liability company (“Landlord”), and eTAILDIRECT LLC, an Ohio limited liability company (“Tenant”).

Background:

A.             Landlord and Tenant entered into a certain Industrial Lease – Net dated as of October 1, 2007 (the “Initial Lease”), as amended by that certain First Lease Amendment dated September 29, 2009 (the “First Amendment”), whereby Tenant leased from Landlord and Landlord leased to Tenant certain premises and future premises consisting of approximately 606,270 square feet of first floor space plus approximately 120,000 square feet of basement space, all located in Building 3 of the Columbus International Aircenter (the “Building”), located in the City of Columbus, County of Franklin, State of Ohio;

B.             Landlord and Tenant desire to amend the Lease to, among other things, provide for Tenant’s early possession and improvement of a portion of the future premises.

NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants herein contained and each act performed hereunder by the parties, Landlord and Tenant hereby agree that the Initial Lease is amended as follows:

1.              Delivery of the Studio Space .  The “Studio Space” shall mean that certain approximately 8,073 square feet as shown on Exhibit A-2 hereto and incorporated herein.  The Studio Space is currently a part of the future Leased Premises under the Lease.  The Delivery Date for the Studio Space shall be as of December 1, 2010, and Landlord shall deliver the Studio Space on such date in accordance with Section 1.2 of the Lease; provided however, Tenant shall not have a remeasurement right with respect to the Studio Space.  Upon delivery, the Studio Space shall be a part of the Leased Premises for all purposes under the Lease.  The later of the date Landlord so delivers the Studio Space and December 1, 2010 shall be the “Effective Date”.

2.              Revised Delivery Schedule for Expansions of the Leased Premises; Revised Annual Rent .

 
(a)
As of the Effective Date, the table set forth in Section 1.2 is hereby deleted and restated:

Date of Delivery by Landlord
Approx. Square Footage Delivered
Approx. Total Square Footage
October 1, 2007
265,000
265,000
September 1, 2010
79,270
344,270
December 1, 2010
8,073
352,343
September 1, 2011
191,927
544,270
September 1, 2012
62,000
606,270
September 1, 2014
120,000
726,270

 
(b)
As of the Effective Date, the table set forth in Section 1.6(b) is hereby deleted and restated:

 
 
 

 
Period
   
Total 1 st Floor SF
   
1 st Floor $/SF/yr
   
Bsm’t SF
   
Bsm’t $/SF/yr
   
Annual Rent
   
Monthly Install’ts of Annual Rent
 
2/01/2008 to 12/31/2008
      265,000     $ 2.25                 $ 596,250.00     $ 49,687.50  
1/01/2009 to 8/31/2010
      265,000     $ 2.10                 $ 556,500.00     $ 46,375.00  
9/01/2010 to 11/30/2010
      344,270     $ 2.00                 $ 688,540.00     $ 57,378.33  
12/01/10 to 8/31/2011
      352,343     $ 2.00                 $ 704,686.00 *   $ 58,723.83  
9/01/2011 to 8/31/2012
      544,270     $ 2.00                 $ 1,088,540.00     $ 90,711.67  
9/01/2012 to 8/31/2013
      606,270     $ 2.00                 $ 1,212,540.00     $ 101,045.00  
9/01/2013 to 8/31/2014
      606,270     $ 2.00                 $ 1,212,540.00     $ 101,045.00  
9/01/2014 to 8/31/2015
      606,270     $ 2.00       120,000     $ 0.30     $ 1,248,540.00     $ 104,045.00  
9/01/2015 to 8/31/2016
      606,270     $ 2.00       120,000     $ 0.35     $ 1,254,540.00     $ 104,545.00  
9/01/2016 to 9/30/2017
      606,270     $ 2.00       120,000     $ 0.40     $ 1,260,540.00     $ 105,045.00  
First Option Term (5yrs.)
      606,270     $ 2.40       120,000     $ 0.50     $ 1,515,048.00     $ 126,254.00  
Second Option Term (5 yrs.)
      606,270     $ 2.70       120,000     $ 0.50     $ 1,696,929.00     $ 141,410.75  
 
* annualized number based on less than a full calendar year

3.              Tenant’s Work; Landlord’s Approval .  Tenant shall build out the Studio Space in full compliance with Section 9.4 of the Lease (Alterations) and in accordance with the plans and specifications approved by Landlord.  Landlord confirms that it has approved the DSW Photo Studio Interior Alterations dated October 8, 2010 prepared by Ford & Associates Architects.  At Tenant’s cost, Tenant shall furnish all fixturing and other improvements needed for Tenant’s use.  Landlord shall have no obligation to perform improvements to the Studio Space nor any obligation to contribute to or reimburse expenses relating to the improvements in the Studio Space.

4.              Purpose .  Section 1.6(a) of the Initial Lease is hereby deleted in its entirety and restated:

 
(a)
Purpose (See Section 3.1): The Leased Premises shall be used only for warehouse, distribution, photo studio and offices related to the foregoing, and any other use shall require Landlord’s prior consent, which consent shall not be unreasonably withheld, conditioned or delayed.

5.              Representations and Warranties .

(a)            Tenant represents and warrants to Landlord as follows: (i) The execution, delivery and performance of this Amendment will not result in any breach of, or constitute any default under, any agreement or other instrument to which Tenant is a party or by which Tenant might be bound; (ii) The execution, delivery and performance by Tenant of this Amendment have been duly authorized by Tenant, and there are no third party consents required for Tenant to enter into this Amendment or to perform its obligations hereunder; and (iii) The person executing this Amendment on behalf of Tenant represents and warrants that such person is duly authorized to act on behalf of Tenant in executing this Amendment, and that this Amendment constitutes a valid and legally binding obligation of Amendment enforceable against Tenant in accordance with its terms.

 
 
 

(b)           Landlord hereby represents and warrants to Tenant as follows: (i) The execution, delivery and performance of this Amendment will not result in any breach of, or constitute any default under, any agreement or other instrument to which Landlord is a party or by which Landlord or the Leased Premises might be bound and will not result in the imposition of any lien or encumbrance against the Leased Premises or the Lease; (ii) The execution, delivery and performance by Landlord of this Amendment have been duly authorized by Landlord, and all third party consents required for this Amendment have been obtained by Landlord, specifically including but not limited to the consent and approval of Landlord’s mortgage lender, if any; and (iii) The person executing this Amendment on behalf of Landlord represents and warrants that such person is duly authorized to act on behalf of Landlord in executing this Amendment, and that this Amendment constitutes a valid and legally binding obligation of Landlord enforceable against Landlord in accordance with its terms.

6.              Incorporation of Background .  The above Background paragraphs are hereby incorporated into this Amendment as if fully set forth herein.

7.              Definitions; Definition of Lease .  Except as otherwise provided herein, the capitalized terms used in this Amendment shall have the definitions set forth in the Initial Lease.  As used in the Initial Lease and herein, “Lease” shall mean the Initial Lease and First Lease Amendment as modified by and together with this Amendment.

8.              Entire Agreement .  The Lease, as amended by this Amendment, constitutes the entire agreement between Landlord and Tenant regarding the Lease and the subject matter contained herein and supersedes any and all prior and/or contemporaneous oral or written negotiations, agreements or understandings.

9.              Lease Ratification .  The Lease, as modified herein, is in full force and effect, and the parties hereby ratify the same.  The Lease and this Amendment shall be binding upon the parties and their respective successors and assigns.  To the extent the terms and conditions of the Lease conflict with or are inconsistent with this Amendment, the terms and conditions of this Amendment shall control.

10.            Counterparts .  This Amendment may be executed in counterparts, each of which shall be deemed a part of an original and all of which together shall constitute one agreement.  Signature pages may be detached from the counterparts and attached to a single copy of this Amendment to form one document.

11.            DSW’s Consent to Amendment; Ratification of Guaranty .  DSW Inc. has, and assumes, no obligations, liabilities or responsibilities under this Lease, except that DSW Inc. delivered to Landlord a Guaranty dated as of October 1, 2008 under which DSW Inc. guaranteed the performance of Tenant under the Initial Lease.  DSW Inc. delivered the Guaranty as an inducement to Landlord to enter into the Initial Lease.  DSW Inc. hereby consents to this Amendment, and DSW Inc. hereby affirms and ratifies the Guaranty as to Tenant’s performance under the Lease, as modified by this Amendment.


[signatures appear on the following page]

 
 
 

IN WITNESS WHEREOF, the parties have caused this Second Lease Amendment to be executed on the day and year first written above.

 
LANDLORD:
 
4300 VENTURE 34910 LLC,
 
a Delaware limited liability company
             
 
By:
4300 EAST FIFTH AVENUE LLC,
   
an Ohio limited liability company,
   
its Member
             
   
By:
JUBILEE-AIRCENTER, L.L.C.,
     
a Delaware limited liability company,
     
its Managing Member
             
     
By:
JUBILEE LIMITED PARTNERSHIP,
       
an Ohio limited partnership,
       
its Managing Member
             
       
By:
SCHOTTENSTEIN PROFESSIONAL
         
ASSET MANAGEMENT CORPORATION,
         
a Delaware corporation,
         
its General Partner
             
             
       
 
By: /s/ Jay Schottenstein
         
Print Name:
Jay Schottenstein
             
         
Title:
President & Chairman
 
 
 
TENANT:
 
eTAILDIRECT LLC
 
an Ohio limited liability company
       
       
 
By:
/s/William Jordan
 
       
 
Print Name:
William Jordan
 
       
 
Title:
EVP
 


[acknowledgments appear on the following pages]

 
 
 

DSW Inc., an Ohio corporation, joins in this Amendment solely for purpose of paragraph 11 of this Amendment, and for no other purpose.  Except for the obligations of DSW Inc. expressly set forth in paragraph 11 of this Amendment, DSW Inc. has, and assumes, no obligations, liabilities or responsibilities under this Amendment.  Subject to the foregoing:


 
DSW INC., an Ohio corporation
       
 
By:
/s/William Jordan
 
       
 
Print Name:
William Jordan
 
       
 
Title:
EVP
 
 
 
EXHIBIT 10.65


L E A S E


 
LANDLORD:
KIMSCHOTT FACTORIA MALL L.L.C.
C/O KIMCO REALTY CORPORATION
3333 NEW HYDE PARK ROAD
SUITE 100
NEW HYDE PARK, NEW YORK 11042

DSW INC.
4150 EAST FIFTH AVENUE
COLUMBUS, OHIO 43219


 
PREMISES:
Approximately 21,223 square feet at
Factoria Mall Shopping Center, Bellevue, Washington

 
 
 

TABLE OF CONTENTS
      Page
       
SECTION 1.
 
PREMISES
1
       
SECTION 2.
 
TERM
1
       
SECTION 3.
 
COMMENCEMENT DATE
1
       
SECTION 4.
 
RENEWAL OPTIONS
3
       
SECTION 5.
 
MINIMUM RENT
3
       
SECTION 6.
 
PERCENTAGE RENT
4
       
SECTION 7.
 
TITLE ENCUMBRANCES
5
       
SECTION 8.
 
RIGHT TO REMODEL
5
       
SECTION 9.
 
UTILITIES
6
       
SECTION 10.
 
GLASS
6
       
SECTION 11.
 
PERSONAL PROPERTY
6
       
SECTION 12.
 
RIGHT TO MORTGAGE
6
       
SECTION 13.
 
SUBLEASE OR ASSIGNMENT
7
       
SECTION 14.
 
COMMON AREAS
8
       
SECTION 15.
 
OPERATION OF COMMON AREAS
8
       
SECTION 16.
 
COMMON AREA MAINTENANCE, TENANT'S SHARE
9
       
SECTION 17.
 
EMINENT DOMAIN
12
       
SECTION 18.
 
TENANT'S TAXES
12
       
SECTION 19.
 
RISK OF GOODS
13
       
SECTION 20.
 
USE AND OCCUPANCY
13
       
SECTION 21.
 
NUISANCES
15
       
SECTION 22.
 
WASTE AND REFUSE REMOVAL
15
       
SECTION 23.
 
DESTRUCTION OF PREMISES
15
       
SECTION 24.
 
LANDLORD REPAIRS
16
       
SECTION 25.
 
TENANT'S REPAIRS
16
       
SECTION 26.
 
COVENANT OF TITLE AND PEACEFUL POSSESSION
17
       
SECTION 27.
 
TENANT'S AND LANDLORD'S INSURANCE; INDEMNITY
18
       
SECTION 28.
 
REAL ESTATE TAXES
20
       
SECTION 29.
 
TENANT'S INSURANCE CONTRIBUTION
21
       
SECTION 30.
 
FIXTURES
21
       
SECTION 31.
 
SURRENDER
22
       
SECTION 32.
 
HOLDING OVER
22

 
i
 

SECTION 33.
 
NOTICE
22
       
SECTION 34.
 
DEFAULT
22
       
SECTION 35.
 
WAIVER OF SUBROGATION
25
       
SECTION 36.
 
LIABILITY OF LANDLORD; EXCULPATION
25
       
SECTION 37.
 
RIGHTS CUMULATIVE
25
       
SECTION 38.
 
MITIGATION OF DAMAGES
25
       
SECTION 39.
 
SIGNS
26
       
SECTION 40.
 
ENTIRE AGREEMENT
26
       
SECTION 41.
 
LANDLORD'S LIEN – DELETED BY INTENTION
26
       
SECTION 42.
 
BINDING UPON SUCCESSORS
26
       
SECTION 43.
 
HAZARDOUS SUBSTANCES
26
       
SECTION 44.
 
TRANSFER OF INTEREST
27
       
SECTION 45.
 
ACCESS TO PREMISES
27
       
SECTION 46.
 
HEADINGS
28
       
SECTION 47.
 
NON-WAIVER
28
       
SECTION 48.
 
SHORT FORM LEASE
28
       
SECTION 49.
 
ESTOPPEL CERTIFICATE
28
       
SECTION 50.
 
TENANT'S REIMBURSEMENT
28
       
SECTION 51.
 
TENANT’S TERMINATION RIGHT:
28
       
SECTION 52.
 
NO BROKER
29
       
SECTION 53.
 
UNAVOIDABLE DELAYS
29
       
SECTION 54.
 
TIMELY EXECUTION OF LEASE
29
       
SECTION 55.
 
ACCORD AND SATISFACTION
29
       
SECTION 56.
 
WAIVER OF JURY TRIAL
30
       
SECTION 57.
 
LEASEHOLD FINANCING
30

LIST OF EXHIBITS :

EXHIBIT "A-1"
 
SITE PLAN
EXHIBIT "A-2"
 
LEGAL DESCRIPTION
EXHIBIT "B"
 
LANDLORD'S WORK
EXHIBIT "C"
 
TENANT'S WORK
EXHIBIT "D"
 
EXISTING USE EXCLUSIVES AND PROHIBITED USES
EXHIBIT "E"
 
EXCEPTIONS TO TENANT EXCLUSIVE
EXHIBIT "F"
 
INTENTIONALLY DELETED
EXHIBIT "G-1"
 
TENANT SIGNAGE
EXHIBIT "G-2"
 
TENANT IMPROVEMENTS

 
ii
 

L E A S E

THIS AGREEMENT OF LEASE, made this 27th day of November, 2006, by and between KIMSCHOTT FACTORIA MALL L.L.C., a Delaware limited liability company (hereinafter referred to as "Landlord"), with offices at c/o Kimco Realty Corporation, 3333 New Hyde Park Road, Suite 100, New Hyde Park, New York 11042 and DSW INC., an Ohio corporation (hereinafter referred to as "Tenant") with offices at 4150 East Fifth Avenue, Columbus, Ohio 43219.

W I T N E S S E T H:

SECTION 1.
PREMISES

(a)           Landlord, in consideration of the rents to be paid and covenants and agreements to be performed by Tenant, does hereby lease unto Tenant the premises (hereinafter referred to as the "premises" or "demised premises") in the shopping center commonly known as Factoria Mall Shopping Center, City of Bellevue, County of King and State of Washington containing approximately 529,108 square feet of leasable space (subject to change based upon redevelopment of the Center as described in Section 15(b) hereof, but in no event less than 500,000 square feet of leasable space) on approximately 41 acres (hereinafter referred to as the "Shopping Center" or “Center”).  The location, size, and area of the demised premises and of the Shopping Center shall be substantially as shown on Exhibit "A-1" attached hereto and made a part hereof subject to changes based upon the redevelopment of the Shopping Center as described in Section 15(b) hereof.  A legal description of the Shopping Center is shown on Exhibit "A-2" attached hereto and made a part hereof.  Landlord shall not (i) change the configuration of the Shopping Center behind the demised premises (east side of the Shopping Center) so as to materially adversely affect access to the “No Build Area” from the east side of the Shopping Center; or (ii) make any changes or modifications to the parking on the east side of the Shopping Center that result in a parking ratio of less than 3.5 spaces per 1,000 square feet of leasable space for the Shopping Center.  Notwithstanding the foregoing, the moving and replacement of the access points to the Shopping Center from the public rights of way on the east side of the Shopping Center shall not be deemed material and adverse provided that comparable access points are provided.  In addition to the foregoing, Landlord agrees that no modification to the Shopping Center shall (i) alter or make any changes, including any reduction or rearrangement of parking spaces, to that portion of the Shopping Center indicated on the site plan as the "Protected Area", (ii) materially or adversely interfere with truck access to the loading doors of the demised premises, (iii) materially or adversely interfere with customer access to the demised premises, or (iv) result in the construction of any buildings to that portion of the Shopping Center indicated on the site plan as "No Build Area" except as specifically permitted during the Renovation Period as set forth in Section 15 hereof.

(b)           The demised premises shall have a ground floor area of approximately 21,223 square feet with approximate dimensions of 140' x 150'.

SECTION 2.
TERM

The term of this Lease shall be for a period of fifteen (15) years, beginning on the commencement date (as hereinafter defined), except that if the commencement date shall be a day other than the first day of a month, then the period of time between the commencement date and the first day of the month next following shall be added to the term of the Lease.

SECTION 3.
COMMENCEMENT DATE
 
 
 
 

(a)           As herein used, the phrase "commencement date" shall mean the earlier of: (i) the day Tenant opens for business in the demised premises, or (ii) one hundred twenty (120) days after Landlord has delivered to Tenant possession of the demised premises as same are to be substantially completed by Landlord and ready for occupancy, as in (b) below.  Landlord agrees to deliver the demised premises to Tenant with Landlord's Work (as set forth on Exhibit "B" , attached hereto and made a part hereof) completed between July 1, 2006 and October 15, 2006 (the "Delivery Period").  Landlord shall give Tenant notice (the "Estimated Delivery Notice") no later than July 1, 2006 of the status of Landlord's construction and the estimated date that Landlord shall deliver the Premises to Tenant with Landlord's Work substantially completed (the "Estimated Delivery Date").  Landlord may, but is under no obligation, to revise the Estimated Delivery Date any time prior to thirty (30) days prior to the Estimated Delivery Date (the "Final Delivery Notice Date"), by which time Landlord shall have given Tenant a final notice (the "Final Delivery Notice") of a firm delivery date (the "Final Delivery Date") upon which the Landlord's Work shall be substantially completed and the demised premises delivered to Tenant.  Upon the sending of the Final Delivery Notice, Landlord shall have no further right to modify the Final Delivery Date.  However, if Landlord has not delivered a Final Delivery Notice by the Final Delivery Notice Date, then the Estimated Delivery Notice shall be the Final Delivery Notice and the Estimated Delivery Date shall be the Final Delivery Date.  The Final Delivery Date shall not be earlier than (i) thirty (30) days after the date Tenant receives the Final Delivery Notice, or (ii) the first day of the Delivery Period.  If Landlord does not deliver the demised premises to Tenant as required herein by October 15, 2006, Tenant may defer delivery until January 2, 2007.  If Landlord does not deliver the demised premises to Tenant thereafter on or before July 1, 2007, Tenant may terminate this Lease.  Notwithstanding the foregoing, if Landlord’s failure to deliver the demised premises to Tenant on or before July 1, 2007 is due to an event of force majeure which occurs on or after May 1, 2007, Tenant may not exercise its right to terminate the Lease pursuant to this Section 3(a) for an additional ninety (90) day period.  In the event that the demised premises and Landlord's Work are not substantially completed and delivered to Tenant on or before the Final Delivery Date, the minimum rent due hereunder shall be adjusted so that, after the Rent Commencement Date, the Tenant shall receive a credit against minimum rent thereafter due Landlord equal to one (1) day of minimum rent for each day after the Final Delivery Date until delivery of the demised premises is made to Tenant consistent with the terms of this Lease, including substantial completion of the Landlord's Work (“Late Delivery Credit”).  In the event Landlord does not provide to Tenant a Final Delivery Notice as required herein and the demised premises and Landlord’s Work is not substantially completed and delivered to Tenant on or before the Final Delivery Date, the Late Delivery Credit shall not exceed One Hundred Fifty Thousand Dollars and 0/00 ($150,000.00).  Tenant shall not be obligated to accept possession of the demised premises prior to the later of (a) substantial completion of Landlord's Work, (b) the first day of the Delivery Period and (c) the Final Delivery Date.  Time is of the essence regarding all dates set forth in this Section 3(a).  Landlord shall obtain a certificate of occupancy or completion, permit or the local equivalent that is required for Landlord’s Work at the demised premises so that Tenant may obtain a building permit for Tenant’s Work and commence performance of the same.

(b)           Possession of the demised premises shall not be deemed to have been given to Tenant unless the demised premises are ready for the installation of Tenant's fixtures and finishing work by Tenant, and are free of any violation of laws, ordinances, regulations and building restrictions relating to the possession or use of or construction upon the demised premises, and until Landlord has substantially completed Landlord's Work.  Tenant shall supply Landlord with Tenant's prototypical plans and specifications, and Landlord shall prepare plans and specifications for the Premises at Landlord's expense, for Tenant's approval.  All such Landlord's Work shall be done at Landlord's expense and in compliance with all applicable federal, state and local laws, rules, regulations and code requirements.  Landlord shall obtain a certificate of occupancy or completion, permit or the local equivalent that is required for Landlord’s Work at the demised premises as part of Landlord's Work.

(c)           Prior to the date on which possession is delivered to Tenant as aforesaid, Tenant shall have the right to enter the demised premises at its own risk rent-free for the purpose of preparing for its occupancy, installing fixtures and equipment, and receiving merchandise and other property, provided that it does not unreasonably interfere with Landlord's construction activities.  All work other than that to be performed by Landlord is to be done by Tenant within ninety (90) days after the date possession of the demised premises has been delivered to Tenant, at Tenant's expense in accordance with the provisions of this Lease and as set forth in the schedule entitled Description of Tenant's Work and attached hereto as Exhibit "C" and made a part hereof.  All Tenant's Work shall be performed lien free by Tenant, in a good and workmanlike manner (employing materials of good quality) in compliance with all governmental requirements.  In the event a mechanic's lien is filed against the demised premises or the Shopping Center on account of Tenant's Work, Tenant shall discharge or bond off same within ten (10) days from the filing thereof.  If Tenant fails to discharge said lien, Landlord may bond off or pay same without inquiring into the validity or merits of such lien, and all sums so advanced shall be paid on demand by Tenant as additional rent.

 
 
 

(d)           From the date upon which the demised premises are delivered to Tenant for its work until the commencement date of the lease term, Tenant shall observe and perform all of its obligations under this Lease (except Tenant's obligation to operate and pay minimum rent, percentage rent and "Tenant's Proportionate Share" (defined in Section 16(c) below) of "Maintenance Costs" (defined and provided for in Section 16(b) hereof) "real estate taxes" (defined and provided for in Section 28(b) hereof) and insurance (provided for in Section 28 hereof).  In the event Tenant fails to open for business within one hundred twenty (120) days after the date possession of the demised premises has been delivered to Tenant, Landlord, in addition to any and all other available remedies, may require Tenant to pay to Landlord, in addition to all other rent and charges herein, as liquidated damages and not as a penalty, an amount equal to one-three hundred sixty five thousandths (1/365) of the annual minimum rent for each day such failure to open continues.

SECTION 4.
RENEWAL OPTIONS

(a)           Provided Tenant has fully complied with all of the terms, provisions, and conditions on its part to be performed under this Lease and is not in default under this Lease, Tenant may, by giving written notice to the Landlord at least two hundred seventy (270) days on or before the expiration of the initial term of this Lease, extend such term for a period of five (5) years upon the same covenants and agreements as are herein set forth, except that the minimum rent during the first renewal term shall be increased to Fifty-seven Thousand Seven Hundred Seventy-nine and 62/100 Dollars ($57,779.62) each month.

(b)           Provided Tenant has fully complied with all of the terms, provisions and conditions on its part to be performed under this Lease, is not in default under this Lease and has exercised its first option to renew hereunder, Tenant may, by giving written notice to the Landlord at least seventy (270) days on or before the expiration of the first extended term of this Lease, extend such term for an additional period of five (5) years upon the same covenants and agreements as the first extended term except that the minimum rent (as increased pursuant to Section 4(a) above) during this second renewal term shall be further increased to Sixty-three Thousand Five Hundred Sixty-two and 89/100 Dollars ($63,562.89) each month.

(c)           Provided Tenant has fully complied with all of the terms, provisions and conditions on its part to be performed under this Lease, is not in default under this Lease and has exercised its second option to renew hereunder, Tenant may, by giving written notice to the Landlord at least seventy (270) days on or before the expiration of the second extended term of this Lease, extend such term for an additional period of five (5) years upon the same covenants and agreements as the second extended term except that the minimum rent (as increased pursuant to Section 4(b) above) during this third renewal term shall be further increased to Sixty-nine Thousand Nine Hundred Twenty-nine and 79/100 Dollars ($69,929.79) each month.  The initial term and any renewal term(s) are hereinafter collectively referred to as the "term".

SECTION 5.
MINIMUM RENT

(a)           Tenant agrees to pay to Landlord, as minimum rent for the demised premises, equal consecutive monthly installments of Forty-three Thousand Four Hundred Eighteen and 72/100 Dollars ($43,418.72), commencing on the commencement date, and continuing on the first day of each calendar month during years one (1) through five (5) of the initial term of this Lease, monthly installments of Forty-seven Thousand Seven Hundred Fifty-one and 75/100 Dollars ($47,751.75) each calendar month during years six (6) through ten (10), and monthly installments of Fifty-two Thousand Five Hundred Twenty-six and 93/100 Dollars ($52,526.93) each calendar month during years eleven (11) through fifteen (15) of the initial term of this Lease.  All such rental shall be payable to Landlord in advance, without prior written notice or demand and without any right of deduction, abatement, counterclaim or offset whatsoever (unless specifically permitted in this Lease).  In no event shall Tenant have the right to offset more than twenty-five percent (25%) of minimum rent in any calendar month, and Tenant shall have no right to offset against any additional rent other than any percentage rent payable hereunder.  As used in this Lease, the terms  "minimum rent" and "minimum rental" mean the minimum rental set forth in this Section 5(a) as adjusted pursuant to Section 4 hereof.  As used in this Lease, the terms "rent and "rental" mean minimum rental, percentage rental, additional rental and all other sums due and owing from Tenant to Landlord under this Lease.

 
 
 

(b)           If the Lease term shall commence on a day other than the first day of a calendar month or shall end on a day other than the last day of a calendar month, the minimum rental for such first or last fractional month shall be such proportion of the monthly minimum rental as the number of days in such fractional month bears to the total number of days in such calendar month.

(c)           Until further notice to Tenant, all rental payable under this Lease shall be payable to Landlord and mailed to Landlord at c/o Kimco Realty Corporation, 3333 New Hyde Park Road, Suite 100, New Hyde Park, New York 11042.

(d)           In the event any sums required under this Lease to be paid are not received when due, then all such amounts shall bear interest from the due date thereof until the date paid at the rate of interest equal to two percent (2%) over the prime rate in effect from time to time as established by National City Bank, Columbus, Ohio (the "Interest Rate"), and shall be due and payable by Tenant without notice or demand, Tenant shall pay the foregoing interest thereon in addition to all default remedies of Landlord pursuant to Section 34 below.

(e)           Notwithstanding anything herein contained to the contrary, Tenant shall initially pay to Landlord as additional rental, simultaneously with the payment of minimum rental called for under Section 5(a) above, Five Dollars and 03/100 ($5.03) per square foot, payable in equal monthly installments of Eight Thousand Eight Hundred Ninety-five and 97/100 Dollars ($8,895.97), as the estimated monthly amount of Tenant's Proportionate Share of Maintenance Costs (provided for in Section 16 hereof), real estate taxes (provided for in Section 28 hereof) and insurance (provided for in Section 29 hereof).  Tenant's Proportionate Share of Maintenance Costs shall not exceed Two Dollars and 25/100 cents ($2.25) per square foot in the first lease year.

SECTION 6.
PERCENTAGE RENT

(a)           Beginning with the first lease year, Tenant shall pay to the Landlord, in addition to minimum rent, upon the conditions and at the times hereinafter set forth, percentage rent equal to two percent (2%) of Tenant's gross sales (as hereinafter defined) in excess of the number obtained by dividing (a) minimum rent for the applicable lease year by (b) the number .04.  The annual percentage rent shall be paid by Tenant to the Landlord within ninety (90) days after the end of each lease year.  Each such payment shall be accompanied by a statement signed by an authorized representative of Tenant setting forth Tenant's gross sales for such lease year.  For purposes of permitting verification by the Landlord of the gross sales reported by Tenant, the Landlord shall have the right, not more than one (1) time per lease year, upon not less than five (5) business days notice to Tenant, to audit during normal business hours in Tenant's corporate office, Tenant's books and records relating to Tenant's gross sales for a period of two (2) years after the end of each lease year.  Landlord agrees that no contingency fee auditor shall be employed by Landlord for the purpose of conducting any such audit.  If such an audit reveals that Tenant has understated its gross sales by more than three percent (3%) for any lease year, Tenant, in addition to paying the additional percentage rent due, shall pay the reasonable cost of the audit within thirty (30) days of Tenant's receipt of Landlord's demand for the same and copies of all bills or invoices on which such cost is based.

(b)           For purposes hereof, a lease year shall consist of a consecutive twelve (12) calendar month period commencing on the commencement of the term of this Lease; provided, however, that if this Lease commences on a day other than the first day of a calendar month, then the first lease year shall consist of such fractional month plus the next succeeding twelve (12) full calendar months, and the last lease year shall consist of the period commencing from the end of the preceding lease year and ending with the end of the term of the Lease, whether by expiration of term or otherwise.  In the event percentage rental shall commence to accrue on a day other than the first day of a lease year, the percentage rental for such lease year shall be adjusted on a pro rata basis, based upon the actual number of days in such lease year.

 
 
 

(c)           Each lease year shall constitute a separate accounting period, and the computation of percentage rental due for any one period shall be based on the gross sales for such lease year.

(d)           The term "gross sales" as used in this Lease is hereby defined to mean the gross dollar aggregate of all sales or rental or manufacture or production of merchandise and all services, income and other receipts whatsoever of all business conducted in, at or from any part of the demised premises, whether for cash, credit, check, charge account, gift or merchandise certificate purchased or for other disposition of value regardless of collection.  Should any departments, divisions or parts of Lessee's business be conducted by any subleases, concessionaires, licensees, assignees or others, then there shall be included in Lessee's gross sales, all "gross sales" of such department, division or part, whether the receipts be obtained at the demised premises or elsewhere in the same manner as if such business had been conducted by Lessee.  Gross sales shall exclude the following: (i) any amount representing sales, use, excise or similar taxes; (ii) the amount of refunds, exchanges or returns by customers or allowances to customers.

(e)           The percentage rental, if any, shall be paid within ninety (90) days after the end of each lease year, accompanied by a statement in writing signed by Tenant setting forth its gross sales from the sale of all items for such lease year.  Tenant shall keep at its principal executive offices, where now or hereafter located, true and accurate accounts of all receipts from the demised premises.  Landlord, its agents and accountants, shall have access to such records at any and all times during regular business hours for the purpose of examining or auditing the same.  Tenant shall also furnish to Landlord any and all supporting data in its possession relating to gross sales and any deductions therefrom as Landlord may reasonably require.  Landlord agrees to keep any information obtained therefrom confidential, except as may be required for Landlord's tax returns, or in the event of litigation or arbitration where such matters are material.

(f)            Tenant shall at all times maintain accurate records which shall be available for Landlord's inspection at any reasonable time.

(g)           If Landlord, for any reason, questions or disputes any statement of percentage rental prepared by Tenant, then Landlord, at its own expense, may employ such accountants as Landlord may select to audit and determine the amount of gross sales for the period or periods covered by such statements.  If the report of the accountants employed by Landlord shall show any additional percentage rental payable by Tenant, then Tenant shall pay to Landlord such additional percentage rental plus interest at one (1) point over the prime rate, commencing on the date such percentage rentals should have been paid, within thirty (30) days after such report has been forwarded to Tenant, unless Tenant shall, within said thirty (30) day period, notify Landlord that Tenant questions or disputes the correctness of such report.  In the event that Tenant questions or disputes the correctness of such report, the accountants employed by Tenant and the accountants employed by Landlord shall endeavor to reconcile the question(s) or dispute(s) within thirty (30) days after the notice from Tenant questioning or disputing the report of Landlord's accountants.  In the event that it is finally determined by the parties that Tenant has understated percentage rent for any Lease year by three percent (3%) or more, Tenant shall pay the cost of the audit.  Furthermore, if Tenant's gross sales cannot be verified due to the insufficiency or inadequacy of Tenant's records, then Tenant shall pay the cost of the audit.  The cost of any audit resulting from failure to report percentage rent after written notification of default shall be at the sole cost of Tenant.

SECTION 7.
TITLE ENCUMBRANCES

Tenant’s rights under this Lease are subject and subordinate to those title matters set forth in Landlord’s owner’s title insurance policy issued by Chicago Title Insurance Company, being Policy No. 1141013, dated December 9, 2004.  All of the foregoing are collectively referred to herein as the “Underlying Documents” and Tenant agrees that it shall abide by the terms and conditions of the Underlying Documents.

SECTION 8.
RIGHT TO REMODEL

(a)           Tenant may, at Tenant's expense, make repairs and alterations to the interior non-structural portions of the demised premises and remodel the interior of the demised premises, excepting structural and exterior changes, in such manner and to such extent as may from time to time be deemed necessary by Tenant for adapting to the demised premises to the requirements and uses of Tenant and for the installation of its fixtures, appliances and equipment.  Any structural or exterior alteration may only be made by Tenant with the prior written approval of Landlord, which approval may be granted or withheld in Landlord's sole discretion.  All plans for any structural alterations shall be submitted to Landlord for endorsement of its approval prior to commencement of work.  Upon Landlord's request, Tenant shall be obligated, if it remodels and/or alters the demised premises, to restore the demised premises upon vacating the same. Tenant will indemnify and save harmless the Landlord from and against all mechanics liens or claims by reason of repairs, alterations or improvements which may be made by Tenant to the demised premises.  Inasmuch as any such alterations, additions or other work in or to the demised premises may constitute or create a hazard, inconvenience or annoyance to the public and other tenants in the Shopping Center, Tenant shall, if so directed in writing by Landlord, erect barricades, temporarily close the demised premises, or affected portion thereof, to the public or take whatever measures are necessary to protect the building containing the demised premises, the public and the other tenants of the Shopping Center for the duration of such alterations, additions or other work.  If Landlord determines, in its sole judgment, that Tenant has failed to take any of such necessary protective measures, and Tenant fails to cure same within ten (10) days after notice thereof, Landlord may do so and Tenant shall reimburse Landlord for the cost thereof within ten (10) days after Landlord bills Tenant therefor.

 
 
 

(b)           All such work, including Tenant's Work pursuant to Exhibit "C" shall be performed lien free by Tenant.  In the event a mechanic's lien is filed against the premises or the Shopping Center, Tenant shall discharge or bond off same within ten (10) days from the filing thereof.  If Tenant fails to discharge said lien, Landlord may bond off or pay same without inquiring into the validity or merits of such lien, and all sums so advanced shall be paid on demand by Tenant as additional rent.

SECTION 9.
UTILITIES

(a)           The Tenant agrees to be responsible and pay for all public utility services rendered or furnished to the demised premises during the term hereof, including, but not limited to, heat, water, gas, electric, steam, telephone service and sewer services, together with all taxes, levies or other charges on such utility services when the same become due and payable.  Landlord will separately meter utilities prior to delivery.  Landlord shall provide, or cause to be provided, all such utility services to the premises during the term of this Lease.  Tenant shall be responsible for all utility services and costs inside the premises.  Landlord shall not be liable for the quality or quantity of or interference involving such utilities unless due directly to Landlord's negligence.

(b)           During the term hereof, whether the demised premises are occupied or unoccupied, Tenant agrees to maintain heat sufficient to heat the demised premises so as to avert any damage to the demised premises on account of cold weather.

SECTION 10.
GLASS

The Tenant shall maintain the glass part of the demised premises, promptly replacing any breakage and fully saving the Landlord harmless from any loss, cost or damage resulting from such breakage or the replacement thereof.

SECTION 11.
PERSONAL PROPERTY

The Tenant further agrees that all personal property of every kind or description that may at any time be in or on the demised premises shall be at the Tenant's sole risk, or at the risk of those claiming under the Tenant, and that the Landlord shall not be liable for any damage to said property or loss suffered by the business or occupation of the Tenant caused in any manner whatsoever.

SECTION 12.
RIGHT TO MORTGAGE

(a)           Landlord reserves the right to subject and subordinate this Lease at all times to the lien of any deed of trust, mortgage or mortgages now or hereafter placed upon Landlord's interest in the demised premises; provided, however, that no default by Landlord, under any deed of trust, mortgage or mortgages, shall affect Tenant's rights under this Lease, so long as Tenant performs the obligations imposed upon it hereunder and is not in default hereunder, and Tenant attorns to the holder of such deed of trust or mortgage, its assignee or the purchaser at any foreclosure sale.  Any such subordination shall be contingent upon Tenant receiving a commercially reasonable non-disturbance agreement.  It is a condition, however, to the subordination and lien provisions herein provided, that Landlord shall procure from any such mortgagee an agreement in writing, which shall be delivered to Tenant or contained in the aforesaid subordination agreement, providing in substance that so long as Tenant shall faithfully discharge the obligations on its part to be kept and performed under the terms of this Lease and is not in default under the terms hereof, its tenancy will not be disturbed nor this Lease affected by any default under such mortgage.  Landlord represents and warrants that, as of the commencement date, there shall be no mortgages, ground leases or other encumbrances that could dispossess Tenant's leasehold interest hereunder (collectively, "Mortgages") on Landlord's fee title to the Center other than that certain Deed of Trust and Security Agreement and Fixture Filing and Assignment of Leases and Rents which were filed in King County, Washington, on June 15, 2005, between Massachusetts Mutual Life Insurance Company, as mortgagee, and Landlord, as mortgagor.  Landlord agrees that Tenant's obligations hereunder shall be contingent upon Tenant entering into a commercially reasonable subordination, non-disturbance and attornment agreement ("SNDA") with such Mortgage holder on or before the commencement date.  Further, in the event the conditions set forth herein are not satisfied, Tenant shall have the right to terminate this Lease upon delivery of notice of such election to Landlord any time after the commencement date but prior to Landlord's satisfaction of the conditions set forth herein.  In any event, Tenant shall have no obligations hereunder, specifically including the obligation to pay rent, until the conditions set forth herein are satisfied.

 
 
 

(b)           Wherever notice is required to be given to Landlord pursuant to the terms of this Lease, Tenant will likewise give such notice to any mortgagee of Landlord's interest in the demised premises upon notice of such mortgagee's name and address from Landlord.  Furthermore, such mortgagee shall have the same rights to cure any default on the part of Landlord that Landlord would have had.

SECTION 13.
SUBLEASE OR ASSIGNMENT

(a)           Tenant may assign Tenant's interest in this Lease or sublet all or any portion of the demised premises to a nationally recognized retailer (defined as a retailer with at least fifty (50) retail stores in the United States) or regionally recognized retailer (defined as a retailer with at least five (5) retail stores in the State of Washington) customarily found in similar shopping centers without Landlord's consent.  Any other assignment or subletting not specifically provided for in this Section 13 shall be subject to Landlord’s prior written consent, which consent shall not be unreasonably withheld.  Landlord’s review of the proposed assignee or subtenant shall be limited to business reputation, business experience, a retail use compatible with then existing tenant mix of the Shopping Center, and financial ability to perform its obligations under this Lease or the proposed sublease, as the case may be.  In any such event, Tenant shall remain fully and primarily liable hereunder.  Tenant's right to assign or sublet shall be subject to those exclusives and prohibited uses set forth on Exhibit "D" attached hereto and made a part hereof, which are the exclusives and prohibited uses in effect for the Shopping Center as of the date hereof, for so long as and to the extent said exclusives and prohibited uses are still in full force and effect, as well as exclusives and prohibited uses hereafter granted for tenants leasing more than 15,000 square feet of space elsewhere within the Shopping Center, for so long as and to the extent said exclusives are still in full force and effect.

In the event Tenant desires to assign the Lease and such assignment requires Landlord’s prior written consent, then Landlord shall within fifteen (15) business days of receipt of Tenant’s written notice to Landlord requesting such consent, either consent to such assignment, or elect to terminate the Lease effective sixty (60) days after notice of such election to terminate.  In the event Landlord terminates the Lease pursuant to this Section 13(a), (i) then effective upon such termination date, neither party shall have any further rights or liabilities hereunder arising after such termination date, and (ii) Tenant shall have the right to nullify such termination by withdrawing its assignment request within ten (10) days after receiving Landlord’s termination notice and continuing as the direct tenant/occupant hereunder.

 
 
 

(b)           Tenant may, without the consent of Landlord, (i) grant licenses and/or concessions within the demised premises or (ii) assign or sublet all or any portion of the demised premises to (a) any parent, affiliate or subsidiary corporation of Tenant; (b) a transferee or successor by merger, consolidation or acquisition of Tenant or its parent or subsidiary; or (c) a transferee with a good business reputation who is acquiring all or substantially all of the stores of the Tenant in the State of Washington or the assets of the Tenant, its parent or subsidiary.  Any such assignee or sublessee shall be bound by the terms of this Lease.  Tenant shall deliver to Landlord in the ordinary course of its business an instrument whereby the assignee or entity succeeding to Tenant’s interest hereunder agrees to be bound by the terms of this Lease.

In the event of any assignment of this Lease or subletting of the demised premises, in whole or in part, Tenant shall remain fully and primarily liable hereunder.

(c)           Landlord may assign Landlord's interest in this Lease without the consent of Tenant (a) to any entity to which Landlord transfers its fee interest in the demised premises provided such entity (i) agrees in writing to be bound by all the terms of this Lease and (ii) such assignment is pursuant to a bona fide arm's length transaction not designed to reduce Landlord's liability or to otherwise exempt Landlord from any provision of this Lease or (b) subject to Section 12, as security for any indebtedness undertaken by Landlord.

SECTION 14.
COMMON AREAS

Common areas means all areas and facilities in the Shopping Center provided and so designated by Landlord and made available by Landlord in the exercise of good business judgment for the common use and benefit of tenants of the Shopping Center and their customers, employees and invitees.  Common areas shall include (to the extent the same are constructed), but not be limited to, the parking areas, sidewalks, landscaped areas, corridors, stairways, boundary walls and fences, incinerators, truckways, service roads, and service areas not reserved for the exclusive use of Tenant or other tenants.

SECTION 15.
OPERATION OF COMMON AREAS

(a)           Landlord shall, throughout the term hereof, operate and maintain the common areas including the parking areas for the use and benefit of the tenants of the Shopping Center and their customers and invitees.  Landlord shall at all times have exclusive control of the common areas and may at any time and from time to time: (i) promulgate, modify and amend reasonable rules and regulations for the use of the common areas, which rules and regulations shall be binding upon the Tenant upon delivery of a copy thereof to the Tenant; (ii) temporarily close any part of the common areas, including but not limited to closing the streets, sidewalks, road or other facilities to the extent necessary to prevent a dedication thereof or the accrual of rights of any person or of the public therein; (iii) exclude and restrain anyone from the use or occupancy of the common areas or any part thereof except bona fide customers and suppliers of the tenants of the Shopping Center who use said areas in accordance with the rules and regulations established by Landlord; and (iv) engage others to operate and maintain all or any part of the common areas, on such terms and conditions as Landlord shall, in its sole judgment, deem reasonable and proper; and (v) make such changes in the common areas as in its opinion are in the best interest of the Shopping Center, including but not limited to changing the location of walkways, service areas, driveways, entrances, existing automobile parking spaces and other facilities, changing the direction and flow of traffic and establishing prohibited areas; provided, however, Landlord shall not (i) change the configuration of the Shopping Center behind the demised premises (east side of the Shopping Center) so as to materially adversely affect access to the “No Build Area” from the east side of the Shopping Center; or (ii) make any changes or modifications to the parking on the east side of the Shopping Center that result in a parking ratio of less than 3.5 spaces per 1,000 square feet of leasable space for the Shopping Center.  Notwithstanding the foregoing, the moving and replacement of the access points to the Shopping Center from the public rights of way on the east side of the Shopping Center shall not be deemed material and adverse provided that comparable access points are provided.  In addition to the foregoing, Landlord shall be permitted to make changes to the Shopping Center to the extent necessary during the Renovation Period as set forth in Section 15(b) hereof.

 
 
 

(b)           Tenant acknowledges that Landlord will be renovating the Shopping Center, including the Common Areas, which renovation shall commence during the first five (5) years of the term hereof and once commenced, shall not exceed a period of three and one half (3.5) years (“Renovation Period”).  Tenant acknowledges that during the Renovation Period the parking field and accessways to the demised premises will be renovated and therefore there will be temporary interferences with same.  Notwithstanding the foregoing, during the Renovation Period, the parking for, access to or visibility or use of the demised premises shall not be interfered with by Landlord for a period of more than two hundred seventy (270) consecutive days (the “Tenant Obstruction Period”) and Landlord shall renovate the Common Areas adjacent to and in front of the demised premises in three phases during such Tenant Obstruction Period so that parking for and access to the demised premises will always be available per at least one of the three phases illustrated on the site plan attached hereto as Exhibit "A-1 " and so that any renovation to any one of the three phases shall not last for more than ninety (90) consecutive days.  In the event during the Tenant Obstruction Period, Tenant’s gross sales from the demised premises are less than the comparative monthly sales from the prior year, Tenant shall be entitled to pay Landlord, in lieu of minimum rent otherwise payable hereunder, eight percent (8%) of Tenant’s gross sales from the demised premises, as calculated by Tenant using generally accepted accounting principles consistently applied.  Within thirty (30) days after the end of each month during the Tenant Obstruction Period in which Tenant exercises the foregoing right to abate minimum rent, Tenant shall deliver to Landlord a statement signed by an authorized representative of the Tenant setting forth the gross sales of Tenant during such month compared to the gross sales from the same month from the prior year and Tenant shall pay the foregoing abatement rent in lieu of the next immediately monthly payment of minimum rent due hereunder.

(c)           As part of its renovation of the Shopping Center during the Renovation Period, and subject to all governmental approvals, Landlord shall construct a means of access from Factoria Blvd to the west side of the demised premises which may or may not be as depicted on the site plan.  Upon the expiration of the Renovation Period, Landlord agrees that no modification to the Shopping Center shall (i) alter or make any changes, including any reduction or rearrangement of parking spaces, to that portion of the Shopping Center indicated on the site plan as the "Protected Area", (ii) materially or adversely interfere with truck access to the loading doors of the demised premises, (iii) materially or adversely interfere with customer access to the demised premises, or (iv) result in the construction of any buildings to that portion of the Shopping Center indicated on the site plan as "No Build Area".

(d)           Tenant shall keep all common areas free of obstructions created or permitted by Tenant.  Tenant shall permit the use of the common areas only for normal parking and ingress and egress by its customers and suppliers to and from the demised premises.  If in Landlord's opinion unauthorized persons are using any of the common areas by reason of Tenant's occupancy of the demised premises, Landlord shall have the right at any time to remove any such unauthorized persons from said areas or to restrain unauthorized persons from said areas.  Landlord, Tenant, and others constructing improvements or making repairs or alterations in the Shopping Center shall have the right to make reasonable use of portions of the common areas.

SECTION 16.
COMMON AREA MAINTENANCE, TENANT'S SHARE

(a)           Tenant shall initially pay to Landlord as additional rental, simultaneously with the payment of minimum rental called for under Section 5(a), the estimated monthly amount of Tenant's Proportionate Share of the "Maintenance Costs" (as defined in Section 16(c) below)  for the operation and maintenance of the common areas as set forth in Section 5(e), Two Dollars and 25/100 cents ($2.25) per square foot, payable in equal monthly installments of Three Thousand Nine Hundred Seventy-nine and 31/100 Dollars ($3,979.31) as the estimated monthly amount of Tenant's Proportionate Share of the "Maintenance Costs" (as defined in Section 16(c) below) for the operation and maintenance of the common areas.

(b)           The Maintenance Costs for the common areas shall be computed on an accrual basis, under generally accepted accounting principles, and shall include all costs of operating, maintaining, repairing and replacing the common areas, including by way of example but not limitation: (i) cost of labor (including worker's compensation insurance, employee benefits and payroll taxes); (ii) materials, and supplies used or consumed in the maintenance or operation of the common area; (iii) the cost of operating and repairing of the lighting; (iv) cleaning, painting, removing of rubbish or debris, snow and ice, private security services, and inspecting the common areas; (v) the cost of repairing and/or replacing paving, curbs, walkways, markings, directional or other signs; landscaping, and drainage and lighting facilities; (vi) rental paid for maintenance of machinery and equipment; (vii) cost of commercial general liability insurance and property insurance for property in the common areas which are not part of the building and/or demised premises; and (viii) a reasonable allowance to Landlord for Landlord's supervision, which allowance shall not in an accounting year exceed fifteen percent (15%) of the total of all Maintenance Costs for such accounting year (all of the foregoing are collectively referred to herein as "Maintenance Costs").

 
 
 

Notwithstanding the foregoing, the following shall be excluded, deducted or credited from Maintenance Costs when computing Tenant's Proportionate Share of same:

 
(i)
Net recoveries received by the Landlord from tenants as a result of any act, omission, default or negligence or as the result of breaches by tenants of the provisions of their leases and/or other amounts received by Landlord from third parties, which recoveries and/or amounts reimburse Landlord for or reduce Maintenance Costs.

 
(ii)
Gross revenues from charges, if any, made for the use of the parking facilities and other Common Areas or facilities of the Center (including, without limitation, the sale or rental of advertising space).

 
(iii)
The cost of the land underlying and the construction of the Center, whether initially or in connection with any replacement or expansion thereof.

 
(iv)
The depreciation or amortization of the Center or any part thereof or any equipment or other property used in connection therewith.

 
(v)
The initial cost of the installation of the parking areas or facilities or the amortization or depreciation of such initial cost.

 
(vi)
The cost of providing or performing improvements, work or repairs to or within (a) any portion of the premises of any other tenants or occupants in the Center, (b) any other building which is not part of the Common Areas or (c) any portion of the Center the use of which is not available to the public.

 
(vii)
Any reserves for future expenditures or liabilities which would be incurred subsequent to the then current accounting year.

 
(viii)
Any bad debt loss, rent loss or reserves for bad debt or rent loss.

 
(ix)
Legal fees, audit fees, leasing commissions, advertising expenses and other costs incurred in connection with (a) the original development or original leasing of the Center, (b) the future re-leasing of the Center, (c) any advertising or promotion of the Center or any part thereof, and (d) disputes with other tenants or third parties.

 
(x)
Costs of repairing or restoring any portion of the Center damaged or destroyed by any casualty or peril.

 
(xi)
Costs in connection with the cleanup or removal of hazardous materials; provided, however, that Maintenance Costs may include the costs to remove Hazardous Substances from the surface of the parking lot, such as paint cans and minor motor oil spills, but excluding contamination otherwise addressed in Section 43 below and further provided that Tenant’s Proportionate Share of such costs shall not exceed Five Hundred Dollars ($500.00) in any one Lease Year.

 
(xii)
Net recoveries from insurance policies taken out by the Landlord to the extent that the proceeds reimburse Landlord for expenses which have previously been included or which would otherwise be included in Maintenance Costs.

 
(xiii)
Contributions to Maintenance Costs by tenants or occupants whose space is excluded from the denominator of the Tenant's Proportionate Share.

 
 
 

 
(xiv)
Any management costs or fees of any kind that are paid for management or supervising functions performed by the Landlord or by some other entity, whether or not the cost or fee is paid to a third party or paid to the Landlord in excess of the fifteen percent (15%) of Tenant's Proportionate Share of Maintenance Costs permitted in Section 16(b).

 
(xv)
Costs of a capital nature, including all capital improvements, alterations, repairs and/or replacements (for purposes of this Lease, "costs of a capital nature" shall mean the cost of any item or service the useful life of which exceeds 36 months).

 
(xvi)
Costs relating to the negligence of Landlord or its contractors, agents or employees or the payment of any claims or damages relating to the same.

 
(xvii)
Any insurance costs, except to the extent required to be paid by Tenant pursuant to Section 27.

(c)           Landlord shall maintain accurate and detailed records of all Maintenance Costs for the common areas in accordance with generally accepted accounting principles.  For purposes of this Lease, "Tenant's Proportionate Share" shall be the product of the applicable cost or expense multiplied by a fraction, the numerator of which shall be the gross leasable area (expressed in square feet) of the demised premises and the denominator of which shall be the gross leasable area (expressed in square feet) of all leasable space in the Shopping Center.  Tenant’s Proportionate Share of that portion of the Shopping Center is presently twenty-four one/hundredths percent (.24%), which amount is subject to change from time to time during the term of this Lease.

(d)           The actual amount of Tenant's Proportionate Share of all Maintenance Costs shall be computed by Landlord within one hundred eighty (180) days after the end of each accounting year (which Landlord may change from time to time).  At this time Landlord shall furnish to Tenant a statement showing in reasonable detail the actual Maintenance Costs incurred during such accounting year and Tenant's Proportionate Share thereof (prorated for any partial Lease year, with appropriate adjustments to reflect any change in the floor area of the premises or the gross leasable area of a building occurring during such accounting year).  Any excess payments from Tenant shall be applied to the next installments of the Maintenance Costs hereunder, or refunded by Landlord.  Any underpayments by Tenant shall be paid to Landlord within thirty (30) days after receipt of such reconciliation statement.   Tenant's estimated monthly Maintenance Cost hereunder may be adjusted by written notice from Landlord.  Notwithstanding anything contained in this Section 16 to the contrary, Landlord and Tenant agree that the actual amount of Tenant's Proportionate Share of Maintenance Costs, excluding costs for snow and ice removal, common area utilities and common area security shall not increase by more than five percent (5%) in any lease year over the previous lease year, and that Tenant's Proportionate Share of Maintenance Costs for the first lease year shall not exceed Two Dollars and 25/100 cents ($2.25) per square foot.

(e)           If Tenant, for any reason in the exercise of good business judgment, questions or disputes any statement of Maintenance Costs prepared by Landlord, then Tenant, at its own expense, may employ such accountants as Tenant may select to review Landlord's books and records solely with respect to Maintenance Costs during the prior two Lease years and to determine the amount of Maintenance Costs for the period or periods covered by such statements.  If the report of the accountants employed by Tenant shall show any overcharge paid by Tenant, then Tenant shall receive a credit from Landlord for such difference. Any underpayment shall be paid by Tenant.  Tenant agrees that no contingency fee auditors shall be employed by Tenant for the purpose of conducting any such audit.  In the event that Landlord questions or disputes the correctness of such report, the accountants employed by Tenant and the accountants employed by Landlord shall endeavor to reconcile the question(s) or dispute(s) within thirty (30) days after the notice from Tenant questioning or disputing the report of Landlord's accountants.  In the event that it is finally determined by the parties that Landlord has overstated Maintenance Costs for any Lease year by three percent (3%) or more, Landlord shall pay the reasonable cost of the audit.  Furthermore, if Landlord’s Maintenance Costs cannot be verified due to the insufficiency or inadequacy of Landlord's records, then Landlord shall pay the cost of the audit.

 
 
 

SECTION 17.
EMINENT DOMAIN

(a)           In the event the entire premises or any part thereof shall be taken or condemned either permanently or temporarily for any public or quasi-public use or purpose by any competent authority in appropriation proceedings or by any right of eminent domain, the entire compensation or award therefore, including leasehold, reversion and fee, shall belong to the Landlord and Tenant hereby assigns to Landlord all of Tenant's right, title and interest in and to such award.

(b)           In the event that only a portion of the demised premises, not exceeding twenty percent (20%) of same, shall be so taken or condemned, and the portion of the demised premises not taken can be repaired within ninety (90) days from the date of which possession is taken for the public use so as to be commercially fit for the operation of Tenant's business, the Landlord at its own expense shall so repair the portion of the demised premises not taken and  there shall be an equitable abatement of rent for the remainder of the term and/or extended terms.  The entire award paid on account thereof shall be paid to the Landlord.  If the portion of the demised premises not taken cannot be repaired within ninety (90) days from the date of which possession is taken so as to be commercially fit for the operation of Tenant's business, then this Lease shall terminate and become null and void from the time possession of the portion taken is required for public use, and from that date on the parties hereto shall be released from all further obligations hereunder except as herein stated and Tenant shall have no claim for any compensation on account of its leasehold interest.  No other taking, appropriation or condemnation shall cause this Lease to be terminated.  Any such appropriation or condemnation proceedings shall not operate as or be deemed an eviction of Tenant or a breach of Landlord's covenant of quiet enjoyment and Tenant shall have no claim for any compensation on account of its leasehold interest.

(c)           In the event that more than 20% of the demised premises shall at any time be taken by public or quasi-public use or condemned under eminent domain, then at the option of the Landlord or Tenant upon the giving of thirty (30) days written notice (after such taking or condemnation), this Lease shall terminate and expire as of the date of such taking and any prepaid rental shall be prorated as of the effective date of such termination.

SECTION 18.
TENANT'S TAXES

Tenant further covenants and agrees to pay promptly when due all taxes assessed against Tenant's fixtures, furnishings, equipment and stock-in trade placed in or on the demised premises during the term of this Lease.

SECTION 19.
RISK OF GOODS

All personal property, goods, machinery, and merchandise in said demised premises shall be at Tenant's risk if damaged by water, fire, explosion, wind or accident of any kind, and Landlord shall have no responsibility therefore or liability for any of the foregoing and Tenant hereby releases Landlord from such liability.

SECTION 20.
USE AND OCCUPANCY

(a)           Tenant agrees to initially open and operate a DSW for the retail sales of shoes and other footwear in the demised premises, fully staffed and stocked and equivalent to other DSW stores operated by Tenant in the State of Washington (the “Permitted Use”), or for any other lawful retail use upon obtaining the prior written consent of Landlord, which consent shall not be unreasonably withheld.  Any use other than a retail shoe store shall be consistent with the then existing character of the Shopping Center, and shall not violate those exclusives and prohibited uses set forth on Exhibit "D" attached hereto and made a part hereof, which are the exclusives and prohibited uses in effect for the Shopping Center as of the date hereof, for so long as and to the extent said exclusives and prohibited uses are still in full force and effect, as well as exclusives and prohibited uses hereafter granted for tenants leasing more than 15,000 square feet of space elsewhere within the Shopping Center, for so long as and to the extent said exclusives are still in full force and effect.  In connection with the use exclusives and prohibited uses set forth on Exhibit "D" , Landlord (i) acknowledges that Tenant is not leasing space in Buildings H, F or L as identified and described in the use exclusive for Old Navy, (ii) has not signed a lease with TJX as of the date hereof and agrees that upon executing any such lease will provide that DSW is carved-out as an exception to any use exclusive granted to such tenant, and (iii) Landlord shall indemnify, defend and hold harmless Tenant, Tenant’s officers, directors, employees and agents against any and all damages, claims and liabilities arising from any claim by Nordstrom Rack that Tenant is operating in violation of the use exclusive granted to such tenant.

 
 
 

(b)           For so long as Tenant is continuously and regularly operating its business in the demised premises, Landlord will not lease any space within the Shopping Center or permit any space within the Shopping Center (to the extent Landlord has control) to be used by any person, persons, partnership or entity who devotes ten percent (10%) or more of its selling area to the sale of footwear (the “Exclusive Use”).  The foregoing limitation shall not apply to (i) shoe departments found in department stores, junior department stores, general merchandise and discount department stores such as Target, Marshalls, TJX and Kohls provided that such tenants are operating their shoe department consistent with their national prototypical shoe department; and (ii) the existing tenants or their successors or assigns at the Shopping Center which presently have the right to sell shoes and other footwear, as set forth on Exhibit "E" , so long as such tenants are operating their prototypical shoe department consistent with their national prototypical shoe department.  Notwithstanding the foregoing, in the event an existing tenant at the Shopping Center which presently has the right to engage in the Exclusive Use assigns or sublets its portion of the Shopping Center, and the assignment or sublet is subject to Landlord’s consent, Landlord will condition its consent on such assignment or sublet being subject to the Exclusive Use to the extent Landlord has the right to do so.  Any portion of the Shopping Center which is sold by Landlord during the term shall contain a deed restriction incorporating the foregoing Exclusive Use.

(c)           Tenant shall at all times conduct its operations on the demised premises in a lawful manner and shall, at Tenant's expense, comply with all laws, rules, orders, ordinances, directions, regulations, and requirements of all governmental authorities, now in force or which may hereafter be in force, which shall impose any duty upon Landlord or Tenant with respect to the business of Tenant and the use, occupancy or alteration of the demised premises.  Tenant shall comply with all requirements of the Americans with Disabilities Act, and shall be solely responsible for all alterations within the demised premises in connection therewith.  Tenant covenants and agrees that the demised premises shall not be abandoned or left vacant and that only minor portions of the demised premises shall be used for office or storage space in connection with Tenant's business conducted in the demised premises.

Without being in default of this Lease, Tenant shall have the right to cease operating (go dark) at any time and for whatever reason after the first (1 st ) lease year.  Notwithstanding the foregoing, Tenant’s right to vacate (go dark), shall not release or excuse the Tenant from any obligations or liabilities, including the payment of minimum rent and additional rent and other charges, under this Lease without the express written consent of Landlord.  In the event Tenant fails to (i) open and operate within ninety (90) days after delivery of the demised premises or (ii) operate for one hundred twenty (120) or more consecutive days, Landlord shall have the right, effective upon thirty (30) days prior written notice to Tenant, to terminate the Lease as Landlord’s sole remedy, provided that if Tenant recommences operating fully stocked in substantially all of the premises within such thirty (30) days, Landlord’s termination shall be null and void.  In the event Tenant fails to open and operate as provided above or shall cease operating as provided above, Landlord’s sole remedy on account thereof shall be limited to the right to elect to recapture the premises and terminate the Lease, whereupon there shall be no further liability of the parties hereunder.  Such termination shall be effective upon written notice to Tenant any time prior to Tenant reopening for business in the demised premises.  Provided, however, in the event Landlord has not so elected to recapture, Tenant shall have right to notify Landlord of Tenant’s intention to reopen for business in the demised premises within sixty (60) days, followed by Tenant’s actually reopening for business fully stocked in substantially all of the demised premises within such sixty (60) day period, which notice and actual reopening shall toll Landlord’s right to recapture.

(d)           Landlord agrees that during the term of this Lease no space in the Shopping Center (excluding areas of the Shopping Center not owned by Landlord) will be used for a flea market, theater showing either film, television or the like or live entertainment, bar (except as permitted below), game/amusement room (except as permitted below), bowling alley, indoor playground (except as permitted below), or adult bookstore (defined for the purposes hereof as a store devoting ten percent (10%) or more of its floor space to offering books and/or video materials for sale or for rent which are directed to or restricted to adult customers due to sexually explicit subject matter or for any other reason making it inappropriate for general use).  Landlord agrees that during the term of this Lease the spaces identified on the site plan as “Restaurant-Not Permitted” shall not be used as a restaurant, bar, or any establishment selling food products including but not limited to a coffee shop, candy store, bagel store, ice cream store or any fast food/sandwich shop establishment.  Landlord agrees that during the term of this Lease the spaces identified on the site plan as “Health Club-Not Permitted” shall not be used as a health club, gym, yoga or fitness studio, karate studio, or weight loss clinic.  In addition to the foregoing, Landlord and Tenant agree that space outside of the “Restaurant-Not Permitted” area may be used as a bar, game/amusement room or indoor playground provided that such uses are incidental to a restaurant use.  The aforementioned restrictions shall not apply to the rights of tenant’s under existing leases at the Shopping Center as the same may be renewed, extended, modified or amended (except that no such renewal, extension, modification or amendment shall grant a tenant the right to engage in any of the aforementioned prohibited uses where such tenant did not previously have that right).

 
 
 

(e)           Tenant agrees that the demised premises may not be used for the operation of a bingo parlor, bar, tavern, restaurant, cocktail lounge, adult book or adult video store (defined for the purposes hereof as a store devoting ten percent (10%) or more of its floor space to offering books and/or video materials for sale or for rent which are directed to or restricted to adult customers due to sexually explicit subject matter or for any other reason making it inappropriate for general use), adult theater or "strip-tease" establishment, automotive maintenance or automotive repair facility, warehouse, car wash, pawn shop, check cashing service, establishment selling second hand goods, flea market, entertainment or recreational facility (as defined below), training or educational facility (as defined below); the renting, leasing, selling or displaying of any boat, motor vehicle or trailer; industrial or manufacturing purposes; a carnival, circus or amusement park; a gas station, facility for the sale of paraphernalia for use with illicit drugs, funeral home, blood bank or mortuary, gambling establishment, banquet hall, auditorium or other place of public assembly, second-hand or surplus store, gun range; the sale of fireworks; a veterinary hospital or animal raising facility; the storage of goods not intended to be sold from the Center; a video rental store, karate center, central laundry or dry cleaning plant, supermarket or any facility which is illegal or dangerous, constitutes a nuisance, emits offensive odors, fumes, dust or vapors or loud noise or sounds or is inconsistent with community oriented shopping centers.  For the purposes of this Section 20(e), the phrase "entertainment or recreational facility" shall include, without limitation, a movie or live theater or cinema, bowling alley, skating rink, gym, health spa or studio, dance hall or night club, billiard or pool hall, massage parlor, health club, game parlor or video arcade (which shall be defined as any store containing more than five (5) electronic games) or any other facility operated solely for entertainment purposes (such as a "laser tag" or "virtual reality" theme operation).  For the purposes of this Section 20(e), the phrase "training or educational facility" shall include, without limitation, a beauty school, nail salon, barber college, reading room, place of instruction or any other operation catering primarily to students or trainees as opposed to customers.

SECTION 21.
NUISANCES

Tenant shall not perform any acts or carry on any practice which may injure the demised premises or be a nuisance or menace to other tenants in the Shopping Center.

SECTION 22.
WASTE AND REFUSE REMOVAL

Tenant covenants that it will use, maintain and occupy said demised premises in a careful, safe, lawful and proper manner and will not commit waste therein.  Landlord or its agent shall have access at all reasonable times to the demised premises for purposes of inspecting and examining the condition and maintenance of the demised premises.  Tenant agrees to remove all refuse from the demised premises in a timely, clean and sanitary manner.  Tenant shall provide a refuse collection container at the rear of the demised premises to accommodate Tenant's refuse and Tenant shall routinely clean up around trash containers.  Tenant shall contract with a licensed and insured refuse collection contractor to timely remove refuse therefrom and the location of the container shall be approved by Landlord.

 
 
 

SECTION 23.
DESTRUCTION OF PREMISES

(a)           Landlord shall at all times during the term of this Lease carry property insurance on the building containing the demised premises, including the “Structural Portions” (defined in Section 24(a) below) and common utility lines up to the point they serve individual tenant’s premises.  Landlord shall be under no obligation to maintain insurance on any improvements installed by or for the benefit of Tenant's use of the premises or otherwise owned by Tenant.  Landlord may elect to self-insure its obligations hereunder and/or use whatever deductibles as Landlord deems appropriate, in its sole discretion.

(b)           If the demised premises shall be damaged, destroyed, or rendered untenantable, in whole or in part, by or as the result or consequence of fire or other casualty during the term hereof, Landlord shall repair and restore the same to a good tenantable condition with reasonable dispatch.  During such period of repair, the rent herein provided for in this Lease shall abate (i) entirely in case all of the demised premises are untenantable; and (ii) proportionately if only a portion of the demised premises is untenantable and Tenant is able to economically conduct its business from the undamaged portion of the demised premises.  The abatement shall be based upon a fraction, the numerator of which shall be the square footage of the damaged and unusable area of the demised premises and the denominator shall be the total square footage of the demised premises.  Said abatement shall cease at such time as the demised premises shall be restored to a tenantable condition.

(c)           In the event the demised premises, because of such damage or destruction, are not repaired and restored to a tenantable condition with reasonable dispatch within one hundred fifty (150) days from the date of receipt of insurance proceeds for such damage or destruction, Tenant or Landlord may, at their option, terminate this Lease within sixty (60) days following such one hundred fifty (150) day period but prior to the repair and restoration of same by giving prior written notice to the other party and thereupon Landlord and Tenant shall be released from all future liability and obligations under this Lease.

(d)           If one-third (1/3) or more of the ground floor area of the demised premises are damaged or destroyed during the last two (2) years of the original or any extended term of this Lease, Landlord shall have the right to terminate this Lease by written notice to Tenant within sixty (60) days following such damage or destruction, unless Tenant shall, within thirty (30) days following receipt of such notice, offer to extend the term of this Lease for an additional period of five (5) years from the date such damage or destruction is repaired and restored.  If Tenant makes said offer to extend, Landlord and Tenant shall determine the terms and conditions of said extension within thirty (30) days thereafter or Tenant's offer shall not be deemed to prevent Landlord from canceling this Lease.  If such terms and conditions have been mutually agreed to by the parties, then Landlord shall accept Tenant's offer and shall repair and restore the demised premises with reasonable dispatch thereafter.

(e)           If Landlord is required or elects to repair and restore the demised premises as herein provided, Tenant shall repair or replace its stock in trade, trade fixtures, furniture, furnishings and equipment and other improvements including floor coverings, and if Tenant has closed, Tenant shall promptly reopen for business.  Anything contained in this Section 23 to the contrary notwithstanding, Landlord's restoration and repair obligations under Section 23 shall in no event include restoration or repair of Tenant's Work or improvements.

SECTION 24.
LANDLORD REPAIRS

(a)           Landlord shall keep in good order, condition, and repair the following: (i) structural portions of the demised premises; (ii) downspouts; (iii) gutters; (iv) utility lines leading up to the point of entry into the demised premises; (v) the roof of the Building of which the demised premises forms a part; and (vi) the plumbing and sewage system serving the demised premises but located outside of the demised premises, except (as to all items) for damage caused by any negligent act or omission of Tenant or its customers, employees, agents, invitees, licensees or contractors, which shall be repaired or replaced as necessary, at the sole cost and expense of Tenant. "Structural Portions" shall mean only the following: (vii) foundations; (viii) exterior walls except for interior faces); (ix) concrete slabs; (x) the beams and columns bearing the main load of the roof; and (xi) the floors (but not floor coverings).

 
 
 

(b)           Notwithstanding the provisions of Section 24(a) above, Landlord shall not be obligated to repair the following: (i) the exterior or interior of any doors, windows, plate glass, or showcases surrounding the demised premises or the store front; (ii) HVAC unit(s), equipment and systems (including all components thereof) in the demised premises; or (iii) damage to Tenant's improvements or personal property caused by any casualty, burglary, break-in, vandalism, acts of terrorism, war or act of G-d.  Landlord shall, in any event, have ten (10) days after notice from Tenant stating the need for repairs to complete same, or commence and proceed with due diligence to complete same.  Landlord shall be obligated to replace all HVAC components as and when necessary during the first ten (10) years of the term hereof so long as Tenant has fulfilled its obligations under Section 25(b)(ii) above, and provided such replacements did not arise from (x) repairs, installations, alterations, or improvements made by or for Tenant or anyone claiming under Tenant, or (y) the fault or misuse of Tenant or anyone claiming under Tenant.  Provided that the HVAC system serving the demised premises is for the exclusive use of Tenant, Tenant shall have the obligation to replace all HVAC components as and when necessary after the first ten (10) years of the term hereof; however in the event the HVAC system serving the demised premises is not for the exclusive use of Tenant, Landlord shall have the obligation to replace the HVAC system serving the demised premises after the first ten (10) years of the term hereof.  Prior to delivery of possession of the demised premises, Landlord shall install, at its expense, a new HVAC unit(s), equipment and systems (including all components thereof) in the demised premises.  Except as specifically set forth in this Lease, Tenant expressly hereby waives the provisions of any law permitting repairs by a tenant at Landlord's expense.

(c)           The provisions of this Section 24 shall not apply in the case of damage or destruction by fire or other casualty or a taking under the power of eminent domain in which events the obligations of Landlord shall be controlled by Section 23 and Section 17 respectively.

(d)           Landlord shall assign to Tenant all warranties covering all matters required by the terms hereof to be repaired and maintained by Tenant.

SECTION 25.
TENANT'S REPAIRS

(a)           Tenant shall keep and maintain, at Tenant's expense, all and every other part of the demised premises in good order, condition and repair, including, by way of example but not limitation: (i) all leasehold improvements; (ii) all HVAC unit(s), equipment and systems (including all components thereof) serving the demised premises; (iii) interior utility systems exclusively serving the demised premises; (iv) plumbing and sewage facilities; (v) all interior lighting; (vi) electric signs; (vii) all interior walls; (viii) floor coverings; (ix) ceilings; (x) appliances and equipment; (xi) all doors, exterior entrances, windows and window moldings; (xii) plate glass; (xiii) signs and showcases surrounding and within the demised premises; (xiv) the store front; (xv) sprinkler systems including supervisory alarm service in accordance with National Fire Protection Association standards and current local and state fire protection standards to ensure property operation, and as required by Section 27(b) below.

(b)           Sprinkler systems, if any, located in Tenant's area shall be maintained in accordance with National Fire Protection Association standards to ensure proper operation.  Sprinkler control valves (interior and exterior) located in Tenant's area shall be monitored by supervisory alarm service.  In the event local or state codes do not require alarm systems, Tenant shall provide alarm service on all sprinkler systems to detect water flow and tampering with exterior and interior main control valves of the sprinkler system servicing Tenant's premises.  Moreover, it shall be Tenant's responsibility to contact the Landlord’s property manager in the event the sprinkler system in the demised premises is ever shut off for any reason, and advise same of any damage occasioned or caused by the actions of Tenant, its agents, invitees, or employees, and/or as a result of Tenant's repair obligations hereunder.  In the event fifty percent (50%) or more of the total number of sprinkler heads require replacement at any one time as part of ordinary maintenance, but excluding repairs or replacements that arise from (x) repairs, installations alterations, or improvements made by or for Tenant or anyone claiming under Tenant, or (y) the fault or misuse of Tenant or anyone claiming under Tenant, such cost shall be fifty percent (50%) borne by Landlord and fifty percent (50%) borne by Tenant.  Tenant, at Tenant’s sole cost and expense, shall replace all sprinkler heads due to repairs, installations, alterations, or improvements made by or for Tenant or anyone claiming under Tenant, the fault or misuse of Tenant or anyone claiming under Tenant, painting or environmental exposure from Tenant's operations.  All other costs of maintaining the sprinkler system in the demised premises shall be paid by Tenant.

 
 
 

(c)           If Landlord deems any repair which Tenant is required to make hereunder to be necessary, Landlord may demand that Tenant make such repair immediately.  If Tenant refuses or neglects to make such repair and to complete the same with reasonable dispatch, Landlord may make such repair and Tenant shall, on demand, immediately pay to Landlord the cost of said repair, together with annual interest at the Interest Rate.  Landlord shall not be liable to Tenant for any loss or damage that may accrue to Tenant's stock or business by reason of such work or its results.

(d)           Neither Tenant nor any of its contractors are permitted access to or permitted to perform alterations of any kind to the roof of the building.

(e)           Tenant shall pay promptly when due the entire cost of work in the demised premises undertaken by Tenant under this Lease (including, but not limited to, Tenant's Work and/or alterations permitted under Section 8 of this Lease) so that the demised premises and the Shopping Center shall at all times be free of liens for labor and materials arising from such work; to procure all necessary permits before undertaking any such work; to do all of such work in a good and workmanlike manner, employing materials of good quality; to perform such work only with contractors previously reasonably approved of in writing by Landlord; to comply with all governmental requirements; and save Landlord and its agents, officers, employees, contractors and invitees harmless and indemnified from all liability, injury, loss, cost, damage and/or expense (including reasonable attorneys' fees and expenses) in respect of any injury to, or death of, any person, and/or damage to, or loss or destruction of, any property occasioned by or growing out of any such work.

SECTION 26.
COVENANT OF TITLE AND PEACEFUL POSSESSION

Subject to the provisions of Section 12 hereof, Landlord shall, on or before the date on which Tenant is permitted to install its merchandise and fixtures in the demised premises, have good and marketable title to the demised premises in fee simple and the right to make this Lease for the term aforesaid.  At such time, Landlord shall put Tenant into complete and exclusive possession of the demised premises, and if Tenant shall pay the rental and perform all the covenants and provisions of this Lease to be performed by the Tenant, Tenant shall, during the term hereby demised, freely, peaceably, and quietly enjoy and occupy the full possession of the demised premises and the common facilities of the Shopping Center, subject, however, to the terms and conditions of this Lease including the Landlord’s right to modify, change or alter the Shopping Center during the Renovation Period as set forth in Section 15(b) hereof.

SECTION 27.
TENANT'S AND LANDLORD'S INSURANCE; INDEMNITY

(a)           Tenant's Property Insurance.  Tenant agrees to procure and maintain during the demised term a property insurance policy written on the causes of loss-special form (also referred to as the special extended coverage form), or the most broad property insurance form then available, insuring against loss of, or damage to, Tenant's property, in, on or about the demised premises.  Such property insurance shall include coverage (whether by additional policies, endorsements or otherwise): (i) against earthquake and flood; (ii) for plate glass; (iii) in an amount equal to the full insurable replacement cost, without deduction for depreciation; (iv) with an agreed valuation provision in lieu of, or in an amount sufficient to satisfy, any co-insurance clause; (v) against inflation (also known as inflation guard); (vi) for any costs due to ordinances or laws; and (vii) as Landlord may from time to time reasonably require Tenant to procure and maintain.  Landlord shall not be liable for any damage to Tenant's property in, on or about the demised premises caused by fire or other insurable hazards regardless of the nature or cause of such fire or other casualty, and regardless of whether any negligence of Landlord or Landlord's employees or agents contributed thereto.  Tenant expressly releases Landlord of and from all liability for any such damage and Tenant agrees that its property insurance policies required hereunder shall include a waiver of subrogation recognizing this release from liability.

 
 
 

(b)           Boiler and Machinery Insurance.  Tenant agrees to maintain a comprehensive boiler and machinery policy on a full repair and replacement cost basis, and further in accordance with the requirements of Section 27(a)(iii)-(vi) above, with an admitted, reputable insurance carrier covering property damage as a result of a loss from boiler(s), pressure vessel(s), HVAC equipment, or other electrical or mechanical apparatus within or servicing the demised premises, furniture, fixtures, equipment and inventory together with property of others in the care, custody and control of Tenant.  The deductible for property damage under such policy shall not exceed Five Thousand Dollars ($5,000.00) per occurrence.

(c)           Additional Tenant Insurance.  Tenant's insurance required under Section (27(a) and (b) above shall also include business income coverage against any interruption (including utility interruption) in Tenant's business (whether direct, indirect, contingent or interdependent), including, but not limited to, coverage for Tenant's leasehold interests and obligations to continue paying all rental amounts hereunder, lost revenues and income, and extra expense.  Such coverage should be for a period of at least twelve (12) months, with an extended period of indemnity of at least thirty (30) days.  The deductible for such coverage may not exceed twenty-four (24) hours.

(d)           Tenant's Commercial General Liability Insurance.  Tenant agrees to procure and maintain during the demised term commercial general liability insurance by a responsible insurance company or companies, with policy limits of not less than $1,000,000.00 per occurrence and $2,000,000.00 annual aggregate, and $500,000.00 limits for fire and legal liability, insuring against liability for losses, claims, demands or actions for bodily injury (including death) and property damage arising from Tenant's conduct and operation of its business in and Tenant's use, maintenance and occupancy of, the demised premises and any areas adjacent thereto, or the acts or omissions of Tenant's employees and agents.  Such commercial general liability policy may be written on a blanket basis to include the demised premises in conjunction with other premises owned or operated by Tenant but shall be written such that the required policy limits herein specifically apply on a per location basis to the demised premises.  Tenant's commercial general liability insurance policy shall further provide: (i) coverage for defense costs (in excess of policy limits); (ii) contractual liability coverage; (iii) cross-liability coverage; and, (iv) that Landlord, its shareholders, officers, directors, employees, and agents, are named as additional insureds such that (Y) Tenant's policy shall be the primary source of insurance for such additional insured and (Z) any liability policy carried by such additional insureds shall be in excess of, and will not contribute with or to, Tenant's commercial general liability insurance required to be maintained hereunder.  At the time this Lease is executed and thirty (30) days prior to the expiration of such insurance policy, Tenant shall furnish to Landlord certificates of insurance evidencing the continuous existence during the term of this Lease of Tenant's commercial general liability insurance coverage, which certificates shall include attachment of additional insured endorsement, name any and all non-standard exclusions or limitations, and provide not less than thirty (30) days notice of cancellation or termination to Landlord (and any other additional insured, if applicable).  All insurance companies must be licensed to do business in the state where the premises are located.  Tenant shall further procure and maintain other liability insurance (including, but not limited to, liquor and pollution insurance) as Landlord may from time to time reasonably require.

(e)           Worker's Compensation.  Tenant agrees to provide and keep in force at all times worker's compensation insurance complying with the law of the state in which the premises are located.  Tenant agrees to defend, indemnify and hold harmless Landlord from all actions or claims of Tenant's employees or employee's family members.  Tenant agrees to provide a certificate as evidence of proof of worker's compensation coverage.

If Tenant hires contractors to do any improvements on the demised premises, each contractor must provide proof of worker's compensation coverage on its employees and agents to Landlord.

(f)            Contingent Liability and Builder's Risk Insurance.  With respect to any alterations or improvements by Tenant, Tenant shall maintain contingent liability and builder's risk coverage naming Landlord as an additional insured, in compliance with the additional insured requirements set forth in Section 27(d).

 
 
 

(g)           Landlord's Property Insurance.  Commencing as of the Commencement Date, and thereafter throughout the term of this Lease, Landlord shall, at Landlord's sole cost and expense, provide and maintain or cause to be provided and maintained a property insurance policy insuring all buildings (and building additions) and other improvements in the Center and in the demised premises, and  Tenant's store building (including any permanent improvements to the demised premises paid for by the Tenant Reimbursement but excluding those items insured by Tenant as required under this Section 27) for all the hazards and perils normally covered by the Causes of Loss-Special Form. Said property insurance policy shall include endorsements for coverage against: (i) earthquake and flood (including, but not limited to, mud slide, flood hazard or fault area(s), as designated on any map prepared or issued for such purpose by any governmental authority); and (ii) increased costs of construction and demolition due to law and ordinance. The foregoing property coverage shall be provided in amounts sufficient to provide one hundred percent (100%) of the full replacement cost of all buildings (and building additions) and other improvements in the Center and in the demised premises and Tenant's store building (including any permanent improvements to the demised premises paid for by Tenant Reimbursement but excluding those items insured by Tenant as required under this Section 27).  If for any reason the Causes of Loss-Special Form is not customarily used in the insurance industry, then the property insurance policy then in effect shall at least provide coverage for the following perils: fire, lightning, windstorm and hail, explosion, smoke, aircraft and vehicles, riot and civil commotion, vandalism and malicious mischief, sprinkler leakage, sinkhole and collapse, volcanic action, earthquake or earth movement, and flood, and increased costs of construction and demolition due to law, ordinance and inflation.  Neither Tenant nor any of its affiliates or subtenants shall be liable to Landlord for any loss or damage (including loss of income), regardless of cause, resulting from fire, flood, act of G-d or other casualty.

(h)           Landlord's Commercial General Liability Insurance.  Commencing as of the Commencement Date, and thereafter throughout the term of this Lease, Landlord shall, at Landlord's sole cost and expense, provide and maintain or cause to be provided and maintained a commercial general liability policy, naming Landlord as an insured (and naming Tenant as an additional insured, said additional insured's coverage under Landlord's commercial general liability policy to be primary), protecting Landlord, the business operated by Landlord, and any additional insureds (including Tenant) against claims for bodily injury (including death) and property damage occurring upon, in or about the Center (other than the demised premises and those areas insured by other tenants at the Center), including Common Areas. Such insurance shall afford protection to the limits of not less than One Million Dollars ($1,000,000.00) per occurrence, Two Million Dollars ($2,000,000.00) annual aggregate, and Five Hundred Thousand Dollars ($500,000.00) with respect to property damage for fire legal liability. All liability policies shall be written on an occurrence form unless such form is no longer customarily used in the insurance industry.  Landlord may use commercially reasonable deductibles Landlord customarily carries in the conduct of its business; however, the amount of such deductibles which may be charged to Tenant pursuant to Section 12.09 below may not exceed $0.20 per square foot of gross leasable area of the demised premises in any lease year.

(i)            Landlord's Umbrella.  Commencing as of the Commencement Date, and thereafter throughout the term of this Lease, Landlord shall, at Landlord's sole cost and expense, provide and maintain or cause to be provided and maintained an umbrella liability insurance policy with a Ten Million Dollar ($10,000,000.00) minimum annual aggregate, which umbrella policy (or policies) shall list Landlord's commercial general liability policy required under this Section 27 and any other liability policy or policies carried by, or for the benefit of, Landlord as underlying policies.  Said umbrella liability policy shall also name Tenant as an additional insured (said additional insured's coverage under Landlord's umbrella liability policy to be primary).  All liability policies shall be written on an occurrence form unless such form is no longer customarily used in the insurance industry.

(j)            Tenant Indemnity.  Tenant shall indemnify Landlord,  Landlord's agents, employees, officers or directors, against all damages, claims and liabilities arising from any alleged products liability or from any accident or injury whatsoever caused to any person, firm or corporation during the demised term in the demised premises, unless such claim arises from a breach or default in the performance by Landlord of any covenant or agreement on its part to be performed under this Lease or, to the extent not required to be insured hereunder, the negligence of Landlord.  The indemnification herein provided shall include all reasonable costs, counsel fees, expenses and liabilities incurred in connection with any such claim or any action or proceeding brought thereon.

 
 
 

(k)           Landlord Indemnity.  Landlord shall indemnify Tenant, Tenant’s officers, directors, employees and agents against all damages, claims and liabilities arising from any accident or injury whatsoever caused to any person, firm or corporation during the demised term in the common areas of the Shopping Center, unless such claim arises from a breach or default in the performance by Tenant of any covenant or agreement on Tenant’s part to perform under this Lease or, to the extent not required to be insured hereunder, the negligence of Tenant.  The indemnification herein provided shall include all reasonable costs, counsel fees, expenses and liabilities incurred in connection with any such claim or any action or proceeding brought thereon.

SECTION 28.
REAL ESTATE TAXES

(a)           Tenant shall pay Tenant's Proportionate Share (as defined in Section 16(c) above) of any "real estate taxes" (defined in Section 28(b) below) imposed upon the retail portions of the Shopping Center that become due and payable during each lease year included within the period commencing with the commencement  date and ending with the expiration of the term of this Lease.  Tenant shall initially pay to landlord as additional rental, simultaneously with the payment of minimum rental called for under Section 5(a), the estimated monthly amount of Tenant's Proportionate Share of real estate taxes as set forth in Section 5(e) of Two and 50/100 Dollars ($2.50) per square foot, payable in equal monthly installments of Four Thousand Four Hundred Twenty-one and 46/100 Dollars ($4,421.46) as the estimated amount of Tenant's Proportionate Share of real estate taxes.  Within one hundred twenty (120) days after the end of each accounting year (which Landlord may change from time to time), Landlord shall provide Tenant with an annual reconciliation of real estate taxes and a statement of the actual amount of Tenant's Proportionate Share thereof. Any excess payments from Tenant shall be applied to the next installments of real estate taxes hereunder, or refunded by Landlord.  Any underpayments by Tenant shall be paid to Landlord within thirty (30) days after receipt of such reconciliation statement. Tenant's estimated monthly installment of real estate taxes payable hereunder may be adjusted by written notice from Landlord.

(b)           For the purpose of this Lease, the term "real estate taxes" shall include any special and general assessments, water and sewer rents and other governmental impositions imposed upon or against the Shopping Center of every kind and nature whatsoever, extraordinary as well as ordinary, foreseen and unforeseen and each and every installment thereof, which shall or may during the lease term be levied, assessed or imposed upon or against such Shopping Center and of all expenses, including reasonable attorneys' fees, administrative hearing and court costs incurred in contesting or negotiating the amount, assessment or rate of any such real estate taxes, minus any refund received by Landlord.

(c)           Notwithstanding any provision of this Lease to the contrary, Tenant shall not be obligated to pay for any assessment for special improvements heretofore installed or in the process of installation in connection with the initial development of the Shopping Center, and Landlord hereby agrees to pay for the same.

(d)           The real estate taxes for any lease year shall be the real estate taxes that become due and payable during such lease year.  If any lease year shall be greater than or less than twelve (12) months, or if the real estate tax year shall be changed, an appropriate adjustment shall be made.  If there shall be more than one taxing authority, the real estate taxes for any period shall be the sum of the real estate taxes for said period attributable to each taxing authority.  If, upon the assessment day for real estate taxes for any tax year fully or partly included within the term of this Lease, a portion of such assessment shall be attributable to buildings in the process of construction, a fair and reasonable adjustment shall be made to carry out the intent of this Section 28.

(e)           Upon request, Landlord shall submit to Tenant true copies of the real estate tax bill for each tax year or portion of a tax year included within the term of this Lease and shall bill Tenant for the amount to be paid by Tenant hereunder.  Said bill shall be accompanied by a computation of the amount payable by Tenant and such amount shall be paid by Tenant within thirty (30) days after receipt of said bill.

 
 
 

(f)            Should the State of Washington or any political subdivision thereof or any governmental authority having jurisdiction thereof, impose a tax and/or assessment (other than an income or franchise tax) upon or against the rentals payable hereunder, in lieu of or in addition to assessments levied or assessed against the demised premises, or Shopping Center, then such tax and/or assessment shall be deemed to constitute a tax on real estate for the purpose of this Section 28.

SECTION 29.
TENANT'S INSURANCE CONTRIBUTION

Tenant shall pay as additional rent, Tenant's Proportionate Share (as defined in Section 16(c) above) of the premiums for the insurance maintained by Landlord on all buildings and improvements, as well as liability insurance, for the Shopping Center, including the common areas, as set forth above in Section 16(b), for each lease year during the term of this Lease.  The premiums for the first and last lease years shall be prorated.  Tenant shall pay Tenant's Proportionate Share of such premiums annually upon demand for such payment by Landlord.  Tenant's Proportionate Share thereof shall be paid by Tenant within thirty (30) days after Landlord's demand therefore.  Tenant shall initially pay to Landlord as additional rental, simultaneously with the payment of minimum rental called for under Section 5(a), the estimated monthly amount of Tenant's Proportionate Share of such insurance premiums as set forth in Section 5(e), of Twenty-eight Cents ($0.28) per square foot, payable in equal monthly installments of Four Hundred Ninety-five and 20/100 Dollars ($495.20) as the estimated amount of Tenant's Proportionate Share of such insurance premiums.  Within one hundred twenty (120) days after the end of each accounting year (which Landlord may change from time to time), Landlord shall provide Tenant with a reconciliation of the premiums for the insurance maintained by Landlord hereunder and a statement of the actual amount of Tenant's Proportionate Share thereof. Any excess payments from Tenant shall be applied to the next installments of insurance premiums payable by Tenant hereunder, or refunded by Landlord.  Any underpayments by Tenant shall be paid to Landlord within thirty (30) days after receipt of such reconciliation statement. Tenant's monthly installment of insurance premiums payable hereunder may be adjusted by written notice from Landlord.

SECTION 30.
FIXTURES

Provided that Tenant shall repair any damage caused by removal of its property and provided that the Tenant is not in default under this Lease, Tenant shall have the right to remove from the demised premises all of its signs, shelving, electrical, and other fixtures and equipment, window reflectors and backgrounds and any and all other trade fixtures which it has installed in and upon the demised premises.

SECTION 31.
SURRENDER

The Tenant covenants and agrees to deliver up and surrender to the Landlord the physical possession of the demised premises upon the expiration of this Lease or its termination as herein provided in as good condition and repair as the same shall be at the commencement of the initial term, loss by fire and/or ordinary wear and tear excepted, and to deliver all of the keys to Landlord or Landlord's agents.

SECTION 32.
HOLDING OVER

There shall be no privilege of renewal hereunder (except as specifically set forth in this Lease) and any holding over after the expiration by the Tenant shall be from day to day on the same terms and conditions (with the exception of rental which shall be prorated on a daily basis at twice the daily rental rate of the most recent expired term) at Landlord's option; and no acceptance of rent by or act or statement whatsoever on the part of the Landlord or his duly authorized agent in the absence of a written contract signed by Landlord shall be construed as an extension of the term or as a consent for any further occupancy.

 
 
 

SECTION 33.
NOTICE

Whenever under this Lease provisions are made for notice of any kind to Landlord, it shall be deemed sufficient notice and sufficient service thereof if such notice to Landlord is in writing, addressed to Landlord at c/o Kimco Realty Corporation, 3333 New Hyde Park Road, Suite 100, New Hyde Park, N.Y. 11042, or at such address as Landlord may notify Tenant in writing, and deposited in the United States mail by certified mail, return receipt requested, with postage prepaid or Federal Express, Express Mail or such other expedited mail service as normally results in overnight delivery, with a copy of same sent in like manner to President, Real Estate, 1800 Moler Road, Columbus, Ohio 43207.  Notice to Tenant shall be sent in like manner to Tenant at 4150 East Fifth Avenue, Columbus, Ohio 43219, with copies of same sent to (i) General Counsel, 4150 East Fifth Avenue, Columbus, Ohio 43219 and (ii) Randall S. Arndt, Esq., Schottenstein Zox & Dunn, 250 West Street, Columbus, Ohio 43215.  All notices shall be effective upon receipt or refusal of receipt.  Either party may change the place for service of notice by notice to the other party.

SECTION 34.
DEFAULT

(a)            Elements of Default:  The occurrence of any one or more of the following events shall constitute a default of this Lease by Tenant:

1.             Tenant fails to pay any monthly installment of rent within ten (10) days after the same shall be due and payable, except for the first two (2) times in any consecutive twelve (12) month period, in which event Tenant shall have five (5) days after receipt of written notice of such failure to pay before such failure shall constitute a default;

2.            Tenant fails to perform or observe any term, condition, covenant or obligation required to be performed or observed by it under this Lease for a period of twenty (20) days after notice thereof from Landlord; provided, however, that if the term, condition, covenant or obligation to be performed by Tenant is of such nature that the same cannot reasonably be cured within twenty (20) days and if Tenant commences such performance or cure within said twenty (20) day period and thereafter diligently undertakes to complete the same, then such failure shall not be a default hereunder if it is cured within a reasonable time following Landlord's notice, but in no event later than forty-five (45) days after Landlord's notice.

3.             If Tenant refuses to take possession of the demised premises as required pursuant to this Lease or abandons the demised premises for a period of thirty (30) days or substantially ceases to operate its business or to carry on its normal activities in the demised premises as required pursuant to this Lease.

4.             A trustee or receiver is appointed to take possession of substantially all of Tenant's assets in, on or about the demised premises or of Tenant's interest in this Lease (and Tenant or any guarantor of Tenant's obligations under this Lease does not regain possession within sixty (60) days after such appointment); Tenant makes an assignment for the benefit of creditors; or substantially all of Tenant's assets in, on or about the demised premises or Tenant's interest in this Lease are attached or levied upon under execution (and Tenant does not discharge the same within sixty (60) days thereafter).

5.             A petition in bankruptcy, insolvency, or for reorganization or arrangement is filed by or against Tenant or any guarantor of Tenant's obligations under this Lease pursuant to any Federal or state statute, and, with respect to any such petition filed against it, Tenant or such guarantor fails to secure a stay or discharge thereof within sixty (60) days after the filing of the same.

(b)           Landlord's Remedies:  Upon the occurrence of any event of default, Landlord shall have the following rights and remedies, any one or more of which may be exercised without further notice to or demand upon Tenant:

1.             Landlord may re-enter the demised premises and cure any default of Tenant, in which event Tenant shall reimburse Landlord for any cost and expenses which Landlord may incur to cure such default; and Landlord shall not be liable to Tenant for any loss or damage which Tenant may sustain by reason of Landlord's action.

 
 
 

2.             Landlord may terminate this Lease or Tenant's right to possession under this Lease as of the date of such default, without terminating Tenant's obligation to pay rent due hereunder, in which event (A): neither Tenant nor any person claiming under or through Tenant shall thereafter be entitled to possession of the demised premises, and Tenant shall immediately thereafter surrender the demised premises to Landlord; (B) Landlord may re-enter the demised premises and dispose Tenant or any other occupants of the demised premises by force, summary proceedings, ejectment or otherwise, and may remove their effects, without prejudice to any other remedy which Landlord may have for possession or arrearages in rent; and (C) notwithstanding a termination of this Lease, Landlord may re-let all or any part of the demised premises for a term different from that which would otherwise have constituted the balance of the term of this Lease and for rent and on terms and conditions different from those contained herein, whereupon Tenant shall immediately be obligated to pay to Landlord as liquidated damages the difference between the rent provided for herein and that provided for in any lease covering a subsequent re-letting of the demised premises, for the period which would otherwise have constituted the balance of the term of this Lease, together with all of Landlord's costs and expenses for preparing the demised premises for re-letting, including all repairs, tenant finish improvements, broker's and attorney's fees, and all loss or damage which Landlord may sustain by reason of such termination, re-entry and re-letting, it being expressly understood and agreed that the liabilities and remedies specified herein shall survive the termination of this Lease.  Notwithstanding a termination of this Lease by Landlord, Tenant shall remain liable for payment of all rentals and other charges and costs imposed on Tenant herein, in the amounts, at the times and upon the conditions as herein provided.  Landlord shall credit against such liability of the Tenant all amounts received by Landlord from such re-letting after first reimbursing itself for all reasonable costs incurred in curing Tenant's defaults and re-entering, preparing and refinishing the demised premises for re-letting, and re-letting the demised premises.

3.             Upon termination of this Lease pursuant to Section 34(b)2, Landlord may recover possession of the demised premises under and by virtue of the provisions of the laws of the State of Washington, or by such other proceedings, including reentry and possession, as may be applicable.

4.             If the Tenant shall not remove all of Tenant's property from said demised premises as provided in this Lease, Landlord, at its option, may remove any or all of said property in any manner that Landlord shall choose and store same without liability for loss thereof, and Tenant will pay the Landlord, on demand, any and all reasonable expenses incurred in such removal and storage of said property for any length of time during which the same shall be in possession of Landlord or in storage, or Landlord may, upon thirty (30) days prior notice to Tenant,  sell any or all of said property in such manner and for such price as the Landlord may reasonably deem best and apply the proceeds of such sale upon any amounts due under this Lease from the Tenant to the Landlord, including the reasonable expenses of removal and sale.

5.             Any damage or loss of rent sustained by Landlord may be recovered by Landlord, at Landlord's option, at the time of the reletting, or in separate actions, from time to time, as said damage shall have been made more easily ascertainable by successive relettings, or at Landlord's option in a single proceeding deferred until the expiration of the term of this Lease (in which event Tenant hereby agrees that the cause of action shall not be deemed to have accrued until the date of expiration of said term) or in a single proceeding prior to either the time of reletting or the expiration of the term of this Lease.

6.             In the event of a breach by Tenant of any of the covenants or provisions hereof, Landlord shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as if reentry, summary proceedings, and other remedies were not provided for herein.  Mention in this Lease of any particular remedy shall not preclude Landlord from any other remedy, in law or in equity.  Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Tenant being evicted or dispossessed for any cause, or in the event of Landlord obtaining possession of the demised premises by reason of the violation by Tenant of any of the covenants and conditions of this Lease or other use.

7.             Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws, in the event of eviction or dispossession of Tenant by Landlord under any provision of this Lease.  No receipt of monies by Landlord from or for the account of Tenant or from anyone in possession or occupancy of the demised premises after the termination of this Lease or after the giving of any notice shall reinstate, continue or extend the term of this Lease or affect any notice given to the Tenant prior to the receipt of such money, it being agreed that after the service of notice or the commencement of a suit, or after final judgment for possession of said demised premises, the Landlord may receive and collect any rent or other amounts due Landlord and such payment shall not waive or affect said notice, said suit or said judgment.

 
 
 

(c)           Additional Remedies and Waivers:  The rights and remedies of Landlord set forth herein shall be in addition to any other right and remedy now or hereinafter provided by law and/or equity and all such rights and remedies shall be cumulative and shall not be deemed inconsistent with each other, and any two or more or all of said rights and remedies may be exercised at the same time or at different times and from time to time without waiver thereof of any right or remedy provided or reserved to Landlord.  No action or inaction by Landlord shall constitute a waiver of a default and no waiver of default shall be effective unless it is in writing, signed by the Landlord.

(d)           Default by Landlord.  Any failure by Landlord to observe or perform any provision, covenant or condition of this Lease to be observed or performed by Landlord, if such failure continues for thirty (30) days after written notice thereof from Tenant to Landlord, shall constitute a default by Landlord under this Lease, provided, however, that if the nature of such default is such that the same cannot reasonably be cured within a thirty (30) day period, Landlord shall not be deemed to be in default if it shall commence such cure within such thirty (30) day period and thereafter rectify and cure such default with due diligence.

(e)           Interest on Past Due Obligations:  All monetary amounts required to be paid by Tenant or Landlord hereunder which are not paid on or before the due date thereof shall, from and after such due date, bear interest at the Interest Rate, and shall be due and payable by such party without notice or demand.

(f)            Tenant’s Remedies.  In the event of default by the Landlord with respect to the demised premises, Tenant shall have the option to cure said default.  Landlord shall reimburse Tenant for the reasonable costs incurred by Tenant in curing such default within thirty (30) days after invoice thereof by Tenant, together with reasonable evidence supporting such invoiced amount. Tenant shall also have any and all rights available under the laws of the state in which the demised premises are situated; provided, however, that any right of offset available to Tenant shall be subject to the provisions of Section 36 below.

SECTION 35.
WAIVER OF SUBROGATION

Landlord and Tenant, and all parties claiming under each of them, mutually release and discharge each other from all claims and liabilities arising from or caused by any casualty or hazard covered or required hereunder to be covered in whole or in part by insurance coverage required to be maintained by the terms of this Lease on the demised premises or in connection with the Shopping Center or activities conducted with the demised premises, and waive any right of subrogation which might otherwise exist in or accrue to any person on account thereof.  All policies of insurance required to be maintained by the parties hereunder shall contain waiver of subrogation provisions so long as the same are available.

SECTION 36.
LIABILITY OF LANDLORD; EXCULPATION

(a)           Except with respect to any damages resulting from the gross negligence of Landlord, its agents, or employees, Landlord shall not be liable to Tenant, its agents, employees, or customers for any damages, losses, compensation, accidents, or claims whatsoever.  The foregoing notwithstanding, it is expressly understood and agreed that nothing in this Lease contained shall be construed as creating any liability whatsoever against Landlord personally, and in particular without limiting the generality of the foregoing, there shall be no personal liability to pay any indebtedness accruing hereunder or to perform any covenant, either express or implied, herein contained, or to keep, preserve or sequester any property of Landlord and that all personal liability of Landlord to the extent permitted by law, of every sort, if any, is hereby expressly waived by Tenant, and by every person now or hereafter claiming any right or security hereunder; and that so far as the parties hereto are concerned, the owner of any indebtedness or liability accruing hereunder shall look solely to the demised premises and the Shopping Center for the payment thereof.

 
 
 

(b)           If the Tenant obtains a money judgment against Landlord, any of its officers, directors, shareholders, partners, members or their successors or assigns under any provisions of or with respect to this Lease or on account of any matter, condition or circumstance arising out of the relationship of the parties under this Lease, Tenant's occupancy of the building or Landlord's ownership of the Shopping Center, Tenant shall be entitled to have execution upon any such final, unappealable judgment only upon Landlord's fee simple or leasehold estate in the Shopping Center (whichever is applicable) and not out of any other assets of Landlord, or any of its officers, directors, shareholders, members or partners, or their successor or assigns; and Landlord shall be entitled to have any such judgment so qualified as to constitute a lien only on said fee simple or leasehold estate.

Notwithstanding the above, Tenant shall have the right to offset any final, unappealable judgment against twenty five percent (25%) of all minimum rent and all percentage rental (but no other additional rent components) if not paid to Tenant by Landlord within thirty (30) days thereafter.

(c)           It is expressly agreed that nothing in this Lease shall be construed as creating any personal liability of any kind against the assets of any of the officers, directors, members, partners or shareholders of Tenant, or their successors and assigns.

SECTION 37.
RIGHTS CUMULATIVE

Unless expressly provided to the contrary in this Lease, each and every one of the rights, remedies and benefits provided by this Lease shall be cumulative and shall not be exclusive of any other of such rights, remedies and benefits or of any other rights, remedies and benefits allowed by law.

SECTION 38.
MITIGATION OF DAMAGES

Notwithstanding any of the terms and provisions herein contained to the contrary, Landlord and Tenant shall each have the duty and obligation to mitigate, in every reasonable manner, any and all damages that may or shall be caused or suffered by virtue of defaults under or violation of any of the terms and provisions of this Lease agreement committed by the other.

SECTION 39.
SIGNS

No signs shall be placed on the demised premises by Tenant except as shall comply with all applicable governmental codes, restrictions of record in accordance with Section 7 above, sign criteria established by Landlord for the Shopping Center, and with the prior written consent of Landlord (not to be unreasonably withheld) after sign drawings have been submitted to Landlord by Tenant.  Subject to the foregoing, Tenant shall have the right to install its prototypical signage and awnings on the front of the demised premises as described on Exhibit "G-1" attached hereto and made a part hereof.  Tenant acknowledges that it shall not be entitled to pylon signage at the Shopping Center on the commencement date of this Lease.  Landlord agrees however, to use commercially reasonable efforts to provide Tenant pylon sign representation at the Shopping Center and agrees that no tenant of the Shopping Center leasing the same or less square feet of leasable space as Tenant shall have representation on the existing pylon sign for the Shopping Center or any new pylon sign(s) erected for the Shopping Center unless Tenant shall also have representation on such sign(s) excluding any existing rights of tenants under existing leases as of the date hereof which would have a right to be on such pylon sign(s).  Notwithstanding the foregoing, in the event three (3) pylon and/or monument signs are erected for the Shopping Center with Tenant identification thereon, Landlord is not obligated to identify Tenant on any additional pylon and/or monument signs at the Shopping Center.

 
 
 

SECTION 40
. ENTIRE AGREEMENT

This Lease shall constitute the entire agreement of the parties hereto; all prior agreements between the parties, whether written or oral, are merged herein and shall be of no force and effect.  This Lease cannot be changed, modified, or discharged orally but only by an agreement in writing signed by the party against whom enforcement of the change, modification or discharge is sought.

SECTION 41.
LANDLORD'S LIEN – DELETED BY INTENTION

SECTION 42.
BINDING UPON SUCCESSORS

The covenants, conditions, and agreements made and entered into by the parties hereto shall be binding upon and inure to the benefit of their respective heirs, representatives, successor and assigns.

SECTION 43.
HAZARDOUS SUBSTANCES

(a)           During the term of this Lease, Tenant shall not suffer, allow, permit or cause the generation, accumulation, storage, possession, release or threat of release of any hazardous substance or toxic material, as those terms are used in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, and any regulations promulgated thereunder, or any other present or future federal, state or local laws, ordinances, rules, and regulations.  Tenant shall indemnify and hold Landlord harmless from any and all liabilities, penalties, demands, actions, costs and expenses (including without limitation reasonable attorney fees), remediation and response costs incurred or suffered by Landlord directly or indirectly arising due to the breach of Tenant's obligations set forth in this Section.  Such indemnification shall survive expiration or earlier termination of this Lease.  At the expiration or sooner termination hereof, Tenant shall return the demised premises to Landlord in substantially the same condition as existed on the date of commencement hereof free of any hazardous substances in, on or from the demised premises.

(b)           Landlord hereby represents and warrants that, except as set forth in that certain Phase I Environmental Site Assessment dated December 20, 2004 prepared by ADR Environmental Group, Inc., and that certain Subsurface Investigation Results Report dated January 7, 2005 prepared by ADR Environmental Group, Inc.: (i) it has not used, generated, discharged, released or stored any hazardous substances on, in or under the Shopping Center and has received no notice and has no knowledge of the presence in, on or under the Shopping Center of any such hazardous substances; (ii) to Landlord’s knowledge there have never been any underground storage tanks at the Shopping Center, whether owned by the Landlord or its predecessors in interest; (iii) to Landlord’s knowledge there have never been accumulated tires, spent batteries, mining spoil, debris or other solid waste (except for rubbish and containers for normal scheduled disposal in compliance with all applicable laws) in, on or under the Shopping Center; (iv) to Landlord's knowledge it has not spilled, discharged or leaked petroleum products other than de minimis quantities in connection with the operation of motor vehicles on the Shopping Center; (v) to Landlord's knowledge there has been no graining, filling or modification of wetlands (as defined by federal, state or local law, regulation or ordinance) at the Shopping Center; and (vi) to Landlord's knowledge there is no asbestos or asbestos-containing material in the demised premises.  The representations and warranties set forth in this subparagraph shall apply to any contiguous or adjacent property owed by the Landlord.  Landlord hereby indemnifies Tenant for any and all loss, cost, damage or expense to Tenant resulting from any misrepresentation or breach of the foregoing representations and warranties.

(c)           If any such hazardous substances are discovered at the Shopping Center (unless introduced by the Tenant, its agents or employees) or if any asbestos or asbestos containing material is discovered in the demised premises (unless introduced by the Tenant, its agents or employees), and removal, encapsulation or other remediation is required by applicable laws, the Landlord immediately and with all due diligence and at no expense to the Tenant shall take all measures necessary to comply with all applicable laws and to remove such hazardous substances or asbestos from the Shopping Center and/or encapsulate or remediate such hazardous substances or asbestos, which removal and/or encapsulation or remediation shall be in compliance with all environmental laws and regulations, and the Landlord shall repair and restore the Shopping Center at its expense.  From the date such encapsulation, remediation and restoration is complete, the rent due hereunder shall be reduced by the same percentage as the percentage of the demised premises which, in the Tenant’s reasonable judgment, cannot be safely, economically or practically used for the operation of the Tenant’s business.  Anything herein to the contrary notwithstanding, if in the Tenant’s reasonable judgment, such removal, encapsulation, remediation and restoration cannot be completed within one hundred eighty (180) days or the same is not actually completed by Landlord within such one hundred eighty (180) day period following the date such hazardous substances or asbestos are discovered and such condition materially adversely affects Tenant's ability to conduct normal business operations in the premises, then the Tenant may terminate this Lease by written notice to the Landlord within thirty (30) days after such 180 day period, which notice shall be effective on Landlord’s receipt thereof.  Landlord shall comply with OSHA 29 CFR 1910.1001 (j) to notify tenants, including Tenant, of asbestos related activities in the demised premises and the Shopping Center including, but not limited to, selection of the certified/licensed asbestos abatement contractor, scope of the abatement work, and final clearance testing procedures and results.

 
 
 

SECTION 44.
TRANSFER OF INTEREST

If Landlord should sell or otherwise transfer its interest in the demised premises, upon an undertaking by the purchaser or transferee to be responsible for all the covenants and undertakings of Landlord accruing subsequent to the date of such sale or transfer, Tenant agrees that Landlord shall thereafter have no liability to Tenant under this Lease or any modifications or amendments thereof, or extensions thereof, except for such liabilities which might have accrued prior to the date of such sale or transfer of its interest by Landlord.
 
SECTION 45.
ACCESS TO PREMISES

Landlord and its representatives shall have free access to the demised premises at all reasonable times for the purpose of:  (a) examining the same or to make any alterations or repairs to the demised premises that Landlord may deem necessary for its safety or preservation; (b) exhibiting the demised premises for sale or mortgage financing; (c) during the last three (3) months of the term of this Lease, for the purpose of exhibiting the demised premises and putting up the usual notice "for rent" which notice shall not be removed, obliterated or hidden by Tenant, provided, however, that any such action by Landlord shall cause as little inconvenience as reasonably practicable and such action shall not be deemed an eviction or disturbance of Tenant nor shall Tenant be allowed any abatement of rent, or damages for an injury or inconvenience occasioned thereby.

SECTION 46.
HEADINGS

The headings are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope or intent of this Lease.

SECTION 47.
NON-WAIVER

No payment by Tenant or receipt by Landlord or its agents of a lesser amount than the rent in this Lease stipulated shall be deemed to be other than on account of the stipulated rent nor shall an endorsement or statement on any check or any letter accompanying any check or payment of rent be deemed an accord and satisfaction and Landlord or its agents may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy in this Lease provided.

SECTION 48.
SHORT FORM LEASE

This Lease shall not be recorded, but a short form lease, which describes the property herein demised, gives the term of this Lease and refers to this Lease, shall be executed by the parties hereto, upon demand of either party and such short form lease may be recorded by Landlord or Tenant at any time either deems it appropriate to do so.  The cost and recording of such short form lease shall belong to the requesting party.

 
 
 

SECTION 49.
ESTOPPEL CERTIFICATE

Each party agrees that at any time and from time to time on ten (10) days prior written request by the other, it will execute, acknowledge and deliver to the requesting party a statement in writing stating that this Lease is unmodified and in full force and effect (or, if there have been modifications, stating the modifications, and that the Lease as so modified is in full force and effect, and the dates to which the rent and other charges hereunder have been paid, and such other information as may reasonably re requested, it being intended that any such statements delivered pursuant to this Section may be relied upon by any current or prospective purchaser of or any prospective holder of a mortgage or a deed of trust upon or any interest in the fee or any leasehold or by the mortgagee, beneficiary or grantee of any security or interest, or any assignee of any thereof or under any mortgage, deed of trust or conveyance for security purposes now or hereafter done or made with respect to the fee of or any leasehold interest in  the demised premises
 
SECTION 50.
TENANT'S REIMBURSEMENT

(a)           Landlord shall pay Tenant Three Hundred Thousand Dollars ($300,000.00) (the "Tenant Reimbursement"), as payment for all costs incurred on behalf of Tenant for the purchase, erection, and installation of Tenant Improvements on or within the demised premises.  "Tenant Improvements" shall consist of the work described in the attached Exhibit "G-2" .  The Tenant Reimbursement shall be paid by Landlord to Tenant within ten (10) days of the later of (i) Tenant opening for business in the demised premises and (ii) Tenant providing to Landlord a lien waiver from Tenant's general contractor.  In the event Landlord does not timely pay the Tenant Reimbursement to Tenant, (a) Landlord shall pay to Tenant interest on such unpaid amounts at the Interest Rate and (b) Tenant shall have the right to deduct any and all such amounts owed Tenant against payments of Rent thereafter due Landlord until such time as Tenant has been credited the full amount of the Tenant Reimbursement plus applicable interest.

(b)           Notwithstanding anything to the contrary contained in this Lease, the Tenant Improvements shall, at all times during the term of this Lease and upon the expiration or earlier termination of this Lease, be the property of Landlord.  Tenant shall not acquire any interest, equitable or otherwise, in any Tenant Improvement.

SECTION 51.
TENANT’S TERMINATION RIGHT:

In the event (x) that Tenant's gross sales (as defined in Section 6 of this Lease) shall be less than Eight Million Five Hundred Thousand Dollars ($8,500,000.00) in either of the eighth (8th) or ninth (9th) lease years of the initial term hereof, and (y) Tenant was open and operating for business for the Permitted Use during the Shopping Center’s standard business days and hours during the eighth (8 th ) and ninth (9 th ) lease years (unless Tenant was not open and operating on account of casualty or condemnation), Tenant shall have the right, at Tenant's sole election, provided that Tenant is not then in default of the terms of this Lease beyond any applicable notice and cure periods, on or before the date (the “Last Termination Notice Date”) which is thirty (30) days after the end of the ninth (9th) lease year, to send to Landlord a notice terminating this Lease as of the last day of the tenth (10th) lease year (the "Tenant's Termination Date").  In the event that Tenant shall so terminate this Lease in accordance with the provisions of this Section 51, then the term of this Lease shall terminate and expire on Tenant’s Termination Date with the same force and effect as though said date was the scheduled expiration date of the term under this Lease.  Notwithstanding the giving of such termination notice and Tenant’s exercise of its termination right under this Section 51, Tenant shall perform and observe all of Tenant’s obligations under this Lease through and including the Tenant’s Termination Date and Tenant shall pay to Landlord, on or before the Tenant's Termination Date, the sum of One Hundred Thousand Dollars ($100,000.00).  In the event Tenant exercises the termination right provided for in this Section 51, Landlord shall have the right, upon ten (10) days prior written notice, at Tenant's corporate headquarters, to examine Tenant's books and records relating to gross sales at the demised premises, provided such right shall expire sixty (60) days after Tenant notifies Landlord of Tenant's exercise of Tenant's election to terminate the Lease pursuant to the provisions of this Section 51.

 
 
 

SECTION 52.
NO BROKER

Landlord and Tenant each represent to the other that they have not entered into any agreement or incurred any obligation in connection with this transaction which might result in the obligation to pay a brokerage commission to any broker.  Each party shall indemnify and hold the other party harmless from and against any claim or demand by any broker or other person for bringing about this Lease who claims to have dealt with such indemnifying party, including all expenses incurred in defending any such claim or demand (including reasonable attorney's fees).

SECTION 53.
UNAVOIDABLE DELAYS

In the event either party hereto (the "Delayed Party") shall be delayed or hindered in or prevented from the performance of any act required under this Lease by reason of strikes, lockouts, labor troubles, inability to procure materials, failure of power, the unforeseen application of restrictive governmental laws or regulations, riots, insurrection, war, acts of terrorism or other reason of a like nature not the fault of the Delayed Party in performing work or doing acts required under the terms of this Lease, then performance of such act shall be excused for the period of the delay, and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay, provided that the Delayed Party notified the other party within fifteen (15) days of the Delayed Party being informed of the occurrence of the event causing such delay.  The provisions of this Section 53 shall not operate to excuse either party from the payment of any rental or other monetary sums due under the terms of this Lease.

SECTION 54.
TIMELY EXECUTION OF LEASE

Landlord and Tenant agree that this Lease, and the parties' obligations hereunder, shall automatically be null and void and this Lease shall terminate automatically without further action of the parties if both parties do not execute this Lease and both parties have not received an original thereof within sixty (60) days after the date of execution hereof by the first party to execute this Lease.

SECTION 55.
ACCORD AND SATISFACTION

No payment by Tenant or receipt by Landlord of a lesser amount than the entire rent and all other additional rents and charges hereunder shall be deemed to be other than payment on account of the earliest stipulated rent and other additional rents and charges hereunder, nor shall any endorsement or statement on any check or any letter accompanying any check or payment for rent or other additional rent and charges be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent and other additional rents and charges or  pursue any other right or remedy available to the Landlord.

SECTION 56.
WAIVER OF JURY TRIAL

The Landlord, Tenant any Guarantor(s) do hereby knowingly, voluntarily and intentionally waive the right to a trial by jury of any and all issues either now or hereinafter provided by law in any action or proceeding between the parties hereto, or their successors, arising directly or indirectly out of or in any way connected with this Lease or any of its provisions, the Tenant's use or occupancy of said premises and/or any claim for personal injury or property damage including, without limitation, any action to rescind or cancel this Lease, and any claim or defense asserting that this Lease was fraudulently induced or is otherwise void or voidable.  It is intended that said waiver shall apply to any and all defenses, rights and/or counterclaims in any action or proceeding at law or in equity.  This waiver is a material inducement for Landlord and Tenant to enter into this Lease.

SECTION 57.
LEASEHOLD FINANCING

(a)           Tenant's Financing Rights.  Landlord acknowledges and agrees that Tenant may from time to time during the term, without the consent of Landlord, mortgage or otherwise finance and encumber, whether by leasehold deed of trust or mortgage, collateral assignment of this Lease, lease/sublease-back, and/or assignment/leaseback, any and/or all of its leasehold estate hereunder, and property and rights in and to the demised premises granted to it under this Lease, as security for the payment of an indebtedness (any and all of which are herein referred to as a "Leasehold Mortgage" and the holder thereof is herein referred to as "Leasehold Mortgagee").  Any such Leasehold Mortgage shall be a lien only upon Tenant's leasehold estate hereunder and Tenant's interests in this Lease. Leasehold Mortgagee or its assigns may enforce such Leasehold Mortgage and acquire title to the leasehold estate and Tenant's interest in the demised premises in any lawful way, and in connection therewith Leasehold Mortgagee may take possession of and rent the demised premises.

 
 
 

(b)           Cooperation with Leasehold Mortgagee. Tenant shall notify Landlord (and any Fee Mortgagee, as hereinafter defined in Section 57(c)   below), in the manner hereinafter provided for the giving of notice, of the execution of such Leasehold Mortgage and the name and place for service of notice upon Leasehold Mortgagee.  Upon such notification of Landlord that Tenant has entered into a Leasehold Mortgage, Landlord hereby agrees for the benefit of such Leasehold Mortgagee, and upon written request by Tenant, to execute and deliver to Tenant and Leasehold Mortgagee a commercially reasonable “Landlord’s Agreement” whereby Landlord agrees to recognize the interest of Leasehold Mortgagee thereunder.  In addition, Landlord does hereby waive any statutory lien of Landlord in Tenant’s present and after-acquired assets, including among other things, Tenant’s inventory and equipment.  To evidence such waiver for the benefit of a lender of Tenant, Landlord agrees to execute and deliver to Tenant and such lender a commercially reasonable “Landlord’s Waiver” whereby Landlord agrees to waive any lien on Tenant’s assets including its inventory and equipment.


[SIGNATURES ON THE FOLLOWING PAGE]

 
 
 

IN WITNESS WHEREOF, the parties hereto have executed this Lease the day and year first above written.
 
Signed and Acknowledged in the presence of:      
  LANDLORD:
       
     
KIMSCHOTT FACTORIA MALL L.L.C.,
     
a Delaware limited liability company
         
     
By:
Kimco Factoria 1188, Inc.,
       
a Delaware corporation,
     
Its:
Member
         
         
     
By:
/s/Michael J. Flynn
/s/ Betty Ann Lopinto
 
Name:
Michael J. Flynn
Print Name:
Betty Ann Lopinto
 
Title:
President
/s/ Christine Boecklin
     
Print Name:
Christine Boecklin
     
 
     
TENANT:
     
DSW INC.,
     
an Ohio corporation
   
   
         
         
/s/Jeffrey P. Meena
 
By:
/s/William Jordan
Print Name:
Jeffrey P. Meena
 
Name:
William Jordan
/s/Melinda Holmes
 
Its:
VP & General Counsel
Print Name:
Melinda Holmes
     

 
STANDARD EXECUTIVE EMPLOYMENT AGREEMENT
 
BETWEEN
 
DSW INC.
 
AND
 
CARRIE MCDERMOTT
 
This Standard Executive Employment Agreement (“Agreement”) by and between DSW Inc. (“Company”) and Carrie McDermott (“Executive”), collectively, the “Parties,” is effective as of the date signed (“Effective Date”) and supercedes and replaces any other oral or written employment-related agreement between the Executive and the Company.
 
1.00           Duration
 
This Agreement will remain in effect from the Effective Date until it terminates as provided in Section 5.00.  Any notice of termination required to be given under this Agreement must be given as provided in Section 6.00 and will be effective on the date prescribed in Section 5.00.
 
2.00           Executive’s Employment Function
 
2.01             Position .  The Executive agrees to serve as the Company’s Senior Vice President, Stores with the authority and duties customarily associated with this position and to discharge any other duties and responsibilities assigned by the Executive Vice President and Chief Operating Officer.  The Executive will report directly to and be subject to the supervision, advice and direction of the Executive Vice President and Chief Operating Officer, or his/her designate.  The Executive agrees at all times to observe and be bound by all Company rules, policies, practices, procedures and resolutions that generally apply to Company employees of comparable status and which do not conflict with the specific terms of this Agreement.
 
2.02             Place of Performance .  The Executive’s duties will principally be performed in Columbus, Ohio, except for required travel on the Company’s business, unless the Executive Vice President and Chief Operating Officer requires the Executive to perform duties at another location.
 
3.00           Compensation
 
The Company will pay the Executive the amounts described in Section 3.00 as compensation for the services described in this Agreement and in exchange for the duties and responsibilities described in Section 4.00.
 
3.01             Base Salary .  The Company will pay to the Executive an annualized base salary of $381,000, which may be adjusted at the Company’s discretion (“Base Salary”).  The Executive’s Base Salary will be paid in installments that correspond with the Company’s normal payroll practices.
 
 
 
 

3.02             Cash Incentive Bonus .
 
[1]            The Executive will be eligible to receive a Cash Incentive Bonus under the terms of the DSW Inc. Incentive Compensation Plan (“Incentive Plan”), as modified by the Company.  The Company intends to provide the Executive with a cash bonus of 40 percent of Base Salary based on the Executive’s achievement of the incentive goals established by the Company.  Subsequent annual cash bonuses will be based, in the Company’s discretion, on Incentive Goals and percentages of Base Salary determined under the Incentive Plan that is then in effect.
 
[2]             Payment of Cash Bonus.   Any Cash Incentive Bonus will be payable, in cash, consistent with the Company’s normal bonus payment policy.
 
3.03             Equity Incentives.   Subject to the Company’s discretion, the Executive will be eligible to receive discretionary grants of stock options and restricted stock units.
 
3.04             Benefit Plans .  Subject to their terms, the Executive may participate in any Company sponsored employee pension or welfare benefit plan at a level commensurate with the Executive’s title and position.
 
3.05             Vacations .  Subject to the terms of the Company’s vacation policy, the Executive is entitled to four weeks of vacation each calendar year to be taken during periods approved by the Executive Vice President and Chief Operating Officer.
 
3.06             Expenses .  The Executive is entitled to receive prompt reimbursement for all normal and reasonable expenses incurred while performing services under this Agreement, including all reasonable travel expenses.  Reimbursement for these expenses will be made as soon as administratively feasible after the date the Executive submits appropriate evidence of the expenditure and otherwise complies with the Company’s business expense reimbursement policy.  Reimbursement of expenses in one year will not affect the amount of expenses that may be reimbursed in a later year.
 
3.07             Termination Benefits .  The Company also will provide the Executive with the termination benefits described in Section 5.00.
 
4.00           Executive’s Obligations
 
The amounts described in Sections 3.00 and 5.00 are provided by the Company in exchange for (and have a value to the Company equivalent to) the Executive’s performance of the obligations described in this Agreement, including performance of the duties and the covenants and releases made and entered into by and between the Executive and the Company in this Agreement.
 
4.01             Scope of Duties .  The Executive will:
 
 
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[1]            Devote all available business time, best efforts and undivided attention to the Company’s business and affairs; and
 
[2]            Not engage in any other business activity, whether or not for gain, profit or other pecuniary benefit.
 
[3]            However, the restriction described in Section 4.01[1] and [2] will not preclude the Executive from:
 
[a]            Making or holding passive investments in outstanding shares in the securities of publicly-owned companies or other businesses [other than organizations described in Section 4.05], regardless of when and how that investment was made; or
 
[b]            Serving on corporate, civic, religious, educational and/or charitable boards or committees but only if this activity [i] does not interfere with the performance of duties under this Agreement and [ii] is approved by the Executive Vice President and Chief Operating Officer.
 
4.02             Confidential Information .
 
[1]             Obligation to Protect Confidential Information.   The Executive acknowledges that the Company and its subsidiaries, parent corporation and affiliated entities (collectively, “Group” and separately, “Group Member”) have a legitimate and continuing proprietary interest in the protection of Confidential Information (as defined in Section 4.02[2]) and have invested, and will continue to invest, substantial sums of money to develop, maintain and protect Confidential Information.  The Executive agrees [a] during and after employment with all Group Members [i] that any Confidential Information will be held in confidence and treated as proprietary to the Group, [ii] not to use or disclose any Confidential Information except to promote and advance the Group’s business interests and [b] immediately upon separation from employment with all Group Members, to return to the Company any Confidential Information.
 
[2]             Definition of Confidential Information.   For purposes of this Agreement, Confidential Information includes any confidential data, figures, projections, estimates, pricing data, customer lists, buying manuals or procedures, distribution manuals or procedures, other policy and procedure manuals or handbooks, supplier information, tax records, personnel histories and records, information regarding sales, information regarding properties and any other Confidential Information regarding the business, operations, properties or personnel of the Group (or any Group Member) which are disclosed to or learned by the Executive as a result of employment with any Group Member, but will not include [a] the Executive’s personal personnel records or [b] any information that [i] the Executive possessed before the date of initial employment (including periods before the Effective Date) with any Group Member that was a matter of public knowledge, [ii] became or becomes a matter of public knowledge through sources independent of the Executive, [iii] has been or is disclosed by any Group Member without restriction on its use or [iv] has been or is required to be disclosed by law or governmental order or regulation.  The Executive also agrees that, if there is any reasonable doubt whether an item is public knowledge, to not regard the item as public knowledge until and unless the Senior Vice President of Human Resources confirms to the Executive that the information is public knowledge or an arbitrator, acting under Section 9.00, finally decides that the information is public knowledge.
 
 
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[3]             Intellectual Property.   The Executive expressly acknowledges that all right, title and interest to all inventions, designs, discoveries, works of authorship, and ideas conceived, produced, created, discovered, authored, or reduced to practice during the Executive’s performance of services under this Agreement, whether individually or jointly with any Group Member (the “Intellectual Property”) shall be owned solely by the Group, and shall be subject to the restrictions set forth in Section 4.02[1] above.  All Intellectual Property which constitutes copyrightable subject matter under the copyright laws of the United States shall, from the inception of creation, be deemed to be a "work made for hire" under the United States copyright laws and all right, title and interest in and to such copyrightable works shall vest in the Group.  All right, title and interest in and to all Intellectual Property developed or produced under this Agreement by the Executive, whether constituting patentable subject matter or copyrightable subject matter (to the extent deemed not to be a "work made for hire") or otherwise, shall be assigned and is hereby irrevocably assigned to the Group by the Executive.  The Executive shall, without any additional consideration, execute all documents and take all other actions needed to convey the Executive’s complete ownership interest in any Intellectual Property to the Group so that the Group may own and protect such Intellectual Property and obtain patent, copyright and trademark registrations for it.  The Executive agrees that any Group Member may alter or modify the Intellectual Property at the Group Member’s sole discretion, and the Executive waives all right to claim or disclaim authorship.
 
4.03             Solicitation of Employees .  The Executive agrees that during employment, and for the longer of any period of salary continuation or for two years after terminating employment with all Group Members [1] not, directly or indirectly, to solicit any employee of any Group Member to leave employment with the Group, [2] not, directly or indirectly, to employ or seek to employ any employee of any Group Member and [3] not to cause or induce any of the Group’s (or Group Member’s) competitors to solicit or employ any employee of any Group Member.
 
4.04             Solicitation of Third Parties .  The Executive agrees that during employment, and for the longer of any period of salary continuation or for two years after terminating employment with all Group Members not, directly or indirectly, to recruit, solicit or otherwise induce or influence any customer, supplier, sales representative, lender, lessor, lessee or any other person having a business relationship with the Group (or any Group Member) to discontinue or reduce the extent of that relationship except in the course of discharging the duties described in this Agreement and with the good faith objective of advancing the Group’s (or any Group Member’s) business interests.
 
4.05             Non-Competition .  The Executive agrees that for the longer of any period of salary continuation or for one year after terminating employment with all Group Members not, directly or indirectly, to accept employment with, act as a consultant to, or otherwise perform services that are substantially the same or similar to those for which the Executive was compensated by any Group Member (this comparison will be based on job-related functions and responsibilities and not on job title) for any business that directly competes with the Group’s (or any Group Member’s) business, which is understood by the Parties to be the sale of significant branded or discount and off-price shoes and accessories at department stores, specialty retail stores or home shopping network clubs.  Illustrations of businesses that compete with the Group’s business include, but are not limited to, The TJX Companies, Inc. (T.J. Maxx; Marshall’s; The Maxx; Marmaxx), Shoe Carnival; MJM Designer Shoes; The Shoe Dept; Payless ShoeSource; Off-Broadway Shoes; Famous Footwear; Footstar; Nordstrom’s (Non-apparel).  This restriction applies to any parent, division, affiliate, newly formed or purchased business(es) and/or successor of a business that competes with the Group’s (or any Group Member’s) business.
 
 
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4.06             Post-Termination Cooperation .  As is required of the Executive during employment, the Executive agrees that during and after employment with any Group Members and without additional compensation (other than reimbursement for reasonable associated expenses), to cooperate with the Group (and with each Group Member) in the following areas:
 
[1]             Cooperation With the Company .  The Executive agrees [a] to be reasonably available to answer questions for the Group’s (and any Group Member’s) officers regarding any matter, project, initiative or effort for which the Executive was responsible while employed by any Group Member and [b] to cooperate with the Group (and with each Group Member) during the course of all third-party proceedings arising out of the Group’s (and any Group Member’s) business about which the Executive has knowledge or information.  For purposes of this Agreement, [c] “proceedings” includes internal investigations, administrative investigations or proceedings and lawsuits (including pre-trial discovery and trial testimony) and [d] “cooperation” includes [i] the Executive’s being reasonably available for interviews, meetings, depositions, hearings and/or trials without the need for subpoena or assurances by the Group (or any Group Member), [ii] providing any and all documents in the Executive’s possession that relate to the proceeding, and [iii] providing assistance in locating any and all relevant notes and/or documents.
 
[2]             Cooperation With Third Parties .  Unless compelled to do so by lawfully-served subpoena or court order, the Executive agrees not to communicate with, or give statements or testimony to, any opposing attorney, opposing attorney’s representative (including private investigator) or current or former employee relating to any matter (including pending or threatened lawsuits or administrative investigations) about which the Executive has knowledge or information (other than knowledge or information that is not Confidential Information as defined in Section 4.02[2]) as a result of employment with the Group (or any Group Member) except in cooperation with the Company.  The Executive also agrees to notify the Senior Vice President of Human Resources immediately after being contacted by a third party or receiving a subpoena or court order to appear and testify with respect to any matter affected by this section.
 
[3]             Cooperation With Media .  The Executive agrees not to communicate with, or give statements to, any member of the media (including print, television or radio media) relating to any matter (including pending or threatened lawsuits or administrative investigations) about which the Executive has knowledge or information (other than knowledge or information that is not Confidential Information as defined in Section 4.02[2]) as a result of employment with the Group (or any Group Member).  The Executive also agrees to notify the Senior Vice President of Human Resources immediately after being contacted by any member of the media with respect to any matter affected by this section.
 
 
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4.07             Non-Disparagement .  The Executive and the Company (on its behalf and on behalf of the Group and each Group Member) agree that neither will make any disparaging remarks about the other and the Executive will not make any disparaging remarks about the Company’s Chairman, Chief Executive Officer or any of the Group’s senior executives.  However, this section will not preclude [1] any remarks that may be made by the Executive under the terms of Section 4.06[2] or that are required to discharge the duties described in this Agreement or [2] the Company from making (or eliciting from any person) disparaging remarks about the Executive concerning any conduct that may lead to a termination for Cause, as defined in Section 5.04[5] (including initiating an inquiry or investigation that may result in a termination for Cause), but only to the extent reasonably necessary to investigate the Executive’s conduct and to protect the Group’s (or any Group Member’s) interests.
 
4.08             Notice of Subsequent Employment.   The Executive agrees to immediately notify the Company of any subsequent employment during the period of salary continuation after employment terminates.
 
4.09             Nondisclosure.   The Executive agrees not to disclose the terms of this Agreement in any manner to any person other than the Executive Vice President and Chief Operating Officer, one of the Company’s Vice Presidents of Human Resources (or any Company representative they expressly approve for such disclosure), the Executive’s personal attorney, accountant and financial advisor, and the Executive’s immediate family or as otherwise required by law.
 
4.10             Remedies .  The Executive acknowledges that money will not adequately compensate the Group for the substantial damages that will arise upon the breach of any provision of Section 4.00.  For this reason, any disputes arising under Section 4.00 will not be subject to arbitration under Section 9.00.  Instead, if the Executive breaches or threatens to breach any provision of Section 4.00, the Company will be entitled, in addition to other rights and remedies, to specific performance, injunctive relief and other equitable relief to prevent or restrain any breach or threatened breach of Section 4.00.
 
4.11             Return of Company Property.   Upon termination of employment, the Executive agrees to promptly return to the Company all property belonging to the Group or any Group Member.
 
5.00           Termination and Related Benefits
 
This Agreement will terminate upon the occurrence of any of the events described in this section.
 
5.01             Rules of General Application .  The following rules apply generally to the implementation of Section 5.00:
 
[1]             Method of Payment.   If the amount of any installment payments is or becomes less than or equal to the applicable dollar amount under Section 402(g)(1)(B) of the Internal Revenue Code of 1986, the Company may elect to pay such remaining installments as a lump sum.
 
 
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[2]             Application of Pro Rata .  Any pro rata share required to be paid under Section 5.00 will be based on the number of days between the first day of the fiscal year during which the Executive terminates employment and the date that the Executive terminates employment divided by the number of days in the fiscal year during which the Executive terminates employment.
 
5.02             Termination Due to Executive’s Death .  This Agreement will terminate automatically on the date the Executive dies.  As of that date, and subject to Section 5.04[6], the Company will make the following payments to the person the Executive designates on the attached Beneficiary designation form or, with respect to any equity incentives, the beneficiary the Executive designates under the Equity Incentive Plan (“Beneficiary”):
 
[1]             Base Salary .  The unpaid Base Salary the Executive earned to the date of termination.
 
[2]             Cash Incentive Bonus .  The pro rata share of any Cash Incentive Bonus that would have been paid to the Executive had the Executive not died based on the extent to which performance standards are met on the last day of the year in which the Executive dies.
 
[3]             Equity Incentives .  Subject to the terms of any applicable award agreement, the Executive’s Beneficiary may exercise any outstanding stock options that are then vested upon the Executive’s death (including any options that become vested as a result of the Executive’s death) for a period ending on the earlier of [a] the normal expiration date of the award or [b] one year after the Executive’s death.

[4]             Other .  Any rights accruing to the Executive under any employee benefit plan, fund or program maintained by any Group Member will be distributed or made available as required by the terms of the plan fund or program or as required by law.
 
5.03             Termination Due to Executive’s Disability .  The Company may terminate this Agreement after ascertaining that the Executive is Disabled (as defined below - “Disability”) by delivering to the Executive a written notice of termination for Disability that includes the date termination for Disability is to be effective.  Subject to Section 5.04[6], if that notice is given and if all requirements of this Agreement are met (including those imposed under Section 7.00), the Company will make the following payments to the Executive:
 
[1]             Base Salary .  The unpaid Base Salary the Executive earned to the date of termination.
 
[2]             Cash Incentive Bonus .  The pro rata share of any Cash Incentive Bonus that would have been paid to the Executive had the Executive not become Disabled based on the extent to which performance standards are met on the last day of the year in which the Executive becomes Disabled.
 
 
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[3]             Equity Incentives .  Subject to the terms of any applicable award agreement, the Executive may exercise any outstanding stock options that are then vested upon the Executive’s termination because of Disability (including any options that become vested as a result of the Executive’s termination because of Disability), as such term is defined in the Equity Incentive Plan, for a period ending on the earlier of [a] the normal expiration date of the award or [b] one year after the Executive terminates because of Disability.
 
[4]             Other .  Any rights accruing to the Executive under any employee benefit plan, fund or program maintained by any Group Member will be distributed or made available as required by the terms of the plan fund or program or as required by law.
 
[5]             Definition of Disability.   For these purposes, Disability means that, for more than six consecutive months, the Executive is unable, with a reasonable accommodation, to perform the duties described in Section 4.01 on a full-time basis due to a physical or mental disability or infirmity.
 
5.04             Termination for Cause .  The Company may terminate the Executive’s employment for Cause (as defined below - “Cause”) by delivering to the Executive a written notice describing the basis for this termination and the date the termination for Cause is to be effective.  If the Executive is terminated for Cause and if all requirements of this Agreement are met (including those imposed under Section 7.00), the Company will make the following payments to the Executive:
 
[1]             Base Salary .  The unpaid Base Salary the Executive earned to the date of termination.
 
[2]             Cash Incentive Bonus .  Any unpaid Cash Incentive Bonus earned for the fiscal year that ends before the fiscal year during which the Executive is terminated for Cause (but no Cash Incentive Bonus will be given with respect to the fiscal year during which the Executive is terminated for Cause).
 
[3]             Equity Incentives .  The Executive’s entitlement to any benefits will be limited to those specifically described in the Equity Incentive Plan and any applicable award agreements.
 
[4]             Other .  Any rights accruing to the Executive under any employee benefit plan, fund or program maintained by any Group Member will be distributed or made available as required by the terms of the plan fund or program or as required by law.
 
[5]             Definition of Cause.   For these purposes, Cause means the Executive’s [a] breach of Section 4.00 of this Agreement; [b] willful, illegal or grossly negligent conduct that is materially injurious to the Company or any Group Member monetarily or otherwise; [c] violation of laws or regulations governing the Company or to any Group Member; [d] breach of any fiduciary duty owed to the Company or any Group Member; [e] misrepresentation or dishonesty which the Company determines has had or is likely to have a material adverse effect upon the Company’s or any Group Member’s operations or financial condition; [f] involvement in any act of moral turpitude that has an injurious effect on the Company (or any Group Member) or its reputation; or [g] breach of the terms of any non-solicitation or confidentiality clauses contained in an Standard Executive Employment Agreement(s) with a former employer.  The Company’s dissatisfaction with the Executive’s performance, or the business results achieved, shall not, in and of itself, constitute Cause under this Section.
 
 
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[6]             Subsequent Information .  The terms of Section 5.04 will apply if, after the Executive terminates under any other provision of Section 5.00, the Company learns of an event that, had it been known before the Executive terminated employment, would have justified a termination for Cause.  In this case, the Company will be entitled to recover (and the Executive agrees to repay) any amounts (other than legally protected benefits) that the Executive received under any other provision of Section 5.00 reduced by the amount the Executive is entitled to receive under Section 5.04.
 
5.05             Voluntary Termination by Executive .  The Executive may voluntarily terminate employment with the Company at any time by delivering to the Company a written notice specifying the date termination is to be effective, in which case the Company will make the following payments to the Executive if all requirements of this Agreement are met:
 
 [1]             Base Salary .  The unpaid Base Salary the Executive earned to the date of termination.
 
[2]             Cash Incentive Bonus .  Any unpaid Cash Incentive Bonus earned for the fiscal year that ends before the fiscal year during which the Executive voluntarily terminates (but no Cash Incentive Bonus will be given with respect to the fiscal year during which the Executive voluntarily terminates).
 
[3]             Equity Incentives .  The Executive’s entitlement to any benefits will be limited to those specifically described in the Equity Incentive Plan and any applicable award agreements.
 
[4]             Other .  Any rights accruing to the Executive under any employee benefit plan, fund or program maintained by any Group Member will be distributed or made available as required by the terms of the plan fund or program or as required by law.
 
5.06             Involuntary Termination Without Cause .  The Company may terminate the Executive’s employment at any time Without Cause (as defined below) by delivering to the Executive a written notice specifying the date termination is to be effective.  Subject to Section 5.04[6] and Section 10.09, if this notice is given and if all requirements of this Agreement are met (including those imposed under Section 7.00), the Company will make the following payments to the Executive as of the effective date of Involuntary Termination Without Cause:
 
[1]             Base Salary.   For 12 months beginning on the date of Involuntary Termination Without Cause, the Company will continue to pay the Executive’s Base Salary at the rate in effect on the effective date of Involuntary Termination Without Cause.   If such amount exceeds two times the annual compensation limit prescribed by Section 401(a)(17) of the Internal Revenue Code of 1986 (the “Involuntary Termination Limit”), then the Company will pay the severance obligation described in this Section 5.06[1] in two payment streams.  The first payment stream will be equal to the Involuntary Termination Limit, and the Company will pay this amount in 12 monthly installments, beginning on the date of Involuntary Termination Without Cause.  The amount of the second payment stream will equal the amount in excess of the Involuntary Termination Limit.  The Company will pay this amount in six monthly installments beginning on the date that is six months after the date of the Executive’s Involuntary Termination Without Cause.  As a condition of this salary continuation, the Executive is expected to promptly and reasonably pursue new employment.  If during the salary continuation period the Executive becomes employed either as an employee or a consultant, the Executive’s Base Salary paid by the Company will be reduced by 50% of the Base Salary amount for the remainder of the salary continuation period.  The Executive agrees to immediately notify the Company of any subsequent employment or consulting work during the period of salary continuation.
 
 
9
 

[2]             Health Care .  The Company will reimburse the Executive for the cost of maintaining continuing health coverage under COBRA for a period of no more than 12 months following the effective date of Involuntary Termination Without Cause, less the amount the Executive is expected to pay as a regular employee premium for such coverage.  Such reimbursements will cease if the Executive becomes eligible for similar coverage under another benefit plan.
 
[3]             Cash Incentive Bonus .  The Company will pay to the Executive the pro rata share of any Cash Incentive Bonus that would have been paid to the Executive had the Executive not been involuntarily terminated Without Cause.  If termination occurs prior to the completion of six (6) months of the fiscal year, the bonus will be paid based on 100% target achievement and will be paid within thirty (30) days of termination.  If the termination occurs after the completion of six (6) months of the fiscal year, the pro-rated bonus will be calculated based on the extent to which performance standards are met on the last day of the year in which the Executive is involuntarily terminated Without Cause and will be paid at the same time as all other participants.
 
[4]             Equity Incentives .  Subject to the terms of the Equity Incentive Plan and any applicable award agreements, the Executive may exercise any outstanding stock options that are vested on the effective date of Involuntary Termination Without Cause, and those that would have vested during the one year following the effective date of Involuntary Termination Without Cause, during the three-month period following the effective date of Involuntary Termination Without Cause.
 
[5]             Other .  Any rights accruing to the Executive under any employee benefit plan, fund or program maintained by any Group Member will be distributed or made available as required by the terms of the plan fund or program or as required by law.
 
[6]             Definition of Without Cause.   For purposes of this Agreement, Without Cause means termination of the Executive’s employment by the Company for any reason other than those set forth in Section 5.02, 5.03 or 5.04.
 
6.00           Notice

 
10
 

6.01             How Given .  Any notice permitted or required to be given under this Agreement must be given in writing and delivered in person or by registered, U.S. mail, return receipt requested, postage prepaid, or through Federal Express, UPS, DHL or any other reputable professional delivery service that maintains a confirmation of delivery system.  Any delivery must be addressed to the Company’s Senior Vice President of Human Resources at the Company’s then-current corporate offices or to the Executive at the Executive’s address as contained in the Executive’s personnel file.
 
6.02             Effective Date .  Any notice permitted or required to be given under this Agreement will be effective on the date it is delivered, in the event of personal delivery, or on the date its receipt is acknowledged, in the event of delivery by registered mail or through a professional delivery service described in Section 6.01.
 
7.00           Release
 
In exchange for the payments and benefits described in sections 5.02, 5.03 and 5.06 of this Agreement, upon termination the Executive and the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, legatees and assigns (together, the “Executive Representatives”) agree to execute a release forever discharging the Company, the Group and each Group Member and their executives, officers, directors, agents, attorneys, successors and assigns, from any and all claims, suits and/or causes of action that grow out of or are in any way related to the Executive’s recruitment to or employment with the Company and all Group Members, other than any claim that the Company has breached this Agreement.  This release includes, but is not limited to, any claims that the Company, the Group or any Group Member violated the Employee Retirement and Income Security Act of 1974; the Age Discrimination in Employment Act; the Older Worker’s Benefit Protection Act; the Americans with Disabilities Act; Title VII of the Civil Rights Act of 1964 (as amended); the Family and Medical Leave Act; any law prohibiting discrimination, harassment or retaliation in employment; any claim of promissory estoppel or detrimental reliance, defamation, intentional infliction of emotional distress; or the public policy of any state, or any federal, state or local law.  If the Executive or the Executive Representatives fails to execute this release, the Executive or the Executive Representatives agrees to forego any payment from the Company as if the Executive had terminated employment voluntarily under Section 5.05.  Specifically, the Executive and Executive Representatives agrees that a necessary condition for the payment of any of the amounts described in Section 5.00 in the event of termination (except termination under Section 5.02) is the Executive’s or the Executive Representatives’ execution of this release upon termination of employment.  The Executive acknowledges that the Executive is an experienced senior executive knowledgeable about the claims that might arise in the course of employment with the Company and knowingly agrees that the payments upon termination (except those payable upon the Executive’s death) provided for in this Agreement are satisfactory consideration for the release of all possible claims.  The Executive is advised to consult with an attorney prior to executing this Agreement.  Upon termination, the Executive or the Executive Representatives will receive 21 days to consider this release.  The Executive or the Executive Representatives may revoke consent to the release by delivering a written notice of such revocation to the Company within seven days of signing the release.  If the Executive or Executive Representatives revokes consent to the release, the release will become null and void and the Executive or the Executive Representatives must return any compensation received under Sections 5.02, 5.03 or 5.06 of this Agreement, except salary the Executive earned for actual work.
 
 
11
 

8.00           Insurance
 
To the extent permitted by law and its organizational documents, the Company will include the Executive under any liability insurance policy the Company maintains for employees of comparable status.  The level of coverage will be at least as favorable to the Executive (in amount and each other material respect) as the coverage of other employees of comparable status.  This obligation to provide insurance for the Executive will survive termination of this Agreement with respect to proceedings or threatened proceedings based on acts or omissions occurring during the Executive’s employment with the Company or with any Group Member.
 
9.00           Arbitration
 
9.01             Acknowledgement of Arbitration.   Unless stated otherwise in this Agreement, the Parties agree that arbitration is the sole and exclusive remedy for each of them to resolve and redress any dispute, claim or controversy involving the interpretation of this Agreement or the terms, conditions or termination of this Agreement or the terms, conditions or termination of Executive’s employment with the Group and with each Group Member, including any claims for any tort, breach of contract, violation of public policy or discrimination, whether such claim arises under federal or state law.
 
9.02             Scope of Arbitration .  The Executive expressly understands and agrees that claims subject to arbitration under this section include asserted violations of the Employee Retirement and Income Security Act of 1974; the Age Discrimination in Employment Act; the Older Worker’s Benefit Protection Act; the Americans with Disabilities Act; Title VII of the Civil Rights Act of 1964 (as amended); the Family and Medical Leave Act; any law prohibiting discrimination, harassment or retaliation in employment; any claim of promissory estoppel or detrimental reliance, defamation, intentional infliction of emotional distress; or the public policy of any state, or any federal, state or local law.
 
9.03             Effect of Arbitration .  The Parties intend that any arbitration award relating to any matter described in Section 9.00 will be final and binding on them and that a judgment on the award may be entered in any court of competent jurisdiction, and enforcement may be had according to the terms of that award.  This section will survive the termination or expiration of this Agreement.
 
9.04             Location of Arbitration .  Arbitration will be held in Columbus, Ohio, and will be conducted by a retired federal judge or other qualified arbitrator.  The arbitrator will be mutually agreed upon by the Parties and the arbitration will be conducted in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association.  The Parties will have the right to conduct discovery pursuant to the Federal Rules of Civil Procedure; provided, however, that the arbitrator will have the authority to establish an expedited discovery schedule and cutoff and to resolve any discovery disputes.  The arbitrator will have no jurisdiction or authority to change any provision of this Agreement by alterations of, additions to or subtractions from the terms of this Agreement.  The arbitrator’s sole authority will be to interpret or apply any provision(s) of this Agreement or any public law alleged to have been violated.  The arbitrator will be limited to awarding compensatory damages, including unpaid wages or benefits, but, to the extent allowed by law, will have no authority to award punitive, exemplary or similar-type damages.
 
 
12
 

9.05             Time for Initiating Arbitration .  Any claim or controversy not sought to be submitted to arbitration, in writing, within 120 days of the date the Party asserting the claim knew, or through reasonable diligence should have known, of the facts giving rise to that Party’s claim, will be deemed waived and the Party asserting the claim will have no further right to seek arbitration or recovery with respect to that claim or controversy.  Both Parties agree to strictly comply with the time limitation specified in Section 9.00.  For purposes of this section, a claim or controversy is sought to be submitted to arbitration on the date the complaining Party gives written notice to the other that [1] an issue has arisen or is likely to arise that, unless resolved otherwise, may be resolved through arbitration under Section 9.00 and [2] unless the issue is resolved otherwise, the complaining Party intends to submit the matter to arbitration under the terms of Section 9.00.
 
9.06             Costs of Arbitration .  The Company will bear the arbitrator’s fee and other costs associated with any arbitration, unless the arbitrator, acting under Federal Rule of Civil Procedure 54(b), elects to award these fees to the Company.
 
9.07             Arbitration Exclusive Remedy .  The Parties acknowledge that, because arbitration is the exclusive remedy for resolving issues arising under this Agreement, neither Party may resort to any federal, state or local court or administrative agency concerning breaches of this Agreement or any other matter subject to arbitration under Section 9.00, except as otherwise provided in this Agreement, and that the decision of the arbitrator will be a complete defense to any suit, action or proceeding instituted in any federal, state or local court before any administrative agency with respect to any arbitrable claim or controversy.
 
9.08             Waiver of Jury .  The Executive and the Company each waive the right to have a claim or dispute with one another decided in a judicial forum or by a jury, except as otherwise provided in this Agreement.
 
10.00           General Provisions
 
10.01           Representation of Executive .  The Executive represents and warrants that the Executive is not under any contractual or legal restraint that prevents or prohibits the Executive from entering into this Agreement or performing the duties and obligations described in this Agreement.
 
10.02           Modification or Waiver; Entire Agreement .  No provision of this Agreement may be modified or waived except in a document signed by the Executive and the Company’s Chief Executive Officer or other person designated by the Company’s Board of Directors.  This Agreement, and any attachments referenced in the Agreement, constitute the entire agreement between the Parties regarding the employment relationship described in this Agreement, and any other agreements are terminated and of no further force or legal effect.  No agreements or representations, oral or otherwise, with respect to the Executive’s employment relationship with the Company have been made or relied upon by either Party which are not set forth expressly in this Agreement.
 

 
13
 

10.03           Governing Law; Severability .  This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules and regulations.  If any provision of this Agreement, or the application of any provision of this Agreement to any person or circumstance, is, for any reason and to any extent, held invalid or unenforceable, such invalidity and unenforceability will not affect the remaining provisions of this Agreement of its application to other persons or circumstances, all of which will be enforced to the greatest extent permitted by law and the Executive and the Company agree that the arbitrator (or judge) is authorized to reform the invalid or enforceable provision [1] to the extent needed to avoid the invalidity or unenforceability and [2] in a manner that is as similar as possible to the intent (as described in this Agreement).  The validity, construction and interpretation of this Agreement and the rights and duties of the Parties will be governed by the laws of the State of Ohio, without reference to the Ohio choice of law rules.
 
10.04           No Waiver .  Except as otherwise provided in Section 9.05, failure to insist upon strict compliance with any term of this Agreement will not be considered a waiver of any such term.
 
10.05   Withholding .  All payments made to the Executive under this Agreement will be reduced by any amount:
 
[1]             That the Company is required to withhold in advance payment of the Executive’s federal, state and local income, wage and employment tax liability; and
 
[2]            To the extent allowed by law, that the Executive owes (or, after employment is deemed to owe) to the Company.
 
However, application of Section 10.05[2] will not extinguish the Company’s right to seek additional amounts from the Executive (or to pursue other appropriate remedies) to the extent that the amount that may be recovered by application of Section 10.05[2] does not fully discharge the amount the Executive owes to the Company and does not preclude the Company from proceeding directly against the Executive without first exhausting its right of recovery under Section 10.05[2].
 
10.06           Survival .  Subject to the terms of the Executive’s Beneficiary designation form, the Parties agree that the covenants and promises set forth in this Agreement will survive the termination of this Agreement and continue in full force and effect.
 
10.07           Miscellaneous .
 
[1]            The Executive may not assign any right or interest to, or in, any payments payable under this Agreement; provided, however, that this prohibition does not preclude the Executive from designating in writing one or more beneficiaries to receive any amount that may be payable after the Executive’s death and does not preclude the legal representative of the Executive’s estate from assigning any right under this Agreement to the person or persons entitled to it.
 
 
14
 

[2]            This Agreement will be binding upon and will inure to the benefit of the Executive, the Executive’s heirs and legal representatives and the Company and its successors.
 
[3]            The headings in this Agreement are inserted for convenience of reference only and will not be a part of or control or affect the meaning of any provision of the Agreement.
 
10.08           Successors to Company .  This Agreement may and will be assigned or transferred to, and will be binding upon and will inure to the benefit of, any successor of the Company, and any successor will be substituted for the Company under the terms of this Agreement.  As used in this Agreement, the term “successor” means any person, firm, corporation or business entity which at any time, whether by merger, purchase or otherwise, acquires all or essentially all of the assets of the business of the Company.  Notwithstanding any assignment, the Company will remain, with any successor, jointly and severally liable for all its obligations under this Agreement.
 
10.09           IRC Section 409A Compliance.   The parties will administer this Agreement in a good faith attempt to avoid imposition on Executive of penalties under Section 409A of the Internal Revenue Code of 1986 and the guidance promulgated thereunder.  If Executive is a “specified employee” as defined under Section 409A, and to the extent any payments under this Agreement are otherwise payable in the period beginning with the termination date and ending six months after the termination date and would subject Executive to penalties under Section 409A, such payments will be delayed, aggregated, and paid as soon as practicable after the date that is six months after the date of termination.
 

 
IN WITNESS WHEREOF, the Parties have duly executed and delivered this Agreement, which includes an arbitration provision, and consists of 15 pages.
 
 
EXECUTIVE
   
 
By:
/s/Carrie S. McDermott
     
 
Dated:  December 11, 2007
   
 
DSW INC
 
     
 
By:
/s/Kathleen Maurer
     
 
Dated:  December 31, 2007
 
 
15
EXHIBIT 21.1
 
LIST OF SUBSIDIARIES

DSW Inc.
             
Ref. No.
 
Name
 
State of Incorporation
 
Parent Co. No.
             
1.
 
DSW Inc. 1
 
Ohio
 
N/A
2.
 
DSW Shoe Warehouse, Inc.
 
Missouri
 
1.
3.
 
Brand Card Services LLC
 
Ohio
 
1.
4.
 
DSW Information Technology LLC
 
Ohio
 
1.
5.
 
eTailDirect LLC
 
Delaware
 
2.
6.
 
Mint Studio LLC
 
Ohio
 
1.
7.
 
DSW MS LLC
 
Ohio
 
1.
             

1
Formally known as Shonac Corporation. Following the completion of its initial public offering on July 5, 2005, DSW Inc. is a controlled subsidiary of Retail Ventures, Inc. As of January 29, 2011, Retail Ventures, Inc. owns approximately 62.0% of DSW’s outstanding common shares, including director stock units, and approximately 92.9% of the combined voting power of such shares.
 
 
EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-126244 and 333-159849 on Form S-8 of our report dated March 22, 2011, relating to the consolidated financial statements of DSW Inc. and its subsidiaries (“the Company”) and the effectiveness of the Company’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of DSW Inc. for the year ended January 29, 2011.

/s/ DELOITTE & TOUCHE LLP

Columbus, Ohio
March 22, 2011
 
 
EXHIBIT 24.1

POWER OF ATTORNEY

Each director and/or officer of DSW Inc. (the "Corporation") whose signature appears below hereby appoints Douglas J. Probst and William L. Jordan as the undersigned's attorney or any of them individually as the undersigned's attorney, to sign, in the undersigned's name and behalf and in any and all capacities stated below, and to cause to be filed with the Securities and Exchange Commission (the "Commission"), the Corporation's Annual Report on Form 10-K (the "Form 10-K") for the fiscal year ended January 29, 2011, and likewise to sign and file with the Commission any and all amendments to the Form 10-K, and the Corporation hereby appoints such persons as its attorneys-in-fact and each of them as its attorney-in-fact with like authority to sign and file the Form 10-K and any amendments thereto granting to each attorney-in-fact full power of substitution and revocation, and hereby ratifying all that any such attorney-in-fact or the undersigned's substitute may do by virtue hereof.

IN WITNESS WHEREOF, we have hereunto set our hands effective as of the 10th day of March, 2011.

Signature
 
Title
     
/s/ Michael R. MacDonald
 
President and Chief Executive Officer and Director
Michael R. MacDonald
 
(Principal Executive Officer)
     
/s/ Douglas J. Probst
 
Executive Vice President and Chief Financial Officer
Douglas J. Probst
 
(Principal Financial and Accounting Officer)
     
/s/ Jay L. Schottenstein
 
Chairman of the Board and Director
Jay L. Schottenstein
   
     
/s/ Elaine J. Eisenman
 
Director
Elaine J. Eisenman
   
     
/s/ Carolee Friedlander
 
Director
Carolee Friedlander
   
     
/s/ Joanna T. Lau
 
Director
Joanna T. Lau
   
     
/s/ Roger S. Markfield
 
Director
Roger S. Markfield
   
     
/s/ Philip B. Miller
 
Director
Philip B. Miller
   
     
/s/ James D. Robbins
 
Director
James D. Robbins
   
     
/s/ Harvey L. Sonnenberg
 
Director
Harvey L. Sonnenberg
   
     
/s/ Allan J. Tanenbaum
 
Director
Allan J. Tanenbaum
   
     
/s/ Heywood Wilansky
 
Director
Heywood Wilansky
   
 
 
EXHIBIT 31.1

CERTIFICATIONS

I, Michael R. MacDonald, certify that:
 
1.      I have reviewed this annual report on Form 10-K of DSW Inc.;
 
2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.      The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
5.      The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
Dated: March 22, 2011
By:
/s/ Michael R. MacDonald
 
   
Michael R. MacDonald,
 
   
President and Chief Executive Officer
 
 
 
EXHIBIT 31.2

CERTIFICATIONS
I, Douglas J. Probst, certify that:
 
1.      I have reviewed this annual report on Form 10-K of DSW Inc.;
 
2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.      The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
5.      The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
Dated: March 22, 2011
By:
/s/ Douglas J. Probst
 
 
 
Douglas J. Probst, Executive Vice President and Chief
 
 
 
Financial Officer
 
 
 
EXHIBIT 32.1

SECTION 1350 CERTIFICATION*

In connection with the Annual Report of DSW Inc. (the “Company”) on Form 10-K for the fiscal year ended January 29, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael R. MacDonald, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

 
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Dated: March 22, 2011
By:    /s/ Michael R. MacDonald
 
Michael R. MacDonald,
 
President and Chief Executive Officer


 
*
This Certification is being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section. This Certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except as otherwise stated in such filing.

A signed original of this written statement required by 18 U.S.C. § 1350 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
 
 
EXHIBIT 32.2

SECTION 1350 CERTIFICATION *

In connection with the Annual Report of DSW Inc. (the “Company”) on Form 10-K for the fiscal year ended January 29, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Douglas J, Probst, Executive Vice President, and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

 
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Dated: March 22, 2011
By:
/s/ Douglas J. Probst
 
 
 
Douglas J. Probst,
 
   
Executive Vice President and Chief Financial Officer

 
*
This Certification is being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section. This Certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except as otherwise stated in such filing.

A signed original of this written statement required by 18 U.S.C. § 1350 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.