Item 1.01 Entry Into a Material Definitive Agreement.
Transaction Agreement
On February 20, 2020, L Brands, Inc., a
Delaware corporation (the “Company”), and SP VS Buyer LP, a Delaware limited partnership (“Buyer”),
entered into a Transaction Agreement (the “Transaction Agreement”), which sets forth, among other things, the
terms and conditions pursuant to which the Company will (i) transfer certain assets and liabilities relating to its business conducted
under the Victoria’s Secret and PINK brands (the “VS Business”) to a newly formed subsidiary of the Company
(“VS Holdco”), and (ii) sell 55% of the equity interests of VS Holdco to Buyer for a purchase price equal to
55% of $1,168,000,000.00 in cash, subject to adjustments for net tangible assets, debt and debt-like items and cash, as calculated
in accordance with the terms set forth in the Transaction Agreement. Buyer is a newly-formed entity and an affiliate of Sycamore
Partners Management, L.P. (“Sycamore”). The Company, through its subsidiaries, will remain an equity investor
in VS Holdco and retain 45% of the equity interests of VS Holdco.
The Company and Buyer have made customary
representations, warranties and covenants in the Transaction Agreement. From the date of the Transaction Agreement until the closing
of the transactions contemplated thereby (the “Transaction Closing”), the Company is required to conduct the
VS Business in the ordinary course and to comply with certain covenants regarding the operation of the VS Business. Consummation
of the transactions contemplated by the Transaction Agreement is subject to various conditions, including (i) the expiration or
termination of the applicable waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended, (ii) the
receipt of approval under the Competition Act of Canada, (iii) the absence of any applicable law, injunction or other judgment
that prohibits the Transaction Closing, (iv) subject to certain exceptions, the accuracy of the representations and warranties
of, and compliance with covenants by, each of the parties to the Transaction Agreement and (v) the completion of certain restructuring
transactions.
The Transaction Agreement provides the
Company and Buyer with certain termination rights, including the right to terminate if the transactions contemplated by the Transaction
Agreement have not been completed by August 20, 2020, which date may be extended by either party to November 20, 2020 under certain
circumstances where the restructuring transactions have not been completed pending regulatory approvals. Subject to certain limitations,
the Company and Buyer have agreed to indemnify each other for losses arising from certain breaches of the Agreement and certain
other liabilities.
At the Transaction Closing, VS Holdco,
one or more subsidiaries of the Company (“L Brands Partner”) and Buyer will enter into a limited partnership
agreement in the form attached to the Transaction Agreement (the “VS Operating Agreement”). The VS Operating
Agreement will provide, among other things, that:
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VS Holdco will be managed by the board of managers of its general partner (the “VS Board”), consisting
of five managers. Immediately following the Transaction Closing, Buyer will have the right to appoint three managers and L
Brands Partner will have the right to appoint two managers. L Brands Partner will have the right to designate one
manager if it holds less than 50%, but at least 25%, of the equity interests in VS Holdco that it held as of the Transaction Closing, and will
not have the right to designate any managers if it ceases to hold at least 25% of the equity interests in VS Holdco that it
held as of the Transaction Closing.
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For a period of three years after the Transaction Closing, neither L Brands Partner nor Buyer will be permitted to transfer
its equity interests in VS Holdco, except to certain permitted transferees, without the prior written consent of the other party.
Thereafter, each of L Brands Partner and Buyer will be able to transfer its equity interests in VS Holdco to a third party, subject
to a right of first offer in favor of the other.
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For so long as L Brands Partner holds at least 50% of the equity interests in VS Holdco that it held as of the Transaction
Closing, L Brands Partner will have certain consent rights over the operations of VS Holdco, including over significant acquisitions
and dispositions and the incurrence of certain indebtedness.
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Until the earlier of such time that L Brands is no longer a limited partner of VS Holdco and the consummation of an initial
public offering of VS Holdco, L Brands Partner and its affiliates will be prohibited from
engaging in a business competitive with the VS Business as conducted as of the Transaction Closing, subject to certain exceptions,
and VS Holdco will be prohibited from engaging in a
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business competitive with certain businesses of the Company and its subsidiaries
as conducted as of the Transaction Closing, subject to certain exceptions.
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Distributions will generally be made to L Brands Partner and
Buyer on a pro rata basis, except that in the event of certain extraordinary events, namely, a liquidation of VS Holdco, a sale
of VS Holdco or non-ordinary course asset sales made after 18 months after the date of the Transaction Agreement, first, Buyer
will receive an amount of proceeds equal to its original investment in VS Holdco, second, L Brands Partner will receive 75% of
all remaining proceeds until such time that L Brands Partner has received its pro rata share of all proceeds and distributions
previously made by VS Holdco, and third, all remaining proceeds will be distributed on a pro rata basis to the limited partners
of VS Holdco.
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The foregoing description of the Transaction
Agreement and the VS Operating Agreement does not purport to be complete and is subject to, and is qualified in its entirety by
reference to, the full text of the Transaction Agreement and the VS Operating Agreement, which are attached as Exhibit 2.1 hereto and are incorporated herein by
reference.
The Transaction Agreement governs the contractual
rights between the parties thereto in relation to the transactions contemplated by the Transaction Agreement. The Transaction Agreement
has been filed as an exhibit to this Current Report on Form 8-K to provide investors with information regarding the terms of the
Transaction Agreement, and is not intended to provide, modify or supplement any information about the Company, Buyer or any of
their respective subsidiaries or affiliates, or their respective businesses. In particular, the Transaction Agreement is not intended
to be, and should not be relied upon as, disclosures regarding any facts and circumstances relating to the Company, the VS Business
or Buyer. The representations and warranties contained in the Transaction Agreement have been negotiated with the principal purpose
of establishing the circumstances in which a party may have the right not to consummate the closing of the transactions contemplated
thereby if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise,
and allocating risk between the parties, rather than establishing matters as facts. The representations and warranties may also
be subject to contractual standards of materiality that may be different from those generally applicable under the securities laws.
For the foregoing reasons, the representations and warranties should not be relied upon as statements of factual information. Moreover,
information concerning the subject matter of the representations and warranties may change after the date of the Transaction Agreement,
which subsequent information may or may not be fully reflected in the Company’s public disclosures.