Business Context and Reporting Period
This Form 6-K filing by Naked Brand Group Limited (the "Company") covers the month of January 2020, with the report dated January 10, 2020. The filing primarily addresses two events: the Company regaining compliance with Nasdaq Listing Rule 5550(a)(2) regarding minimum bid price requirements and the execution of a new private placement financing agreement.
Key Financial Metrics and Capital Structure
The filing details a new debt instrument rather than operational financial performance metrics such as revenue or profit.
- Financing Amount: $3,000,000 purchase price for a Convertible Promissory Note and Warrant.
- Initial Principal Balance: $3,170,000 (includes $150,000 original issue discount and $20,000 in holder expenses).
- Interest Rate: 20% per annum, compounded daily.
- Maturity Date: January 9, 2022.
- Use of Proceeds: Approximately $790,000 intended to repay loans under the senior secured credit facility with the Bank of New Zealand.
- Debt Seniority: The Note is subordinated to the existing senior secured credit facility with the Bank of New Zealand.
Material Changes and Covenants
The Company entered into a Securities Purchase Agreement (SPA) with St. George Investments LLC. Key material terms and covenants include:
- Registration Covenant: The Company must file a registration statement for shares issuable upon conversion by April 8, 2020, and ensure it is effective by May 8, 2020.
- Future Financing Covenant: The Company must complete an additional equity financing of $5,000,000 by February 23, 2020.
- Penalty for Non-Compliance: Failure to meet the above covenants triggers a 10% premium on the Note.
- Conversion Terms: Conversion into ordinary shares at $4.00 per share is permitted commencing July 10, 2020. Beneficial ownership is capped at 4.99% (or 9.99% if market cap is under $10 million).
- Warrant Terms: The Warrant allows purchase of shares equal to the Note conversion amount at an exercise price of $5.00 per share, expiring January 31, 2022.
- Redemption Right: The Holder may cause the Company to redeem up to $600,000 per month of the Note starting July 10, 2020.
Risks and Contingencies
The Note contains significant default provisions. Upon an event of default (including bankruptcy, failure to pay, or failure to deliver shares), the Holder may accelerate the Note, making all amounts plus up to an additional 25% immediately due. The interest rate may also increase to 22%. Additionally, if the Company cannot issue conversion shares due to a lock-up after July 10, 2020, the Note balance increases by 3% every 30 days at the Holder's option.
Investor Verification Checklist
- Verify the Company's ability to complete the required $5,000,000 equity financing by February 23, 2020, to avoid a 10% penalty premium.
- Confirm the status of the registration statement for the conversion shares, with a filing deadline of April 8, 2020.
- Assess the impact of the 20% interest rate and potential acceleration clauses on the Company's liquidity and solvency.
- Review the Company's existing debt obligations with the Bank of New Zealand to understand the subordination structure.
- Monitor the Company's share price relative to the $4.00 conversion price and $5.00 warrant exercise price.