Business Context and Reporting Period
This Form 6-K filing by Naked Brand Group Limited (the "Company") covers the month of November 2019. The report details a private placement transaction completed on November 13, 2019, involving the issuance of a Convertible Promissory Note and a Warrant to Iliad Research and Trading, L.P. (the "Holder"). The filing does not provide general business operations updates or consolidated financial statements for the period.
Key Financial Metrics and Transaction Details
- Transaction Value: Purchase price of $3,000,000.
- Note Principal Balance: Initial principal balance of $3,170,000 (includes $150,000 original issue discount and $20,000 expense reimbursement).
- Interest Rate: 20% per annum, compounded daily.
- Maturity Date: November 12, 2021.
- Conversion Price: $0.04 per share (commencing May 13, 2020).
- Warrant Exercise Price: $0.05 per share.
- Warrant Expiration: November 31, 2021.
- Existing Debt: Holder also holds a prior Convertible Promissory Note with an initial principal of $2,120,000 issued on October 4, 2019.
- Subordination: The Note is subordinated to the Company's senior secured credit facility with the Bank of New Zealand.
Material Changes and Covenants
The filing discloses a material increase in debt obligations and equity dilution potential. Key covenants and conditions include:
- Future Financing Requirement: The Company must complete an additional financing of $5,000,000 through the sale of ordinary shares or convertible securities by December 27, 2019.
- Registration Requirements: The Company must file a registration statement for conversion shares by January 12, 2020, and ensure effectiveness by February 11, 2020.
- Penalties for Non-Compliance: Failure to meet the financing or registration covenants triggers a 10% premium on the Note.
- Prepayment Penalty: The Company may prepay the Note subject to a 25% premium.
- Redemption Rights: Beginning May 13, 2020, the Holder may cause the Company to redeem up to $600,000 of the Note per month.
Outlook, Risks, and Contingencies
Management commentary is limited to the terms of the financing agreement. Significant risks and contingencies identified include:
- Default Consequences: Events of default (including bankruptcy, failure to pay, or failure to deliver shares upon conversion) allow the Holder to accelerate the Note, adding up to 25% to the amount due, and increase the interest rate to 22%.
- Conversion Restrictions: Conversion is limited to prevent the Holder from beneficially owning more than 4.99% of outstanding shares (increasing to 9.99% if market capitalization is under $10,000,000).
- Lock-up Penalty: If the Company cannot issue conversion shares due to a lock-up agreement after May 13, 2020, the Note balance increases by 3% every 30 days at the Holder's option.
- Warrant Exercise: If no effective registration statement is available after May 12, 2020, the Warrant may be exercised on a cashless basis.
Investor Verification Checklist
- Verify the Company's ability to secure the required $5,000,000 additional financing by December 27, 2019.
- Confirm the status of the registration statement for conversion shares and its expected effectiveness date.
- Assess the impact of the 20% interest rate and potential 25% prepayment or default premiums on future liquidity.
- Review the total outstanding debt, including the prior $2,120,000 note held by the same investor.
- Monitor the Company's market capitalization to determine if the beneficial ownership limit for conversion applies at 4.99% or 9.99%.