Business Context and Reporting Period
This Form 6-K filing by Naked Brand Group Limited (the "Company") covers the month of February 2020, with the report dated February 13, 2020. The filing discloses the creation of a direct financial obligation through a private placement transaction completed on February 12, 2020. The Company is a foreign private issuer headquartered in Australia.
Key Financial Metrics and Transaction Details
- Transaction Type: Private placement of a Convertible Promissory Note and Warrant to St. George Investments LLC.
- Purchase Price: $3,000,000.
- 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: February 11, 2022.
- Use of Proceeds: Approximately $790,000 intended to repay loans under the senior secured credit facility with the Bank of New Zealand.
- Warrant Terms: Exercise price of $5.00 per share; expires February 28, 2022.
- Conversion Price: $4.00 per share (commencing August 12, 2020).
Material Changes and Covenants
The filing details significant new debt obligations and restrictive covenants not present in prior periods:
- Financing Covenant: The Company must complete an additional equity financing of $5,000,000 by March 27, 2020. Failure to comply triggers a 10% premium on the Note.
- Registration Covenant: The Company must file a registration statement by May 11, 2020, and have it declared effective by June 10, 2020.
- Sales Restrictions: The Company is restricted from selling equity securities in excess of $3 million per calendar month (reduced to $1.5 million for March and April 2020) or $15 million cumulatively, subject to specific exceptions.
- Right of First Offer: The Holder has a right of first offer for future equity financings on substantially similar terms.
- Subordination: The Note is subordinated to the Company's existing senior secured credit facility with the Bank of New Zealand.
Outlook, Risks, and Contingencies
Management commentary is limited to the terms of the Securities Purchase Agreement. Key risks and contingencies include:
- Default Consequences: Events of default include failure to pay, failure to deliver shares upon conversion, bankruptcy, or failure to meet covenants. Upon default, the Holder may accelerate the Note (making all amounts plus up to 25% immediately due) and increase the interest rate to 22%.
- Conversion Penalties: If the Company cannot issue conversion shares due to lock-up agreements after August 12, 2020, the Note balance may increase by 3% every 30 days.
- Redemption Rights: The Holder may cause the Company to redeem up to $600,000 of the Note per month starting August 12, 2020.
- Ownership Caps: Conversion and exercise are limited to prevent the Holder from beneficially owning more than 4.99% of outstanding shares (increasing to 9.99% if market cap is under $10 million).
Investor Verification Checklist
- Verify the Company's ability to raise the required $5,000,000 in equity financing by March 27, 2020, to avoid the 10% penalty premium.
- Confirm the status of the registration statement filing deadline (May 11, 2020) and effectiveness deadline (June 10, 2020).
- Review the Company's current liquidity position to ensure it can service the 20% interest rate and potential redemption requests starting August 2020.
- Assess the impact of the $3 million monthly equity sales cap on the Company's ability to raise capital in the near term.
- Monitor the Company's compliance with the Bank of New Zealand senior secured credit facility, given the subordination of this new Note.