Business Context and Reporting Period
This Form 6-K filing by Naked Brand Group Limited (the "Company") covers the month of December 2019. The report details a private placement transaction completed on December 19, 2019, involving the issuance of a Convertible Promissory Note and a Warrant to St. George Investments LLC. The filing also notes a reverse stock split effective December 20, 2019.
Key Financial Metrics and Transaction Details
- Transaction Value: The Company raised $3,000,000 in cash proceeds.
- Note Principal: The initial principal balance of the Convertible Promissory Note is $3,170,000, inclusive of a $150,000 original issue discount and $20,000 in reimbursed expenses.
- Interest Rate: The Note accrues interest at 20% per annum, compounded daily.
- Maturity Date: December 19, 2021.
- Conversion Price: $0.04 per share (adjusted to $4.00 per share post-reverse split).
- Warrant Exercise Price: $0.05 per share (adjusted to $5.00 per share post-reverse split).
- Debt Structure: The Note is subordinated to the Company's existing senior secured credit facility with the Bank of New Zealand.
Material Changes and Covenants
The filing discloses significant covenants and potential financial obligations triggered by specific events:
- Financing Covenant: The Company must complete an additional equity financing of $5,000,000 by February 2, 2020. Failure to comply results in a 10% premium on the Note.
- Registration Covenant: The Company must file a registration statement by January 11, 2020, and have it declared effective by February 10, 2020. Failure triggers a 10% premium.
- Prepayment Penalty: The Company may prepay the Note subject to a 25% premium.
- Default Consequences: Upon an event of default, the Holder may accelerate the Note, increasing the amount due by up to 25% and raising the interest rate to 22%.
- Redemption Right: Beginning June 19, 2020, the Holder may require the Company to redeem up to $600,000 of the Note per month.
Outlook, Risks, and Contingencies
Management has committed to specific near-term financing milestones. The filing highlights several material risks:
- Liquidity Risk: The Company is obligated to raise $5 million in equity by early February 2020 to avoid penalties on the new debt.
- Dilution Risk: Conversion of the Note and exercise of the Warrant will result in significant share issuance, subject to beneficial ownership limits (4.99% or 9.99% depending on market cap).
- Default Risk: The Note contains aggressive default provisions, including automatic acceleration in the event of bankruptcy or insolvency.
- Market Conditions: The ability to meet the equity financing covenant is contingent on market conditions and investor appetite.
Investor Verification Checklist
- Verify the Company's progress toward the $5,000,000 equity financing deadline of February 2, 2020.
- Confirm the status of the registration statement required to be effective by February 10, 2020.
- Review the Company's current cash position and ability to service the 20% interest on the $3.17 million Note.
- Assess the impact of the reverse stock split on the conversion and exercise prices.
- Monitor for any events of default that could trigger the 25% acceleration penalty or interest rate increase to 22%.