UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2019
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
[ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report ____________
Commission File Number 001-38544
NAKED BRAND GROUP LIMITED
(Exact name of registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Australia
(Jurisdiction of incorporation or organization)
c/o Bendon Limited
Building 7B, Huntley Street
Alexandria
NSW 2015, Australia
+61 2 9384 2400
(Address of principal executive offices)
Justin Davis-Rice, Executive Chairman
c/o Bendon Limited
Building 7B, Huntley Street
Alexandria
NSW 2015, Australia
+61 2 9384 2400
(Name, telephone, e-mail and/or facsimile number and address of Company contact person)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Ordinary Shares
Name of each exchange on which registered
The Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: At June 12, 2019,
59,487,636 ordinary shares were issued and outstanding.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934.
Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large
accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [X]
Emerging growth company [X]
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification
after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP [ ]
International Financial Reporting Standards as issued
by the International Accounting Standards Board
[X]
Other [ ]
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
If this report is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Item 17 [ ] Item 18 [ ]
Yes [ ] No [X]
NAKED BRAND GROUP LIMITED
TABLE OF CONTENTS
INTRODUCTION
TRADEMARKS AND SERVICE MARKS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
NON-IFRS FINANCIAL MEASURES
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 2. OFFER STATISTICS AND EXPECTED TIME TABLE
ITEM 3. KEY INFORMATION
ITEM 4. INFORMATION ON THE COMPANY
ITEM 4A. UNRESOLVED STAFF COMMENTS
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
ITEM 8. FINANCIAL INFORMATION
ITEM 9. THE OFFER AND LISTING
ITEM 10. ADDITIONAL INFORMATION
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
ITEM 15. CONTROLS AND PROCEDURES
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16B. CODE OF ETHICS
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
ITEM 16G. CORPORATE GOVERNANCE
ITEM 16H. MINE SAFETY DISCLOSURE
PART III
ITEM 17. FINANCIAL STATEMENTS
ITEM 18. FINANCIAL STATEMENTS
ITEM 19. EXHIBITS
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INTRODUCTION
Unless otherwise indicated, all references in this Annual Report on Form 20-F to “we,” “our,” “us,” the “Company,” “Naked” or similar terms refer to Naked Brand Group
Limited and its consolidated subsidiaries. We publish our consolidated financial statements in New Zealand dollars. In this Annual Report, unless otherwise specified, all
monetary amounts are in New Zealand dollars, and all references to “$,” “NZD$,” and “dollars” mean New Zealand dollars, unless otherwise indicated.
This Annual Report on Form 20-F (this “Annual Report”) contains our audited consolidated financial statements and related notes for the years ended January 31, 2019 and
2018, the seven month period ended January 31, 2017 and the year ended June 30, 2016 (“Audited Consolidated Financial Statements”). Our Audited Annual Consolidated
Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board
(“IASB”).
On June 19, 2018, we consummated the transactions contemplated by that certain Agreement and Plan of Reorganization, dated as of May 25, 2017 and amended on July 26,
2017, February 21, 2018, March 19, 2018 and April 23, 2018 (the “Merger Agreement”), by and among our company, Naked Brand Group Inc., a Nevada corporation (“Naked
(NV)”), Bendon Limited, a New Zealand limited company (“Bendon Limited”), Naked Merger Sub Inc., a Nevada corporation and a wholly owned subsidiary of ours (“Merger
Sub”) and Bendon Investments Ltd., a New Zealand company and at the time the owner of a majority of the outstanding shares of Bendon Limited (the “Principal
Shareholder”).
Pursuant to the Merger Agreement, (i) we undertook a reorganization (the “Reorganization”) pursuant to which all of the shareholders of Bendon Limited exchanged all of the
outstanding ordinary shares of Bendon Limited (the “Bendon Ordinary Shares”) for our ordinary shares (“Naked Ordinary Shares”), and (ii) immediately thereafter, the parties
effectuated a merger of Merger Sub and Naked (NV), with Naked (NV) surviving as a wholly owned subsidiary of ours and the Naked (NV) stockholders receiving Naked
Ordinary Shares in exchange for all of the outstanding shares of common stock of Naked (NV) (the “Merger” and together with the Reorganization, the “Transactions”).
As a result of the Transactions, Bendon Limited and Naked (NV) became our wholly owned subsidiaries and the shareholders of Bendon Limited and the stockholders of Naked
(NV) became shareholders of ours.
TRADEMARKS AND SERVICE MARKS
This Annual Report contains references to a number of trademarks which are our registered trademarks or trademarks for which we have pending applications or common law
rights. Our major trademarks include, among others, the “Naked” trademark, the Heidi Klum trademarks, Frederick’s of Hollywood trademarks and other related trademarks.
Solely for convenience, the trademarks, service marks and trade names referred to in this Annual Report are listed without the ®, (sm) and (TM) symbols, but we will assert, to
the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements. Forward-looking statements include all statements that are not historical facts. Forward-looking statements can be
identified by words such as “anticipate,” “believe,” “envision,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,”
“could,” “should,” “continue,” “contemplate” and other similar expressions, although not all forward-looking statements contain these identifying words. They appear in a
number of places throughout this Annual Report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of
operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. Forward-looking statements contained in this Annual Report
include, among other things, statements relating to:
●
expectations regarding industry trends and the size and growth rates of addressable markets;
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●
●
our business plan and our growth strategies, including plans for expansion to new markets and new products; and
expectations for seasonal trends.
These statements are not assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business,
future plans and strategies, and other future conditions. Although we base the forward-looking statements contained in this Annual Report on assumptions that we believe are
reasonable, we caution you that actual results and developments (including our results of operations, financial condition and liquidity, and the development of the industry in
which we operate) may differ materially from those made in or suggested by the forward-looking statements contained in this Annual Report. In addition, even if results and
developments are consistent with the forward-looking statements contained in this Annual Report, those results and developments may not be indicative of results or
developments in subsequent periods. Certain assumptions made in preparing the forward-looking statements contained in this Annual Report include:
●
●
●
●
●
our ability to implement our growth strategies;
our ability to maintain good business relationships with our suppliers, wholesalers and distributors;
our ability to keep pace with changing consumer preferences;
our ability to protect our intellectual property; and
the absence of material adverse changes in our industry or the global economy.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future.
We believe that these risks and uncertainties include, but are not limited to, those described in Item 3.D of this Annual Report, “Risk Factors,” which include, but are not
limited to, the following risks:
● we may be unable to raise any necessary capital;
● we may be unable to maintain the strength of our brand or to expand our brand to new products and geographies;
● we may be unable to protect or preserve our brand image and proprietary rights;
● we may not be able to satisfy changing consumer preferences;
●
an economic downturn may affect discretionary consumer spending;
● we may not be able to compete in our markets effectively;
● we may not be able to manage our growth effectively;
●
●
●
●
●
poor performance during our peak season may affect our operating results for the full year;
our indebtedness may adversely affect our financial condition;
our ability to maintain relationships with our select number of suppliers;
our ability to manage our product distribution through our retail partners and international distributors;
the success of our marketing programs;
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●
●
the risk our business is interrupted because of a disruption at our headquarters; and
fluctuations in raw materials costs or currency exchange rates.
Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. As a result, any, or all of our
forward-looking statements in this Annual Report may turn out to be inaccurate. We have included important factors in the cautionary statements included in this Annual
Report, particularly in Item 3.D of this Annual Report, “Risk Factors,” that we believe could cause actual results or events to differ materially from the forward-looking
statements that we make. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not rely on our
forward-looking statements. Moreover, we operate in a highly competitive and rapidly changing environment in which new risks often emerge. It is not possible for our
management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements we may make.
You should read this Annual Report and the documents that we reference herein and have filed as exhibits hereto completely and with the understanding that our actual future
results may be materially different from what we expect. The forward-looking statements contained herein are made as of the date of this Annual Report, and we do not assume
any obligation to update any forward-looking statements except as required by applicable law.
NON-IFRS FINANCIAL MEASURES
This document includes “non-IFRS financial measures,” that is, financial measures that either exclude or include amounts that are not excluded or included in the most directly
comparable measure calculated and presented in accordance with IFRS. Specifically, we make use of the non-IFRS measures “EBITDA.”
EBITDA is defined as earnings before interest, taxes, depreciation, depletion, amortization and impairment. Our management uses EBITDA as a measure of our operating
results and considers it to be a meaningful supplement to net income as a performance measurement, primarily because we incur significant depreciation and depletion and the
exclusion of impairment losses in EBITDA eliminates the non-cash impact.
EBITDA is used by investors and analysts for the purpose of valuing an issuer. The intent of EBITDA is to provide additional useful information to investors and the measure
does not have any standardized meaning under IFRS. Accordingly, this measure should not be considered in isolation or used in substitute for measures of performance
prepared in accordance with IFRS. Other companies may calculate EBITDA differently. For a reconciliation of net income from continuing operations to EBITDA, please see
Item 5 of this Annual Report, “Operating and Financial Review and Prospects – Results of Operations.”
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ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIME TABLE
PART I
Not applicable.
ITEM 3. KEY INFORMATION
A. Selected Financial Data
The selected statement of operations data set forth below for the years ended January 31, 2019 and 2018, the seven month period ended January 31, 2017 and the year ended
June 30, 2016, and the selected balance sheet data as at January 31, 2019, 2018 and 2017 and June 30, 2016, has been derived from our audited consolidated financial
statements prepared and presented in accordance with IFRS, which are included in this Annual Report. The selected financial information set forth below for the year ended
January 31, 2017 has been derived from unaudited consolidated financial information that is not included in this Annual Report.
The selected financial information below is only a summary and should be read in conjunction with our audited financial statements and notes thereto contained elsewhere
herein. The financial results should not be construed as indicative of financial results for subsequent periods. See Item 5 of this Form 20-F and the financial statements and the
accompanying notes thereto included under Item 18 of this Form 20-F for further information about our financial results and condition.
Naked Brand Group Limited Financial Information as prepared under IFRS and in New Zealand Dollars (NZ$)
Consolidated Statement of Operations Data:
Revenue
Cost of goods sold
Gross profit
Brand management
Administrative expenses
Corporate expenses
Finance expense
Brand transition, restructure and transaction expenses
Impairment expense
Other foreign currency gains/(losses)
Fair value gain/(loss) on convertible notes derivative
Loss before income tax
Income tax benefit/(expense)
Loss for the period
Other comprehensive loss
Exchange differences on translation of foreign operations
Total comprehensive loss for the period
Loss per share for loss from continuing operations
attributable to the ordinary equity holders of the company:
Basic loss per share (NZ$)*
Diluted loss per share (NZ$)*
Jan. 31,
2019
NZ$000
12 months
Jan. 31,
2018
NZ$000
12 months
Unaudited
Jan. 31,
2017
NZ$000
12 months
Jan. 31,
2017
NZ$000
7 months
June 30,
2016
NZ$000
12 months
June 30,
2015
NZ$000
12 months
111,920
(74,480)
37,440
(49,256)
(3,432)
(14,145)
(4,041)
(10,075)
(8,173)
1,963
(775)
(50,494)
1,274
(49,220)
(7)
(49,227)
131,388
(87,459)
43,929
(53,653)
(4,131)
(12,851)
(8,791)
(3,272)
(1,914)
757
2,393
(37,533)
(60)
(37,593)
152,144
(84,358)
67,786
(53,957)
(3,712)
(12,920)
(11,214)
(2,430)
(2,865)
(14,327)
(592)
(34,230)
(6,123)
(40,352)
96,284
(57,144)
39,140
(32,040)
(2,383)
(8,082)
(6,238)
(1,321)
(292)
(3,306)
(592)
(15,114)
(865)
(15,979)
151,000
(83,525)
67,475
(48,362)
(4,090)
(13,002)
(10,409)
(2,232)
(2,157)
(2,423)
0
(15,200)
(5,546)
(20,746)
148
(37,445)
384
(39,968)
(29)
(16,008)
31
(20,715)
138,838
(79,031)
59,807
(42,203)
(4,691)
(13,940)
(5,870)
(12,182)
0
4,700
0
(14,379)
1,274
(13,105)
(93)
(13,198)
(2.01)
(2.01)
(1.79)
(1.79)
(2.06)
(2.06)
(0.82)
(0.82)
(1.13)
(1.13)
(0.72)
(0.72)
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*A stock reorganization occurred on June 19, 2018 upon completion of the merger between Naked (NV) and Bendon Limited. As a result, the calculation of basic and diluted
earnings per share for 2018, 2017 and 2016 has been adjusted retrospectively. The number of ordinary shares outstanding has been adjusted to reflect the proportionate change
in the number of shares. See note 23 of our audited consolidated financial statements for further information.
Consolidated Balance Sheet Data:
Cash and cash equivalents
Working capital
Total assets
Borrowings
Total shareholders’ equity
January 31,
2019
NZ$000
January 31,
2018
NZ$000
January 31,
2017
NZ$000
June 30,
2016
NZ$000
June 30,
2015
NZ$000
1,962
(29,426)
75,687
20,967
10,519
10,739
(20,752)
88,096
52,121
(5,710)
2,645
(19,644)
101,232
68,998
(9,044)
4,193
(19,987)
95,591
77,593
(17,876)
1,246
(24,067)
99,849
56,273
2,839
Unless otherwise noted, all translations from U.S. dollars to New Zealand dollars in this Form 20-F were made at the closing rate as at January 31, 2019 of NZ$1 = US$0.69.
We make no representation that any New Zealand dollars or U.S. dollar amounts could have been, or could be, converted into U.S. dollar or New Zealand dollars, as the case
may be, at any particular rate, at the rates stated below, or at all.
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Risks Related to Our Business and Operations
We have a history of operating losses that may continue into the foreseeable future.
We have a history of operating losses and negative cash flow that may continue into the foreseeable future. If we fail to execute our strategy to achieve and maintain profitability
in the future, investors could lose confidence in the value of our Ordinary Shares, which could cause our share price to decline and adversely affect our ability to raise additional
capital. Investors should evaluate an investment in our company in light of this.
If we are unable to obtain additional financing on acceptable terms, we may have to curtail our growth or cease our development plans and operations.
The operation of our business and our growth efforts will require significant cash outlays. We are largely dependent on outside capital to implement our business plan and
support our operations. We anticipate for the foreseeable future that cash on hand and cash generated from operations will not be sufficient to meet our cash requirements, and
that we will need to raise additional capital through investments to fund our operations and growth. We cannot assure you that we will be able to raise additional capital as
needed on terms acceptable to us, if at all. If we are unable to raise capital as needed, we may be required to reduce the scope of our growth efforts, which could harm our
business plans, financial condition and operating results, or cease our operations entirely, in which case, you may lose all your investment. Financings, including future equity
investments, if obtained, may be on terms that are dilutive to our stockholders, and the prices at which new investors would be willing to purchase our securities may be lower
than the price at which you purchase your shares. Furthermore, the terms of securities issued in a financing, if obtained, may be more favorable for new investors.
5
Investors should be aware that the value of an investment in our company may go down as well as up. In addition, there can be no certainty that the market value of an
investment in our company will fully reflect its underlying value.
The auditors’ report on our consolidated financial statements included an explanatory paragraph regarding there being substantial doubt about the ability to continue as a
going concern.
For the financial year ended January 31, 2019, we experienced a loss after income tax from continuing operations of $49.2m and operating cash outflows of $9.4m. We also are
in a net current liability position of $29.4m and a positive net asset position of $10.5m. We anticipate we will need to continue to fund losses through to the start of the fiscal
year beginning February 1, 2021. We also have trade creditors that are trading beyond their original credit terms and have breached the loan covenants of our credit facility
during our fiscal year ended January 31, 2019. The lender has extended our credit facility from being due on June 30, 2019 to August 31, 2019 to provide us and the lender time
to consider a refinance of the facility to a longer term to assist us to continue as a going concern. Therefore, there is substantial doubt about our ability to continue operations in
the future as a going concern, as noted by our auditors with respect to the consolidated financial statements for the periods ended January 31, 2019. Although our consolidated
financial statements raise substantial doubt about our ability to continue as a going concern, they do not reflect any adjustments that might result if we are unable to continue our
business. If we cannot continue as a viable entity, our shareholders may lose all of their investment in our company.
We have a concentration of sales to key customers and any substantial reduction in sales to these customers would have a material adverse effect on our business.
During the twelve month period ended January 31, 2019 sales were concentrated with Myer, Farmers, Woolworths and David Jones accounting for 9%, 5%, 1% and 1%,
respectively. During the twelve month period ended January 31, 2018, sales were concentrated with Myer, Farmers and Woolworths accounting for 7%, 6% and 2%
respectively. During the twelve month period ended January 31, 2017, sales were concentrated with Myer, Farmers and Woolworths accounting for 10%, 7%, 5% and 2%,
respectively.
Our results of operations would be materially adversely affected if these relationships ceased. Although we have diversified our customers and continue to receive increasing
sales orders from existing customers, these customers do not have any ongoing purchase commitment agreement with us; therefore, we cannot guarantee that the volume of sales
will remain consistent going forward. Any substantial change in purchasing decisions by these customers, whether due to actions by our competitors, industry factors or
otherwise, could have a material adverse effect on our business and our financial condition.
Our customers generally purchase our products on credit, and as a result, our results of operations and financial condition may be adversely affected if our customers
experience financial difficulties.
During the past several years, various retailers, including some of our largest customers, have experienced significant difficulties, including restructurings, bankruptcies and
liquidations. This could adversely affect us because our customers generally pay us after goods are delivered. Adverse changes in our customers’ financial position could cause
us to limit or discontinue business with that customer, require us to assume more credit risk relating to that customer’s future purchases or limit our ability to collect accounts
receivable relating to previous purchases by that customer, all of which could have a material adverse effect on our business, results of operations and financial condition.
We operate in a highly competitive market and the size and resources of some of our competitors may allow them to compete more effectively than we can, resulting in a
loss of our market share and a decrease in our net revenue and profitability.
The market for intimate apparel products is highly competitive. Competition may result in pricing pressures, reduced profit margins or lost market share or a failure to grow our
market share, any of which could substantially harm our business and results of operations. We compete directly against wholesalers and direct retailers of intimate apparel
products, including large, diversified companies with substantial market share and strong worldwide brand recognition, such as L Brands Inc., Hanesbrands Inc. and PVH Corp.,
whose brands include Victoria’s Secrets, Calvin Klein, Maidenform, Bonds and others. Many of our competitors have significant competitive advantages, including longer
operating histories, larger and broader customer bases, more established relationships with a broader set of suppliers, greater brand recognition and greater financial, research
and development, marketing, distribution and other resources than we do. Our competitors may be able to achieve and maintain brand awareness and market share more quickly
and effectively than we can. Many of our competitors promote their brands through traditional forms of advertising, such as print media and television commercials, and
through celebrity endorsements, and have greater and substantial resources to devote to such efforts. Our competitors may also create and maintain brand awareness using
traditional forms of advertising more quickly than we can. Our competitors may also be able to increase sales in their new and existing markets faster than we can by
emphasizing different distribution channels than we do, such as catalog sales or an extensive franchise network, as opposed to distribution through retail stores, wholesale or
internet, and many of our competitors have substantial resources to devote toward increasing sales in such ways.
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If we are unable to anticipate consumer preferences and successfully develop and introduce new, innovative and updated products, we may not be able to maintain or
increase our sales and profitability.
Our success depends on our ability to identify and originate product trends as well as to anticipate and react to changing consumer demands in a timely manner. All of our
products are subject to changing consumer preferences that cannot be predicted with certainty. We may be unable to introduce new products in a timely manner. Our customers
may not accept our new products including our recently launched women’s products, or our competitors may introduce similar products in a more timely fashion. Failure to
anticipate and respond in a timely manner to changing consumer preferences could lead to, among other things, lower sales and excess inventory levels. Even if we are
successful in anticipating consumer preferences, our ability to adequately react to and address those preferences will in part depend upon our continued ability to develop and
introduce innovative, high-quality products. Our failure to effectively introduce new products that are accepted by consumers could have a material adverse effect on our
financial condition.
Our net sales, profit results and cash flows are sensitive to, and may be affected by, general economic conditions, consumer confidence, spending patterns, weather or
other market disruptions.
Our net sales, profit, cash flows and future growth may be affected by negative local, regional, national or international political or economic trends or developments that reduce
the consumers’ ability or willingness to spend on discretionary products, including the effects of general economic conditions, employment, consumer debt, changes in personal
net worth based on changes in securities market price levels, residential real estate and mortgage markets, taxation, healthcare costs, fuel and energy prices, interest rates, credit
availability, consumer confidence and other macroeconomic factors, and national and international security concerns such as war, terrorism or the threat thereof. In addition,
market disruptions due to severe weather conditions, natural disasters, health hazards or other major events or the prospect of these events could also impact discretionary
consumer spending and confidence levels.
The worldwide apparel industry is heavily influenced by general economic cycles. Apparel retailing is a cyclical industry that is heavily dependent upon the overall level of
consumer spending. Purchases of specialty apparel and related goods tend to be highly correlated with the cycles of the levels of disposable income of consumers. As a result,
purchases of women’s intimate and other apparel, beauty and personal care products and accessories often decline during periods when economic or market conditions are
unsettled or weak. Downturns, or the expectation of a downturn, in general economic conditions could materially and adversely affect consumer spending patterns. Because
apparel generally is a discretionary purchase, declines in consumer spending may have a more negative effect on apparel retailers than on other retailers. A decline in consumer
spending may negatively affect our profitability, because, in such circumstances, our sales may decrease and we may increase the number of promotional sales, either of which
could have a material adverse effect on our results of operations, financial condition and cash flows.
The decision by the United Kingdom to leave the European Union (“Brexit”) has increased the uncertainty in the economic and political environment in Europe. In particular,
our business in the United Kingdom may be adversely impacted by fluctuations in currency exchange rates, changes in trade policies, or changes in labor, immigration, tax or
other laws.
Extreme weather conditions in the areas in which our stores are located, particularly in markets where we have multiple stores, could adversely affect our business. For
example, heavy snowfall, rainfall or other extreme weather conditions over a prolonged period might make it difficult for our customers to travel to our stores and thereby
reduce our sales and profitability.
Our financial performance may be affected by general economic conditions and financial difficulties.
Future increases in interest rates or other tightening of the credit markets, or future turmoil in the financial markets, could make it more difficult for us to access funds, to
refinance our indebtedness (if necessary), to enter into agreements for new indebtedness, or to obtain funding through the issuance of our securities. Any such adverse changes
in the credit or financial markets could also impact the ability of our suppliers to access liquidity, or could result in the insolvency of suppliers, which in turn could lead to their
failure to deliver our merchandise. Worsening economic conditions could also result in difficulties for financial institutions (including bank failures) and other parties that we
may do business with, which could potentially impair our ability to access financing under existing arrangements or to otherwise recover amounts as they become due under our
other contractual arrangements. Any such events could have a material adverse effect on our results of operations, financial condition and cash flows.
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Our net sales, operating income, cash and inventory levels fluctuate on a seasonal basis.
We experience major seasonal fluctuations in our net sales and operating income, with a significant portion of our operating income typically realized during the fourth quarter
holiday season. Any decrease in sales or margins during this period could have a material adverse effect on our results of operations, financial condition and cash flows.
Seasonal fluctuations also affect our cash and inventory levels, since we usually order merchandise in advance of peak selling periods and sometimes before new fashion trends
are confirmed by customer purchases. We must carry a significant amount of inventory, especially before the holiday season selling period. If we are not successful in selling
inventory, we may have to sell the inventory at significantly reduced prices or may not be able to sell the inventory at all, which could have a material adverse effect on our
results of operations, financial condition and cash flows.
We are subject to risks associated with leasing retail space, are generally subject to long-term non-cancelable leases and are required to make substantial lease payments
under our operating leases. Any failure to make these lease payments when due may lead to the landlord terminating the lease, which would harm our business,
profitability and results of operations.
We do not own any of our stores, but instead lease all of our retail stores under operating leases. Our leases generally have initial terms of 5 years. All of our leases require a
fixed annual rent, and some of them require the payment of additional rent if store sales exceed a negotiated amount. Most of our leases are “net” leases, which require us to pay
all of the cost of insurance, taxes, maintenance and utilities, and we generally cannot cancel these leases at our option.
Our net sales depend on a volume of traffic to our stores and the availability of suitable lease space.
Most of our stores are located in retail shopping areas including malls and other types of retail centers. Sales at these stores are derived, in part, from the volume of traffic in
those retail areas. Our stores benefit from the ability of the retail center and other attractions in an area, including “destination” retail stores, to generate consumer traffic in the
vicinity of our stores. Sales volume and retail traffic may be adversely affected by factors that we cannot control, such as economic downturns or changes in consumer
demographics in a particular area, competition from internet and other retailers and other retail areas where we do not have stores, the closing or decline in popularity of other
stores in the shopping areas where our stores are located and the deterioration in the financial condition of the operators of the shopping areas or developers in which our stores
are located.
Our ability to grow depends in part on new store openings and existing store remodels and expansions.
Our continued growth and success will depend in part on our ability to open and operate new stores and expand and remodel existing stores on a timely and profitable basis.
Accomplishing our new and existing store expansion goals will depend upon a number of factors, including the ability to partner with developers and landlords to obtain
suitable sites for new and expanded stores at acceptable costs, the hiring and training of qualified personnel and the integration of new stores into existing operations. There can
be no assurance we will be able to achieve our store expansion goals, manage our growth effectively, successfully integrate the planned new stores into our operations or
operate our new, remodeled and expanded stores profitably. These risks could have a material adverse effect on our ability to grow and results of operations, financial condition
and cash flows.
Our planned international expansion may adversely impact our results and reputation.
We intend to further expand into international markets through partner arrangements and/or company-owned stores. The risks associated with our expansion into international
markets include difficulties in attracting customers due to a lack of customer familiarity with our brands, our lack of familiarity with local customer preferences and seasonal
differences in the market. Such expansions will also have upfront investment costs. If the expansion is not accompanied by sufficient revenues to achieve typical or expected
operational and financial performance, it may have a material adverse effect on our results of operations and our business reputation.
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We may not select suitable business partners for our international expansion, which could have a materially adverse effect on our results of operations.
In expanding into international markets through partner arrangements, we may be exposed to risks if we fail to identify suitable business partners. For example, these third
parties may be unable to meet their projections regarding store openings and sales or they may fail to maintain compliance with federal and local law. Because these parties
likely will be independent contractors, certain aspects of these arrangements will be outside of our direct control. These risks could have a material adverse effect on our results
of operations, financial condition and cash flows.
Our operations in international markets are subject to additional political, economic, and other risks and uncertainties that could adversely affect our business, and our exposure
to such risks will increase as we expand into additional international markets.
Our operations in international markets are subject to a number of risks inherent in any business operating in multiple countries.
As we continue our international expansion, our operations will continue to encounter the following risks, among others:
● Competition with new competitors or with existing competitors with an established market presence.
● General economic conditions in specific countries or markets.
● Volatility in the geopolitical landscape.
● Restrictions on the repatriation of funds held internationally
● Disruptions or delays in shipments.
● Changes in diplomatic and trade relationships.
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Foreign governmental regulation.
If any of these or other similar events should occur, it could have a material adverse effect on our results of operations, financial condition and cash flows.
We may be impacted by our ability to service or refinance our debt.
We currently have substantial indebtedness. Some of our debt agreements contain covenants which require maintenance of certain financial ratios and also, under certain
conditions, restrict our ability to pay dividends, repurchase common shares and make other restricted payments as defined in those agreements. Our cash flow from operations
provides the primary source of funds for our debt service payments. If our cash flow from operations declines, we may be unable to service or refinance our current debt. If we
are unable to service or refinance our current debt, we may not be able to continue as a viable entity, in which case you may lose your entire investment.
If we do not comply with the terms of our existing debt agreements, and such debt agreements cannot be amended or replaced with new indebtedness, we may be in default
of our obligations under such debt agreements.
Our existing debt agreements (including our credit facility and our term loan agreement) contain a number of affirmative and negative covenants and representations and
warranties. We have, in the past, been required to seek waivers of compliance with, or amendments of, certain of the financial covenants in the debt agreements, and we may be
required to seek such waivers or amendments in the future. Our ability to meet these financial covenants may be affected by events beyond our control, and there can be no
assurance that the lenders will grant any required waivers under, or amendments to, the debt agreements if for any reason we are unable to meet the requirements of such
covenants.
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If we fail to comply with covenants, representations or warranties under our debt agreements and do not either receive a waiver or amendment from our lenders or refinance the
indebtedness subject to such agreements, such failure could trigger a default under our debt agreements. If we default, the lenders under those debt agreements could declare all
borrowings owed to them, including accrued interest and other fees, to be due and payable, which declaration could have an adverse impact on our business and results of
operations.
Our business is exposed to foreign currency exchange rate fluctuations and control regulations.
Our business has substantial international components that expose us to significant foreign exchange risk. Changes in exchange rates can impact our financial results in two
ways: a translation impact and a transaction impact. The translation impact refers to the impact that changes in exchange rates can have on our financial results, as our operating
results in local foreign currencies are translated into New Zealand dollars using an average exchange rate over the representative period. Accordingly, during times of a
strengthening New Zealand dollar, particularly against the Australian dollar, the Euro, the British pound sterling and the U . S . dollar, our results of operations will be
negatively impacted, and during times of a weakening New Zealand dollar, our results of operations will be favorably impacted.
The transaction impact on financial results is common for apparel companies operating outside the United States that purchase goods in U.S. dollars, as is the case with most of
our foreign operations. During times of a strengthening U.S. dollar, our results of operations will be negatively impacted from these transactions as the increased local currency
value of inventory results in higher cost of goods sold in local currency when the goods are sold, and during times of a weakening U.S. dollar, our results of operations will be
favorably impacted. We also have exposure to changes in foreign currency exchange rates related to certain intercompany transactions and, to a lesser extent, SG&A expenses
that are denominated in currencies other than the functional currency of a particular entity. We currently use and plan to continue to use foreign currency forward exchange
contracts or other derivative instruments to mitigate the cash flow or market value risks associated with these inventory and intercompany transactions, but we are unable to
entirely eliminate these risks.
We are also exposed to market risk for changes in exchange rates for the U.S. dollar in connection with our business as a licensee. Most of our license agreements require us to
pay in Unites States dollars based on the exchange rate as of the last day of the contractual selling period but the sales are reported in the relevant territories’ local currencies.
Thus we are exposed to exchange rate changes during and up to the last day of the selling period. In addition, we are exposed to exchange rate changes up to the date we make
payment in U.S. dollars. As a result, during times of a strengthening U.S. dollar, our royalty fees will be positively impacted, and during times of a weakening U.S. dollar, our
royalty fees will be negatively impacted.
We conduct business, directly or through licensees and other partners, in countries that are or have been subject to exchange rate control regulations and have, as a result,
experienced difficulties in receiving payments owed to us when due, with amounts left unpaid for extended periods of time. Although the amounts to date have been immaterial
to our results, as our international businesses grow and if controls are enacted or enforced in additional countries, there can be no assurance that such controls would not have a
material and adverse effect on our business, financial condition or results of operations.
Our reported financial results may be adversely affected by changes in accounting principles
Generally accepted accounting principles are subject to interpretation by the SEC and the Public Company Accounting Oversight Board and various bodies formed to
promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and
could affect the reporting of transactions completed before the announcement of a change.
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Acquisitions may not be successful in achieving intended benefits, cost savings and synergies.
A component of our growth strategy has been to make acquisitions. Prior to completing any acquisition, our management team identifies expected synergies, cost savings and
growth opportunities but, due to legal and business limitations, we may not have access to all necessary information. The integration process may be complex, costly and time-
consuming. The potential difficulties of integrating the operations of an acquired business and realizing our expectations for an acquisition, including the benefits that may be
realized, include, among other things:
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failure to implement our business plan for the combined business;
delays or difficulties in completing the integration of acquired companies or assets;
higher than expected costs, lower than expected cost savings or a need to allocate resources to manage unexpected operating difficulties;
unanticipated issues in integrating manufacturing, logistics, information, communications and other systems;
unanticipated changes in applicable laws and regulations affecting the acquired business;
unanticipated changes in the combined business due to potential divestitures or other requirements imposed by antitrust regulators;
retaining key customers, suppliers and employees;
retaining and obtaining required regulatory approvals, licenses and permits;
operating risks inherent in the acquired business;
diversion of the attention and resources of management;
consumers’ failure to accept product offerings by us or our licensees;
assumption of liabilities not identified in due diligence;
the impact on our or an acquired business’ internal controls and compliance with the requirements under the Sarbanes-Oxley Act of 2002; and
other unanticipated issues, expenses and liabilities.
We have completed acquisitions that have not performed as well as initially expected and cannot assure you that any acquisition will not have a material adverse impact on our
financial condition and results of operations.
The loss of the services of Justin Davis-Rice as Executive Chairman, Anna Johnson as Chief Executive Officer, other members of our executive management team, or
other key personnel could have a material adverse effect on our business.
Justin Davis-Rice’s and Anna Johnson’s leadership in the design and marketing areas of our business has been a critical element of our success since our inception. The death or
disability of Mr. Davis-Rice , Anna Johnson or other extended or permanent loss of his or her services, or any negative market or industry perception with respect to him or her
or arising from his or her loss, could have a material adverse effect on our business, results of operations, and financial condition.
We also depend on the service and management experience of other key executive officers and other members of senior management who have substantial experience and
expertise in our industry and our business and have made significant contributions to our growth and success. The loss of the services of any of our key executive officers or
other members of senior management, or one or more of our other key personnel, or the concurrent loss of several of these individuals or any negative public perception with
respect to these individuals, could also have a material adverse effect on our business, results of operations, and financial condition.
We are not protected by a material amount of key-man or similar life insurance covering our executive officers, including Mr. Davis-Rice or Ms. Johnson, or other members of
senior management. We have entered into employment agreements with certain of our executive officers, but competition for experienced executives in our industry is intense
and the non-compete period with respect to certain of our executive officers could, in some circumstances in the event of their termination of employment with our company,
end prior to the employment term set forth in their employment agreements.
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We rely on third-party suppliers and manufacturers to provide fabrics for and to produce our products, and we have limited control over them and may not be able to obtain
quality products on a timely basis or in sufficient quantity.
We do not manufacture our products or the raw materials for them and rely instead on third-party suppliers and manufacturers. Many of the specialty fabrics used in our
products are technically advanced textile products developed and manufactured by third parties and may be available, in the short-term, from only one or a very limited number
of sources. We may experience a significant disruption in the supply of fabrics or raw materials from current sources or, in the event of a disruption, we may be unable to locate
alternative materials suppliers of comparable quality at an acceptable price, or at all. In addition, if we experience significant increased demand, or if we need to replace an
existing supplier manufacturer, we may be unable to locate additional suppliers of fabrics or raw materials or additional manufacturing capacity on terms that are acceptable to
us, or at all, or we may be unable to locate any supplier or manufacturer with sufficient capacity to meet our requirements or to fill our orders in a timely manner. Identifying a
suitable supplier is an involved process that requires us to become satisfied with their quality control, responsiveness and service, financial stability and labor and other ethical
practices. Even if we are able to expand existing or find new manufacturing or fabric sources, we may encounter delays in production and added costs as a result of the time it
takes to train our suppliers and manufacturers in our methods, products and quality control standards. Delays related to supplier changes could also arise due to an increase in
shipping times if new suppliers are located farther away from other participants in our supply chain. Any delays, interruption or increased costs in the supply of fabric or
manufacture of our products could have an adverse effect on our ability to meet customer demand for our products and result in lower net revenue and income from operations
both in the short and long term. We have occasionally received, and may in the future continue to receive, shipments of products that fail to comply with our technical
specifications or that fail to conform to our quality control standards. In that event, unless we are able to obtain replacement products in a timely manner, we risk the loss of net
revenue resulting from the inability to sell those products and related increased administrative and shipping costs. If defects in the manufacture of our products are not
discovered until after our customers purchase such products, our customers could lose confidence in the technical attributes of our products and our results of operations could
suffer and our business could be harmed.
The fluctuating cost of raw materials could increase our cost of goods sold and cause our results of operations and financial condition to suffer.
The fabrics used by our suppliers and manufacturers include synthetic fabrics whose raw materials include petroleum-based products. Our products also include natural fibers,
including cotton. Our costs for raw materials are affected by, among other things, weather, consumer demand, speculation on the commodities market, the relative valuations
and fluctuations of the currencies of producer versus consumer countries and other factors that are generally unpredictable and beyond our control. Increases in the cost of raw
materials could have a material adverse effect on our cost of goods sold, results of operations, financial condition and cash flows.
We face challenges as consumers migrate to online shopping and we depend on our ability to compete in the e-commerce marketplace.
As consumers continue to migrate online, we face pressures to compete in the e-commerce marketplace. We continue to significantly invest in our online sales capabilities to
provide a seamless shopping experience to our customers between our brick and mortar locations and our online environments. Insufficient, untimely or misguided investments
in this area could significantly impact our profitability and growth and affect our ability to attract new customers, as well as maintain our existing ones. In addition, declining
customer store traffic and migration of sales from brick and mortar stores to digital platforms could lead to store closures, restructuring and other costs that could adversely
impact our results of operations and cash flows.
12
A material disruption in our computer systems could adversely affect our business or results of operations.
We rely extensively on our computer systems to process transactions, summarize results and manage our business. Our computer systems are subject to damage or interruption
from power outages, computer and telecommunications failures, computer viruses, cyber-attack or other security breaches, catastrophic events such as fires, floods, earthquakes,
tornadoes, hurricanes, acts of war or terrorism, and usage errors by our employees. If our computer systems are damaged or cease to function properly, including a material
disruption in our ability to authorize and process transactions at our stores or on our online systems, we may have to make a significant investment to fix or replace them, and
we may suffer loss of critical data and interruptions or delays in our operations. Any material interruption in our computer systems could negatively affect our business and
results of operations.
If our technology-based e-commerce systems do not function properly, our operating results could be negatively affected.
Customers are increasingly using computers, tablets and smart phones to shop online and to do price and comparison shopping. We strive to anticipate and meet our customers’
changing expectations and are focused on building a seamless shopping experience across our omnichannel business. Any failure to provide user-friendly, secure e-commerce
platforms that offer a variety of merchandise at competitive prices with low cost and quick delivery options that meet customers’ expectations could place us at a competitive
disadvantage, result in the loss of e-commerce and other sales, harm our reputation with customers and have a material adverse impact on the growth of our business and our
operating results.
If we are unable to safeguard against security breaches with respect to our information systems our business may be adversely affected.
In the course of our business, we gather, transmit and retain confidential information, including personal information about our customers, and process payment transactions
through our information systems. Although we endeavor to protect confidential information and payment information through the implementation of security technologies,
processes and procedures, it is possible that an individual or group could defeat security measures and access sensitive information about our customers, employees and other
third parties. Any misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information gathered, stored or used by us could have a
material impact on the operation of our business, including damaging our reputation with our customers, employees, third parties and investors. We could also incur significant
costs implementing additional security measures to comply with applicable federal, state or international laws and regulations governing the unauthorized disclosure of
confidential or personally identifiable information as well as increased costs such as organizational changes, implementing additional protection technologies, training
employees or engaging consultants. In addition, we could incur lost revenues and face increased litigation as a result of any potential cyber-security breach. We are not aware of
that we have experienced any material misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information as a result of a cyber-
security breach or other act, however, a cyber-security breach or other act and/or disruption to our information technology systems could have a material adverse effect on our
business, prospects, financial condition or results of operations.
Our fabrics and manufacturing technology are not patented and can be imitated by our competitors.
The intellectual property rights in the technology, fabrics and processes used to manufacture our products are owned or controlled by our suppliers and are generally not unique
to us. Our ability to obtain intellectual property protection for our products is therefore limited and we currently own no patents or exclusive intellectual property rights in the
technology, fabrics or processes underlying our products. As a result, our current and future competitors are able to manufacture and sell products with performance
characteristics, fabrics and styling similar to our products. Because many of our competitors have significantly greater financial, distribution, marketing and other resources
than we do, they may be able to manufacture and sell products based on our fabrics and manufacturing technology at lower prices than we can. If our competitors do sell similar
products to ours at lower prices, our net revenue and profitability could suffer.
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Our failure or inability to protect our intellectual property rights could diminish the value of our brand and weaken our competitive position.
We currently rely on trademarks, as well as confidentiality procedures, to establish and protect our intellectual property rights. We cannot assure you that the steps taken by us
to protect our intellectual property rights will be adequate to prevent infringement of such rights by others, including imitation of our products and misappropriation of our
brand. In addition, intellectual property protection may be unavailable or limited in some foreign countries where laws or law enforcement practices may not protect our
intellectual property rights as fully as in the United States, Canada or the European Union, and it may be more difficult for us to successfully challenge the use of our
intellectual property rights by other parties in these countries. If we fail to protect and maintain our intellectual property rights, the value of our brand could be diminished and
our competitive position may suffer.
We may be impacted by changes in taxation, trade and other regulatory requirements.
We are subject to income tax in local, national and international jurisdictions. In addition, our products are subject to import and excise duties and/or sales or value-added taxes
in many jurisdictions. We are also subject to the examination of our tax returns and other tax matters by the Internal Revenue Service and other tax authorities and governmental
bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes. There can be no
assurance as to the outcome of these examinations. Fluctuations in tax rates and duties, changes in tax legislation or regulation or adverse outcomes of these examinations could
have a material adverse effect on our results of operations, financial condition and cash flows.
We have significant tax losses arising on historical trading losses. The availability to utilize these tax losses to offset future taxable profit is dependent on future performance
and trade of the business. There can be no assurance as to the availability of these losses for utilization.
There is increased uncertainty with respect to tax policy and trade relations between the U.S. and other countries. Major developments in tax policy or trade relations, such as the
disallowance of tax deductions for imported merchandise or the imposition of unilateral tariffs on imported products, could have a material adverse effect on our results of
operations, financial condition and cash flows.
Our current operations in international markets and our efforts to expand into additional international markets, and any earnings in those markets, may be affected by
legal and regulatory risks.
We are subject to the U.S. Foreign Corrupt Practices Act, in addition to the anti-corruption laws of the foreign countries in which we operate and manufacture our products.
Although we implement policies and procedures designed to promote compliance with these laws, our employees, contractors and agents, as well as those companies to which
we outsource certain of our business operations, may take actions in violation of our policies. Any such violation could result in sanctions or other penalties and have an adverse
effect on our business, reputation and operating results.
We may be subject to loss and theft.
Our merchandise is subject to loss, including those caused by illegal or unethical conduct by associates, customers, vendors or unaffiliated third parties. We have experienced
events such as inventory shrinkage in the past, and we cannot assure that incidences of loss and theft will decrease in the future or that the measures we are taking will
effectively reduce these losses. Higher rates of loss or increased security costs to combat theft could have a material adverse effect on our results of operations, financial
condition and cash flows.
A portion of our revenue is dependent on royalties and licensing.
License arrangements exist for Heidi Klum and Frederick’s of Hollywood, and previously existed for Stella McCartney through June 30, 2018. The license arrangements for
Heidi Klum, Stella McCartney and Frederick’s of Hollywood contributed revenue of 21%, 5% and 35% of Company sales, respectively, in the twelve month period to January
31, 2019. The gross margin contribution during this period was 26%, 7%, and 30%, respectively, of total Company gross margin. The license arrangements for Heidi Klum,
Stella McCartney and Frederick’s of Hollywood contributed revenue of 25%, 11% and 21% of Company sales, respectively, in the twelve month period to January 31, 2018.
The gross margin contribution during this period was 19%, 12%, and 30%, respectively, of total Company gross margin. The license arrangements for Heidi Klum, Stella
McCartney and Frederick’s of Hollywood contributed revenue of 32%, 9% and 11% of Company sales, respectively, in the twelve month period to January 31, 2017. The gross
margin contribution during this period was 29%, 8%, and 16%, respectively, of total Company gross margin.
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The operating profit associated with our royalty, advertising and other revenue is significant because the operating expenses directly associated with administering and
monitoring an individual licensing or similar agreement are minimal. Therefore, the loss of a significant licensing partner, whether due to the termination or expiration of the
relationship, the cessation of the licensing partner’s operations or otherwise (including as a result of financial difficulties of the partner), without an equivalent replacement,
could materially impact our profitability. For example, Bendon Limited’s license to use the Stella McCartney brand terminated effective June 30, 2018.
While we generally have significant control over our licensing partners’ products and advertising, we rely on our licensing partners for, among other things, operational and
financial controls over their businesses. Our licensing partners’ failure to successfully market licensed products or our inability to replace our existing licensing partners could
materially and adversely affect our revenue both directly from reduced royalty and advertising and other revenue received and indirectly from reduced sales of our other
products. Risks are also associated with our licensing partners’ ability to obtain capital, execute their business plans, timely deliver quality products, manage their labor
relations, maintain relationships with their suppliers, manage their credit risk effectively and maintain relationships with their customers.
A significant shift in the relative sources of our earnings, adverse decisions of tax authorities or changes in tax treaties, laws, rules or interpretations could have a material
adverse effect on our results of operations and cash flow.
We have direct operations in many countries and the applicable tax rates vary by jurisdiction. As a result, our overall effective tax rate could be materially affected by the
relative level of earnings in the various taxing jurisdictions to which our earnings are subject. In addition, the tax laws and regulations in the countries where we operate may be
subject to change and there may be changes in interpretation and enforcement of tax law. As a result, we may pay additional taxes if tax rates increase or if tax laws, regulations
or treaties in the jurisdictions where we operate are modified by the competent authorities in an adverse manner.
In addition, various national and local taxing authorities periodically examine us and our subsidiaries. The resolution of an examination or audit may result in us paying more
than the amount that we may have reserved for a particular tax matter, which could have a material adverse effect on our cash flows, business, financial condition and results of
operations for any affected reporting period.
We and our subsidiaries are engaged in a number of intercompany transactions. Although we believe that these transactions reflect arm’s length terms and that proper transfer
pricing documentation is in place, which should be respected for tax purposes, the transfer prices and conditions may be scrutinized by local tax authorities, which could result
in additional tax liabilities.
If we fail to implement and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or
prevent fraud.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are
designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our
reporting obligations.
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We previously have identified deficiencies in our internal controls that are deemed to be material weaknesses. A material weakness is a deficiency, or a combination of
deficiencies in internal controls over financial reporting, such that if there is a material misstatement in our financial statements, they will not necessarily be prevented or
detected on a timely basis. As of January 31, 2019, the matters involving internal controls and procedures that our management considered to be material weaknesses under the
standards of the Public Company Accounting Oversight Board were:
1) The audit committee has been established, however is still operating under the first year exemptions as outlined in section 16 D in respect of independent members.
2) Lack of skilled resources and lack of expertise with complex IFRS and SEC reporting matters.
3) No formally implemented system of internal control over financial reporting and no associated written documentation of our internal control policies and procedures.
4) We did not maintain an effective process for reviewing financial information and did not have a sufficient number of personnel with an appropriate level of accounting
knowledge, experience and training in the application of International Financial Reporting Standards commensurate with management’s financial reporting
requirements.
We believe that these material weaknesses primarily related to our lack of board oversight and appropriately skilled resources. While these material weaknesses have not
resulted in errors that were material to our financial statements in the current year, it impacted our company’s ability to close financial reporting on a timely basis and resulted in
numerous late amendments to draft financial statements. We believe the introduction of a properly constituted board with diverse skills and talent will assist in managing the
risks across the business. We delayed implementing the appointment of an appropriately qualified personnel on the basis we were preparing to merge with Naked (NV). Upon
completion of the merger and becoming public, Naked (NV)’s newly appointed independent non-executive director became a member of our board of directors. In addition,
upon becoming public, we established an audit committee. In the future, we plan to provide improved support for our Chief Financial Officer and to take a number of other
actions to correct these material weaknesses, including, but not limited to, appointing additional independent directors, adding experienced accounting and financial personnel
and retaining third party consultants to review our internal controls and recommend improvements.
Our efforts to remediate these material weaknesses may not be effective. If our efforts to remediate these material weaknesses are not successful, the remediated material
weaknesses may reoccur, or other material weaknesses could occur in the future. As a result of these material weaknesses, we may be unable to report our financial results
accurately on a timely basis, which could cause our reported financial results to be materially misstated and result in the loss of investor confidence and could cause the stock
price to decline. As a result of such failures, we could also become subject to investigation by the stock exchange on which our shares are listed, the SEC, or other regulatory
authorities, and become subject to litigation from investors, which would harm our reputation, business, financial condition and results or operations, and divert financial and
management recoveries from our core business.
In addition, any future testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act, or the subsequent testing by our independent registered public
accounting firm, if and when required, may reveal additional deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may
require prospective or retroactive changes to our consolidated financial statements or identify other areas for further attention or improvement. If we are unable to remedy the
existing material weaknesses in our internal control over financial reporting, if in the future we identify additional material weaknesses in our internal control over financial
reporting, including at some of our acquired companies, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control
over financial reporting is effective, or if our independent registered public accounting firm required to and is unable to express an opinion as to the effectiveness of our internal
control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be
negatively affected, and we could become subject to investigations by the stock exchange on which our securities are then listed, the SEC, or other regulatory authorities, which
could require additional financial and management resources. Inferior internal controls could also cause investors to lose confidence in our reported financial information,
which could have a negative effect on the trading price of our common stock.
We incurred substantial transaction fees and costs in connection with the Transactions.
We incurred material non-recurring expenses in connection with the Merger Agreement and consummation of the Transactions contemplated by the Merger Agreement.
Additional unanticipated costs may be incurred in the course of the integration of the businesses of Bendon Limited and Naked. We cannot be certain that the elimination of
duplicative costs or the realization of other efficiencies related to the integration of the two businesses will offset the transaction and integration costs in the near term, or at all.
Nasdaq may delist the Naked Ordinary Shares from quotation on its exchange, which could limit investors’ ability to sell and purchase our securities and subject us to
additional trading restrictions.
The Naked Ordinary Shares are currently listed on the Nasdaq Capital Market under the trading symbol “NAKD”. However, on February 5, 2019, we received a notice from the
Listing Qualifications Department of Nasdaq stating that, for the last 30 consecutive business days, the closing bid price for the Naked Ordinary Shares had been below the
minimum of US$1.00 per share required for continued inclusion on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). We will be afforded 180 calendar days
(until August 5, 2019) to regain compliance with the minimum bid price requirement. In order to regain compliance, the bid price for shares of the Naked Ordinary Shares must
close at US$1.00 per share or more for a minimum of ten consecutive business days. The notification letter also states that in the event we do not regain compliance within the
180 day period, we will be eligible for additional time if we meet the continued listing requirement for market value of publicly held shares and all other initial listing standards
for the Nasdaq Capital Market, with the exception of the bid price requirement, and notify Nasdaq of our intention to cure the deficiency during such second compliance period,
including by effecting a reverse stock split, if necessary. There can be no assurance that we will regain compliance with the minimum bid price requirement within the allotted
period, or that we will be able to maintain compliance with the other continued listing requirements under the Nasdaq Listing Rules.
If the Naked Ordinary Shares are not listed on Nasdaq at any time after this offering, we could face significant material adverse consequences, including:
●
●
●
●
●
a limited availability of market quotations for our securities;
reduced liquidity;
a determination that the Naked Ordinary Shares are a “penny stock” which will require brokers trading in our shares to adhere to more stringent rules, possibly resulting
in a reduced level of trading activity in the secondary trading market for the Naked Ordinary Shares;
a limited amount of news and analyst coverage for our company; and
a decreased ability to issue additional securities or obtain additional financing in the future.
As a foreign private issuer, we are permitted and expect to follow certain home country corporate governance practices (in our case Australian) in lieu of certain Nasdaq
requirements applicable to domestic issuers and we are permitted to file less information with the Securities and Exchange Commission than a company that is not a
foreign private issuer. This may afford less protection to holders of our securities.
As a foreign private issuer under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Nasdaq allows us to follow home country governance practices (in our
case Australian) in lieu of the otherwise applicable Nasdaq corporate governance requirements. In accordance with this exception, we follow Australian corporate governance
practices in lieu of certain of the Nasdaq corporate governance standards, as more fully described elsewhere herein. In particular, we will follow Australian law and corporate
governance practices with respect to the composition of our board and quorum requirements applicable to shareholder meetings. These differences may result in a board that is
more difficult to remove as well as less shareholder approvals required generally. We will also follow Australian law instead of the Nasdaq requirement to obtain shareholder
approval prior to the issuance of securities in connection with a change of control, certain acquisitions, private placements of securities, or the establishment or amendment of
certain stock option, purchase, or other equity compensation plans or arrangements. These differences may result in less shareholder oversight and requisite approvals for
certain acquisition or financing related decisions or for certain company compensation related decisions. The Australian home country practices described above may afford less
protection to holders of our securities than that provided under the Nasdaq Listing Rules.
16
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
Office Location
Our principal and registered office is located at Building 7B, Huntley Street, Alexandria, NSW 2015, Australia, and our telephone number is +61 2 9384 2400. Our agent for
service of process in the United States is Graubard Miller, our U.S. counsel, located at The Chrysler Building, 405 Lexington Avenue, New York, New York 10174.
Principal Legal Advisers
Our principal legal adviser in the United States is Graubard Miller, located at The Chrysler Building, 405 Lexington Avenue, New York, New York 10174.
History and Development
We are an Australian public limited company formed on May 11, 2017 under the name “Bendon Group Holdings Limited.” We were formed to serve as a holding company for
Bendon Limited and Naked (NV) after consummation of the Transactions. Bendon Limited was formed in 1947. Naked (NV) was incorporated in the State of Nevada on May
17, 2005, under the name “Search By Headlines.com Corp.” Prior to the completion of the Transactions, we had no assets and had not conducted any material activities other
than those incidental to our formation.
On June 19, 2018, we consummated the Transactions contemplated by the Merger Agreement. Pursuant to the Merger Agreement, Bendon Limited and Naked (NV) completed
a business combination transaction by means of (i) the Reorganization, pursuant to which all of the shareholders of Bendon Limited exchanged all of the outstanding Bendon
Ordinary Shares for Naked Ordinary Shares, and (ii) immediately thereafter, Merger Sub merged with and into Naked (NV), with Naked (NV) surviving as a wholly owned
subsidiary of ours and the Naked (NV) stockholders receiving Naked Ordinary Shares in exchange for all of the outstanding shares of common stock of Naked (NV). Effective
on and from the closing of the Transactions, we changed our name from Bendon Group Holdings Limited to “Naked Brand Group Limited.”
On November 15, 2018, we and our wholly-owned subsidiary, Bendon, entered into a stock purchase agreement with the shareholders of FOH Online Corp. (“FOH”), including
Cullen Investments Limited (“Cullen”), a significant shareholder of the Company and also a debtor to the Company. Pursuant to the agreement, on December 6, 2018, we
purchased all of the issued and outstanding shares of FOH, in order to gain direct ownership of the Frederick’s of Hollywood license arrangement FOH had with Authentic
Brands Group (“ABG”). We previously marketed merchandise under the Frederick’s of Hollywood brand through a sub-license arrangement with FOH. As a result of the
acquisition of FOH, we now have a direct relationship with ABG in relation to the Frederick’s of Hollywood license. Under the terms of the stock purchase agreement, we paid
a purchase price of approximately US$18.2 million, as follows (i) the Company forgave debt owed to it by FOH and Cullen, in the aggregate amount of approximately US$9.9
million, and (ii) the Company issued 3,765,087 of our Ordinary Shares to FOH’s shareholders, valued at a price per share of US$2.20. We also agreed to satisfy certain
obligations with respect to certain claims involving the parties. A portion of the Ordinary Shares issued to FOH’s shareholders are held in trust and may be released to Cullen to
the extent not applied in satisfaction of such claims.
Additional Information
The SEC maintains an internet site, www.sec.gov, that contains reports, proxy and information statements, and other information regarding issuers, like us, that file
electronically with the SEC. We also maintain a website at www.nakedbrands.com, which contains information about our company. The information on our website shall not be
deemed part of this Annual Report.
17
Principal Capital Expenditures
Our capital expenditures for the twelve months ended January 31, 2019, 2018 and 2017 amounted to $0.2m, $2.2m and $0.7m, respectively. Our capital expenditures during
those years consisted of investments in property, plant and equipment for new and existing stores. We anticipate our capital expenditures in fiscal year 2020 to include
investments in property, plant and equipment for new and existing stores, which will be financed through cashflows from operations and from financing transactions.
B. Business Overview
Overview
We operate in the highly competitive specialty retail business. We are a designer, distributor, wholesaler, and retailer of women’s and men’s intimate apparel, as well as
women’s swimwear. Our merchandise is sold through company-owned retail stores in Australia and New Zealand; through online channels; and through wholesale partners in
Australia, New Zealand, the United States and Europe (collectively, “partners”).
We have seven reportable segments:
●
Australia Retail: This segment covers retail and outlet stores located in Australia.
● New Zealand Retail: This segment covers retail and outlet stores located in New Zealand.
●
Australia Wholesale: This segment covers the wholesale of intimates apparel to customers based in Australia.
● New Zealand Wholesale: This segment covers the wholesale of intimates apparel to customers based in New Zealand.
● U.S. Wholesale: This segment covers the wholesale of intimates apparel to customers based in the United States.
●
●
Europe Wholesale: This segment covers the wholesale of intimates apparel to customers based in Europe.
E-commerce: This segment covers the Company’s online retail activities.
In addition, we continually explore new ways to expand its business, including through the use of new technologies, such as blockchain technology. We are presently evaluating
how these new technologies may be leveraged in the retail fashion industry. For instance, blockchain technology might be used in the future to create highly efficient end-to-end
operations from suppliers to consumers and also to provide low cost trade finance for market participants through blockchain trading platforms. However, we have not yet
established the feasibility of, or taken any steps to progress the use of, blockchain technology in our business.
18
Revenues by Segment
Our revenues in each of our reportable segments for the twelve months ended January 31, 2019 and 2018 and the 7 months ended January 31, 2017 were as follows:
Australia Retail
New Zealand Retail
Australia Wholesale
New Zealand Wholesale
U.S. Wholesale
Europe Wholesale
E-commerce
Recent Developments
12 Months Ended January 31,
2018
2019
7 months
ended
January 31,
2017
Unaudited
12 months
ended
January 31,
2016
$
$
$
$
$
$
$
18.5m $
31.8m $
11.5m $
7.2m $
5.8m $
5.0m $
32.1m $
18.2m $
34.3m $
15.5m $
10.5m $
6.4m $
14.1m $
32.2m $
12.1m $
22.0m $
18.1m $
7.5m $
9.0m $
9.5m $
18.1m $
20.6m
37.4m
28.0m
15.1m
18.8m
16.5m
6.7m
On February 14, 2019, Carole Hochman resigned from the board of directors and as our Executive Chairman, and from all other positions she held with our subsidiaries. Ms.
Hochman’s resignation was for personal reasons, and was not due to any disagreement with us or our management on any matter relating to our operations, policies or practices
(financial or otherwise).
In March 2019, we issued 1,400,000 Naked Ordinary Shares and 1,400,000 warrants to purchase Naked Ordinary Shares to a service provider in exchange for services. The
warrants have an exercise price of US$0.50 and expire two years from the date of issuance. The exercise price and the number of shares covered by the warrants are subject to
adjustment for stock splits, stock combinations and certain other transactions affecting the share capital as a whole.
On the March 27, 2019, the Company closed on the following share issuances.
(1) NZ$6.60 million/US$4.50 million related to the issue of 11,248,415 Naked Ordinary Shares to trade creditors in satisfaction of trade payables due to them, at an effective
per share price of US$0.40.
(2) NZ$1.25 million/US$0.85 million related to the issue of 2,119,178 Naked Ordinary Shares to the holder of one of our outstanding promissory notes in the amount of
US$847,671, at an effective per share price of US$0.40 per share.
(3) NZ$1.69 million/US$1.15 million related to the issue of 4,510,588 Naked Ordinary Shares to investors in a private placement at a share price of US$0.255. The investors
also received warrants to purchase 100% of the number of Naked Ordinary Shares for which they had subscribed. The warrants have an exercise price of US$0.306 and
expire two years from the date of issuance. The exercise price and the number of shares covered by the warrants are subject to adjustment for stock splits, stock
combinations and certain other transactions affecting the share capital as a whole.
(4) NZ$4.05 million/US$2.75 million relating to the issue of 10,784,313 Naked Ordinary Shares to certain accredited investors at an agreed per share price of US$0.255,
except that, to the extent an investor would beneficially own more than 9.9% of our outstanding Naked Ordinary Shares after the closing, we agreed to issue the investor
a “pre-funded” warrant (the “March Pre-Funded Warrants”) in lieu of such shares. Each investor also received an “investment” warrant (the “March Investment
Warrants” and together with the March Pre-Funded Warrants, the “March Warrants”) to purchase 100% of the number of Naked Ordinary Shares for which it had agreed
to subscribe. As a result, we issued 3,914,846 Naked Ordinary Shares, March Pre-Funded Warrants to purchase 6,869,467 Naked Ordinary Shares and March Investment
Warrants to purchase 10,784,313 Naked Ordinary Shares to the investor at the closing. The March Investment Warrants have an exercise price of US$0.306 per share
and expire five years from the date of issuance. The March Pre-Funded Warrants have an exercise price of US$0.01 per share and expire five years from the date of
issuance. The exercise price and number of shares covered by the March Warrants are subject to adjustment for stock splits, stock combinations and certain other
transactions affecting the share capital as a whole, as well as for subsequent equity issuances occurring prior to July 16, 2019, subject to certain exceptions. If the
exercise price of the March Warrants is higher than the last closing bid price of the Naked Ordinary Shares, at any time starting on June 16, 2019, the March Warrants
may be exercised on a cashless basis for a number of shares equal to the Black-Scholes value of the portion of the warrant being exercised (as calculated in accordance
with the March Warrants), divided by the closing bid price as of two business days prior to the exercise date (but not less than US$0.10). The March Warrants may not
be exercised to the extent the holder and its affiliates would beneficially own more than 9.9% of our outstanding Ordinary Shares after such exercise.
19
On April 2, 2019, the board of directors appointed Anna Johnson as our Chief Executive Officer. Previously Ms Johnson was Chief Executive Officer of Bendon Limited, the
main operating entity within the Company. In connection with Ms. Johnson’s appointment, Justin Davis-Rice was appointed as Executive Chairman and resigned as our Chief
Executive Officer.
Effective on May 13, 2019, we completed a private placement of a Secured Convertible Promissory Note (the “Note”) to St. George Investments LLC (the “Noteholder”) for a
purchase price of US$3,000,000, pursuant to a Securities Purchase Agreement (the “NSPA”) of even date. Pursuant to the NSPA, the Note was sold with an original issue
discount of the US$300,000 and we paid US$20,000 of the Noteholder’s expenses, which amount was added to the principal balance of the Note. Accordingly, the Note had an
initial principal balance of US$3,320,000. The NSPA includes certain customary representations and warranties and covenants. In addition, we agreed that, so long as the Note
is outstanding, we will not issue any debt instrument or incur any debt, subject to certain exceptions, including an exception for any debt incurred from a bank. The Note
accrues interest at a rate of 10% per annum, compounded daily, and matures on November 13, 2020. We have the right to prepay the Note, subject to a 15% premium. The Note
is secured by a second priority security interest in all our assets and is subordinated to the Company’s existing senior secured credit facility with the Bank of New Zealand (the
“Bank” or “BNZ”). The Noteholder has the right to convert the Note into Naked Ordinary Shares at a conversion price of US$0.90 per share, subject to adjustment for
subdivisions or combinations of the ordinary shares. The Noteholder also has the right, beginning on December 13, 2019, to cause us to redeem any portion of the Note, up to a
maximum of US$400,000 per month.
On the May 14, 2019, we closed on NZ$2.17 million/US$1.5million share issuance of 6,000,000 shares to an investor in a private placement at a share price of US$0.25. The
investor also received warrants to purchase 1,000,000 Naked Ordinary Shares. The warrants have an exercise price of US$0.25, subject to adjustment, and expire two years
from the date of issuance.
On May 16, 2019, we issued 653,595 ordinary shares in exchange for the cancellation of US$200,000 in debt held by a shareholder, or an effective purchase price of US$0.306
per share.
On June 11, 2019, we announced that we had appointed David Anderson to become our new Chief Financial Officer. Previously, Mr. Anderson served as Head of Finance for
Goodman Fielder, one of the largest consumer goods companies in New Zealand, where he oversaw all financial aspects of the business and led numerous acquisitions. Mr.
Anderson will succeed Howard Herman, our current Chief Financial Officer, after the filing with the SEC of certain amendments to our existing registration
statements, but no later than June 20, 2019. In connection with the appointment of Mr. Anderson, Mr. Herman is resigning from all positions held by him with our
company.
Our senior secured credit facility with the Bank matures on August 31, 2019 and discussions are continuing to extend the facility beyond that point. As at October 31, 2018,
there was a breach in minimum gross EBITDA ratio. As at January 31, 2019, there was a breach of the minimum Gross EBITDA ratio and a breach of the inventory and
receivables ratio. The Bank has advised that they are currently taking these breaches under review.
Brands
Heidi Klum
Heidi Klum is the face and Creative Director of our flagship brands, Heidi Klum Intimates, Heidi Klum Swim, Heidi Klum Man, and Heidi Klum Intimates Solutions. Our
flagship brand, Heidi Klum Intimates collection exudes femininity, elegance and sophistication, each piece designed with the modern woman in mind. We sell our Heidi Klum
products at 63 Bendon stores in Australia, New Zealand and Ireland and online at www.bendonlingerie.com and www.heidiklumintimates.com. Additionally, Heidi Klum
products are sold in approximately 5,000 wholesale doors in 43 countries across regions in Australia, New Zealand, United States, Europe and United Kingdom under
wholesale arrangements.
Frederick’s of Hollywood
Since 1946, Frederick’s of Hollywood has set the standard for innovative apparel, introducing the push-up bra, the padded bra, and black lingerie to the United States market.
The brand’s rich history has led it to become one of the most recognized in the world. Through FOH, we are the exclusive licensee of the Frederick’s of Hollywood global
online license, under which we sell Frederick’s of Hollywood intimates products, sleepwear and loungewear products, swimwear and swimwear accessories products, and
costume products. We sell our Frederick’s of Hollwood products online at www.bendonlingerie.com and www.fredericks.com.
Naked
Naked is an apparel and lifestyle brand company that is currently focused on innerwear products for women and men. Under its flagship brand name and registered trademark
“Naked®”, Naked designs, manufactures and sells men’s and women’s underwear, intimate apparel, loungewear and sleepwear through retail partners and direct to consumer
through its online retail store www.wearnaked.com. Naked has a growing retail footprint for its innerwear products in premium department and specialty stores and internet
retailers in North America, including accounts such as Nordstrom, Dillard’s, Bloomingdale’s, Amazon.com, and others.
20
Other Brands
Our other brands are Bendon, Bendon Man, Davenport, Fayreform, Hickory, Lovable and Pleasure State. We sell our products at 63 Bendon stores in Australia and New
Zealand and online at www.bendonlingerie.com. Additionally, our products are sold in approximately 3,293 wholesale stores in 43 countries across regions in Australia, New
Zealand, United States, Europe and United Kingdom under wholesale arrangements.
Until June 30, 2018, we sold Stella McCartney Lingerie and Stella McCartney Swimwear products at Bendon stores in Australia and New Zealand and online at
www.bendonlingerie.com. Additionally, Stella McCartney products were sold in wholesale doors in numerous countries across regions in Australia, New Zealand, United
States, Europe and United Kingdom under wholesale arrangements.
Our Strengths
We believe the following competitive strengths contribute to our leading market position and differentiate us from our competition:
Distinct, Well-Recognized Brands
Our iconic brands, including Heidi Klum Intimates and Swimwear and Frederick’s of Hollywood Intimates and Swimwear, have come to represent a unique lifestyle across its
targeted customers. Our brands allow us to target markets across the economic spectrum, across demographics and across the world. We believe our flagship brands and
prominent, highly-recognized creative directors provide us with a competitive advantage.
In-Store Experience and Store Operations
We view our customers’ in-store experience as an important vehicle for communicating the image of each brand. We utilize visual presentation of merchandise, in-store
marketing and our sales associates to reinforce the image represented by the brands. Our in-store marketing is designed to convey the principal elements and personality of each
brand. The store design, furniture, fixtures and music are all carefully planned and coordinated to create a unique shopping experience. Every brand displays merchandise
uniformly to ensure a consistent store experience, regardless of location. Store managers receive detailed plans designating fixture and merchandise placement to ensure
coordinated execution of the company-wide merchandising strategy. Our sales associates and managers are a central element in creating the atmosphere of the stores by
providing a high level of customer service.
Product Development, Sourcing and Logistics
We believe a large part of our success comes from frequent and innovative product launches, as well as launches of new collections from our existing brands. Our merchant,
design and sourcing teams have a long history of bringing innovative products to our customers. Our key vendor partners are industry leaders in both innovation and social
responsibility. We work closely together to form a world class supply chain that is dynamic and efficient.
Highly Experienced Leadership Team
Our management team is led by Justin Davis-Rice, Executive Chairman, who joined Bendon in 2011 and is responsible for leading our revenue growth. Prior to joining Bendon,
Mr. Davis-Rice co-founded Pleasure State. Anna Johnson, Chief Executive Officer, brings to us a track record of over 25 years’ experience driving growth across a number of
industries, including consumer electronics, outdoor adventure and intimate apparel. The rest of our senior management team has a wealth of retail and business experience at
Gazal, Specialty Fashion Group, and Pleasure State. We have developed a strong and collaborative culture aligned around our goals to create the most sensual, functional and
comfortable lingerie and underwear for women and men all over the world.
21
Growth Strategy
Our growth strategy involves seeking to take advantage of the following opportunities across brands and channels:
Channel
● Opportunity for an additional 50+ retail stores across Australia and New Zealand
● Additional 25 Bendon outlet stores across Australia and New Zealand in the next 5 years
●
●
●
●
●
Brands
●
●
Leveraging e-commerce to attract and educate new and existing customers
Targeting e-commerce sales penetration of 40% over the medium term
Improving productivity in existing wholesale accounts by gaining additional floor space
Selectively adding new wholesale doors, with a focus on US markets
Enhancing margins by increasing the proportion of the business derived from direct-to-consumer channels
Expanding the brand and product offering via organic innovation and new license partnerships
Expanding brand reach by leveraging our brand portfolio to extend globally, particularly in the US and EU
● Continuing to build our license portfolio and add new licenses in existing and tangential categories
Vision and Culture
We are passionate about making sure we have a great company culture that supports our vision, which is to be close to our customers for life. We value individual differences
and diverse thought processes. We believe the quality of decision making is improved by people with varying backgrounds and perspectives working together by connecting
and sharing ideas. If we get the culture right then we can deliver on our goal to be the leader in intimate apparel because great customer service, designing great products,
passionate employees and customers will happen naturally. Our commitment to our customers has grown stronger over 70 years, evolving into the Bendon culture statement:
ONE COMPANY, ICONIC BRANDS, A MILLION IDEAS. COLLABORATE AND COMMUNICATE.
We believe this simple, resonant message reminds our people to actively participate, and inspire others, every day in making us a world leader in intimate apparel. At our
company, our values underpin everything we do. They guide the way we work, the way we make decisions and how we interact with each other. They define what we can
expect when we interact with work colleagues, stakeholders and what our customers can expect when they deal with us. Our message is defined by 5 core values:
People
Our success is built on the success of our people, as it is our people who help create a high-performing culture. Friendly, like-minded, innovative and passionate, we work
together to achieve a common goal. Driven to be the best we can be, we celebrate our successes and push boundaries in everything we do.
Pride
We are a house of brands that has captured hearts and souls all around the world. We are inspired by our customers and aim to delight our consumers through designing and
creating high quality, beautiful products that engage our customers in a lifetime relationship with us. We promote a positive, energizing, and optimistic environment and
continuously strive to find ways to improve what we do every day.
22
Collaboration
At our company, we believe that diverse minds are critical to our success and we drive innovation, creativity and problem-solving across all levels. We believe in building
strong working relationships, always considering the views of others and most importantly letting people know when they’ve done a good job. A collaborative environment is
encouraged with a flat structure and open door policy. Embracing our heritage as a family business means that we all work together as a unit to celebrate ideas enabling us to
become stronger and more successful.
Business strength
We are determined to reach greater heights. By constantly raising the bar and aiming for ambitious goals, we commit to achieving superior financial results. Driven by targets,
we push ourselves to win and increase our market share. We achieve this through our people and their drive to promote our brands positively at every opportunity and to
operate with integrity, openness and honesty.
Responsibility
We are all committed to contributing to a sustainable global community, and supporting non-profit organizations that seek to make a positive difference in the world. We
recognize the importance of providing social support to our global community. At our company, we look for opportunities to change lives and shape the future by giving our
time, money, and unique expertise. Giving is an essential aspect of our culture and we have been able to deliver projects and contributions throughout the years. We aim to
attract employees who understand this is a core part of who we are.
Real Estate
Executive Offices and Warehouse
Our principal executive offices are in a 497 m2 facility located at Building 7B, Huntley Street, Alexandria, NSW 2015, Australia. We have additional office space and a
warehouse in a 9,163 m2 facility located at 8 Airpark Drive, Airport Oaks, Auckland 2022, New Zealand. We occupy the Alexandria facility pursuant to a five-year lease that
expires on April 24, 2024 and we occupy the Auckland facility pursuant to a six-year lease that expires on May 31, 2022. We believe that these facilities are in good condition
and are suitable to the conduct of our business.
Company-owned Retail Stores
Our company-owned retail stores are located in shopping malls and strips in Australia, New Zealand and Ireland. As a result of our strong brands and established retail
presence, we have been able to lease high-traffic locations.
The following table provides the number of our company-owned retail stores in operation for each location as of January 1, 2019, 2018 and 2017.
Store Location (State/City)
Australian Capital Territory
New South Wales
Queensland
South Australia
Victoria
Western Australia
North Island
South Island
Kildare
Country
January 1, 2017
January 1, 2018
January 1, 2019
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
Ireland
1
8
5
1
9
1
28
5
1
23
1
8
7
1
10
0
31
5
0
1
8
6
1
9
2
29
7
0
The following table provides the changes in the number of our company-owned retail stores operated for the past five calendar years.
Calendar Year
2018
2017
2016
2015
2014
Franchise, License and Wholesale Arrangements
Beginning
of Year
62
59
52
50
54
Opened
Closed
End of Year
4
5
8
3
2
(3)
(2)
(1)
(1)
(6)
63
62
59
52
50
In addition to our company-owned stores, our products are sold at many partner locations in 43 countries. Under these arrangements, third parties operate stores that sell our
products under brand names. Revenue recognized under franchise and license arrangements generally consists of royalties earned and recognized upon sale of merchandise by
franchise and license partners to retail customers. Revenue is generally recognized under wholesale arrangements at the time the title passes to the partner. We continue to
increase the number of locations under these types of arrangements as part of our international expansion.
The following table provides the number of partner stores that sell our products as of January 1, 2019, 2018 and 2017.
Wholesale doors, excluding distributors
ANZ
UK
INTL
US
Total
Australia & New Zealand
United Kingdom
International
United States of America
Additional Information
Merchandise Suppliers
January 1, 2017
January 1, 2018
January 1, 2019
1,783
166
106
1,595
3,650
1,344
137
105
5,204
6,790
1,078
2
5
4,456
5,241
During the twelve months ended January 31, 2019, 2018 and 2017, we purchased merchandise from approximately 59, 22 and 23 suppliers located primarily in China. We
believe price volatility is low.
Distribution and Merchandise Inventory
Most of our merchandise is shipped from our suppliers to our distribution centers in New Zealand and Los Angeles. We use a variety of shipping terms that result in the transfer
to us of title to the merchandise at either the point of origin or point of destination. From our distribution centers, our merchandise is transported to our wholesale customers, to
our retail stores and directly to consumers who purchase online.
Our policy is to maintain sufficient quantities of inventories on hand in our retail stores and distribution centers to enable us to offer customers an appropriate selection of
current merchandise. We emphasize rapid turnover and take markdowns as required to keep merchandise fresh and current.
Information Systems
Our management information systems consist of a full range of retail, financial and merchandising systems. The systems include applications related to point-of-sale, e-
commerce, merchandising, planning, sourcing, logistics, inventory management, data security and support systems including human resources and finance.
Seasonal Business
Our operations are seasonal in nature and consist of two selling periods across the year, where the second selling season generates the most sales (the August to January period).
This second selling period, which includes the holiday season, accounted for approximately 57%, 54% and 56% of our net sales for the twelve months ended January 31, 2019,
2018 and 2017, respectively, and is typically our most profitable period.
24
Working Capital
We fund our business operations through a combination of available cash and cash equivalents, cash flows generated from operations and equity and debt financing
transactions. In addition, our senior credit facilities are available for additional working capital needs and investment opportunities.
Regulation
We and our products are subject to regulation by various federal, state, local and foreign regulatory authorities. We are subject to a variety of customs regulations and
international trade arrangements.
Legal Proceedings
From time to time, we are subject to certain legal proceedings and claims in the ordinary course of business. We are not presently party to any legal proceedings the resolution
of which we believe would have a material adverse effect on our business, financial condition, operating results or cash flows. We establish reserves for specific legal matters
when we determine that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable.
Trademarks and Patents
Our trademarks and patents, which constitute our primary intellectual property, have been registered or are the subject of pending applications in 20 countries and with the
registries of many foreign countries and/or are protected by common law. All Heidi Klum and Frederick’s of Hollywood trademarks are licensed under license agreements,
while all of our other trademarks are company-owned. We believe our products are identified by our intellectual property and, thus, our intellectual property is of significant
value. Accordingly, we intend to maintain our intellectual property and related registrations and vigorously protect our intellectual property assets against infringement.
Competition
The sale of women’s intimate and other apparel, personal care and beauty products and accessories through retail stores is a highly competitive business. Our competitors are
numerous and include individual and chain specialty stores, department stores and discount retailers. Brand image, marketing, design, price, service, assortment and quality are
the principal competitive factors in retail store sales. Our online businesses compete with numerous online merchandisers. Image presentation, fulfillment and the factors
affecting retail store sales discussed above are the principal competitive factors in online sales.
Employee Relations
As of January 31, 2019, we employed approximately 772 employees, 537 of whom were part-time or casual. The number of employees, by geography, is noted in the table
below.
Region
Australia
New Zealand
United Kingdom
Hong Kong
United States of America
Employees
332
400
12
7
21
None of the employees are currently covered by a collective bargaining agreement. We have had no labor-related work stoppages and believes its relations with its employees
are excellent.
25
C. Organizational Structure
The following chart illustrates the organizational structure of us and our subsidiaries as of the date of this Annual Report:
D. Property, Plants and Equipment
The disclosure set forth under “Real Estate” on page 19 is incorporated herein by reference.
26
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion and analysis (this “MD&A”) for Bendon Limited provides information concerning our financial condition and results of operations for the year ended
January 31, 2019, 2018 and 2017 and should be read in conjunction with our audited consolidation financial statements and the related notes included in Part III, Item 17,
“Financial Statements.” Our selected financial information are reported for the fiscal years ended January 31, 2019 and 2018, for the seven month period ended January 31,
2017, and for the fiscal year ended June 30, 2016. In order to provide additional meaningful information to investors, we have included unaudited consolidated information for
the 12 month period ended January 31, 2017, and for the seven month period ended January 31, 2016. This unaudited information is presented for comparative purposes to the
corresponding fiscal year ended January 31, 2018 and for the seven month period ended January 31, 2017, and is derived from accounting records.
The following discussion contains forward-looking statements that reflect our future plans, estimates, belief, and expected performance. The forward-looking statements are
dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking
statements. Factors that could cause or contribute to these differences include those discussed elsewhere in this Form 20-F, particularly in Part I, Item 3.D, “Risk Factors” and
in “Cautionary Note Regarding Forward-Looking Statements.” In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur.
Basis of Presentation
The Audited Annual Consolidated Financial Statements of the Company have been prepared in accordance with IFRS as issued by the IASB, and are presented in thousands of
New Zealand dollars, except where otherwise indicated. However, certain financial measures contained in this MD&A are non-IFRS measures and are discussed further under
“Non-IFRS Measures” below. All references to “$” and “dollars” refer to New Zealand dollars, unless otherwise indicated. Certain totals, subtotals and percentages throughout
this MD&A may not reconcile due to rounding.
Introduction
We are a designer, distributor, wholesaler and retailer of women’s and men’s intimates apparel and swimwear. Our merchandise is sold through retail and outlet stores located
in New Zealand and Australia, wholesale operations in New Zealand, Australia, the United States of America and Europe, and through online channels. We operate licensed
brands including Heidi Klum and Frederick’s of Hollywood, and owned brands including Pleasure State, Davenport, Lovable, Bendon, Fayreform, VaVoom, Evollove, and
Hickory. We also operated the Stella McCartney brand until June 30, 2018, at which time Bendon Limited’s license to use the brand terminated. Key customers include
Farmers, Myer, David Jones and Woolworths.
All dollar values discussed below are presented in New Zealand dollars.
In keeping with customary practice in New Zealand, our fiscal years end on June 30. Subsequent to registration, Bendon Limited changed its fiscal year end to January 31 and
align with Naked’s fiscal year end.
Overview
Year ended January 31, 2019 and year ended January 31, 2018
During the 12- month period ended January 31, 2019 and 12-month period ended January 31, 2018 we incurred a net comprehensive loss of ($49.2m) and ($37.4m)
respectively.
27
Net sales in the 12-month period ended January 31, 2019 decreased by $19.5m, or 14.8%, to $111.9m when compared with $131.4m in the 12-month period ended January 31,
2018. The sales in the 12-month period ending January 31, 2019 were negatively impacted by a stock supply issue because of liquidity issues. In addition, we also ended our
wholesale relationship with key major accounts in the U.S. market. Our strategic decision to exit the E.U./U.K. market as well as the loss of the Stella McCartney license also
contributed to the reduction in sales for the Company.
Brand management expenses decreased by $4.4m, or 8.2% from $53.7m to $49.3m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended
January 31, 2018. This was largely due to cost savings in our store overheads and reduced marketing spend.
Corporate expenses increased by $1.3m, or 10.1%, from $12.8m to $14.1m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended
January 31, 2018, primarily driven by increased salary allocation and rental costs.
Finance expenses decreased by $4.8m, or 54.5% from $8.8m to $4.0m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended January 31,
2018, due to a reduction in interest on both external borrowings and shareholder loans.
Brand transition, restructure and transaction expenses increased by $6.8m, or 212.5%, from $3.2m to $10.0m in the 12-month period ended January 31, 2019 as compared with
the 12-month period ended January 31, 2018, which was driven by costs incurred in respect of the U.S. listing process.
Impairment expense increased by $6.3m, or 331.6%, from $1.9m to $8.2m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended January
31, 2018, which was driven by stock supply issue because of liquidity issues.
Other foreign currency gains increased by $1.2m or 159.2% from $0.7m to $1.9m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended
January 31, 2018, due to positive movements in exchange rates on foreign exchange contracts.
Year ended January 31, 2018 and 12-month period ended January 31, 2017 (unaudited)
During the 12- month period ended January 31, 2018 and 12-month period ended January 31, 2017, we incurred a net comprehensive loss of ($37.4m) and ($39.9m)
respectively.
Net sales in the 12-month period ended January 31, 2018 decreased by $20.75m, or 13.6%, to $131.4m when compared with $152.1m in the 12-month period ended January 31,
2017. The sales in the 12-month period ending January 31, 2018 were negatively impacted by a stock supply issue because of liquidity issues.
During the 12-month period ended January 31, 2018 and the 12-month period ended January 31, 2017, the gross margin was 33.4% and 44.6% respectively. The reduction in
gross margin was caused by increased discounts provided to customers and sub-optimal stock mix because of the stock supply issue.
Finance expenses decreased by $2.4m, or 21.6% from $11.2m to $8.8m in the 12-month period ended January 31, 2018 as compared with the 12-month period ended January
31, 2017, due to a reduction in interest on the shareholder loan due to the principal amount of such loans being reduced, the majority of which was converted to equity in
September 2016.
Brand transition, restructure and transaction expenses increased by $0.8m, or 34.7%, from $2.4m to $3.2m in the 12-month period ended January 31, 2018 as compared with the
12-month period ended January 31, 2017, which was driven by costs incurred in respect of the U.S. listing process.
Other foreign currency gains/(losses) reduced from a loss of $14.3m in 12-month period ended January 31, 2017 to a gain of $0.7m in the 12-month period ended Jan 31, 2018,
due to positive movements in exchange rates on foreign exchange contracts.
28
7-month period ended January 31, 2017, 7-month period ended January 31, 2016 (unaudited), the 12 month period ended June 30, 2016 and the 12 month period ended
June 30, 2015
During the 7-months ended January 31, 2017 and 12-month period ended June 30, 2016 and 12-month period ended June 30, 2015, we incurred a net comprehensive loss of
($16.0m), ($20.7m) and ($13.2m) respectively.
Net sales in the 12 month period ended June 30, 2016 increased by $12.2m, or 8.8%, to $151.0m when compared with $138.8m in the 12 month period ended June 30, 2015.
This was driven by extension of the business into providing advisory and management services to other intimates apparel businesses, favorable foreign exchange rate
fluctuations between the New Zealand dollar and United States Dollar, growth in U.S. wholesale distribution through a new contract with Macy’s, growth in the online business
and introduction of 8 new stores across Australia.
Net sales in the 7-month period ended January 31, 2017 increased by $1.6m, or 1.7%, to $96.2m when compared with $94.7m in the 7-month period ended January 31, 2016.
Sales were negatively impacted by a stock supply issue, and less favorable foreign exchange rate fluctuations between the New Zealand dollar and U.S. Dollar, which was offset
by the beneficial impact of a new licensing agreement with Frederick’s of Hollywood.
During the 7-month period ended January 31, 2017, the 7-month period ended January 31, 2016, the 12 month period ended June 30, 2016 and the 12 month period ended June
30, 2015, the gross margin was 40.7%, 45.1%, 44.7%, and 43.1%, respectively. The movement in gross margin has remained fairly consistent, but has improved due to changes
in the sales mix including additional online revenue, as well as positive foreign exchange rate fluctuations.
Brand management expenses increased by $6.2m, or 14.6%, from $42.2m to $48.4m between the 12 month period ended June 30, 2015 and the 12 month period ended June 30,
2016. This was largely driven by growth in business and associated employee costs, as well as additional marketing expenditures to support the introduction of new swimwear
ranges. The increase of $4.4m, or 15.9%, from $27.6m to $32.0m in the 7-month period to January 31, 2017 as compared with the 7-month period to January 31, 2016, was also
driven by additional marketing expenditures.
Finance expenses increased by $4.5m, or 77.3%, between the 12 month period ended June 30, 2015 and the 12 month period ended June 30, 2016 from $5.9m to $10.4m, due to
additional interest expense associated with an increase in debt. The finance expense in the 7-month period to January 31, 2016 and January 31, 2017 increased slightly due to
additional interest on convertible loan notes being partially offset by a reduction in interest on the shareholder loan due to the principal amount of such loans being reduced, the
majority of which was converted to equity in September 2016.
Brand transition, restructure and transaction expenses of $1.3m, $2.2m and $12.2m were incurred in the 7-month period ended January 31, 2017, the 12 month period ended
June 30, 2016 and the 12 month period ended June 30, 2015, respectively. The biggest driver for this decrease was a reduction in brand transition expenses incurred in relation to
the transition from the Elle MacPherson to Heidi Klum brand which decreased over time given the Elle MacPherson license was terminated in the fiscal year 2015.
An impairment expense of $2.2m was recognized in the 12 month period ended June 30, 2016 and 7-month period to January 31, 2016 in relation to a goodwill write-off. An
impairment expense of $0.3m was recognised in 7-month period to January 31, 2017.
Other foreign currency gains/(losses) reduced from a gain of $4.7m the 12 month period ended June 30, 2015 to a loss of $2.4m in the 12 month period ended June 30, 2016 due
to weakening of the New Zealand dollar and the impact of unfavorable hedge contracts entered into. Other foreign currency gains/(losses) reduced from a gain of $5.7m in the
7-month period to January 31, 2016 to a loss of $3.3m in the 7-month period to January 31, 2017 as a result of the same foreign exchange drivers.
29
Application of Critical Accounting Policies, Estimates, and Judgements
Our accounting policies form the basis for preparation of our financial statements and our financial statements in tum are an essential factor in understanding our operations.
Our accounting policies are in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and are
fully described in the notes to our audited financial statements as of and for the year ended January 31, 2019, year ended January 31, 2018, 7-month period ended January 31,
2017 and the two years ended June 30, 2016 and June 30, 2015. The preparation of our financial statements required management to make judgments, estimates, assumptions
and judgments that affect the reported amounts of revenue, assets, liabilities and expenses. Our management re-evaluates estimates on an on-going basis and such estimates are
based on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. Unless otherwise stated, all dollar amounts stated in our financial statements are expressed in the currency of the
Commonwealth of Australia.
Critical accounting policies
Critical accounting policies that reflect our industry and activity specific accounting treatments used in preparing our financial statements as of the 12 month period ended
January 31, 2019, 12 month period ended January 31, 2018, the 7- month period ended January 31, 2017, the 12 month period ended June 30, 2016 and the 12 month period
ended June 30, 2015 or that have significant potential to result in a material adjustment to the carrying amounts of assets and liabilities during each of the years.
(a) Going concern
The financial statements have been prepared on the basis of going concern which contemplates continuity of normal business activities and the realisation of assets and
settlement of liabilities in the ordinary course of business.
For the financial year ended 31 January 2019 the Group experienced a loss after income tax from continuing operations of NZ$49.220million and operating cash outflows of
NZ$9.434 million. It also is in a net current liability position of $NZ29.426 million and a positive net asset position of NZ$10.519 million.
The losses in the year ended 31 January 2019 were a result of reduced revenue from wholesale customers, increased rebates and discounts, and the plateauing of sales in retail
outlets believed to be due to the stores and stockists not having new high margin inventory. The business is experiencing challenging trading conditions which have been
impacted by the cancellation of the Stella McCartney licence held by the Group which expired on 30 June 2018, the lack of working capital to purchase sufficient levels of
inventory required for trading, reduced customer foot traffic in retail stores and outlets, and a reduction of revenue from wholesale customers. The business also incurred
NZ$10.075 million of non-trading costs in relation to brand transition, restructure, and transaction costs associated with listing the Group on the Nasdaq stock exchange. The
Group also has trade creditors that are trading beyond their original credit terms.
The Group has also breached its Bank debt loan covenants during financial year, and the Bank has extended the facility from being due on 30 June 2019 to being due or subject
to renewal on 31 August 2019. The extension of time in the term of the facility is to provide the Group and the Bank time to consider a refinance of the facility to a longer term
to assist the group continue as a going concern.
In consequent to the challenging trading conditions and the negative working capital the business raised NZ$23.248 million of funds in the form of issued capital and
convertible notes over the course of the financial year and generated further working capital by reducing inventory by NZ$9.993 million. The Group used the funds to reduce
the bank debt from NZ$38.489 million to NZ$20.000 million, reduce long overdue trade creditors (both pre and post year end), fund operating losses, reduce costs, rebuild
higher margin inventory, recruit new staff, and pay the costs of listing on the Nasdaq stock exchange.
30
The funds raised and cash flow generated during the financial year ended 31 January 2019 have not been sufficient to provide the Group with adequate working capital, so
subsequent to the end of the financial year management has taken steps to raise further capital to complete a program that will fund new inventory that will restock stores and
supply wholesale customers, fund further losses, reduce out of term creditors, reduce costs, and provide funds to amortise the Bank debt. It is expected the group will need to
continue to fund losses through to the start of the year beginning 1 February 2021. This capital raising/recapitalisation is continuing at the time of this report with management
having set a target to raise a further NZ$31.587 million between March 2019 and 31 January 2020. At the date of this report management had raised NZ$12.179 million and
was still planning on raising NZ$19.409 million, of which NZ$4.347 million is in the forecast for collection in June 2019, NZ$7.31 million in July 2019; and NZ$7.531 million
in October 2019. The Group may need to raise further funds beyond these amounts to fund the period to 31 January 2022.
Management has also engaged in further restructuring of the businesses operations including reducing costs across distribution channels, renegotiating supplier contracts,
resetting customer supply commitments, updating leadership roles including appointing a new CEO (which occurred in October 2018) at the Bendon Limited level and the
Naked Brand Group Limited level in April 2019, for the operating business, and managing the opening of new stores. The impact from the proposed capital raising and the
restructure will take time to generate positive cash flows from operations. The Group expects the business will trend to be cash flow positive by through the year ending 31
January 2021, but will not be fully cash flow positive until the beginning of the year ending 31 January 2022.
As part of the discussions to renegotiate the Bank facilities the Bank appointed an independent review accountant (Review Accountant) to review the cash flow and working
capital history and forecasts. The Review Accountant issued a report which is consistent with the information in this note and the Bank has advised they will continue to
monitor the Group’s performance during the Bank debt renegotiation process through a formal appointment of a Review Accountant. The Directors expect the Bank to offer a
new one year facility with amortisation over the next twelve months by 31 August 2019. The offer of a new Bank facility is dependent on the Group achieving inventory
covenants set by the Bank through to 31 August 2019 and the Bank being satisfied that the Group has progressed with securing the remaining capital planned of $NZD$19.409
million.
The directors have also considered the Loan Agreement from its previous major shareholder Cullen Investments Limited (“Cullen”) and has been advised by Cullen that due to
some changes with Cullen’s financial circumstances Cullen is not likely to be a reliable source of funding and as a result the directors have decided to pursue new capital raising
activities and not rely on Cullen.
Despite the ongoing losses, reduced cash flow and cash facilities, and the other negative financial conditions, the Directors are confident that the Group will continue as a going
concern. However, while the Directors are confident of continuing as a going concern and meeting its debt obligation to its Bank and creditor commitments as they fall due, the
going concern is dependent upon the Directors and Group being successful in:
● Raising further capital in line with the Group’s cashflow forecast of at least NZ$19.409 million and collecting it between June 2019 and October 2019 (NZ$4.347
million in June 2019; NZ$7.531 million in July 2019; and NZ$7.531 million in October 2019) then raising follow on capital (the amount is yet to be determined) to
fund the business through until it expects to become cash flow positive;
● Generating sufficient sales and increasing gross margins and reducing overheads from trading in line with forecast;
● Having sufficient funds from the capital raised to reduce costs, recruit new staff, rebuild higher margin inventory, increasing revenue across the wholesale and retail
channels, increase gross margin percentages and contribution that leads to a reduction in the current cash outflow being incurred each month to reach a cash flow
positive position, and to reduce bank debt;
● Continue to receive support from creditors to delay payment of overdue amounts until the Group has adequate cash flow to commence a repayment arrangement or
repay the debt in full;and
● Renegotiating the current bank facilities of $20 million to a facility that is at least a 12 month facility, reviewed annually that commences before the current
facilities mature on 31 August 2019; and
(b) Revenue recognition
Revenue is recognised when the amount of the revenue can be measured reliably, it is probable that economic benefits associated with the transaction will flow to the Company
and specific criteria relating to the type of revenue as noted below, has been satisfied.
Revenue is measured at the fair value of the consideration received or receivable and is presented net of returns, discounts and rebates. The Company assess the expected
customer returns and rebates according to the specific information in its possession and its past experience in similar cases.
31
Sale of goods
Sales of goods through retail stores, e commerce and wholesale channels are recognised when control of the products have been transferred to the customer which is a point in
time. For wholesale and e commerce sales, risks and rewards are transferred when goods are delivered to customers, and therefore reflects an estimate of shipments that have
not been received at year end based on shipping terms and historical delivery times. The Company also provides a reserve for projected merchandise returns based on prior
experience.
The Company sells gift cards to customers. The Company recognises revenue from gift cards when they are redeemed by the customers. In addition, the Company recognises
revenue on all of its unredeemed gift cards when the gift cards have expired.
Significant Accounting Judgments, Estimates, and Assumptions
Significant accounting judgments, estimates, and assumptions that have been used in the preparation of our financial statements are set out below. Estimates and judgments are
continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are
believed to be reasonable under the circumstances.
We make estimates and assumptions concerning the future in determining accounting treatments and quantifying amounts for transactions and balances in certain circumstances.
The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Key estimates — inventory
Each item on inventory is reviewed on an annual basis to determine whether it is being carried at higher than its net realizable value. During the period, management have
written down inventory based on best estimate of the net realizable value, although until the time that inventory is sold this is an estimate.
Key estimates — impairment of goodwill
In accordance with IAS 36 Impairment of Assets, the Company is required to estimate the recoverable amount of goodwill at each reporting period.
Impairment testing is an area involving management judgement, requiring assessment as to whether the carrying value of assets can be supported by the net present value of
future cash flows derived from such assets using cash flow projections which have been discounted at an appropriate rate and using a terminal value to incorporate expectations
of growth thereafter.
In calculating the net present value of the future cash flows, certain assumptions are required to be made in respect of highly uncertain matters including management’s
expectations of:
— growth in EBITDA future cash flows;
— timing and quantum of future capital expenditure;
— long-term growth rates; and
— the selection of discount rates to reflect the risks involved.
Changing the assumptions selected by management, in particular the discount rate and growth rate assumptions used in the cash flow projections, could significantly affect the
Company’s impairment evaluation and hence results.
32
The Company’s review includes the key assumptions related to sensitivity in the cash flow projections. Further details are provided in note15(c) to the consolidated financial
statements.
Key estimates — fair value of financial instruments
The Company has certain financial assets and liabilities which are measured at fair value. Where fair value has not been able to be determined based on quoted price, a
valuation model has been used. The inputs to these models are observable, where possible, however these techniques involve significant estimates and therefore fair value of the
instruments could be affected by changes in these assumptions and inputs.
Key estimates — impairment of brands
In accordance with IFRS 36 Impairment of Assets, the Company is required to estimate the recoverable amount of indefinite-lived brand assets at each reporting period.
Impairment testing is an area involving management judgement, requiring assessment as to whether the carrying value of assets can be supported by their value in use or fair
value less cost to sell.
In calculating the fair value less costs to sell, certain assumptions are required to be made in respect of highly uncertain matters including management’s expectations of:
— growth in brand revenues
— market royalty rate
— the selection of discount rates to reflect the risks involved, and
— long-term growth rates
Changing the assumptions selected by management, in particular the growth rate, discount rate and market royalty rate assumption used, could significantly affect the
Company’s impairment evaluation and hence results.
The Company’s review includes the key assumptions related to sensitivity in the model. Further details are provided in note 15 to the consolidated financial statements.
Key estimates — taxes
Determining income tax provisions and the recognition of deferred tax assets including carried forward income tax involves judgment on the tax treatment of certain
transactions. Deferred tax is recognised on tax losses not yet used and on temporary differences where it is probable that there will be taxable revenue against which these can
be offset. Management has made judgments as to the probability of future taxable income being generated against which tax losses will be available for offset based on budgets,
current and future expected economic conditions.
Recent Accounting Pronouncements
New Accounting Standards and Interpretations
Certain new accounting standards and interpretations have been published that are not mandatory for January 31, 2019 reporting periods and have not been early adopted by the
Company. The Company’s assessment of the impact of these new standards and interpretations is set out below.
33
Title of Standard
IFRS 16 Leases
IFRC 23 Uncertainty
over Income Tax
Treatments (IFRIC 23)
Nature of change
I n February 2016 the IASB issued a new standard for leases.
This AASB 16 replaces IAS 17. The main impact on lessees is
that almost all leases go on balance sheet. This is because the
balance sheet distinction between operating and finance leases
is removed for lessees. Instead, under the new standard an asset
(the right to use the leased item) and a financial liability to pay
rentals are recognised. The only exemptions are short-term and
low-value leases.
Impact
Management is currently assessing the
impact of the new rules and believes
the adoption of the provisions of this
update will have a material impact on
the Company’s consolidated financial
statements.
The new standard will require that we
record a liability and a related asset on
the balance sheet for our
leased
facilities.
The Company is currently evaluating
the impact of adopting this standard on
the consolidated financial statements.
treatments. The IFRIC 23
On June 7, 2017, the IASB issued IFRIC 23, Uncertainty over
Income Tax Treatments (“IFRIC 23”). IFRIC 23 clarifies the
application of recognition and measurement requirements in
IAS 12, Income Taxes, when there is uncertainty over income
tax
interpretation specifically
addresses whether an entity considers uncertain tax treatments
separately; the assumptions an entity makes about
the
examination of tax treatments by taxation authorities; how an
entity determines taxable profit (tax loss), tax bases, unused tax
losses, unused tax credits and tax rates; and how an entity
considers changes in facts and circumstances.
Mandatory application date/Date of
adoption by Company
Management is currently assessing the
impact of the new rules and believes
the adoption of the provisions of this
update will have a material impact on
the Company’s consolidated financial
statements.
M a n d a t o r y for
years
commencing on or after January 1,
2019.
financial
Expected date of adoption by the
Company: February 1, 2019.
is effective for annual
I F R I C 23
periods beginning on or after January
1, 2019, with earlier application
permitted.
There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on
foreseeable future transactions.
34
Recent Developments
On February 14, 2019, Carole Hochman resigned from the board of directors and as our Executive Chairman, and from all other positions she held with our subsidiaries. Ms.
Hochman’s resignation was for personal reasons, and was not due to any disagreement with us or our management on any matter relating to our operations, policies or practices
(financial or otherwise).
In March 2019, we issued 1,400,000 Naked Ordinary Shares and 1,400,000 warrants to purchase Naked Ordinary Shares to a service provider in exchange for services. The
warrants have an exercise price of US$0.50 and expire two years from the date of issuance. The exercise price and the number of shares covered by the warrants are subject to
adjustment for stock splits, stock combinations and certain other transactions affecting the share capital as a whole.
On the March 27, 2019, the Company closed on the following share issuances.
(1) NZ$6.60 million/US$4.50 million related to the issue of 11,248,415 Naked Ordinary Shares to trade creditors in satisfaction of trade payables due to them, at an effective
per share price of US$0.40.
(2) NZ$1.25 million/US$0.85 million related to the issue of 2,119,178 Naked Ordinary Shares to the holder of one of our outstanding promissory notes in the amount of
US$847,671, at an effective per share price of US$0.40 per share.
(3) NZ$1.69 million/US$1.15 million related to the issue of 4,510,588 Naked Ordinary Shares to investors in a private placement at a share price of US$0.255. The investors
also received warrants to purchase 100% of the number of Naked Ordinary Shares for which they had subscribed. The warrants have an exercise price of US$0.306 and
expire two years from the date of issuance. The exercise price and the number of shares covered by the warrants are subject to adjustment for stock splits, stock
combinations and certain other transactions affecting the share capital as a whole.
(4) NZ$4.05 million/US$2.75 million relating to the issue of 10,784,313 Naked Ordinary Shares to certain accredited investors at an agreed per share price of US$0.255,
except that, to the extent an investor would beneficially own more than 9.9% of our outstanding Naked Ordinary Shares after the closing, we agreed to issue the investor
a March Pre-Funded Warrant in lieu of such shares. Each investor also received a March Investment Warrant to purchase 100% of the number of Naked Ordinary Shares
for which it had agreed to subscribe. As a result, we issued 3,914,846 Naked Ordinary Shares, March Pre-Funded Warrants to purchase 6,869,467 Naked Ordinary
Shares and March Investment Warrants to purchase 10,784,313 Naked Ordinary Shares to the investor at the closing. The March Investment Warrants have an exercise
price of US$0.306 per share and expire five years from the date of issuance. The March Pre-Funded Warrants have an exercise price of US$0.01 per share and expire
five years from the date of issuance. The exercise price and number of shares covered by the March Warrants are subject to adjustment for stock splits, stock
combinations and certain other transactions affecting the share capital as a whole, as well as for subsequent equity issuances occurring prior to July 16, 2019, subject to
certain exceptions. If the exercise price of the March Warrants is higher than the last closing bid price of the Naked Ordinary Shares, at any time starting on June 16,
2019, the March Warrants may be exercised on a cashless basis for a number of shares equal to the Black-Scholes value of the portion of the warrant being exercised (as
calculated in accordance with the March Warrants), divided by the closing bid price as of two business days prior to the exercise date (but not less than US$0.10). The
March Warrants may not be exercised to the extent the holder and its affiliates would beneficially own more than 9.9% of our outstanding Ordinary Shares after such
exercise.
On April 2, 2019, the board of directors appointed Anna Johnson as our Chief Executive Officer. Ms Johnson was previously Chief Executive Officer of Bendon Limited, the
Company’s main operating entity. In connection with Ms. Johnson’s appointment, Justin Davis-Rice was appointed as Executive Chairman and resigned as our Chief Executive
Officer.
Effective on May 13, 2019, we completed a private placement of a Secured Convertible Promissory Note (the “Note”) to St. George Investments LLC (the “Noteholder”) for a
purchase price of US$3,000,000, pursuant to a Securities Purchase Agreement (the “NSPA”) of even date. Pursuant to the NSPA, the Note was sold with an original issue
discount of the US$300,000 and we paid US$20,000 of the Noteholder’s expenses, which amount was added to the principal balance of the Note. Accordingly, the Note had an
initial principal balance of US$3,320,000. The NSPA includes certain customary representations and warranties and covenants. In addition, we agreed that, so long as the Note
is outstanding, we will not issue any debt instrument or incur any debt, subject to certain exceptions, including an exception for any debt incurred from a bank. The Note
accrues interest at a rate of 10% per annum, compounded daily, and matures on November 13, 2020. We have the right to prepay the Note, subject to a 15% premium. The Note
is secured by a second priority security interest in all our assets and is subordinated to the Company’s existing senior secured credit facility with BNZ. The Noteholder has the
right to convert the Note into Naked Ordinary Shares at a conversion price of US$0.90 per share, subject to adjustment for subdivisions or combinations of the ordinary shares.
The Noteholder also has the right, beginning on December 13, 2019, to cause us to redeem any portion of the Note, up to a maximum of US$400,000 per month.
35
On the May 14, 2019, we closed on NZ$2.17 million/US$1.5million share issuance of 6,000,000 shares to an investor in a private placement at a share price of US$0.25. The
investor also received warrants to purchase 1,000,000 Naked Ordinary Shares. The warrants have an exercise price of US$0.25, subject to adjustment, and expire two years
from the date of issuance.
On May 16, 2019, we issued 653,595 ordinary shares in exchange for the cancellation of US$200,000 in debt held by a shareholder, or an effective purchase price of US$0.306
per share.
On June 11, 2019, we announced that we had appointed David Anderson to become our new Chief Financial Officer. Previously, Mr. Anderson served as Head of Finance for
Goodman Fielder, one of the largest consumer goods companies in New Zealand, where he oversaw all financial aspects of the business and led numerous acquisitions. Mr.
Anderson will succeed Howard Herman, our current Chief Financial Officer, after the filing with the SEC of certain amendments to our existing registration
statements, but no later than June 20, 2019. In connection with the appointment of Mr. Anderson, Mr. Herman is resigning from all positions held by him with our
company.
Our senior secured credit facility with the Bank matures on August 31, 2019 and discussions are continuing to extend the facility beyond that point. As at October 31, 2018,
there was a breach in minimum gross EBITDA ratio. As at January 31, 2019, there was a breach of the minimum Gross EBITDA ratio and a breach of the inventory and
receivables ratio. The Bank has advised that they are currently taking these breaches under review.
A.
Operating Results
Year ended January 31, 2019 compared to year ended January 31, 2018
The following table sets forth certain selected operating results and other financial information for each of the years ended January 31, 2019, 2018 and 2017:
Revenue
Cost of goods sold
Gross profit
Brand management
Administrative expenses
Corporate expenses
Finance expense
Brand transition, restructure and transaction expenses
Impairment expense
Other foreign currency gains/(losses)
Fair value gain/(loss) on convertible notes derivative
Loss before income tax
Income tax benefit/(expense)
Loss for the period
Other comprehensive loss
Exchange differences on translation of foreign operations
Total comprehensive loss for the period
Jan. 31,
2019
NZ$000
12 months
Jan. 31,
2018
NZ$000
12 months
%
movement
FY19 v
FY18
Unaudited
Jan. 31,
2017
NZ$000
12 months
%
movement
FY18 v
FY17
111,920
(74,480)
37,440
(49,256)
(3,432)
(14,145)
(4,041)
(10,075)
(8,173)
1,963
(775)
(50,494)
1,274
(49,220)
(7)
(49,227)
36
131,388
(87,459)
43,929
(53,653)
(4,131)
(12,851)
(8,791)
(3,272)
(1,914)
757
2,393
(37,533)
(60)
(37,593)
148
(37,445)
-14.8%
-14.8%
-14.8%
-8.2%
-16.9%
10.1%
-54.0%
207.9%
326.9%
159.3%
-132.4%
34.5%
-2223.3%
30.9%
-104.7%
31.5%
152,144
(84,358)
67,786
(53,957)
(3,712)
(12,920)
(11,214)
(2,430)
(2,865)
(14,327)
(592)
(34,230)
(6,123)
(40,352)
384
(39,968)
-13.6%
3.7%
-35.2%
-0.6%
11.3%
-0.5%
-21.6%
34.7%
-33.2%
-105.3%
-504.5%
9.7%
-99.0%
-6.8%
-61.5%
-6.3%
Year ended January 31, 2018 compared to 12-month period ended January 31, 2017 (unaudited)
The following table sets forth certain selected operating results and other financial information for each of the years ended January 31, 2018 and 2017:
Revenue
Cost of goods sold
Gross profit
Brand management
Administrative expenses
Corporate expenses
Finance expense
Brand transition, restructure and transaction expenses
Impairment expense
Other foreign currency gains/(losses)
Fair value gain/(loss) on convertible notes derivative
Loss before income tax
Income tax benefit/(expense)
Loss for the period
Other comprehensive loss
Exchange differences on translation of foreign operations
Total comprehensive loss for the period
Jan. 31,
2018
NZ$000
12 months
Unaudited
Jan. 31,
2017
NZ$000
12 months
%
movement
131,388
(87,459)
43,929
(53,653)
(4,131)
(12,851)
(8,791)
(3,272)
(1,914)
757
2,393
(37,533)
(60)
(37,593)
148
(37,445)
152,144
(84,358)
67,786
(53,957)
(3,712)
(12,920)
(11,214)
(2,430)
(2,865)
(14,327)
(592)
(34,230)
(6,123)
(40,352)
384
(39,968)
-13.6%
3.7%
-35.2%
-0.6%
11.3%
-0.5%
-21.6%
34.7%
-33.2%
-105.3%
-504.5%
9.7%
-99.0%
-6.8%
-61.5%
-6.3%
* Note that January 31, 2017 is not an annual period, rather it has been derived from accounting records, to provide a 12 month comparative to the January 31, 2018 annual
period.
7-month period ended January 31, 2017 compared to 7-month period ended January 31, 2016 and 12-month period ended June 30, 2016 compared to 12-month period
ended June 30, 2015
The following table sets forth certain selected operating results and other financial information for each of the 7-month periods ended January 31, 2017 and 2016, and each of
the years ended June 30, 2016 and 2015:
Revenue
Cost of goods Sold
Gross Profit
Brand Management
Administrative expenses
Corporate expenses
Finance expense
Brand transition, restructure and transaction expense
Impairment expense
Other foreign currency gains/(losses)
Fair value gain/(loss) on convertible notes derivative
Profit/(Loss) before income tax
Income tax benefit/(expense)
Profit/(Loss) for the period
Other comprehensive income
Exchange differences on translation of foreign operations
Total comprehensive income/(loss) for the period
Jan. 31,
2017
NZ$000
seven
months
Unaudited
Jan. 31,
2016
NZ$000
seven
months
96,284
(57,144)
39,140
(32,040)
(2,383)
(8,082)
(6,238)
(1,321)
(292)
(3,306)
(592)
(15,114)
(865)
(15,979)
(29)
(16,008)
94,667
(51,998)
42,669
(27,647)
(2,109)
(8,236)
(5,436)
(1,122)
(2,157)
5,685
-
1,647
(289)
1,358
(379)
979
37
%
movement
Jun. 30,
2016
NZ$000
12 months
Jun. 30,
2015
NZ000$
12 months
%
movement
1.7%
9.9%
-8.3%
15.9%
13.0%
-1.9%
14.8%
17.7%
-86.5%
-158.2%
100.0%
-1017.7%
199.3%
-1276.7%
151,000
(83,525)
67,475
(48,362)
(4,090)
(13,002)
(10,409)
(2,232)
(2,157)
(2,423)
-
(15,200)
(5,546)
(20,746)
138,838
(79,031)
59,807
(42,203)
(4,691)
(13,940)
(5,870)
(12,182)
-
4,700
-
(14,379)
1,274
(13,105)
-92.3%
31
(93)
-1735.2%
(20,715)
(13,198)
8.8%
5.7%
12.8%
14.6%
-12.8%
-6.7%
77.3%
-81.7%
100.0%
-151.6%
0%
5.7%
-535.3%
58.3%
-133.3%
57.0%
Revenue
Year ended January 31, 2019 compared to 12-month period ended January 31, 2018
During the 12-month period ended January 31, 2019 the net sales decreased by $19.5m or 14.8% when compared with $131.4m in the 12-month period ended January 31, 2018.
The sales in the 12-month period ended January 31, 2019 continued to be negatively impacted by a stock supply issue because of liquidity issues. In addition, we also ended our
wholesale relationship with key major accounts in the US market. Our strategic decision to exit the EU/UK market as well as the loss of the Stella McCartney license also
contributed to the reduction in sales for the Company.
One new store was opened in Australia, as well as three new stores in New Zealand to continue to expand our brand presence across the Australasian market during the year
ended January 31, 2019. During the current financial year, we also successfully acquired both the Naked and Fredricks of Hollywood entities.
Year ended January 31, 2018 compared to 12-month period ended January 31, 2017 (unaudited)
During the 12-month period ended January 31, 2018 the net sales decreased by $20.75m or 13.6% when compared with $152.1m in the 12-month period ended January 31,
2017. The sales in the 12-month period ended January 31, 2018 were negatively impacted by a stock supply issue because of liquidity issues. Three new stores were opened in
Australia, as well as two new stores in New Zealand to continue to expand our brand presence across the Australasian market.
7-month period ended January 31, 2017 compared to the 7-month period ended January 31, 2016 (unaudited) and 12-month period ended June 30, 2016 compared to the 12-
month period ended June 30, 2015
Net sales in the 7-month period ended January 31, 2017 increased by $1.6m, or 1.7%, to $96.2m when compared with $94.7m in the 7-month period ended January 31, 2016.
Sales were negatively impacted by a stock supply issue, and less favorable foreign exchange rate fluctuations between the New Zealand dollar and U.S. Dollar, which was offset
by the beneficial impact of a new licensing agreement with Frederick’s of Hollywood.
Net sales in the 12-month period ended June 30 2016 increased by $12.2m, or 8.8%, to $151.0m when compared with $138.8m in the 12-month period ended June 30 2015. This
was driven by the extension of the business into providing advisory and management services to other intimate apparel businesses, favorable foreign exchange rate fluctuations
between the New Zealand dollar and U.S. Dollar, growth in U.S. wholesale distribution through a new contract with Macy’s, growth in the online business and introduction of 8
new stores across Australia.
Gross margins
Year ended January 31, 2019 compared to 12-month period ended January 31, 2018
During the 12-month period ended January 31, 2019 and the 12-month period ended January 31, 2018, the gross margin was 33.5% and 33.4% respectively. The movement
year on year is consistent, however the margin continues to be impacted by the sales mix, discounts provided to customers and a lack of current season stock because of the
supply issue.
38
Year ended January 31, 2018 compared to 12-month period ended January 31, 2017 (unaudited)
During the 12-month period ended January 31, 2018 and the 12-month period ended January 31, 2017, the gross margin was 33.4% and 44.6% respectively. The reduction in
gross margin was caused by increased discounts provided to customers and sub-optimal stock mix because of the stock supply issue.
7-month period ended January 31, 2017 compared to 7-month period ended January 31, 2016 and 12-month period ended June 30, 2016 compared to 12-month period ended
June 30, 2015
During the 7-month period ended January 31, 2017, the 7-month period ended January 31, 2016, 12-month period ended June 30 2016 and 12-month period ended June 2015,
the gross margin was 40.7%, 45.1%, 44.7%, and 43.1%, respectively. The movement in gross margin has remained fairly consistent, but has improved due to changes in the
sales mix including additional online revenue, as well as positive foreign exchange rate fluctuations.
Operating expenses
Year ended January 31, 2019 compared to 12-month period ended January 31, 2018
Brand management
Administrative expenses
Corporate expenses
Finance expense
Brand transition, restructure and transaction expenses
Impairment expense
Other foreign currency gains/(losses)
Fair value gain/(loss) on convertible notes derivative
Jan. 31,
2019
NZ$000
12 months
Jan. 31,
2018
NZ$000
12 months
%
movement
FY19 v
FY18
Unaudited
Jan. 31,
2017
NZ$000
12 months
%
movement
FY18 v
FY17
(49,256)
(3,432)
(14,145)
(4,041)
(10,075)
(8,173)
1,963
(775)
(53,653)
(4,131)
(12,851)
(8,791)
(3,272)
(1,914)
757
2,393
-8.2%
-16.9%
10.1%
-54.0%
207.9%
326.9%
159.3%
-132.4%
(53,957)
(3,712)
(12,920)
(11,214)
(2,430)
(2,865)
(14,327)
(592)
-0.6%
11.3%
-0.5%
-21.6%
34.7%
-33.2%
-105.3%
-504.5%
Brand management decreased by $4.4m, or 8.2% from $53.6m to $49.2m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended January
31, 2018. This was largely due to cost savings in our store overheads and reduced marketing spend.
Administrative expenses decreased by $0.7m, or 17% from $4.1m to $3.4m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended
January 31, 2018. This was due to cost saving initiatives implemented by our new CEO who joined us during the financial year ended January 31, 2019.
Corporate expenses increased by $1.3m, or 10.1%, from $12.8m to $14.1m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended
January 31, 2018, which was primarily driven by an increase in salary and rental costs.
Finance expenses decreased by $4.8m, or 54.5% from $8.8m to $4.0m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended January 31,
2018, due to a reduction in interest on both external borrowings and shareholder loans.
39
Brand transition, restructure and transaction expenses increased by $6.4m, or 195.9%, from $3.2m to $9.6m in the 12-month period ended January 31, 2019 as compared with
the 12-month period ended January 31, 2018, which was driven by costs incurred in respect of the US listing process.
Impairment expense increased by $6.3m, or 331.6%, from $1.9m to $8.2m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended January
31, 2018, which was driven by stock supply issue due to liquidity issues.
Other foreign currency gains increased by $1.2m or 159.2% from $0.7m to $1.9m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended
January 31, 2018 due to gains on foreign exchange contracts.
Year ended January 31, 2018 compared to 12-month period ended January 31, 2017 (unaudited)
Brand management
Administrative expenses
Corporate expenses
Finance expense
Brand transition, restructure and transaction expenses
Impairment expense
Other foreign currency gains/(losses)
Fair value gain/(loss) on convertible notes derivative
Jan. 31,
2018
NZ$000
12 months
Unaudited
Jan. 31,
2017
NZ$000
12 months
(53,653)
(4,131)
(12,851)
(8,791)
(3,272)
(1,914)
757
2,393
(53,957)
(3,712)
(12,920)
(11,214)
(2,430)
(2,865)
(14,327)
(592)
%
movement
-0.6%
11.3%
-0.5%
-21.6%
34.7%
-33.2%
-105.3%
-504.5%
Brand management expenses decreased by $0.3m, or 0.6%, from $53.9m to $53.6m in the 12-month period to January 31, 2018 as compared with the 12-month period to
January 31, 2017. This reduction was due to the increased focus on cost control in this area.
Administrative expenses increased by $0.4m or 11.3% from $3.7m to $4.1m in the 12-month period to January 21, 2018 as compared with the 12-month period to January 31,
2017. This increase was due to a higher spend on accounting and tax fees associated with the US listing process.
Corporate expenses are consistent with the prior 12-month period. The slight decrease of $69k, or 0.5% between the 12-month period ended to January 31, 2018 and 12- month
period to January 31, 2017, from $12.92m to $12.85m is considered immaterial.
Finance expenses decreased by $2.4m, or 21.6% from $11.2m to $8.8m in the 12-month period ended January 31, 2018 as compared with the 12-month period ended January
31, 2017, due to a reduction in interest on the shareholder loan due to the principal amount of such loans being reduced, the majority of which was converted to equity in
September 2016.
Brand transition, restructure and transaction expenses increased by $0.8m, or 34.7%, from $2.4m to $3.2m in the 12-month period ended January 31, 2018 as compared with the
12-month period ended January 31, 2017, which was driven by costs incurred in respect of the US listing process.
Impairment expense decreased by $0.95m or 33.2% from $2.8m to $1.9m in the 12-month period ended January 31, 2018 as compared with the 12-month period ended January
31, 2017. During the current financial year an impairment expense of $1.6m was incurred as management impaired the costs incurred on the ERP upgrade, as this software will
need to be replaced and updated with a more advanced system. In the 12-month period ended January 31, 2017 an impairment expense of $2.2m was recognized in relation to a
goodwill write-off.
40
Other foreign currency gains/(losses) reduced from a loss of $14.3m in 12-month period ended January 31, 2017 to a gain of $0.7m in the 12-month period ended Jan 31, 2018,
due to gains on foreign exchange contracts.
Fair value gain/(loss) on convertible notes derivative was a gain of $2.4m in 12-month period ended January 31, 2018 compared to a loss of $0.6m the period ended January 31,
2017. This is because the derivative ended at conversion date.
7-month period ended January 31, 2017 compared to 7-month period ended January 31, 2016 and 12-month period ended June 30, 2016 compared to 12-month period ended
June 30, 2015
Jan. 31,
2017
NZ$000
seven
months
Unaudited
Jan. 31,
2016
NZ$000
seven
months
%
movement
Jun. 30,
2016
NZ$000
12 months
Jun. 30,
2015
NZ000$
12 months
%
movement
Brand management
Administrative expenses
Corporate expenses
Finance expense
Brand transition, restructure, and transaction expenses
Impairment expense
Other foreign currency gains/(losses)
Fair value gain/(loss) on convertible notes derivative
(32,040)
(2,383)
(8,082)
(6,238)
(1,321)
(292)
(3,306)
(592)
(27,647)
(2,109)
(8,236)
(5,436)
(1,122)
(2,157)
5,685
-
15.9%
13.0%
-1.9%
14.8%
17.7%
-86.5%
-158.2%
100.0%
(48,362)
(4,090)
(13,002)
(10,409)
(2,232)
(2,157)
(2,423)
-
(42,203)
(4,691)
(13,940)
(5,870)
(12,182)
—
4,700
-
14.6%
-12.8%
-6.7%
77.3%
-81.7%
100.0%
-151.6%
0%
Brand management expenses increased by $6.2m, or 14.6%, from $42.2m to $48.4m between the 12-month period ended June 30 2015 and 12-month period ended June 30
2016. This was largely driven by growth in business and associated employee costs, as well as additional marketing expenditures to support the introduction of new swimwear
ranges. The increase of $4.4m, or 15.9%, from $27.6m to $32.0m in the 7-month period to January 31, 2017 as compared with the 7- month period to January 31, 2016, was also
driven by additional marketing expenditures.
Finance expenses increased by $4.5m, or 77.3%, between the 12-month period ended June 30 2015 and 12-month period ended June 30 2016, from $5.9m to $10.4m, due to
additional interest expense associated with an increase in debt. The finance expense in the 7- month period to January 31, 2016 and January 31, 2017 remained consistent due to
additional interest on convertible loan notes being partially offset by a reduction in interest on the shareholder loan due to the principal amount of such loans being reduced, the
majority of which was converted to equity in September 2016.
Brand transition, restructure and transaction expenses decreased by $10.0m from $12.2m in fiscal year 2015 to $2.2m in fiscal year 2016. This was largely driven by a reduction
in brand transition expenses incurred in relation the transition from the Elle MacPherson to Heidi Klum brand of $9.2m, given the licence arrangement terminated in fiscal year
2015 and therefore majority of the associated costs were recognized in the same period.
Brand transition, restructure and transaction expenses decreased by $0.9m from $2.2m in the 12-month period ended June 30 2016 to $1.3m in the 7-month period ended
January 31, 2017, largely due to a $0.9m decrease in Heidi Klum brand transition costs due to any non-recurring costs associated with the transition having been incurred prior
to the 7-months ended January 31, 2017.
An impairment expense of $2.2m was recognized in the 12-month period ended June 30 2016 and 7-month period to January 31, 2016 in relation to a goodwill write-off. An
impairment expense of $0.3m was recognised in the 7- month period to January 31, 2017.
41
Other foreign currency gains/(losses) reduced a gain of $4.7m in the 12-month period ended June 30 2015 to a loss of $2.4m in the 12-month period ended June 30 2016, due to
weakening of the New Zealand dollar and the impact of unfavorable hedge contracts.
Other foreign currency gains/(losses) reduced a gain of $5.7m in the 7-month period to January 31, 2016 to a loss of $3.3m in the 7-month period to January 31, 2017 as a result
of the same foreign exchange drivers.
Taxation
Year ended January 31, 2019 compared to 12-month period ended January 31, 2018
The tax benefit of $1,274k in the 12 month period ended January 31, 2019 was an increase of $1,334k when compared to the tax expense of $60k for the 12 month period ended
January 31, 2018. This year on year movement is due to increased tax benefits resulting from the increased losses and adjustments for current tax for prior periods.
Year ended January 31, 2018 compared to 12-month period ended January 31, 2017 (unaudited)
The tax expense of $60k in the 12month period ended January 31, 2018 decreased by $6.06m when compared to the 12-month period ended January 31, 2017. The variance was
due to the write off of the carrying value of prior year tax losses and deferred tax in the due to the uncertainty over whether the deferred tax asset could be utilized.
7-month period ended January 31, 2017 compared to the 7-month period ended January 31, 2016 (unaudited) and 12-month period ended June 30, 2016 and the 12-month
period ended June 30, 2015
The tax benefit of $1.3m in the 12-month period ended June 30 2015, increased by $6.8m, which resulted in a tax expense of $5.5m in the 12-month period ended June 30 2016.
A tax expense of $0.9m was recognised in the 7- month period to January 31, 2017. The variances were caused by a write off of the carrying value of prior year tax losses and
deferred tax temporary differences in the 12-month period ended June 30 2016 due to uncertainty over future profitability to ensure utilization of the deferred tax assets.
The effective tax rate for the 7-month period ended January 31, 2017, the 12-month period ended June 30 2016 and the 12-month period ended June 30 2015 was 5.7%, 36.5%
and 8.9%, respectively. These effective tax rates can be explained by deferred tax credits not brought to accounts due to uncertainty over their availability for utilization.
Net loss and comprehensive loss
Year ended January 31, 2019 compared to 12-month period ended January 31, 2018
The net loss in the 12-month period ended January 31, 2019 increased by $11.2m, or 29.9%, to ($48.9m) when compared with ($37.4m) in the 12-month period ended January
31, 2018. This was due to both the decrease in gross profit of $6.5m and the increase in expenses of $6.4m in the 12-month period ended January 31, 2019 when compared with
the 12-month period ended January 31, 2018.
Year ended January 31, 2018 compared to 12-month period ended January 31, 2017 (unaudited)
The net loss in the 12-month period ended January 31, 2018 decreased by $2.5m, or 6.3%, to ($37.4m) when compared with ($39.9m) in the 12-month period ended January 31,
2017. The decrease in gross profit of $23.9m in the 12-month period ended January 31, 2018 when compared with the 12-month period ended January 31, 2017 was
significantly offset by the reduction in expenses of $20.5m when comparing the same 12 month periods. Tax expense also decreased by $6.06m when compared to the 12-month
period ended January 31, 2017 to $60k in the 12month period ended January 31, 2018. The variance was due to the write off of the carrying value of prior year tax losses and
deferred tax in the due to the uncertainty over whether the deferred tax asset could be utilized.
42
7-month period ended January 31, 2017 compared to the 7-month period ended January 31, 2016 (unaudited) and 12-month period ended June 30, 2016 and the 12-month
period ended June 30, 2015
For the seven months ended January 31, 2017 and fiscal years ended June 30, 2016 (fiscal year 2016) and June 30, 2015 (fiscal year 2015), we incurred a net comprehensive
loss of ($16.0m), ($20.7m) and ($13.2m) respectively. Gross profit for the seven month period ended January 31, 2017, the seven month period ended January 31, 2016, fiscal
year 2016 and fiscal year 2015 was 40.7%, 45.1%, 44.7%, and 43.1%, respectively. The movement in gross margin has remained fairly consistent, but improved due to changes
in the sales mix including additional online revenue, as well as positive foreign exchange rate fluctuations. The tax benefit of $1.3m in fiscal year 2015, increased by $6.8m,
which resulted in a tax expense of $5.5m in fiscal year 2016. A tax expense of $0.9m was recognised in the seven month period to January 31, 2017. The variances were caused
by a write off of the carrying value of prior year tax losses and deferred tax temporary differences in fiscal year 2016 due to uncertainty over future profitability to ensure
utilization of the deferred tax assets.
The net loss in the 6-month period ended July 31, 2017 increased by $4.8m, or 34.8%, to ($18.5m) when compared with ($13.7m) in the 12-month period ended July 31, 2016.
This net loss was due to a reduction in gross profit, which decreased $13.6m in the 6-month period ended July 31, 2017 when compared with the 6-month period ended July 31,
2016, however this was partially offset by a reduction in expenses of $2.2m and a reduction in income tax expense of $5.9m for the 6-month period ended July 31, 2017 when
compared with the 6-month period ended July 31, 2016.
Segmented Reporting
Bendon Limited has seven reportable segments: Australia retail, New Zealand retail, Australia wholesale, New Zealand wholesale, US wholesale, Europe wholesale and E-
commerce.
●
Australia retail. This segment covers retail and outlet stores located in Australia.
● New Zealand retail. This segment covers retail and outlet stores located in New Zealand.
●
Australia wholesale. This segment covers the wholesale of intimates apparel to customers based in Australia.
● New Zealand wholesale. This segment covers the wholesale of intimates apparel to customers based in New Zealand.
● US wholesale. This segment covers the wholesale of intimates apparel to customers based in the United States of America.
●
●
Europe wholesale. This segment covers the wholesale of intimates apparel to customers based in Europe.
E-commerce. This segment covers the Company’s online retail activities.
The following table provides our segment net sales, gross margin and EBITDA for the 12-month period to January 31, 2019, 2018 and 2017.
Year ending January 31, 2019
NZ
AU
US
EU
e-
NZ Retail
NZ$000’s
AU Retail
NZ$000’s
Wholesale Wholesale
NZ$000’s
NZ$000’s
Wholesale
NZ$000’s
Wholesale
NZ$000’s
commerce
NZ$000’s
Unallocated
NZ$000’s
31,801
18,547
7,154
11,491
5,798
4,996
32,133
Total
-
111,920
16,377
3,373
9,355
(1,337)
782
(10)
2,993
(1,309)
576
(2.120)
506
(1,006)
10,885
(210)
(4,034)
(22,983)
37,440
(25,602)
Revenue
Gross
margin
EBITDA
43
Year ending January 31, 2018
NZ
AU
US
EU
e-
NZ Retail
NZ$000’s
AU Retail
NZ$000’s
Wholesale Wholesale
NZ$000’s
NZ$000’s
Wholesale
NZ$000’s
Wholesale
NZ$000’s
commerce
NZ$000’s
Unallocated
NZ$000’s
Total
34,269
18,236
10,453
15,512
6,390
14,192
32,234
102
131,388
17,781
4,330
8,779
(2,550)
2,240
1,172
2,967
(814)
(48)
(3,349)
3,971
1,067
11,260
(260)
(3,021)
(23,649)
43,929
(24,053)
Revenue
Gross
margin
EBITDA
Year ending January 31, 2017 (Unaudited)
NZ
AU
US
EU
e-
NZ Retail
NZ$000’s
AU Retail
NZ$000’s
Wholesale
NZ$000’s
Wholesale
NZ$000’s
Wholesale
NZ$000’s
Wholesale
NZ$000’s
commerce
NZ$000’s
Unallocated
NZ$000’s
Total
35,968
19,395
13,636
27,174
15,695
15,148
23,424
1,702
152,143
20,761
7,683
10,958
310
4,072
1,157
9,764
5,623
4,979
907
5,013
925
10,879
4,551
1,358
(19,060)
67,785
2,098
Revenue
Gross
margin
EBITDA
For the 7-months ended January 31, 2017
NZ Retail
NZ$000’s
AU Retail
NZ$000’s
NZ Wholesale
NZ$000’s
AU Wholesale
NZ$000’s
US Wholesale
NZ$000’s
EU Wholesale
NZ$000’s
e-
commerce
NZ$000’s
Unallocated
NZ$000’s
21,953
12,053
7,484
18,091
9,015
9,548
18,140
Total
-
96,284
12,246
4,766
6,461
265
2,523
2,048
6,660
4,571
2,081
16
3,271
1,258
6,238
2,584
(340)
(17,634)
39,140
(2,126)
Revenue
Gross
margin
EBITDA
Year to June 30, 2016
NZ Retail
NZ$000’s
AU Retail
NZ$000’s
NZ
Wholesale
NZ$ 000’s
AU
Wholesale
NZ$000’s
US
Wholesale
NZ$000’s
EU
Wholesale
NZ$000’s
e-
commerce
NZ$ 000’s
Unallocated
NZ$000’s
Total
37,389
20,680
15,071
28,021
18,876
16,531
6,722
7,710
151,000
21,336
9,073
11,750
1,915
4,350
3,641
9,965
6,445
4,336
1,519
4,873
1,669
3,140
1,101
7,725
(14,893)
67,475
10,470
Revenue
Gross
margin
EBITDA
44
Year to June 30, 2015
NZ Retail
NZ$000’s
AU Retail
NZ$000’s
NZ
Wholesale
NZ$ 000’s
AU
Wholesale
NZ$000’s
US
Wholesale
NZ$000’s
EU
Wholesale
NZ$000’s
e-
commerce
NZ$ 000’s
Unallocated
NZ$000’s
Total
37,089
18,491
16,333
29,817
13,853
17,548
5,683
24
138,838
20,819
8,934
10,425
2,801
5,355
3,568
11,356
8,907
2,924
388
6,290
3,024
2,611
620
27
(24,822)
59,807
3,420
Revenue
Gross
margin
EBITDA
(1) Unallocated revenue, gross margin and EBITDA relates to revenue, gross margin and EBITDA that cannot be attributed directly to the other reportable segments above
including various brand management and head office costs.
New Zealand and Australia Retail
In the 12-month period ended January 31, 2019 New Zealand retail EBITDA was $3.4m compared with $4.3m in the 12-month period to January 31, 2018. Australian Retail
EBITDA for the 12-month period ended January 31, 2019 was a loss of $1.3m compared with a loss of $2.5m in the 12-month period to January 31, 2018. The retail
environment continued to be challenging for our Bendon stores, and this along with a lack of current season stock supply were the key reasons for both the reduction in the New
Zealand market EBITDA year on year as well as the continued operating loss in the Australian market.
In the 12-month period ended January 31, 2018 New Zealand retail EBITDA was $4.3m compared with $7.7m in the 12-month period to January 31, 2017. Australian Retail
EBITDA for the 12-month period ended January 31, 2018 was a loss of $2.5m compared with a profit of $0.3m in the 12-month period to January 31, 2017. A challenging retail
environment, seasonal product mix and vendor supply issues were the key reasons for this reduced EBITDA across both the New Zealand and Australian retail markets.
New Zealand Retail Gross margin reduced 5.8% between the 12-month period to January 31, 2018 and 12- month period to January 31, 2017 from 57.7% to 51.9%. Australia
Retail Gross margin reduced 8.4% between the 12-month period to January 31, 2018 and 12- month period to January 31, 2017 from 56.5% to 48.1%. The reduction in the gross
margin in both markets was caused by increased discounts provided to customers and sub-optimal stock mix because of the stock supply issue.
In the 7-month period ended January 31, 2017, the 12-month period ended June 30 2016, the 12-month period ended June 30 2015, New Zealand retail EBITDA was $4.8m,
$9.1m, an d $8.9m respectively, as a result of similar trading conditions and consistent store numbers.
In the 12-month period ended June 30 2016, Australia retail recognized increased revenue and reduced EBITDA of $20.7m and $1.9m, respectively, as compared with $18.5m
and $2.8m, respectively, in the 12-month period ended June 30 2015. The increase in revenue was due to the introduction of 8 new outlet stores, which due to early trading
losses experienced reduced EBITDA. The revenue and EBITDA in the 7-month period to January 31, 2017 showed a consistent trend as compared with the 12-month period
ended June 30 2016.
45
NZ Wholesale, AU Wholesale, US Wholesale and EU wholesale
In the 12-month period ended January 31, 2019 the EBITDA loss decreased in the US market and increased in the NZ, AU and EU markets when compared with the 12-month
period ended January 31, 2018. New Zealand wholesale EBITDA was a loss of $0.01m in the 12-months ended January 31, 2019 compared with an EBITDA profit of $1.1m in
the 12-months ended January 31, 2018. AU wholesale EBITDA was a loss of $1.3m in the 12-months ended January 31, 2019 compared with an EBITDA loss of $0.8m in the
12-months ended January 31, 2018. US wholesale EBITDA was a loss of $2.1m in the 12-months ended January 31, 2019 compared with an EBITDA loss of $3.3m in the 12-
months ended January 31, 2018. EU Wholesale EBITDA was a loss of $1.0m in the 12-months ended January 31, 2019 compared with a profit of $1.1m in the 12-months ended
January 31, 2018.
In the 12-month period January 31, 2019, and 12-month period ended January 312, 2018 New Zealand wholesale revenue was $7.1m and $10.4m respectively. In the 12-month
period ended January 31, 2019 New Zealand Wholesale EBITDA was a loss of $0.01m compared with a profit of $1.1m in the 12-month period to January 31, 2018. Both the
reduction in sales, and EBITDA loss in the New Zealand market is attributed to a lack of order fulfillment due to the reduced stock supply, additional costs were also incurred as
a result of unfulfilled orders.
In the 12-month period ended January 31, 2019 and 12-month period ended January 31, 2018, Australia wholesale revenue was $11.5m and $15.5m, respectively. In the 12-
month period ended January 31, 2019 Australia Wholesale EBITDA was a loss of $1.3m compared with a loss of $0.8m in the 12-month period to January 31, 2018. The
EBITDA loss for the Australian market was also due to a lack of fulfillment of orders because of the reduced stock supply.
US wholesale revenue dropped from $6.4m for the 12-month period ended January 31, 2018 to $5.8m for the 12-month period ended January 31, 2019. The EBITDA Loss for
the period ended January 31, 2019 was $2.1m compared to the EBITDA loss of $3.3m for the year ended January 31,2018. The EBITDA loss incurred for the US Wholesale
market was primarily due to our relationship ending with key major wholesale accounts.
In the 12-month period ended January 31, 2019, and the 12-month period ended January 31, 2018, EU wholesale revenue was $5.0m, and $14.2m respectively. The EBITDA
Loss for the period ended January 31, 2019 was $1.0m compared to the EBITDA profit of $1.1m for the year ended January 31, 2018. A strategic decision was made by the
business to exit the EU market and this is the key driver for reduction in sales and the loss for the current period.
In the 12-month period ended January 31, 2018 EBITDA increased in the NZ Wholesale and EU Wholesale markets and decreased in the AU Wholesale and US Wholesale
markets when compared with the 12-month period ended January 31, 2017. New Zealand wholesale EBITDA was $1.17m in the 12-months ended January 31, 2018, compared
with $1.15m in the 12-months ended January 31, 2017. AU wholesale EBITDA was a loss of $0.8m in the 12-months ended January 31, 2018, compared with an EBITDA
profit of $5.6m in the 12-months ended January 31, 2017. US wholesale EBITDA was a loss of $3.3m in the 12-months ended January 31, 2018 compared with an EBITDA
profit of $0.9m in the 12-months ended January 31, 2017. EU wholesale EBITDA was a profit of $1.1m in the 12-months ended January 31, 2018, compared with a profit of
$0.9m in the 12-months ended January 31, 2017.
In the 12-month period ended January 31, 2018 and 12-month period ended January 31, 2017 New Zealand wholesale revenue was $10.4m and $13.6m, respectively.
Cancellation of orders from our key account holders due to vendor supply issues were the key reasons for these reduced sales.
In the 12-month period ended January 31, 2018 and 12-month period ended January 31, 2017, Australia wholesale revenue was $15.5m and $27.1m, respectively. In the 12-
month period ended January 31, 2018 Australia Wholesale EBITDA was a loss of $0.8m compared with a profit of $5.6m in the 12-month period to January 31, 2017. The
EBITDA loss for the Australian market was due to the cancellation of multiple orders as a result of delayed supply, due to vendor delays and discounts offered to customers for
delayed ranges.
US wholesale revenue dropped from $15.7m for the 12-month period ended January 31, 2017 to $6.4m for the 12-month period ended January 31, 2018. The EBITDA Loss for
the period ended January 31, 2018 was $3.3m compared to the EBITDA profit of $0.9m for the year ended January 31,2017. The EBITDA loss incurred for the US Wholesale
market was primarily due to our relationship ending with Macy’s
46
In the 12-month period ended January 31, 2018, and the 12-month period ended January 31, 2017, EU wholesale revenue was $14.2m, and $15.1m respectively. EU Wholesale
Gross margin decreased 5.1% between the 12-month period to January 31, 2018 and 12- month period to January 31, 2017 from 33.1% to 28%. These fluctuations were driven
by changes in customer mix. EBITDA increased year on year, driven by a reduction in expenses.
In the 7-month period ended January 31, 2017, the 12-month period ended June 30 2016, and the 12-month period ended June 30 2015, New Zealand wholesale revenue was
$7.5m, $15.1m, and $16.3m, respectively. In the 7-month period ended January 31, 2017, the 12-month period ended June 30 2016, and the 12-month period ended June 30
2015, Australia wholesale revenue was $18.1m, $28.0m and $29.8m, respectively. These fluctuations were driven by changes in customer mix and a general trend in the
business to focus on its direct to consumer strategy. EBITDA for these respective segments was in line with sales movements.
US wholesale revenue grew from $13.9m in the 12-month period ended June 30 2015 to $18.9m in the 12-month period ended June 30 2016 as a result of a new Macy’s contract
and favorable foreign exchange rate variances. U.S. wholesale revenue was $9.0m and EBITDA was $0.0m in the 7-month period to January 31, 2017 which was due to reduced
business from Macy’s and less favorable foreign exchange movements than in the 12-month period ended June 30 2016. EBITDA for this segment was in line with sales
movements.
In the 7-month period ended January 31, 2017, the 12-month period ended June 30 2016, and the 12-month period ended June 30 2015, EU wholesale revenue was $9.6m,
$16.5m, and $17.5m respectively. These fluctuations were driven by changes in customer mix and general trend in the business to focus on its direct to consumer strategy.
EBITDA for segments was in line with sales movements.
E-commerce
For the 12-months ended January 31, 2019 the e-commerce EBITDA was a loss of $0.2m compared with a loss of $0.3m for the 12-months ended January 31, 2018. The loss for
this period was impacted by the reduction in gross margin between the 12-month period to January 31, 2019 and 12-month period to January 31, 2018 from 34.9% to 33.9%,
sales are comparable year on year.
For the 12-months ended January 31, 2018 our e-commerce EBITDA was a loss of $0.3m compared with a profit of $4.5m for the 12-months ended January 31, 2017. The loss
for this period is due to decrease in margin as a result of the new license fee under the license agreement with FOH and discounts offered to customers. E-commerce Gross
margin reduced 11.5% between the 12-month period to January 31, 2018 and 12-month period to January 31, 2017 from 46.4% to 34.9%.
In the 12-month period ended June 30 2016, e-commerce Revenue grew to $6.7m from $5.7m in the 12-month period ended June 30 2015. This was as a result of changing
consumer trends and a conscious shift in the business to focus on this revenue stream. EBIDA for this segment was in line with sales movements.
The e-commerce revenue and EBITDA increased significantly in the 7-month period to January 31, 2017, to $18.4m and $2.6m respectively. This was as a result of entering into
a license agreement with Frederick’s of Hollywood. The previous management service arrangement with Frederick’s of Hollywood that existed in the 12-month period ended
June 30 2016 was not allocated to this segment.
Non-IFRS Financial Measures
EBITDA is defined as earnings before interest, taxes, depreciation, depletion, amortization and impairment. Our management uses EBITDA as a measure of our operating
results and considers it to be a meaningful supplement to net income as a performance measurement, primarily because we incur significant depreciation and depletion and
impairment charges, and the exclusion of such amounts in EBITDA eliminates the non-cash impact.
47
Reconciliations
Reconciliation of segment EBITDA to the consolidated statements of profit or loss and other comprehensive income follows:
Year ended January 31, 2019 compared to 12-month period ended January 31, 2018
Segment EBITDA
Income tax (expense)/benefit
Any other reconciling items
Total net loss after tax
Year ended January 31, 2018 compared to 12-month period ended January 31, 2017 (unaudited)
12 months ended
January 2019
NZ$000
12 months ended
January 2018
NZ$000
(25,602)
1,274
(24,892)
(49,220)
(24,053)
(60)
(13,480)
(37,593)
Segment EBITDA
Income tax (expense)/benefit
Any other reconciling items
Total net loss after tax
12 months
ended
January 2018
NZ$000
Unaudited
12 months
ended
January 2017
NZ$000
(24,053)
(60)
(13,480)
(37,593)
2,098
(6,123)
(36,327)
(40,352)
7-month period ended January 31, 2017 compared to the 12-month period ended June 30, 2016 and the 12-month period ended June 30, 2015
Segment EBITDA
Income tax (expense)/ benefit
Other Revenue
Any other reconciling items
Total net loss after tax
7 months ended
January 2017
NZ$000’s
12 months ended
June 2016
NZ$000’s
12 months ended
June 2015
NZ$000’s
(2,126)
(865)
(12,988)
(15,979)
10,470
(5,546)
7,710
(33,380)
(20,746)
3,420
1,274
24
(17,823)
(13,105)
In each of the tables above, “other reconciling items” consist of brand transition, restructure and transaction expenses, finance expense, impairment expense, depreciation and
amortization, fair value (gain)/loss on foreign exchange contracts, and unrealized foreign exchange (gain)/loss.
48
B. Liquidity, and Capital Resources
Liquidity
We finance our business through cash from operations and equity and debt financing. Our cash requirements have been principally to fund working capital needs, to support the
growth of the business and to partially repay our bank loan.
Management intends to continue to raise funds from equity financing to fund our operations and objectives. There is no assurance the additional funding will be achieved. If we
are unable to achieve the additional funding, we may not be able to conduct our operations and pursue our objectives as presently contemplated, which may adversely affect our
results of operations and financial condition.
12-month period ended January 31, 2019 compared to 12-month period ended January 31, 2018
As at January 31, 2019 and January 31, 2018 the Company had cash totaling $1.9m and $10.7m respectively. During the 12-months ended January 31, 2019 and the 12-months
ended January 31, 2018 insufficient cash availability directly contributed to a lack of stock.
During the year ended January 31, 2019, the Company has undertaken a number of financing activities and raised $23.6m. Of this amount, $18.5m was utilized to repay Bank
debt and the balance was utilized as working capital in the operating business.
12-month period ended January 31, 2018 compared to 12-month period ended January 31, 2017
As of January 31, 2018, and January 31, 2017, the Company had cash totaling $10.7m and $2.6m respectively. During the 12-months ended January 31, 2018 and the 12-
months ended January 31, 2017, insufficient cash liquidity contributed to a stock supply issue as described above.
During the year ended January 31, 2018, the Company issued an aggregate amount of USD $2,600,000 (NZ$3,544,649) of convertible notes.
Working capital
We have managed and continue to manage our working capital constraints through the deferral of creditor settlement. Our relationships with our suppliers are managed
carefully and we do not have any significant concerns about the deferred payment arrangements. We are continuing to raise capital and believe that this will assist greatly in
reducing the overdue creditor position in the coming financial year.
As of January 31, 2019 and January 31, 2018
Current Assets
Current Liabilities
Working Capital
January 31,
2019
NZ$000
January 31,
2018
NZ$000
33,369
(62,795)
(29,426)
70,343
(91,095)
(20,752)
As of January 31, 2019, current assets decreased due to the reduction in related party receivables, the reduction in inventory because of the reduced stock supply, and the
reduced trade and other receivables because of cancelled orders from our wholesale accounts due to ongoing stock supply issues. Our cash balance also reduced by $8.8m from
$10.7m as at the year ended January 31, 2018 to $1.9m as at the year ended January 31, 2019.
49
As of January 31, 2018 and January 31, 2017
Current Assets
Current Liabilities
Working Capital
January 31,
2018
NZ$000
January 31,
2017
NZ$000
70,343
(91,095)
(20,752)
81,588
(101,232)
(19,644)
The negative working capital is primarily driven by the classification of bank debt and shareholder loan as current liabilities. As of January 31, 2018, current assets decreased
due to both the reduction in inventory because of vendor supply issues and the reduced trade and other receivables as a result of cancelled orders from our wholesale accounts
due to vendor supply issues
As of January 31, 2017, June 30, 2016 and June 30, 2015
Current Assets
Current Liabilities
Working Capital
January 31,
2017
NZ$000’s
June 30,
2016
NZ$000’s
June 30,
2015
NZ000’s
81,588
(108,027)
(26,439)
74,807
(94,794)
(19,987)
70,026
(94,093)
(24,067)
The negative working capital is primarily driven by the classification of bank debt and shareholders loan as current liabilities.
Cash flows
Year ended January 31, 2019 compared to 12-month period ended January 31, 2018
Net cash outflow from operating activities
Net cash outflow from investing activities
Net cash inflow from financing activities
Net increase/(decrease) in cash and cash equivalents held
Cash and cash equivalents at end of the year
Operating Activities
12 months ended
January 31, 2019
NZ$000
12 months ended
January 31, 2018
NZ$000
(9,434)
(1,867)
2,168
(9,133)
1,962
(4,116)
(2,312)
14,496
8,068
10,739
Net cash outflow from operating activities for the 12-month period to January 31, 2019 and, 12-month period to January 31, 2018 was $9.4m, and $4.1m, respectively. This was
largely because of the increased net loss for the current period. The company is committed to a strategic plan lead by our new CEO to create cost savings and manage the
overhead structure moving forward, we anticipate that this plan will have a positive impact on our operating cashflow moving forward.
Investing Activities
Net cash outflow from investing activities for the 12-month period to January 31, 2019 and for the 12-month period to January 31, 2018 was $1.9m and $2.3m respectively. This
was driven by the proceeds from the businesses acquired during the period.
50
Financing Activities
Net cash inflow from financing activities for the 12-month period to January 31, 2019 and, 12-month period to January 31, 2018 was $2.2m, and $14.5m, respectively. During
the 12-month period to January 31, 2019 the company raised $23.2m through the issue of shares. These funds were partially used to fund interest charges of $2.3m during the
period, and to also repay the bank $18.5m.
Year ended January 31, 2018 compared to 12-month period ended January 31, 2017 (unaudited)
Net cash outflow from operating activities
Net cash outflow from investing activities
Net cash inflow from financing activities
Net increase/(decrease) in cash and cash equivalents held
Cash and cash equivalents at end of the year
Operating Activities
12 months
ended
January 31,
2018
NZ$000
12 months
ended
January 31,
2017
NZ$000
(4,116)
(2,312)
14,496
8,068
10,739
(15,160)
(2,933)
17,039
(1,053)
2,645
Net cash outflow from operating activities for the 12-month period to January 31, 2018 and, 12-month period to January 31, 2017 was $4.1m, and $15.1m, respectively. This
was largely as a result of the net loss for the periods. Bendon Limited will continue to implement a restructure plan to create cost savings and manage the overhead structure,
which will show as favorable impact in the cash flow going forward.
Investing Activities
Net cash outflow from investing activities for the 12-month period to January 31, 2018 and, 12-month period to January 31, 2017 was $2.3m, and $2.9m, respectively. This was
largely driven by capital expenditure on property, plant and equipment in stores including enhancement of existing stores and introduction of new stores.
Financing Activities
Net cash inflow from financing activities for the 12-month period to January 31, 2018 and, 12-month period to January 31, 2017 was $14.5m, and $17m, respectively. During
the 12-month period to January 31, 2018 the company raised $22m through the issue of shares and an additional $4.5m through convertible note issuance. These funds were
used partly to fund interest charges of $3.4m during the period, and to also repay the bank $9.7m.
7-month period ended January 31, 2017 compared to 12-month period ended June 30, 2016 and 12-month period ended June 30 2015
Net cash (outflow) from operating activities
Net cash (outflow) from investing activities
Net cash inflow from financing activities
Net increase/decrease in cash and cash equivalents held
Cash and cash equivalents
51
7 months
ended
January 31,
2017
NZ$000’s
12 months
ended
June 30,
2016
NZ$000’s
12 months
ended
June 30,
2015
NZ000’s
(13,518)
(1,074)
13,082
(1,510)
2,644
(5,040)
(3,178)
11,251
3,033
4,193
(17,199)
(5,794)
20,524
(2,469)
1,246
Operating Activities
Net cash (outflow) from operating activities for the 7-month period to January 31, 2017, 12 month period ended June 30 2016 and the 12 month period ended June 30, 2015 was
$13.5m, $5.0m, and $17.2m, respectively, which was largely as a result of the net loss for the periods.
Investing Activities
Net cash (outflow) from investing activities for the 7-month period to January 31, 2017, the 12 month period ended June 30, 2016 and the 12 month period ended June 30, 2015
was $1.1m, $3.2m, and $5.8m respectively. This was largely driven by capital expenditure on property, plant and equipment in stores including enhancement of existing stores
and introduction of new stores.
Financing Activities
Net cash inflow from financing activities for the 7- month period to January 31, 2017, the 12 month period ended June 30, 2016, and the 12 month period ended June 30, 2015
was $13.1m, $11.3m, and $20.5m respectively. Bank debt and shareholder loan finance increased in the 12 month period ended June 30 2015 and the 12 month period ended
June 30 2016 to fund operating cash outflows. During the 7- month period ended January 31, 2017, in addition to additional bank and shareholder debt, cash was also raised
through issuance of $16.5m in convertible note debt.
Indebtedness
Bank loan
On June 27, 2016, all banking facilities were repaid and a new banking arrangement with BNZ commenced. This debt arrangement with BNZ was entered into on June 27, 2016
and included a term loan facility and revolving (working capital) loan facility. The facility limits of the term loan and revolving loan were $54,000,000 in aggregate.
On June 13, 2018, we entered into a Deed of Amendment with BNZ to reduce the facility limits from $54,000,000 in the aggregate to a single revolving facility limit of
$20,000,000. In addition, the new facility takes over guarantees and financial instruments totalling $1,345,000. In connection with the Deed of Amendment, we repaid
approximately $18 million of the outstanding loans.
The new facility of $20,000,000 has been extended to August 31, 2019 and discussions are continuing to extend the facility beyond that point. The current amount outstanding
under the facilities (including the instruments referenced above) is $20,000,000 (January 31, 2018: $38,489,428, 2017: $41,710,000). The current interest rate on this loan is
5.57% (January 31, 2019: 5.57%, 2018: 5.55%, 2017: 4.84%) per annum.
BNZ has the first ranking charge over all assets of the Company and its subsidiaries. Under the terms of the major borrowing facility, the new facility is subject to four
undertakings being: Interest cover ratio of three times that is first tested as at April 30, 2019; gross EBITDA ratio measured to 3 months to September 2018 had to be greater
than $0, six months to December 30, 2018 is greater than $3 million; inventory and receivables ratio must be greater than 2 times being first measured as at September 30,
2018; and the actual sales and gross margin must not vary by more than 10% from the budget submitted to the Bank.
As at October 31, 2018, there was a breach in minimum gross EBITDA ratio. As at January 31, 2019, there was a breach of the minimum Gross EBITDA ratio and a breach of
the inventory and receivables ratio. The Bank has advised that they are currently taking these breaches under review.
Shareholder loan
On September 29, 2016, Bendon Limited issued 24,839 Bendon Ordinary Shares to the shareholders as part of an agreement to convert debt to equity. The amount of debt
converted on this date amounted to $24,839,783.
On June 19, 2018, Bendon Limited issued additional 24,221 Bendon Ordinary Shares to the shareholders as part of an agreement to convert the remainder of the shareholder
debt to equity. The amount of debt converted on this date amounted to a fair value of $12,244,208.
52
After this conversion, the shareholder loan is fully converted to equity and the outstanding balance as at January 31, 2019 was zero (January 31, 2018: $10,951,295, 2017:
$8,200,000). The interest rate on the shareholder loans up to the date of conversion was 30%, and was capitalised quarterly. Total interest capitalised during the twelve months
to January 31, 2019 was $641,000 (January 31, 2018: $553,000, 2017: $275,000).
Convertible notes
On September 29, 2017, the holders of US$11.75m (NZ$16.79m) of convertible notes converted to 23,961 Bendon Ordinary Shares. On June 19, 2018, in connection with the
closing of the Reorganization, the holders of US$2.8m (NZ$4.2m) of convertible notes converted to 16,408 Bendon Ordinary Shares.
The holder of US$1.0m (NZ$1.42m) of convertible notes elected for their convertible note to be repaid which is due at a future date to be agreed between us and the holder.
The amount owing has been classified as a current borrowing and amounted to NZ$1.247m as at January 31, 2019.
All the convertible notes have now converted to equity due to the closing of the Reorganization, or been reclassified as other loans. Accordingly, the outstanding balance of the
convertible notes was zero as at January 31, 2019 (January 31, 2018: US$2,600,000 (NZ$3,624,198), 2017: US$12,000,000 (NZ$16,474,465)). The convertible notes had been
issued pursuant to an Investment Agreement dated on August 9, 2017. The convertible notes accrued interest at 10% interest, were subject to a conversion at a fixed value on the
business day immediately prior to the Reorganization and had a maturity date of August 10, 2019. Conversion was at the noteholders option. If conversion had not occurred the
convertible notes would have been redeemable at maturity. The issuer could have elected to redeem the convertible notes at any time prior to maturity.
The carrying value of the convertible notes at initial recognition was determined as the difference between the consideration received and the fair value of the embedded
derivative recognised. The convertible notes are subsequently measured at amortised cost using the effective interest rate method. The carrying value of the convertible notes at
January 31, 2019 was zero (2018: $1,740,000, 2017: $13,744,000).
C. Research and Development, Patents and Licenses
We do not have any set research and development policies and have not spent a significant amount on research and development in the last three fiscal years
D. Trend Information
For a discussion of trends relating to revenues, please see Item 5.A, “Results of Operations,” contained in this Annual Report and incorporated herein by reference.
E. Off-balance Sheet Arrangements
Except for amounts due under operating lease commitments disclosed below under Item E, “Contractual Obligations,” of this Annual Report, we do not have any material off-
balance sheet commitments or arrangements.
53
F. Contractual Obligations
As of January 31, 2019, our contractual, obligations, excluding trade creditors, were as set forth below:
Bank loan
Shareholder loans
Other Loans
Working capital financing bank facility
Convertible notes
Minimum lease payments under non-cancellable
operating leases
Contracted commitements
Total
G. Safe Harbor
Total
January 31, 2019
NZ$000
Not later
than one year
NZ$000
Between
one year and
five years
NZ$000
Later than
five years
NZ$000
20,000
1,049
967
-
0
28,057
12,982
64,066
20,000
1,049
967
-
0
8,974
4,286
35,354
18,532
8,696
27,228
1,485
1,485
The safe harbor provided in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act applies to forward-looking information provided
under “Off-Balance Sheet Arrangements” and “Contractual Obligations.”
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
Effective as of the consummation of the Transactions, our officers and directors are as follows:
Name
Justin Davis-Rice
Anna Johnson
Howard Herman
Paul Hayes
Andrew Shape
Age
48
47
54
53
46
Executive Chairman and Director
Chief Executive Officer
Chief Financial Officer
Independent Non Executive Director
Independent Non Executive Director
Position
Justin Davis-Rice has been a member of our board of directors since our formation and became our Chief Executive Officer upon consummation of the Transactions. Mr.
Davis-Rice is currently Executive Chairman of Bendon Limited. Prior to becoming Executive Chairman, Mr. Davis-Rice served as Chief Executive Officer of Bendon Limited
for six years during which he transformed the company through an operational restructuring and a re-engineering of key functional and operational aspects of the business
including, supply chain, human resources, design and development, sourcing, wholesale and retail sales. Prior to joining the Company, Mr. Davis-Rice co-founded Pleasure
State, an intimate apparel company which he merged with Bendon Limited in May 2010. Mr. Davis-Rice helped turn Pleasure State into a business with multimillion dollar
earnings. Mr. Davis-Rice has served as a member of Naked (NV)’s board of directors since January 2017. The Company believes Mr. Davis-Rice’s experience in the fashion
industry makes him well suited to serve as a member of the board of directors.
Anna Johnson became our Chief Executive Officer in April 2019. She brings to Naked a track record of over 25 years’ experience driving growth across a number of
industries, including consumer electronics, outdoor adventure and intimate apparel. From September 2018 until her appointment as Chief Executive Officer of the Company,
Ms. Johnson was the Chief Executive Officer of Bendon, our wholly owned subsidiary. In addition, from 2012 to June 2017, she was Executive General Manager of Bendon,
spearheading Bendon’s retail channel and delivering sequential 30% plus returns from multiple women’s categories. From June 2017 to September 2018, Ms. Johnson was
Executive General Manager of operations with The Warehouse Group (NZE: WHS), one of New Zealand’s largest publicly listed companies, where she oversaw $1 billion of
revenue and a 93-store footprint. Prior to 2012, Ms. Johnson was the General Manager for the New Zealand territory and franchisee with Harvey Norman (ASX: HVN), one of
Australia’s largest list retailers.
54
Howard Herman became our Chief Financial Officer upon consummation of the Transactions. Mr. Herman joined Bendon Limited in March 2015 and is a Chartered
Accountant with 25 years’ experience in the retail, finance and property sectors. Prior to joining Bendon Limited, Mr. Herman was a Director for 4.5 years at Universal Retail
Brands which completed a management buyout of the Queenspark fashion retail chain from Specialty Fashion Group, and subsequently bought Events Fashion. The business
were subsequently sold to Noni B, a retailer listed on the Australia Stock Exchange, ASX. Previously Mr. Herman was CFO at Speciality Fashion Group for 9 years. Speciality
Fashion Group is a leading Apparel ASX listed retailer with over 900 doors across Australia and New Zealand and revenues of approximately AUD$800m.
Paul Hayes became a member of our board of directors upon consummation of the Transactions. Mr. Hayes has served as a member of Naked (NV)’s board of directors since
February 2015. Mr. Hayes, a certified public accountant, has been the Vice President Finance for Parfums de Coeur Ltd, a beauty and wellness products concern, since
September 2014. From October 2013 to August 2014 he was an independent consultant providing advice to a range of companies in the areas of financial reporting, systems
implementation, risk management, and compliance. Through September 2013 and for more than five years previous he was with The Warnaco Group, Inc. in several roles of
financial leadership. He has extensive global experience managing and driving growth in a wide range of industries, particularly in the intimate apparel and sleepwear categories
through his tenure at Calvin Klein. Mr. Hayes is a Certified Public Accountant and led the commercial finance and accounting team for the $500 million Calvin Klein brand
business in Europe in his capacity as Chief Financial Officer for the Europe region of The Warnaco Group. Previously, he held senior positions at Nokia Corporation and
Deloitte & Touche LLP. Mr. Hayes received a BBA from Iona College and an MBA from New York University Leonard N. Stern School of Business. The Company believes
Mr. Hayes’ extensive business experiences in the apparel merchandising industries makes him well suited to serve as a member of the board of directors.
Andrew Shape became a member of our board of directors upon consummation of the Transactions. Mr. Shape has over 25 years of merchandising, marketing, branding,
licensing, and management experience. He also has provided consulting and management services to early stage brands on launching of the brand, creating a marketing plan,
establishing distribution models, earning market share, and formulating an exit strategy. Mr. Shape is a co-founder of Stran & Company, Inc., a promotional merchandise and
marketing agency that provides leading consumer brands with promotional merchandise and marketing support, and has served as its President since September 1996. He is
also the founder of Harbor Scientific Consulting, and has served as its President since November 2017. Prior to forming Stran & Company, Inc., he worked at Copithorne &
Bellows Public Relations (a Porter Novelli company) as an Account Executive covering the technology industry. Mr. Shape received a BA from the University of New
Hampshire. The Company believes Mr. Shape’s extensive experience in branding and licensing makes him well suited to serve as a member of the board of directors.
B. Compensation
Compensation of Senior Management/Executive Officers
Justin Davis-Rice, Howard Herman and Carole Hochman served as executive officers of our company for the twelve months ended January 31, 2019. Ms. Hochman resigned as
Executive Chairman and as a director in February 2019. Anna Johnson was appointed as our Chief Executive Officer in April 2019, with Mr. Davis-Rice becoming our
Executive Chairman upon such appointment.
During the twelve months ended January 31, 2019, the aggregate amount of compensation paid to our executive officers was approximately US$1.15m. The following table sets
forth the compensation of each of our executive officers for the twelve months ended January 31, 2019:
55
Name and Principal Position
Salary
Bonus
Equity Compensation
All Other
Compensation
Total
Justin Davis-Rice
Executive Chairman (former Chief Executive Officer)
Howard Herman
Chief Financial Officer
Carole Hochman
Former Executive Chairman
$
$
$
576,003
324,000
349,998
0
0
0
Compensation of Non-Executive Independent Directors
0
0
0
0
0
0
$
$
$
576,003
324,000
349,998
Our non-employee directors receive an annual cash fee of $25,000 and an annual grant of $35,000 of ordinary shares for service on our board of directors. In addition, the chair
of our audit committee receives an additional annual cash fee of $10,000, the chair of our compensation committee receives an additional annual cash fee of $5,000 and the
chair of our nominating committee receives an additional annual cash fee of $5,000.
During the twelve months ended January 31, 2019, the aggregate amount of compensation paid to our non-employee directors (former and current) was $67,500. The following
table sets forth the compensation of each of our non-employee directors for the twelve months ended January 31, 2019:
Name and Principal Position
Cash Fees
USD
Equity
USD
All Other
Compensation
Total
USD
$
$
17,500 $
15,000 $
17,500 $
17,500 $
- $
- $
35,000
32,500
Paul Hayes
Andy Shape
C. Board Practices
Director Term of Office
Each director will serve until our next annual general meeting, if one is called for, and until his successor is elected and qualified. Each of our directors has served since the
consummation of the Transactions in June 2018. We have not entered into service or similar contracts with our directors.
Independence of Directors
The Naked Ordinary Shares are listed on Nasdaq. As a result, we adhere to the rules of Nasdaq in determining whether a director is independent. The rules of Nasdaq general
define an “independent director” as a person, other than an executive officer of a company or any other individual having a relationship which, in the opinion of the issuer’s
board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Our board of directors has consulted, and will
consult, with its counsel to ensure that the board’s determinations are consistent with these rules and all relevant securities and other laws and regulations regarding the
independence of directors. Based on the foregoing, we have determined that Messrs. Hayes and Shape are independent directors. Our independent directors will have regularly
scheduled meetings at which only independent directors are present.
Board Committees
We have separately standing audit, corporate governance and nominating and compensation committees.
Audit Committee Information
We have an audit committee of the board of directors, comprised of Messrs. Hayes, Shape and Davis-Rice. Each of the members of the audit committee, other than Mr. Davis-
Rice, is independent under the applicable listing standards and the rules and regulations of the SEC. Pursuant to Nasdaq’s “phase-in” rules for newly listed companies, we have
one year from the date on which we were first listed on Nasdaq, or until June 19, 2019, to have our audit committee be comprised solely of independent directors. We intend to
identify one additional independent director to serve on the audit committee within the applicable time periods, at which time Mr. Davis-Rice will resign from the committee.
The audit committee has a written charter. The purpose of the audit committee is, among other things, to appoint, retain, set compensation of, and supervise our independent
accountants, review the results and scope of the audit and other accounting related services and review our accounting practices and systems of internal accounting and
disclosure controls.
56
Financial Experts on Audit Committee
The audit committee will at all times be composed exclusively of directors who are “financially literate,” as defined under the applicable listing standards. Such listing standards
generally define “financially literate” as being able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash
flow statement. In addition, we will be required to certify to the exchange that the committee has, and will continue to have, at least one member who has past employment
experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background that results in the individual’s financial
sophistication. Our board of directors has determined that Mr. Hayes satisfies the exchange’s definition of financial sophistication and also qualifies as an “audit committee
financial expert” as defined under rules and regulations of the SEC.
Nominating Committee Information
We have a nominating committee of the board of directors, comprised of Messrs. Hayes and Shape. Each member of the nominating committee is independent under the
applicable listing standards. The nominating committee has a written charter. The nominating committee is responsible for overseeing the selection of persons to be nominated
to serve on our board of directors.
Compensation Committee Information
We have a compensation committee of the board of directors, comprised of Messrs. Hayes and Shape. Each member of the compensation committee is independent under the
applicable listing standards. In addition, each member is a “non-employee” director as defined in Rule 16b-3 under the Exchange Act and the rules and regulations thereunder.
The compensation committee has a written charter. The purpose of the compensation committee is to review and approve compensation paid to our officers and directors and to
administer our incentive compensation plans, including authority to make and modify awards under such plans.
D. Employees
For information about the Company’s employees, see Item 5.B of this Annual Report, “Employee Relations,” contained in this Annual Report and incorporated herein by
reference.
E. Share Ownership
The disclosure relating to the share ownership of the persons listed in Item 6.B that is set forth in Item 7.A of this Form 20-F is incorporated herein by reference.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
The following table sets forth information regarding the beneficial ownership of Naked Ordinary Shares as of May 31, 2019:
●
●
●
each person expected by us to be the beneficial owner of more than 5% of the outstanding Naked Ordinary Shares;
each of our executive officers and directors;
all of our executive officers and directors as a group.
57
Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole
or shared voting or investment power over that security. The beneficial ownership of Naked Ordinary Shares is based on 59,487,636 Naked Ordinary Shares issued and
outstanding. Unless otherwise indicated, we believe that all persons named in the table below have sole voting and investment power with respect to all ordinary shares
beneficially owned by them.
Name and Address of Beneficial Owner(1)
Amount and
Nature of
Beneficial
Ownership
Percentage of Beneficial
Ownership
Current Directors and Officers:
Justin Ashley Davis-Rice(2)
Anna Johnson
Howard Herman
Paul Hayes
Andrew Shape
All directors and executive officers (5 persons)
Five Percent Holders:
TokenPay AG(3)
Whitespace Atelier Limited(4)
Acuitas Capital LLC(5)
Armistice Capital Master Fund Ltd.(6)
United Garments Limited(7)
1,685,233
0
102,387
15,671
10,071
1,813,362
7,840,216
6,200,000
5,482,862
4,000,000
3,800,000
2.8%
0%
*
*
0%
3.0%
13.2%
10.4%
9.9%
6.7%
6.4%
(1) Unless otherwise indicated, the business address of each of the individuals is c/o Bendon Limited, Building 7B, Huntley Street, Alexandria, NSW 2015.
(2)
Includes (i) 997,299 Naked Ordinary Shares held by PS Holdings No. 2 Pty Ltd., which is controlled by Mr. Davis-Rice, and (iii) 29,110 Naked Ordinary Shares held by
Nesriver Pty Ltd., which is controlled by Mr. Davis-Rice.
(3) Prof Dr. Jorg Wilhelm is the President of the Supervisory Board of TokenPay Swiss AG. The business address of TokenPay Swiss AG and the Reporting Person is
Azaleenweg 5, Weggis, Switzerland.
(4) Samantha Sin Man Chong may be deemed to have votiong and dispositive power over the shares held by Whitespace Atelier Limited. The business address of
Whitespace Atelier Limited is 209 Shek O Village Road, Suite A, Shek O, Hong Kong.
(5)
(6)
Includes (i) 2,934,455 Naked Ordinary Shares held by Acuitas Capital LLC, and (ii) 2,548,407 Naked Ordinary Shares underlying warrants held by Acuitas Capital LLC.
Excludes 14,124,982 Naked Ordinary Shares underlying the warrants, as to which the warrants are not currently exercisable due to limitations on beneficial ownership
contained in the warrants that prevent them from being exercised to the extent the holder and its affiliates would beneficially own more than 9.99% of the outstanding
Naked Ordinary Shares. Terren S. Peizer owns all of the membership interests of Acuitas Capital LLC. The business address of Acuitas Capital LLC and Mr. Peizer is
11601 Wilshire Blvd., Suite 1100, Los Angeles, CA 90025.
Includes (i) 2,000,000 Naked Ordinary Shares held by Armistice Capital Master Fund Ltd., and (ii) 2,800,000 Naked Ordinary Shares underlying warrants held by
Armistice Capital Master Fund Ltd. Armistice Capital LLC and Steven Boyd may be deemed to have voting and dispostive control over the Naked Ordinary Shares held
by Armistice Capital Master Fund Ltd. The business address of Armistice Capital Master Fund Ltd. is c/o dms Corporate Services Ltd., 20 Genesis Close, P.O. Box 314,
Grand Cayman KY1-1104, Cayman Islands, and the business address of Armistice Capital LLC and Mr. Boyd is 510 Madison Avenue, 7th Floor, New York, New York
10022.
(7) Ching To Yau may be deemed to have voting and dispostive power over the shares held by United Garments Limited. The business address of United Garments Limited
is Unit D, 5th Floor, Charmhill Centre, 50 Hillwood Road, Tsim Sha Tsui, Hong Kong.
58
B. Related Party Transactions
Our Related Party Policy
Upon consummation of the Transactions, we adopted a related party policy that will require us and our subsidiaries to avoid, wherever possible, all related party transactions
that could result in actual or potential conflicts of interests, except under guidelines approved by the board of directors (or audit committee). Related-party transactions are
defined as transactions in which (1) the aggregate amount involved will or may be expected to exceed the lesser of $120,000 or one percent of the average of the company’s total
assets at year end for the last two completed fiscal years, (2) our company or any of our subsidiaries is a participant, and (3) any (a) executive officer, director or nominee for
election as a director, (b) greater than 5% beneficial owner of our shares of common stock, or (c) immediate family member, of the persons referred to in clauses (a) and (b), has
or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity). A conflict of interest
situation can arise when a person takes actions or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts of interest may also
arise if a person, or a member of his or her family, receives improper personal benefits as a result of his or her position.
Our audit committee, pursuant to its written charter, will be responsible for reviewing and approving related party transactions to the extent we enter into such transactions. The
audit committee will consider all relevant factors when determining whether to approve a related party transaction, including whether the related party transaction is on terms no
less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related party’s interest in the transaction.
We will require each of our directors and executive officers to complete an annual directors’ and officers’ questionnaire that elicits information about related party transactions.
These procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on the part of a
director, employee or officer.
Our Related Party Transactions
Summary of Related Party Loans
Loans to related parties
Cullen Investments Limited - January 31, 2019
Cullen Investments Limited - January 31, 2018
Cullen Investments Limited - January 31, 2017
Whitespace Atelier Limited - January 31, 2019
Whitespace Atelier Limited - January 31, 2018
FOH Online Corp. - January 31, 2019
FOH Online Corp. - January 31, 2018
Loans from related parties
SBL Holdings, Limited - January 31, 2019
Naked Brand Group, Inc. - January 31, 2019
Naked Brand Group, Inc. - January 31, 2018
Naked Brand Group, Inc. - January 31, 2017
EJ Watson – January 31, 2019
Opening balance
NZ$
Closing balance
NZ$
11,535,622
13,051,321
9,613,014
272,665
-
3,518,009
-
-
(1,368,577)
-
-
-
0
11,535,677
13,051,321
281,714
272,665
0
3,518,009
(1,448,646)
0
(1,368,577)
-
(2,289,212)
59
Description of Related Party Transactions
On October 25, 2018, we closed a private placement of ordinary shares and warrants for aggregate gross proceeds of approximately $3.4 million with two accredited investors,
including an affiliate of Mr. Davis-Rice, our Chief Executive Officer, and our then largest institutional shareholder, Armistice Capital. The ordinary shares were sold at a per
share price of $1.55 pursuant to a subscription agreement with each investor. Each investor also received a warrant to purchase 100% of the number of ordinary shares for which
it subscribed. The warrants have an exercise price of $1.55 per share and expire three years from the date of issuance. The exercise price and number of shares covered by the
warrants are subject to adjustment for stock splits, stock combinations and certain other transactions affecting the share capital as a whole.
On November 15, 2018, we and our wholly-owned subsidiary, Bendon Limited, entered into a Stock Purchase Agreement with the shareholders of FOH, including Cullen, at
the time a significant shareholder of the Company. Pursuant to the agreement, on December 6, 2018, we purchased all of the issued and outstanding shares of FOH. Under the
terms of the agreement, we paid a purchase price of approximately US$18.2 million, as follows (i) Bendon Limited forgave all of debt owed to it by FOH and Cullen, in the
aggregate amount of approximately US$9.9 million, and (ii) we issued 3,765,087 of our Ordinary Shares to FOH’s shareholders, valued at a price per share of US$2.20. We
also agreed to satisfy certain obligations with respect to certain claims involving the parties. A portion of the Ordinary Shares issued to FOH’s shareholders are held in trust and
may be released to Cullen to the extent not applied in satisfaction of such claims.
Whitespace Atelier Limited (“Whitespace”) is owned by one of our shareholders. Beginning February 1, 2017, Whitespace was engaged by the Company to procure stock from
various suppliers at competitive prices. During the year ended January 31, 2019, purchases amounting to $12,720,499 (January 31, 2018: $13,281,727) have been made from
Whitespace. As at January 31, 2019, the Company has made prepayments to Whitespace amounting to $281,714 (January 31, 2018: $272,665).
Subsequent to the Merger with Naked Brand Group Inc. (sometimes referred to herein as “Naked (NV)”) on June 19, 2018, Naked (NV) became part of the Company. As at
January 31, 2019, the balances between the subsidiaries are eliminated in the Company Balance Sheet (January 31, 2018: $1,368,557).
During the period, a shareholder, SBL Holdings, Limited, loaned the business funds to be utilised as working capital in the business.
C.
Interests of Experts and Counsel
Not applicable.
60
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Financial Statements and Other Financial Information
Consolidated Financial Statements
See Item 18 of this Annual Report.
Legal Proceedings
From time to time, the Company is subject to certain legal proceedings and claims in the ordinary course of business. Bendon Limited is not presently party to any legal
proceedings the resolution of which it believes would have a material adverse effect on the Company’s business, financial condition, operating results or cash flows. Bendon
Limited establishes reserves for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable.
Dividend Policy
Shareholders are entitled to receive such dividends as may be declared by the directors. If the directors determine that a final or interim dividend is payable, it is (subject to the
terms of issue on any shares or class of shares) paid on all shares proportionate to the amount for the time being paid on each share. Dividends may be paid by cash, electronic
transfer or any other method as the board determines.
The directors have the power to capitalize and distribute the whole or part of the amount from time to time standing to the credit of any reserve account or otherwise available
for distribution to shareholders. The capitalization and distribution must be in the same proportions which the shareholders would be entitled to receive if distributed by way of a
dividend.
Subject to the rules of Nasdaq, the directors may pay a dividend out of any fund or reserve or out of profits derived from any source.
B. Significant Changes
Except for the events described in “Recent Developments” in Item 5 of this Annual Report, we have not experienced any significant changes since the date of our audited
annual consolidated financial statements included in this Annual Report.
ITEM 9. THE OFFER AND LISTING
A. Offer and Listing Details
The Naked Ordinary Shares are listed on the Nasdaq Capital Market under the symbol “NAKD.” The Naked Ordinary Shares are not listed on any exchange or traded in any
market outside of the United States.
B. Plan of Distribution
Not applicable.
C. Markets
See Item 9.A of this Annual Report.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
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F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Constitution
The summary below relates to our constitution as currently in effect. The summary below is of the key provisions of our constitution and does not purport to be a summary of
all of the provisions thereof or of all relevant provisions of Australian law governing the management and regulation of Australian companies.
Incorporation
We were incorporated in Australia on May 11, 2017 under the Corporations Act with company registration number ACN 619 054 938. We are an Australian public limited
company.
Objects and Purposes
Our constitution grants us full power and authority to exercise any power, take any action or engage in any conduct which the Corporations Act permits a company limited by
shares to exercise, take or engage in.
Directors
There must be a minimum of three directors and a maximum of ten directors unless our shareholders in general meeting resolves otherwise. Where required by the Corporations
Act or Stock Market Rules, we must hold an election of directors each year. No director, other than the managing director, may hold office without re-election beyond the third
annual general meeting following the meeting at which the director was last elected or re-elected. A director appointed to fill a casual vacancy, who is not a managing director,
holds office until the conclusion of the next annual general meeting following his or her appointment. If there would otherwise not be a vacancy, and no director is required to
retire, then the director who has been longest in office since last being elected must retire. If a number of directors were elected on the same day, the directors to retire are (in
default of agreement between them) determined by ballot.
Our constitution provides that no person shall be disqualified from the office of director or prevented by such office from contracting with us, nor shall any such contract or any
contract or transaction entered into by or on our behalf in which any director shall be in any way interested be or be liable to be avoided, nor shall any director so contracting or
being so interested be liable to account to us for any profit realised by or arising in connection with any such contract or transaction by reason of such director holding office or
of the fiduciary relationship thereby established. A director shall be at liberty to vote in respect of any contract or transaction in which he is interested provided that the nature
of the interest of any director in any such contract or transaction shall be disclosed by him at or prior to its consideration and any vote thereon. However, a director who has a
material personal interest in a matter that is being considered by the directors must not be present at a meeting while the matter is being considered nor vote on the matter,
except where permitted by the Corporations Act.
Each director is entitled to remuneration from our company for his or her services as decided by the directors but the total amount provided to all directors for their services as
directors must not exceed in aggregate in any financial year the amount fixed by us in general meeting. The remuneration of an executive director must not include a
commission on, or a percentage of, profits or operating revenue. Remuneration may be provided in the manner that the directors decide, including by way of non-cash benefits.
There is also provision for directors to be paid extra remuneration (as determined by the directors) if they devote special attention to our business or otherwise perform services
which are regarded as being outside of their ordinary duties as directors or, at the request of the directors, engage in any journey on our business. Directors are also entitled to be
paid all travelling and other expenses they incur in attending to our affairs, including attending and returning from general meetings or board meetings, or meetings of any
committee engaged in our business.
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Directors also may exercise all the powers of the company to borrow or raise money, to charge any of the company’s property or business or any of its uncalled capital, and to
issue debentures or give any security for a debt, liability or obligation of the company or of any other person.
As at the date of this report, the Company is in non compliance of the Australian Corporations Act requiring a second Director resident in Australia. The Company is in the
process of making this appointment.
Rights and Obligations of Shareholders
Dividends
Ordinary shareholders are entitled to receive such dividends as may be declared by the directors. If the directors determine that a final or interim dividend is payable, it is
(subject to the terms of issue on any shares or class of shares) paid on all shares proportionate to the amount for the time being paid on each share. Dividends may be paid by
cash, electronic transfer or any other method as the board determines.
The directors have the power to capitalize and distribute the whole or part of the amount from time to time standing to the credit of any reserve account or otherwise available
for distribution to shareholders. The capitalization and distribution must be in the same proportions which the shareholders would be entitled to receive if distributed by way of a
dividend.
Subject to the Stock Market Rules, the directors may pay a dividend out of any fund or reserve or out of profits derived from any source.
Voting Rights
Each of our ordinary shareholders is entitled to receive notice of and to be present, to vote and to speak at general meetings. Subject to any rights or restrictions attached to any
shares, on a show of hands each ordinary shareholder present has one vote and, on a poll, one vote for each fully paid share held, and for each partly paid share, a fraction of a
vote equivalent to the proportion to which the share has been paid up. Voting may be in person or by proxy, attorney or representative.
Two shareholders must be present to constitute a quorum for a general meeting and no business may be transacted at any meeting except the election of a chair and the
adjournment of the meeting, unless a quorum is present when the meeting proceeds to business.
Variation of Class Rights
The Corporations Act provides that if a company has a constitution that sets out the procedure for varying or cancelling rights attached to shares in a class of shares, those rights
may be varied or cancelled only in accordance with the procedure.
The rights attached to Naked Ordinary Shares may only be varied with the consent in writing of members holding at least three-quarters of the shares of that class, or with the
sanction of a special resolution passed at a separate meeting of the holders of shares of that class.
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General Meetings
A general meeting of shareholders may be called by a directors’ resolution or as otherwise provided in the Corporations Act. The Corporations Act requires the directors to call a
general meeting on the request of shareholders with at least 5% of the vote that may be cast at the general meeting. Shareholders with at least 5% of the votes that may be cast
at a general meeting may also call, and arrange to hold, a general meeting themselves. In addition, where it is impracticable to call the meeting in any other way, the Court may
order a meeting of our members to be called.
The Corporations Act requires at least 21 clear days of notice to be given for a general meeting. Notice of a general meeting must be given to each person who, at the time of
giving the notice, is a member, director or auditor of ours, or is entitled to a share because of the death of a shareholder (and who has satisfied the directors of his or her right to
be registered as the holder of, or to transfer, the shares).
The notice of meeting must include the date and time of the meeting, the location, an electronic address, planned business for the meeting, information about any proposed
special resolutions and information about proxy votes.
Changes in Capital
Australia does not have a limit on the authorized share capital that may be issued and do not recognize the concept of par value under Australian law.
Indemnity
We must indemnify our current and past directors and other executive officers on a full indemnity basis and to the fullest extent permitted by law against all liabilities incurred
by the director or officer as a result of their holding office or a related body corporate.
We may also, to the extent permitted by law, purchase and maintain insurance, or pay or agree to pay a premium for insurance, for each director and officer against any liability
incurred by the director or officer as a result of their holding office or a related body corporate.
Disposal of assets
The Corporations Act does not specifically preclude a company from disposing of its assets, or a significant portion of its assets. Subject to any other provision which may
apply (such as those provisions relating to related party transactions summarized above), a company may generally deal with its assets as it sees fit without seeking shareholder
approval.
Rights of non-resident or foreign shareholders
There are no specific limitations in the Corporations Act which restrict the acquisition, ownership or disposal of shares in an Australian company by non-resident or foreign
shareholder. The Foreign Acquisitions and Takeovers Act 1975 (Cth) regulates investment in Australian companies and may restrict the acquisition, ownership and disposal of
our shares by non-resident or foreign shareholders.
C. Material Contracts
The following summarizes each material contract, other than contracts entered into in the ordinary course of business, to which we or any subsidiary of ours is a party, for the
preceding two years.
Deed of Lease. Bendon Pty Limited’s lease for the property located in Alexandria, Australia has an expiry of April 2019, the current rental is circa NZ$850k per annum pre-
subleasing agreements. Terms have been agreed for the lease of alternate premises within the same business complex . The new lease has yet to be signed. Bendon Limited has
renegotiated a new lease for the property located in Airpark Drive. The term is for six years commencing May 1, 2018 and annual rental of circa NZD$1.4m per annum.
Heidi Klum License Agreement. In September 2014, Bendon Limited signed a 5 year license agreement with Heidi Klum for the design, manufacture and sale of Heidi Klum
branded intimate apparel and swimwear. The initial term expires in December 2021 and is renewable for additional periods of 5 years at our discretion.
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Frederick’s of Hollywood License Agreement . In June 2015, FOH signed a license agreement with ABG, the owner of the Frederick of Hollywood brand. The license is for the
design, manufacture and sale of Frederick’s of Hollywood branded intimate apparel through our E-commerce channel. The initial term expires in December 2020 and is
renewable for additional 10 consecutive periods of 5 years each at the Licensee discretion.
Agreement and Plan of Reorganization. On June 19, 2018, we consummated the transactions contemplated by that certain Merger Agreement, dated as of May 25, 2017 and
amended on July 26, 2017, February 21, 2018, March 19, 2018 and April 23, 2018, by and among our us, Naked (NV), Bendon Limited, Merger Sub and the Principal
Shareholder, at the time the owner of a majority of the outstanding shares of Bendon Limited. The Merger Agreement is more fully described Item 4.A, “ History and
Development of the Company,” and in the sections titled “The Merger Proposal” and “The Merger Agreement” of the final prospectus dated April 27, 2018, filed as part of our
registration statement on Form F-4 (File No. 333-223786), as modified by the supplement dated June 1, 2018, and such descriptions are incorporated herein by reference.
Stock Purchase Agreement. On November 15, 2018, we and our wholly-owned subsidiary, Bendon Limited , entered into a stock purchase agreement with the shareholders of
FOH, including Cullen, at the time a significant shareholder of the Company. Pursuant to the agreement, on December 6, 2018, we purchased all of the issued and outstanding
shares of FOH, in order to gain direct ownership of the Frederick’s of Hollywood license arrangement FOH had with Authentic Brands Group (“ABG”). The stock purchase
agreement is more fully described in Item 4.A, “History and Development of the Company,” and in the Report of Foreign Private Issuer on Form 6-K filed by us on November
21, 2018, and such descriptions are incorporated herein by reference.
Loan Agreements. As at January 31 2018, the Company had loans from shareholders of $10,951,295 (January 31, 2017: $8,200,000, June 30, 2016: $29,280,991, June 30,
2015: $16,917,902), which were secured by a debenture over the assets of the Company, subordinated to the bank loan. On September 29, 2016, Bendon Limited issued 24,839
Bendon Ordinary Shares to the shareholders as part of an agreement to convert debt to equity. The amount of debt converted on this date amounted to $24,839,783. The
remainder of the shareholder loan remained outstanding until the Reorganization and converted to equity on June 19, 2018. Bendon issued 33,269 Bendon Ordinary Shares to
the shareholders in connection with such conversion. As at January 31, 2018, the interest rate on shareholder loans was 30% (January 31, 2017: 30%, June 30, 2016: 30%, June
30, 2015: 30%) and was capitalised quarterly. Total interest capitalised and accrued during the year ending January 31, 2019 was $$1,061,588 (2018: $2,806,945; 2017:
$6,436,987, year ended June 30, 2016: $7,042,000, year ended June 30, 2015: $3,192,000). None of the loans from shareholders currently remain outstanding. The shareholder
loans are more fully described in Item 5 of this Annual Report, “Liquidity and Capital Resources,” and such description is incorporated herein by reference.
Bank of New Zealand Credit Facility. On the June 14, 2018, Bendon Limited and BNZ signed an amendment to an existing bank debt facility which was entered into in 2016.
The amendment is a one year NZ $20m revolving loan facility. At the time of this report, the facility has been extended to August 31, 2019. The debt facility is more fully
described in Item 5 of this Annual Report, “Liquidity and Capital Resources,” and such description is incorporated herein by reference.
Securities Purchase Agreement, Warrants and Registration Rights Agreement. On March 27, 2019, we entered into a securities purchase agreement relating to the issue of
10,784,313 Naked Ordinary Shares to certain accredited investors at an agreed per share price of US$0.255, except that, to the extent an investor would beneficially own more
than 9.9% of our outstanding Naked Ordinary Shares after the closing, we agreed to issue the investor a March Pre-Funded Warrant in lieu of such shares. Each investor also
received a March Investment Warrant to purchase 100% of the number of Naked Ordinary Shares for which it had agreed to subscribe. In connection with the transaction, we
also entered into a registred rights agreement relating to the registration for resale of the Naked Ordinary Shares sold pursuant ot the securities purchase agreement and issuable
upon exercise of the March Warrants. The securities purchase agreement, the March Warrants and the registration rights agreement are more fully described in Item 4.B,
“Business Overview—Recent Developments,” and in the Report of Foreign Private Issuer on Form 6-K filed by us on March 28, 2019, and such descriptions are incorporated
herein by reference.
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Note Purchase Agreement, Note, Security Agreement and Subordination Agreement. Effective on May 13, 2019, we completed a private placement of the Note for a purchase
price of US$3,000,000, pursuant to the NSPA of even date. The Note is secured by all of our assets pursuant to a security agreement with the holder of the Note. The rights of
the holder of the Note are subordinated to the rights of BNZ under our bank debt facility. The NSPA, the Note, the security agreement and the subordination agreement are more
fully described in Item 4.B, “Business Overview—Recent Developments,” and in the Report of Foreign Private Issuer on Form 6-K filed by us on May 17, 2019, and such
descriptions are incorporated herein by reference.
D. Exchange Controls
Under Australian law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of
dividends, interest or other payments to nonresident holders of our shares.
E. Taxation
The following is a summary of material U.S. federal and Australian income tax considerations to U.S. holders, as defined below, of the acquisition, ownership and disposition of
Naked Ordinary Shares. This discussion is based on the laws in force as at the date of this annual report, and is subject to changes in the relevant income tax law, including
changes that could have retroactive effect. The following summary does not take into account or discuss the tax laws of any country or other taxing jurisdiction other than the
United States and Australia. Holders are advised to consult their tax advisors concerning the overall tax consequences of the acquisition, ownership and disposition of Naked
Ordinary Shares in their particular circumstances. This discussion is not intended, and should not be construed, as legal or professional tax advice.
This summary does not describe U.S. federal estate and gift tax considerations, or any state and local tax considerations within the United States, and is not a comprehensive
description of all U.S. federal or Australian income tax considerations that may be relevant to a decision to acquire or dispose of Naked Ordinary Shares. Furthermore, this
summary does not address U.S. federal or Australian income tax considerations relevant to holders subject to taxing jurisdictions other than or in addition to the United States
and Australia, and does not address all possible categories of holders, some of which may be subject to special tax rules.
U.S. Federal Income Tax Considerations
In this section, we discuss certain material U.S. federal income tax considerations applicable to the acquisition, ownership and disposition of Naked Ordinary Shares by a U.S.
holder, as defined below, that will hold the Naked Ordinary Shares as capital assets within the meaning of Section 1221 of Internal Revenue Code of 1986, as amended (the
“Code”). This discussion is based on the Code, U.S. Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, all as in effect on the
date hereof and all of which are subject to change, possibly with retroactive effect. There can be no assurances that the U.S. Internal Revenue Service (the “IRS”) will not take a
different position concerning the tax consequences of the acquisition, ownership and disposition of Naked Ordinary Shares or that such a position would not be sustained. We
do not discuss the tax consequences to any particular U.S. holder nor any tax considerations that may apply to U.S. holders subject to special tax rules, such as banks, insurance
companies, individual retirement and other tax-deferred accounts, regulated investment companies, individuals who are former U.S. citizens or former long-term U.S. residents,
dealers in securities or currencies, tax-exempt entities, persons subject to the alternative minimum tax, persons that hold Naked Ordinary Shares as a position in a straddle or as
part of a hedging, constructive sale or conversion transaction for U.S. federal income tax purposes, persons that have a functional currency other than the U.S. dollar, persons
that own (directly, indirectly or constructively) 10% or more of our equity or persons that are not U.S. holders.
In this section, a “U.S. holder” means a beneficial owner of Naked Ordinary Shares that is, for U.S. federal income tax purposes:
●
●
●
●
an individual who is a citizen or resident of the United States for U.S. federal income tax purposes;
a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or any state
thereof or the District of Columbia;
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
a trust (i) the administration of which is subject to the primary supervision of a court in the United States and for which one or more U.S. persons have the authority to
control all substantial decisions or (ii) that has an election in effect under applicable income tax regulations to be treated as a U.S. person.
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As used in this section, a “non-U.S. holder” is a beneficial owner of Naked Ordinary Shares that is not a U.S. holder or an entity or arrangement treated as a partnership for U.S.
federal income tax purposes.
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds Naked Ordinary Shares, the U.S. federal income tax treatment of a partner
generally will depend on the status of the partner and the activities of the partnership. Partners of partnerships that will hold Naked Ordinary Shares should consult their tax
advisors.
You are urged to consult your own tax advisor with respect to the U.S. federal, as well as state, local and non-U.S., tax consequences to you of acquiring, owning and
disposing of Naked Ordinary Shares in light of your particular circumstances, including the possible effects of changes in U.S. federal and other tax laws.
Dividends
Subject to the passive foreign investment company (“PFIC”) rules, discussed below, U.S. holders will include as dividend income the U.S. dollar value of the gross amount of
any distributions of cash or property (without deduction for any withholding tax), other than certain pro rata distributions of Naked Ordinary Shares, with respect to Naked
Ordinary Shares to the extent the distributions are made from our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. A U.S. holder
will include the dividend income at the time of actual or constructive receipt. To the extent, if any, that the amount of any distribution by us is not a dividend because it exceeds
the U.S. holder’s pro rata share of our current and accumulated earnings and profits, as so determined, the excess will be treated first as a tax-free return of capital and reduce
(but not below zero) the U.S. holder’s tax basis in the Naked Ordinary Shares. Thereafter, to the extent, if any, that the amount of any distribution by us exceeds the adjusted tax
basis of the U.S. holder’s Ordinary Shares, the remainder will be taxed as capital gain. Notwithstanding the foregoing, there can be no assurance that we will maintain
calculations of earnings and profits, as determined for U.S. federal income tax purposes. Consequently, U.S. holders should therefore assume that any distribution with respect
to our ordinary shares will constitute ordinary dividend income and that any distributions generally will be reported as dividend income for U.S. information reporting
purposes. See “Backup Withholding Tax and Information Reporting Requirements” below. Dividends paid by us will not be eligible for the dividends-received deduction
generally allowed to U.S. corporate shareholders.
Subject to the PFIC rules, discussed below, certain distributions treated as dividends received by an individual U.S. holder (as well as certain trusts and estates) from a
“qualified foreign corporation” are eligible for a preferential U.S. federal income tax rate (currently a maximum tax rate of 20%), subject to certain minimum holding period
requirements and other limitations. A foreign corporation (other than a corporation that is treated as a PFIC for the taxable year in which the dividend is paid or the preceding
taxable year) may be a “qualified foreign corporation” if (i) it is eligible for the benefits of a comprehensive income tax treaty with the United States which the U.S. Secretary of
Treasury determines is satisfactory for this purpose and which includes an exchange of information program or (ii) with respect to any dividend it pays on stock which is readily
tradable on an established securities market in the U.S. We expect to be considered a qualified foreign corporation with respect to the Naked Ordinary Shares because we believe
we are eligible for the benefits under the Double Taxation Convention between Australia and the United States and because we expect the Naked Ordinary Shares will continue
to be listed on the Nasdaq Capital Market (although there can be no assurance that the Naked Ordinary Shares will remain so listed). Accordingly, dividends we pay generally
should be eligible for the reduced income tax rate. However, the determination of whether a dividend qualifies for the preferential tax rates must be made at the time the
dividend is paid. U.S. holders should consult their own tax advisers. The additional 3.8% “net investment income tax” (described below) may apply to dividends received by
certain U.S. holders who meet certain modified adjusted gross income thresholds.
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Non-corporate U.S. holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a passive foreign investment company in the taxable
year in which such dividends are paid or in the preceding taxable year.
Includible distributions paid in Australian dollars, including any Australian withholding taxes, will be included in the gross income of a U.S. holder in a U.S. dollar amount
calculated by reference to the exchange rate in effect on the date of actual or constructive receipt of such distribution, regardless of whether the Australian dollars are converted
into U.S. dollars at that time. If Australian dollars are converted into U.S. dollars on the date of actual or constructive receipt of the distribution, the tax basis of the U.S. holder
in those Australian dollars will be equal to their U.S dollar value on that date and, as a result, a U.S. holder generally should not be required to recognize any foreign exchange
gain or loss.
If Australian dollars so received are not converted into U.S. dollars on the date of actual or constructive receipt, the U.S. holder will have a basis in the Australian dollars equal
to their U.S. dollar value on the date of receipt. Any gain or loss on a subsequent conversion or other disposition of the Australian dollars generally will be treated as ordinary
income or loss to such U.S. holder and generally such gain or loss will be income or loss from sources within the United States for foreign tax credit limitation purposes.
Dividends received by a U.S. holder with respect to Naked Ordinary Shares generally will be treated as foreign source income, which may be relevant in calculating the holder’s
foreign tax credit limitation. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For these purposes, dividends
will be categorized as “passive” or “general” income depending on a U.S. holder’s circumstance.
Subject to certain complex limitations, a U.S. holder generally will be entitled, at its option, to claim either a credit against its U.S. federal income tax liability or a deduction in
computing its U.S. federal taxable income in respect of any Australian taxes withheld by us. If a U.S. holder elects to claim a deduction, rather than a foreign tax credit, for
Australian taxes withheld by us for a particular taxable year, the election will apply to all foreign taxes paid or accrued by or on behalf of the U.S. holder in the particular taxable
year.
The availability of the foreign tax credit and the application of the limitations on its availability are fact specific. You are urged to consult your own tax advisor as to the
consequences of Australian withholding taxes and the availability of a foreign tax credit or deduction. See “Australian Tax Considerations — Taxation of Dividends.”
Sale or Exchange of Ordinary Shares
Subject to the passive foreign investment company rules, discussed below, a U.S. holder generally will, for U.S. federal income tax purposes, recognize capital gain or loss on a
sale, exchange or other disposition of Naked Ordinary Shares equal to the difference between the amount realized on the disposition and the U.S. holder’s tax basis in the Naked
Ordinary Shares. This gain or loss recognized on a sale, exchange or other disposition of Naked Ordinary Shares will generally be long-term capital gain or loss if the U.S.
holder has held the Naked Ordinary Shares for more than one year. Generally, for U.S. holders who are individuals (as well as certain trusts and estates), long-term capital gains
are subject to U.S. federal income tax at preferential rates. For foreign tax credit limitation purposes, gain or loss recognized upon a disposition generally will be treated as from
sources within the United States. The deductibility of capital losses is subject to limitations for U.S. federal income tax purposes.
You should consult your own tax advisor regarding the availability of a foreign tax credit or deduction in respect of any Australian tax imposed on a sale or other disposition of
Naked Ordinary Shares. See “Australian Tax Considerations — Tax on Sales or other Dispositions of Shares.”
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Passive Foreign Investment Company Considerations
The Code provides special, generally adverse, rules regarding certain distributions received by U.S. holders with respect to, and sales, exchanges and other dispositions,
including pledges, of shares of stock of, a passive foreign investment company, or PFIC. A foreign corporation will be treated as a PFIC for any taxable year if at least 75% of
its gross income for the taxable year is passive income or at least 50% of its gross assets during the taxable year, based on a quarterly average and generally by value, produce
or are held for the production of passive income. Passive income for this purpose generally includes, among other things, dividends, interest, rents, royalties, gains from
commodities and securities transactions and gains from assets that produce passive income. In determining whether a foreign corporation is a PFIC, a pro-rata portion of the
income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account.
The determination of whether or not we are or will become a PFIC is a factual determination that must be determined annually at the close of each taxable year. We do not
believe that we are currently a PFIC for U.S. federal income tax purposes for the taxable year ended January 31, 2019. Similarly, we do not anticipate becoming a PFIC for the
taxable year ended January 31, 2020 or in the foreseeable future. Notwithstanding the foregoing, because PFIC status is a fact-intensive determination made on an annual basis,
and also may be affected by the application of the PFIC rules, which are subject to differing interpretations, no assurance can be given that we are not, or will not become in any
future taxable year, a PFIC. Our U.S. counsel expresses no opinion with respect to our PFIC status in any prior taxable year or the current taxable year and also expresses no
opinion with respect to our predictions regarding our PFIC status in the future. Prospective investors should consult their own tax advisors regarding our potential PFIC status.
If we are a PFIC for any taxable year during which a U.S. holder holds Naked Ordinary Shares, any “excess distribution” that the holder receives and any gain realized from a
sale or other disposition (including a pledge) of such Naked Ordinary Shares will be subject to special tax rules, unless the holder makes a mark-to-market election or qualified
electing fund election as discussed below. Any distribution in a taxable year that is greater than 125% of the average annual distribution received by a U.S. holder during the
shorter of the three preceding taxable years or such holder’s holding period for the Naked Ordinary Shares will be treated as an excess distribution. Under these special tax rules:
●
●
●
the excess distribution or gain will be allocated ratably over the U.S. holder’s holding period for the Naked Ordinary Shares;
the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income; and
the amount allocated to each other year will be subject to income tax at the highest rate in effect for that year and the interest charge generally applicable to
underpayments of tax will be imposed on the resulting tax attributable to each such year.
The tax liability for amounts allocated to years prior to the year of disposition or excess distribution cannot be offset by any net operating loss, and gains (but not losses)
realized on the transfer of the Naked Ordinary Shares cannot be treated as capital gains, even if the Naked Ordinary Shares are held as capital assets. In addition, non-corporate
U.S. holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a PFIC in the taxable year in which such dividends are paid or in the
preceding taxable year.
If we are a PFIC for any taxable year during which any of our non-United States subsidiaries is also a PFIC, a U.S. holder of Naked Ordinary Shares during such year would be
treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules to such subsidiary. You should consult
your tax advisors regarding the tax consequences if the PFIC rules apply to any of our subsidiaries.
Unless otherwise provided by the U.S. Treasury, each U.S. shareholder of a PFIC is required to file an IRS Form 8621 (Information Return by a Shareholder of a Passive
Foreign Investment Company or Qualified Electing Fund) and such other form as the U.S. Treasury may require. If you are a U.S. holder, you should consult your tax advisors
regarding whether we are a PFIC and the potential application of the PFIC rules, including any reporting requirements that may apply to you as a result of our status as a PFIC.
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A U.S. holder may avoid some of the adverse tax consequences of owning shares in a PFIC by making a “qualified electing fund” election. The availability of this election with
respect to the Naked Ordinary Shares requires that we provide information to shareholders making the election. We do not intend to provide you with the information you
would need to make or maintain a qualified electing fund election and you will, therefore, not be able to make such an election with respect to your Naked Ordinary Shares.
Alternatively, a U.S. holder owning marketable stock in a PFIC may make a mark-to-market election to elect out of the tax treatment discussed above. If a valid mark-to-market
election for the Naked Ordinary Shares is made, the electing U.S. holder will include in income each year an amount equal to the excess, if any, of the fair market value of the
Naked Ordinary Shares as of the close of the holder’s taxable year over the adjusted basis in such Naked Ordinary Shares. The U.S. holder is allowed a deduction for the excess,
if any, of the adjusted basis of the Naked Ordinary Shares over their fair market value as of the close of the holder’s taxable year. Deductions are allowable, however, only to the
extent of any net mark-to-market gains on the Naked Ordinary Shares included in the U.S. holder’s income for prior taxable years. Amounts included in the U.S. holder’s
income under a mark-to-market election, as well as gain on the actual sale or other disposition of the Naked Ordinary Shares, are treated as ordinary income. Ordinary loss
treatment also applies to the deductible portion of any mark-to-market loss on the Naked Ordinary Shares, as well as to any loss realized on the actual sale or disposition of the
Naked Ordinary Shares, to the extent the amount of such loss does not exceed the net mark-to-market gains previously included for such Naked Ordinary Shares. The tax basis in
the Naked Ordinary Shares will be adjusted to reflect any such income or loss amounts. A mark-to-market election will be effective for the taxable year for which the election is
made and all subsequent taxable years unless the Naked Ordinary Shares are no longer regularly traded on an applicable exchange or the IRS consents to the revocation of the
election.
The mark-to-market election is available only for stock which is regularly traded on (i) a national securities exchange that is registered with the U.S. Securities and Exchange
Commission, (ii) NASDAQ, or (iii) an exchange or market that the U.S. Secretary of the Treasury determines has rules sufficient to ensure that the market price represents a
legitimate and sound fair market value. The Naked Ordinary Shares are listed on the Nasdaq Capital Market and, consequently, we expect that, assuming the Naked Ordinary
Shares are so listed and are regularly traded, the mark-to-market election would be available to you were we to be or become a PFIC.
U.S. holders are urged to contact their own tax advisors regarding the determination of whether we are a PFIC and the tax consequences of such status.
Net Investment Income Tax
Certain U.S. holders who are individuals, estates, or trusts must pay a 3.8% tax on, among other things, dividends and capital gains from the sale or other disposition of shares
of common stock.
Backup Withholding Tax and Information Reporting Requirements
U.S. holders that are “exempt recipients” (such as corporations) generally will not be subject to U.S. backup withholding tax and related information reporting requirements on
payments of dividends on, and the proceeds from the disposition of, Naked Ordinary Shares unless, when required, they fail to demonstrate their exempt status. Other U.S.
holders (including individuals) generally will be subject to U.S. backup withholding tax at the applicable statutory rate, currently 24%, in respect of any payments of dividends
on, and the proceeds from the disposition of, Naked Ordinary Shares if they fail to furnish their correct taxpayer identification number or otherwise fail to comply with
applicable backup withholding requirements. Information reporting requirements generally will apply to payments of dividends on, and the proceeds from the disposition of,
Naked Ordinary Shares to a U.S. holder that is not an exempt recipient. U.S. holders who are required to establish their exempt status generally must provide IRS Form W-9
(Request for Taxpayer Identification Number and Certification).
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S. holder’s U.S. federal income tax liability. A U.S. holder
may obtain a refund of any amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the Internal Revenue Service in a timely manner
and furnishing any required information.
U.S. holders are urged to contact their own tax advisors as to their qualification for an exemption from backup withholding tax and the procedure for obtaining this exemption.
Certain U.S. holders who are individuals may be required to report information relating to an interest in the Naked Ordinary Shares, subject to certain exceptions by filing IRS
Form 8938 (Statement of Specified Foreign Financial Assets) with their U.S. federal income tax return. U.S. holders are urged to consult their tax advisers regarding their
reporting obligation in connection with their ownership and disposition of the Naked Ordinary Shares.
70
The discussion above is not intended to constitute a complete analysis of all tax considerations applicable to an investment in Naked Ordinary Shares. You should consult
with your own tax advisor concerning the tax consequences to you in your particular situation.
Australian Tax Considerations
In this section, we discuss the material Australian income tax considerations related to the acquisition, ownership and disposal by the absolute beneficial owners of the Naked
Ordinary Shares. This discussion does not address all aspects of Australian income tax law which may be important to particular investors in light of their individual investment
circumstances, such as shares held by investors subject to special tax rules (for example, financial institutions, insurance companies or tax exempt organizations). In addition,
this summary does not discuss any foreign or state tax considerations, other than transfer duty. Prospective investors are urged to consult their tax advisors regarding the
Australian and foreign income and other tax considerations of the purchase, ownership and disposition of the shares. This summary is based upon the premise that the holder is
not an Australian tax resident.
Taxation of Dividends
Australia operates a dividend imputation system under which dividends may be declared to be ‘franked’ to the extent of tax paid on company profits. Fully franked dividends
are not subject to dividend withholding tax. Dividends payable to non-Australian resident shareholders that are not operating from an Australian permanent establishment
(Foreign Shareholders) will be subject to dividend withholding tax, to the extent the dividends are not foreign sourced and declared to be conduit foreign income (CFI) and are
unfranked. Dividend withholding tax will be imposed at 30%, unless a shareholder is a resident of a country with which Australia has a double taxation agreement and qualifies
for the benefits of the treaty. Under the provisions of the current Double Taxation Convention between Australia and the United States, the Australian tax withheld on unfranked
dividends that are not CFI paid by us to which a resident of the United States is beneficially entitled is limited to 15%.
If a company that is a non-Australian resident shareholder owns a 10% or more interest, the Australian tax withheld on dividends paid by us to which a resident of the United
States is beneficially entitled is limited to 5%. In limited circumstances the rate of withholding can be reduced to nil.
Tax on Sales or other Dispositions of Shares — Capital gains tax
Foreign Shareholders will not be subject to Australian capital gains tax on the gain made on a sale or other disposal of our shares, unless they, together with associates, hold
10% or more of our issued capital, at the time of disposal or for 12 months of the last 2 years.
Foreign Shareholder who, together with associates, owns a 10% or more interest would be subject to Australian capital gains tax if more than 50% of our direct or indirect
assets determined by reference to market value, consists of Australian land, leasehold interests or Australian mining, quarrying or prospecting rights. Double Taxation
Convention between the United States and Australia is unlikely to limit the amount of this taxable gain. Australian capital gains tax applies to net capital gains at a taxpayer’s
marginal tax rate but for certain shareholders a discount of the capital gain may apply if the shares have been held for 12 months or more. For individuals, this discount is 50%,
which may not be available for non-resident shareholders. Net capital gains are calculated after reduction for capital losses, which may only be offset against capital gains. Non-
resident shareholders are urged to obtain tax advise as required.
Tax on Sales or other Dispositions of Shares — Shareholders Holding Shares on Revenue Account
Some Foreign shareholders may hold shares on revenue rather than on capital account, for example, share traders. These shareholders may have the gains made on the sale or
other disposal of the shares included in their assessable income under the ordinary income provisions of the income tax law, if the gains are sourced in Australia.
71
Non-Australian resident shareholders assessable under these ordinary income provisions in respect of gains made on shares held on revenue account would be assessed for such
gains at the Australian tax rates for non-Australian residents, which start at a marginal rate of 32.5%. Some relief from Australian income tax may be available to such non-
Australian resident shareholders under the Double Taxation Convention between the United States and Australia.
To the extent an amount would be included in a non-Australian resident shareholder’s assessable income under both the capital gains tax provisions and the ordinary income
provisions, the capital gain amount would generally be reduced, so that the shareholder would not be subject to double tax on any part of the income gain or capital gain.
Dual Residency
If a shareholder were a resident of both Australia and the United States under those countries’ domestic taxation laws, that shareholder may be subject to tax as an Australian
resident. If, however, the shareholder is determined to be a U.S. resident for the purposes of the Double Taxation Convention between the United States and Australia, the
Australian tax would be subject to limitation by the Double Taxation Convention. Shareholders should obtain specialist taxation advice in these circumstances.
Transfer Duty
No transfer duty is payable by Australian residents or foreign residents on the trading of shares that are quoted on Nasdaq.
Australian Death Duty
Australia does not have estate or death duties. As a general rate, no capital gains tax liability is realized upon the inheritance of a deceased person’s shares. The disposal of
inherited shares by beneficiaries, may, however, give rise to a capital gains tax liability if the gain falls within the scope of Australia’s jurisdiction to tax (as discussed above).
Goods and Services Tax
The issue or transfer of shares will not incur Australian goods and services tax.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We file annual or transition reports on Form 20-F and furnish certain reports and other information with the SEC as required by the Exchange Act in accordance with our status
as a foreign private issuer. You may read and copy any report or other document filed or furnished by us, including the exhibits, at the SEC’s public reference room located at
450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Such materials can also be
obtained on the SEC’s site on the internet at http://www.sec.gov.
We will also provide without charge to each person, including any beneficial owner, upon written or oral request of that person, a copy of any and all of the information that has
been incorporated by reference in this Form 20-F. Please direct such requests to us, Attention Justin Davis-Rice, Naked Brand Group Limited, c/o Bendon Limited, Building
7B, Huntley Street, Alexandria, NSW 2015, Australia.
I.
Subsidiary Information
Not applicable.
72
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosures About Market Risk
Market risk is a broad term for the risk of economic loss due to adverse market changes affecting financial instruments. These changes may be the result of various factors,
including interest rates, foreign exchange rates, commodity prices and/or equity prices. Our business is exposed to a variety of market risks, including credit risk, currency risk,
interest rate risk and price risk. These risks arise in part through use of the following financial instruments: trade receivables, cash bank accounts, bank overdrafts, trade and
other payables, floating rate bank loans, forward currency contracts.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to our company. Credit risk arises from cash and cash
equivalents, derivative financial instruments, as well as credit exposure to wholesale and retail customers, including outstanding receivables and committed transactions.
We have adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The utilisation of credit limits by
customers is regularly monitored by line management. Customers who subsequently fail to meet their credit terms are required to make purchases on a prepayment basis until
creditworthiness can be re-established. Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit
evaluation is performed on the financial condition of accounts receivable. Management considers that all the financial assets that are not impaired for each of the reporting dates
under review are of good credit quality, including those that are past due.
The credit risk for liquid funds and other short-term financial assets is considered negligible, since the counterparties are reputable banks with high quality external credit
ratings.
Currency Risk
Exposure to foreign exchange risk may result in the fair value or future cash flows of a financial instrument fluctuating due to movement in foreign exchange rates of currencies
in which financial instruments are held in currencies other than the functional currency. Exposures to currency exchange rates arise from overseas sales and purchases, which
are primarily denominated in currencies other than the functional currency, in particular U.S. dollars.
We have open forward exchange contracts at January 31, 2019 relating to highly probable forecast transactions and recognised financial assets and financial liabilities. These
contracts commit us to buy specified amounts of foreign currencies in the future at specified exchange rates. We have a policy of requiring that forward exchange contracts be
entered into where future commitments are entered into requiring settlement at a time in excess of 1 month but less than 1 year, to a value of approximately 75% total foreign
exchange exposure. Contracts are taken out with terms that reflect the underlying settlement terms of the commitment to the maximum extent possible so that hedge
ineffectiveness is minimised.
Interest Rate
We are exposed to interest rate risk as funds are borrowed at floating and fixed rates. Borrowings issued at fixed rates expose us to fair value interest rate risk.
Our policy is to minimise interest rate cash flow risk exposures on long-term financing. Longer-term borrowings are therefore usually at fixed rates. At January 31, 2019, we
are exposed to changes in market interest rates through its bank borrowings, which are subject to variable interest rates.
73
Price Risk
We do not believe that inflation has had a material impact on our revenues or income over the past two fiscal years. However, increases in inflation could result in increases in
our expenses, which may not be readily recoverable in the price of goods or services provided to our clients. To the extent that inflation results in rising interest rates and has
other adverse effects on capital markets, it could adversely affect our financial position and profitability.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
We have breached certain of the financial covenants contained in the loan documents governing our loan from BNZ. As of the date of this Annual Report, the bank has not
declared an event of default. The bank has advised that they are currently taking these breaches under review. See Item 5.B, “ Liquidity, and Capital Resources,” of this Annual
Report.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
A. – D. Material Modifications to the Rights of Security Holders
None.
E. Use of Proceeds
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining our disclosure controls and procedures. These controls and procedures
were designed to ensure that information that we are required to disclose in the reports that we file under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the applicable rules and forms of the Securities and Exchange Commission, and that it is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There are inherent
limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls
and procedures. Accordingly, even effective controls and procedures can only provide reasonable assurance of achieving their control objectives.
We performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of January 31, 2019 under the supervision of our Chief
Executive Officer and Chief Financial Officer. Based upon this evaluation and as a result of the material weaknesses discussed below, our Company Chief Executive Officer
and Company Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of January 31, 2019.
Notwithstanding the assessment that there were material weaknesses, we believe that our consolidated financial statements contained in this annual report fairly present our
financial position, results of operations and cash flows for the years covered thereby in all material respects.
In designing and evaluating our disclosure controls and procedures, our management, including the Company Chief Executive Officer and the Company Chief Financial
Officer, recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the
disclosure controls and procedures are met. Because of the inherent limitations in all control systems, no evaluations of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within the Company have been detected.
74
Material Weakness
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally acceptable
accounting principles. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the annual financial statements will not be prevented or detected on a timely basis.
In connection with the preparation of our fiscal 2019 consolidated financial statements, the matters involving internal controls and procedures that our management considered
the following to be material weaknesses:
(1) The audit committee has been established, however is still operating under the first year exemptions as outlined in section 16 D in respect of independent members.
(2) Lack of skilled resources and lack of expertise with complex IFRS and SEC reporting matters.
(3) No formally implemented system of internal control over financial reporting and no associated written documentation of our internal control policies and procedures.
(4) We did not maintain an effective process for reviewing financial information and did not have a sufficient number of personnel with an appropriate level of accounting
knowledge, experience and training in the application of International Financial Reporting Standards commensurate with management’s financial reporting
requirements.
These control deficiencies could result in a material misstatement of the annual consolidated financial statements that would not be prevented or detected. Accordingly,
management has determined that these control deficiencies constitute material weaknesses.
Management’s Plan for Remediation of Material Weakness
We plan to implement the following actions to address the material weaknesses:
●
●
adding experienced accounting and financial personnel to support our CFO and consider retaining third party consultants to review our internal controls and recommend
improvements; and
appointing an additional independent board member who is resident of Australia, so that the appointment will remedy a breach of the requirement in the Corporations
Act that two of the directors be Australian, and will allow us to satisfy the Nasdaq corporate governance requirement to have an audit committee comprised of three
independent directors.
Our efforts to remediate these material weaknesses may not be effective. If our efforts to remediate these material weaknesses are not successful, the remediated material
weaknesses may reoccur, or other material weaknesses could occur in the future.
We cannot guarantee that we will be able to complete these actions successfully. Even if we are able to complete these planned remediation activities successfully, there is no
assurance that these measures will address our material weaknesses effectively. In addition, it is possible that we will discover additional material weaknesses in the future.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)
under the Exchange Act. Internal control over financial reporting is a process used to provide reasonable assurance regarding the reliability of our financial reporting and the
preparation of our financial statements for external purposes in accordance with IFRS. Internal control over financial reporting includes policies and procedures that pertain to
the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are
recorded as necessary to permit preparation of our financial statements in accordance with IFRS, and that our receipts and expenditures are being made only in accordance with
the authorization of our board of directors and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on our financial statements.
75
Under the supervision and with the participation of our management, including our Executive Chairman (our principal executive), the Chief Executive Officer and Chief
Financial Officer (principal financial officer), we performed a complete documentation of the Company’s significant processes and key controls, and conducted an evaluation of
the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission in 2013. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of
January 31, 2019 due to the material weaknesses described above.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting as such report
is not required for emerging growth companies.
During the year ended January 31, 2019, we completed the Transactions. In connection with the Transactions, among other things, we established an audit committee and
gained access to Bendon Limited’s finance personnel. There were no other changes in our internal control over financial reporting during the year ended January 31, 2019 that
have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
For information about our audit committee financial expert, see Item 6.C of this Annual Report, “Board Practices—Financial Experts on Audit Committee,” which is
incorporated herein by reference.
ITEM 16B. CODE OF ETHICS
Effective upon consummation of the Transactions, we adopted a Code of Ethics that applies to all of our employees, officers, and directors. This includes our principal
executive officer, principal financial officer, and principal accounting officer or controller, or persons performing similar functions. The full text of our Code of Ethics will be
posted on our website at www.nakedbrands.com. We intend to disclose on our website any future amendments of the Code of Ethics or waivers that exempt any principal
executive officer, principal financial officer, principal accounting officer or controller, persons performing similar functions, or our directors from provisions in the Code of
Ethics.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our audit committee of the board of directors pre-approves all audit, audit-related and non-audit services not prohibited by law to be performed by our independent auditors and
associated fees prior to the engagement of the independent auditor with respect to such services.
Pricewaterhouse Coopers Australia
Audit Fees
Taxation Fees
Other
Total Remuneration of PricewaterhouseCoopers Australia
Network firms of PricewaterhouseCoopers Australia
Taxation fees
Total remuneration of network firms of PricewaterhouseCoopers Australia
76
31 Jan 2019
NZ$
31 Jan 2018
NZ$
7 months to
31 Jan 2017
NZ$
477,000
32,706
402,800
912,506
137,263
137,263
485,000
-
-
485,000
27,858
27,858
1,406,721
224,226
42,647
1,673,594
181,630
181,630
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
One member of our audit committee of the board of directors, Mr. Justin Davis-Rice, our Executive Chairman, is not considered independent under the applicable listing
standards and the rules and regulations of the SEC. Pursuant to Nasdaq’s “phase-in” rules for newly listed companies and the rules and regulations of the SEC, we have one
year from the date on which we were first listed on Nasdaq, or until June 19, 2019, to have our audit committee be comprised solely of independent directors. We intend to
identify one additional independent director to serve on the audit committee within the applicable time periods, at which time Mr. Davis-Rice will resign from the committee.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G. CORPORATE GOVERNANCE
The Nasdaq Listing Rules allow foreign private issuers, such as the Company, to follow home country corporate governance practices (in our case Australian) in lieu of the
otherwise applicable Nasdaq corporate governance requirements. In order to rely on this exception, we are required to disclose each Nasdaq Listing Rule that we do not follow
and describe the home country practice we do follow in lieu thereof. In accordance with this exception, we intend to follow Australian corporate governance practices in lieu of
the following Nasdaq corporate governance standards:
● We will follow Australian law and corporate governance practices in lieu of the requirement under the Nasdaq Listing Rules to have a majority of board of directors be
comprised of independent directors. Australian law and generally accepted business practices in Australia do not require that a majority of our board of directors be
independent and, accordingly, we will claim the exemption for foreign private issuers with respect to the Nasdaq majority of independent directors requirement.
● We will follow Australian law and corporate governance practices in lieu of the requirement under Nasdaq Listing Rules that a quorum for a meeting of shareholders
may not be less than 33 1/3% of the outstanding shares of an issuer’s voting ordinary shares. In compliance with Australian law, our constitution provides that a quorum
is two or more shareholders present at the meeting of shareholders and entitled to vote on a resolution at the meeting and, accordingly, we will claim the exemption for
foreign private issuers with respect to the Nasdaq quorum requirement.
● We will follow Australian law and corporate governance practices in lieu of the requirements under the Nasdaq Listing Rules that issuers obtain shareholder approval
prior to the issuance of securities in connection with a change of control, certain acquisitions, private placements of securities, or the establishment or amendment of
certain stock option, purchase or other equity compensation plans or arrangements. Applicable Australian law prohibits the acquisition of a relevant interest in voting
shares of a public company such as Naked, if, because of that transaction, a person’s voting power in the company increases from under 20% to over 20% or increases
from a starting point that is above 20% and below 90%. This prohibition is subject to a number of exceptions including where the acquisition is approved by a resolution
of shareholders of the company in which the acquisition is made. Due to differences between Australian law and corporate governance practices and the Nasdaq Listing
Rules, we will claim the exemption for foreign private issuers with respect to the Nasdaq shareholder approval requirements.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
77
PART III
ITEM 17. FINANCIAL STATEMENTS
See Item 18, “Financial Statements,” of this Annual Report.
ITEM 18. FINANCIAL STATEMENTS
Our Audited Annual Consolidated Financial Statements are included at the end of this Annual Report.
ITEM 19. EXHIBITS
Exhibit No.
Description
1.1
2.1
Form of Constitution (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form F-4 (File No. 333-223786) filed Bendon Group Holdings
Limited).
Specimen Ordinary Share Certificate (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form F-4 (File No. 333-223786) filed Bendon
Group Holdings Limited).
2.2*
Bendon Group Holdings Limited 2017 Equity Incentive Plan (incorporated by reference to Annex C of the proxy statement/prospectus included in the Registration
Statement on Form F-4 (File No. 333-223786) filed Bendon Group Holdings Limited).
4.1
4.2
4.3
Merger Agreement (incorporated by reference to Annex A, A-1, A-2, A-3, A-4 and A-5 of the proxy statement/prospectus included in the Registration Statement
on Form F-4 (File No. 333-223786) filed Bendon Group Holdings Limited).
Deed of Lease, dated as of November 6, 2002, as amended, by and between Bendon Properties Limited and Bendon Limited, for the property located in Auckland,
New Zealand (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form F-4 (File No. 333-223786) filed Bendon Group Holdings Limited).
Stock Purchase Agreement dated November 15, 2018, by and among the stockholders of FOH Online Corp., Naked Brand Group Limited, Bendon Limited and
FOH Online Corp. (incorporated by reference to Exhibit 2.1 to the Report of Foreign Issuer on Form 6-K filed by Naked Brand Group Limited on November 21,
2018).
4.4
Deed of Amendment and Restatement and Accession, dated as of June 14, 2018, by and among Bendon Limited, the parties listed in Schedule 1 thereto, Naked
Brand Group Limited (formerly known as Bendon Group Holdings Limited) and Bank of New Zealand.
4.5**
4.6**
4.7.1
4.7.2
4.7.3
4.7.4
Agreement, effective as of September 26, 2014, by and between Heidi Klum and Heidi Klum Company LLC and Bendon Limited.
License Agreement, dated June 18, 2015, by and between ABG-Frederick’s of Hollywood, LLC and FOH Online Corp.
Securities Purchase Agreement, dated as of March 27, 2019, between Naked Brand Group Limited and the investors listed on the Buyer Schedules attached hereto.
Form of Pre-Funded Warrant issued as of March 27, 2019.
Form of Warrant issued as of March 27, 2019.
Registration Rights Agreement, dated as of March 27, 2019, between Naked Brand Group Limited and the buyers on the signature page thereto.
78
4.8.1
4.8.2
4.8.3
4.8.4
8.1
11.1
12.1
12.2
13.1
Securities Purchase Agreement, dated as of May 13, 2019, by and between Naked Brand Group Limited and St. George Investments LLC.
Note issued as of May 13, 2019.
Security Agreement, dated as of May 13, 2019, by and between Naked Brand Group Limited and St. George Investments LLC
Deed of Priority and Subordination, dated as of May 13, 2019, by and among Naked Brand Group Limited, Bank of New Zealand and St. George Investments
LLC.
List of subsidiaries.
Code of ethics.
Certification of Principal Executive Officer required by Rule 13a-14(a).
Certification of Principal Financial Officer required by Rule 13a-14(a).
Certification required by Section 1350 of Chapter 63 of Title 18 of the United States Code.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
* Management compensation contract, plan or arrangement.
** Certain portions of these exhibits have been omitted as confidential.
79
The registrant hereby certifies that it meets all of the requirements for filing on annual report on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
SIGNATURES
Naked Brand Group Limited
By:
Name:
Title:
/s/ Justin Davis-Rice
Justin Davis-Rice
Executive Chairman
Date: June 14, 2019
80
/s/ Howard Herman
By:
Name: Howard Herman
Title:
Chief Financial Officer
Naked Brand Group Limited
Consolidated Financial Statements
(Expressed in New Zealand Dollars)
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
F-1
Naked Brand Group Limited
Contents
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
Report of the Independent Registered Public Accounting Firm
Consolidated Statements of Profit or Loss and Other Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
F-2
Page
F-3
F-4
F-6
F-7
F-8
F-9
To the Board of Directors and Shareholders of Naked Brand Group Limited
Opinion on the Financial Statements
Report of the Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of Naked Brand Group Limited and its subsidiaries (the “Company”) as of January 31, 2019, 2018 and 2017,
and the related consolidated statements of profit or loss and other comprehensive income, of changes in equity, and of cash flows for the years ended January 31, 2019 and
January 31, 2018, the seven months ended January 31, 2017, and the year ended June 30, 2016, including the related notes (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2019,
2018 and 2017, and the results of its operations and its cash flows for the years ended January 31, 2019 and January 31, 2018, the seven months ended January 31, 2017, and
the year ended June 30, 2016, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses and cash outflows from operations, has a net working capital deficiency, has breached debt
covenants and other matters that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note
2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers
Sydney, Australia
June 14, 2019
We have served as the Company’s auditor since 2016.
F-3
Naked Brand Group Limited
Consolidated Statements of Profit or Loss and Other Comprehensive Income
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
Revenue
Cost of goods sold
Gross profit
Brand management
Administrative expenses
Corporate expenses
Finance expense
Brand transition, restructure and transaction expenses
Impairment expense
Other foreign currency gains/(losses)
Fair value gain/(loss) on Convertible Notes derivative
Loss before income tax
Income tax (expense)/benefit
Loss for the period
Other comprehensive income
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations
Other comprehensive income/(loss) for the period, net of
tax
Total comprehensive income/(loss) for the period
Total comprehensive income/(loss) attributable to:
Owners of Naked Brand Group Limited
Note
5
6
6
6
6
7
22
For the
Year Ended
31 January
2019
NZ$000’s
For the
Year Ended
31 January
2018
NZ$000’s
For the
7 Months
Ended
31 January
2017
NZ$000’s
For the
Year Ended
30 June
2016
NZ$000’s
111,920
(74,480)
37,440
(49,256)
(3,432)
(14,145)
(4,041)
(10,075)
(8,173)
1,963
(775)
(50,494)
1,274
(49,220)
131,388
(87,459)
43,929
(53,653)
(4,131)
(12,851)
(8,791)
(3,272)
(1,914)
757
2,393
(37,533)
(60)
(37,593)
96,284
(57,144)
39,140
(32,040)
(2,383)
(8,082)
(6,238)
(1,321)
(292)
(3,306)
(592)
(15,114)
(865)
(15,979)
(7)
148
(29)
(7)
(49,227)
148
(37,445)
(29)
(16,008)
(49,227)
(37,445)
(16,008)
151,000
(83,525)
67,475
(48,362)
(4,090)
(13,002)
(10,409)
(2,232)
(2,157)
(2,423)
-
(15,200)
(5,546)
(20,746)
31
31
(20,715)
(20,715)
F-4
Naked Brand Group Limited
Consolidated Statements of Profit or Loss and Other Comprehensive Income
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
Loss per share for profit from continuing operations
attributable to the ordinary equity holders of the Group:
Basic loss per share (NZ$)
Diluted loss per share (NZ$)
Note
23
23
For the
Year Ended
31 January
2019
For the
Year Ended
31 January
2018
For the
7 Months
Ended
31 January
2017
For the
Year Ended
30 June
2016
(2.01)
(2.01)
(1.79)
(1.79)
(0.82)
(0.82)
(1.13)
(1.13)
A stock reorganization occurred on the 19th June 2018 upon completion of the merger between Naked Brands Inc. and Bendon Limited. As a result, the calculation of basic and
diluted earnings per share for 2018, 2017 and 2016 has been adjusted retrospectively. The number of ordinary shares outstanding has been adjusted to reflect the proportionate
change in the number of shares. See note 23 for further information.
The above consolidated statements of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.
F-5
Naked Brand Group Limited
Consolidated Balance Sheets
As at 31 January 2019, 31 January 2018 and 31 January 2017
Note
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Inventories
Current tax receivable
Related party receivables
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Property, plant and equipment
Deferred tax assets
Intangible assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Borrowings
Derivative financial instruments
Derivative on Convertible Notes
Current tax liabilities
Related party payables
Provisions
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Provisions
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS/(LIABILITIES)
EQUITY
Share capital
Other reserves
Accumulated losses
TOTAL EQUITY
11
12
13
34
14
28
15
18
19
16
17
34
20
20
21
22
24
1,962
9,650
21,120
355
282
33,369
3,763
692
37,864
42,319
75,687
35,545
20,967
1,484
-
140
3,738
921
62,795
2,372
2,372
65,167
10,519
134,183
(2,013)
(121,651)
10,519
10,739
13,165
31,113
-
15,326
70,343
4,741
-
13,012
17,753
88,096
32,516
52,121
2,087
1,110
786
1,369
1,106
91,095
2,711
2,711
93,806
(5,710)
68,727
(2,006)
(72,431)
(5,710)
2,644
28,090
37,751
52
13,051
81,588
4,964
-
14,680
19,644
101,232
28,566
68,998
4,188
4,112
-
635
1,528
108,027
2,249
2,249
110,276
(9,044)
27,948
(2,154)
(34,838)
(9,044)
The above consolidated balance sheets should be read in conjunction with the accompanying notes.
F-6
Naked Brand Group Limited
Consolidated Statements of Changes in Equity
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
Balance at 1 July 2015
Loss for the year
Other comprehensive income for the year
Balance at 30 June 2016
Balance at 1 July 2016
Loss for the 7 month period
Other comprehensive income for the period
Transactions with owners in their capacity as owners
Issue of shares
Balance 31 January 2017
Balance at 1 February 2017
Loss for the year
Other comprehensive income for the year
Transactions with owners in their capacity as owners
Issue of shares
Convertible notes converted to equity
Balance 31 January 2018
Balance at 1 February 2018
Loss for the year
Other comprehensive income for the year
Transactions with owners in their capacity as owners
Issuance new shares
Issuance new shares from business combination Naked
Issuance new shares for the acquisition of FOH Online Corp
Convertible notes converted to equity
Balance 31 January 2019
Ordinary
Shares
NZ$000’s
Retained
Earnings/
(Accumulated
Losses)
NZ$000’s
Foreign
Currency
Translation
Reserve
NZ$000’s
Total
NZ$000’s
3,108
-
-
3,108
3,108
-
-
24,840
27,948
27,948
-
-
22,990
17,789
68,727
68,727
-
-
40,228
14,196
6,873
4,159
134,183
1,887
(20,746)
-
18,859
(18,859)
(15,979)
-
-
(34,838)
(34,838)
(37,593)
-
-
-
(72,431)
(72,431)
(49,220)
-
-
-
-
-
(121,651)
(2,156)
-
31
(2,125)
(2,125)
-
(29)
-
(2,154)
(2,154)
-
148
-
-
(2,006)
(2,006)
-
(7)
-
-
-
-
(2,013)
2,839
(20,746)
31
(17,876)
(17,876)
(15,979)
(29)
24,840
(9,044)
(9,044)
(37,593)
148
22,990
17,789
(5,710)
(5,710)
(49,220)
(7)
40,228
14,196
6,873
4,159
10,519
The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes.
F-7
Naked Brand Group Limited
Consolidated Statements of Cash Flows
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Receipts from customers
Payments to suppliers and employees
Income taxes paid
Net cash (outflow) from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for intangible asset
Payments for property, plant and equipment
Proceeds from business combination, net of cash acquired
Net cash (outflow) from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issue of shares
Proceeds from borrowings - Bank
Proceeds from borrowings - Convertible notes issue
Repayment of borrowings - Bank
Debt issuance costs
Interest paid
Net cash inflow from financing activities
Net increase/(decrease) in cash and cash equivalents held
Cash and cash equivalents at beginning of year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of the year
11
For the
Year Ended
31 January
2019
NZ$000’s
For the
Year Ended
31 January
2018
NZ$000’s
For the
7 Months
Ended
31 January
2017
NZ$000’s
For the
Year Ended
30 June
2016
NZ$000’s
140,736
(149,750)
(420)
(9,434)
159,042
(163,304)
146
(4,116)
92,066
(105,389)
(195)
(13,518)
160,880
(165,708)
(530)
(5,040)
Note
35
(151)
(2,585)
870
(1,867)
23,248
-
-
(18,489)
(322)
(2,269)
2,168
(9,133)
10,739
355
1,962
(118)
(2,194)
-
(2,312)
22,721
463
4,521
(9,684)
(107)
(3,418)
14,496
8,068
2,644
27
10,739
(351)
(723)
-
(1,074)
-
1,940
16,474
(2,832)
(367)
(2,133)
13,082
(1,510)
4,193
(39)
2,644
(475)
(2,703)
-
(3,178)
-
62,127
-
(46,986)
(750)
(3,140)
11,251
3,033
1,246
(86)
4,193
Certain amounts in the prior year period have been reclassified to conform to the current year period presentation. The above consolidated statements of cash flows should be
read in conjunction with the accompanying notes.
F-8
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
Description of business
Naked Brand Group Limited (“the Group”) is a designer, distributor, wholesaler and retailer of women’s and men’s intimates apparel globally. The Group sells its merchandise
through retail and outlet stores in New Zealand and Australia, wholesale operations in New Zealand, Australia, the United States and Europe, and through online channels. The
Group operates both licenced and owned brands, including the following:
Licenced brands:
Heidi Klum, Fredericks of Hollywood
Owned brands:
Pleasure State, Davenport, Lovable, Bendon, Fayreform, Naked, VaVoom, Evollove, Hickory
The financial report covers Naked Brand Group Limited and its controlled entities (‘the Group’). Naked Brand Group Limited is a for-profit Group, incorporated and domiciled
in Australia.
During the year the following significant changes occurred, of which there is further disclosure contained within this report:
● On 19th June 2018, Bendon Limited (Bendon) and Naked Brand Group Inc. (Naked) completed a business combination pursuant to the Merger Agreement.
● On 30th June 2018, the licence agreement with Stella McCartney was terminated
● On 15th November 2018 the Group entered into a Stock Purchase Agreement with the shareholders of FOH Online Corp Inc (FOH)
The financial report was authorised for issue by the Directors on 14 June 2019.
Comparatives are consistent with prior years, unless otherwise stated.
The amounts in the financial statements have been rounded to the nearest thousand dollars.
1
Basis of Preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards
Board (IASB). Naked Brand Group Limited is a for-profit entity for the purpose of preparing the financial statements.
F-9
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
1
Basis of Preparation
Naked Brand Group Limited (The Group) acquired all the share capital of Bendon Limited as part of a corporate reorganization on 19 June 2018. Following the
reorganization, Naked Brand Group Limited completed a merger with Naked Brand Group Inc. which for accounting purposes was treated as an acquisition such that Naked
brand group limited is deemed the accounting acquirer of the Naked Brand Group Inc. The reorganization of the ownership of Bendon Limited results in the financial
statements of the consolidated Naked Brand Group Limited being a continuation of the Bendon Limited financial statements. The consolidated financial report of Naked
Brand Limited represents a full year of Bendon Limited’s financial results plus Naked Brand Group Inc. from the date of acquisition being 19 June 2018 to 31 January 2019.
The comparative period represents Bendon Limited and its controlled entities only.
(a) Historical cost convention
The financial statements are based on historical costs, except for the measurement at fair value of selected financial assets and financial liabilities.
2
Summary of Significant Accounting Policies
(a) Going concern
The financial statements have been prepared on the basis of going concern which contemplates continuity of normal business activities and the realisation of assets and
settlement of liabilities in the ordinary course of business.
For the financial year ended 31 January 2019 the Group experienced a loss after income tax from continuing operations of NZ$49.220million and operating cash outflows of
NZ$9.434 million. It also is in a net current liability position of $NZ29.426 million and a positive net asset position of NZ$10.519 million.
The losses in the year ended 31 January 2019 were a result of reduced revenue from wholesale customers, increased rebates and discounts, and the plateauing of sales in
retail outlets believed to be due to the stores and stockists not having new high margin inventory. The business is experiencing challenging trading conditions which have
been impacted by the cancellation of the Stella McCartney licence held by the Group which expired on 30 June 2018, the lack of working capital to purchase sufficient
levels of inventory required for trading, reduced customer foot traffic in retail stores and outlets, and a reduction of revenue from wholesale customers. The business also
incurred NZ$10.075 million of non-trading costs in relation to brand transition, restructure, and transaction costs associated with listing the Group on the Nasdaq stock
exchange. The Group also has trade creditors that are trading beyond their original credit terms.
The Group has also breached its Bank debt loan covenants during financial year, and the Bank has extended the facility from being due on 30 June 2019 to being due or
subject to renewal on 31 August 2019. The extension of time in the term of the facility is to provide the Group and the Bank time to consider a refinance of the facility to a
longer term to assist the group continue as a going concern.
In consequent to the challenging trading conditions and the negative working capital the business raised NZ$23.248 million of funds in the form of issued capital and
convertible notes over the course of the financial year and generated further working capital by reducing inventory by NZ$9.993 million. The Group used the funds to reduce
the bank debt from NZ$38.489 million to NZ$20.000 million, reduce long overdue trade creditors (both pre and post year end), fund operating losses, reduce costs, rebuild
higher margin inventory, recruit new staff, and pay the costs of listing on the Nasdaq stock exchange.
F-10
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
2
Summary of Significant Accounting Policies
(a) Going concern
The funds raised and cash flow generated during the financial year ended 31 January 2019 have not been sufficient to provide the Group with adequate working capital, so
subsequent to the end of the financial year management has taken steps to raise further capital to complete a program that will fund new inventory that will restock stores
and supply wholesale customers, fund further losses, reduce out of term creditors, reduce costs, and provide funds to amortise the Bank debt. It is expected the group will
need to continue to fund losses through to the start of the year ending 31 January 2022. This capital raising/recapitalisation is continuing at the time of this report with
management having set a target to raise a further NZ$31.587 million between March 2019 and 31 January 2020. At the date of this report management had raised
NZ$12.179 million and was still planning on raising NZ$19.409 million, of which NZ$4.347 million is in the forecast for collection in June 2019, NZ$7.31 million in July
2019; and NZ$7.531 million in October 2019. The Group may need to raise further funds beyond these amounts to fund the period to 31 January 2022.
Management has also engaged in further restructuring of the businesses operations including reducing costs across distribution channels, renegotiating supplier contracts,
resetting customer supply commitments, updating leadership roles including appointing a new CEO (which occurred in October 2018) at the Bendon Limited level and the
Naked Brand Group Limited level in April 2019, for the operating business, and managing the opening of new stores. The impact from the proposed capital raising and the
restructure will take time to generate positive cash flows from operations. The Group expects the business will trend to be cash flow positive by through the year ending 31
January 2021, but will not be fully cash flow positive until the beginning of the year ending 31 January 2022.
As part of the discussions to renegotiate the Bank facilities the Bank appointed an independent review accountant (Review Accountant) to review the cash flow and working
capital history and forecasts. The Review Accountant issued a report which is consistent with the information in this note and the Bank has advised they will continue to
monitor the Group’s performance during the Bank debt renegotiation process through a formal appointment of a Review Accountant. The Directors expect the Bank to offer
a new one year facility with amortisation over the next twelve months by 31 August 2019. The offer of a new Bank facility is dependent on the Group achieving inventory
covenants set by the Bank through to 31 August 2019 and the Bank being satisfied that the Group has progressed with securing the remaining capital planned of
$NZD$19.409 million.
The directors have also considered the Loan Agreement from its previous major shareholder Cullen Investments Limited (“Cullen”) and has been advised by Cullen that due
to some changes with Cullen’s financial circumstances Cullen is not likely to be a reliable source of funding and as a result the directors have decided to pursue new capital
raising activities and not rely on Cullen.
Despite the ongoing losses, reduced cash flow and cash facilities, and the other negative financial conditions, the Directors are confident that the Group will continue as a
going concern. However, while the Directors are confident of continuing as a going concern and meeting its debt obligation to its Bank and creditor commitments as they
fall due, the going concern is dependent upon the Directors and Group being successful in:
● Raising further capital in line with the Group’s cashflow forecast of at least NZ$19.409 million and collecting it between June 2019 and October 2019 (NZ$4.347
million in June 2019; NZ$7.531 million in July 2019; and NZ$7.531 million in October 2019) then raising follow on capital (the amount is yet to be determined)
to fund the business through until it expects to become cash flow positive;
● Generating sufficient sales and increasing gross margins and reducing overheads from trading in line with forecast;
● Having sufficient funds from the capital raised to reduce costs, recruit new staff, rebuild higher margin inventory, increasing revenue across the wholesale and
retail channels, increase gross margin percentages and contribution that leads to a reduction in the current cash outflow being incurred each month to reach a cash
flow positive position, and to reduce bank debt;
● Continue to receive support from creditors to delay payment of overdue amounts until the Group has adequate cash flow to commence a repayment arrangement or
repay the debt in full;and
● Renegotiating the current bank facilities of $20 million to a facility that is at least a 12 month facility, reviewed annually that commences before the current
facilities mature on 31 August 2019; and
F-11
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
2
Summary of Significant Accounting Policies
(a) Going concern
As a result the viability of the Group is dependent on the above matters, and there is a substantial doubt about the Group’s ability to continue as a going concern.
However, the Directors’ believe that the Group will be successful in the above matters and, accordingly, have prepared the report on a going concern basis.
(b) Basis for consolidation
Subsidiaries
Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the group is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases.
Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the
transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency
with the policies adopted by the group.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of profit or loss, statement of comprehensive
income, statement of changes in equity and balance sheet respectively.
When the group ceases to consolidate or equity account for an investment because of a loss of control, joint control or significant influence, any retained interest in the
entity is remeasured to its fair value with the change in carrying amount recognised in profit or loss. This fair value becomes the initial carrying amount for the purposes
of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other
comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts
previously recognised in other comprehensive income are reclassified to profit or loss.
If the ownership interest in a joint venture or an associate is reduced but joint control or significant influence is retained, only a proportionate share of the amounts
previously recognised in other comprehensive income are reclassified to profit or loss where appropriate.
(c) Business combinations
Business combinations are accounted for by applying the acquisition method which requires an acquiring entity to be identified in all cases. The acquisition date under
this method is the date that the acquiring entity obtains control over the acquired entity.
F-12
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
2
Summary of Significant Accounting Policies
(c) Business combinations
The fair value of identifiable assets and liabilities acquired are recognised in the consolidated financial statements at the acquisition date.
Goodwill or a gain on bargain purchase may arise on the acquisition date, this is calculated by comparing the consideration transferred and the amount of non-controlling
interest in the acquiree with the fair value of the net identifiable assets acquired. Where consideration is greater than the net assets acquired, the excess is recorded as
goodwill. Where the net assets acquired are greater than the consideration, the measurement basis of the net assets are reassessed before a gain from bargain purchase
recognised in profit or loss.
All acquisition-related costs are recognised as expenses in the periods in which the costs are incurred except for costs to issue debt or equity securities.
Any contingent consideration which forms part of the combination is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity
then it is not remeasured and the settlement is accounted for within equity. Otherwise subsequent changes in the value of the contingent consideration liability are
measured through profit or loss.
(d) Income Tax
The tax expense/(benefit) recognised in the consolidated statements of profit or loss and other comprehensive income comprises of current income tax expense plus
deferred tax expense/(benefit).
Current tax is the amount of income taxes payable/(recoverable) in respect of the taxable profit/(loss) for the period and is measured at the amount expected to be paid
to/(recovered from) the taxation authorities, using the tax rates and laws that have been enacted or substantively enacted by each jurisdiction by the end of the reporting
period. Current tax liabilities/(assets) are measured at the amounts expected to be paid to/(recovered from) the relevant taxation authority.
Deferred tax is provided on temporary differences which are determined by comparing the carrying amounts of tax bases of assets and liabilities to the carrying amounts
in the consolidated financial statements.
Deferred tax is not provided for the following:
●
●
●
The initial recognition of an asset or liability in a transaction that is not a business combination and at the time of the transaction, affects neither accounting profit
nor taxable profit/(tax loss).
Taxable temporary differences arising on the initial recognition of goodwill.
Temporary differences related to investment in subsidiaries, associates and jointly controlled entities to the extent that the Group is able to control the timing of the
reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future.
F-13
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
2
Summary of Significant Accounting Policies
(d) Income Tax
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax
rates (and tax laws) that have been enacted or substantively enacted by each jurisdiction by the end of the reporting period.
Deferred tax assets are recognised for all deductible temporary differences and unused tax losses to the extent that it is probable that taxable profit will be available
against which the deductible temporary differences and losses can be utilised.
Current and deferred tax is recognised as income or an expense and included in profit or loss for the period except where the tax arises from a transaction which is
recognised in other comprehensive income or equity, in which case the tax is recognised in other comprehensive income or equity respectively.
In determining the amount of current and deferred income tax, the Group takes into account the impact of uncertain income tax positions and whether additional taxes
and interest may be due. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become
available that causes the Group to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact the income tax
expense in the period that such a determination is made.
(e) Leases
Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership that are transferred to entities in
the Group, are classified as finance leases.
Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the
minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest
expense for the period.
Lease payments for operating leases, where substantially all of the risks and benefits remain with the lessor, are charged as expenses on a straight-line basis over the life
of the lease term.
Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the life of the lease term.
F-14
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
2
Summary of Significant Accounting Policies
(f) Revenue and other income
Sale of goods
Sales of goods through retail stores, e-commerce and wholesale channels are recognised when control of the products have been transferred to the customer which is a
point in time. For wholesale and e-commerce sales, risks and rewards are transferred when goods are delivered to customers, and therefore reflects an estimate of
shipments that have not been received at year end based on shipping terms and historical delivery times. The Group also provides a reserve for projected merchandise
returns based on prior experience.
The Group sells gift cards to customers. The Group recognises revenue from gift cards when they are redeemed by the customers. In addition, the Group recognises
revenue on all of it’s unredeemed gift cards when the gift cards have expired.
(i) Sale of goods - wholesale
The Group sells a range of lingerie products in the wholesale market. Sales are recognised when control of the products has transferred, being when the products are
delivered to the wholesaler, the wholesaler has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the
wholesaler’s acceptance of the products. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been
transferred to the wholesaler, and either the wholesaler has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the
group has objective evidence that all criteria for acceptance have been satisfied.
Revenue from these sales is recognised based on the price specified in the contract, net of the estimated volume discounts. The estimates of discount is based on the
trading terms in the contracts, and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur. A refund liability (included
in trade and other payables) is recognised for expected volume payable to customers in relation to sales made until the end of the reporting period. The Group’s
obligation to provide a refund for faulty products under the standard trading terms is recognised as a provision.
(ii) Sale of goods - retail/e-commerce
The group operates a chain of retail stores and e-commerce websites selling lingerie products. Revenue from the sale of goods is recognised when a group entity sells a
product to the customer.
F-15
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
2
Summary of Significant Accounting Policies
(f) Revenue and other income
Payment of the transaction price is due immediately when the customer purchases the product. It is the group’s policy to sell its products to the end customer with a right
of return within 30 days. Therefore, a refund liability (included in trade and other payables) and a right to the returned goods (included in inventory if deemed saleable)
are recognised for the products expected to be returned. Accumulated experience is used to estimate such returns at the time of sale at a portfolio level (expected value
method). Because the number of products returned has been steady for years, it is highly probable that a significant reversal in the cumulative revenue recognised will
not occur. The validity of this assumption and the estimated amount of returns are reassessed at each reporting date.
Interest revenue
Interest is recognised using the effective interest method.
Other income
Other income is recognised on an accruals basis when the Group is entitled to it.
(g) Brand management, administrative and corporate expenses
Corporate expenses includes head office costs such as human resources, finance team and rental costs. Administrative expenses includes depreciation and amortisation,
as well as professional accounting fees. Brand management expenses includes other costs incurred in selling products, including advertising, design and retail store
occupancy and payroll.
(h) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time
to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowing pending their expenditure on qualifying assets is deducted from the borrowing costs
eligible for capitalisation.
All other borrowing costs are recognised as an expense in the period in which they are incurred.
(i)
Inventories
Inventories are measured at the lower of cost and net realisable value. Cost of inventory is determined using the weighted average costs basis and is net of any rebates
and discounts received. Net realisable value represents the estimated selling price for inventories less costs necessary to make the sale. Net realisable value is estimated
using the most reliable evidence available at the reporting date and inventory is written down through an obsolescence provision if necessary.
F-16
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
2
Summary of Significant Accounting Policies
(j) Property, plant and equipment
Plant and equipment
Plant and equipment are measured using the cost model.
Under the cost model the asset is carried at its cost less any accumulated depreciation and any impairment losses. Costs include purchase price and other directly
attributable costs associated with locating the asset to the installation site, where applicable.
Depreciation
Property, plant and equipment, is depreciated on a straight-line basis over the assets useful life to the Group, commencing when the asset is ready for use.
The estimated useful lives used for each class of depreciable asset are shown below:
Fixed asset class
Leasehold improvements
Plant, furniture, fittings and motor vehicles
Useful life
1 - 10 years
3 - 7 years
At the end of each annual reporting period, the depreciation method, useful life and residual value of each asset is reviewed. Any revisions are accounted for
prospectively as a change in accounting estimate.
F-17
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
2
Summary of Significant Accounting Policies
(k) Financial instruments
Financial instruments are recognised initially using trade date accounting, i.e. on the date that the Group becomes party to the contractual provisions of the instrument.
On initial recognition, all financial instruments are measured at fair value plus transaction costs (except for instruments measured at fair value through profit or loss
where transaction costs are expensed as incurred).
Financial Assets
(i) Classification
From 1 February 2018, the group classifies its financial assets in the following measurement categories:
●
●
those to be measured subsequently at fair value (either through OCI or through profit or loss), and
those to be measured at amortised cost.
The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows.
For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity instruments that are not held for trading, this
will depend on whether the group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other
comprehensive income (FVOCI).
The group reclassifies debt investments when and only when its business model for managing those assets changes.
(ii) Recognition and derecognition
Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the group commits to purchase or sell the asset. Financial assets are
derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the group has transferred substantially all the
risks and rewards of ownership.
F-18
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
2
Summary of Significant Accounting Policies
(k) Financial instruments
(iii) Measurement
At initial recognition, the group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction
costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss.
Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.
Debt instruments
Subsequent measurement of debt instruments depends on the group’s business model for managing the asset and the cash flow characteristics of the asset. There are
three measurement categories into which the group classifies its debt instruments:
● Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured
at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on
derecognition is recognised directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are
presented as separate line item in the statement of profit or loss.
●
FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of
principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses,
interest income and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss
previously recognised in OCI is reclassified from equity to profit or loss and recognised in other gains/(losses). Interest income from these financial assets is
included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in other gains/(losses) and impairment expenses
are presented as separate line item in the statement of profit or loss.
●
FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain or loss on a debt investment that is subsequently measured at
FVPL is recognised in profit or loss and presented net within other gains/(losses) in the period in which it arises.
Equity instruments
The group subsequently measures all equity investments at fair value. Where the group’s management has elected to present fair value gains and losses on equity
investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from
such investments continue to be recognised in profit or loss as other income when the group’s right to receive payments is established.
F-19
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
2
Summary of Significant Accounting Policies
(k) Financial instruments
Changes in the fair value of financial assets at FVPL are recognised in other gains/(losses) in the statement of profit or loss as applicable. Impairment losses (and reversal
of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value.
(iv) Impairment
From 1 February 2018, the group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost and
FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk.
For trade receivables, the group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of
the receivables.
(v) Subsequent measurement
If there is objective evidence that an impairment loss on financial assets carried at amortised cost has been incurred, the amount of the loss is measured as the difference
between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the financial assets original effective interest rate.
Subsequent recoveries of amounts previously written off are credited against other expenses in profit or loss.
Financial liabilities
Financial liabilities are classified as either financial liabilities ‘at fair value through profit or loss’ or other financial liabilities depending on the purpose for which the
liability was acquired. Although the Group uses derivative financial instruments in economic hedges of currency and interest rate risk, it does not hedge account for these
transactions.
The Group’s financial liabilities include borrowings, trade and other payables (including finance lease liabilities), which are measured at amortised cost using the
effective interest rate method.
All of the Group’s derivative financial instruments that are not designated as hedging instruments are accounted for at fair value through profit or loss.
(l)
Impairment of non-financial assets
At the end of each reporting period the Group determines whether there is an evidence of an impairment indicator for non-financial assets.
F-20
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
2
Summary of Significant Accounting Policies
(l)
Impairment of non-financial assets
Where an indicator exists and regardless for goodwill, indefinite life intangible assets and intangible assets not yet available for use, the recoverable amount of the asset
is estimated.
Where assets do not operate independently of other assets, the recoverable amount of the relevant cash-generating unit (CGU) is estimated.
The recoverable amount of an asset or CGU is the higher of the fair value less costs of disposal and the value in use. Value in use is the present value of the future cash
flows expected to be derived from an asset or cash-generating unit.
Where the recoverable amount is less than the carrying amount, an impairment loss is recognised in profit or loss.
Reversal indicators are considered in subsequent periods for all assets which have suffered an impairment loss, except for goodwill.
(m) Cash and cash equivalents
For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other
short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.
(n) Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.
(o) Trade and other payables
These amounts represent liabilities for goods and services provided to the group prior to the end of financial year which are unpaid. The amounts are unsecured and are
usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting
period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.
F-21
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
2
Summary of Significant Accounting Policies
(p) Intangibles
Goodwill
Goodwill is carried at cost less accumulated impairment losses. Goodwill is calculated as the excess of the sum of:
i)
ii)
iii)
the consideration transferred;
any non-controlling interest; and
the acquisition date fair value of any previously held equity interest;
over the acquisition date fair value of net identifiable assets acquired in a business combination.
Patents and licences
Separately acquired patents and licences are shown at historical cost. Licenses and customer contracts acquired in a business combination are recognised at fair value at
the acquisition date. They have a finite useful life and are subsequently carried at cost less accumulated amortisation and impairment losses. Licence fees have an
estimated useful life of 5 – 50 years.
Software
Software has a finite life and is carried at cost less any accumulated amortisation and impairment losses. It has an estimated useful life of between one and three years.
Brands
Brand assets relate to brands owned by the Group that have arisen on historical acquisitions. These assets were initially measured at fair value.
Brands are considered as to whether they have a finite or indefinite useful life at their acquisition and are amortized if considered to have a finite life. Brands are
considered to have indefinite lives in circumstances when there is no foreseeable limit to the period over which the asset is expected to generate net cash flows for the
entity they are not amortised. Brands with indefinite useful lives have been in existence for many years, are well established and show no signs of deteriorating. These
indefinite life brands are assessed for impairment annually or more frequently if impairment indicators are noted.
F-22
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
2
Summary of Significant Accounting Policies
(p) Intangibles
Amortisation
Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill and indefinite life brands, from
the date that they are available for use.
Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
Goodwill and indefinite life brands are not amortised but are tested for impairment annually or more frequently if impairment indicators exist. Goodwill is allocated to
the Group’s cash generating units or groups of cash generating units, which represent the lowest level at which goodwill is monitored but where such level is not larger
than an operating segment. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity sold.
(q) Employee benefits
(i) Short-term obligations
Liabilities for wages and salaries, including non-monetary benefits and accumulating sick leave that are expected to be settled wholly within 12 months after the end
of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are
measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current employee benefit obligations in the balance sheet.
(ii) Other long-term employee benefit obligations
The liabilities for long service leave and annual leave are not expected to be settled wholly within 12 months after the end of the period in which the employees
render the related service. They are therefore measured as the present value of expected future payments to be made in respect of services provided by employees up
to the end of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee
departures and periods of service.
Expected future payments are discounted using market yields at the end of the reporting period of high-quality corporate bonds with terms and currencies that match,
as closely as possible, the estimated future cash outflows. Remeasurements as a result of experience adjustments and changes in actuarial assumptions are
recognised in profit or loss.
The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve
months after the reporting period, regardless of when the actual settlement is expected to occur.
F-23
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
2
Summary of Significant Accounting Policies
(r) Provisions
Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits
will result and that outflow can be reliably measured.
Provisions are measured at the present value of management’s best estimate of the outflow required to settle the obligation at the end of the reporting period. The
discount rate used is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision
due to the unwinding of the discount is taken to finance costs in the consolidated statements of profit or loss and other comprehensive income.
Provisions recognised represent the best estimate of the amounts required to settle the obligation at the end of the reporting period.
(i) Lease incentive provision
Lease contributions include payment for improvements initially funded by the landlord. The improvement asset is capitalised and a provision for the amount of
landlord contribution is recognised. The provision is released on a monthly basis over the term of the lease of the property.
(ii) Onerous contract provision
The Group provides for future losses on long-term contracts where it is considered probable that the contract costs are likely to exceed revenues in future years. A
provision is required for the present value of future losses. Estimating these future losses involves a number of assumptions about the achievement of contract
performance targets and the likely levels of future cost escalation over time.
(iii) Make good provision
The Group is required to restore the lease premises of various retail stores to their original condition at the end of the respective lease terms. Provisions for make
good obligations are recognised when the group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources
will be required to settle the obligation and the amount can be reliably estimated. A provision is recognised for the present value of the estimated expenditure
required to remove any leasehold improvements. These costs have been capitalised as part of the cost of leasehold improvements and are amortised over the lease
term.
F-24
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
2
Summary of Significant Accounting Policies
(s) Earnings/(loss) per share
(i) Basic earnings/(loss) per share
Basic earnings/(loss) per share is calculated by dividing:
●
●
the profit/(loss) attributable to owners of the Group, excluding any costs of servicing equity other than ordinary shares
by the weighted average number of ordinary shares outstanding during the financial year.
(ii) Diluted earnings/(loss) per share
Diluted earnings/(loss) per share adjusts the figures used in the determination of basic earnings per share to take into account:
●
●
the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and
the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.
For periods in which the Group has reported net losses, diluted net loss per share attributable to common shareholders is the same as basic net loss per share attributable
to common stockholders, since their impact would be anti-dilutive to the calculation of net loss per share.
(t) Borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the
proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees
paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn
down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down,
the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.
Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying
amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or
liabilities assumed, is recognised in profit or loss as other income or finance costs.
Where the terms of a financial liability are renegotiated and the entity issues equity instruments to a creditor to extinguish all or part of the liability (debt for equity
swap), a gain or loss is recognised in profit or loss, which is measured as the difference between the carrying amount of the financial liability and the fair value of the
equity instruments issued.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting
period.
F-25
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
2
Summary of Significant Accounting Policies
(u) Convertible Notes
On issuance of the convertible notes, an assessment is made to determine whether the convertible notes contain an equity instrument or whether the whole instrument
should be classified as a financial liability.
When it is determined that the whole instrument is a financial liability and no equity instrument is identified (for example for foreign-currency-denominated convertibles
notes), the conversion option is separated from the host debt and classified as a derivative liability. The carrying value of the host contract (a contract denominated in a
foreign currency) at initial recognition is determined as the difference between the consideration received and the fair value of the embedded derivative. The host
contract is subsequently measured at amortised cost using the effective interest rate method. The embedded derivative is subsequently measured at fair value at the end of
each reporting period through the profit and loss. The convertible note and the derivative are presented as a single number on the balance sheet within interest-bearing
loans and borrowings.
When it is determined that the instrument contains an equity component based on the terms of the contract, on issuance of the convertible notes, the fair value of the
liability component is determined using a market rate for an equivalent non-convertible bond. This amount is classified as a financial liability measured at amortised cost
(net of transaction costs) until it is extinguished on conversion or redemption. The remainder of the proceeds is allocated to the conversion option that is recognised and
included in equity. Transaction costs are deducted from equity, net of associated income tax. The carrying amount of the conversion option is not re-measured in
subsequent years.
(v) Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax
effects.
(w) Foreign currency transactions and balances
Each of the entities within the Group prepare their financial statements based on the currency of the primary economic environment in which the entity operates
(functional currency). The consolidated financial statements are presented in New Zealand dollars which is the parent entity’s functional and presentation currency.
F-26
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
2
Summary of Significant Accounting Policies
(w) Foreign currency transactions and balances
Transaction and balances
Foreign currency transactions are recorded at the spot rate on the date of the transaction.
At the end of the reporting period:
Foreign currency monetary items are translated using the closing foreign currency rate;
●
● Non-monetary items that are measured at historical cost are translated using the exchange rate at the date of the transaction; and
● Non-monetary items that are measured at fair value are translated using the rate at the date when fair value was determined.
Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial
recognition or in prior reporting periods are recognised through profit or loss, except where they relate to an item of other comprehensive income or whether they are
deferred in equity as qualifying hedges.
Group companies
The financial results and position of foreign operations whose functional currency is different from the Group’s presentation currency are translated as follows:
●
●
●
assets and liabilities are translated at period-end exchange rates prevailing at that reporting date;
income and expenses are translated at average exchange rates for the period where the average rate approximates the rate at the date of the transaction; and
retained earnings are translated at the exchange rates prevailing at the date of the transaction.
Exchange differences arising on translation of foreign operations are transferred directly to the Group’s foreign currency translation reserve in the consolidated balance
sheets. These differences are recognised in the consolidated statements of profit or loss and other comprehensive income in the period in which the operation is disposed.
F-27
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
2
Summary of Significant Accounting Policies
(x) Adoption of new and revised accounting standards
A number of new or amended accounting standards become applicable for the current reporting period and the Group had to change it accounting policies as a result of
adopting the following accounting standards.
- IFRS 9 Financial Instruments
- IFRS 15 Revenue from contract with customers
There were no material impacts on adoption of IFRS 9 and IFRS 15. The other accounting standards did not have any impact on the Group’s accounting policies and did
not require retrospective adjustments.
(y) New Accounting Standards and Interpretations
Certain new accounting standards and interpretations have been published that are not mandatory for 31 January 2019 reporting periods and have not been early adopted
by the Group. The Group’s assessment of the impact of these new standards and interpretations is set out below.
F-28
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
2
Summary of Significant Accounting Policies
(y) New Accounting Standards and Interpretations
Title of Standard
Nature of change
Impact
IFRS 16
Leases
The IASB has issued a new standard for
leases. This will replace IAS 17.
The main impact on lessees is that almost all
leases go on balance sheet. This is because
the balance sheet distinction between
operating and finance leases is removed for
lessees. Instead, under the new standard an
asset (the right to use the leased item) and a
financial liability to pay rentals are
recognised. The only exemptions are short-
term and low-value leases.
Management is currently assessing the
impact of the new rules and believes the
adoption of the provisions of this update will
have a material impact on the Group’s
consolidated financial statements.
Mandatory application
date/Date of adoption by Group
Management is currently assessing the
impact of the new rules and believes the
adoption of the provisions of this update will
have a material impact on the Group’s
consolidated financial statements.
The new standard will require that we record
a liability and a related asset on the balance
sheet for our leased facilities.
Mandatory for financial years commencing
on or after 1 January 2019.
Expected date of adoption by the Group: 1
February 2019.
IFRC 23 Uncertainty over Income Tax
Treatments (IFRIC 23)
On June 7, 2017, the IASB issued IFRIC
The Group is currently evaluating the
IFRIC 23 is effective for annual periods
impact of adopting this standard on the
consolidated financial statements.
beginning on or after January 1, 2019, with
earlier application permitted.
23, Uncertainty over Income Tax
Treatments (“IFRIC 23”). IFRIC 23 clarifies
the application of recognition and
measurement requirements in IAS 12,
Income Taxes, when there is uncertainty
over income tax treatments. The IFRIC 23
interpretation specifically addresses whether
an entity considers uncertain tax treatments
separately; the assumptions an entity makes
about the examination of tax treatments by
taxation authorities; how an entity
determines taxable profit (tax loss), tax
bases, unused tax losses, unused tax credits
and tax rates; and how an entity considers
changes in facts and circumstances.
There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on
foreseeable future transactions.
(z) Operating segments
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The executive directors are the chief
operating decision maker, responsible for allocating resources and assessing performance of the operating segments.
F-29
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
3 Changes in accounting policies
This note explains the impact of the adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers on the group’s financial statements
and also discloses the new accounting policies that have been applied from 1 February 2018, where they are different to those applied in prior periods.
(a) Impact on the financial statements
There were no impacts on the Group’s accounting policies on adoption of IFRS 9 and IFRS 15, and no retrospective adjustments required either.
(b) IFRS 9 Financial Instruments – Accounting policies applied from 1 February 2018
Impairment
For trade receivables, the group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of
the receivables.
(c) IFRS 15 Revenue from Contracts with Customers – Accounting policies
(i) Sale of goods - wholesale
The Group sells a range of lingerie products in the wholesale market. Sales are recognised when control of the products has transferred, being when the products are
delivered to the wholesaler, the wholesaler has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect
the wholesaler’s acceptance of the products. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have
been transferred to the wholesaler, and either the wholesaler has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed,
or the group has objective evidence that all criteria for acceptance have been satisfied.
Revenue from these sales is recognised based on the price specified in the contract, net of the estimated volume discounts. The estimates of discount is based on the
trading terms in the contracts, and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur. A refund liability
(included in trade and other payables) is recognised for expected volume payable to customers in relation to sales made until the end of the reporting period. The
Group’s obligation to provide a refund for faulty products under the standard trading terms is recognised as a provision.
F-30
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
3 Changes in accounting policies
(c) IFRS 15 Revenue from Contracts with Customers – Accounting policies
(ii) Sale of goods - retail/e-commerce
The group operates a chain of retail stores and e-commerce websites selling lingerie products. Revenue from the sale of goods is recognised when a group entity
sells a product to the customer.
Payment of the transaction price is due immediately when the customer purchases the product. It is the group’s policy to sell its products to the end customer with a
right of return within 30 days. Therefore, a refund liability (included in trade and other payables) and a right to the returned goods (included in inventory) are
recognised for the products expected to be returned. Accumulated experience is used to estimate such returns at the time of sale at a portfolio level (expected value
method). Because the number of products returned has been steady for years, it is highly probable that a significant reversal in the cumulative revenue recognised
will not occur. The validity of this assumption and the estimated amount of returns are reassessed at each reporting date.
4 Critical Accounting Estimates and Judgments
The directors make estimates and judgements during the preparation of these financial statements regarding assumptions about current and future events affecting transactions
and balances.
These estimates and judgements are based on the best information available at the time of preparing the financial statements, however as additional information is known
then the actual results may differ from the estimates.
The significant estimates and judgements made have been described below.
Key estimates - inventory
Each item on inventory is reviewed on an annual basis to determine whether it is being carried at higher than its net realisable value. During the period, management have
written down inventory based on best estimate of the net realisable value, although until the time that inventory is sold this is an estimate.
F-31
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
4 Critical Accounting Estimates and Judgments
Key estimates - fair value of financial instruments
The Group has certain financial assets and liabilities which are measured at fair value. Where fair value has not been able to be determined based on quoted price, a valuation
model has been used. The inputs to these models are observable, where possible, however these techniques involve significant estimates and therefore fair value of the
instruments could be affected by changes in these assumptions and inputs.
Key estimates - impairment of brands
In accordance with IAS 36 Impairment of Assets, the Group is required to estimate the recoverable amount of indefinite-lived brand assets at each reporting period.
Impairment testing is an area involving management judgement, requiring assessment as to whether the carrying value of assets can be supported by their value in use or fair
value less cost to sell.
In calculating the fair value less costs to sell, certain assumptions are required to be made in respect of highly uncertain matters including management’s expectations of:
growth in brand revenues
-
- market royalty rate
-
-
the selection of discount rates to reflect the risks involved, and
long-term growth rates
Changing the assumptions selected by management, in particular the growth rate, discount rate and market royalty rate assumption used, could significantly affect the
Group’s impairment evaluation and hence results.
The Group’s review includes the key assumptions related to sensitivity in the model. Further details are provided in note 15 to the consolidated financial statements.
F-32
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
4 Critical Accounting Estimates and Judgments
Key estimates - impairment of goodwill
In accordance with IAS 36 Impairment of Assets, the Group is required to estimate the recoverable amount of goodwill at each reporting period.
Impairment testing is an area involving management judgement, requiring assessment as to whether the carrying value of assets can be supported by the net present value of
future cash flows derived from such assets using cash flow projections which have been discounted at an appropriate rate and using a terminal value to incorporate
expectations of growth thereafter.
In calculating the net present value of the future cash flows, certain assumptions are required to be made in respect of highly uncertain matters including management’s
expectations of:
-
-
-
-
growth in EBITDA future cash flows;
timing and quantum of future capital expenditure;
long-term growth rates; and
the selection of discount rates to reflect the risks involved.
Changing the assumptions selected by management, in particular the discount rate and growth rate assumptions used in the cash flow projections, could significantly affect
the Group’s impairment evaluation and hence results.
The Group’s review includes the key assumptions related to sensitivity in the cash flow projections. Further details are provided in note15(c) to the consolidated financial
statements.
Key judgments - taxes
Deferred tax assets
Determining income tax provisions and the recognition of deferred tax assets including carried forward income tax involves judgment on the tax treatment of certain
transactions. Deferred tax is recognised on tax losses not yet used and on temporary differences where it is probable that there will be taxable revenue against which these can
be offset. Management has made judgments as to the probability of future taxable income being generated against which tax losses will be available for offset based on
budgets, current and future expected economic conditions.
F-33
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
5 Revenue and Other Income
Revenue from continuing operations
Gross revenue
Rebates
Sale of goods by channel
- Retail
- Wholesale
- Online
Services
Other income
Sales of goods by geography
- New Zealand
- Australia
- United States
- Europe
For the Year
Ended
31 January 2019
NZ$000’s
For the Year
Ended
31 January 2018
NZ$000’s
For the
7 Months Ended
31 January 2017
NZ$000’s
For the Year
Ended
30 June 2016
NZ$000’s
120,278
(8,358)
111,920
50,443
29,394
32,083
111,920
-
-
111,920
40,703
32,065
34,156
4,996
111,920
145,452
(14,064)
131,388
53,150
45,901
32,234
131,285
-
103
131,388
46,665
38,208
32,323
14,192
131,388
104,007
(7,723)
96,284
34,460
43,379
18,157
95,996
-
288
96,284
30,676
32,913
23,146
9,549
96,284
163,481
(12,481)
151,000
58,837
77,729
6,724
143,290
7,702
8
151,000
62,109
53,193
19,167
16,531
151,000
Other income relates to non-recurring advisory, management and design services provided to other third party intimates apparel brand owners.
All revenue is recognised at a point in time.
F-34
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
6
Loss for the Period
The loss for the period was derived after charging / (crediting) the following items that are unusual and of significance because of their size, nature and incidence:
For the Year
Ended
31 January 2019
NZ$000’s
For the Year
Ended
31 January 2018
NZ$000’s
For the
7 Months Ended
31 January 2017
NZ$000’s
For the Year
Ended
30 June 2016
NZ$000’s
Finance Costs
- Interest expense on external borrowings
- Interest expense on shareholder loans
- Amortisation on loan set up costs
Other (gains)/losses
- Fair value (gain)/loss on foreign
exchange contracts
- Net foreign exchange(gains)/losses
2,338
1,062
641
4,041
1,065
(3,027)
(1,963)
F-35
5,431
2,807
553
8,791
(502)
(255)
(757)
2,923
3,040
275
6,238
2,135
1,171
3,306
3,140
7,042
227
10,409
7,660
(5,237)
2,423
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
6
Loss for the Period
Brand transition, restructure and
transaction expenses
- Brand transition expenses
- Onerous contracts
- Restructure expenses
- Transaction expenses
For the Year
Ended
31 January 2019
NZ$000’s
For the Year
Ended
31 January 2018
NZ$000’s
For the 7
Months Ended
31 January 2017
NZ$000’s
For the Year
Ended
30 June 2016
NZ$000’s
291
(109)
626
9,267
10,075
-
(265)
215
3,322
3,272
-
1,166
103
52
1,321
884
789
559
-
2,232
The onerous contracts expense reversal relates to a reversal of the provision raised in the prior year.
Transaction expenses relate to costs incurred in respect of the US listing process.
F-36
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
6
Loss for the Period
The loss for the period includes the following specific expenses:
Employee benefits expense:
- Salaries and wages
- Defined contribution expenses
Depreciation
Amortisation
Impairment loss
Rental expense on operating leases:
- Lease payments
- Sublease payments received
For the Year
Ended
31 January 2019
NZ$000’s
For the Year
Ended
31 January 2018
NZ$000’s
For the
7 Months Ended
31 January 2017
NZ$000’s
For the Year
Ended
30 June 2016
NZ$000’s
30,872
508
31,380
2,151
231
8,173
10,555
9,760
-
9,760
F-37
33,613
545
34,158
2,724
306
1,914
4,944
10,807
(483)
10,324
19,917
1,022
20,939
1,664
178
292
2,134
6,485
(354)
6,131
33,666
1,588
35.254
2,966
323
2,157
5,446
11,034
(567)
10,467
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
7
Income Tax Expense/(benefit)
(a) The major components of tax expense/(benefit) comprise:
For the Year
Ended
31 January 2019
NZ$000’s
For the Year
Ended
31 January 2018
NZ$000’s
For the
7 Months Ended
31 January 2017
NZ$000’s
For the Year
Ended
30 June 2016
NZ$000’s
Current tax
Current tax on profits for the period
Adjustments for current tax of prior
periods
Total current tax expense/(benefit)
Deferred tax expense/(benefit)
Decrease/(increase) in deferred tax
assets (note 28)
Income tax expense/(benefit) for
continuing operations
(b) Reconciliation of income tax to accounting profit:
Loss before income tax
Tax at New Zealand tax rate of 28%
Tax effect of:
- permanent differences (including
impairment expense)
- adjustments in respect of current income
tax of previous years
- effects of different tax rates of
subsidiaries operating in other jurisdictions
- deferred tax assets relating to the current
year not brought to account
- deferred tax assets relating to prior
periods no longer recognised (note 28)
- other
Income tax expense/(benefit)
(667)
(607)
(1,274)
-
(1,274)
(50,492)
(14,138)
753
(522)
493
12,077
-
63
(1,274)
537
(477)
60
-
60
(37,533)
(10,509)
(105)
(449)
(30)
11,150
-
3
60
F-38
807
58
865
-
865
(15,114)
(4,232)
(6)
41
(15)
5,119
-
(42)
865
301
(344)
(43)
5,589
5,546
(15,200)
(4,256)
757
(237)
(42)
3,934
5,589
(199)
5,546
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
7
Income Tax Expense/(benefit)
(c) Tax losses not recognised
For the Year
Ended
31 January 2019
NZ$000’s
For the Year
Ended
31 January 2018
NZ$000’s
For the
7 Months Ended
31 January 2017
NZ$000’s
For the Year
Ended
30 June 2016
NZ$000’s
Unused tax losses for which no deferred
tax asset has been recognised
Potential tax benefit at 28%
130,587
36,564
87,455
24,487
43,269
12,115
23,765
6,654
The Group has assessed future forecast profits and concluded that not enough criteria have been satisfied to recognise any deferred tax assets at the period ended 31 January
2019. Unused tax losses do not have an expiry date.
(d) Temporary differences not recognised
Temporary differences for which no
deferred tax asset has been recognised
Potential tax benefit at 28%
8
Business Combinations
For the Year
Ended
31 January 2019
NZ$000’s
For the Year
Ended
31 January 2018
NZ$000’s
For the
7 Months Ended
31 January 2017
NZ$000’s
For the Year
Ended
30 June 2016
NZ$000’s
14,504
4,061
14,661
4,105
18,703
5,237
19,924
5,579
On 19th June 2018, Bendon Limited (Bendon) and Naked Brand Group Inc. (Naked) completed a business combination pursuant to the Merger Agreement. The business
combination was executed after Bendon Limited reorganised its group and inserted a new entity as its parent entity in which the Bendon shareholders rolled over their shares
into the new entity. The new parent entity is called Naked Brand Group Limited. Bendon Limited was considered the accounting acquirer of the consolidated group and the
consolidated accounts represents a continuation of the Bendon Limited financial statements.
Pursuant to the Merger Agreement, (i) Bendon undertook a reorganization (the “Reorganization”) pursuant to which all of the shareholders of Bendon Limited exchanged all
of the outstanding ordinary shares of Bendon Limited (the “Bendon Ordinary Shares”) for ordinary shares in Naked Brand Group Limited (“Naked Brand Group Ordinary
Shares”), and (ii) immediately thereafter, the parties effectuated a merger of Merger Sub and Naked, with Naked surviving as a wholly owned subsidiary of Naked Brand
Group Limited and the Naked stockholders receiving Naked Brand Group Ordinary Shares in exchange for all of the outstanding shares of common stock of Naked (the
“Merger” and together with the Reorganization, the “Transactions”).
F-39
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
8
Business Combinations
Details of the purchase consideration, the net assets acquired and goodwill are as follows:
Purchase consideration
Shares issued - fair value
The assets and liabilities recognised as a result of the acquisition are as follows:
Cash
Trade and other receivables
Inventories
Intangible assets
- Brand
Trade and other payables
Net identifiable assets acquired
Add: goodwill
Net assets acquired
There were no acquisitions in the year ended 31 January 2018.
F-40
Naked
NZ$000’s
Fair value
NZ$000’s
14,196
592
4,186
1,810
2,726
(916)
8,398
5,798
14,196
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
8
Business Combinations
(a) Acquisition-related costs
Acquisition-related costs of $3,739,279 that were not directly attributable to the issue of shares are included in administrative expenses in profit or loss and in operating
cash flows in the statement of cash flows. In addition, approximately 100,000 Naked Brand Group’s share was issued to advisors as part of their consultancy in lieu of
cash payment. The fair value of these was $700 thousand and that cost has been recognised as an expense in the profit and loss.
(b) Revenue and profit contribution
The acquired business contributed revenues of $2,244,095 and net loss of $813,808 to the group for the period from 19 June 2018 to 31 January 2019. If the acquisition
occurred on 1 February 2018, the full year revenue of the combined group would have been $113,969,040 and loss of $49,255,319.
(c) Provisional accounting
The initial accounting for the business combination is incomplete at the time of the end of the reporting period and will be recognised using provisional amounts. During
the measurement period, the Group will retrospectively adjust the provisional amounts recognised at the acquisition date to reflect new information obtained about facts
and circumstance that existed as at the acquisition date. The measurement period ends as soon the Group receives the information it was seeking about facts and
circumstances that existed as of the acquisition date or learns that more information is not obtained. The measurement shall not exceed one year from the acquisition
date.
F-41
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
9 Acquisition of FOH Online Corp Inc.
On November 15, 2018 the Group entered into a Stock Purchase Agreement with the shareholders of FOH Online Corp Inc (FOH), which included Cullen Investments
Limited (Cullen) a related entity, that the Group purchased all of the issued and outstanding shares of FOH. The transaction was settled on December 6, 2019. The sub
licence agreement which was in place between the Group and FOH was terminated upon completion of this transaction. The Group has treated this transaction as an asset
acquisition as the activities of FOH did not constitute a business.
Details of the purchase consideration, the net assets acquired and goodwill are as follows:
Purchase consideration
Shares issued at fair value
Debt forgiveness
Total
The assets and liabilities recognised as a result of the acquisition are as follows
Cash
Net balance with sub licencee
Loan payable to EJ Watson
Patents and Licences
Total of assets acquired
F-42
FOH
NZ$000’s
Fair value
NZ$000’s
6,872
13,074
19,946
278
(3,119)
(2,172)
24,959
19,946
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
10 Operating Segments
Segment information
Identification of reportable operating segments
The consolidated entities’ Director examined the group’s performance from both sales channel and geographical perspective and identified seven reportable segments being
Australia Retail, New Zealand Retail, Australia wholesale, New Zealand wholesale, US Wholesale, EU Wholesale and e-commerce.
Australia retail
This segment covers retail and outlet stores located in Australia.
New Zealand retail
This segment covers retail and outlet stores located in New Zealand.
Australia wholesale
This segment covers the wholesale of intimates apparel to customers based in Australia.
New Zealand wholesale
This segment covers the wholesale of intimates apparel to customers based in New Zealand.
US wholesale
This segment covers the wholesale of intimates apparel to customers based in the United States of America.
Europe wholesale
This segment covers the wholesale of intimates apparel to customers based in Europe.
F-43
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
10 Operating Segments
Identification of reportable operating segments
E-commerce
This segment covers the group’s online retail activities. E-commerce revenue for the periods ended 31 January 2019, 31 January 2018 and 31 January 2017 include revenue
from a US brand called Fredericks of Hollywood for which Bendon Limited currently has a licence agreement.
These operating segments are based on the internal reports that are reviewed and used by the Chief Executive Officer (who is identified as the Chief Operating Decision
Makers (‘CODM’)) in assessing performance and in determining the allocation of resources.
The CODM reviews underlying EBITDA (earnings before interest, tax, depreciation and amortisation). The accounting policies adopted for internal reporting to the CODM
are consistent with those adopted in the financial statements.
EBITDA is a financial measure which is not prescribed by IFRS and represents the profit adjusted for specific non-cash and significant items. The directors consider
EBITDA to reflect the core earnings of the consolidated entity.
The information reported to the CODM is on a monthly basis.
Other Costs and Business Activities
Certain costs are not allocated to our reporting segment results, such as costs associated with the following:
- Corporate overheads, which is responsible for centralized functions such as information technology, facilities, legal, finance, human resources, business development, and
procurement. These costs also include compensation costs and other miscellaneous operating expenses not charged to our operating segments, as well as interest and tax
income and expense.
These costs are included with in “unallocated” segment in our segment performance.
F-44
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
10 Operating Segments
Other assets and liabilities
We manage our assets and liabilities on a Group basis, not by segment. CODM does not regularly review any asset or liability information by segment and its preparation is
impracticable. Accordingly, we do not report asset and liability information by segment.
(a) Reconciliations
Reconciliation of segment revenue to consolidated statements of profit or loss and other comprehensive income:
Total segment revenue
Intersegment eliminations
Other revenue
Total revenue
For the
Year Ended
31 January 2019
NZ$000’s
For the
Year Ended
31 January 2018
NZ$000’s
For the
7 Months Ended
31 January 2017
NZ$000’s
For the
Year Ended
30 June 2016
NZ$000’s
136,842
(24,922)
-
111,920
156,311
(24,923)
-
131,388
113,031
(16,747)
-
96,284
176,145
(32,855)
7,710
151,000
F-45
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
10 Operating Segments
(a) Reconciliations
Reconciliation of segment EBITDA to the consolidated statements of profit or loss and other comprehensive income:
The Board meets on a monthly basis to assess the performance of each segment, net operating profit does not include non-operating revenue and expenses such as
dividends, fair value gains and losses.
Segment EBITDA
Income tax (expense)/benefit
Other revenue
Any other reconciling items
Total net loss after tax
For the
Year Ended
31 January 2019
NZ$000’s
For the
Year Ended
31 January 2018
NZ$000’s
For the
7 Months Ended
31 January 2017
NZ$000’s
For the
Year Ended
30 June 2016
NZ$000’s
(25,602)
1,274
-
(24,892)
(49,220)
(24,053)
(60)
-
(13,480)
(37,593)
(2,126)
(865)
-
(12,988)
(15,979)
10,470
(5,546)
7,710
(33,380)
(20,746)
Any other reconciling items includes brand transition, finance expenses, impairment expense, depreciation and amortisation, fair value gain/loss on foreign exchange
contracts, and unrealised foreign exchange gain/loss that cannot be allocated to segments.
(b) Geographical information
In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers whereas segment assets are based
on the location of the assets.
F-46
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
10 Operating Segments
(b) Geographical information
New Zealand
Australia
United States
Europe
For the
Year Ended
31 January 2019
NZ$000’s
For the
Year Ended
31 January 2018
NZ$000’s
For the
7 Months Ended
31 January 2017
NZ$000’s
For the
Year Ended
30 June 2016
NZ$000’s
40,703
32,065
34,156
4,996
111,920
46,665
38,208
32,323
14,192
131,388
30,676
32,913
23,146
9,549
96,284
62,109
53,193
19,167
16,531
151,000
The revenues resulting from the Naked business combination are included in the United States segment shown above.
F-47
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
10 Operating Segments
(c) Segment performance
For the year ended 31 January 2019
Revenue from external customers
Service income
Cost of sales
Gross margin
Other segment expenses*
Unallocated expenses
Administrative expenses
Corporate expenses
Other foreign exchange gain/loss
EBITDA
Brand transition, restructure and transaction expenses
Finance expense
Impairment expense
Depreciation and amortisation
Fair value gain/(loss) on foreign exchange contracts
Unrealised foreign exchange gain/(loss)
Fair value gain/(loss) on Convertible Notes derivative
Loss before income tax expense
Income tax expense
Loss after income tax expense
NZ Retail
NZ$000’s
31,801
-
31,801
(15,424)
16,377
(13,537)
AU Retail
NZ$000’s
18,547
-
18,547
(9,192)
9,355
(11,003)
NZ
Wholesale
NZ$000’s
7,154
-
7,154
(6,372)
782
(912)
AU
Wholesale
NZ$000’s
11,491
-
11,491
(8,498)
2,993
(4,495)
US
Wholesale
NZ$000’s
5,798
-
5,798
(5,222)
576
(2,724)
EU
Wholesale
NZ$000’s
4,996
-
4,996
(4,490)
506
(1,536)
e-
commerce
NZ$000’s
32,133
-
32,133
(21,248)
10,885
(11,247)
-
-
-
2,840
-
-
-
-
-
-
-
2,840
-
2,840
-
-
-
(1,648)
-
-
-
-
-
-
-
(1,648)
-
(1,648)
-
-
-
(130)
-
-
-
-
-
-
-
(130)
-
(130)
F-48
-
-
-
-
-
-
-
-
-
(1,502)
(2,148)
(1,030)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,502)
(2,148)
(1,030)
-
-
-
(1,502)
(2,148)
(1,030)
-
-
-
(362)
-
-
-
-
-
-
-
(362)
-
(362)
Unallocated
NZ$000’s
-
-
-
(4,034)
(4,034)
-
(1,050)
(17,947)
1,409
(21,622)
(10,075)
(4,041)
(8,173)
(2,382)
(1,704)
2,258
(775)
(46,514)
1,274
(45,240)
Total
NZ$000’s
111,920
-
111,920
(74,480)
37,440
(45,454)
(1,050)
(17,947)
1,409
(25,602)
(10,075)
(4,041)
(8,173)
(2,382)
(1,704)
2,258
(775)
(50,494)
1,274
(49,220)
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
10 Operating Segments
(c) Segment performance
For the year ended 31 January 2018
Revenue from external customers
Service income
Cost of sales
Gross margin
Other segment expenses*
Unallocated expenses
Administrative expenses
Corporate expenses
Other foreign exchange gain/loss
EBITDA
Brand transition, restructure and transaction expenses
Finance expense
Impairment expense
Depreciation and amortisation expense
Fair value gain/(loss) on foreign exchange contracts
Unrealised foreign exchange (gain)/loss
Fair value (gain)/loss on Convertible Note derivative
Loss before income tax expense
Income tax expense
Loss after income tax expense
NZ Retail
NZ$000’s
34,269
-
34,269
(16,488)
17,781
(13,451)
AU Retail
NZ$000’s
18,236
-
18,236
(9,457)
8,779
(11,329)
NZ
Wholesale
NZ$000’s
10,453
-
10,453
(8,213)
2,240
(1,068)
AU
Wholesale
NZ$000’s
15,512
-
15,512
(12,545)
2,967
(3,781)
US
Wholesale
NZ$000’s
6,390
-
6,390
(6,438)
(48)
(3,301)
EU
Wholesale
NZ$000’s
14,192
-
14,192
(10,221)
3,971
(2,904)
e-
commerce
NZ$000’s
32,234
-
32,234
(20,974)
11,260
(11,520)
Unallocated
NZ$000’s
-
102
102
(3,123)
(3,021)
-
Total
NZ$000’s
131,286
102
131,388
(87,459)
43,929
(47,354)
-
-
-
4,330
-
-
-
-
-
-
-
4,330
-
4,330
-
-
-
(2,550)
-
-
-
-
-
-
-
(2,550)
-
(2,550)
-
-
-
1,172
-
-
-
-
-
-
-
1,172
-
1,172
-
-
-
(814)
-
-
-
-
-
-
-
(814)
-
(814)
-
-
-
(3,349)
-
-
-
-
-
-
-
(3,349)
-
(3,349)
-
-
-
1,067
-
-
-
-
-
-
-
1,067
-
1,067
-
-
-
(260)
-
-
-
-
-
-
-
(260)
-
(260)
(1,101)
(19,150)
(377)
(23,649)
(3,272)
(8,791)
(1,914)
(3,030)
(502)
1,636
2,393
(37,129)
(60)
(37,189)
(1,101)
(19,150)
(377)
(24,053)
(3,272)
(8,791)
(1,914)
(3,030)
(502)
1,636
2,393
(37,533)
(60)
(37,593)
* Other segment expenses relate to brand management expenses and some corporate expenses.
F-49
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
10 Operating Segments
(c) Segment performance
For the 7 months ended 31 January 2017
NZ Retail
NZ$000’s
AU Retail
NZ$000’s
NZ
Wholesale
NZ$000’s
AU
Wholesale
NZ$000’s
US
Wholesale
NZ$000’s
EU
Wholesale
NZ$000’s
e-
commerce
NZ$000’s
Unallocated
NZ$000’s
Total
NZ$000’s
Revenue from external customers
Cost of sales
Gross margin
Other segment expenses*
Unallocated expenses
Administrative expenses
Corporate expenses
Other foreign exchange gain/loss
EBITDA
Brand transition, restructure and transaction expenses
Finance expense
Impairment expense
Depreciation and amortisation expense
Fair value gain/(loss) on foreign exchange contracts
Unrealised foreign exchange (gain)/loss
Fair value (gain)/loss on Convertible Note derivative
Loss before income tax expense
Income tax expense
Loss after income tax expense
21,953
21,953
(9,707)
12,246
(7,480)
12,053
12,053
(5,592)
6,461
(6,196)
7,484
7,484
(4,961)
2,523
(475)
18,091
18,091
(11,431)
6,660
(2,089)
9,015
9,015
(6,934)
2,081
(2,065)
9,548
9,548
(6,277)
3,271
(2,013)
18,140
18,140
(11,902)
6,238
(3,654)
-
-
-
4,766
-
-
-
-
-
-
-
4,766
-
4,766
-
-
-
265
-
-
(281)
-
-
-
-
(16)
-
(16)
-
-
-
2,048
-
-
-
-
-
-
-
2,048
-
2,048
-
-
-
4,571
-
-
-
-
-
-
-
4,571
-
4,571
-
-
-
16
-
-
-
-
-
-
-
16
-
16
-
-
-
1,258
-
-
-
-
-
-
-
1,258
-
1,258
-
-
-
2,584
-
-
-
-
-
-
-
2,584
-
2,584
-
-
(340)
(340)
(8,068)
(541)
(8,082)
(603)
(17,634)
(1,321)
(6,238)
(11)
(1,842)
(2,135)
(568)
(592)
(30,341)
(865)
(31,206)
96,284
96,284
(57,144)
39,140
(32,040)
(541)
(8,082)
(603)
(2,126)
(1,321)
(6,238)
(292)
(1,842)
(2,135)
(568)
(592)
(15,114)
(865)
(15,979)
* Other segment expenses relate to brand management expenses and some corporate expenses.
F-50
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
10 Operating Segments
(c) Segment performance
For the year ended 30 June 2016
Revenue from external customers
Service income
Other income
Cost of sales
Gross margin
Other segment expenses*
Unallocated expenses
Administrative expenses
Corporate expenses
Other foreign exchange gain/loss
EBITDA
Brand transition, restructure and transaction expenses
Finance expense
Impairment expense
Depreciation and amortisation expense
Fair value gain/(loss) on foreign exchange contracts
Unrealised foreign exchange (gain)/loss
Loss before income tax expense
Income tax expense
Loss after income tax expense
NZ Retail
NZ$000’s
AU Retail
NZ$000’s
NZ
Wholesale
NZ$000’s
AU
Wholesale
NZ$000’s
US
Wholesale
NZ$000’s
EU
Wholesale
NZ$000’s
e-
commerce
NZ$000’s
Unallocated
NZ$000’s
Total
NZ$000’s
37,389
-
-
37,389
(16,053)
21,336
(12,263)
20,680
-
-
20,680
(8,930)
11,750
(9,835)
15,071
-
-
15,071
(10,721)
4,350
(709)
-
-
-
9,073
-
-
-
-
-
-
9,073
-
9,073
-
-
-
1,915
-
-
-
-
-
-
1,915
-
1,915
-
-
-
3,641
-
-
-
-
-
-
3,641
-
3,641
28,021
-
-
28,021
(18,056)
9,965
(3,520)
-
-
-
6,445
-
-
-
(2,157)
-
-
4,288
-
4,288
18,876
-
-
18,876
(14,540)
4,336
(2,817)
16,531
-
-
16,531
(11,658)
4,873
(3,204)
-
-
-
1,519
-
-
-
-
-
-
1,519
-
1,519
-
-
-
1,669
-
-
-
-
-
-
1,669
-
1,669
6,722
-
-
6,722
(3,582)
3,140
(2,039)
-
-
-
1,101
-
-
-
-
-
-
1,101
-
1,101
-
7,702
8
7,710
15
7,725
(13,975)
(801)
(13,002)
5,160
(14,893)
(2,232)
(10,409)
-
(3,289)
(7,660)
77
(38,406)
(5,546)
(43,952)
143,290
7,702
8
151,000
(83,525)
67,475
(48,362)
(801)
(13,002)
5,160
10,470
(2,232)
(10,409)
-
(5,446)
(7,660)
77
(15,200)
(5,546)
(20,746)
* Other segment expenses relate to brand management expenses and some corporate expenses.
F-51
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
11 Cash and Cash Equivalents
Cash on hand
Cash at bank
12 Trade and Other Receivables
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
47
1,915
1,962
54
10,685
10,739
48
2,596
2,644
CURRENT
Trade receivables
Provision for impairment
Prepayments
Other receivables
Total current trade and other receivables
(a)
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
7,789
(609)
7,180
2,280
183
9,650
9,982
(326)
9,656
1,792
1,717
13,165
26,499
(537)
25,962
1,779
349
28,090
Due to the short-term nature of the current receivables, their carrying amount is considered to be the same as their fair value.
F-52
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
12 Trade and Other Receivables
(a) Impairment of receivables
The Group applies the simplified approach to providing for expected credit losses prescribed by AASB 9, which permits the use of the lifetime expected loss provision
for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due.
The loss allowance provision as at 31 January 2019 is determined as follows, the expected credit losses incorporate forward looking information.
31 January 2019
Expected loss rate (%)
Gross carrying amount ($)
ECL provision
0 - 30 days
31 - 60 days
60 - 90 days
> 90 days
overdue
Total
-
5,577
-
F-53
-
852
-
-
101
-
48.40
1,259
609
7,789
609
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
12 Trade and Other Receivables
(a) Impairment of receivables
Reconciliation of changes in the provision for impairment of receivables is as follows:
Balance at beginning of the period (calculated in accordance with AASB 139)
Amount restated through opening retained earnings on adoption of AASB 9
Opening impairment allowance calculated under AASB 9
Additional impairment loss recognised
Amounts written off as uncollectable
Directly to P&L
Movement through provision
Unused amounts reversed
Foreign exchange movement
Balance at end of the period
For the Year Ended 31
January 2019
NZ$000’s
For the Year Ended 31
January 2018
NZ$000’s
For the 7 Months Ended
31 January 2017
NZ$000’s
(326)
-
(326)
-
-
(1,037)
772
(18)
(609)
(537)
-
(537)
-
-
(92)
316
(13)
(326)
(268)
-
(268)
-
-
(364)
80
15
(537)
The Group measures the loss allowance for trade receivables at an amount equal to lifetime expected credit loss (ECL). The ECL on trade receivables are estimated using
a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to
the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast direction of conditions
at the reporting date.
The Group has recognised a loss allowance of 48.40% against identifiable receivables at risk in excess of 90 days because historical experience has indicated that these
receivables are generally not recoverable.
There has been no change in the estimation techniques or significant assumptions made during the current reporting period.
The Group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery,
e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, whichever occurs first.
F-54
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
12 Trade and Other Receivables
(b) Aged analysis
The ageing analysis of receivables is as follows:
0-30 days
31-60 days
61-90 days (past due not impaired)
61-90 days (considered impaired)
91+ days (past due not impaired)
91+ days (considered impaired)
(c) Transferred receivables
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
5,577
852
101
-
3,295
(2,036)
7,789
7,945
335
489
-
1,213
-
9,982
14,883
2,566
2,166
-
6,884
-
26,499
During the periods ended 31 January 2018 and 31 January 2017 the carrying amounts of the trade receivables included receivables which were subject to a bank funding
arrangement. Under this arrangement, Bendon had transferred the relevant receivables to BNZ in exchange for cash and is prevented from selling or pledging the
receivables. However, Bendon has retained credit risk. The group therefore continues to recognise the transferred assets in their entirety in the balance sheet. The amount
repayable under the factoring agreement is presented as secured borrowings.
Transferred receivables
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
-
9,790
11,649
F-55
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
13 Inventories
Finished goods
Provision for impairment
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
21,564
(444)
21,120
31,451
(338)
31,113
37,904
(153)
37,751
Write downs of inventories to net realisable value during the period were NZ$106,433 (2018: NZ$185,026, 2017: NZ$364,660).
14 Property, plant and equipment
Plant, furniture, fittings and motor vehicles
At cost
Accumulated depreciation
Leasehold Improvements
At cost
Accumulated depreciation
Total property, plant and equipment
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
25,666
(25,167)
499
12,035
(8,771)
3,264
3,763
27,801
(25,788)
2,013
10,762
(8,034)
2,728
4,741
25,455
(23,182)
2,273
10,132
(7,441)
2,691
4,964
F-56
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
14 Property, plant and equipment
(a) Movements in carrying amounts of property, plant and equipment
Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial period:
Year ended 31 January 2019
Balance at the beginning of year
Additions
Disposals
Depreciation expense
Impairment loss
Foreign exchange movements
Balance at the end of the year
Leasehold improvements
NZ$000’s
Plant, furniture, fittings
and
motor vehicles
NZ$000’s
Total
NZ$000’s
2,728
1,501
(105)
(982)
-
122
3,264
2,013
1,084
(2,736)
(1,170)
(239)
1,547
499
4,741
2,585
(2,841)
(2,152)
(239)
1,669
3,763
F-57
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
14 Property, plant and equipment
(a) Movements in carrying amounts of property, plant and equipment
Year ended 31 January 2018
Balance at the beginning of year
Additions
Disposals
Depreciation expense
Foreign exchange movements
Balance at the end of the year
Leasehold Improvements
NZ$000’s
Plant, furniture, fittings
and motor vehicles
NZ$000’s
Total
NZ$000’s
2,691
285
(4)
(496)
252
2,728
2,273
2,032
(118)
(2,228)
54
2,013
4,964
2,317
(122)
(2,724)
306
4,741
F-58
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
14 Property, plant and equipment
(a) Movements in carrying amounts of property, plant and equipment
7 months ended 31 January 2017
Balance at the beginning of period
Additions
Depreciation expense
Impairment
Foreign exchange movements
Balance at the end of the period
Leasehold improvements
NZ 000’s
$
Plant, furniture, fittings
and
motor vehicles
NZ 000’s
$
Total
NZ 000’s
$
2,795
241
(296)
-
(49)
2,691
3,414
482
(1,368)
(281)
26
2,273
6,209
723
(1,664)
(281)
(23)
4,964
The group is currently assessing the impact of IFRS 16 Leases and believes adoption of the provisions of this standard will have a material impact on the Group’s
consolidated financial statements.
IFRS 16 Leases will require that the group record a liability and a related asset on the balance sheet for our leased facilities.
F-59
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
15 Intangible Assets
Goodwill
Cost
Accumulated impairment
Patents and licences
Cost
Accumulated amortisation and impairment
Brands
Cost
Accumulated amortisation and impairment
Software
Cost
Accumulated amortisation and impairment
Total Intangible assets
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
5,607
(3,287)
2,320
25,993
(918)
25,075
14,769
(4,563)
10,205
15,718
(15,455)
263
37,864
-
-
-
919
(718)
201
12,463
-
12,463
15,788
(15,440)
348
13,012
-
-
-
1,169
(573)
596
12,036
-
12,036
17,308
(15,260)
2,048
14,680
F-60
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
15 Intangible Assets
(a) Software impairment
For the year ended 31 January 2018, management decided to fully impair the costs on the ERP upgrade and are currently reviewing alternatives.
(b) Movements in carrying amounts of intangible assets
Year ended 31 January 2019
Balance at the beginning of the year
Additions
Amortisation
Impairment
Foreign exchange movements
Closing value at 31 January 2019
Software
NZ$000’s
Patents and
licences
NZ$000’s
Brands
NZ$000’s
Goodwill
NZ$000’s
Total
NZ$000’s
348
33
(29)
(83)
(6)
263
201
25,076
(202)
-
-
25,075
F-61
12,463
2,726
-
(4,563)
(420)
10,205
-
5,798
-
(3,287)
(192)
2,320
13,012
33,633
(231)
(7,933)
(618)
38,864
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
15 Intangible Assets
(b) Movements in carrying amounts of intangible assets
Year ended 31 January 2018
Balance at the beginning of the year
Additions
Amortisation
Impairment
Foreign exchange movements
Closing value at 31 January 2018
7 months ended 31 January 2017
Balance at the beginning of the year
Additions
Amortisation
Foreign exchange movements
Closing value at 31 January 2017
Software
NZ$000’s
Patents and
licences
NZ$000’s
Brands
NZ$000’s
Goodwill
NZ$000’s
Total
NZ$000’s
2,048
106
(163)
(1,650)
7
348
596
12
(143)
(264)
-
201
12,036
-
-
-
427
12,463
Software
NZ 000’s
$
Patents and
licences
NZ 000’s
$
Brands
NZ 000’s
$
Goodwill
NZ 000’s
$
2,196
-
(148)
-
2,048
274
351
(30)
1
596
12,105
-
-
(69)
12,036
F-62
-
-
-
-
-
-
-
-
-
-
-
14,680
118
(306)
(1,914)
434
13,012
Total
NZ 000’s
$
14,575
351
(178)
(68)
14,680
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
15 Intangible Assets
(c) Impairment testing for goodwill
For the purpose of impairment testing, goodwill is allocated to cash-generating units as below:
Description of the cash-generating unit (CGU)
United States
Impairment assumptions
For the Year Ended 31
January 2019
NZ $000’s
2,320
2,320
For the Year
Ended 31
January 2018
NZ $000’s
For the 7
Months Ended
31 January 2017
NZ $000’s
-
-
-
-
Goodwill relates to the acquisition of Naked Inc, a business operating in the United States and was allocated to the Group’s operation in United States which is the cash
generating unit (CGU) for the purpose of impairment testing. The recoverable amount of the CGU was determined based on value-in-use calculations which require the
use of assumptions. The calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the
five-year period are extrapolated using the estimated growth rates stated below. These growth rates do not exceed the long-term average growth rates for the industry.
The result of the impairment assessment is that the carrying value exceeded the fair value less costs to sell by an amount of $3.2m. As such, the goodwill has been
partially impaired for the year ended 31 January 2019.
Significant assumptions used for the purposes of the value-in-use calculation include:
United States
Post-tax discount rate - 10.50%
EBITDA growth rate - 10%
Terminal growth - 2%
F-63
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
15 Intangible Assets
(c) Impairment testing for goodwill
Impact of possible changes in key assumptions
The directors have made judgements and estimates to assess goodwill for impairment. Should these judgements and estimates not occur the resulting carrying amount
may decrease.
The sensitivities that have been separately modelled are as follows:
(a) a 3.25% increase in the post-tax discount rate
(b) EBITDA growth rate reduced to 5%
The carrying amount of the goodwill is sensitive to assumptions used in the impairment test calculations including the post-tax discount rate and sales growth rate. A
3.25% increase in the post-tax discount rate would result in an additional impairment of $2,320 thousand against the carrying amount of the goodwill. A reduction of the
EBITDA growth rate to 5% would not result in a further impairment as goodwill would be fully impaired from the increase of the post-tax discount rate.
(d) Impairment testing for indefinite-lived brand intangibles
Brand intangible assets represent brands owned by the Group, that arose on historical acquisitions including Pleasure State, Davenport and Lovable. The intangible
assets increased in the current period as result of the business combinations with Naked Brand Group Inc. See note 8 for further information.
The brand intangible assets of $10,205,000 (2018: $12,463,000, 2017: $12,036,000) are tested for impairment annually.
Impairment assumptions
Management has determined the recoverable amount of the indefinite-lived brand assets by assessing the fair value less cost of disposal (FVLCOD) of the underlying
assets. The relief from royalty method adopted to complete the valuation determines, in lieu of ownership, the cost that would be required to obtain comparable rights to
use the asset via a third-party licence arrangement. These calculations use cash flow projections based on financial budgets approved by management covering a five-
year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates shown below. These growth rates do not exceed the long-term
average growth rates for the industry. The result of the impairment assessment is that the carrying value has exceeded the fair value less costs to sell by $3.9m. As such,
the indefinite-lived brand assets has been partially impaired for the year ended 31 January 2019.
F-64
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
15 Intangible Assets
(d) Impairment testing for indefinite-lived brand intangibles
Management’s approach and the key assumptions used to determine the FVLCOD were as follows:
Sales growth: 2.5% (31 January 2018: 5%)
Royalty rate: 5.0% (31 January 2018: 6.6%)
Cash flow - revenue forecast period: 5 years (31 January 2018: 5 years)
Post-tax discount rate (%) for US brands: 10.5% (31 January 2018: 0%)
Post-tax discount rate (%) for NZ brands: 11.75% (31 January 2018: 11.4%)
Long term sales growth rate (%): 2% (31 January 2018: 2%)
Impact of possible changes in key assumptions
The directors have made judgements and estimates to assess indefinite-lived assets for impairment. Should these judgements and estimates not occur the resulting
carrying amount may decrease.
The sensitivities that have been separately modelled are as follows:
(a) a 2.1% increase in the post-tax discount rate
(b) sales growth rate reduced to 0%
The carrying amounts of the indefinite-lived brand intangible assets are sensitive to assumptions used in the impairment test calculations including the post-tax discount
rate and sales growth rate. A 2.1% increase in the post-tax discount rate would result in an additional impairment of $951 thousand (31 January 2018: an increase of
1.5% would result an impairment of $929 thousand) against the carrying amount of the indefinite-lived brand intangibles. A reduction of the sales growth rate to 0%
would result in an additional impairment of $1,554 thousand (31 January 2018: a reduction to 2% would result an impairment of $611 thousand) against the carrying
amount of the indefinite-lived brand intangible assets.
In order to mitigate exchange rate movements and to manage the inventory costing process, the Group has entered into forward currency contracts to purchase US
dollars.
16 Derivative Financial Instruments
Current liabilities
Foreign exchange contracts
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
1,484
2,087
4,188
F-65
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
17 Derivative on Convertible Notes
Derivative on Convertible Notes
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
-
1,110
4,112
The Group has an embedded derivative feature in convertible notes due to foreign currency. Derivatives are recognized initially at fair value; attributable transaction costs are
recognized in profit or loss as incurred. Fair value of the derivative is determined on inception using the Black-Scholes model. Subsequent to initial recognition, derivatives
are measured at fair value, and changes therein are accounted in profit or loss.
The fair value of the separable embedded derivative in the convertible notes has been determined using Black-Scholes model. Measurement inputs include share price on
measurement date, expected term of the instrument, risk free rate (based on government bonds), expected volatility (based on weighted average historic volatility) and
expected dividend rate.
18 Trade and Other Payables
CURRENT
Trade payables
Accruals
Employee benefit liabilities
31 January 2019 NZ$000’s
31 January 2018 NZ$000’s
31 January 2017 NZ$000’s
23,580
10,150
1,815
35,545
21,143
9,568
1,805
32,516
19,221
7,503
1,842
28,566
Trade and other payables are unsecured, non-interest bearing and are normally settled within 30 days however some the trade creditors are out of term as at 31 January 2019
and subsequent to the end of the financial period the Group has reduced the out of term trade creditors but further work is required to bring all of the creditors in term. The
carrying amounts are considered to be a reasonable approximation of fair value.
F-66
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
19 Borrowings
CURRENT
Secured liabilities:
Shareholder loans
Bank loans
Debt issuance costs in relation to bank loan
Working capital financing bank facility
Convertible notes
Other loan
Note
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
-
20,000
(270)
-
-
1,237
20,967
10,951
16,000
(218)
22,489
1,740
1,159
52,121
8,200
16,000
(656)
31,710
13,744
-
68,998
The fair value of borrowings is not considered to be materially different to their carrying amounts.
(a) Assets pledged as collateral:
Borrowings are collateralized by a fixed and floating charge over the assets of the consolidated entity. The lease liabilities are effectively secured as the rights to the
leased assets, recognised in the balance sheet, revert to the lessor in the event of default.
(b) Bank overdrafts and bank loans
On 27 June 2016, all banking facilities were repaid and a new banking arrangement with BNZ commenced. BNZ has a first ranking charge over all assets of the Bendon
Limited group.
The term loan facility of NZD$16,000,000 was repaid on 27 June 2018. The current interest rate on this loan was 5.55% as at 31 January 2018 (31 January 2017: 4.84%,
2016: 4.77%) per annum.
On 13 June 2018, the Group entered into a Deed of Amendment with BNZ to reduce the facility to NZD$20,000,000 (31 January 2018: NZD$38,489,428). In addition
the new facility takes over guarantees and financial instruments totalling NZD$1,345,000.
F-67
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
19 Borrowings
(b) Bank overdrafts and bank loans
The term loan facility of NZD$20,000,000 was repayable on 14 June 2019. The current interest rate on this loan is 5.57% (31 January 2018: 5.55%) per annum. There
has been a breach of covenant during the period.
Bank of New Zealand has the first ranking charge over all assets of Naked Brand Group Limited. Under the terms of the major borrowing facility, the facility is subject
to four undertakings being: Interest cover ratio of three times that is first tested as at 30 April 2019; gross EBITDA ratio measured to 3 months to September 2018 had to
be greater than $0, six months to 30 December 2018 is greater than $3 million; inventory and receivables ratio must be greater than 2 times being first measured as at 30
September 2018; and the actual sales and gross margin must not vary by more than 10% from the budget submitted to the Bank.
(c) Shareholder loan - related party
On 19 June 2018, Naked Brand Group Limited issued additional 24,221 Naked shares to the shareholders as part of an agreement to convert a portion of the outstanding
liability (Debt) to equity. The amount of debt converted on this date amounted to a fair value of $12,244,208. After this conversion, the shareholder loan is fully
converted to equity and the outstanding balance as at 31 January 2019 is nil (31 January 2018: $10,951,295).
The interest rate on the shareholder loans up to the date of conversion was 30% (31 January 2018: 30%) and was increased at the end of 2014, and was capitalised
quarterly. Total interest capitalised during the year ended 31 January is $1.062 million (year ended 31 January 2018: $2.807 million, 7 months to 31 January 2017 is
$3.040 million).
(d) Convertible notes
On 19th June 2018, the holders of USD$2.8m (NZ$4.2m) of convertible notes converted to 16,408 Bendon ordinary shares. The holder of US$1.0m (NZ$1.42m) of
convertible notes elected for their convertible note to be repaid at a future date as agreed. The amount owing has been classified as a current borrowing and amounted to
$1.159 million as at 31 January 2019.
(e) Loan covenants
As at 31 January 2019, there was a breach of the minimum Gross EBITDA ratio and a breach of the Inventory and Receivables ratio. The Bank has advised that they are
currently taking these Breaches under review.
(f) Other loan
The other loan is convertible note which the note holder elected not to convert. This loan is payable at a future date to be agreed.
F-68
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
20 Provisions
CURRENT
Lease contributions
Onerous contracts
Make good
NON-CURRENT
Lease contributions
Onerous contracts
Make good
Opening balance at 1 February 2018
Additional provisions recognised
Unused amounts reversed
Unwinding of discounts
Amounts used during the period
Exchange differences
Balance at 31 January 2019
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
179
-
742
921
412
264
430
1,106
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
906
-
1,466
2,372
910
-
1,801
2,711
Lease contributions
NZ$000’s
Onerous contracts
NZ$000’s
Make good
NZ$000’s
Total
NZ$000’s
1,322
337
-
-
(510)
(64)
1,085
F-69
264
-
-
-
(264)
-
-
2,231
717
(600)
(84)
-
(56)
2,208
480
377
671
1,528
702
176
1,371
2,249
3,817
1,054
(600)
(84)
(774)
(120)
3,293
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
20 Provisions
Opening balance at 1 February 2017
Additional provisions recognised
Unused amounts reversed
Unwinding of discounts
Amounts used during the period
Exchange differences
Balance at 31 January 2018
Opening balance at 1 July 2016
Additional provisions recognised
Unused amounts reversed
Unwinding of discounts
Amounts used during the period
Exchange differences
Balance at 31 January 2017
Onerous contracts
Lease contributions
NZ$000’s
Onerous contracts
NZ$000’s
Make good
NZ$000’s
Total
NZ$000’s
1,182
635
-
-
(547)
52
1,322
1,318
145
-
-
(269)
(12)
1,182
553
-
-
-
(289)
-
264
275
508
-
-
(230)
-
553
2,042
595
(658)
271
(77)
58
2,231
1,817
353
(112)
(9)
-
(7)
2,042
3,777
1,230
(658)
271
(913)
110
3,817
3,410
1,006
(112)
(9)
(499)
(19)
3,777
The onerous provision relates to a head office lease for which the space is not fully utilised. The provision is calculated using a pre-tax discount rate of 10.25% (2018: 11.4%,
2017: 11.4%). The balance of this provision at 31 January 2019 is $nil.
Make good
In accordance with certain lease agreements, the Group must refurbish and restore the lease premises to a condition agreed with the landlord at the end of the lease term or as
prescribed. The provision has been calculated using a pre-tax discount rate of 2% (2018: 2%, 2017: 2%), and other market assumptions and re-assessed annually.
During the 2019 financial year an additional $595 thousand was recognised in relation to new retail leases in New Zealand and Australia.
F-70
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
21 Share Capital
29,640,965 (2018: 306,028, 2017: 274,839) Ordinary shares
(a) Ordinary shares
At the beginning of the reporting period
Issuance of new shares
- Cash collected
- Settle shareholder loan
- Shares issued in lieu of consultancy fee
- Shares issued in lieu of inventory payment
Convertible note maturity
Business combination with Naked Brand Group Inc.
Asset acquisition of FOH Online Inc.
At the end of the reporting period
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
134,183
68,727
27,948
For the Year Ended
31 January 2019
NZ$000’s
For the Year Ended
31 January 2018
NZ$000’s
For the 7 months
Ended
31 January 2017
NZ$000’s
68,727
23,248
12,242
692
4,047
4,159
14,196
6,872
134,183
27,948
22,990
-
-
-
17,789
-
-
68,727
3,108
24,840
-
-
-
-
-
-
27,948
The holders of ordinary shares are entitled to participate in dividends and the proceeds on winding up of the Group. On a show of hands at meetings of the Group, each
holder of ordinary shares has one vote in person or by proxy, and upon a poll each share is entitled to one vote.
The Group does not have authorised capital or par value in respect of its shares.
F-71
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
21 Share Capital
Naked Brand Group Limited shares issued on close of the merger between Bendon Limited
and Naked Brand Group Inc.
- Bendon shareholders
- Naked shareholders
Shares issued during the period
At the end of the period
For the Year Ended
31 January 2019
Number
For the Year Ended
31 January 2018
Number
For the 7 months
Ended
31 January 2017
Number
20,889,940
2,068,438
6,682,587
29,640,965
274,839
-
10,180
285,019
250,000
-
24,839
274,839
The number of shares for the year ended 31 January 2018 and 31 January 2017 relate to the pre-merger entity Bendon Limited.
(b) Other equity
Value of conversion rights - convertible notes
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
4,159
17,789
-
The amount shown for other equity is the value of the conversion rights relating to the 15% convertible notes, details of which are shown in note 19(d).
(c) Capital Management
The key objectives of the Group when managing capital is to safeguard its ability to continue as a going concern and maintain optimal benefits to stakeholders.
Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. The Group defines capital as its equity and net debt.
F-72
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
21 Share Capital
(c) Capital Management
There has been no change to capital risk management policies during the year.
Management are constantly adjusting the capital structure to take advantage of favourable costs of capital or high return on assets. As the market is constantly changing,
management may change the amount of dividends to be paid to shareholders, return capital to shareholders or sell assets to reduce debt. The Group is not subject to any
externally imposed capital requirements.
The gearing ratio for the years ended 31 January 2019, 31 January 2018 and 31 January 2017 are as follows:
Total borrowings
Less Cash and cash equivalents
Net debt
Equity
Total capital
Gearing ratio
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
22,016
(1,962)
20,054
10,800
30,854
65%
52,121
(10,739)
41,382
(5,710)
35,672
116%
68,998
(2,644)
66,354
(9,044)
57,310
116%
Note
19
11
F-73
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
22 Reserves
Foreign currency translation reserve
Opening balance
Transfers in
Balance at the end of the year
Foreign currency translation reserve
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
(2,006)
(7)
(2,013)
(2,154)
148
(2,006)
(2,125)
(29)
(2,154)
Exchange differences arising on translation of the foreign controlled entity are recognised in other comprehensive income - foreign currency translation reserve. The
cumulative amount is reclassified to profit or loss when the net investment is disposed of.
F-74
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
23 Loss per Share
(a) Basic and diluted loss per share
From continuing operations attributable to the ordinary equity holders
of the Group
Total basic and diluted loss per share attributable to the ordinary
equity holders of the Group
For the Year Ended
31 January 2019
NZ$
For the Year Ended
31 January 2018
NZ$
For the 7 months
Ended
31 January 2017
NZ$
For the Year Ended
30 June
2016
NZ$
(2.01)
(2.01)
(1.79)
(1.79)
(0.82)
(0.82)
(1.13)
(1.13)
All convertible notes issued during the period are not included in the calculation of diluted loss per share because they are antidilutive in nature for the period ended 31
January 2018. These notes could potentially dilute earnings/loss per share in the future.
(b) Reconciliation of loss used in calculating loss per share
Basic and diluted loss per share
Profit/(loss) attributable to the ordinary equity holders of the Group
used in calculating basic earnings per share:
For the Year
Ended
31 January 2019
NZ$000’s
For the Year
Ended
31 January 2018
NZ$000’s
For the 7 Months
Ended
31 January 2017
NZ$000’s
For the Year
Ended
30 June 2016
NZ$000’s
(48,946)
(37,445)
(16,008)
(20,715)
F-75
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
23 Loss per Share
(c) Weighted average number of shares used as the denominator
31 January 2019
Number
31 January 2018
Number
31 January 2017
Number
30 June
2016
Number
Weighted average number of ordinary shares used as the denominator
in calculating basic and diluted loss per share
24,379,019
20,915,036
19,404,681
18,345,000
* A stock reorganization occurred on the 19th June 2018 upon completion of the merger between Naked Brands Inc. and Bendon Limited. As a result, the calculation of
basic and diluted earnings per share for 2018, 2017 and 2016 has been adjusted retrospectively. Number of ordinary shares outstanding has been adjusted to reflect the
proportionate change in the number of shares following this consolidation.
(d) Information concerning the classification of securities
Convertible notes
At 31 January 2019, the Group had no convertible notes.
24 Accumulated Losses
Accumulated losses at the beginning of the financial year
Loss for the year
Accumulated losses at end of the financial year
Year Ended
31 January 2019
NZ$000’s
Year Ended
31 January 2018
NZ$000’s
For the 7 Months
Ended
31 January 2017
NZ$000’s
(72,431)
(49,220)
(121,651)
(34,838)
(37,593)
(72,431)
(18,859)
(15,989)
(34,848)
F-76
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
25 Capital and Leasing Commitments
(a) Operating Leases
Minimum lease payments under non-cancellable operating leases:
- not later than one year
- between one year and five years
- later than five years
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
8,533
18,039
1,485
28,057
9,618
14,943
528
25,089
9,472
14,435
59
23,966
Operating leases are in place for leased premises and vehicles, and normally have a term between 1 and 11 years. Lease payments are increased on an annual basis to
reflect market rentals.
(b) Contracted Commitments
Licence contract
- not later than one year
- between one year and five years
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
4,286
8,696
12,982
3,797
12,009
15,806
3,652
15,917
19,569
The Group has an exclusive licence to use the trademark and name Heidi Klum in the manufacture, promotion, sale and distribution of product. The contract was
executed on 26 September 2014 and commenced on 1 January 2015. The contract has a 7 year term with no rights to renew. Licence royalties are calculated based on net
sales, and the minimum guarantee payments payable by the Group are set out above.
F-77
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
26 Lessor Commitments
The Group sub leases its US and Australian premises under a commercial lease. These non-cancellable leases have terms between 1 and 6 years. All leases include an option
for the Group to increase rent to current market rental on an annual basis.
The future minimum lease payments under non-cancellable leases are:
- no later than 1 year
- between 1 year and 5 years
- greater than 5 years
Total minimum lease payments
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
441
493
-
934
166
-
-
166
503
1,076
-
1,579
F-78
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
27 Financial Risk Management
The Group is exposed to a variety of financial risks through its use of financial instruments.
The Group’s overall risk management plan seeks to minimise potential adverse effects due to the unpredictability of financial markets.
The most significant financial risks to which the Group is exposed to are described below:
Specific risks
Liquidity risk
●
● Credit risk
● Market risk - currency risk, interest rate risk and price risk
Financial instruments used
The principal categories of financial instruments used by the Group are:
Trade receivables
●
● Cash at bank
● Bank overdraft
●
●
●
●
Trade and other payables
Floating rate bank loans
Forward currency contracts
Shareholders loan
Objectives, policies and processes
The Board of Directors have overall responsibility for the establishment of the Group’s financial risk management framework. This includes the development of policies
covering specific areas such as foreign exchange risk, interest rate risk, credit risk and the use of derivatives.
Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities.
The day-to-day risk management is carried out by the Group’s finance function under policies and objectives which have been approved by the Board of Directors.
F-79
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
27 Financial Risk Management
Objectives, policies and processes
Mitigation strategies for specific risks faced are described below:
Liquidity risk
Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group
will encounter difficulty in meeting its financial obligations as they fall due.
The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities as and when they fall due.
The Group manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial liabilities as well as cash-outflows due in day-to-
day business.
The timing of cash flows presented in the table to settle financial liabilities reflects the earliest contractual settlement dates and does not reflect management’s expectations
that banking facilities will be rolled forward. The amounts disclosed in the table are the undiscounted contracted cash flows and therefore the balances in the table may not
equal the balances in the consolidated balance sheets due to the effect of discounting.
F-80
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
27 Financial Risk Management
The Group’s liabilities have contractual maturities which are summarised below:
Non-derivatives
Borrowings
NZ$000’s
Non-derivatives
Trade payables
NZ$000’s
Non-derivatives
Total
NZ$000’s
1,329
26,482
56,333
184
148
129
20,184
27,247
18,631
-
-
323
23,580
21,143
19,221
-
-
-
-
-
-
-
-
-
F-81
24,908
47,625
75,554
184
148
129
20,184
27,247
18,631
-
-
323
Derivatives
Gross future
cash settlement
on forward
currency
contracts -
inflow
NZ$000’s
Derivatives
Gross future
cash settlement
on forward
currency
contracts -
(outflow)
NZ$000’s
Derivatives
Total
NZ$000’s
18,325
13,577
2,078
9,610
13,837
9,900
4,976
20,895
37,855
-
-
-
(19,212)
(13,950)
(2,250)
(10,061)
(14,453)
(11,326)
(5,121)
(21,993)
(40,445)
-
-
-
(887)
(373)
(172)
(451)
(616)
(1,426)
(145)
(1,098)
(2,590)
-
-
-
Not later than 1 month
31 January 2019
31 January 2018
31 January 2017
1 to 3 months
31 January 2019
31 January 2018
31 January 2017
3 months to 1 year
31 January 2019
31 January 2018
31 January 2017
1 to 5 years
31 January 2019
31 January 2018
31 January 2017
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
27 Financial Risk Management
Non-derivatives
Borrowings
NZ$000’s
Non-derivatives
Trade payables
NZ$000’s
Non-derivatives
Total
NZ$000’s
Derivatives
Gross future
cash settlement
on forward
currency
contracts -
inflow
NZ$000’s
Derivatives
Gross future
cash settlement
on forward
currency
contracts -
(outflow)
NZ$000’s
Derivatives
Total
NZ$000’s
21,697
53,877
75,416
23,580
21,143
19,221
45,277
75,020
94,637
32,912
48,309
49,833
(34,395)
(50,396)
(54,021)
(1,483)
(2,087)
(4,188)
Total
31 January 2019
31 January 2018
31 January 2017
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group.
Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposure to wholesale
and retail customers, including outstanding receivables and committed transactions.
Trade receivables and contract assets
Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial
condition of accounts receivable.
The Group has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The utilisation of credit
limits by customers is regularly monitored by line management. Customers who subsequently fail to meet their credit terms are required to make purchases on a prepayment
basis until creditworthiness can be re-established.
F-82
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
27 Financial Risk Management
Credit risk
Management considers that all the financial assets that are not impaired for each of the reporting dates under review are of good credit quality, including those that are past
due.
The Group has no significant concentration of credit risk with respect to any single counterparty or group of counterparties.
The credit risk for liquid funds and other short-term financial assets is considered negligible, since the counterparties are reputable banks with high quality external credit
ratings.
On a geographical basis, the Group has significant credit risk exposures in New Zealand, Australia, United States and United Kingdom given the substantial operations in
those regions.
The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings if available or historical information about
counterparty default rate.
Trade receivables
Counterparty without external credit ratings
New customer less than 6 months
Existing customers (more than 6 months with default in past)
Total
Credit ratings
AA-
A+
Total
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
42
7,747
7,789
12
9,970
9,982
187
26,312
26,499
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
1,915
-
1,915
10,591
94
10,685
2,655
(11)
2,644
The Group has no significant concentration of credit risk with respect to any single counterparty or group of counterparties.
F-83
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
27 Financial Risk Management
Credit risk
On a geographical basis, the Group has significant credit risk exposures in New Zealand and Australia, United States and United Kingdom given the substantial operations in
those regions.
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices.
(i) Foreign exchange risk
Exposure to foreign exchange risk may result in the fair value or future cash flows of a financial instrument fluctuating due to movement in foreign exchange rates of
currencies in which the Group holds financial instruments which are other than the functional currency of the Group.
Exposures to currency exchange rates arise from the Group’s overseas sales and purchases, which are primarily denominated in currencies other than the functional currency,
in particular USD.
F-84
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
27 Financial Risk Management
Foreign currency denominated financial assets and liabilities, translated into New Zealand Dollars at the closing rate, are as follows:
AUD
NZ$000’s
USD
NZ$000’s
GBP
NZ$000’s
EUR
NZ$000’s
HKD
NZ$000’s
Total
NZ$000’s
31 January 2019
Nominal amounts
Trade receivables
Trade payables
Cash and cash equivalents
31 January 2018
Nominal amounts
Trade receivables
Trade payables
Cash and cash equivalents
31 January 2017
Trade receivables
Trade payables
Cash and cash equivalents
51
1
623
328
781
1,660
424
315
926
42
9,035
149
199
11,209
7,190
211
8,557
401
-
8
38
-
74
77
-
131
131
285
61
8
1,376
29
92
1,509
32
388
-
7
11
-
53
165
-
16
28
378
9,112
829
1,903
12,146
9,184
2,144
9,051
1,874
The following table illustrates the sensitivity of the net result for the year and equity in regards to the Group’s financial assets and financial liabilities and the US dollar -
New Zealand Dollar, Australian Dollar - New Zealand Dollar, GB Pound - New Zealand Dollar, Euro - New Zealand Dollar, and Hong Kong Dollar - New Zealand Dollar
exchange rates. There have been no changes in the assumptions calculating this sensitivity from prior years.
It assumes a 10% change of the New Zealand Dollar / Australian Dollar exchange rate for the year ended 31 January 2019 (31 January 2018: 10%, 31 January 2017: 10%). A
10% change is considered for the New Zealand Dollar / US Dollar exchange rate (31 January 2018: 10%, 31 January 2017: 10%). A 10% change is considered for the New
Zealand Dollar / GB Pound exchange rate (31 January 2018: 10%, 31 January 2017: 10%). A 10% change is considered for the New Zealand Dollar / Euro exchange rate (31
January 2018: 10%, 31 January 2017: 10%). All of these percentages have been determined based on the average market volatility in exchange rates in the previous 12
months.
The year end rate is 0.9513 AUD, 0.6903 USD, 0.5265 GBP, 0.6008 EUR and 5.4138 HKD.
The sensitivity analysis is based on the foreign currency financial instruments held at the reporting date and also takes into account forward exchange contracts that offset
effects from changes in currency exchange rates.
F-85
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
27 Financial Risk Management
If the New Zealand Dollar had strengthened and weakened against the Australian Dollar, US Dollar, GB Pound, Euro and HK Dollar by 10% (31 January 2018: 10%, 31
January 2017: 10%) and 10% (31 January 2018: 10%, 31 January 2017: 10%) respectively then this would have had the following impact:
NZ$000’s
+10%
-10%
USD
Net results/Equity (31 January 2019)
Net results/Equity (31 January 2018)
Net results/Equity (31 January 2017)
AUD
Net results/Equity (31 January 2019)
Net results/Equity (31 January 2018)
Net results/Equity (31 January 2017)
GBP
Net results/Equity (31 January 2019)
Net results/Equity (31 January 2018)
Net results/Equity (31 January 2017)
EUR
Net results/Equity (31 January 2019)
Net results/Equity (31 January 2018)
Net results/Equity (31 January 2017)
HKD
Net results/Equity (31 January 2019)
Net results/Equity (31 January 2018)
Net results/Equity (31 January 2017)
(954)
(1,509)
(1,196)
(5)
(805)
86
(1)
(175)
34
(32)
(136)
186
(1)
(14)
1
954
1,509
1,196
5
805
(86)
1
175
(34)
32
136
(186)
1
14
(1)
Exposures to foreign exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless, the analysis above is considered to be
representative of the Group’s exposure to foreign currency risk.
Forward exchange contracts
The Group has open forward exchange contracts at the end of the reporting period relating to highly probable forecast transactions and recognised financial assets and
financial liabilities. These contracts commit the Group to buy specified amounts of foreign currencies in the future at specified exchange rates. The Group has a policy of
requiring that forward exchange contracts be entered into where future commitments are entered into requiring settlement at a time in excess of 1 month but less than 1 year,
to a value of approximately 75% total foreign exchange exposure. Contracts are taken out with terms that reflect the underlying settlement terms of the commitment to the
maximum extent possible so that hedge ineffectiveness is minimised.
F-86
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
27 Financial Risk Management
The following table summarises the notional amount of the Group’s commitments in relation to forward exchange contracts.
Buy USD / sell NZD
Settlement
Less than 6 months
6 months to 1 year
Buy AUD / sell NZD
Settlement
Less than 6 months
Buy GBP / sell NZD
Settlement
Less than 6 months
31 January 2019
NZ$000’s
Notional Amounts
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
31 January 2019
$
Average Exchange Rate
31 January 2018
$
31 January 2017
$
34,395
-
48,149
-
47,292
3,479
0.6620
-
0.7061
-
0.6687
0.7186
NZ$000’s
NZ$000’s
NZ$000’s
-
2,247
2,250
NZ$000’s
NZ$000’s
NZ$000’s
$
$
-
$
$
0.8900
$
$
0.8890
-
-
1,000
-
-
0.5784
F-87
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
27 Financial Risk Management
(ii) Interest rate risk
The Group is exposed to interest rate risk as funds are borrowed at floating and fixed rates. Borrowings issued at fixed rates expose the Group to fair value interest rate risk.
The Group’s policy is to minimise interest rate cash flow risk exposures on long-term financing. Longer-term borrowings are therefore usually at fixed rates. At the reporting
date, the Group is exposed to changes in market interest rates through its bank borrowings, which are subject to variable interest rates.
Floating rate instruments
Bank overdrafts
Working capital financing bank facility
Convertible notes
Borrowings
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
31 January 2017
NZ$000’s
-
-
78
20,000
20,078
-
22,489
1,740
16,000
40,229
-
31,710
16,474
16,000
64,184
The following table illustrates the sensitivity of the net result for the year and equity to a reasonably possible change in interest rates of +1.00%/-1.00% (2018: +1.00%/-
1.00%, 2017: +1.00%/-1.00%), with effect from the beginning of the year. These changes are considered to be reasonably possible based on observation of current market
conditions and economist reports.
The calculations are based on the financial instruments held at each reporting date. All other variables are held constant.
Net results/Equity (31 January 2019)
Net results/Equity (31 January 2018)
Net results/Equity (31 January 2017)
F-88
NZ$000’s
1.00%
NZ$000’s
-1.00%
NZ$000’s
200
402
642
(200)
(402)
(642)
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
28 Tax assets and liabilities
Deferred tax assets/(liabilities)
Carried forward tax losses
Intangible assets
Balance at 31 January 2019
Carried forward tax losses
Intangible assets
Balance at 31 January 2018
Carried forward tax losses
Intangible assets
Balance at 31 January 2017
Opening
Balance
NZ$000’s
Charged to
Income
NZ$000’s
Charged directly
to Equity
NZ$000’s
Changes in
Tax Rate
NZ$000’s
Exchange
Differences
NZ$000’s
Closing
Balance
NZ$000’s
630
(630)
-
630
(630)
-
630
(630)
-
692
-
692
-
-
-
-
-
-
F-89
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,322
(630)
692
630
(630)
-
630
(630)
-
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
29 Dividends
No final dividend will be paid in respect of the period ended 31 January 2019 (31 January 2018: Nil, 31 January 2017).
Franking account
Australian franking credits available for subsequent financial years at a tax rate of 30%
New Zealand imputation credits available for subsequent financial years at a tax rate of 28%
3,995
236
3,995
236
3,757
235
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
The above amounts are based on the dividend franking account at period-end adjusted for:
(a) Franking credits that will arise from the payment of the current tax liabilities;
(b) Franking debits that will arise from the payment of dividends recognised as a liability at the period end;
(c) Franking credits that will arise from the receipt of dividends recognised as receivables at the end of the period.
30 Key Management Personnel Remuneration
Key management personnel remuneration included within employee expenses for the period is shown below:
Short-term employee benefits
For the Year Ended
31 January 2019
NZ$000’s
For the Year Ended
31 January 2018
NZ$000’s
For the 7 Months
Ended 31 January
2017
NZ$000’s
For the Year Ended
30 June 2016
NZ$000’s
2,056
2,056
F-90
1,743
1,743
1,492
1,492
1,752
1,752
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
31 Interests in Subsidiaries
Composition of the Group
Subsidiaries:
Bendon Retail Limited
Bendon Holdings Limited
Bendon Holdings Pty Limited
Bendon Pty Limited
Bendon Intimates Pty Limited
PS Holdings No. 1 Pty Limited
Pleasure State Pty Limited
Pleasure State (HK) Limited
Bendon UK Limited
Bendon USA Inc
Bendon Limited**
Naked Brand Inc.
FOH Online Corp Inc.
Principal place of
business / Country of
Incorporation
New Zealand
New Zealand
Australia
Australia
Australia
Australia
Australia
Hong Kong
United Kingdom
United States of America
New Zealand
United States of America
United States of America
Percentage
Owned (%)*
31 January
2019
Percentage
Owned (%)*
31 January
2018
Percentage
Owned (%)*
31 January
2017
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
-
-
100
100
100
100
100
100
100
100
100
100
-
-
-
*The percentage of ownership interest held is equivalent to the percentage voting rights for all subsidiaries.
** Bendon Limited was the parent entity in the periods ended 31 January 2018 and 31 January 2017.
F-91
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
32 Fair Value Measurement
The Group measures the following assets and liabilities at fair value on a recurring basis:
●
●
Financial assets - derivative financial instruments
Financial liabilities - derivative financial instruments
Fair value hierarchy
AASB 13 Fair Value Measurement requires all assets and liabilities measured at fair value to be assigned to a level in the fair value hierarchy as follows:
Level 1
Level 2
Level 3
Unadjusted quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date.
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Unobservable inputs for the asset or liability.
F-92
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
32 Fair Value Measurement
The table below shows the assigned level for each asset and liability held at fair value by the Group:
31 January 2019
Recurring fair value measurements
Financial assets
Foreign exchange contracts
Financial liabilities
Foreign exchange contracts
Derivative on Convertible Notes
31 January 2018
Recurring fair value measurements
Financial assets
Foreign exchange contracts
Financial liabilities
Foreign exchange contracts
Derivative on Convertible Notes
Level 1
NZ$000’s
Level 2
NZ$000’s
Level 3
NZ$000’s
Total
NZ$000’s
-
-
-
-
-
-
Level 1
NZ$000’s
F-93
-
1,484
-
-
-
-
-
1,484
-
Level 2
NZ$000’s
Level 3
NZ$000’s
Total
NZ$000’s
-
2,087
-
-
-
1,110
-
2,087
1,110
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
32 Fair Value Measurement
31 January 2017
Recurring fair value measurements
Financial assets
Foreign exchange contracts
Financial liabilities
Foreign exchange contracts
Derivative on Convertible Notes
Level 1
NZ$000’s
Level 2
NZ$000’s
Level 3
NZ$000’s
Total
NZ$000’s
-
-
-
-
4,188
-
-
-
4,112
-
4,188
4,112
There were no transfers between levels during the financial periods.
The carrying amount of trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature. Bank loans
approximate fair value of the carrying amount on the basis of the variable nature of the interest rates associated with the loans.
Valuation techniques for fair value measurements categorised within level 2
The fair value of derivative financial instruments is determined using valuation techniques which maximise the use of observable market data where it is available and relies
as little as possible on entity specific estimates.
F-94
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
32 Fair Value Measurement
Valuation techniques for fair value measurements categorised within level 3
The fair value of the derivative on convertible notes has been determined using a Black-Scholes model. Measurement inputs include share price on measurement date,
expected term of the instrument, risk free rate, expected volatility and expected dividend rate. The Group used valuations specialists to perform these valuations.
Fair value measurements using significant unobservable movements (level 3)
The following table presents the changes in level 3 instruments for the year ended 31 January 2019.
Balance at 31 January 2018
Conversion
Balance at 31 January 2019
F-95
Convertible note liability
NZ$000’s
1,110
(1,110)
-
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
33 Contingencies
Contingent Liabilities
The Group had the following contingent liabilities at the end of the reporting period:
Rent guarantees to certain landlords
Standby letter of credit to JP Morgan Chase Bank
Guarantee provided to UK Customs Department
Guarantee provided to ANZ for Merchant Service
31 January 2019
NZ$000’s
31 January 2018
NZ$000’s
31 January 2017
NZ$000’s
419
291
304
172
419
291
329
172
571
286
282
-
A shareholder has lodged a court Action against the Group claiming they did not receive the correct number of shares in the Group on completion of the merger between
Naked Inc. and Bendon Limited on 19 June 2018. The Group has sought to have this claim dismissed by the Court on the basis that the Group had no contract with the
shareholder and that the shareholder did not have a possessory right over a certain number of shares in the Group.
34 Related Parties
(a) The Group’s main related parties are entities owned/controlled by shareholders:
F-96
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
34 Related Parties
(b) Loans (to)/from related parties
Loans to related parties
Cullen Investments Limited - 31 January 2019
Cullen Investments Limited - 31 January 2018
Cullen Investments Limited - 31 January 2017
Whitespace Atelier Limited - 31 January 2019
Whitespace Atelier Limited - 31 January 2018
FOH Online Inc. - 31 January 2019
FOH Online Inc. - 31 January 2018
Loans from related parties
SBL Holdings - 31 January 2019
Naked Inc. - 31 January 2019
Naked Inc. - 31 January 2018
EJ Watson – 31 January 2019
Opening balance NZ$
Closing balance NZ$
11,535,622
13,051,321
9,613,014
272,665
-
3,518,009
-
-
(1,368,577)
-
-
-
11,535,677
13,051,321
281,714
272,665
-
3,518,009
(1,448,646)
-
(1,368,577)
(2,289,212)
F-97
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
34 Related Parties
(b) Loans (to)/from related parties
On 15th November 2018, the Group entered into a Stock Purchase Agreement with the shareholders of FOH Online Corp (FOH), which included Cullen Investments
Limited (Cullen), that the Group will purchase all of the issued and outstanding shares of FOH. Under the terms of the Agreement, the amount owed by Cullen was fully
forgiven by the Group (31 January 2018: $11,535,677).
Whitespace Atelier Limited (“Whitespace”) is owned by a shareholder of the Naked Brand Group Limited. Beginning 1 Feb 2017, Whitespace is engaged by the Group
to procure stock from various suppliers at competitive prices. During the year ended 31 January 2019, purchases amounting to $12,720,499 (31 January 2018:
$13,281,727) have been made from Whitespace. As at 31 January 2018, the Group has made prepayments to Whitespace amounting to $281,714 (31 January 2018:
$272,665).
Subsequent to the merger with Naked Brand Group Inc. on 19th June 2018, Naked Brand Group Inc. became part of the Group as at 31 January 2019. The balances
between the subsidiaries are eliminated in the Group Balance Sheet (31 January 2018: $1,368,557).
Subsequent to the transaction with FOH Online Inc. on 15th November 2018, FOH Online Inc. became part of the Group as at 31 January 2019. The balances between
the subsidiaries are eliminated in the Group Balance Sheet (31 January 2018: $3,518,009).
During the period, a shareholder SBL Holdings Limited loaned the business funds to be utilised as working capital in the business.
During the period, and subsequent to the transaction with FOH Online Inc, the balance of the loan outstanding from EJ Watson as at 31 January 2019 was $2,289,212,
which includes interest accrued for the period of $81,866 (31 January 2018: Nil)
F-98
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
35 Cash Flow Information
(a) Reconciliation of result for the year to cashflows from operating activities
Reconciliation of net income to net cash provided by operating activities:
Loss for the year
Cash flows excluded from profit attributable to operating activities
- interest paid on borrowings
Non-cash flows in profit:
- depreciation and amortisation expense
- impairment expense
- fair value gain/(loss) on Convertible Notes derivative
Changes in assets and liabilities:
- (increase)/decrease in trade and other receivables
- (increase)/decrease in current tax receivables
- (increase)/decrease in derivative assets
- (increase)/decrease in inventories
- (increase)/decrease in deferred tax asset/(liability)
- (increase)/decrease in related party receivables
- increase/(decrease) in trade and other payables
- increase/(decrease) in income taxes payable
- increase/(decrease) in provisions
- increase/(decrease) in foreign currency derivative liability
- net exchange differences
Cashflows from operations
Year Ended 31
January 2019
NZ$000’s
Year Ended 31
January 2018
NZ$000’s
For the 7 Months
Ended 31 January
2017
NZ$000’s
Year Ended 30
June 2016
NZ$000’s
(49,220)
(37,593)
(15,979)
3,400
2,382
8,173
775
14,267
(355)
-
13,350
(692)
6,531
(5,681)
226
(522)
(1,712)
(355)
(9,434)
F-99
8,792
3,030
1,914
(2,393)
14,925
52
-
6,638
-
(906)
6,956
152
39
(5,104)
(618)
(4,116)
6,238
1,842
292
592
(4,748)
35
-
(179)
-
(3,438)
2,078
635
367
(1,343)
90
(13,518)
(20,746)
10,182
3,516
2,157
-
(6,518)
(88)
2,289
8,088
5,589
(5,603)
(11,113)
(483)
311
5,530
1,849
(5,040)
Naked Brand Group Limited
Notes to the Consolidated Financial Statements
For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016
36 Events occurring after the reporting date
On the 27th March 2019, the Group closed on the following share issuances.
(1) NZ$6.60 million/US$4.50 million related to the issue of 11,248,415 Ordinary Shares to trade creditors in satisfaction of trade payables due to them, at an effective per
share price of US$0.40.
(2) NZ$1.25 million/US$0.85 million related to the issue of 2,119,178 Ordinary Shares to the holder of one of the outstanding promissory notes in the amount of $847,671 at
US$0.40 per share.
(3) NZ$1.69 million/US$1.15 million related to the issue of 4,510,588 to investors in a private placement at a share price of US$0.255.
(4) NZ$4.05 million/US$2.75 million relating to certain accredited investors. 10,784,313 shares were agreed at a per share price of US$0.255, except that, to the extent an
investor would beneficially own more than 9.9% of our outstanding Ordinary Shares after the closing, we agreed to issue the investor March 2019 Pre-Funded Warrants in
lieu of such shares. Each investor also received a March 2019 Investment Warrant to purchase 100% of the number of Ordinary Shares for which it had agreed to subscribe.
As a result, we issued 3,914,846 Ordinary Shares, March 2019 Pre-Funded Warrants to purchase 6,869,467 Ordinary Shares and March 2019 Investment Warrants to
purchase 10,784,313 Ordinary Shares to the investor at the closing.
On the 13th May 2019, the Group completed a private placement of a secured convertible promissory note for a purchase price of NZ$4.35m/US$3m. The note accrues
interest at 10% pa and matures on 13 November 2020.
On the 14th May 2019, the Group closed on NZ$2.17 million/US$1.5million share issuance of 6,000,000 shares to investors in a private placement at a share price of
US$0.25.
On the 16th May 2019, the Group issued 635,585 ordinary shares in exchange for the cancellation of a NZ$0.3m/US$0.2m debt held by a shareholder.
F-100
SECURITIES PURCHASE AGREEMENT
Exhibit 4.7.1
This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of March 27, 2019 (the “Execution Date”), between Naked Brand Group Limited, an
Australian company (the “Company”), and the investors listed on the Buyer Schedules attached hereto (“Buyer”).
RECITALS
A. The Company has outstanding ordinary shares, without par value (“Ordinary Shares”), which Ordinary Shares are currently traded on the Nasdaq Capital Market
(“the Principal Market”).
B. The Company and Buyers are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the
Securities Act of 1933, as amended (the “1933 Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange
Commission (the “SEC”) under the 1933 Act.
C. Buyers wish to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, (i) the number of Ordinary Shares, as further
specified herein, set forth on the Buyer Schedules and (ii) warrants to initially acquire up to the aggregate number of Ordinary Shares set forth on the Buyer Schedules, in the
form attached hereto as Exhibit A (the “Purchase Warrant”). “Warrant Shares” means all or a portion of the total number of Ordinary Shares issuable upon full exercise of
all Warrants (as defined below).
D. At the Closing (as defined below), the parties hereto shall execute and deliver a Registration Rights Agreement, in the form attached hereto as Exhibit B (the
“Registration Rights Agreement”), pursuant to which the Company has agreed to provide certain registration rights with respect to the Registrable Securities (as defined in the
Registration Rights Agreement), under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws.
E. The Ordinary Shares, the Warrants and the Warrant Shares are collectively referred to herein as the “Securities.”
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Buyers hereby agree as follows:
1. PURCHASE AND SALE OF ORDINARY SHARES AND WARRANTS.
(a) Ordinary Shares and Warrants.
Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall issue and sell to each Buyer, and each Buyer shall
purchase from the Company on the Closing Date (as defined below), the number of Ordinary Shares as is set forth on the Buyer Schedules, along with Warrants to initially
acquire up to the aggregate number of Warrant Shares as is set forth on the Buyer Schedules.
(b) Closing.
The date and time of the closing (the “Closing”) of the purchase of the Ordinary Shares and the Warrants by each Buyer as contemplated by this Agreement shall be
9:00 a.m., New York City time, on March 27, 2019 (the “ Closing Date”). As used herein “Business Day” means any day other than a Saturday, Sunday or other day on which
commercial banks in New York, New York, Sydney, Australia or Aukland, New Zealand are authorized or required by law to remain closed.
(c) Purchase Price. The aggregate purchase price for the Ordinary Shares and the Warrants to be purchased by each Buyer (the applicable “Purchase Price”) shall be
paid at the Closing and in the applicable amount as set forth on the applicable Buyer Schedule.
(d) Payment of Purchase Price; Delivery of Securities. On the Closing Date, (i) each Buyer shall pay the applicable Purchase Price to the Company for the respective
Securities to be issued and sold to each Buyer at the Closing, by wire transfer of immediately available funds in accordance with the Company’s written wire instructions and
(ii) the Company shall issue to each Buyer the Ordinary Shares and the Warrants as set forth on the applicable Buyer Schedule (pursuant to which such Buyer shall have the
right to acquire up to the aggregate number of Warrant Shares as is set forth on such Buyer Schedule in respect of such Warrants), in all cases, duly executed on behalf of the
Company and registered in the name of each Buyer or its designee, all as set forth on the Buyer Schedules.
(e) Beneficial Ownership Limitation.
The Company shall not issue and Buyers shall not accept any Ordinary Shares under this Agreement, and Buyers shall not otherwise purchase Ordinary Shares or securities
exercisable or exchangeable for or convertible into Ordinary Shares from any party, in the public market or otherwise, if such shares proposed to be sold or otherwise issued, or
the Ordinary Shares proposed to be purchased or issuable upon exercise, exchange or conversion of the securities proposed to be purchased (after giving effect to any limitation
on exercise, exchange or conversion therein), when aggregated with all other Ordinary Shares then owned beneficially (as calculated pursuant to Section 13(d) of the Exchange
Act and Rule 13d-3 promulgated thereunder) by any Buyer and its affiliates, constitute more than 9.9% of the then issued and outstanding Ordinary Shares (the “Maximum
Percentage”). The number of Ordinary Shares constituting the Maximum Percentage determination shall be appropriately adjusted for any stock dividend, stock split, reverse
stock split or similar transaction. For the avoidance of doubt, subject to Section 1(f) below, any such Ordinary Shares that are determined at any time to cause any Buyer’s
beneficial ownership of Ordinary Shares to exceed the Maximum Percentage upon issuance shall be issued to such Buyer at such later time to the extent such issuance would not
cause such Buyer’s beneficial ownership of Ordinary Shares to exceed the Maximum Percentage.
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(f) Pre-Funded Warrants.
To the extent that issuance of any number of Ordinary Shares will cause any Buyer’s beneficial ownership of the Ordinary Shares to exceed the Maximum Percentage,
the Company shall, in lieu of issuing such Ordinary Shares that will cause such Buyer’s beneficial ownership of the Ordinary Shares to exceed the Maximum Percentage, issue
to such Buyer warrants, substantially in the form attached hereto as Exhibit C, to purchase, at a purchase price of $0.01 per share, the number of Ordinary Shares that would
cause such Buyer’s beneficial ownership to exceed the Maximum Percentage (the “Pre-Funded Warrants” and together with the Purchase Warrants, the “Warrants”). The
Company shall also issue to such Buyer additional Pre-Funded Warrants in an amount equal in value to the aggregate exercise price of the Pre-Funded Warrants.
(g) Full Ratchet Anti-Dilution.
To the extent that the Company makes an Additional Issuance (as defined below) during the Restricted Period (as defined below) for consideration per Ordinary Share less than
the consideration per Ordinary Share paid by any Buyer or makes an Additional Issuance of Convertible Securities (as defined below) with a conversion price or exercise price
per Ordinary Share less than the exercise price per Warrant Share granted to such Buyer under the Warrants (in each case, as adjusted for stock splits, stock dividends,
reclassifications, reorganizations or other similar transactions), in either case other than an Additional Issuance of Excluded Securities (as defined below), then the Company
shall (i) issue to such Buyer, concurrently with such dilutive Additional Issuance, the number of Ordinary Shares to ensure that such Buyer has the number of Ordinary Shares
that it would have had if it purchased Ordinary Shares in an offering of such Additional Issuance at such lower purchase price, and (ii) subject to and as further set forth in the
Warrants, (A) reduce the exercise price of the Warrants to the lesser of (1) the lowest purchase price of Ordinary Shares of such Additional Issuance and (2) the lowest
conversion price or exercise price at which any Convertible Securities of an Additional Issuance are convertible or exercisable into Ordinary Shares, and (B) increase the
number of Warrant Shares issuable upon the exercise of the Warrants such that the aggregate exercise price payable under the Warrants for the adjusted number of Warrant
Shares shall be the same as the aggregate exercise price in effect immediately prior to such adjustment (without regard to any limitations on exercise contained in the Warrants).
(h) Taxes.
The Company shall pay any and all transfer, stamp or similar taxes that may be payable with respect to the issuance and delivery of any Ordinary Shares to the Buyers
made under this Agreement or other Transaction Documents (as defined below).
2. BUYER’S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants to the Company, on behalf of itself, that:
(a) Organization; Authority.
Each Buyer is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite power and authority to enter
into and to consummate the transactions contemplated by the Transaction Documents to which it is a party and otherwise to carry out its obligations hereunder and thereunder.
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(b) No Public Sale or Distribution.
Each Buyer (i) is acquiring the Ordinary Shares purchased at the Closing and all Warrants being acquired at the Closing and (ii) upon exercise of its Warrants will
acquire the Warrant Shares issuable upon exercise thereof, in each case, for its own account and not with a view towards, or for resale in connection with, the public sale or
distribution thereof in violation of applicable securities laws, except pursuant to sales registered or exempted under the 1933 Act; provided, however, by making the
representations herein, each Buyer does not agree, or make any representation or warranty, to hold any of the Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act. Each Buyer does not presently have
any agreement or understanding, directly or indirectly, with any Person (as defined below) to distribute any of the Securities in violation of applicable securities laws.
(c) Accredited Investor Status.
Each Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D.
(d) Reliance on Exemptions.
Each Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal
and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Buyer’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of such Buyer to acquire the
Securities.
(e) Information.
Each Buyer and its advisors, if any, acknowledge that they have been furnished with or provided access via EDGAR to the Company’s most recent Annual Report on
Form 20-F and Reports of Foreign Private Issuers on Form 6-K, if any, as well as Registration Statements on Form F-1 (including amendments thereto). Each Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of, and receive answers from, the Company concerning the offer and sale of the Securities and to obtain any
additional information such Buyer has requested which is necessary to verify the accuracy of the information furnished to such Buyer concerning the Company and such
offering. Each Buyer understands that its investment in the Securities involves a high degree of risk. Each Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its acquisition of the Securities. Each Buyer acknowledges that such Buyer is basing its decision
to invest in the Securities solely upon the information contained in the Transaction Documents, the Company’s most recent Annual Report on Form 20-F and Reports of
Foreign Private Issuers on Form 6-K, if any, and its own due diligence and, except as specifically set forth in this Agreement, has not based its investment decision upon any
representations made by any Person (as defined below).
4
(f) No Governmental Review.
Each Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or
endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the
Securities.
(g) Transfer or Resale.
Each Buyer understands that except as provided in the Registration Rights Agreement and Section 4(g) hereof: (i) the Securities have not been and are not being
registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, (B) such
Buyer shall have delivered to the Company (if requested by the Company) an opinion of counsel to such Buyer, in a form reasonably acceptable to the Company, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) such Buyer provides the
Company with reasonable assurance that such Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act (or a successor
rule thereto) (collectively, “Rule 144”); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144, and further, if
Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the Person (as defined below) through whom the sale is made) may be
deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the
U.S. Securities and Exchange Commission (the “SEC”) promulgated thereunder; and (iii) neither the Company nor any other Person is under any obligation to register the
Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder.
(h) Validity; Enforcement.
The execution and delivery of the Transaction Documents and the consummation by each Buyer of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary action on the part of such Buyer and no further consent or authorization of such Buyer or its members is required. Each Transaction
Document has been duly executed by such Buyer and when delivered in accordance with terms hereof and thereof, constitutes the legal, valid and binding obligations of such
Buyer enforceable against such Buyer in accordance with its terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.
(i) No Conflicts.
The execution, delivery and performance by each Buyer of this Agreement and the consummation by such Buyer of the transactions contemplated hereby will not (i)
result in a violation of the organizational documents of such Buyer, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would
become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which such Buyer is
a party or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to such Buyer, except in the case
of clauses (ii) and (iii) above, for such conflicts, defaults, rights or violations which would not, individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of such Buyer to perform its obligations hereunder.
5
(j) Certain Trading Activities. Each Buyer has not directly or indirectly, nor has any Person (as defined below) acting on behalf of or pursuant to any understanding
with such Buyer, engaged in any transactions in the securities of the Company (including, without limitation, any Short Sales (as defined below) involving the Company’s
securities) during the period commencing as of the time that such Buyer and the Company first began discussions regarding the specific investment in the Company
contemplated by this Agreement and ending immediately prior to the execution of this Agreement (it being understood and agreed that for all purposes of this Agreement, and
without implication that the contrary would otherwise be true, that neither transactions nor purchases nor sales shall include the location and/or reservation of borrowable
Ordinary Shares). “Short Sales” means all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Securities Exchange Act of 1934, as amended (the
“1934 Act”).
(k) Experience of Buyer. Each Buyer has such knowledge, sophistication and experience in business and financial matter so as to be capable of evaluating the merits
and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Each Buyer is able to bear the economic risk of an
investment in the Securities and, at the present time, is able to afford a complete loss of such investment.
(l) Foreign Corrupt Practices. Each Buyer or any of its subsidiaries or affiliates, or to the knowledge of such Buyer, any director, officer, agent, employee, member or
other Person acting on behalf of such Buyer or any its subsidiaries or affiliates has, in the course of its actions for, or on behalf of, such Buyer or any of its subsidiaries or
affiliates (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect
unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment of any foreign or domestic
government official or employee.
(m) General Solicitation. Each Buyer is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities
published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or advertisement.
(n) Patriot Act Representations.
(i) Each Buyer represents that all evidence of identity provided is genuine and all related information furnished is accurate.
6
(ii) Each Buyer hereby acknowledges that the Company seeks to comply with all applicable anti-money laundering laws and regulations. In furtherance of such
efforts, each Buyer hereby represents and agrees that: (1) no part of the funds used by such Buyer to acquire the Securities have been, or shall be, directly or indirectly
derived from, or related to, any activity that may contravene federal, state, or international laws and regulations, including anti-money laundering laws and regulations;
and (ii) no payment to the Company by such Buyer shall cause the Company to be in violation of any applicable anti-money laundering laws and regulations including
without limitation, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of
2001, Executive Order 13224 (2001) (the “Patriot Act”) issued by the President of the United States and the U.S. Department of the Treasury Office of Foreign Assets
Control (“OFAC”) regulations.
(iii) Each Buyer represents and warrants that the amounts to be paid by such Buyer to the Company will not be directly or indirectly derived from activities that
may contravene federal, state or international laws and regulations, including anti-money laundering laws and regulations. Each Buyer represents and warrants that, to
the best of its knowledge, none of: (a) such Buyer; (b) any person controlling or controlled by such Buyer; or (c) any person having a beneficial interest in such Buyer is
(i) a country, territory, individual or entity named on a list maintained by OFAC, (ii) a person prohibited under the OFAC Programs, (iii) a senior foreign political
figure,1 or any immediate family member2 or close associate3 of a senior foreign political figure as such terms are defined in the footnotes below or (iv) a “foreign shell
bank” within the meaning of the U.S. Bank Secrecy Act (31 U.S.C. §5311 et seq.), as amended (the “Bank Secrecy Act”) and the regulations promulgated thereunder by
the U.S. Department of the Treasury.
(iv) Each Buyer further represents and warrants that such Buyer: (i) has conducted thorough due diligence with respect to all of its beneficial owners, (ii) has
established the identities of all beneficial owners and the source of each of the beneficial owner’s funds and (iii) will retain evidence of any such identities, any such
source of funds and any such due diligence.
(v) Neither any Buyer nor any person directly or indirectly controlling, controlled by or under common control with such Buyer is a person identified as a
terrorist organization on any relevant lists maintained by governmental authorities.
(vi) Each Buyer agrees to provide the Company all information that may be reasonably requested to comply with applicable laws and regulations of any
applicable jurisdiction, or to respond to requests for information concerning the identity of such Buyer from any governmental authority, self-regulatory organization or
financial institution in connection with its anti-money laundering compliance procedures, or to update such information. Each Buyer agrees to notify the Company
promptly if there is any change with respect to the representations and warranties provided herein. Each Buyer consents to the disclosure to regulators and law
enforcement authorities by the Company and its affiliates and agents of any information about such Buyer or its constituents as the Company reasonably deems
necessary or appropriate to comply with applicable anti-money laundering, anti-terrorist and asset control laws, regulations, rules and orders.
1 A “senior foreign political figure” is defined as a senior official in the executive, legislative, administrative, military or judicial branches of a foreign government (whether
elected or not), a senior official of a major foreign political party, or a senior executive of a foreign government-owned corporation. In addition, a “senior foreign political
figure” includes any corporation, business or other entity that has been formed by, or for the benefit of, a senior foreign political figure.
2 “Immediate family” of a senior foreign political figure typically includes the figure’s parents, siblings, spouse, children and in-laws.
3 A “close associate” of a senior foreign political figure is a person who is widely and publicly known to maintain an unusually close relationship with the senior foreign
political figure, and includes a person who is in a position to conduct substantial domestic and international financial transactions on behalf of the senior foreign political figure.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Buyers the matters set forth in this Section 3, as may be qualified by the corresponding section of the Company
Disclosure Schedule. These representations and warranties, and the information set forth in the Company Disclosure Schedule, are current as of the date of this Agreement,
except to the extent that a representation, warranty or section of the Company Disclosure Schedule expressly states that such representation or warranty, or information in such
section of the Company Disclosure Schedule, is current only as of an earlier date. If any information is so reflected as of an earlier date, there have been no material changes
since such date to the date hereof.
(a) Organization and Qualification.
Each of the Company and each of its subsidiaries are entities duly organized and validly existing and in good standing under the laws of the jurisdiction in which they
are formed, and have the requisite power and authorization to own their properties and to carry on their business as now being conducted and as presently proposed to be
conducted. Each of the Company and each of its subsidiaries is duly qualified as a foreign entity to do business and is in good standing in every jurisdiction in which its
ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good
standing would not have a Material Adverse Effect. “Material Adverse Effect” means any material adverse effect on (i) the business, properties, assets, liabilities, operations
(including results thereof), condition (financial or otherwise) or prospects of the Company and its subsidiaries, taken as a whole, (ii) the transactions contemplated hereby or in
any of the other Transaction Documents or (iii) the authority or ability of the Company or any of its subsidiaries to perform any of its respective obligations under any of the
Transaction Documents (as defined below). Other than as set forth in Exhibit 8.1 to the Company’s most recent Annual Report on Form 20-F, the Company has no material
subsidiaries.
(b) Authorization; Enforcement; Validity.
The Company has the requisite power and authority to enter into and perform its obligations under this Agreement and the other Transaction Documents and to issue
the Securities in accordance with the terms hereof and thereof. The execution and delivery of this Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Ordinary Shares and the issuance of the
Warrants and the reservation for issuance and issuance of the Warrant Shares issuable upon exercise of the Warrants) have been (i) duly authorized by the Company’s board of
directors and (ii) no further filing, consent or authorization is required by the Company, its board of directors or its stockholders or other governing body of the Company (other
than the filing with the SEC of one or more Registration Statements (as defined in the Registration Rights Agreement) in accordance with the requirements of the Registration
Rights Agreement, a Form D with the SEC and any other filings as may be required by any state securities agencies, the filing of required notices and/or applications to the
Principal Market for the issuance and sale of the Securities, and the filings required by Section 4(h) of this Agreement). This Agreement has been, and the other Transaction
Documents will be prior to the Closing, duly executed and delivered by the Company, and each constitutes the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with its respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies and except as rights to
indemnification and to contribution may be limited by federal or state securities law. “Transaction Documents” means, collectively, this Agreement, the Warrants, the
Registration Rights Agreement, and each of the other agreements and instruments entered into or delivered by any of the parties hereto in connection with the transactions
contemplated hereby and thereby, as may be amended from time to time.
8
(c) Issuance of Securities.
The issuance of the Ordinary Shares and the Warrants are duly authorized and, upon issuance in accordance with the terms of the Transaction Documents, will be
validly issued, fully paid and non-assessable and free from all preemptive or similar rights, taxes, liens, charges and other encumbrances with respect to the issue thereof. As of
the Closing, the Company shall have reserved from its duly authorized capital stock not less than the sum of (i) the Ordinary Shares sold at the Closing and (ii) 200% of the
maximum number of Warrant Shares issuable upon exercise of the Warrants (without taking into account any limitations on the exercise of the Warrants set forth therein). The
issuance of the Warrant Shares is duly authorized, and upon exercise in accordance with the Warrants, the Warrant Shares, when issued, will be validly issued, fully paid and
non-assessable and free from all preemptive or similar rights, taxes, liens, charges and other encumbrances with respect to the issue thereof, with the holders being entitled to all
rights accorded to a holder of Ordinary Shares. Subject to the accuracy of the representations and warranties of the Buyers in this Agreement, the offer and issuance by the
Company of the Securities is exempt from registration under the 1933 Act. Buyers will have good and marketable title to the Securities.
(d) No Conflicts.
The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the issuance of the Ordinary Shares, the Warrants and the Warrant Shares and the reservation for issuance of the Warrant Shares) will not
(i) result in a violation of the certificate of incorporation of the Company (including, without limitation, any certificate of designation contained therein) or other organizational
documents of the Company or any of its subsidiaries, any capital stock of the Company or any of its subsidiaries or bylaws or operating agreements of the Company or any of
its subsidiaries, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including, without limitation, foreign, federal and state securities laws and regulations and the rules and
regulations of the Principal Market applicable to the Company or by which any property or asset of the Company is bound or affected except, in the case of clause (ii) or (iii)
above, to the extent such violations that could not reasonably be expected to have a Material Adverse Effect.
9
(e) Consents.
Neither the Company nor any subsidiary is required to obtain any consent from, authorization or order of, or make any filing or registration with any court, governmental
agency or any regulatory or self-regulatory agency or any other Person (other than the filing with the SEC of one or more Registration Statements in accordance with the
requirements of the Registration Rights Agreement, a Form D with the SEC and other filings as may be required by any state securities agencies, the filing of required notice
and/or application to the Principal Market for the issuance and sale of the Securities and the filings required by Section 4(h) of this Agreement), in order for it to execute, deliver
or perform any of its respective obligations under, or contemplated by, the Transaction Documents, in each case, in accordance with the terms hereof or thereof. All consents,
authorizations, orders, filings and registrations which the Company is required to obtain at or prior to the Closing have been obtained or effected on or prior to the Closing Date,
and the Company is not aware of any facts or circumstances which might prevent the Company from obtaining or effecting any of the registration, application or filings
contemplated by the Transaction Documents. Except as disclosed in the SEC Documents, the Company is not in violation of the requirements of the Principal Market and has
no knowledge of any facts or circumstances which could reasonably lead to suspension of the Ordinary Shares in the foreseeable future. There is no requirement for the
Company to obtain approval of the Principal Market for listing or trading of Registrable Securities which constitute Ordinary Shares.
(f) Acknowledgment Regarding Buyers’ Purchase of Securities.
The Company acknowledges and agrees that each Buyer is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that such Buyer is not (i) an officer or director of the Company, (ii) an affiliate (as defined in Rule 405 of the 1933 Act) of the
Company (an “Affiliate”) or (iii) to its knowledge, a “beneficial owner” (as defined for purposes of Rule 13d-3 of the 1934 Act) of more than 10% of the Ordinary Shares. The
Company further acknowledges that each Buyer is not acting as a financial advisor or fiduciary of the Company or any of its subsidiaries (or in any similar capacity) with
respect to the Transaction Documents and the transactions contemplated hereby and thereby, and any advice given by such Buyer or any of its representatives or agents in
connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to such Buyer’s purchase of the Securities. The Company
further represents to such Buyer that the Company’s decision to enter into the Transaction Documents to which it is a party has been based solely on the independent evaluation
by the Company and its representatives.
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(g) No General Solicitation; Placement Agent’s Fees.
None of the Company, any of its Affiliates, or any Person acting on the behalf of the Company or any of its Affiliates, has engaged in any form of general solicitation
or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Securities. The Company shall be responsible for the payment of any
placement agent’s fees, financial advisory fees, or brokers’ commissions, relating to or arising out of the transactions contemplated hereby.
(h) No Integrated Offering. None of the Company, any of its Affiliates, or, to the knowledge of the Company, any Person acting on the behalf of the Company or any
of its Affiliates has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration
of the issuance of any of the Securities under the 1933 Act, whether through integration with prior offerings or otherwise, or cause this offering of the Securities to require
approval of stockholders of the Company under any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange
or automated quotation system on which any of the securities of the Company are listed or designated for quotation. None of the Company, any of its Affiliates, or, to the
knowledge of the Company, any Person acting on the behalf of the Company or any of its Affiliates will take any action or steps that would require registration of the issuance
of any of the Securities under the 1933 Act or cause the offering of any of the Securities to be integrated with other offerings of securities of the Company.
(i) Dilutive Effect.
The Company understands and acknowledges that the number of Warrant Shares may increase in certain circumstances. The Company further acknowledges that,
except to the extent an issuance would exceed the beneficial ownership limitation in Section 1(e) of this Agreement, its obligation to issue the Warrant Shares upon exercise of
the Warrants in accordance with this Agreement is absolute and unconditional, regardless of the dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.
(j) Application of Takeover Protections; Rights Agreement.
The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, interested stockholder,
business combination, poison pill (including, without limitation, any distribution under a rights agreement), shareholder rights plan or other similar anti-takeover provision
under the certificate of incorporation, bylaws or other organizational documents of the Company or any of its Affiliates or the laws of the jurisdiction of its incorporation or
otherwise which is or could become applicable to each Buyer as a result of the transactions contemplated by this Agreement, including, without limitation, the Company’s
issuance of the Securities and such Buyer’s ownership of the Securities. The Company and its board of directors have taken all necessary action, if any, in order to render
inapplicable any shareholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Ordinary Shares or a change in control of the Company or
any of its Affiliates.
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(k) SEC Documents; Financial Statements.
During the two (2) years prior to the date hereof, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the
SEC pursuant to the reporting requirements of the 1934 Act (all of the foregoing, as well as all registration statements under the 1933 Act, filed prior to the date hereof and all
exhibits and appendices included therein and financial statements, notes and schedules thereto and documents incorporated by reference therein being hereinafter referred to as
the “SEC Documents”). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations
of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. As of its dates, the financial statements of the Company included in the SEC Documents complied in all material respects with
applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as in effect as of the time of filing. Such financial statements have
been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude the footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments which will not be material, either individually or in the aggregate). No other
information provided by or on behalf of the Company to each Buyer which is not included in the SEC Documents contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements therein not misleading, in the light of the circumstance under which they are or were made.
(l) Absence of Certain Changes.
Since the date of the Company’s most recent audited financial statements contained in a Form 20-F, except as disclosed in the SEC Documents filed subsequent to
such Form 20-F, there has been no material adverse change and no material adverse development in the business, assets, liabilities, properties, operations (including results
thereof), or condition (financial or otherwise) of the Company and its subsidiaries. Since the date of the Company’s most recent audited financial statements contained in a
Form 20-F, neither the Company nor any of its subsidiaries has (i) declared or paid any dividends, (ii) sold any material assets outside of the ordinary course of business or (iii)
made any material capital expenditures, individually or in the aggregate, outside of the ordinary course of business. Neither the Company nor any of its subsidiaries has taken
any steps to seek protection pursuant to any law or statute relating to bankruptcy, insolvency, reorganization, receivership, liquidation or winding up. Neither the Company nor
any of its subsidiaries has any knowledge or reason to believe that any of their respective creditors intend to initiate involuntary bankruptcy proceedings or any actual
knowledge of any fact which would reasonably lead a creditor to do so. The Company is not, and after giving effect to the transactions contemplated hereby to occur at the
Closing will not be, Insolvent (as defined below). “Insolvent” means the present fair saleable value of the Company’s assets is less than the amount required to pay the
Company’s total Indebtedness (as defined below). The Company has not engaged in any business or in any transaction, and is not about to engage in any business or in any
transaction, for which the Company’s remaining assets constitute unreasonably small capital.
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(m) No Undisclosed Events, Liabilities, Developments or Circumstances.
No event, liability, development or circumstance has occurred or exists, or is reasonably expected to occur or exist with respect to the Company or any of its subsidiaries or any
of their respective businesses, properties, liabilities, prospects, operations (including results thereof) or condition (financial or otherwise) that to the Company’s knowledge,
would have a Material Adverse Effect on the Company.
(n) Conduct of Business; Regulatory Permits.
Neither the Company nor any of its subsidiaries is in violation of any term of or in default under its organizational documents including its certificate of incorporation, bylaws,
certificate of formation, any other organizational charter, any certificate of designation, preferences or rights of any outstanding series of preferred stock of the Company or any
of its subsidiaries, respectively. Neither the Company nor any of its subsidiaries is in violation of any judgment, decree or order or any statute, ordinance, rule or regulation
applicable to the Company or any of its subsidiaries, and the Company will not conduct its business in violation of any of the foregoing, except in all cases for possible
violations which could not, individually or in the aggregate, have a Material Adverse Effect. Without limiting the generality of the foregoing, except as disclosed in the SEC
Documents, the Company is not in violation of any of the rules, regulations or requirements of the Principal Market and has no knowledge of any facts or circumstances that
could reasonably lead to suspension of the Ordinary Shares by the Principal Market in the foreseeable future. Since June 20, 2018, (i) the Ordinary Shares has been designated
for quotation on the Principal Market, (ii) trading in the Ordinary Shares has not been suspended by the SEC or the Principal Market and (iii) except as disclosed in the SEC
Documents, the Company has received no communication, written or oral, from the SEC or the Principal Market regarding the suspension of the Ordinary Shares from the
Principal Market. The Company and each of its subsidiaries possess all certificates, authorizations and permits issued by the appropriate regulatory authorities necessary to
conduct their businesses, except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a Material Adverse
Effect, and neither the Company nor any such subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization
or permit.
(o) Foreign Corrupt Practices.
Neither the Company nor any of its subsidiaries nor to the knowledge of the Company, any director, officer, agent, employee or other Person acting on behalf of the Company
or any of its subsidiaries (as applicable) has, in the course of its actions for, or on behalf of, the Company or any of its subsidiaries (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
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(p) Sarbanes-Oxley Act.
Except as set forth in the SEC Documents, the Company and each of its subsidiaries is in material compliance with all applicable requirements of the Sarbanes-Oxley Act of
2002 and all applicable rules and regulations promulgated by the SEC thereunder.
(q) Transactions With Affiliates.
Except as disclosed in the SEC Documents, none of the officers, directors, employees or Affiliates of the Company is presently a party to any transaction with the Company
(other than for ordinary course services as employees, officers or directors and immaterial transactions), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such officer, director, employee
or Affiliate or, to the knowledge of the Company, any corporation, partnership, trust or other Person in which any such officer, director, employee or Affiliate has a substantial
interest or is an employee, officer, director, trustee or partner.
(r) Equity Capitalization.
As of the date hereof, the authorized capital stock of the Company consists solely of (i) Ordinary Shares, of which 29,640,965 are issued and outstanding and 6,236,741 are
reserved for issuance pursuant to Convertible Securities (as defined below) (other than the Warrants), and (ii) preference shares, of which none are issued and outstanding. No
Ordinary Shares are held in treasury. All of such outstanding shares are duly authorized and have been, or upon issuance will be, validly issued and are fully paid and non-
assessable. 1,165,628 shares of the Company’s issued and outstanding Ordinary Shares, as of the date hereof, are owned by officers, directors and, to the best of the Company’s
knowledge, other Persons who are “affiliates” (as defined in Rule 405 of the 1933 Act and calculated based on the assumption that only officers, directors and holders of at least
10% of the Company’s issued and outstanding Ordinary Shares are “affiliates” without conceding that any such Persons are “affiliates” for purposes of federal securities laws)
of the Company. Except as disclosed in the SEC Documents: (i) to the Company’s knowledge, no Person owns 10% or more of the Company’s issued and outstanding Ordinary
Shares (calculated based on the assumption that all Convertible Securities, whether or not presently exercisable or convertible, have been fully exercised or converted (as the
case may be) taking account of any limitations on exercise or conversion (including “blockers”) contained therein without conceding that such identified Person is a 10%
stockholder for purposes of federal securities laws); (ii) the Company’s capital stock and the capital stock of its subsidiaries are not subject to preemptive rights or any other
similar rights or any liens or encumbrances; (iii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital stock of the Company or any of its subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional capital stock or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital stock of the
Company or any of its subsidiaries, respectively (other than as may be issued from time to time under any equity incentive plan maintained); (iv) there are no outstanding debt
securities, convertible notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing Indebtedness of the Company or any of its
subsidiaries or by which the Company or any of its subsidiaries is or may become bound; (v) there are no financing statements securing obligations in any amounts filed in
connection with the Company or any of its subsidiaries; (vi) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register
the sale of any of their securities under the 1933 Act (except pursuant to the Registration Rights Agreement or as set forth on Schedule 3(r)); (vii) there are no outstanding
securities or instruments of the Company or any of its subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings
or arrangements by which the Company or any of its subsidiaries is or may become bound to redeem a security of the Company or any of its subsidiaries; (viii) there are no
securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities; (ix) neither the Company nor any of its subsidiaries
has stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement; and (x) the Company does not have any liabilities or obligations
required to be disclosed in the SEC Documents which are not so disclosed in the SEC Documents, other than those incurred in the ordinary course of the Company’s business
and which do not and would not reasonably be expected to have a Material Adverse Effect. The SEC Documents contain true, correct and complete copies of the Company’s
certificate of incorporation, as amended and as in effect on the date, and the Company’s bylaws, as amended and as in effect on the date hereof, and the terms of all securities
convertible into, or exercisable or exchangeable for, Ordinary Shares and the material rights of the holders thereof.
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(s) Indebtedness and Other Contracts.
Except as disclosed in the SEC Documents, each of the Company and its subsidiaries (i) does not have any material outstanding Indebtedness or other material debt obligations,
(ii) is not a party to any contract, agreement or instrument, the violation of which, or default under which, by the other party(ies) to such contract, agreement or instrument could
reasonably be expected to result in a Material Adverse Effect, (iii) is not in violation of any term of, or in default under, any contract, agreement or instrument relating to any
Indebtedness, except where such violations and defaults would not result, individually or in the aggregate, in a Material Adverse Effect, and (iv) is not a party to any contract,
agreement or instrument relating to any Indebtedness, the performance of which, in the judgment of the Company’s officers, has or is expected to have a Material Adverse
Effect. The Company has no current intention or expectation to file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction.
“Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the purchase price of
property or services (including, without limitation, “capital leases” in accordance with generally accepted accounting principles) (other than trade payables entered into in the
ordinary course of business), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations
evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses,
(E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets
acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or
in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become
liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through
(G) above. “Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease,
dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the
obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto. “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust,
an unincorporated organization, any other entity and a government or any department or agency thereof.
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(t) Absence of Litigation.
Except as disclosed in the SEC Documents or as set forth in Schedule 3(t), there is no action, suit, proceeding, inquiry or investigation before or by the Principal Market, any
court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company or any
of its subsidiaries, the Ordinary Shares or any of the Company’s or its subsidiaries’ executive officers or directors which would be reasonably likely to adversely affect the
transactions contemplated by this Agreement or would require disclosure in the SEC Documents, except as otherwise disclosed in the SEC Documents. There has not been, and
to the knowledge of the Company, there is not pending or contemplated, any investigation by the SEC involving the Company, any of its subsidiaries or any current or former
director or officer of the Company or any of its subsidiaries. The SEC has not issued any stop order or other order suspending the effectiveness of any registration statement
filed by the Company under the 1933 Act or the 1934 Act.
(u) Insurance.
The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the
Company believes to be prudent and customary in the businesses in which the Company and its subsidiaries are engaged. Neither the Company nor any such subsidiary has
been refused any insurance coverage sought or applied for, and the Company has no reason to believe that it will be unable to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.
(v) Employee Relations.
Neither the Company nor any of its subsidiaries is a party to any collective bargaining agreement nor does it employ any member of a union. No executive officer (as defined in
Rule 501(f) promulgated under the 1933 Act) or other key employee of the Company or any of its subsidiaries has notified the Company or any such subsidiary that such
officer intends to leave the Company or any such subsidiary or otherwise terminate such officer’s employment with the Company or any such subsidiary. To the knowledge of
the Company, no executive officer or other key employee of the Company or any of its subsidiaries is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer or other key employee (as the case may be) does not subject the Company or any of its subsidiaries to
any liability with respect to any of the foregoing matters. The Company and its subsidiaries are in compliance with all federal, state, local and foreign laws and regulations
respecting labor, employment and employment practices and benefits, terms and conditions of employment and wages and hours, except where failure to be in compliance
would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.
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(w) Title.
The Company and its subsidiaries have good and marketable title to (i) all real property owned by it and (ii) all personal property, owned by them which is material to the
business of the Company and its subsidiaries, in each case, free and clear of all liens, encumbrances and defects except such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made of such property by the Company and any of its subsidiaries. Any real property and facilities held
under lease by the Company and any of its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and buildings by the Company or any of its subsidiaries.
(x) Intellectual Property Rights.
The Company and its subsidiaries own or possess adequate rights or licenses to use all material trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, original works, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all
applications and registrations therefor (“Intellectual Property Rights”) necessary to conduct their respective businesses as now conducted and as presently proposed to be
conducted. Except as disclosed in the SEC Documents, none of the Company’s or its subsidiaries’ Intellectual Property Rights have expired, terminated or been abandoned, or
are expected to expire, terminate or be abandoned, within three years from the date of this Agreement, which could reasonably be expected to result in a Material Adverse
Effect. The Company has no knowledge of any material infringement by the Company or any of its subsidiaries of Intellectual Property Rights of others, except as disclosed in
the SEC Documents. There is no claim, action or proceeding being made or brought, or to the knowledge of the Company or any of its subsidiaries, being threatened, against the
Company or any of its subsidiaries regarding their Intellectual Property Rights and which would reasonably be expected to have a Material Adverse Effect, except as disclosed
in the SEC Documents. The Company is not aware of any facts or circumstances which might give rise to any of the foregoing infringements or claims, actions or proceedings.
The Company each of its subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their Intellectual Property Rights, except
where failure to take such measures would not, either individually or in the aggregate, reasonably be expected to materially affect the value of their respective Intellectual
Property Rights.
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(y) Environmental Laws.
The Company and its subsidiaries (i) are in compliance with all Environmental Laws (as defined below), (ii) have received all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect. “Environmental Laws” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands
or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.
(z) Subsidiary Rights.
The Company or one of its subsidiaries has unrestricted right to vote, and (subject to limitations imposed by applicable law) to receive dividends and distributions on, all capital
securities of its subsidiaries as owned by the Company or such subsidiary.
(aa) Tax Status.
Except for occurrences that would not, either individually or in the aggregate, reasonably be expected to result in a material tax liability, each of the Company and its
subsidiaries (i) has timely made or filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject,
(ii) has timely paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to
the periods to which such returns, reports or declarations apply and except in each case where the failure to file, pay or set aside could not be reasonably expected to have a
Material Adverse Effect. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company and it
subsidiaries know of no basis for any such claim. The Company is not operated in such a manner as to qualify as a passive foreign investment company, as defined in Section
1297 of the U.S. Internal Revenue Code of 1986, as amended.
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(bb) Internal Accounting and Disclosure Controls.
Except as disclosed in the SEC Documents, the Company and each of its subsidiaries maintains internal control over financial reporting (as such term is defined in
Rule 13a-15(f) under the 1934 Act) that is effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles, including that (i) transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to
maintain asset and liability accountability, (iii) access to assets or incurrence of liabilities is permitted only in accordance with management’s general or specific authorization
and (iv) the recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals and appropriate action is taken with
respect to any difference. Except as disclosed in the SEC Documents, the Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e)
under the 1934 Act) that are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the 1934 Act is recorded,
processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, including, without limitation, controls and procedures designed to
ensure that information required to be disclosed by the Company in the reports that it files or submits under the 1934 Act is accumulated and communicated to the Company’s
management, including its principal executive officer or officers and its principal financial officer or officers, as appropriate, to allow timely decisions regarding required
disclosure. Except as disclosed in the SEC Documents, neither the Company nor any of its subsidiaries has received any notice or correspondence from any accountant or other
Person relating to any potential material weakness or significant deficiency in any part of the internal controls over financial reporting of the Company or any of its subsidiaries.
There are no material disagreements presently existing, or reasonably anticipated by the Company to arise, between the accountants and lawyers formerly or presently
employed by the Company.
(cc) Off Balance Sheet Arrangements.
There is no transaction, arrangement, or other relationship between the Company or any of its subsidiaries and an unconsolidated or other off balance sheet entity that is
required to be disclosed by the Company in the SEC Documents and is not so disclosed or that otherwise could be reasonably likely to have a Material Adverse Effect.
(dd) Investment Company Status.
The Company is not, and upon consummation of the sale of the Securities will not be, an “investment company,” an affiliate of an “investment company,” a company controlled
by an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company” as such terms are defined in the Investment
Company Act of 1940, as amended.
(ee) Acknowledgement. The Company acknowledges that sales of Ordinary Shares by each Buyer following the effectiveness of the Registration Statement or pursuant
to Rule 144 or otherwise pursuant to an exemption from registration may reduce the price of the Ordinary Shares. None of the foregoing shall constitute a breach of this
Agreement or any other obligation of such Buyer.
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(ff) Manipulation of Price.
The Company has not, and, to the knowledge of the Company, no Person acting on its behalf has, directly or indirectly, (i) taken any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any
compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other
securities of the Company.
(gg) U.S. Real Property Holding Corporation.
Neither the Company nor any of its subsidiaries is or has ever been, and so long as any of the Securities are held by any Buyer, shall not become, a U.S. real property
holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company and each subsidiary shall so certify upon any
Buyer’s request.
(hh) No Disqualification Events. None of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company
participating in the offering contemplated hereby, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting
power, nor any promoter (as that term is defined in Rule 405 under the 1933 Act) connected with the Company in any capacity at the time of sale (each, an “ Issuer Covered
Person”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the 1933 Act (a “Disqualification Event”), except for a
Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a
Disqualification Event.
(ii) Transfer Taxes. On the Closing Date, all stock transfer or other taxes (other than income or similar taxes) which are required to be paid in connection with the
issuance, sale and transfer of the Securities to be sold to any Buyer hereunder will be, or will have been, fully paid or provided for by the Company, and all laws imposing such
taxes will be or will have been complied with.
(jj) Bank Holding Company Act. The Company is not subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of
Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor any of its affiliates owns or controls, directly or indirectly, five percent (5%) or
more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any equity that is subject to the BHCA and
to regulation by the Federal Reserve. Neither the Company nor any of its affiliates exercises a controlling influence over the management or policies of a bank or any entity that
is subject to the BHCA and to regulation by the Federal Reserve.
(kk) Shell Company Status. The Company is not, and has never been, an issuer identified in, or subject to, Rule 144(i).
(ll) Public Utility Holding Act. The Company is not a “holding company,” or an “affiliate” of a “holding company,” as such terms are defined in the Public Utility
Holding Act of 2005.
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(mm) Federal Power Act. The Company is not subject to regulation as a “public utility” under the Federal Power Act, as amended.
(nn) Fixtures and Equipment. Each of the Company and its subsidiaries (as applicable) has good title to, or a valid leasehold interest in, the tangible personal property,
equipment, improvements, fixtures, and other personal property and appurtenances that are used by the Company or its subsidiary in connection with the conduct of its business
(the “Fixtures and Equipment”). The Fixtures and Equipment are structurally sound, are in good operating condition and repair, are adequate for the uses to which they are
being put, are not in need of maintenance or repairs except for ordinary, routine maintenance and repairs and are sufficient for the conduct of the Company’s and/or its
subsidiaries’ businesses (as applicable) in the manner as conducted prior to the Closing. Each of the Company and its Subsidiaries owns all of its Fixtures and Equipment free
and clear of all Encumbrances except for (a) liens for current taxes not yet due and (b) zoning laws and other land use restrictions that do not impair the present or anticipated
use of the property subject thereto.
(oo) Illegal or Unauthorized Payments; Political Contributions. Neither the Company nor any of its subsidiaries nor, to the best of the Company’s knowledge (after
reasonable inquiry of its executive officers and directors), any of the officers, directors, employees, agents or other representatives of the Company or any of its subsidiaries or
any other business entity or enterprise with which the Company or any of its subsidiaries is or has been affiliated or associated, has, directly or indirectly, made or authorized
any payment, contribution or gift of money, property, or services, whether or not in contravention of applicable law, (a) as a kickback or bribe to any Person or (b) to any
political organization, or the holder of or any aspirant to any elective or appointive public office except for personal political contributions not involving the direct or indirect
use of funds of the Company or any of its subsidiaries.
(pp) Money Laundering. The Company and its subsidiaries are in compliance with, and have not previously violated, the USA Patriot Act of 2001 and all other
applicable U.S. and non-U.S. anti-money laundering laws and regulations, including, without limitation, the laws, regulations and Executive Orders and sanctions programs
administered by the U.S. Office of Foreign Assets Control, including, without limitation, (i) Executive Order 13224 of September 23, 2001 entitled, “Blocking Property and
Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism” (66 Fed. Reg. 49079 (2001)); and (ii) any regulations contained in 31 CFR,
Subtitle B, Chapter V.
(qq) Registration Rights. Except as disclosed in the SEC Documents or as set forth in the Schedule 4(qq), no holder of securities of the Company has rights to the
registration of any securities of the Company because of the filing of the Registration Statement or the issuance of the Securities hereunder that could expose the Company to
material liability or any Buyer to any liability or that could impair the Company’s ability to consummate the issuance and sale of the Securities in the manner, and at the times,
contemplated hereby, which rights have not been waived by the holder thereof as of the date hereof.
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(rr) Disclosure. The Company confirms that neither it nor any other Person acting on its behalf has provided any Buyer or their agents or counsel with any information
that constitutes or could reasonably be expected to constitute material, non-public information concerning the Company or any of its subsidiaries, other than the existence of the
transactions contemplated by this Agreement and the other Transaction Documents. The Company understands and confirms that Buyers will rely on the foregoing
representations in effecting transactions in securities of the Company. All disclosure provided to any Buyer regarding the Company, its subsidiaries, their respective businesses
and the transactions contemplated hereby, including the schedules to this Agreement, furnished by or on behalf of the Company or any of its subsidiaries is true and correct in all
material respects and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. Each press release issued by the Company during the twelve (12) months preceding the date of this
Agreement did not at the time of release contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they are made, not misleading. No event or circumstance has occurred or information exists with respect to
the Company or any of its subsidiaries or their respective businesses, properties, liabilities, prospects, operations (including results thereof) or conditions (financial or
otherwise), which, under applicable law, rule or regulation, requires public disclosure at or before the date hereof or announcement by the Company but which has not been so
publicly disclosed. The Company acknowledges and agrees that each Buyer makes no and has not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 2.
4. COVENANTS.
(a) Registration Statement.
The Company shall file with the SEC within ten (10) calendar days from the date hereof a new registration statement covering the sale of the Securities by the Buyers, as set
forth further on the Buyer Schedules, in accordance with the terms of the Registration Rights Agreement between the Company and the Buyers, dated as of the date hereof.
(b) Form D and Blue Sky.
The Company shall file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to each Buyer promptly after filing. The Company
shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to, qualify the Securities
for sale to each Buyer at the Closing pursuant to this Agreement under applicable securities or “Blue Sky” laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide confirmation of any such action, if applicable, so taken to such Buyer on or prior to such Closing Date. Without limiting any other
obligation of the Company under this Agreement, the Company shall timely make all filings and reports relating to the offer and sale of the Securities required under all
applicable securities laws (including, without limitation, all applicable federal securities laws and all applicable “Blue Sky” laws), and the Company shall comply with all
applicable federal, foreign, state and local laws, statutes, rules, regulations and the like relating to the offering and sale of the Securities to such Buyer.
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(c) Reporting Status.
Until the date on which the Buyers shall have sold all of the Registrable Securities (the “Reporting Period”), the Company shall file all reports required to be filed with the
SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would no longer require or otherwise permit such termination.
(d) Use of Proceeds.
The Company shall use the proceeds from the sale of the Securities for general corporate purposes.
(e) Financial Information.
The Company agrees to send the following to each Buyer during the Reporting Period unless the following are filed with the SEC through EDGAR and are available to
the public through the EDGAR system, (i) within one (1) Business Day after the filing thereof with the SEC, a copy of its Annual Reports on Form 20-F and Reports of Foreign
Private Issuers on Form 6-K, any interim reports or any consolidated balance sheets, income statements, stockholders’ equity statements and/or cash flow statements for any
period other than annual, any Reports of Foreign Private Issuers on Form 6-K and any registration statements (other than on Form S-8) or amendments filed pursuant to the 1933
Act, (ii) on the same day as the release thereof, facsimile copies of all press releases issued by the Company and (iii) copies of any notices and other information made available
or given to the stockholders of the Company generally, contemporaneously with the making available or giving thereof to the stockholders.
(f) Listing.
The Company shall use its commercially reasonable efforts to promptly secure the listing or designation for quotation (as the case may be) of all of the Registrable Securities
consisting of Ordinary Shares upon each trading market and national securities exchange and automated quotation system, if any, upon which the Ordinary Shares are then listed
or designated for quotation (as the case may be) (so that all such Registrable Securities consisting of Ordinary Shares may be traded on the foregoing, subject to official notice
of issuance) (but in no event later than the Closing Date) and shall maintain such listing or designation for quotation (as the case may be) of all Registrable Securities from time
to time issuable under the terms of the Transaction Documents on such national securities exchange or automated quotation system. The Company shall use its commercially
reasonable efforts to maintain the Ordinary Shares’ listing or designation for quotation (as the case may be) on the Principal Market, The New York Stock Exchange, the NYSE
Amex, the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market (each, an “Eligible Market”). The Company shall not take any action which
could be reasonably expected to result in the delisting or suspension of the Ordinary Shares on an Eligible Market. The Company shall pay all fees and expenses in connection
with satisfying its obligations under this Section 4(e).
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(g) Fees.
The Company shall be responsible for the payment of any placement agent’s fees, financial advisory fees, transfer agent fees, DTC fees or broker’s commissions,
relating to or arising out of the transactions contemplated hereby. The Company shall pay, and hold each Buyer harmless against, any liability, loss or expense (including,
without limitation, reasonable attorneys’ fees and out-of-pocket expenses) arising in connection with any claim relating to any such payment. Except as otherwise set forth in the
Transaction Documents, each party to this Agreement shall bear its own expenses in connection with the sale of the Securities to each Buyer.
(h) Pledge of Securities.
Notwithstanding anything to the contrary contained in this Agreement, the Company acknowledges and agrees that the Securities may be pledged by each Buyer in connection
with a bona fide margin agreement or other loan or financing arrangement that is secured by the Securities. The pledge of Securities shall not be deemed to be a transfer, sale or
assignment of the Securities hereunder, and each Buyer effecting a pledge of Securities shall not be required to provide the Company with any notice thereof or otherwise make
any delivery to the Company pursuant to this Agreement or any other Transaction Document. At each Buyer’s expense, the Company hereby agrees to execute and deliver such
documentation as a pledgee of the Securities may reasonably request in connection with a pledge of the Securities to such pledgee by each Buyer provided that the Company
shall be under no obligation to deliver any legal opinion required in connection therewith unless required by the Company’s transfer agent to be issued by the Company’s legal
counsel.
(i) Disclosure of Transactions and Other Material Information.
The Company shall, on or before 8:30 a.m., New York time, on the first (1st) Business Day after the date of this Agreement, file a Current Report on Form 6-K
describing all the material terms of the transactions contemplated by the Transaction Documents in the form required by the 1934 Act and attaching all the material Transaction
Documents (including, without limitation, this Agreement and the form of each of the Warrants) (including all attachments, the “ 6-K Filing”). From and after the date of the 6-
K Filing, the Company shall have disclosed all material, non-public information (if any) delivered to each Buyer by the Company, or any of its officers, directors, employees or
agents in connection with the transactions contemplated by the Transaction Documents. The Company shall not, and the Company shall cause each of its officers, directors,
employees and agents not to, provide each Buyer with any material, non-public information regarding the Company from and after the date of the 6-K Filing without the express
prior written consent of such Buyer. Subject to the foregoing, neither the Company nor any Buyer shall issue any press releases or any other public statements with respect to the
transactions contemplated hereby; provided, however, the Company shall be entitled, without the prior approval of each Buyer, to make any press release or other public
disclosure with respect to such transactions (i) in substantial conformity with the 6-K Filing and contemporaneously therewith and (ii) as is required by applicable law and
regulations (provided that in the case of clause (i) such Buyer shall be consulted by the Company in connection with any such press release or other public disclosure prior to its
release). Without the prior written consent of each Buyer, the Company shall not (and shall cause each of its affiliates to not) disclose the name of such Buyer in any filing
(other than the 6-K Filing or any filing that incorporates language from the 6-K Filing and other than the Registration Statement and other than as required by applicable law or
rules and regulations), announcement, release or otherwise. Notwithstanding anything contained in this Agreement to the contrary and without implication that the contrary
would otherwise be true, the Company expressly acknowledges and agrees that each Buyer has not had, and such Buyer shall not have (unless expressly agreed to by such
Buyer after the date hereof in a written definitive and binding agreement executed by the Company and such Buyer), any duty of confidentiality with respect to, or a duty not to
trade on the basis of, any information regarding the Company or any of its subsidiaries (as applicable) that such Buyer receives from the Company, any of its subsidiaries or any
of its or its officers, directors, employees, stockholders or agents.
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(j) Additional Registration Statements. Until the Applicable Date (as defined below), except as set forth in Schedule 4(j), the Company shall not file a registration
statement under the 1933 Act relating to securities (including, without limitation, Excluded Securities as defined below) that are not the Registrable Securities. “Applicable
Date” means the 30th day anniversary of the first date on which the resale by the Buyers of all Registrable Securities is covered by one or more effective Registration
Statements (as defined in the Registration Rights Agreement) (and each prospectus contained therein is available for use on such date). Notwithstanding the foregoing, this
Section 4(i) shall be of no further force or effect in the event that the failure to register the Registrable Securities is primarily due to information related to any Buyer and/or
actions or events within the reasonable control of any Buyer.
(k) Additional Issuance of Securities. The Company agrees that for the period commencing on the date hereof and ending on the date immediately following the 90th
day after the Initial Registration Statement has been declared effective by the SEC (the “Restricted Period”), the Company shall not directly or indirectly issue, offer, sell,
grant any option or right to purchase, or otherwise dispose of (or announce any issuance, offer, sale, grant of any option or right to purchase or other disposition of) any equity
security or any equity-linked or related security (including, without limitation, any “equity security” (as that term is defined under Rule 405 promulgated under the 1933 Act),
any convertible securities, debt (with or related to equity), any preferred stock or any purchase rights) (“Additional Issuance”). Notwithstanding the foregoing, this Section
4(k) shall not apply in respect of the issuance of the following: (i) Ordinary Shares or standard options to purchase Ordinary Shares to directors (who are also employees of the
Company), officers, employees or consultants of the Company pursuant to an Approved Share Plan (as defined below) or otherwise as approved by the board of directors and to
directors of the Company who are not also employees of the Company, in each case, in their capacity as such, provided that the exercise price of any such options is not
lowered, none of such options are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such options are otherwise
materially changed in any manner that adversely affects any Buyer; (ii) Ordinary Shares issued upon the conversion or exercise of Convertible Securities (other than standard
options to purchase Ordinary Shares issued pursuant to an Approved Share Plan that are covered by clause (i) above) issued prior to the date hereof, provided that the
conversion or exercise (as the case may be) of any such Convertible Security is made solely pursuant to the conversion or exercise (as the case may be) provisions of such
Convertible Security that were in effect on the date immediately prior to the date of this Agreement, the conversion or exercise price of any such Convertible Securities (other
than standard options to purchase Ordinary Shares issued pursuant to an Approved Share Plan that are covered by clause (i) above) is not lowered, none of such Convertible
Securities are (other than standard options to purchase Ordinary Shares issued pursuant to an Approved Share Plan that are covered by clause (i) above) (nor is any provision of
any such Convertible Securities) amended or waived in any manner (whether by the Company or the holder thereof) to increase the number of shares issuable thereunder and
none of the terms or conditions of any such Convertible Securities (other than standard options to purchase Ordinary Shares issued pursuant to an Approved Share Plan that are
covered by clause (i) above) are otherwise materially changed or waived (whether by the Company or the holder thereof) in any manner that adversely affects any Buyer; (iii)
the Warrants; (iv) the Warrant Shares; (v) any securities set forth on Schedule 4(k); and (vi) any restricted securities (as defined in Rule 144) for which a resale registration
statement under the 1933 Act does not become effective during the Restricted Period (for the avoidance of doubt, registration statements may be filed in regard to such
restricted securities; provided that the Company shall cause no such registration statement to become effective during the Restricted Period; the above securities in clauses (i)-
(v) being the “Excluded Securities”). “Approved Share Plan” means any employee benefit plan which has been approved by the board of directors of the Company prior to
or subsequent to the date hereof pursuant to which Ordinary Shares and standard options to purchase Ordinary Shares may be issued to any employee, officer, director or
consultant for services provided to the Company in their capacity as such. “Convertible Securities” means any capital stock or other security of the Company that is at any time
and under any circumstances directly or indirectly convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any capital stock
or other security of the Company (including, without limitation, Ordinary Shares). The Company further agrees that, without prior consent of each Buyer, except as set forth on
Schedule 4(k), until the earlier of (A) twelve (12) months after the date on which the Registration Statement is declare effective or (B) the date on which all Buyers have sold or
disposed of all Securities, the Company will not issue any floating conversion rate or variable priced securities convertible into Ordinary Shares.
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(l) Lock-Up Period. During the Restricted Period, the Company will cause each of its directors and officers listed on Exhibit D attached hereto or, where the Ordinary
Shares or other securities referred to below are held by an entity represented by the relevant director or officer rather than by the director or officer himself, cause such entity to
furnish, prior to the Closing Date, a letter pursuant to which each such person shall agree not to directly or indirectly offer, sell, assign, transfer, pledge, contract to sell, or
otherwise transfer or dispose of any Ordinary Shares or securities convertible into or exercisable or exchangeable for Ordinary Shares or enter into any derivative or other
transaction having substantially similar economic effect with respect to the shares of the Company or any such securities or announce publicly their intention to do any of the
foregoing during the Restricted Period, without the prior written consent of each Buyer, subject to customary exceptions.
(m) Reservation of Shares. As long as any of the Warrants remain outstanding, the Company shall take all action necessary to at all times have authorized and reserved
for the purpose of issuance, no less than 200% of the Ordinary Shares issuable upon exercise of the Warrants (Warrants are exercisable in full and without regard to any
limitations on the exercise of the Warrants set forth therein).
(n) Conduct of Business. The business of the Company shall not be conducted in violation of any law, ordinance or regulation of any governmental entity, except
where such violations would not result, either individually or in the aggregate, in a Material Adverse Effect.
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(o) Passive Foreign Investment Company. The Company shall conduct its business in such a manner as will ensure that the Company will not be deemed to constitute a
passive foreign investment company within the meaning of Section 1297 of the U.S. Internal Revenue Code of 1986, as amended.
(p) Corporate Existence. So long as any Buyer owns any Warrants, the Company shall not be party to any Fundamental Transaction (as defined in the Warrants) unless
the Company is in compliance with the applicable provisions governing Fundamental Transactions set forth in the Warrants.
(q) Activity Restrictions. For so long as any Buyer or any of its Affiliates holds any Securities, neither such Buyer nor any of its Affiliates will: (i) engage or
participate in any actions, plans or proposals which relate to or would result in (a) acquiring additional securities of the Company, alone or together with any other Person, which
would result in beneficially owning or controlling, or being deemed to beneficially own or control, more than 9.9% of the total outstanding Ordinary Shares or other voting
securities of the Company, (b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving Company, (c) a sale or transfer of a material
amount of assets of the Company, (d) any change in the present board of directors or management of the Company, including any plans or proposals to change the number or
term of directors or to fill any existing vacancies on the board, (e) any material change in the present capitalization or dividend policy of the Company, (f) any other material
change in the Company’s business or corporate structure, (g) changes in the Company’s charter, bylaws or instruments corresponding thereto or other actions which may
impede the acquisition of control of the Company by any Person, (h) causing a class of securities of the Company to be delisted from a national securities exchange or to cease
to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association, (i) a class of equity securities of the Company becoming eligible
for termination of registration pursuant to Section 12(g)(4) of the Act, or (j) any action, intention, plan or arrangement similar to any of those enumerated above, or (ii) request
the Company or its directors, officers, employees, agents or representatives to amend or waive any provision of this Section 4(q); provided, however, that notwithstanding
anything to the contrary contain in clauses (i) and (ii) above, each Buyer may vote any Ordinary Shares owned or controlled by it, solicit any proxies, or seek to advise or
influence any Person with respect to any voting securities of the Company.
(r) Due Diligence. In connection with any reasonable request by any Buyer made in connection with the filing of the registration statement described in Section 4(a)
hereof, or any amendment or supplement thereto, such Buyer shall have the right, from time to time as such Buyer may reasonably deem appropriate, to perform reasonable due
diligence on the Company during normal business hours and subject to reasonable prior notice to the Company. The Company and its officers and employees shall provide
information (“Confidential Information”) and reasonably cooperate with such Buyer in connection with such Buyer’s due diligence; provided, however, that at no time is the
Company required or permitted to disclose material nonpublic information to such Buyer or breach any obligation of confidentiality or non-disclosure to a third party or make
any disclosure that could cause a waiver of attorney-client privilege. Except as may be required by law, court order or governmental authority, each party hereto agrees not to
disclose any Confidential Information of the other party to any third party and shall not use the Confidential Information of such other party for any purpose other than in
connection with, or in furtherance of, the transactions contemplated hereby. In the event a party is required by law, court order or governmental authority to disclose the
Confidential Information of the other party, such party shall give the other party written notice of the information to be disclosed as far in advance of its disclosure as
practicable and use its commercially reasonable efforts to obtain assurances that confidential treatment will be accorded such information. Each party hereto acknowledges that
the Confidential Information shall remain the property of the disclosing party and agrees that it shall take all reasonable measures to protect the secrecy of any Confidential
Information disclosed by the other party.
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5. REGISTER; TRANSFER AGENT INSTRUCTIONS; LEGEND.
(a) Register.
The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to each holder of
Securities), a register for the Warrants in which the Company shall record the name and address of the Person in whose name the Warrants have been issued (including the name
and address of each transferee) reflecting the Warrants held by such Person. The Company shall keep the register open and available at all times during business hours for
inspection by each Buyer or its legal representatives.
(b) Transfer Agent Instructions.
The Company shall issue irrevocable instructions to its transfer agent and any subsequent transfer agent in a form acceptable to each Buyer to issue certificates or credit shares
to the applicable balance accounts at The Depository Trust Company (“DTC”), registered in the name of such Buyer or its respective nominee(s), for the Warrant Shares in such
amounts as specified from time to time by such Buyer to the Company, and confirmed by the Company, upon the exercise of the Warrants (as the case may be). The Company
represents and warrants that no instruction other than such irrevocable transfer agent instructions referred to in this Section 5(b), and stop transfer instructions to give effect to
Section 2(g) hereof, will be given by the Company to its transfer agent with respect to the Securities, and that the Securities shall otherwise be freely transferable on the books
and records of the Company, as applicable, to the extent provided in this Agreement and the other Transaction Documents. If any Buyer effects a sale, assignment or transfer of
the Securities in accordance with Section 2(g), the Company shall permit the transfer and shall promptly instruct its transfer agent to issue one or more certificates or credit
shares to the applicable balance accounts at DTC in such name and in such denominations as specified by such Buyer to effect such sale, transfer or assignment. In the event that
such sale, assignment or transfer involves Warrant Shares sold, assigned or transferred pursuant to an effective registration statement or in compliance with Rule 144 or another
exemption from registration, the transfer agent shall issue such shares to such Buyer, assignee or transferee (as the case may be) without any restrictive legend in accordance
with Section 5(d) below. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to each Buyer. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this Section 5(b) will be inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5(b), that each Buyer shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach
and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. The Company shall cause
its counsel to issue the legal opinion referred to in the irrevocable transfer agent instructions to the Company’s transfer agent on the Effective Date (as defined in the Registration
Rights Agreement). Any fees (with respect to the transfer agent, counsel to the Company or otherwise) associated with the issuance of such opinion or the removal of any
legends on any of the Securities shall be borne by the Company.
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(c) Legends.
Each Buyer understands that the Securities have been issued (or will be issued in the case of the Conversion Shares and the Warrant Shares) pursuant to an exemption
from registration or qualification under the 1933 Act and applicable state securities laws, and except as set forth below, the Securities shall bear any legend as required by the
“blue sky” laws of any state and a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such stock certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH
THESE SECURITIES ARE EXERCISABLE HAVE BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN]
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE
HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
(d) Removal of Legends.
Certificates evidencing Securities shall not be required to contain the legend set forth in Section 5(c) above or any other legend (i) while a registration statement
(including a Registration Statement) covering the resale of such Securities is effective under the 1933 Act (provided that each Buyer provides the Company with any certificates
from such Buyer or its broker reasonably required by the Company’s transfer agent), (ii) following any sale of such Securities pursuant to Rule 144 (assuming the transferor is
not an affiliate of the Company) or a registration statement, (iii) if such Securities are eligible to be sold, assigned or transferred under Rule 144 without current public
information being available (provided that each Buyer provides the Company with reasonable assurances that such Securities are eligible for sale, assignment or transfer under
Rule 144, which shall not include an opinion of counsel, but which may include any certificates from such Buyer or its broker reasonably required by the Company’s transfer
agent), (iv) in connection with a sale, assignment or other transfer (other than under Rule 144), provided that each Buyer provides the Company with an opinion of counsel to
such Buyer from reputable counsel to the effect that such sale, assignment or transfer of the Securities may be made without registration under the applicable requirements of
the 1933 Act or (v) if such legend is not required under applicable requirements of the 1933 Act (including, without limitation, controlling judicial interpretations and
pronouncements issued by the SEC). If a legend is not required pursuant to the foregoing, the Company shall no later than five (5) Trading Days following the delivery by any
Buyer to the Company or the transfer agent (with notice to the Company) of a legended certificate representing such Securities (endorsed or with stock powers attached,
signatures guaranteed, and otherwise in form necessary to affect the reissuance and/or transfer, if applicable), together with any other deliveries from such Buyer as may be
required above in this Section 5(d), as directed by such Buyer, either: (A) provided that the Company’s transfer agent is participating in the DTC Fast Automated Securities
Transfer Program and such Securities are Warrant Shares, credit the aggregate number of Ordinary Shares to which each Buyer shall be entitled to such Buyer’s or its
designee’s balance account with DTC through its Deposit/Withdrawal at Custodian system or (B) if the Company’s transfer agent is not participating in the DTC Fast
Automated Securities Transfer Program, issue and deliver (via reputable overnight courier) to such Buyer, a certificate representing such Securities that is free from all
restrictive and other legends, registered in the name of such Buyer or its designee (the date by which such credit is so required to be made to the balance account of such Buyer’s
or Buyer’s nominee with DTC or such certificate is required to be delivered to such Buyer pursuant to the foregoing is referred to herein as the “Required Delivery Date”).
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(e) Failure to Timely Deliver; Buy-In.
If the Company fails to issue and deliver (or cause to be delivered) to any Buyer by the Required Delivery Date a certificate representing the Securities so delivered to
the Company by such Buyer that is free from all restrictive and other legends or credit the balance account of such Buyer’s or Buyer’s nominee with DTC for such number of
Securities so delivered to the Company, then, in addition to all other remedies available to such Buyer, at the sole discretion of such Buyer, the Company shall:
(i) pay in cash to such Buyer on each Trading Day after the Required Delivery Date that the issuance or credit of such shares is not timely effected an amount
equal to 1% of the product of (A) the number of Ordinary Shares not so delivered or credited (as the case may be) to such Buyer or Buyer’s nominee multiplied by (B) the
Closing Sale Price of the Ordinary Shares on the Trading Day immediately preceding the Required Delivery Date; or
(ii) if on or after the Required Delivery Date, such Buyer (or any other Person in respect, or on behalf, of such Buyer) purchases (in an open market transaction or
otherwise) Ordinary Shares to deliver in satisfaction of a sale by such Buyer of all or any portion of the number of Ordinary Shares, or a sale of a number of Ordinary Shares
equal to all or any portion of the number of Ordinary Shares, that such Buyer so anticipated receiving from the Company without any restrictive legend, then, within five (5)
Trading Days after such Buyer’s request and in such Buyer’s sole discretion, either (A) pay cash to such Buyer in an amount equal to such Buyer’s total purchase price
(including brokerage commissions and other out-of-pocket expenses, if any) for the Ordinary Shares so purchased (the “Buy-In Price”), at which point the Company’s
obligation to so deliver such certificate or credit such Buyer’s balance account shall terminate and such shares shall be cancelled, or (B) promptly honor its obligation to so
deliver to such Buyer a certificate or certificates or credit such Buyer’s DTC account representing such number of Ordinary Shares that would have been so delivered if the
Company timely complied with its obligations hereunder and pay cash to such Buyer in an amount equal to the excess (if any) of the Buy-In Price over the product of (1) such
number of Ordinary Shares that the Company was required to deliver to such Buyer by the Required Delivery Date multiplied by (2) the lowest Closing Sale Price (as defined in
the Warrants) of the Ordinary Shares on any Trading Day during the period commencing on the date of the delivery by such Buyer to the Company of the applicable Conversion
Shares or Warrant Shares (as the case may be) and ending on the date of such delivery and payment under this clause (B).
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(f) Manner of Sale.
Each Buyer, severally and not jointly with the other Buyers, agrees with the Company that such Buyer will sell any Securities pursuant to either the registration
requirements of the 1933 Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a registration
statement, they will be sold in compliance with the plan of distribution set forth therein substantially in the form set forth in Exhibit B to the Registration Rights Agreement, and
acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 5 is predicated upon the Company’s reliance upon
this understanding.
6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.
(a) The obligation of the Company hereunder to issue and sell the Ordinary Shares and the related Warrants to each Buyer at the Closing is subject to the satisfaction,
at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any
time in its sole discretion by providing each Buyer with prior written notice thereof:
(i) Each Buyer shall have executed each of the other Transaction Documents to which it is a party and delivered the same to the Company.
(ii) Each Buyer shall have delivered to the Company the Purchase Price for the Ordinary Shares and Warrants being purchased by such Buyer at the Closing by
wire transfer of immediately available funds pursuant to the wire instructions provided by the Company.
(iii) The representations and warranties of each Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date as
though originally made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such date), and such
Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by such Buyer at or prior to the Closing Date.
(iv) Each Buyer shall have executed and delivered, to the reasonable satisfaction of the Company, such questionnaires and documents in support thereof that the
Company and its agents deem reasonably necessary (or prudent) to comply with the requirements of Regulation D with respect to the transactions contemplated by this
Agreement.
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7. CONDITIONS TO BUYERS’ OBLIGATION TO PURCHASE.
(a) The obligation of each Buyer hereunder to purchase its Ordinary Shares and related Warrants at the Closing is subject to the satisfaction, at or before each
applicable Closing Date and in respect of each such Closing Date, of each of the following conditions, provided that these conditions are for each Buyer’s sole benefit and may
be waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof:
(i) The Company shall have duly executed and delivered to each Buyer each of the Transaction Documents to which it is a party and the Company shall have
duly executed and delivered to such Buyer the Ordinary Shares and Warrants as is set forth on the applicable Buyer Schedule and the Company shall have complied in
all respects with all obligations under this Agreement and the other Transaction Documents, including, without limitation, the Warrants. Notwithstanding the foregoing,
the Company shall be entitled to deliver executed copies of the Ordinary Share certificates at Closing, with an obligation to deliver the originals to such Buyer within five
(5) business days after the Closing.
(ii) The Company shall have delivered to each Buyer the search results from the companies register of the Australian Securities and Investments Commission
which shows the due incorporation of the Company.
(iii) The Company shall have delivered to each Buyer a certificate evidencing the Company’s qualification as a foreign corporation and good standing issued by
the Secretary of State (or comparable office) of each jurisdiction that provides such certificates and in which the Company conducts business and is required to so
qualify, each dated as of a date within ten (10) days of the Closing.
(iv) The Company shall have delivered to each Buyer a certificate, in the form previously provided to the Company by such Buyer, executed by the Secretary of
the Company and dated as of the Closing Date, as to (i) the resolutions consistent with Section 3(b) as adopted by the Company’s board of directors in a form reasonably
acceptable to such Buyer, and (ii) the certificate of incorporation and bylaws (or comparable charter documents) of the Company as in effect at the Closing.
(v) Each and every representation and warranty of the Company shall be true and correct in all material respects as of the date when made and as of the Closing
Date as though originally made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct in all material
respects as of such date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required
to be performed, satisfied or complied with by the Company at or prior to the Closing Date, including, without limitation the issuance of all Securities prior to the date of
such Closing as required by the Transaction Documents and the Company has a sufficient number of duly authorized Ordinary Shares reserved for issuance as may be
required to fulfill its obligations pursuant to the Transaction Documents. Each Buyer shall have received a certificate, executed by the Chief Executive Officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Buyer in the form reasonably
acceptable to such Buyer.
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(vi) The Company shall have delivered to each Buyer information from the Company’s transfer agent certifying the number of Ordinary Shares outstanding on
the Closing Date immediately prior to the Closing.
(vii) The Ordinary Shares (I) shall be designated for quotation on the Principal Market and (II) shall not have been suspended, as of the Closing Date, by the
SEC or the Principal Market from trading on the Principal Market; since April 26, 2018, the Company shall have complied (without regard to any extensions) with all
filing and reporting obligations under the federal securities laws; except as disclosed in the SEC Documents, the Company is in compliance with all requirements in
order to maintain quotation on the Principal Market (including reporting requirements under the 1934 Act).
(viii) The Company shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the sale of the Securities,
including without limitation, those required by the Principal Market.
(ix) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents, and no actions,
suits or proceedings shall be in progress or pending by any Person that seeks to enjoin, prohibit or otherwise adversely affect any of the transactions contemplated by the
Transaction Documents.
(x) Since the date of execution of this Agreement, no event or series of events shall have occurred that reasonably would have or result in a Material Adverse
Effect and the Company has not filed for nor is it subject to any bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under
any bankruptcy law or any law for the relief of debtors instituted by or against the Company.
(xi) The Company shall have delivered to each Buyer such other documents, instruments or certificates relating to the transactions contemplated by this
Agreement reasonably required to consummate the transactions contemplated hereby.4
4 NTD: Parties to confirm no broker fees payable at closing.
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8. TERMINATION.
In the event that the Closing shall not have occurred within ten (10) days after the date hereof, then each Buyer shall have the right to terminate its obligations under
this Agreement at any time on or after the close of business on such date without liability of such Buyer to any other party; provided, however, the right to terminate this
Agreement under this Section 8 shall not be available to such Buyer if the failure of the transactions contemplated by this Agreement to have been consummated by such date is
the result of such Buyer’s breach of this Agreement. Notwithstanding anything to the contrary above, nothing contained in this Section 8 shall be deemed to release any party
from any liability for any breach by such party of the terms and provisions of this Agreement or the other Transaction Documents or to impair the right of any party to compel
specific performance by any other party of its obligations under this Agreement or the other Transaction Documents.
9. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial.
All questions concerning the construction, validity, enforcement and interpretation of this Agreement and the other Transaction Documents shall be governed by the internal
laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that
would cause the application of the laws of any jurisdictions other than the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or under any of the other Transaction Documents or in
connection herewith or therewith or with any transaction contemplated hereby or thereby or discussed herein or therein, and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient
forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in
any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by
law. Nothing contained herein shall be deemed or operate to preclude any Buyer from bringing suit or taking other legal action against the Company in any other jurisdiction to
collect on the Company’s obligations to such Buyer or to enforce a judgment or other court ruling in favor of such Buyer. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER
OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(b) Counterparts.
This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party. In the event that any signature is delivered by facsimile transmission or by an e-mail which
contains a portable document format (.pdf) file of an executed signature page, such signature page shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such signature page were an original thereof.
34
(c) Headings; Gender.
The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. Unless the context clearly indicates
otherwise, each pronoun herein shall be deemed to include the masculine, feminine, neuter, singular and plural forms thereof. The terms “including,” “includes,” “include” and
words of like import shall be construed broadly as if followed by the words “without limitation.” The terms “herein,” “hereunder,” “hereof” and words of like import refer to
this entire Agreement instead of just the provision in which they are found.
(d) Severability.
If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that
would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or
unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express,
without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in
question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be
conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the
effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).
(e) Entire Agreement; Amendments.
This Agreement, the other Transaction Documents and the schedules and exhibits attached hereto and thereto and the instruments referenced herein and therein supersede all
other prior oral or written agreements between the Buyers, the Company, its affiliates and Persons acting on its behalf solely with respect to the matters contained herein and
therein, and this Agreement, the other Transaction Documents, the schedules and exhibits attached hereto and thereto and the instruments referenced herein and therein contain
the entire understanding of the parties solely with respect to the matters covered herein and therein. Except as specifically set forth herein or therein, neither the Company nor
any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. For clarification purposes, the Recitals are part of this Agreement. No
provision of this Agreement may be amended other than by an instrument in writing signed by the Company and each Buyer. No waiver shall be effective unless it is in writing
and signed by an authorized representative of the waiving party. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration also is offered to all of the parties to the Transaction Documents or all holders of the Warrants (as
the case may be). The Company has not, directly or indirectly, made any agreements with any Buyer relating to the terms or conditions of the transactions contemplated by the
Transaction Documents except as set forth in the Transaction Documents. Without limiting the foregoing, the Company confirms that, except as set forth in this Agreement, no
Buyer has made any commitment or promise or has any other obligation to provide any financing to the Company or otherwise. As a material inducement for each Buyer to
enter into this Agreement, the Company expressly acknowledges and agrees that (i) no due diligence or other investigation or inquiry conducted by any Buyer, any of its
advisors or any of its representatives shall affect such Buyer’s right to rely on, or shall modify or qualify in any manner or be an exception to any of, the Company’s
representations and warranties contained in this Agreement or any other Transaction Document and (ii) unless a provision of this Agreement or any other Transaction Document
is expressly preceded by the phrase “except as disclosed in the SEC Documents,” nothing contained in any of the SEC Documents shall affect any Buyer’s right to rely on, or
shall modify or qualify in any manner or be an exception to any of, the Company’s representations and warranties contained in this Agreement or any other Transaction
Document.
35
(f) Notices.
Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have
been delivered: (i) upon receipt, if delivered personally; (ii) when sent, if sent by e-mail (provided that such sent e-mail is kept on file (whether electronically or otherwise) by
the sending party and the sending party does not receive an automatically generated message from the recipient’s e-mail server that such e-mail could not be delivered to such
recipient) and (iii) if sent by overnight courier service, one (1) Business Day after deposit with an overnight courier service with next day delivery specified, in each case,
properly addressed to the party to receive the same. The addresses and e-mail addresses for such communications shall be:
If to the Company:
Naked Brand Group Limited
c/o Bendon Limited
Building 7B, Huntley Street
Alexandria
NSW 2015, Australia
Telephone: +61 2 9384 2400
Email Address: justin.davis@bendon.com
Attention: Chief Executive officer
With a copy (for informational purposes only) to:
Graubard Miller
The Chrysler Building
405 Lexington Ave., 11th Floor
New York, NY 10174
Telephone: (212) 818-8800
E-mail: dmiller@graubard.com
jgallant@graubard.com
Attention: David Alan Miller, Esq.
36
If to the Transfer Agent:
Continental Stock Transfer & Trust Company
1 State Street 30th Floor
New York, NY 10004-1561
Telephone: 212.845.3256
Email: agois@continentalstock.com
Attention: Ana Gois, Vice President & Account Administrator
If to a Buyer:
Acuitas Capital LLC
11601 Wilshire Blvd Suite 1100
Los Angeles, CA 90025
Telephone: (310) 444-4321
Facsimile: (888) 975-7712
Email: Patricia@credecg.com
Attention: Patricia Rouhafza
with a copy (for informational purposes only) to:
McDermott Will & Emery LLP
340 Madison Ave.
New York, NY 10173
Telephone: (212) 547-5585
E-mail: Rcohen@mwe.com
mblee@mwe.com
Attention: Robert Cohen, Esq.
or to such other address or e-mail address and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party five (5) days
prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication or (B) provided by
an overnight courier service shall be rebuttable evidence of personal service or receipt from an overnight courier service in accordance with clause (i) or (iii) above,
respectively. A copy of the e-mail transmission containing the time, date and recipient e-mail address shall be rebuttable evidence of receipt by e-mail in accordance with clause
(ii) above.
(g) Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the parties and its successors and assigns, including, as contemplated below, any assignee of any of the
Securities. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Buyers, including, without limitation, by
way of a Fundamental Transaction (as defined in the Warrants) (unless the Company is in compliance with the applicable provisions governing Fundamental Transactions set
forth in the applicable Warrants).
37
(h) No Third Party Beneficiaries.
This Agreement is intended for the benefit of the parties hereto and its permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, other than the Indemnitees referred to in Section 9(k).
(i) Survival.
The representations, warranties, agreements and covenants shall survive the Closing. Each Buyer shall be responsible only for its representations, warranties, agreements and
covenants hereunder.
(j) Further Assurances.
Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates,
instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
(k) Indemnification.
(i) In consideration of each Buyer’s execution and delivery of the Transaction Documents and acquiring the Securities thereunder and in addition to all of the
Company’s other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless such Buyer and each holder of any Securities
and all of their stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing Persons’ agents or other representatives
(including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “ Indemnitees”) from and against any and
all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and reasonable and documented expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the
“Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty
made by the Company in any of the Transaction Documents, (b) any breach of any covenant, agreement or obligation of the Company contained in any of the Transaction
Documents or (c) any cause of action, suit, proceeding or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action
brought on behalf of the Company, but other than by an affiliate of any Buyer) or which otherwise involves such Indemnitee that arises out of or results from (i) the execution,
delivery, performance or enforcement of any of the Transaction Documents, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the
proceeds of the issuance of the Securities, (iii) any disclosure properly made by any Buyer pursuant to Section 4(h), or (iv) the status of any Buyer or holder of the Securities
either as an investor in the Company pursuant to the transactions contemplated by the Transaction Documents or as a party to this Agreement (including, without limitation, as a
party in interest or otherwise in any action or proceeding for injunctive or other equitable relief), unless such action is based primarily upon a breach of such Buyer’s
representations, warranties, or covenants under the Transaction Documents, or any agreements or understandings such Buyer may have with any such third party, or any
violations by such Buyer of state or federal securities laws or any conduct by such Buyer which constitutes fraud, gross negligence or willful misconduct. To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law.
38
(ii) Promptly after receipt by an Indemnitee under this Section 9(k) of notice of the commencement of any action or proceeding (including any governmental
action or proceeding) involving an Indemnified Liability, such Indemnitee shall, if a claim in respect thereof is to be made against the Company under this Section 9(k), deliver
to the Company a written notice of the commencement thereof, and the Company shall have the right to participate in, and, to the extent the Company so desires, to assume
control of the defense thereof with counsel mutually satisfactory to the Company and the Indemnitee; provided, however, that an Indemnitee shall have the right to retain its
own counsel with the fees and expenses of such counsel to be paid by the Company if: (i) the Company has agreed in writing to pay such fees and expenses; (ii) the Company
shall have failed promptly to assume the defense of such Indemnified Liability and to employ counsel reasonably satisfactory to such Indemnitee in any such Indemnified
Liability; or (iii) the named parties to any such Indemnified Liability (including any impleaded parties) include both such Indemnitee and the Company, and such Indemnitee
shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnitee and the Company (in which case, if such
Indemnitee notifies the Company in writing that it elects to employ separate counsel at the expense of the Company, then the Company shall not have the right to assume the
defense thereof and such counsel shall be at the expense of the Company), provided further, that in the case of clause (iii) above the Company shall not be responsible for the
reasonable fees and expenses of more than one (1) separate legal counsel for such Indemnitee. The Indemnitee shall reasonably cooperate with the Company in connection with
any negotiation or defense of any such action or Indemnified Liability by the Company and shall furnish to the Company all information reasonably available to the Indemnitee
which relates to such action or Indemnified Liability. The Company shall keep the Indemnitee reasonably apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. The Company shall not be liable for any settlement of any action, claim or proceeding effected without its prior written consent, provided,
however, that the Company shall not unreasonably withhold, delay or condition its consent. The Company shall not, without the prior written consent of the Indemnitee,
consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnitee of a release from all liability in respect to such Indemnified Liability or litigation, and such settlement shall not include any admission as to fault on
the part of the Indemnitee. Following indemnification as provided for hereunder, the Company shall be subrogated to all rights of the Indemnitee with respect to all third parties,
firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the Company within a reasonable time of the
commencement of any such action shall not relieve the Company of any liability to the Indemnitee under this Section 9(k), except to the extent that the Company is materially
and adversely prejudiced in its ability to defend such action.
defense, as and when bills are received or Indemnified Liabilities are incurred.
(iii) The indemnification required by this Section 9(k) shall be made by periodic payments of the amount thereof during the course of the investigation or
39
pursuant to this Section 9(k) shall not exceed 100% of the aggregate Purchase Price actually paid by the Buyers.
(iv) Notwithstanding any provision in this Agreement or any other Transaction Documents, the aggregate indemnification obligations of the Company
(v) The sole and exclusive remedies for any breach of any representation, warranty, covenant or agreement hereunder shall be the indemnification provided by
this Section 9(k), and each Buyer expressly waives any other rights or remedies it may have; provided however, that equitable relief, including remedies of specific performance
and injunction, shall be available with respect to any matter where money damages would not be sufficient to compensate any Buyer or to preserve the rights of such Buyer
pending resolution of a dispute, and this Section 9(k) shall not relieve the Company from liability for willful misconduct, gross negligence, bad faith, fraud or willful breach of
any of its representations, warranties, covenants or agreements set forth in this Agreement.
(l) Construction.
The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied
against any party. No specific representation or warranty shall limit the generality or applicability of a more general representation or warranty. Each and every reference to
share prices, Ordinary Shares and any other numbers in this Agreement that relate to the Ordinary Shares shall be automatically adjusted for stock dividends, stock splits, stock
combinations and other similar transactions that occur with respect to the Ordinary Shares after the date of this Agreement.
(m) Remedies.
Each Buyer and each holder of any Securities shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the rights which such holders have under any law. Any Person having any rights under any provision
of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security, to the extent permitted by law), to recover damages by reason of
any breach of any provision of this Agreement and to exercise all other rights granted by law. Furthermore, the Company recognizes that in the event that it fails to perform,
observe, or discharge any or all of its obligations under the Transaction Documents, any remedy at law may prove to be inadequate relief to each Buyer. The Company
therefore agrees that each Buyer shall be entitled to seek specific performance and/or temporary, preliminary and permanent injunctive or other equitable relief from any court
of competent jurisdiction in any such case without the necessity of proving actual damages and without posting a bond or other security.
(n) Exercise of Right.
Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever each Buyer exercises a right,
election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Buyer
may continue to exercise it other rights, elections, demands and options hereunder and under any other Transaction Document from time to time as if such original right,
election, demand or option had not been exercised without prejudice to its future actions and rights and remedies.
(o) Payment Set Aside; Currency.
To the extent that the Company makes a payment or payments to any Buyer hereunder or pursuant to any of the other Transaction Documents or any Buyer enforces or exercises
its rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to
be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other
Person under any law (including, without limitation, any bankruptcy law, foreign, state or federal law, common law or equitable cause of action), then to the extent of any such
restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred. Unless otherwise expressly indicated, all dollar amounts referred to in this Agreement and the other Transaction Documents are in
United States Dollars (“U.S. Dollars”), and all amounts owing under this Agreement and all other Transaction Documents shall be paid in U.S. Dollars. All amounts
denominated in other currencies (if any) shall be converted into the U.S. Dollar equivalent amount in accordance with the Exchange Rate on the date of calculation. “Exchange
Rate” means, in relation to any amount of currency to be converted into U.S. Dollars pursuant to this Agreement, the U.S. Dollar exchange rate as published in the Wall Street
Journal on the relevant date of calculation.
[signature pages follow]
40
IN WITNESS WHEREOF, each Buyer and the Company has caused its signature page to this Agreement to be duly executed as of the date first written above.
COMPANY:
NAKED BRAND GROUP LIMITED
By:
Name:
Title: Director
/s/ Justin Davis-Rice
Justin Davis-Rice
[Signature page to Securities Purchase Agreement]
IN WITNESS WHEREOF, each Buyer and the Company has caused its signature page to this Agreement to be duly executed as of the date first written above.
BUYER:
ACUITAS CAPITAL LLC
/s/ Terren Peizer
By:
Name: Terren Peizer
Title: Authorized Representative
[Signature page to Securities Purchase Agreement]
IN WITNESS WHEREOF, each Buyer and the Company has caused its signature page to this Agreement to be duly executed as of the date first written above.
BUYER:
MANK CAPITAL LLC
By:
Name:
Title:
/s/ Jess Mogul
Jess Mogul
Partner
[Signature page to Securities Purchase Agreement]
IN WITNESS WHEREOF, each Buyer and the Company has caused its signature page to this Agreement to be duly executed as of the date first written above.
BUYER:
By:
Name:
/s/ James Fallon
James Fallon
[Signature page to Securities Purchase Agreement]
WARRANT
Exhibit 4.7.2
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF
COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), FROM REPUTABLE COUNSEL, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.
Warrant No.:
Date of Issuance: March 27, 2019 (“Issuance Date”)
NAKED BRAND GROUP LIMITED
Pre-Funded Warrant To Purchase Ordinary Shares
Naked Brand Group Limited, an Australian company (the “Company”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, , the registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the
Company, at the Exercise Price (as defined below) then in effect, upon exercise of this Warrant to Purchase Ordinary Shares (including any Warrants to Purchase Ordinary
Shares issued in exchange, transfer or replacement hereof, the “Warrant”), at any time or times on or after the Issuance Date, but not after 11:59 p.m., New York time, on the
Expiration Date (as defined below), (subject to adjustment as provided herein), fully paid and non-assessable Ordinary Shares (as defined below) (the “Warrant
Shares”, and such number of Warrant Shares initially issuable pursuant to this Warrant, as adjusted in accordance with Section 2, the “Warrant Share Count”). Except as
otherwise defined herein, capitalized terms in this Warrant shall have the meanings set forth in Section 16. This Warrant is one of the Warrants to purchase Ordinary Shares (the
“SPA Warrants”) issued to Holder in lieu of Ordinary Shares purchased and issuable to Holder that would cause Holder’s beneficial ownership of the Ordinary Shares of the
Company to exceed the Maximum Percentage, as defined in that certain Securities Purchase Agreement, dated as of March 27, 2019, by and among the Company and the
investor(s) thereunder (the “Buyer” or “Buyers” as applicable) referred to therein (the “Securities Purchase Agreement”), as further set forth in Section 1(f) of the Securities
Purchase Agreement.
1. EXERCISE OF WARRANT.
(a) Mechanics of Exercise. Subject to the terms and conditions hereof (including, without limitation, the limitations set forth in Section 1(f)), this Warrant may be
exercised by the Holder on any day on or after the Issuance Date in whole or in part, by delivery (whether via facsimile or otherwise) of a written notice, in the form attached
hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this Warrant. Within one (1) Trading Day following an exercise of this Warrant as aforesaid,
the Holder shall deliver payment to the Company of an amount equal to the Exercise Price in effect on the date of such exercise multiplied by the number of Warrant Shares as
to which this Warrant was so exercised (in respect of such specific exercise, the “Aggregate Exercise Price”) in cash or via wire transfer of immediately available funds if the
Holder did not notify the Company in such Exercise Notice that such exercise was made pursuant to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not be
required to deliver the original of this Warrant in order to effect an exercise hereunder. Execution and delivery of an Exercise Notice with respect to less than all of the Warrant
Shares shall have the same effect as cancellation of the original of this Warrant certificate and issuance of a new Warrant certificate evidencing the right to purchase the
remaining number of Warrant Shares. Execution and delivery of an Exercise Notice for all of the then-remaining Warrant Shares shall have the same effect as cancellation of
the original of this Warrant certificate after delivery of the Warrant Shares in accordance with the terms hereof. On or before the first (1 st) Trading Day following the date on
which the Company has received an Exercise Notice, the Company shall transmit by facsimile an acknowledgment of confirmation of receipt of such Exercise Notice, in the
form attached hereto as Exhibit B, to the Holder and the Company’s transfer agent (the “Transfer Agent”). On or before the fifth (5th) Trading Day following the date on which
the Company has received such Exercise Notice, the Company shall (i) provided that the Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast
Automated Securities Transfer Program (which the Company shall cause the Transfer Agent to do at Holder’s request) and provided the legends would be eligible to be
removed from such Ordinary Shares pursuant to Section 5(d) of the Securities Purchase Agreement, upon the request of the Holder, credit such aggregate number of Ordinary
Shares to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit/ Withdrawal at Custodian
system, or (ii) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program or the legends would not be eligible to be removed from such
Ordinary Shares pursuant to Section 5(d) of the Securities Purchase Agreement, issue and deliver to the Holder or, at the Holder’s instruction pursuant to the Exercise Notice,
the Holder’s agent or designee, in each case, sent by reputable overnight courier to the address as specified in the applicable Exercise Notice, a certificate, registered in the
Company’s share register in the name of the Holder or its designee (as indicated in the applicable Exercise Notice), for the number of Ordinary Shares to which the Holder is
entitled pursuant to such exercise. Upon delivery of an Exercise Notice, the Holder shall be deemed for all corporate purposes to have become the holder of record of the
Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Holder’s DTC account or the date of
delivery of the certificates evidencing such Warrant Shares (as the case may be). If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and
the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then, at the
request of the Holder and upon surrender hereof by the Holder at the principal office of the Company, the Company shall as soon as practicable and in no event later than three
(3) Business Days after any exercise and at its own expense, issue and deliver to the Holder (or its designee) a new Warrant (in accordance with Section 7(d)) representing the
right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this
Warrant is exercised. No fractional Ordinary Shares are to be issued upon the exercise of this Warrant, but rather the number of Ordinary Shares to be issued shall be rounded
up to the nearest whole number. The Company shall pay any and all taxes and fees which may be payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.
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(b) Exercise Price. For purposes of this Warrant, “Exercise Price” means $0.01, subject to adjustment as provided herein.
(c) Company’s Failure to Timely Deliver Securities. To the extent permitted by law, the Company’s obligations to issue and deliver the Ordinary Shares upon exercise
of the Warrant in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or
consent with respect to any provision hereof, the recovery of any judgment against any person or any action to enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the Holder or any other person of any obligation to the Company or any violation or alleged violation of law by the
Holder or any other person, and irrespective of any other circumstance that might otherwise limit such obligation of the Company to the Holder in connection with the issuance
of the Ordinary Shares. Nothing herein shall limit the Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver the Ordinary Shares issuable upon exercise of this Warrant as
required pursuant to the terms hereof.
(d) Cashless Exercise. Notwithstanding anything contained herein to the contrary (other than Section 1(f) below), at any time commencing sixty (60) days after the
Effective Date (as defined in the Securities Purchase Agreement), when the Exercise Price is higher than the previous day Closing Bid Price, the Holder may in its sole
discretion (and without limiting the Holder’s rights and remedies contained herein or in any of the other Transaction Documents (as defined in the Securities Purchase
Agreement)), exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in
payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the “Net Number” of Ordinary Shares determined according to the following formula (a
“Cashless Exercise”):
Net Number = (A x B)/C
For purposes of the foregoing formula:
A= the total number of shares with respect to which this Warrant is then being exercised.
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B= Black Scholes Value (as defined in Section 16 herein).
C= the Closing Bid Price of the Ordinary Shares as of two (2) Trading Days prior to the time of such exercise (as such Closing Bid Price is defined in Section
16 herein), but in any event not less than $0.10 (as may be adjusted for stock dividends, subdivisions, or combinations in the manner described in Section 2(a)
herein).
(e) Disputes. In the case of a dispute as to the determination of the Exercise Price, Applicable Price or the arithmetic calculation of the number of Warrant Shares to be
issued pursuant to the terms hereof (including, without limitation, the Net Number), the Company shall promptly issue to the Holder the number of Warrant Shares that are not
disputed, provided that following such issuance to Holder such dispute shall be resolved in accordance with Section 13.
(f) Limitations on Exercises and Exchanges. Notwithstanding anything to the contrary contained in this Warrant, this Warrant shall not be exercisable or exchangeable
by the Holder hereof to the extent (but only to the extent) that the Holder or any of its affiliates would beneficially own in excess of 9.9% of the number of Ordinary Shares
outstanding after giving effect to the issuance of Ordinary Shares issuable upon exercise of the Warrants calculated in accordance with Section 13(d) of the Exchange Act (the
“Maximum Percentage”). To the extent the above limitation applies, the determination of whether this Warrant shall be exercisable or exchangeable (vis-à-vis other
convertible, exercisable or exchangeable securities owned by the Holder or any of its affiliates) and of which such securities shall be exercisable or exchangeable (as among all
such securities owned by the Holder) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to the Company for conversion,
exercise or exchange (as the case may be). No prior inability to exercise or exchange this Warrant pursuant to this paragraph shall have any effect on the applicability of the
provisions of this paragraph with respect to any subsequent determination of exercisability or exchangeability. For the purposes of this paragraph, beneficial ownership and all
determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined in accordance with Section 13(d) of the
1934 Act (as defined in the Securities Purchase Agreement) and the rules and regulations promulgated thereunder. The provisions of this paragraph shall be implemented in a
manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the
intended Maximum Percentage beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such
Maximum Percentage limitation. The limitations contained in this paragraph shall apply to a successor Holder of this Warrant. The holders of Ordinary Shares shall be third
party beneficiaries of this paragraph and the Company may not waive this paragraph without the consent of holders of a majority of its Ordinary Shares. For any reason at any
time, upon the written or oral request of the Holder, the Company shall within two (2) Business Days confirm orally and in writing to the Holder the number of Ordinary Shares
then outstanding, including by virtue of any prior conversion or exercise or exchange of convertible or exercisable or exchangeable securities into Ordinary Shares, including,
without limitation, pursuant to this Warrant or securities issued pursuant to the Securities Purchase Agreement.
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(g) Reservation of Shares; Insufficient Authorized Shares. The Company shall initially reserve out of its authorized and unissued Ordinary Shares a number of
Ordinary Shares equal to 200% of the maximum number of Warrant Shares issuable to satisfy the Company’s obligations to issue Ordinary Shares hereunder, and the Company
shall at all times keep reserved for issuance under this Warrant a number of Ordinary Shares equal to 200% of the maximum number of Warrant Shares issuable to satisfy the
Company’s obligation to issue Ordinary Shares hereunder.
(h) Activity Restrictions. For so long as Holder holds this Warrant or any Warrant Shares, Holder will not: (i) engage or participate in any actions, plans or proposals
which relate to or would result in (a) acquiring additional securities of the Company, alone or together with any other Person, which would result in beneficially owning or
controlling, or being deemed to beneficially own or control, more than 9.9% of the total outstanding Ordinary Shares or other voting securities of the Company, (b) an
extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving Company, (c) a sale or transfer of a material amount of assets of the Company, (d)
any change in the present board of directors or management of the Company, including any plans or proposals to change the number or term of directors or to fill any existing
vacancies on the board, (e) any material change in the present capitalization or dividend policy of the Company, (f) any other material change in the Company’s business or
corporate structure, including but not limited to, if the Company is a registered closed-end investment company, any plans or proposals to make any changes in its investment
policy for which a vote is required by Section 13 of the Investment Company Act of 1940, (g) changes in the Company’s charter, bylaws or instruments corresponding thereto
or other actions which may impede the acquisition of control of the Company by any Person, (h) causing a class of securities of the Company to be delisted from a national
securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association, (i) a class of equity securities of
the Company becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Act, or (j) any action, intention, plan or arrangement similar to any of those
enumerated above, or (ii) request the Company or its directors, officers, employees, agents or representatives to amend or waive any provision of this Section 1(h); provided,
however, that notwithstanding anything to the contrary contain in clauses (i) and (ii) above, Buyer may vote any Ordinary Shares owned or controlled by it, solicit any proxies,
or seek to advise or influence any Person with respect to any voting securities of the Company. Holder may only exercise this Warrant for a cash exercise price if the trading
price at the time of exercise is greater than the then applicable Exercise Price.
2. ADJUSTMENT OF EXERCISE PRICE, ISSUANCE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price, Issuance Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 2.
(a) Stock Dividends and Splits. Without limiting any provision of Section 4, if the Company, at any time on or after the date of the Securities Purchase Agreement, (i)
pays a stock dividend on one or more classes of its then outstanding Ordinary Shares or otherwise makes a distribution on any class of capital stock that is payable in Ordinary
Shares, (ii) subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its then outstanding Ordinary Shares into a larger number of
shares or (iii) combines (by combination, reverse stock split or otherwise) one or more classes of its then outstanding Ordinary Shares into a smaller number of shares, then in
each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of Ordinary Shares outstanding immediately before such event
and of which the denominator shall be the number of Ordinary Shares outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph
shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution, and any adjustment pursuant to
clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under
this paragraph occurs during the period that an Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall be adjusted appropriately to reflect such
event. Simultaneously with any adjustment to the Exercise Price pursuant to this Section 2(a), the number of Warrant Shares that may be purchased upon exercise of this
Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the adjusted number of Warrant
Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment (without regard to any limitations on exercise contained herein).
5
( b ) Adjustment Upon Issuance of Ordinary Shares. If, from the Issuance Date to ninety (90) days after the effectiveness of the Registration Statement (the
“Adjustment Period”), the Company issues or sells, or in accordance with this Section 2 is deemed to have issued or sold, any Ordinary Shares (including the issuance or sale
of Ordinary Shares owned or held by or for the account of the Company, but excluding any Excluded Securities (as defined in the Securities Purchase Agreement) issued or sold
or deemed to have been issued or sold) for a consideration per share less than a price equal to the Issuance Price in effect immediately prior to such issue or sale or deemed
issuance or sale (such Issuance Price then in effect is referred to as the “Applicable Price”) (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive
Issuance, the Applicable Price then in effect shall be reduced (and in no event increased) to an Issuance Price equal to the lowest price per share at which any such Ordinary
Share has been issued or sold (or is deemed to have been issued or sold), but in any event not less than $0.10 (as may be adjusted for stock dividends, subdivisions, or
combinations in the manner described in Section 2(a) herein, the “Floor Price”); provided, that if such issuance or sale (or deemed issuance or sale) was without consideration,
then the Company shall be deemed to have received the Floor Price for each such share so issued or deemed to be issued. For purposes of this Warrant, “Issuance Price”
means, initially, $0.306, as adjusted thereafter in accordance with this Section 2(b). For all purposes of the foregoing (including, without limitation, determining the adjusted
Applicable Price under this Section 2(b)), the following shall be applicable:
(i) Issuance of Options. If, during the Adjustment Period, the Company in any manner grants or sells any Options and the lowest price per share for which one
Ordinary Share is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any
such Option is less than the Applicable Price, then such Ordinary Share shall be deemed to be outstanding and to have been issued and sold by the Company at the time
of the granting or sale of such Option for such price per share. For purposes of this Section 2(b)(i), the “lowest price per share for which one Ordinary Share is issuable
upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option” shall be equal
to (A) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one Ordinary Share upon the granting or sale of
such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option minus (B) the
sum of all amounts paid or payable to the holder of such Option (or any other Person) upon the granting or sale of such Option, upon exercise of such Option and upon
conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option plus the value of any other consideration received or receivable by,
or benefit conferred on, the holder of such Option (or any other Person). Except as contemplated below, no further adjustment of the Applicable Price shall be made upon
the actual issuance of such Ordinary Shares or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Ordinary Shares upon
conversion, exercise or exchange of such Convertible Securities.
6
(ii) Issuance of Convertible Securities. If, during the Adjustment Period, the Company in any manner issues or sells any Convertible Securities and the lowest
price per share for which one Ordinary Share is issuable upon the conversion, exercise or exchange thereof is less than the Applicable Price, then such Ordinary Share
shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per
share. For the purposes of this Section 2(b)(ii), the “lowest price per share for which one Ordinary Share is issuable upon the conversion, exercise or exchange thereof”
shall be equal to (A) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one Ordinary Share upon the issuance
or sale of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security minus (B) the sum of all amounts paid or payable to the
holder of such Convertible Security (or any other Person) upon the issuance or sale of such Convertible Security plus the value of any other consideration received or
receivable by, or benefit conferred on, the holder of such Convertible Security (or any other Person). Except as contemplated below, no further adjustment of the
Applicable Price shall be made upon the actual issuance of such Ordinary Shares upon conversion, exercise or exchange of such Convertible Securities, and if any such
issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of this Warrant has been or is to be made pursuant to other
provisions of this Section 2(b), except as contemplated below, no further adjustment of the Applicable Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If, during the Adjustment Period, the purchase or exercise price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exercisable or exchangeable for Ordinary Shares increases or decreases at any time, the Applicable Price in effect at the time of such increase or
decrease shall be adjusted to the Applicable Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or
decreased purchase price, additional consideration or increased or decreased conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes
of this Section 2(b)(iii), if the terms of any Option or Convertible Security that was outstanding as of the date of issuance of this Warrant are increased or decreased in the
manner described in the immediately preceding sentence, then such Option or Convertible Security and the Ordinary Shares deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 2(b) shall be made if such
adjustment would result in an increase of the Applicable Price then in effect.
7
(iv) Calculation of Consideration Received. If, during the Adjustment Period, any Option or Convertible Security is issued in connection with the issuance or
sale or deemed issuance or sale of any other securities of the Company, together comprising one integrated transaction, (A) such Option or Convertible Security (as
applicable) will be deemed to have been issued for consideration equal to the Black Scholes Value thereof and (B) the other securities issued or sold or deemed to have
been issued or sold in such integrated transaction shall be deemed to have been issued for consideration equal to the difference of (1) the aggregate consideration received
by the Company, minus (2) the Black Scholes Value of each such Option or Convertible Security (as applicable). If any Ordinary Shares, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount of consideration
received by the Company therefor. If any Ordinary Shares, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such
consideration received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case
the amount of consideration received by the Company for such securities will be the arithmetic average of the VWAPs of such security for each of the five (5) Trading
Days immediately preceding the date of receipt. If any Ordinary Shares, Options or Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the
net assets and business of the non-surviving entity as is attributable to such Ordinary Shares, Options or Convertible Securities, as the case may be. The fair value of any
consideration other than cash or publicly traded securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within
ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Trading
Days after the tenth (10th) day following such Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination
of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company.
(v) Record Date. If, during the Adjustment Period, the Company takes a record of the holders of Ordinary Shares for the purpose of entitling them (A) to receive
a dividend or other distribution payable in Ordinary Shares, Options or in Convertible Securities or (B) to subscribe for or purchase Ordinary Shares, Options or
Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the Ordinary Shares deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase (as the case may be).
8
(c) Number of Warrant Shares . Simultaneously with any adjustment to the Applicable Price pursuant to paragraph (b) of this Section 2, the Warrant Share Count that
may be purchased upon exercise of this Warrant shall be increased proportionately to a number equal to the then applicable Warrant Share Count multiplied by (x) the
Applicable Price immediately prior to such adjustment, divided by (y) the Applicable Price immediately after such adjustment. Upon such adjustment of the Warrant Share
Count, the Exercise Price payable hereunder shall be adjusted such that the aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares shall be the
same as the aggregate Exercise Price in effect immediately prior to such adjustment (without regard to any limitations on exercise contained herein). In addition, and
notwithstanding anything to the contrary contained herein, upon a Cashless Exercise as set forth in Section 1(d) hereof, the number of Warrant Shares for which this Warrant is
exercisable immediately following such Cashless Exercise shall be equal to (i) the number of Warrant Shares for which this Warrant was exercisable immediately prior to such
Cashless Exercise less (ii) the number of Warrant Shares as to which such Cashless Exercise was exercised (such number of Warrant Shares in this clause (ii) in respect of such
Cashless Exercise being equal to “A” in such Cashless Exercise formula in respect of such Cashless Exercise) and the number of such Warrant Shares issuable hereunder shall
automatically be adjusted, as necessary, to enable to the Company to comply with its obligations to issue the Net Number of Ordinary Shares under Section 1(d) hereof upon
any Cashless Exercise hereunder.
(d) Calculations. All calculations under this Section 2 shall be made by rounding to the nearest 1/10000th of cent and the nearest 1/100th of a share, as applicable. The
number of Ordinary Shares outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares
shall be considered an issue or sale of Ordinary Shares.
(e) Other Events. In the event that the Company shall take any action to which the provisions hereof are not strictly applicable, or, if applicable, would not operate to
protect the Holder from dilution or if any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s board of directors shall in good faith
determine and implement an appropriate adjustment in the Exercise Price and the number of Warrant Shares (if applicable) so as to protect the rights of the Holder, provided
that no such adjustment pursuant to this Section 2(e) will increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section
2, provided further that if the Holder does not accept such adjustments as appropriately protecting its interests hereunder against such dilution, then the Company’s board of
directors and the Holder shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose
determination shall be final and binding and whose fees and expenses shall be borne by the Company.
3. RIGHTS UPON DISTRIBUTION OF ASSETS. In addition to any adjustments pursuant to Section 2 above, if the Company shall declare or make any dividend or other
distribution of its assets (or rights to acquire its assets) to holders of Ordinary Shares, by way of return of capital or otherwise (including, without limitation, any distribution of
cash, stock or other securities, indebtedness, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction, other than a distribution of Ordinary Shares covered by Section 2(a)) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such
case, provision shall be made so that upon exercise of this Warrant, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have
participated therein if the Holder had held the number of Ordinary Shares acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise
hereof, including without limitation, the Maximum Percentage) immediately before the date on which a record is taken for such Distribution, or, if no such record is taken, the
date as of which the record holders of Ordinary Shares are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder’s right to
participate in any such Distributions would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Distribution to
such extent (or the beneficial ownership of any such Ordinary Shares as a result of such Distribution to such extent) and such Distribution to such extent shall be held in
abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage).
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4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.
(a) Purchase Rights. In addition to any adjustments pursuant to Section 2 above, if at any time the Company grants, issues or sells any Options, Convertible Securities
or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Ordinary Shares (the “Purchase Rights”), then the Holder will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of
Ordinary Shares acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Maximum
Percentage) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Ordinary Shares are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate
in any such Purchase Right would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Purchase Right to such
extent (or beneficial ownership of such Ordinary Shares as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for
the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage).
(b) Fundamental Transactions. The Company shall not enter into or be party to a Fundamental Transaction unless the Successor Entity assumes in writing all of the
obligations of the Company under this Warrant and the other Transaction Documents related to this Warrant in accordance with the provisions of this Section 4(b) pursuant to
written agreements in form and substance reasonably satisfactory to the Holder, including agreements confirming the obligations of the Successor Entity as set forth in this
paragraph (b) and (c) and elsewhere in this Warrant and an obligation to deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to this Warrant, including, without limitation, which is exercisable for a corresponding number of shares of
capital stock equivalent to the Ordinary Shares acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior
to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value
of the Ordinary Shares pursuant to such Fundamental Transaction and the value of such shares of capital stock, such adjustments to the number of shares of capital stock and
such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction).
Notwithstanding the foregoing, at the election of the Holder upon exercise of this Warrant following a Fundamental Transaction, the Successor Entity shall deliver to the
Holder, in lieu of the Ordinary Shares (or other securities, cash, assets or other property (except such items still issuable under Sections 3 and 4(a) above, which shall continue
to be receivable thereafter)) issuable upon the exercise of this Warrant prior to the applicable Fundamental Transaction, such shares of common stock (or its equivalent) of the
Successor Entity (including its Parent Entity), or other securities, cash, assets or other property, which the Holder would have been entitled to receive upon the happening of the
applicable Fundamental Transaction had this Warrant been exercised immediately prior to the applicable Fundamental Transaction; provided, however, that such amount of
reserved Ordinary Shares shall be limited by the Maximum Percentage of Ordinary Shares as set forth in Section 1(f).
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(c) Black Scholes Value – FT.
Notwithstanding the foregoing and the provisions of Section 4(b) above, at the request of the Holder delivered at any time commencing on the earliest to occur of (i) the public
disclosure of any Fundamental Transaction, (ii) the consummation of any Fundamental Transaction and (iii) the Holder first becoming aware of any Fundamental Transaction
through the date that is ninety (90) days after the public disclosure of the consummation of such Fundamental Transaction by the Company pursuant to a Current Report on
Form 6-K filed with the SEC, the Company or the Successor Entity, at the election of the Holder, shall purchase this Warrant from the Holder on the date of the consummation
of such Fundamental Transaction by paying to the Holder cash in an amount equal to the Black Scholes Value – FT.
(d) Application. The provisions of this Section 4 shall apply similarly and equally to successive Fundamental Transactions and shall be applied as if this Warrant (and
any such subsequent warrants issued hereunder) were fully exercisable and without regard to any limitations on the exercise of this Warrant (provided that the Holder shall
continue to be entitled to the benefit of the Maximum Percentage, applied however with respect to shares of capital stock registered under the 1934 Act and thereafter receivable
upon exercise of this Warrant (or any such other warrant)).
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its certificate of incorporation, bylaws or through any
reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be
required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any Ordinary Shares receivable
upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and non-assessable Ordinary Shares upon the exercise of this Warrant, and (iii) shall, so long as any of the SPA Warrants are outstanding,
take all action necessary to reserve and keep available out of its authorized and unissued Ordinary Shares, solely for the purpose of effecting the exercise of the SPA Warrants,
the maximum number of Ordinary Shares as shall from time to time be necessary to effect the exercise of the SPA Warrants then outstanding; provided, however, that such
amount of reserved Ordinary Shares shall be limited by the Maximum Percentage of Ordinary Shares as set forth in Section 1(f).
11
6. WARRANT HOLDER NOT DEEMED A SHAREHOLDER . Except as otherwise specifically provided herein, the Holder, solely in its capacity as a holder of this Warrant,
shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the Holder, solely in its capacity as the Holder of this Warrant, any of the rights of a shareholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which it is then entitled to receive upon the due
exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of
this Warrant or otherwise) or as a shareholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this
Section 6, the Company shall provide the Holder with copies of the same notices and other information given to the shareholders of the Company generally, contemporaneously
with the giving thereof to the shareholders.
7. REISSUANCE OF WARRANTS.
(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company, whereupon the Company will forthwith issue and
deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as the Holder may request, representing the right to purchase the number of
Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in
accordance with Section 7(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred. If, at the time of the surrender of this Warrant
in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities
Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements
pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, provide to the
Company an opinion of counsel selected by the Holder and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to
the Company, to the effect that such transfer does not require registration of such transferred securities under the Securities Act.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the
Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant Shares then underlying this
Warrant.
12
(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new
Warrant or Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each
such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, no
warrants for fractional Ordinary Shares shall be given.
(d) Issuance of New Warrants . Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like
tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case
of a new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when added to the number of Ordinary Shares
underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an
issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.
8. NOTICES. Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the
Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a
description of such action and the reason therefor. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) as soon as practicable
upon each adjustment of the Exercise Price and the number of Warrant Shares, setting forth in reasonable detail, and certifying, the calculation of such adjustment(s) and (ii) at
least fifteen (15) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Ordinary Shares, (B)
with respect to any grants, issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities, indebtedness, or other property pro rata to
holders of Ordinary Shares or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such
information (to the extent it constitutes, or contains, material, non-public information regarding the Company shall be made known to the public prior to or in conjunction with
such notice being provided to the Holder and (iii) at least ten (10) Trading Days prior to the consummation of any Fundamental Transaction. To the extent that any notice
provided hereunder (whether under this Section 8 or otherwise) constitutes, or contains, material, non-public information regarding the Company, the Company shall
simultaneously file such notice with the SEC (as defined in the Securities Purchase Agreement) pursuant to a Current Report on Form 6-K. It is expressly understood and agreed
that the time of execution specified by the Holder in each Exercise Notice shall be definitive and may not be disputed or challenged by the Company.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this Warrant (other than Section 1(f)) may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder. The Holder
shall be entitled, at its option, to the benefit of any amendment of any other similar warrant issued under the Securities Purchase Agreement. No waiver shall be effective unless
it is in writing and signed by an authorized representative of the waiving party.
13
10. SEVERABILITY. If any provision of this Warrant is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the
provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the
invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Warrant so long as this Warrant as so modified continues to
express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s)
in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be
conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the
effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).
11. GOVERNING LAW. This Warrant shall be governed by and construed and enforced in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Warrant shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New
York. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not
to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is improper. Nothing contained herein shall be deemed to limit in any way any right to serve process in
any manner permitted by law. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company
in any other jurisdiction to collect on the Company’s obligations to the Holder or to enforce a judgment or other court ruling in favor of the Holder. THE COMPANY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF
ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.
12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any Person as the
drafter hereof. The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant. Terms used in this Warrant
but defined in the other Transaction Documents shall have the meanings ascribed to such terms on the Closing Date (as defined in the Securities Purchase Agreement) in such
other Transaction Documents unless otherwise consented to in writing by the Holder.
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13. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Exercise Price, the Applicable Price, the Closing Sale Price, the Closing Bid Price, the Bid
Price or fair market value or the arithmetic calculation of the Warrant Shares (as the case may be), the Company or the Holder (as the case may be) shall submit the disputed
determinations or arithmetic calculations (as the case may be) via facsimile (i) within two (2) Business Days after receipt of the applicable notice giving rise to such dispute to
the Company or the Holder (as the case may be) or (ii) if no notice gave rise to such dispute, at any time after the Holder or the Company (as the case may be) learned of the
circumstances giving rise to such dispute. If the Holder and the Company are unable to agree upon such determination or calculation (as the case may be) of the Exercise Price,
the Closing Sale Price, the Closing Bid Price, the Bid Price or fair market value or the number of Warrant Shares (as the case may be) within three (3) Business Days of such
disputed determination or arithmetic calculation being submitted to the Company or the Holder (as the case may be), then the Company shall, within two (2) Business Days
submit via facsimile (a) the disputed arithmetic calculation of the Warrant Shares, the disputed determination of the Exercise Price, the Closing Sale Price, the Closing Bid
Price, the Bid Price or fair market value (as the case may be) to an independent, reputable investment bank selected by the Holder, with the consent of the Company (which may
not be unreasonably withheld, conditioned or delayed), or (b) if acceptable to the Holder, the disputed arithmetic calculation of the Warrant Shares to the Company’s
independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant (as the case may be) to perform the determinations or
calculations (as the case may be) and notify the Company and the Holder of the results no later than ten (10) Business Days from the time it receives such disputed
determinations or calculations (as the case may be). Such investment bank’s or accountant’s determination or calculation (as the case may be) shall be binding upon all parties
absent demonstrable error.
14. REMEDIES, CHARACTERIZATION, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF . The remedies provided in this Warrant shall be cumulative
and in addition to all other remedies available under this Warrant and the other Transaction Documents, at law or in equity (including a decree of specific performance and/or
other injunctive relief), and nothing herein shall limit the right of the Holder to pursue actual damages for any failure by the Company to comply with the terms of this Warrant.
The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided
for herein with respect to payments, exercises and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holder of this Warrant shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by
the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Warrant (including, without limitation, compliance with Section 2
hereof). The issuance of shares and certificates for shares as contemplated hereby upon the exercise of this Warrant shall be made without charge to the Holder or such shares
for any issuance tax or other costs in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in
the issuance and delivery of any certificate in a name other than the Holder or its agent on its behalf.
15. TRANSFER. This Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company.
15
16. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:
(a) “Bid Price” means, for any security as of the particular time of determination, the bid price for such security on the Principal Market as reported by Bloomberg as
of such time of determination, or, if the Principal Market is not the principal securities exchange or trading market for such security, the bid price of such security on the
principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg as of such time of determination, or if the foregoing does not
apply, the bid price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg as of such time of determination,
or, if no bid price is reported for such security by Bloomberg as of such time of determination, the average of the bid prices of all of the market makers for such security as
reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC) as of such time of determination. If the Bid Price cannot be calculated for a security as of
the particular time of determination on any of the foregoing bases, the Bid Price of such security as of such time of determination shall be the fair market value as mutually
determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved
in accordance with the procedures in Section 13. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar
transaction during such period.
(b) “Black Scholes Value” means the Black Scholes value of an option for one Ordinary Share at the date of the applicable Cashless Exercise, as such Black Scholes
value is determined, calculated using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg utilizing (i) an underlying price per share equal
to the Exercise Price, (ii) a risk-free interest rate corresponding to the U.S. Treasury rate, (iii) a strike price equal to the Exercise Price in effect at the time of the applicable
Cashless Exercise, (iv) an expected volatility equal to 135%, and (v) a deemed remaining term of the Warrant of five (5) years (regardless of the actual remaining term of the
Warrant).
(c) “Black Scholes Value — FT” means the value of the unexercised portion of this Warrant remaining on the date of the Holder’s request pursuant to Section 4(c),
which value is calculated using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg utilizing (i) an underlying price per share equal to the
greater of (A) the highest Closing Sale Price of the Ordinary Shares during the period beginning on the Trading Day immediately preceding the earliest to occur of (1) the public
disclosure of the applicable Fundamental Transaction, (2) the consummation of the applicable Fundamental Transaction and (3) the date on which the Holder first became aware
of the applicable Fundamental Transaction and ending on the Trading Day of the Holder’s request pursuant to Section 4(c) and (B) the sum of the price per share being offered
in cash in the applicable Fundamental Transaction (if any) plus the value of the non-cash consideration being offered in the applicable Fundamental Transaction (if any), (ii) a
strike price equal to the Exercise Price in effect on the date of the Holder’s request pursuant to Section 4(c), (iii) a risk-free interest rate corresponding to the U.S. Treasury rate
for a period equal to the greater of (A) the remaining term of this Warrant as of the date of the Holder’s request pursuant to Section 4(c) and (B) the remaining term of this
Warrant as of the date of consummation of the applicable Fundamental Transaction or as of the date of the Holder’s request pursuant to Section 4(c) if such request is prior to
the date of the consummation of the applicable Fundamental Transaction and (iv) an expected volatility equal to the greater of 135% and the 100 day volatility obtained from
the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the earliest to occur of (A) the public
disclosure of the applicable Fundamental Transaction, (B) the consummation of the applicable Fundamental Transaction and (C) the date on which the Holder first became
aware of the applicable Fundamental Transaction.
16
(d) “Bloomberg” means Bloomberg, L.P.
(e) “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in New York, New York, Sydney, Australia or Aukland,
New Zealand are authorized or required by law to remain closed.
(f) “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price and the last closing trade price, respectively, for
such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid
price or the closing trade price (as the case may be) then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by
Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of
such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the
average of the bid prices, or the ask prices, respectively, of all of the market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. (formerly
Pink Sheets LLC). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price
or the Closing Sale Price (as the case may be) of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the
Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 13.
All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.
(g) “Ordinary Shares” means (i) the Company’s ordinary shares, without par value, and (ii) any capital stock into which such ordinary shares of the Company shall
have been changed or any share capital resulting from a reclassification of such ordinary shares.
(h) “Convertible Securities” means any stock or other security (other than Options) that is at any time and under any circumstances, directly or indirectly, convertible
into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any Ordinary Shares.
(i) “Eligible Market” means The Toronto Stock Exchange, the New York Stock Exchange, the NYSE Amex, the Nasdaq Global Select Market, the Nasdaq Global
Market or the Principal Market.
17
(j) “Expiration Date” means the date that is March 27, 2024 or, if such date falls on a day other than a Business Day or on which trading does not take place on the
Principal Market (a “Holiday”), the next date that is not a Holiday.
(k) “Fundamental Transaction” means that (i) the Company shall, directly or indirectly, in one or more related transactions, (1) consolidate or merge with or into
(whether or not the Company is the surviving entity) any other Person unless the shareholders of the Company immediately prior to such consolidation or merger continue to
hold more than 50% of the outstanding shares of Voting Stock after such consolidation or merger, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all
or substantially all of its properties or assets to any other Person, in connection with which the Company is dissolved, or (3) allow any other Person to make a purchase, tender
or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the
Company held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (4)
consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with any other Person whereby such other Person acquires more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of
Voting Stock of the Company held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or
share purchase agreement or other business combination), or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and
the rules and regulations promulgated thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the
aggregate ordinary voting power represented by issued and outstanding Voting Stock of the Company.
(l) “Market Price” means, as of any time of determination, the Closing Bid Price as of the last completed Trading Day immediately prior thereto.
(m) “Options” means any rights, warrants or options to subscribe for or purchase Ordinary Shares or Convertible Securities.
(n) “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is
quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of
the date of consummation of the Fundamental Transaction.
(o) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity or
a government or any department or agency thereof.
(p) “Principal Market” means the Nasdaq Capital Market.
(q) “Successor Entity” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or
the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered into.
18
(r) “Trading Day” means, as applicable, (x) with respect to all price determinations relating to the Ordinary Shares, any day on which the Ordinary Shares is traded on
the Principal Market, or, if the Principal Market is not the principal trading market for the Ordinary Shares, then on the principal securities exchange or securities market on
which the Ordinary Shares is then traded, provided that “Trading Day” shall not include any day on which the Ordinary Shares is scheduled to trade on such exchange or market
for less than 4.5 hours or any day that the Ordinary Shares is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market
does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is
otherwise designated as a Trading Day in writing by the Holder or (y) with respect to all determinations other than price determinations relating to the Ordinary Shares, any day
on which The New York Stock Exchange (or any successor thereto) is open for trading of securities.
(s) “Voting Stock” of a Person means capital stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power to elect,
or the general power to appoint, at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time capital stock of any
other class or classes shall have or might have voting power by reason of the happening of any contingency).
(t) “VWAP” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market (or, if the Principal Market is
not the principal trading market for such security, then on the principal securities exchange or securities market on which such security is then traded) during the period
beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its “Volume at Price” function or, if the foregoing
does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period
beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported
for such security by Bloomberg for such hours, the average of the three highest closing bid prices and the three lowest closing ask prices of all of the market makers for such
security as reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC). If VWAP cannot be calculated for such security on such date on any of the
foregoing bases, the VWAP of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 13. All such determinations
shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.
[signature page follows]
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IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Ordinary Shares to be duly executed as of the Issuance Date set out above.
NAKED BRAND GROUP LIMITED
By:
Name:
Title:
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
NAKED BRAND GROUP LIMITED
EXHIBIT A
The undersigned holder hereby exercises the right to purchase _________________ of the Ordinary Shares (“Warrant Shares”) of Naked Brand Group Limited, an
Australian Company (the “Company”), evidenced by Warrant to Purchase Ordinary Shares No. _______ (the “Warrant”). Capitalized terms used herein and not otherwise
defined shall have the respective meanings set forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as:
____________
a “Cash Exercise” with respect to _________________ Warrant Shares; and/or
____________
a “Cashless Exercise” with respect to _______________ Warrant Shares.
In the event that the Holder has elected a Cashless Exercise with respect to some or all of the Warrant Shares, the Holder represents and warrants that ____________
Ordinary Shares are to be delivered pursuant to such Cashless Exercise, as further specified in Annex A to this Exercise Notice.
2. Payment of Exercise Price. In the event that the Holder has elected a Cash Exercise with respect to some or all of the Warrant Shares, the Holder shall pay the
Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares and Net Number of Ordinary Shares. The Company shall deliver to Holder, or its designee or agent as specified below, __________
Ordinary Shares in respect of the exercise contemplated hereby. Delivery shall be made to Holder, or for its benefit, to the following address:
_______________________
_______________________
_______________________
_______________________
Date: _______________ __, ______
Name of Registered Holder
By:
Name:
Title:
Account Number:
(if electronic book entry transfer)
Transaction Code Number:
(if electronic book entry transfer)
CASHLESS EXERCISE EXCHANGE CALCULATION
ANNEX A TO EXERCISE NOTICE
TO BE FILLED IN BY THE REGISTERED HOLDER TO EXCHANGE THE WARRANT TO PURCHASE COMMON A STOCK FOR COMMON STOCK IN A
CASHLESS EXERCISE PURSUANT TO SECTION 1(d) OF THE WARRANT
Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
Net Number = (A x B)/C = ________________ Ordinary Shares
For purposes of the foregoing formula:
A= the total number of shares with respect to which the Warrant is then being exercised = _________________.
B= Black Scholes Value (as defined in Section 16 of the Warrant) = ______________.
C= the Closing Bid Price of the Ordinary Shares as of two (2) Trading Days prior to the time of such exercise (as such Closing Bid Price is defined in Section
16 of the Warrant) = ______________.
Date: _______________ __, ______
Name of Registered Holder
By:
Name:
Title:
The Company hereby acknowledges this Exercise Notice and hereby directs ______________ to issue the above indicated number of Ordinary Shares in accordance
with the Transfer Agent Instructions dated _________, 20__, from the Company and acknowledged and agreed to by _______________.
ACKNOWLEDGMENT
EXHIBIT B
NAKED BRAND GROUP LIMITED
By:
Name:
Title:
WARRANT
Exhibit 4.7.3
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF
COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), FROM REPUTABLE COUNSEL, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.
Warrant No.:
Date of Issuance: March 27, 2019 (“Issuance Date”)
NAKED BRAND GROUP LIMITED
Warrant To Purchase Ordinary Shares
Naked Brand Group Limited, an Australian company (the “Company”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, , the registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the
Company, at the Exercise Price (as defined below) then in effect, upon exercise of this Warrant to Purchase Ordinary Shares (including any Warrants to Purchase Ordinary
Shares issued in exchange, transfer or replacement hereof, the “Warrant”), at any time or times on or after the Issuance Date, but not after 11:59 p.m., New York time, on the
Expiration Date (as defined below), (subject to adjustment as provided herein), fully paid and non-assessable Ordinary Shares (as defined below) (the “Warrant
Shares”). Except as otherwise defined herein, capitalized terms in this Warrant shall have the meanings set forth in Section 16. This Warrant is one of the Warrants to purchase
Ordinary Shares (the “SPA Warrants”) issued to Holder pursuant to that certain Securities Purchase Agreement, dated as of March 27, 2019, by and among the Company and
the investor(s) thereunder (the “Buyer” or “Buyers” as applicable) referred to therein (the “Securities Purchase Agreement”).
1. EXERCISE OF WARRANT.
(a) Mechanics of Exercise. Subject to the terms and conditions hereof (including, without limitation, the limitations set forth in Section 1(f)), this Warrant may be
exercised by the Holder on any day on or after the Issuance Date in whole or in part, by delivery (whether via facsimile or otherwise) of a written notice, in the form attached
hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this Warrant. Within one (1) Trading Day following an exercise of this Warrant as aforesaid,
the Holder shall deliver payment to the Company of an amount equal to the Exercise Price in effect on the date of such exercise multiplied by the number of Warrant Shares as
to which this Warrant was so exercised (in respect of such specific exercise, the “Aggregate Exercise Price”) in cash or via wire transfer of immediately available funds if the
Holder did not notify the Company in such Exercise Notice that such exercise was made pursuant to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not be
required to deliver the original of this Warrant in order to effect an exercise hereunder. Execution and delivery of an Exercise Notice with respect to less than all of the Warrant
Shares shall have the same effect as cancellation of the original of this Warrant certificate and issuance of a new Warrant certificate evidencing the right to purchase the
remaining number of Warrant Shares. Execution and delivery of an Exercise Notice for all of the then-remaining Warrant Shares shall have the same effect as cancellation of
the original of this Warrant certificate after delivery of the Warrant Shares in accordance with the terms hereof. On or before the first (1 st) Trading Day following the date on
which the Company has received an Exercise Notice, the Company shall transmit by facsimile an acknowledgment of confirmation of receipt of such Exercise Notice, in the
form attached hereto as Exhibit B, to the Holder and the Company’s transfer agent (the “Transfer Agent”). On or before the fifth (5th) Trading Day following the date on which
the Company has received such Exercise Notice, the Company shall (i) provided that the Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast
Automated Securities Transfer Program (which the Company shall cause the Transfer Agent to do at Holder’s request) and provided the legends would be eligible to be
removed from such Ordinary Shares pursuant to Section 5(d) of the Securities Purchase Agreement, upon the request of the Holder, credit such aggregate number of Ordinary
Shares to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit/ Withdrawal at Custodian
system, or (ii) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program or the legends would not be eligible to be removed from such
Ordinary Shares pursuant to Section 5(d) of the Securities Purchase Agreement, issue and deliver to the Holder or, at the Holder’s instruction pursuant to the Exercise Notice,
the Holder’s agent or designee, in each case, sent by reputable overnight courier to the address as specified in the applicable Exercise Notice, a certificate, registered in the
Company’s share register in the name of the Holder or its designee (as indicated in the applicable Exercise Notice), for the number of Ordinary Shares to which the Holder is
entitled pursuant to such exercise. Upon delivery of an Exercise Notice, the Holder shall be deemed for all corporate purposes to have become the holder of record of the
Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Holder’s DTC account or the date of
delivery of the certificates evidencing such Warrant Shares (as the case may be). If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and
the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then, at the
request of the Holder and upon surrender hereof by the Holder at the principal office of the Company, the Company shall as soon as practicable and in no event later than three
(3) Business Days after any exercise and at its own expense, issue and deliver to the Holder (or its designee) a new Warrant (in accordance with Section 7(d)) representing the
right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this
Warrant is exercised. No fractional Ordinary Shares are to be issued upon the exercise of this Warrant, but rather the number of Ordinary Shares to be issued shall be rounded
up to the nearest whole number. The Company shall pay any and all taxes and fees which may be payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.
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(b) Exercise Price. For purposes of this Warrant, “Exercise Price” means $0.306, subject to adjustment as provided herein.
(c) Company’s Failure to Timely Deliver Securities. To the extent permitted by law, the Company’s obligations to issue and deliver the Ordinary Shares upon exercise
of the Warrant in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or
consent with respect to any provision hereof, the recovery of any judgment against any person or any action to enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the Holder or any other person of any obligation to the Company or any violation or alleged violation of law by the
Holder or any other person, and irrespective of any other circumstance that might otherwise limit such obligation of the Company to the Holder in connection with the issuance
of the Ordinary Shares. Nothing herein shall limit the Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver the Ordinary Shares issuable upon exercise of this Warrant as
required pursuant to the terms hereof.
(d) Cashless Exercise. Notwithstanding anything contained herein to the contrary (other than Section 1(f) below), at any time commencing sixty (60) days after the
Effective Date (as defined in the Securities Purchase Agreement), when the Exercise Price is higher than the previous day Closing Bid Price, the Holder may in its sole
discretion (and without limiting the Holder’s rights and remedies contained herein or in any of the other Transaction Documents (as defined in the Securities Purchase
Agreement)), exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in
payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the “Net Number” of Ordinary Shares determined according to the following formula (a
“Cashless Exercise”):
Net Number = (A x B)/C
For purposes of the foregoing formula:
A= the total number of shares with respect to which this Warrant is then being exercised.
B= Black Scholes Value (as defined in Section 16 herein).
C= the Closing Bid Price of the Ordinary Shares as of two (2) Trading Days prior to the time of such exercise (as such Closing Bid Price is defined in Section
16 herein), but in any event not less than $0.10 (as may be adjusted for stock dividends, subdivisions, or combinations in the manner described in Section 2(a)
herein).
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(e) Disputes. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the number of Warrant Shares to be issued pursuant to
the terms hereof (including, without limitation, the Net Number), the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed, provided
that following such issuance to Holder such dispute shall be resolved in accordance with Section 13.
(f) Limitations on Exercises and Exchanges. Notwithstanding anything to the contrary contained in this Warrant, this Warrant shall not be exercisable or exchangeable
by the Holder hereof to the extent (but only to the extent) that the Holder or any of its affiliates would beneficially own in excess of 9.9% of the number of Ordinary Shares
outstanding after giving effect to the issuance of Ordinary Shares issuable upon exercise of the Warrants calculated in accordance with Section 13(d) of the Exchange Act (the
“Maximum Percentage”). To the extent the above limitation applies, the determination of whether this Warrant shall be exercisable or exchangeable (vis-à-vis other
convertible, exercisable or exchangeable securities owned by the Holder or any of its affiliates) and of which such securities shall be exercisable or exchangeable (as among all
such securities owned by the Holder) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to the Company for conversion,
exercise or exchange (as the case may be). No prior inability to exercise or exchange this Warrant pursuant to this paragraph shall have any effect on the applicability of the
provisions of this paragraph with respect to any subsequent determination of exercisability or exchangeability. For the purposes of this paragraph, beneficial ownership and all
determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined in accordance with Section 13(d) of the
1934 Act (as defined in the Securities Purchase Agreement) and the rules and regulations promulgated thereunder. The provisions of this paragraph shall be implemented in a
manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the
intended Maximum Percentage beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such
Maximum Percentage limitation. The limitations contained in this paragraph shall apply to a successor Holder of this Warrant. The holders of Ordinary Shares shall be third
party beneficiaries of this paragraph and the Company may not waive this paragraph without the consent of holders of a majority of its Ordinary Shares. For any reason at any
time, upon the written or oral request of the Holder, the Company shall within two (2) Business Days confirm orally and in writing to the Holder the number of Ordinary Shares
then outstanding, including by virtue of any prior conversion or exercise or exchange of convertible or exercisable or exchangeable securities into Ordinary Shares, including,
without limitation, pursuant to this Warrant or securities issued pursuant to the Securities Purchase Agreement.
(g) Reservation of Shares; Insufficient Authorized Shares. The Company shall initially reserve out of its authorized and unissued Ordinary Shares a number of
Ordinary Shares equal to 200% of the maximum number of Warrant Shares issuable to satisfy the Company’s obligations to issue Ordinary Shares hereunder, and the Company
shall at all times keep reserved for issuance under this Warrant a number of Ordinary Shares equal to 200% of the maximum number of Warrant Shares issuable to satisfy the
Company’s obligation to issue Ordinary Shares hereunder.
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(h) Activity Restrictions. For so long as Holder holds this Warrant or any Warrant Shares, Holder will not: (i) engage or participate in any actions, plans or proposals
which relate to or would result in (a) acquiring additional securities of the Company, alone or together with any other Person, which would result in beneficially owning or
controlling, or being deemed to beneficially own or control, more than 9.9% of the total outstanding Ordinary Shares or other voting securities of the Company, (b) an
extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving Company, (c) a sale or transfer of a material amount of assets of the Company, (d)
any change in the present board of directors or management of the Company, including any plans or proposals to change the number or term of directors or to fill any existing
vacancies on the board, (e) any material change in the present capitalization or dividend policy of the Company, (f) any other material change in the Company’s business or
corporate structure, including but not limited to, if the Company is a registered closed-end investment company, any plans or proposals to make any changes in its investment
policy for which a vote is required by Section 13 of the Investment Company Act of 1940, (g) changes in the Company’s charter, bylaws or instruments corresponding thereto
or other actions which may impede the acquisition of control of the Company by any Person, (h) causing a class of securities of the Company to be delisted from a national
securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association, (i) a class of equity securities of
the Company becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Act, or (j) any action, intention, plan or arrangement similar to any of those
enumerated above, or (ii) request the Company or its directors, officers, employees, agents or representatives to amend or waive any provision of this Section 1(h); provided,
however, that notwithstanding anything to the contrary contain in clauses (i) and (ii) above, Buyer may vote any Ordinary Shares owned or controlled by it, solicit any proxies,
or seek to advise or influence any Person with respect to any voting securities of the Company. Holder may only exercise this Warrant for a cash exercise price if the trading
price at the time of exercise is greater than the then applicable Exercise Price.
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES . The Exercise Price and number of Warrant Shares issuable upon exercise of this
Warrant are subject to adjustment from time to time as set forth in this Section 2.
(a) Stock Dividends and Splits. Without limiting any provision of Section 4, if the Company, at any time on or after the date of the Securities Purchase Agreement, (i)
pays a stock dividend on one or more classes of its then outstanding Ordinary Shares or otherwise makes a distribution on any class of capital stock that is payable in Ordinary
Shares, (ii) subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its then outstanding Ordinary Shares into a larger number of
shares or (iii) combines (by combination, reverse stock split or otherwise) one or more classes of its then outstanding Ordinary Shares into a smaller number of shares, then in
each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of Ordinary Shares outstanding immediately before such event
and of which the denominator shall be the number of Ordinary Shares outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph
shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution, and any adjustment pursuant to
clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under
this paragraph occurs during the period that an Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall be adjusted appropriately to reflect such
event.
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( b ) Adjustment Upon Issuance of Ordinary Shares. If, from the Issuance Date to ninety (90) days after the effectiveness of the Registration Statement (the
“Adjustment Period”), the Company issues or sells, or in accordance with this Section 2 is deemed to have issued or sold, any Ordinary Shares (including the issuance or sale
of Ordinary Shares owned or held by or for the account of the Company, but excluding any Excluded Securities (as defined in the Securities Purchase Agreement) issued or sold
or deemed to have been issued or sold) for a consideration per share (the “New Issuance Price”) less than a price equal to the Exercise Price in effect immediately prior to such
issue or sale or deemed issuance or sale (such Exercise Price then in effect is referred to as the “Applicable Price”) (the foregoing a “Dilutive Issuance”), then immediately
after such Dilutive Issuance, the Exercise Price then in effect shall be reduced (and in no event increased) to an Exercise Price equal to the lowest price per share at which any
such Ordinary Share has been issued or sold (or is deemed to have been issued or sold), but in any event not less than $0.10 (as may be adjusted for stock dividends,
subdivisions, or combinations in the manner described in Section 2(a) herein, the “Floor Price”); provided, that if such issuance or sale (or deemed issuance or sale) was without
consideration, then the Company shall be deemed to have received the Floor Price for each such share so issued or deemed to be issued. For all purposes of the foregoing
(including, without limitation, determining the adjusted Exercise Price and consideration per share under this Section 2(b)), the following shall be applicable:
(i) Issuance of Options. If, during the Adjustment Period, the Company in any manner grants or sells any Options and the lowest price per share for which one
Ordinary Share is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any
such Option is less than the Applicable Price, then such Ordinary Share shall be deemed to be outstanding and to have been issued and sold by the Company at the time
of the granting or sale of such Option for such price per share. For purposes of this Section 2(b)(i), the “lowest price per share for which one Ordinary Share is issuable
upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option” shall be equal
to (A) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one Ordinary Share upon the granting or sale of
such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option minus (B) the
sum of all amounts paid or payable to the holder of such Option (or any other Person) upon the granting or sale of such Option, upon exercise of such Option and upon
conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option plus the value of any other consideration received or receivable by,
or benefit conferred on, the holder of such Option (or any other Person). Except as contemplated below, no further adjustment of the Exercise Price shall be made upon
the actual issuance of such Ordinary Shares or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Ordinary Shares upon
conversion, exercise or exchange of such Convertible Securities.
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(ii) Issuance of Convertible Securities. If, during the Adjustment Period, the Company in any manner issues or sells any Convertible Securities and the lowest
price per share for which one Ordinary Share is issuable upon the conversion, exercise or exchange thereof is less than the Applicable Price, then such Ordinary Share
shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per
share. For the purposes of this Section 2(b)(ii), the “lowest price per share for which one Ordinary Share is issuable upon the conversion, exercise or exchange thereof”
shall be equal to (A) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one Ordinary Share upon the issuance
or sale of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security minus (B) the sum of all amounts paid or payable to the
holder of such Convertible Security (or any other Person) upon the issuance or sale of such Convertible Security plus the value of any other consideration received or
receivable by, or benefit conferred on, the holder of such Convertible Security (or any other Person). Except as contemplated below, no further adjustment of the Exercise
Price shall be made upon the actual issuance of such Ordinary Shares upon conversion, exercise or exchange of such Convertible Securities, and if any such issue or sale
of such Convertible Securities is made upon exercise of any Options for which adjustment of this Warrant has been or is to be made pursuant to other provisions of this
Section 2(b), except as contemplated below, no further adjustment of the Exercise Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If, during the Adjustment Period, the purchase or exercise price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exercisable or exchangeable for Ordinary Shares increases or decreases at any time, the Exercise Price in effect at the time of such increase or decrease
shall be adjusted to the Exercise Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased
purchase price, additional consideration or increased or decreased conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this
Section 2(b)(iii), if the terms of any Option or Convertible Security that was outstanding as of the date of issuance of this Warrant are increased or decreased in the
manner described in the immediately preceding sentence, then such Option or Convertible Security and the Ordinary Shares deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 2(b) shall be made if such
adjustment would result in an increase of the Exercise Price then in effect.
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(iv) Calculation of Consideration Received. If, during the Adjustment Period, any Option or Convertible Security is issued in connection with the issuance or
sale or deemed issuance or sale of any other securities of the Company, together comprising one integrated transaction, (A) such Option or Convertible Security (as
applicable) will be deemed to have been issued for consideration equal to the Black Scholes Value thereof and (B) the other securities issued or sold or deemed to have
been issued or sold in such integrated transaction shall be deemed to have been issued for consideration equal to the difference of (1) the aggregate consideration received
by the Company, minus (2) the Black Scholes Value of each such Option or Convertible Security (as applicable). If any Ordinary Shares, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount of consideration
received by the Company therefor. If any Ordinary Shares, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such
consideration received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case
the amount of consideration received by the Company for such securities will be the arithmetic average of the VWAPs of such security for each of the five (5) Trading
Days immediately preceding the date of receipt. If any Ordinary Shares, Options or Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the
net assets and business of the non-surviving entity as is attributable to such Ordinary Shares, Options or Convertible Securities, as the case may be. The fair value of any
consideration other than cash or publicly traded securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within
ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Trading
Days after the tenth (10th) day following such Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination
of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company.
(v) Record Date. If, during the Adjustment Period, the Company takes a record of the holders of Ordinary Shares for the purpose of entitling them (A) to receive
a dividend or other distribution payable in Ordinary Shares, Options or in Convertible Securities or (B) to subscribe for or purchase Ordinary Shares, Options or
Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the Ordinary Shares deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase (as the case may be).
(c) Number of Warrant Shares . Simultaneously with any adjustment to the Exercise Price pursuant to paragraph (a) or (b) of this Section 2, the number of Warrant
Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable
hereunder for the adjusted number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment (without regard to any
limitations on exercise contained herein). In addition, and notwithstanding anything to the contrary contained herein, upon a Cashless Exercise as set forth in Section 1(d)
hereof, the number of Warrant Shares for which this Warrant is exercisable immediately following such Cashless Exercise shall be equal to (i) the number of Warrant Shares for
which this Warrant was exercisable immediately prior to such Cashless Exercise less (ii) the number of Warrant Shares as to which such Cashless Exercise was exercised (such
number of Warrant Shares in this clause (ii) in respect of such Cashless Exercise being equal to “A” in such Cashless Exercise formula in respect of such Cashless Exercise) and
the number of such Warrant Shares issuable hereunder shall automatically be adjusted, as necessary, to enable to the Company to comply with its obligations to issue the Net
Number of Ordinary Shares under Section 1(d) hereof upon any Cashless Exercise hereunder.
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(d) Calculations. All calculations under this Section 2 shall be made by rounding to the nearest 1/10000th of cent and the nearest 1/100th of a share, as applicable. The
number of Ordinary Shares outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares
shall be considered an issue or sale of Ordinary Shares.
(e) Other Events. In the event that the Company shall take any action to which the provisions hereof are not strictly applicable, or, if applicable, would not operate to
protect the Holder from dilution or if any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s board of directors shall in good faith
determine and implement an appropriate adjustment in the Exercise Price and the number of Warrant Shares (if applicable) so as to protect the rights of the Holder, provided
that no such adjustment pursuant to this Section 2(e) will increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section
2, provided further that if the Holder does not accept such adjustments as appropriately protecting its interests hereunder against such dilution, then the Company’s board of
directors and the Holder shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose
determination shall be final and binding and whose fees and expenses shall be borne by the Company.
3. RIGHTS UPON DISTRIBUTION OF ASSETS. In addition to any adjustments pursuant to Section 2 above, if the Company shall declare or make any dividend or other
distribution of its assets (or rights to acquire its assets) to holders of Ordinary Shares, by way of return of capital or otherwise (including, without limitation, any distribution of
cash, stock or other securities, indebtedness, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction, other than a distribution of Ordinary Shares covered by Section 2(a)) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such
case, provision shall be made so that upon exercise of this Warrant, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have
participated therein if the Holder had held the number of Ordinary Shares acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise
hereof, including without limitation, the Maximum Percentage) immediately before the date on which a record is taken for such Distribution, or, if no such record is taken, the
date as of which the record holders of Ordinary Shares are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder’s right to
participate in any such Distributions would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Distribution to
such extent (or the beneficial ownership of any such Ordinary Shares as a result of such Distribution to such extent) and such Distribution to such extent shall be held in
abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage).
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4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.
(a) Purchase Rights. In addition to any adjustments pursuant to Section 2 above, if at any time the Company grants, issues or sells any Options, Convertible Securities
or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Ordinary Shares (the “Purchase Rights”), then the Holder will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of
Ordinary Shares acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Maximum
Percentage) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Ordinary Shares are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate
in any such Purchase Right would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Purchase Right to such
extent (or beneficial ownership of such Ordinary Shares as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for
the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage).
(b) Fundamental Transactions. The Company shall not enter into or be party to a Fundamental Transaction unless the Successor Entity assumes in writing all of the
obligations of the Company under this Warrant and the other Transaction Documents related to this Warrant in accordance with the provisions of this Section 4(b) pursuant to
written agreements in form and substance reasonably satisfactory to the Holder, including agreements confirming the obligations of the Successor Entity as set forth in this
paragraph (b) and (c) and elsewhere in this Warrant and an obligation to deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to this Warrant, including, without limitation, which is exercisable for a corresponding number of shares of
capital stock equivalent to the Ordinary Shares acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior
to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value
of the Ordinary Shares pursuant to such Fundamental Transaction and the value of such shares of capital stock, such adjustments to the number of shares of capital stock and
such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction).
Notwithstanding the foregoing, at the election of the Holder upon exercise of this Warrant following a Fundamental Transaction, the Successor Entity shall deliver to the
Holder, in lieu of the Ordinary Shares (or other securities, cash, assets or other property (except such items still issuable under Sections 3 and 4(a) above, which shall continue
to be receivable thereafter)) issuable upon the exercise of this Warrant prior to the applicable Fundamental Transaction, such shares of common stock (or its equivalent) of the
Successor Entity (including its Parent Entity), or other securities, cash, assets or other property, which the Holder would have been entitled to receive upon the happening of the
applicable Fundamental Transaction had this Warrant been exercised immediately prior to the applicable Fundamental Transaction; provided, however, that such amount of
reserved Ordinary Shares shall be limited by the Maximum Percentage of Ordinary Shares as set forth in Section 1(f).
(c) Black Scholes Value – FT. Notwithstanding the foregoing and the provisions of Section 4(b) above, at the request of the Holder delivered at any time commencing
on the earliest to occur of (i) the public disclosure of any Fundamental Transaction, (ii) the consummation of any Fundamental Transaction and (iii) the Holder first becoming
aware of any Fundamental Transaction through the date that is ninety (90) days after the public disclosure of the consummation of such Fundamental Transaction by the
Company pursuant to a Current Report on Form 6-K filed with the SEC, the Company or the Successor Entity, at the election of the Holder, shall purchase this Warrant from the
Holder on the date of the consummation of such Fundamental Transaction by paying to the Holder cash in an amount equal to the Black Scholes Value – FT.
10
(d) Application. The provisions of this Section 4 shall apply similarly and equally to successive Fundamental Transactions and shall be applied as if this Warrant (and
any such subsequent warrants issued hereunder) were fully exercisable and without regard to any limitations on the exercise of this Warrant (provided that the Holder shall
continue to be entitled to the benefit of the Maximum Percentage, applied however with respect to shares of capital stock registered under the 1934 Act and thereafter receivable
upon exercise of this Warrant (or any such other warrant)).
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its certificate of incorporation, bylaws or through any
reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be
required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any Ordinary Shares receivable
upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and non-assessable Ordinary Shares upon the exercise of this Warrant, and (iii) shall, so long as any of the SPA Warrants are outstanding,
take all action necessary to reserve and keep available out of its authorized and unissued Ordinary Shares, solely for the purpose of effecting the exercise of the SPA Warrants,
the maximum number of Ordinary Shares as shall from time to time be necessary to effect the exercise of the SPA Warrants then outstanding; provided, however, that such
amount of reserved Ordinary Shares shall be limited by the Maximum Percentage of Ordinary Shares as set forth in Section 1(f).
6. WARRANT HOLDER NOT DEEMED A SHAREHOLDER . Except as otherwise specifically provided herein, the Holder, solely in its capacity as a holder of this Warrant,
shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the Holder, solely in its capacity as the Holder of this Warrant, any of the rights of a shareholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which it is then entitled to receive upon the due
exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of
this Warrant or otherwise) or as a shareholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this
Section 6, the Company shall provide the Holder with copies of the same notices and other information given to the shareholders of the Company generally, contemporaneously
with the giving thereof to the shareholders.
11
7. REISSUANCE OF WARRANTS.
(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company, whereupon the Company will forthwith issue and
deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as the Holder may request, representing the right to purchase the number of
Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in
accordance with Section 7(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred. If, at the time of the surrender of this Warrant
in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities
Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements
pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, provide to the
Company an opinion of counsel selected by the Holder and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to
the Company, to the effect that such transfer does not require registration of such transferred securities under the Securities Act.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the
Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant Shares then underlying this
Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new
Warrant or Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each
such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, no
warrants for fractional Ordinary Shares shall be given.
(d) Issuance of New Warrants . Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like
tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case
of a new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when added to the number of Ordinary Shares
underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an
issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.
12
8. NOTICES. Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the
Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a
description of such action and the reason therefor. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) as soon as practicable
upon each adjustment of the Exercise Price and the number of Warrant Shares, setting forth in reasonable detail, and certifying, the calculation of such adjustment(s) and (ii) at
least fifteen (15) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Ordinary Shares, (B)
with respect to any grants, issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities, indebtedness, or other property pro rata to
holders of Ordinary Shares or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such
information (to the extent it constitutes, or contains, material, non-public information regarding the Company shall be made known to the public prior to or in conjunction with
such notice being provided to the Holder and (iii) at least ten (10) Trading Days prior to the consummation of any Fundamental Transaction. To the extent that any notice
provided hereunder (whether under this Section 8 or otherwise) constitutes, or contains, material, non-public information regarding the Company, the Company shall
simultaneously file such notice with the SEC (as defined in the Securities Purchase Agreement) pursuant to a Current Report on Form 6-K. It is expressly understood and agreed
that the time of execution specified by the Holder in each Exercise Notice shall be definitive and may not be disputed or challenged by the Company.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this Warrant (other than Section 1(f)) may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder. The Holder
shall be entitled, at its option, to the benefit of any amendment of any other similar warrant issued under the Securities Purchase Agreement. No waiver shall be effective unless
it is in writing and signed by an authorized representative of the waiving party.
10. SEVERABILITY. If any provision of this Warrant is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the
provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the
invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Warrant so long as this Warrant as so modified continues to
express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s)
in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be
conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the
effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).
13
11. GOVERNING LAW. This Warrant shall be governed by and construed and enforced in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Warrant shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New
York. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not
to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is improper. Nothing contained herein shall be deemed to limit in any way any right to serve process in
any manner permitted by law. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company
in any other jurisdiction to collect on the Company’s obligations to the Holder or to enforce a judgment or other court ruling in favor of the Holder. THE COMPANY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF
ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.
12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any Person as the
drafter hereof. The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant. Terms used in this Warrant
but defined in the other Transaction Documents shall have the meanings ascribed to such terms on the Closing Date (as defined in the Securities Purchase Agreement) in such
other Transaction Documents unless otherwise consented to in writing by the Holder.
13. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Exercise Price, the Closing Sale Price, the Closing Bid Price, the Bid Price or fair market
value or the arithmetic calculation of the Warrant Shares (as the case may be), the Company or the Holder (as the case may be) shall submit the disputed determinations or
arithmetic calculations (as the case may be) via facsimile (i) within two (2) Business Days after receipt of the applicable notice giving rise to such dispute to the Company or the
Holder (as the case may be) or (ii) if no notice gave rise to such dispute, at any time after the Holder or the Company (as the case may be) learned of the circumstances giving
rise to such dispute. If the Holder and the Company are unable to agree upon such determination or calculation (as the case may be) of the Exercise Price, the Closing Sale Price,
the Closing Bid Price, the Bid Price or fair market value or the number of Warrant Shares (as the case may be) within three (3) Business Days of such disputed determination or
arithmetic calculation being submitted to the Company or the Holder (as the case may be), then the Company shall, within two (2) Business Days submit via facsimile (a) the
disputed arithmetic calculation of the Warrant Shares, the disputed determination of the Exercise Price, the Closing Sale Price, the Closing Bid Price, the Bid Price or fair
market value (as the case may be) to an independent, reputable investment bank selected by the Holder, with the consent of the Company (which may not be unreasonably
withheld, conditioned or delayed), or (b) if acceptable to the Holder, the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside
accountant. The Company shall cause at its expense the investment bank or the accountant (as the case may be) to perform the determinations or calculations (as the case may
be) and notify the Company and the Holder of the results no later than ten (10) Business Days from the time it receives such disputed determinations or calculations (as the case
may be). Such investment bank’s or accountant’s determination or calculation (as the case may be) shall be binding upon all parties absent demonstrable error.
14
14. REMEDIES, CHARACTERIZATION, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF . The remedies provided in this Warrant shall be cumulative
and in addition to all other remedies available under this Warrant and the other Transaction Documents, at law or in equity (including a decree of specific performance and/or
other injunctive relief), and nothing herein shall limit the right of the Holder to pursue actual damages for any failure by the Company to comply with the terms of this Warrant.
The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided
for herein with respect to payments, exercises and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holder of this Warrant shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by
the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Warrant (including, without limitation, compliance with Section 2
hereof). The issuance of shares and certificates for shares as contemplated hereby upon the exercise of this Warrant shall be made without charge to the Holder or such shares
for any issuance tax or other costs in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in
the issuance and delivery of any certificate in a name other than the Holder or its agent on its behalf.
15. TRANSFER. This Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company.
16. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:
(a) “Bid Price” means, for any security as of the particular time of determination, the bid price for such security on the Principal Market as reported by Bloomberg as
of such time of determination, or, if the Principal Market is not the principal securities exchange or trading market for such security, the bid price of such security on the
principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg as of such time of determination, or if the foregoing does not
apply, the bid price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg as of such time of determination,
or, if no bid price is reported for such security by Bloomberg as of such time of determination, the average of the bid prices of all of the market makers for such security as
reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC) as of such time of determination. If the Bid Price cannot be calculated for a security as of
the particular time of determination on any of the foregoing bases, the Bid Price of such security as of such time of determination shall be the fair market value as mutually
determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved
in accordance with the procedures in Section 13. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar
transaction during such period.
15
(b) “Black Scholes Value” means the Black Scholes value of an option for one Ordinary Share at the date of the applicable Cashless Exercise, as such Black Scholes
value is determined, calculated using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg utilizing (i) an underlying price per share equal
to the Exercise Price, (ii) a risk-free interest rate corresponding to the U.S. Treasury rate, (iii) a strike price equal to the Exercise Price in effect at the time of the applicable
Cashless Exercise, (iv) an expected volatility equal to 135%, and (v) a deemed remaining term of the Warrant of five (5) years (regardless of the actual remaining term of the
Warrant).
(c) “Black Scholes Value — FT” means the value of the unexercised portion of this Warrant remaining on the date of the Holder’s request pursuant to Section 4(c),
which value is calculated using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg utilizing (i) an underlying price per share equal to the
greater of (A) the highest Closing Sale Price of the Ordinary Shares during the period beginning on the Trading Day immediately preceding the earliest to occur of (1) the public
disclosure of the applicable Fundamental Transaction, (2) the consummation of the applicable Fundamental Transaction and (3) the date on which the Holder first became aware
of the applicable Fundamental Transaction and ending on the Trading Day of the Holder’s request pursuant to Section 4(c) and (B) the sum of the price per share being offered
in cash in the applicable Fundamental Transaction (if any) plus the value of the non-cash consideration being offered in the applicable Fundamental Transaction (if any), (ii) a
strike price equal to the Exercise Price in effect on the date of the Holder’s request pursuant to Section 4(c), (iii) a risk-free interest rate corresponding to the U.S. Treasury rate
for a period equal to the greater of (A) the remaining term of this Warrant as of the date of the Holder’s request pursuant to Section 4(c) and (B) the remaining term of this
Warrant as of the date of consummation of the applicable Fundamental Transaction or as of the date of the Holder’s request pursuant to Section 4(c) if such request is prior to
the date of the consummation of the applicable Fundamental Transaction and (iv) an expected volatility equal to the greater of 135% and the 100 day volatility obtained from
the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the earliest to occur of (A) the public
disclosure of the applicable Fundamental Transaction, (B) the consummation of the applicable Fundamental Transaction and (C) the date on which the Holder first became
aware of the applicable Fundamental Transaction.
(d) “Bloomberg” means Bloomberg, L.P.
(e) “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in New York, New York, Sydney, Australia or Aukland,
New Zealand are authorized or required by law to remain closed.
16
(f) “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price and the last closing trade price, respectively, for
such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid
price or the closing trade price (as the case may be) then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by
Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of
such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the
average of the bid prices, or the ask prices, respectively, of all of the market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. (formerly
Pink Sheets LLC). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price
or the Closing Sale Price (as the case may be) of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the
Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 13.
All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.
(g) “Ordinary Shares” means (i) the Company’s ordinary shares, without par value, and (ii) any capital stock into which such ordinary shares of the Company shall
have been changed or any share capital resulting from a reclassification of such ordinary shares.
(h) “Convertible Securities” means any stock or other security (other than Options) that is at any time and under any circumstances, directly or indirectly, convertible
into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any Ordinary Shares.
(i) “Eligible Market” means The Toronto Stock Exchange, the New York Stock Exchange, the NYSE Amex, the Nasdaq Global Select Market, the Nasdaq Global
Market or the Principal Market.
(j) “Expiration Date” means the date that is March 27, 2024 or, if such date falls on a day other than a Business Day or on which trading does not take place on the
Principal Market (a “Holiday”), the next date that is not a Holiday.
(k) “Fundamental Transaction” means that (i) the Company shall, directly or indirectly, in one or more related transactions, (1) consolidate or merge with or into
(whether or not the Company is the surviving entity) any other Person unless the shareholders of the Company immediately prior to such consolidation or merger continue to
hold more than 50% of the outstanding shares of Voting Stock after such consolidation or merger, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all
or substantially all of its properties or assets to any other Person, in connection with which the Company is dissolved, or (3) allow any other Person to make a purchase, tender
or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the
Company held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (4)
consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with any other Person whereby such other Person acquires more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of
Voting Stock of the Company held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or
share purchase agreement or other business combination), or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and
the rules and regulations promulgated thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the
aggregate ordinary voting power represented by issued and outstanding Voting Stock of the Company.
17
(l) “Market Price” means, as of any time of determination, the Closing Bid Price as of the last completed Trading Day immediately prior thereto.
(m) “Options” means any rights, warrants or options to subscribe for or purchase Ordinary Shares or Convertible Securities.
(n) “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is
quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of
the date of consummation of the Fundamental Transaction.
(o) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity or
a government or any department or agency thereof.
(p) “Principal Market” means the Nasdaq Capital Market.
(q) “Successor Entity” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or
the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered into.
(r) “Trading Day” means, as applicable, (x) with respect to all price determinations relating to the Ordinary Shares, any day on which the Ordinary Shares is traded on
the Principal Market, or, if the Principal Market is not the principal trading market for the Ordinary Shares, then on the principal securities exchange or securities market on
which the Ordinary Shares is then traded, provided that “Trading Day” shall not include any day on which the Ordinary Shares is scheduled to trade on such exchange or market
for less than 4.5 hours or any day that the Ordinary Shares is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market
does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is
otherwise designated as a Trading Day in writing by the Holder or (y) with respect to all determinations other than price determinations relating to the Ordinary Shares, any day
on which The New York Stock Exchange (or any successor thereto) is open for trading of securities.
(s) “Voting Stock” of a Person means capital stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power to elect,
or the general power to appoint, at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time capital stock of any
other class or classes shall have or might have voting power by reason of the happening of any contingency).
(t) “VWAP” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market (or, if the Principal Market is
not the principal trading market for such security, then on the principal securities exchange or securities market on which such security is then traded) during the period
beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its “Volume at Price” function or, if the foregoing
does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period
beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported
for such security by Bloomberg for such hours, the average of the three highest closing bid prices and the three lowest closing ask prices of all of the market makers for such
security as reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC). If VWAP cannot be calculated for such security on such date on any of the
foregoing bases, the VWAP of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 13. All such determinations
shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.
[signature page follows]
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IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Ordinary Shares to be duly executed as of the Issuance Date set out above.
NAKED BRAND GROUP LIMITED
By:
Name:
Title:
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
NAKED BRAND GROUP LIMITED
EXHIBIT A
The undersigned holder hereby exercises the right to purchase _________________ of the Ordinary Shares (“Warrant Shares”) of Naked Brand Group Limited, an
Australian Company (the “Company”), evidenced by Warrant to Purchase Ordinary Shares No. _______ (the “Warrant”). Capitalized terms used herein and not otherwise
defined shall have the respective meanings set forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as:
____________
a “Cash Exercise” with respect to _________________ Warrant Shares; and/or
____________
a “Cashless Exercise” with respect to _______________ Warrant Shares.
In the event that the Holder has elected a Cashless Exercise with respect to some or all of the Warrant Shares, the Holder represents and warrants that ____________
Ordinary Shares are to be delivered pursuant to such Cashless Exercise, as further specified in Annex A to this Exercise Notice.
2 . Payment of Exercise Price. In the event that the Holder has elected a Cash Exercise with respect to some or all of the Warrant Shares, the Holder shall pay the
Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares and Net Number of Ordinary Shares. The Company shall deliver to Holder, or its designee or agent as specified below, __________
Ordinary Shares in respect of the exercise contemplated hereby. Delivery shall be made to Holder, or for its benefit, to the following address:
_______________________
_______________________
_______________________
_______________________
Date: _______________ __, ______
_____________________________
Name of Registered Holder
By:
Name:
Title:
Account Number: ____________________________________________________________________________
(if electronic book entry transfer)
Transaction Code Number: _____________________________________________________________________
(if electronic book entry transfer)
ANNEX A TO EXERCISE NOTICE
CASHLESS EXERCISE EXCHANGE CALCULATION
TO BE FILLED IN BY THE REGISTERED HOLDER TO EXCHANGE THE
WARRANT TO PURCHASE COMMON A STOCK FOR COMMON STOCK IN A
CASHLESS EXERCISE PURSUANT TO SECTION 1(d) OF THE WARRANT
Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
Net Number = (A x B)/C = ________________ Ordinary Shares
For purposes of the foregoing formula:
A= the total number of shares with respect to which the Warrant is then being exercised = _________________.
B= Black Scholes Value (as defined in Section 16 of the Warrant) = ______________.
C= the Closing Bid Price of the Ordinary Shares as of two (2) Trading Days prior to the time of such exercise (as such Closing Bid Price is defined in Section
16 of the Warrant) = ______________.
Date: _______________ __, ______
____________________________
Name of Registered Holder
By:
Name:
Title:
The Company hereby acknowledges this Exercise Notice and hereby directs ______________ to issue the above indicated number of Ordinary Shares in accordance
with the Transfer Agent Instructions dated _________, 20__, from the Company and acknowledged and agreed to by _______________.
ACKNOWLEDGMENT
EXHIBIT B
NAKED BRAND GROUP LIMITED
By:
Name:
Title:
REGISTRATION RIGHTS AGREEMENT
Exhibit 4.7.4
This REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of March 27, 2019, is by and among Naked Brand Group Limited, an Australian company (the
“Company”), and the undersigned buyers (the “Buyers”).
RECITALS
A. In connection with the Securities Purchase Agreement by and between the parties hereto, dated as of March 27, 2019 (the “Securities Purchase Agreement”), the
Company has agreed, upon the terms and subject to the conditions of the Securities Purchase Agreement, to issue and sell to the Buyers (i) the Ordinary Shares (as defined in the
Securities Purchase Agreement) and (ii) the Warrants (as defined in the Securities Purchase Agreement), which will be exercisable or exchangeable to purchase Warrant Shares
(as defined in the Securities Purchase Agreement) in accordance with the terms of the Warrants.
B. To induce the Buyers to consummate the transactions contemplated by the Securities Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the “1933 Act”), and applicable state
securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Buyers hereby agree as follows:
AGREEMENT
1. Definitions.
Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Securities Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
(a) “Business Day” means any day other than (i) Saturday, Sunday or any other day on which commercial banks in New York, New York, Sydney, Australia or
Aukland, New Zealand are authorized or required by law to remain closed or (ii) with respect to dates on which filings are required to be made with the SEC, any day on which
the SEC is not open and available to accept filings.
(b) “Closing Date” shall have the meaning set forth in the Securities Purchase Agreement with respect to the Closing (as defined in the Securities Purchase
Agreement).
(c) “Effective Date” means the date that the applicable Registration Statement has been declared effective by the SEC.
(d) “Effectiveness Deadline” means (i) with respect to the Initial Registration Statement required to be filed pursuant to Section 2(a), the earlier of the (A) 55th
calendar day after the Closing Date and (B) 2nd Business Day after the date the Company is notified (orally or in writing, whichever is earlier) by the SEC that such
Registration Statement will not be reviewed or will not be subject to further review and (ii) with respect to any additional Registration Statements that may be required to be
filed by the Company pursuant to this Agreement, the earlier of the (A) 45th calendar day following the date on which the Company was required to file such additional
Registration Statement and (B) 2nd Business Day after the date the Company is notified (orally or in writing, whichever is earlier) by the SEC that such Registration Statement
will not be reviewed or will not be subject to further review. Notwithstanding the foregoing or anything to the contrary herein, if the Effectiveness Deadline falls on a day that is
not a Business Day, the Effectiveness Deadline shall be on the next succeeding Business Day.
(e) “Filing Deadline” means (i) with respect to the Initial Registration Statement required to be filed pursuant to Section 2(a), the 10th calendar day after the Closing
Date and (ii) with respect to any additional Registration Statements that may be required to be filed by the Company pursuant to this Agreement, the date on which the
Company was required to file such additional Registration Statement pursuant to the terms of this Agreement. Notwithstanding the foregoing or anything to the contrary herein,
if the Filing Deadline falls on a day that is not a Business Day, the Filing Deadline shall be on the next succeeding Business Day.
(f) “Investor” means a Buyer or any transferee or assignee of any Registrable Securities or Warrants, as applicable, to whom such Buyer assigns its rights under this
Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9 and any transferee or assignee thereof to whom a transferee or
assignee of any Registrable Securities or Warrants, as applicable, assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement
in accordance with Section 9.
(g) “Initial Required Registration Amount” means of the sum of (i) the Ordinary Shares issued pursuant to the Securities Purchase Agreement and (ii) 150% of the
initial number of Warrant Shares issued and issuable upon a cash exercise pursuant to the Warrants (or the number of Warrant Shares so issued and issuable as of the filing of
the Initial Registration Statement, if more).
(h) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, or any other entity of any kind or nature whatsoever, a
trust, an unincorporated organization or a government or any department or agency or portion thereof.
(i) “register,” “registered,” and “registration” refer to a registration effected by preparing and filing one or more Registration Statements in compliance with the 1933
Act and pursuant to Rule 415 and the declaration of effectiveness of such Registration Statement(s) by the SEC.
(j) “Registrable Securities” means (i) the Ordinary Shares issued pursuant to the Securities Purchase Agreement, (ii) the Warrant Shares and (iii) any capital stock of
the Company issued or issuable with respect to such Ordinary Shares, the Warrant Shares or the Warrants, including, without limitation, (1) as a result of any stock split, stock
dividend, recapitalization, exchange or similar event or otherwise and (2) shares of capital stock of the Company into which the Ordinary Shares are converted or exchanged and
shares of capital stock of a Successor Entity (as defined in the Warrants) into which the Ordinary Shares are converted or exchanged, in each case, without regard to any
limitations on exercise or exchange of the Warrants. As to any Registrable Securities, such securities shall cease to be Registrable Securities when: (a) a Registration Statement
with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been sold, transferred, disposed of or exchanged in
accordance with such Registration Statement; (b) such securities shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer
shall have been delivered by the Company, and subsequent public distribution of them shall not require registration under the Securities Act; or (c) such securities are freely
saleable under Rule 144 under the Securities Act without the requirement for current public information and without volume or manner of sale limitations.
(k) “Registration Statement” means a registration statement or registration statements of the Company filed under the 1933 Act covering Registrable Securities (and
the term “Initial Registration Statement” shall mean the first Registration Statement filed pursuant to this Agreement).
(l) “Required Holders” means the holders of a majority in interest of the Registrable Securities (in the case of the Registrable Securities issuable upon exercise of the
Warrants, based on the number of Ordinary Shares then issuable upon a cash exercise thereof).
(m) “Required Registration Amount” means the sum of the Ordinary Shares issued pursuant to the Securities Purchase Agreement (including any issued Warrant
Shares) and the maximum number of Warrant Shares issuable upon a cash exercise pursuant to the Warrants, in each case, as of the Trading Day (as defined in the Warrants)
immediately preceding the applicable date of determination (without taking into account any limitations on the exercise or exchange of the Warrants set forth therein).
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(n) “Rule 144” means Rule 144 promulgated by the SEC under the 1933 Act, as such rule may be amended from time to time, or any other similar or successor rule or
regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration.
(o) “Rule 415” means Rule 415 promulgated by the SEC under the 1933 Act, as such rule may be amended from time to time, or any other similar or successor rule or
regulation of the SEC providing for offering securities on a continuous or delayed basis.
(p) “SEC” means the United States Securities and Exchange Commission or any successor thereto.
2. Registration.
(a) Mandatory Registration. The Company shall prepare and, as soon as practicable, but in no event later than the Filing Deadline, file with the SEC an initial
Registration Statement on Form F-1 covering the resale of all of the Registrable Securities, provided that such Initial Registration Statement shall register for resale at least the
number of Ordinary Shares equal to the Initial Required Registration Amount as of the date such Registration Statement is initially filed with the SEC (together with such other
number of Ordinary Shares constituting Registrable Securities as may be registered thereunder pursuant to Rule 416 or otherwise). Such Initial Registration Statement, and each
other Registration Statement required to be filed pursuant to the terms of this Agreement, shall contain (except if otherwise directed by the Required Holders) the “Selling
Shareholder” and “Plan of Distribution” sections in substantially the form attached hereto as Exhibit B. The Company shall use its best efforts to have such Initial Registration
Statement, and each other Registration Statement required to be filed pursuant to the terms of this Agreement, declared effective by the SEC as soon as practicable, but in no
event later than the applicable Effectiveness Deadline for such Registration Statement.
(b) Legal Counsel. Subject to Section 5 hereof, Acuitas Capital LLC (“Acuitas”) shall have the right to select one (1) legal counsel to review and oversee, solely on its
behalf, any registration pursuant to this Section 2 (“Legal Counsel”), which shall be McDermott Will & Emery LLP or such other counsel as thereafter designated by Acuitas.
(c) Form F-3. The Company shall undertake to register the resale of the Registrable Securities on Form F-3 as soon as such form is available, provided that the
Company shall maintain the effectiveness of all Registration Statements then in effect and the availability for use of each prospectus contained therein until such time as a
Registration Statement on Form F-3 covering the resale of all the Registrable Securities has been declared effective by the SEC and the prospectus contained therein is available
for use or, if sooner, the expiration of the Registration Period (as defined below).
(d) Sufficient Number of Shares Registered. In the event the number of shares available under any Registration Statement is insufficient to cover from time to time the
Required Registration Amount, the Company shall amend such Registration Statement (if permissible), or file with the SEC a new Registration Statement (on the short form
available therefor, if applicable), or both, so as to cover at least the Required Registration Amount as of the Trading Day immediately preceding the date of the filing of such
amendment or new Registration Statement, in each case, as soon as practicable, but in any event not later than fifteen (15) days after the necessity therefor arises (but taking
account of the position of the staff of the SEC (the “Staff”) with respect to the date on which the Staff will permit such amendment to the Registration Statement and/or such
new Registration Statement (as the case may be) to be filed with the SEC). The Company shall use its best efforts to cause such amendment to such Registration Statement
and/or such new Registration Statement (as the case may be) to become effective as soon as practicable following the filing thereof with the SEC, but in no event later than the
applicable Effectiveness Deadline for such Registration Statement. For purposes of the foregoing provision, the number of shares available under a Registration Statement shall
be deemed “insufficient to cover all of the Registrable Securities” if at any time the number of Ordinary Shares available for resale under the applicable Registration Statement
is less than the Required Registration Amount as of such time.
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(e) Effect of Failure to File and Obtain and Maintain Effectiveness of any Registration Statement. If (i) a Registration Statement covering the resale of all of the
Registrable Securities required to be covered thereby and required to be filed by the Company pursuant to this Agreement is (A) not filed with the SEC on or before the Filing
Deadline for such Registration Statement (a “Filing Failure”) (it being understood that if the Company files a Registration Statement without affording each Investor the
opportunity to review and comment on the same as required by Section 3(c) hereof, the Company shall be deemed to not have satisfied this clause (i)(A) and such event shall
be deemed to be a Filing Failure) or (B) not declared effective by the SEC on or before the Effectiveness Deadline for such Registration Statement (an “Effectiveness Failure”)
(it being understood that if on the Business Day immediately following the Effective Date for such Registration Statement the Company shall not have filed a “final” prospectus
for such Registration Statement with the SEC under Rule 424(b) in accordance with Section 3(b) (whether or not such a prospectus is technically required by such rule), the
Company shall be deemed to not have satisfied this clause (i)(B) and such event shall be deemed to be an Effectiveness Failure), (ii) on any day after the Effective Date of a
Registration Statement sales of all of the Registrable Securities required to be included on such Registration Statement cannot be made pursuant to such Registration Statement
(including, without limitation, because of a failure to keep such Registration Statement effective, a failure to disclose such information as is necessary for sales to be made
pursuant to such Registration Statement, a suspension or delisting of (or a failure to timely list) the Ordinary Shares on the Principal Market (as defined in the Securities
Purchase Agreement), or a failure to register a sufficient number of Ordinary Shares or by reason of a stop order) or the prospectus contained therein is not properly available for
use for any reason (a “Maintenance Failure”), for more than five (5) consecutive calendar days or more than an aggregate of ten (10) calendar days (which need not be
consecutive calendar days) during any 12-month period, provided that a Maintenance Failure shall not be deemed to occur for the purposes of this section to the extent a post-
effective amendment to the Registration Statement is required for the purpose of meeting the requirements of section 10(a)(3) of the 1933 Act and the resulting Maintenance
Failure continues for fifteen (15) days or less, or (iii) a Registration Statement is not effective for any reason or the prospectus contained therein is not properly available for use
for any reason, and the Company fails to file with the SEC any required reports under Section 13 or 15(d) of the 1934 Act such that it is not in compliance with Rule 144(c)(1)
(or Rule 144(i)(2), if applicable) (a “Current Public Information Failure”) as a result of which any of the Investors are unable to sell Registrable Securities without restriction
under Rule 144 (including, without limitation, volume restrictions), then, as partial relief for the damages to any holder by reason of any such delay in, or reduction of, its ability
to sell the underlying Ordinary Shares (which remedy shall not be exclusive of any other remedies available at law or in equity), the Company shall pay to each holder of
Registrable Securities relating to such Registration Statement an amount in cash equal to two percent (2%) of such Investor’s total committed purchase price for the Registrable
Securities affected by such failure pursuant to the Securities Purchase Agreement (i.e., 2.0% of $2,500,000, or $50,000) (1) within three (3) Business Days after the date of such
Filing Failure, Effectiveness Failure, Maintenance Failure or Current Public Information Failure, as applicable, and (2) on every thirty (30) day anniversary of (I) a Filing Failure
until such Filing Failure is cured; (II) an Effectiveness Failure until such Effectiveness Failure is cured; (III) a Maintenance Failure until such Maintenance Failure is cured; and
(IV) a Current Public Information Failure until the earlier of (i) the date such Current Public Information Failure is cured and (ii) such time that such public information is no
longer required pursuant to Rule 144 (in each case, pro rated for periods totaling less than thirty (30) days). The payments to which a holder of Registrable Securities shall be
entitled pursuant to this Section 2(e) are referred to herein as “Registration Delay Payments.” Following the initial Registration Delay Payment for any particular event or
failure (which shall be paid on the date of such event or failure, as set forth above), without limiting the foregoing, if an event or failure giving rise to the Registration Delay
Payments is cured prior to any thirty (30) day anniversary of such event or failure, then no further Registration Delay Payment(s) shall accrue after such cure. In the event the
Company fails to make Registration Delay Payments in a timely manner in accordance with the foregoing, such Registration Delay Payments shall bear interest at the rate of
one percent (1%) per month (prorated for partial months) until paid in full. Notwithstanding the foregoing, no Registration Delay Payments shall be owed to an Investor: (i) with
respect to an Effectiveness Failure, a Maintenance Failure or a Current Public Information Failure, for any period after the date on which such Investor may conduct a resale of
all of its Registrable Securities in reliance on a valid exemption from registration in accordance with Rule 144 and (ii) with respect to any Registrable Securities excluded from a
Registration Statement by election of an Investor. Notwithstanding anything herein to the contrary, except in connection with a Current Public Information Failure, the
Company shall not be required to make more than an aggregate of twelve (12) Registration Delay Payments pursuant to this Section 2(e), where any such payment pursuant to
clause (2) of this Section 2(e) covering less than a 30-day period shall constitute a fraction of a Registration Delay Payment (i.e., no more than 24% in the aggregate).
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(f) Offering. Notwithstanding anything to the contrary contained in this Agreement, the Company agrees with the Buyers that each Registration Statement required to
become effective hereunder shall become effective and be used for resales by the Investors such that it does not constitute and is not deemed to constitute an offering of
securities by, or on behalf of, the Company, and that permits the continuous resale at the market by the Investors participating therein (or as otherwise may be acceptable to each
Investor) without being named therein as an “underwriter.”
(g) Piggyback Registrations. Without limiting any obligation of the Company hereunder (including its obligations under Section 2(h)) or under the Securities Purchase
Agreement, if there is not an effective Registration Statement covering all of the Registrable Securities or the prospectus contained therein is not available for use and the
Company shall determine to prepare and file with the SEC a registration statement relating to an offering for its own account or the account of others under the 1933 Act of any
of its equity securities (other than on Form S-4 or Form S-8 (each as promulgated under the 1933 Act) or their then equivalents relating to equity securities to be issued solely in
connection with any acquisition of any entity or business or equity securities issuable in connection with the Company’s stock option or other employee benefit plans), then the
Company shall deliver to each Investor a written notice of such determination and, if within fifteen (15) days after the date of the delivery of such notice, any such Investor shall
so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Investor requests to be registered; provided,
however, the Company shall not be required to register any Registrable Securities pursuant to this Section 2(g) that are eligible for resale pursuant to Rule 144 without
restriction (including, without limitation, volume restrictions) and without the need for current public information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) or
that are the subject of a then-effective Registration Statement. Notwithstanding anything else to the contrary in this Section 2(g), if (i) the Commission or any position of the
Staff sets forth a limitation on the number of Registrable Securities permitted to be registered on a particular Registration Statement as a secondary offering or (ii) the
Registration Statement is in the form of an underwritten offering and the managing underwriter(s) advise the Company that the dollar amount or number of Registrable
Securities, taken together with all of the other securities which the Company desires to sell or for which registration has been requested pursuant to written contractual piggy-
back registration rights held by other stockholders, exceeds the maximum dollar amount or maximum number of securities that can be sold in such offering without adversely
affecting the proposed offering price, timing, distribution method, or probability of success (collectively, such limitation the “Maximum Number of Securities”), then the
Company shall limit the securities to be included on such Registration Statement to: first, the number of securities which the Company desires to sell for itself without exceeding
the Maximum Number of Securities; and second, securities (including Registrable Securities) for which registration has been requested pursuant to written contractual piggy-
back registration rights, pro rata in accordance with the number of securities that each such person has requested be included in such registration regardless of the number of
securities held by each such person, that can be sold without exceeding the Maximum Number of Securities.
(h) No Inclusion of Other Securities. Except as set forth in Schedule 2(h) hereto, in no event shall the Company include any securities other than Registrable Securities
on any Registration Statement without the prior written consent of the Required Holders. Until the Applicable Date (as defined in the Securities Purchase Agreement), except as
set forth in Schedule 4(j) of the Securities Purchase Agreement, the Company shall not enter into any agreement providing any registration rights to any of its security holders
and the Company shall not file any other registration statement until such time.
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3. Related Obligations.
The Company shall use its best efforts to effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof, and,
pursuant thereto, the Company shall have the following obligations:
(a) The Company shall promptly prepare and file with the SEC a Registration Statement with respect to all the Registrable Securities (but in no event later than the
applicable Filing Deadline) and use its best efforts to cause such Registration Statement to become effective as soon as practicable after such filing (but in no event later than the
Effectiveness Deadline). The Company shall keep each Registration Statement effective (and the prospectus contained therein available for use) pursuant to Rule 415 for resales
by the Investors on a delayed or continuous basis at then-prevailing market prices (and not fixed prices) at all times until the earlier of (i) the date as of which all of the Investors
may sell all of the Registrable Securities required to be covered by such Registration Statement without restriction pursuant to Rule 144 (including, without limitation, volume
restrictions) and without the need for current public information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) or (ii) the date on which the Investors shall have
sold all of the Registrable Securities covered by such Registration Statement (the “Registration Period”). Notwithstanding anything to the contrary contained in this
Agreement, the Company shall ensure that, when filed and at all times while effective, each Registration Statement (including, without limitation, all amendments and
supplements thereto) and the prospectus (including, without limitation, all amendments and supplements thereto) used in connection with such Registration Statement (1) shall
not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein (in the case of
prospectuses, in the light of the circumstances in which they were made) not misleading and (2) will disclose (whether directly or through incorporation by reference to other
SEC filings to the extent permitted) all material information regarding the Company and its securities. The Company shall submit to the SEC, within one (1) Business Day after
the later of the date that (i) the Company learns that no review of a particular Registration Statement will be made by the Staff or that the Staff has no further comments on a
particular Registration Statement (as the case may be) and (ii) the consent of Legal Counsel is obtained pursuant to Section 3(c) (which consent shall be immediately sought), a
request for acceleration of effectiveness of such Registration Statement to a time and date not later than forty-eight (48) hours after the submission of such request.
(b) The Company shall prepare and file with the SEC such amendments (including, without limitation, post-effective amendments) and supplements to each
Registration Statement and the prospectus used in connection with each such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the
1933 Act, as may be necessary to keep each such Registration Statement effective at all times during the Registration Period for such Registration Statement, and, during such
period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company required to be covered by such Registration
Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof
as set forth in such Registration Statement; provided, however, by 8:30 a.m. (New York time) on the Business Day immediately following each Effective Date, the Company
shall file with the SEC in accordance with Rule 424(b) under the 1933 Act the final prospectus to be used in connection with sales pursuant to the applicable Registration
Statement (whether or not such a prospectus is technically required by such rule). In the case of amendments and supplements to any Registration Statement which are required
to be filed pursuant to this Agreement (including, without limitation, pursuant to this Section 3(b)) by reason of the Company filing a report on Form 20-F or any similar or
successor report under the Securities Exchange Act of 1934, as amended (the “1934 Act”), the Company shall have incorporated such report by reference into such Registration
Statement, if applicable, or shall file such amendments or supplements with the SEC on the same day on which the 1934 Act report is filed which created the requirement for the
Company to amend or supplement such Registration Statement.
(c) The Company shall (A) permit Legal Counsel to review and comment upon (i) each Registration Statement at least two (2) Business Days prior to its filing with the
SEC and (ii) all amendments and supplements to each Registration Statement (including, without limitation, the prospectus contained therein) (except for Annual Reports on
Form 20-F, Report of Foreign Private Issuer on Form 6-K, and any similar or successor reports) within a reasonable number of days prior to their filing with the SEC, and (B)
not file any Registration Statement or amendment or supplement thereto in a form to which Legal Counsel reasonably objects. The Company shall not submit a request for
acceleration of the effectiveness of a Registration Statement or any amendment or supplement thereto or to any prospectus contained therein without the prior consent of Legal
Counsel, which consent shall not be unreasonably withheld. The Company shall promptly furnish to Legal Counsel without charge, (i) copies of any correspondence from the
SEC or the Staff to the Company or its representatives relating to each Registration Statement, provided that such correspondence shall not contain any material, non-public
information regarding the Company or any of its Subsidiaries (as defined in the Securities Purchase Agreement), (ii) after the same is prepared and filed with the SEC, one (1)
copy of each Registration Statement and any amendment(s) and supplement(s) thereto, including, without limitation, financial statements and schedules, all documents
incorporated therein by reference, if requested by an Investor, and all exhibits and (iii) upon the effectiveness of each Registration Statement, one (1) copy of the prospectus
included in such Registration Statement and all amendments and supplements thereto. The Company shall reasonably cooperate with Legal Counsel in performing the
Company’s obligations pursuant to this Section 3.
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(d) The Company shall promptly furnish to each Investor whose Registrable Securities are included in any Registration Statement, without charge, (i) after the same is
prepared and filed with the SEC, one (1) copy of each Registration Statement and any amendment(s) and supplement(s) thereto, including, without limitation, financial
statements and schedules, all documents incorporated therein by reference, if requested by an Investor, all exhibits and each preliminary prospectus, (ii) upon the effectiveness
of each Registration Statement, one (1) copy of the prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of
copies as such Investor may reasonably request from time to time) and (iii) such other documents, including, without limitation, copies of any preliminary or final prospectus,
as such Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such Investor.
(e) The Company shall use its best efforts to (i) register and qualify, unless an exemption from registration and qualification applies, the resale by Investors of the
Registrable Securities covered by a Registration Statement under such other securities or “blue sky” laws of all applicable jurisdictions in the United States, (ii) prepare and file
in those jurisdictions, such amendments (including, without limitation, post-effective amendments) and supplements to such registrations and qualifications as may be necessary
to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at
all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, the Company shall not be required in connection therewith or as a condition thereto to (y) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e) or (z) subject itself to general taxation in any such jurisdiction. The Company shall promptly notify Legal Counsel and
each Investor who holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the
Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.
(f) The Company shall notify Legal Counsel and each Investor in writing of the happening of any event, as promptly as practicable after becoming aware of such
event, as a result of which the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material
fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (provided that in no
event shall such notice contain any material, non-public information regarding the Company or any of its Subsidiaries), and promptly prepare a supplement or amendment to
such Registration Statement and such prospectus contained therein to correct such untrue statement or omission and deliver ten (10) copies of such supplement or amendment to
Legal Counsel and each Investor (or such other number of copies as Legal Counsel, legal counsel for each other Investor or such Investor may reasonably request). The
Company shall also promptly notify Legal Counsel and each Investor in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been
filed, when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to Legal Counsel and each
Investor by facsimile or e-mail on the same day of such effectiveness and by overnight mail), and when the Company receives written notice from the SEC that a Registration
Statement or any post-effective amendment will be reviewed by the SEC, (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related
prospectus or related information, (iii) of the Company’s reasonable determination that a post-effective amendment to a Registration Statement would be appropriate; and (iv)
of the receipt of any request by the SEC or any other federal or state governmental authority for any additional information relating to the Registration Statement or any
amendment or supplement thereto or any related prospectus. The Company shall respond as promptly as practicable to any comments received from the SEC with respect to
each Registration Statement or any amendment thereto (it being understood and agreed that the Company’s response to any such comments shall be delivered to the SEC no
later than five (5) Business Days after the receipt thereof).
(g) The Company shall (i) use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of each Registration Statement or the use of
any prospectus contained therein, or the suspension of the qualification, or the loss of an exemption from qualification, of any of the Registrable Securities for sale in any
jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and (ii) notify Legal Counsel and
each Investor who holds Registrable Securities of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.
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(h) The Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such
information is necessary to comply with federal or state securities laws or delivered to the Company for the purpose of inclusion in a Registration Statement, (ii) the disclosure
of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required to be disclosed in such Registration
Statement pursuant to the 1933 Act, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental
body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other
Transaction Document. The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a court or governmental
body of competent jurisdiction or through other means, give prompt written notice to such Investor and allow such Investor, at such Investor’s expense, to undertake appropriate
action to prevent disclosure of, or to obtain a protective order for, such information.
(i) Without limiting any obligation of the Company under the Securities Purchase Agreement, the Company shall use its best efforts either to cause all of the
Registrable Securities covered by each Registration Statement to be listed on each securities exchange on which securities of the same class or series issued by the Company are
then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) if, despite the Company’s best efforts to satisfy the
preceding clause (i) the Company is unsuccessful in satisfying the preceding clause (i), without limiting the generality of the foregoing, to use its best efforts to arrange for at
least two market makers to register with the Financial Industry Regulatory Authority (“FINRA”) as such with respect to such Registrable Securities.
(j) The Company shall cooperate with the Investors who hold Registrable Securities being offered and, to the extent applicable, facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates
to be in such denominations or amounts (as the case may be) as the Investors may reasonably request from time to time and registered in such names as the Investors may
request.
(k) If requested by an Investor, the Company shall as soon as practicable after receipt of notice from such Investor and, (i) incorporate in a prospectus supplement or
post-effective amendment such information as an Investor reasonably requests to be included therein relating to the sale and distribution of Registrable Securities, including,
without limitation, information with respect to the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other terms of the
offering of the Registrable Securities to be sold in such offering; (ii) make all required filings of such prospectus supplement or post-effective amendment after being notified of
the matters to be incorporated in such prospectus supplement or post-effective amendment; and (iii) supplement or make amendments to any Registration Statement or
prospectus contained therein if reasonably requested by an Investor holding any Registrable Securities.
(l) The Company shall use its best efforts to cause the Registrable Securities covered by a Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities.
(m) The Company shall make generally available to its security holders as soon as practical, but not later than ninety (90) days after the close of the period covered
thereby, an earnings statement (in form complying with, and in the manner provided by, the provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company’s fiscal quarter next following the applicable Effective Date of each Registration Statement.
(n) The Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder.
(o) Within one (1) Business Day after a Registration Statement which covers Registrable Securities is declared effective by the SEC, the Company shall deliver, and
shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investors whose Registrable Securities are included
in such Registration Statement) confirmation that such Registration Statement has been declared effective by the SEC in the form attached hereto as Exhibit A.
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(p) Once eligible, the Company shall use its best efforts to maintain eligibility for use of Form F-3 (or any successor form thereto) for the registration of the resale of
all the Registrable Securities.
(q) The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by each Investor of its Registrable Securities pursuant to each
Registration Statement.
4. Obligations of the Investors.
(a) At least five (5) Business Days prior to the first anticipated filing date of each Registration Statement, the Company shall notify each Investor in writing of the
information the Company seeks from each such Investor with respect to such Registration Statement. It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it, as shall be reasonably required,
in the good faith judgment of such Investor, to effect and maintain the effectiveness of the registration of such Registrable Securities
(b) Each Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(g) or the first sentence of
3(f), such Investor will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until such
Investor’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(g) or the first sentence of Section 3(f) or receipt of notice that no
supplement or amendment is required. Notwithstanding anything to the contrary in this Section 4(b), the Company shall cause its transfer agent to deliver unlegended Ordinary
Shares to a transferee of an Investor in accordance with the terms of the Securities Purchase Agreement in connection with any sale of Registrable Securities with respect to
which such Investor has entered into a contract for sale prior to the Investor’s receipt of a notice from the Company of the happening of any event of the kind described in
Section 3(g) or the first sentence of Section 3(f) and for which such Investor has not yet settled.
(c) Each Investor covenants and agrees that it will comply with the prospectus delivery requirements of the 1933 Act as applicable to it in connection with sales of
Registrable Securities pursuant to a Registration Statement.
5. Expenses of Registration.
All reasonable expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2
and 3, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, FINRA filing fees (if any) and fees and disbursements of
counsel for the Company shall be paid by the Company.
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6. Indemnification.
(a) To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend each Investor and each of its directors, officers,
managers, shareholders, members, partners, employees, agents, advisors, representatives (and any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding the lack of such title or any other title) and each Person, if any, who controls such Investor within the meaning of the 1933 Act or the 1934 Act and each of
the directors, officers, managers, shareholders, members, partners, employees, agents, advisors, representatives (and any other Persons with a functionally equivalent role of a
Person holding such titles notwithstanding the lack of such title or any other title) of such controlling Persons (each, an “Indemnified Person”), against any losses, obligations,
claims, damages, liabilities, contingencies, judgments, fines, penalties, charges, costs (including, without limitation, court costs, reasonable attorneys’ fees and costs of defense
and investigation), amounts paid in settlement or expenses, joint or several, (collectively, “Claims”) incurred in investigating, preparing or defending any action, claim, suit,
inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC,
whether pending or threatened, whether or not an indemnified party is or may be a party thereto (“Indemnified Damages”), to which any of them may become subject insofar
as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue
statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under
the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are offered (“Blue Sky Filing”), or the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company
files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were made, not misleading or (iii) any violation or alleged violation by the Company of the 1933 Act,
the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities
pursuant to a Registration Statement (the matters in the foregoing clauses (i) through (iii) being, collectively, “Violations”) unless such Violations are based primarily upon a
breach of Investor’s representations, warranties, or covenants under the Transaction Documents or any violations by Investor of state or federal securities laws or any conduct
by Investor which constitutes fraud, gross negligence or willful misconduct. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. Subject to
Section 6(c), the Company shall reimburse the Indemnified Persons, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable
expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company by such Indemnified Person for such Indemnified Person expressly for use in connection with the preparation
of such Registration Statement or any such amendment thereof or supplement thereto and (ii) shall not be available to a particular Investor to the extent such Claim is based on a
failure of such Investor to deliver or to cause to be delivered the prospectus made available by the Company (to the extent applicable), including, without limitation, a corrected
prospectus, if such prospectus or corrected prospectus was timely made available by the Company pursuant to Section 3(d) and then only if, and to the extent that, following the
receipt of the corrected prospectus no grounds for such Claim would have existed; and (iii) shall not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which consent shall not be unreasonably withheld or delayed. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of any of the Registrable Securities by any of the Investors
pursuant to Section 9.
(b) In connection with any Registration Statement in which an Investor is participating, such Investor agrees to severally and not jointly indemnify, hold harmless and
defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement
and each Person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act (each, an “ Indemnified Party”), against any Claim or Indemnified
Damages to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based
upon any Violation, in each case, to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration Statement; and, subject to Section 6(c) and the below provisos in this Section 6(b), such
Investor will reimburse an Indemnified Party any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such
Claim; provided, however, the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld or
delayed, provided further that such Investor shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds
to such Investor as a result of the applicable sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of any of the Registrable Securities by any of the Investors
pursuant to Section 9.
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(c) Promptly after receipt by an Indemnified Person or Indemnified Party (as the case may be) under this Section 6 of notice of the commencement of any action or
proceeding (including, without limitation, any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party (as the case may be) shall,
if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed,
to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party (as the case may be);
provided, however, an Indemnified Person or Indemnified Party (as the case may be) shall have the right to retain its own counsel with the fees and expenses of such counsel to
be paid by the indemnifying party if: (i) the indemnifying party has agreed in writing to pay such fees and expenses; (ii) the indemnifying party shall have failed promptly to
assume the defense of such Claim and to employ counsel reasonably satisfactory to such Indemnified Person or Indemnified Party (as the case may be) in any such Claim; or
(iii) the named parties to any such Claim (including, without limitation, any impleaded parties) include both such Indemnified Person or Indemnified Party (as the case may be)
and the indemnifying party, and such Indemnified Person or such Indemnified Party (as the case may be) shall have been advised by counsel in writing that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Person or such Indemnified Party and the indemnifying party (in which case, if such Indemnified
Person or such Indemnified Party (as the case may be) notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying
party, then the indemnifying party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the indemnifying party, provided further
that in the case of clause (iii) above the indemnifying party shall not be responsible for the reasonable fees and expenses of more than one (1) separate legal counsel for such
Indemnified Person or Indemnified Party (as the case may be)). The Indemnified Party or Indemnified Person (as the case may be) shall reasonably cooperate with the
indemnifying party in connection with any negotiation or defense of any such action or Claim by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the Indemnified Party or Indemnified Person (as the case may be) which relates to such action or Claim. The indemnifying party shall keep
the Indemnified Party or Indemnified Person (as the case may be) reasonably apprised at all times as to the status of the defense or any settlement negotiations with respect
thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent; provided, however, the
indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the prior written consent of the Indemnified Party or
Indemnified Person (as the case may be), which shall not be unreasonably withheld, conditioned or delayed, consent to entry of any judgment or enter into any settlement or
other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person (as the case
may be) of a release from all liability in respect to such Claim or litigation, and such settlement shall not include any admission as to fault on the part of the Indemnified Party.
Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person (as the case may
be) with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or
Indemnified Party (as the case may be) under this Section 6, except to the extent that the indemnifying party is materially and adversely prejudiced in its ability to defend such
action.
(d) No Person involved in the sale of Registrable Securities who is guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) in
connection with such sale shall be entitled to indemnification from any Person involved in such sale of Registrable Securities who is not guilty of fraudulent misrepresentation.
(e) The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and
when bills are received or Indemnified Damages are incurred.
(f) The indemnity and contribution agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.
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7. Contribution.
To the extent any indemnification by an indemnifying party is prohibited or limited by law, then indemnifying party, in lieu of indemnifying such Indemnified Party or
Indemnified Person, shall contribute to the amount paid or payable by such Indemnified Party or Indemnified Person as a result of such Claim or Indemnified Damages in such
proportion as is appropriate to reflect the relative fault of the Indemnified Party or Indemnified Person and the indemnifying party in connection with the actions or omissions
which resulted in Claim or Indemnified Damages, as well as any other relevant equitable considerations. The relative fault of any Indemnified Party or Indemnified Person and
any indemnifying party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by such Indemnified Party or such Indemnifying Party and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately
preceding sentence. Notwithstanding the foregoing: (i) no contribution shall be made under circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6 of this Agreement, (ii) no Person involved in the sale of Registrable Securities which Person is guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) in connection with such sale shall be entitled to contribution from any Person involved in such sale of
Registrable Securities who was not guilty of fraudulent misrepresentation; and (iii) contribution by any seller of Registrable Securities shall be limited in amount to the amount
of net proceeds received by such seller from the applicable sale of such Registrable Securities pursuant to such Registration Statement. Notwithstanding the provisions of this
Section 7, no Investor shall be required to contribute, in the aggregate, any amount in excess of the amount by which the net proceeds actually received by such Investor from
the applicable sale of the Registrable Securities subject to the Claim exceeds the amount of any damages that such Investor has otherwise been required to pay, or would
otherwise be required to pay under Section 6(b), by reason of such untrue or alleged untrue statement or omission or alleged omission.
8. Reports Under the 1934 Act.
With a view to making available to the Investors the benefits of Rule 144, the Company agrees to:
(a) make and keep public information available, as those terms are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company
remains subject to such requirements (it being understood and agreed that nothing herein shall limit any obligations of the Company under the Securities Purchase Agreement)
and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and
(c) furnish to each Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company, if true, that it has
complied with the reporting, submission and posting requirements of Rule 144 and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company with the SEC if such reports are not publicly available via EDGAR, and (iii) such other information as may be
reasonably requested to permit the Investors to sell such securities pursuant to Rule 144 without registration.
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9. Assignment of Registration Rights.
All or any portion of the rights under this Agreement shall be automatically assignable by each Investor to any transferee or assignee (as the case may be) of all or any
portion of such Investor’s Registrable Securities or Warrants if: (i) such Investor agrees in writing with such transferee or assignee (as the case may be) to assign all or any
portion of such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such transfer or assignment (as the case may be); (ii) the
Company is, within a reasonable time after such transfer or assignment (as the case may be), furnished with written notice of (a) the name and address of such transferee or
assignee (as the case may be), and (b) the securities with respect to which such registration rights are being transferred or assigned (as the case may be); (iii) immediately
following such transfer or assignment (as the case may be) the further disposition of such securities by such transferee or assignee (as the case may be) is restricted under the
1933 Act or applicable state securities laws if so required; (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence such
transferee or assignee (as the case may be) agrees in writing with the Company to be bound by all of the provisions contained herein; (v) such transfer or assignment (as the case
may be) shall have been made in accordance with the applicable requirements of the Securities Purchase Agreement and the Warrants (as the case may be); and (vi) such
transfer or assignment (as the case may be) shall have been conducted in accordance with all applicable federal and state securities laws.
10. Amendment of Registration Rights.
Provisions of this Agreement may be amended only with the written consent of the Company and the Required Holders. No waiver shall be effective unless it is in
writing and signed by an authorized representative of the waiving party. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification
of any provision of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.
11. Miscellaneous.
(a) Solely for purposes of this Agreement, a Person is deemed to be a holder of Registrable Securities whenever such Person owns, or is deemed to own, of record such
Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received from such record owner of such Registrable Securities.
(b) Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be
deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by e-mail (provided confirmation of transmission is electronically
generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service with next day delivery
specified, in each case, properly addressed to the party to receive the same. The addresses and e-mail addresses for such communications shall be:
If to the Company:
Naked Brand Group Limited
c/o Bendon Limited
Building 7B, Huntley Street
Alexandria
NSW 2015, Australia
Telephone: +61 2 9384 2400
Email Address: justin.davis@bendon.com
Attention: Chief Executive Officer
With a copy (for informational purposes only) to:
Graubard Miller
The Chrysler Building
405 Lexington Ave., 11th Floor
New York, NY 10174
Telephone: (212) 818-8800
E-mail: dmiller@graubard.com
igallant@graubard.com
Attention: David Alan Miller, Esq.
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If to the Transfer Agent:
Continental Stock Transfer & Trust Company
1 State Street 30th Floor
New York, NY 10004-1561
Telephone: 212.845.3256
Email: agois@continentalstock.com
Attention: Ana Gois, Vice President & Account Administrator
If to a Buyer:
Acuitas Capital LLC
11601 Wilshire Blvd Suite 1100
Los Angeles, CA 90025
Telephone: (310) 444-4321
Email: Patricia@credecg.com
Attention: Patricia Rouhafza
If to Legal Counsel:
McDermott Will & Emery LLP
340 Madison Avenue
New York, NY 10017
Telephone: (212) 547-5885
E-mail: Rcohen@mwe.com
mblee@mwe.com
Attention: Robert Cohen, Esq.
or to such address or e-mail address (as the case may be) set forth on the applicable Buyer Schedule attached to the Securities Purchase Agreement, with copies to such Buyer’s
representatives as set forth on the applicable Buyer Schedule, or to such other address and/or to the attention of such other Person as the recipient party has specified by written
notice given to each other party five (5) days prior to the effectiveness of such change, provided that Legal Counsel shall only be provided notices sent to each Buyer. Written
confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s e-mail
transmission containing the time, date and e-mail address or (C) provided by a courier or overnight courier service shall be rebuttable evidence of personal service or receipt
from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.
(c) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a
waiver thereof. The Company and each Investor acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that each party hereto shall be entitled to an injunction or injunctions to
prevent or cure breaches of the provisions of this Agreement by any other party hereto and to enforce specifically the terms and provisions hereof (without the necessity of
showing economic loss and without any bond or other security being required), this being in addition to any other remedy to which any party may be entitled by law or equity.
(d) All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts
sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any
such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address
for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted by law. If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
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(e) This Agreement, the other Transaction Documents, the schedules and exhibits attached hereto and thereto and the instruments referenced herein and therein
constitute the entire agreement among the parties hereto and thereto solely with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein. This Agreement, the other Transaction Documents, the schedules and exhibits attached hereto and
thereto and the instruments referenced herein and therein supersede all prior agreements and understandings among the parties hereto solely with respect to the subject matter
hereof and thereof; provided, however, nothing contained in this Agreement or any other Transaction Document shall (or shall be deemed to) (i) have any effect on any
agreements any Investor has entered into with, or any instrument that any Investor received from, the Company prior to the date hereof with respect to any prior investment
made by such Investor in the Company, (ii) waive, alter, modify or amend in any respect any obligations of the Company or any rights of or benefits to any Investor or any other
Person in any agreement entered into prior to the date hereof between or among the Company and any Investor or any instrument that any Investor received prior to the date
hereof from the Company and all such agreements and instruments shall continue in full force and effect or (iii) limit any obligations of the Company under any of the other
Transaction Documents.
(f) Subject to compliance with Section 9 (if applicable), this Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each
of the parties hereto. This Agreement is not for the benefit of, nor may any provision hereof be enforced by, any Person, other than the parties hereto, their respective permitted
successors and assigns and the Persons referred to in Sections 6 and 7 hereof.
(g) The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. Unless the context clearly
indicates otherwise, each pronoun herein shall be deemed to include the masculine, feminine, neuter, singular and plural forms thereof. The terms “including,” “includes,”
“include” and words of like import shall be construed broadly as if followed by the words “without limitation.” The terms “herein,” “hereunder,” “hereof” and words of like
import refer to this entire Agreement instead of just the provision in which they are found.
(h) This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the other party. In the event that any signature is delivered by facsimile transmission or by an e-mail which
contains a portable document format (.pdf) file of an executed signature page, such signature page shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such signature page were an original thereof.
(i) Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
(j) The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be
applied against any party. Notwithstanding anything to the contrary set forth in Section 10, terms used in this Agreement but defined in the other Transaction Documents shall
have the meanings ascribed to such terms on the Closing Date in such other Transaction Documents unless otherwise consented to in writing by each Investor.
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(k) All consents and other determinations required to be made by the Investors pursuant to this Agreement shall be made, unless otherwise specified in this Agreement,
by the Required Holders.
(l) The obligations of each Investor under this Agreement and the other Transaction Documents are several and not joint with the obligations of any other Investor, and
no Investor shall be responsible in any way for the performance of the obligations of any other Investor under this Agreement or any other Transaction Document. Nothing
contained herein or in any other Transaction Document, and no action taken by any Investor pursuant hereto or thereto, shall be deemed to constitute the Investors as, and the
Company acknowledges that the Investors do not so constitute, a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the
Investors are in any way acting in concert or as a group or entity with respect to such obligations or the transactions contemplated by the Transaction Documents or any matters,
and the Company acknowledges that the Investors are not acting in concert or as a group, and the Company shall not assert any such claim, with respect to such obligations or
the transactions contemplated by this Agreement or any of the other the Transaction Documents. Each Investor shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of this Agreement or out of any other Transaction Documents, and it shall not be necessary for any other Investor to be
joined as an additional party in any proceeding for such purpose. The use of a single agreement with respect to the obligations of the Company contained herein was solely in the
control of the Company, not the action or decision of any Investor, and was done solely for the convenience of the Company and not because it was required or requested to do
so by any Investor. It is expressly understood and agreed that each provision contained in this Agreement and in each other Transaction Document is between the Company and
an Investor, solely, and not between the Company and the Investors collectively and not between and among Investors.
[signature pages follow]
-16-
IN WITNESS WHEREOF, each of the Buyers and the Company have caused their respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.
COMPANY
NAKED BRAND GROUP LIMITED
By:
Name:
Title: Director
/s/ Justin Davis-Rice
Justin Davis-Rice
[Signature page to Registration Rights Agreement]
IN WITNESS WHEREOF, each of the Buyers and the Company have caused their respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.
BUYERS:
ACUITAS CAPITAL LLC
/s/ Terren Peizer
By:
Name: Terren Peizer
Title: Authorized Representative
MANK CAPITAL LLC
By:
Name:
Title:
/s/ Jess Mogul
Jess Mogul
Partner
By:
Name:
/s/ James Fallon
James Fallon
[Signature page to Registration Rights Agreement]
Securities Purchase Agreement
Exhibit 4.8.1
This Securities Purchase Agreement (this “Agreement”), dated as of May 13, 2019, is entered into by and between Naked Brand Group Limited, an Australia
corporation (“Company”), and St. George Investments LLC, a Utah limited liability company, its successors and/or assigns (“Investor”).
A. Company and Investor are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the Securities Act of
1933, as amended (the “1933 Act”), and the rules and regulations promulgated thereunder by the United States Securities and Exchange Commission (the “SEC”).
B. Investor desires to purchase and Company desires to issue and sell, upon the terms and conditions set forth in this Agreement, a Secured Convertible Promissory
Note, in the form attached hereto as Exhibit A, in the original principal amount of $3,320,000.00 (the “Note”), convertible into ordinary shares, no par value per share, of
Company (the “Ordinary Shares”), upon the terms and subject to the limitations and conditions set forth in such Note.
C. This Agreement, the Note, the Security Agreement (as defined below), the Subordination Deed (as defined below), and all other certificates, documents,
agreements, resolutions and instruments delivered to any party under or in connection with this Agreement, as the same may be amended from time to time, are collectively
referred to herein as the “Transaction Documents”.
D. For purposes of this Agreement: “Conversion Shares” means all Ordinary Shares issuable upon conversion of all or any portion of the Note; and “Securities”
means the Note and the Conversion Shares.
NOW, THEREFORE , in consideration of the above recitals and other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Company and Investor hereby agree as follows:
1. Purchase and Sale of Securities.
shall pay the Purchase Price (as defined below) to Company.
1.1. Purchase of Securities. Company shall issue and sell to Investor and Investor shall purchase from Company the Note. In consideration thereof, Investor
funds against delivery of the Note.
1.2. Form of Payment. On the Closing Date (as defined below), Investor shall pay the Purchase Price to Company via wire transfer of immediately available
1.3. Closing Date. Subject to the satisfaction (or written waiver) of the conditions set forth in Section 5 and Section 6 below, the date of the issuance and sale
of the Note pursuant to this Agreement (the “Closing Date”) shall be May 13, 2019, or another mutually agreed upon date. The closing of the transactions contemplated by this
Agreement (the “Closing”) shall occur on the Closing Date by means of the exchange by email of signed .pdf documents, but shall be deemed for all purposes to have occurred
at the offices of Hansen Black Anderson Ashcraft PLLC in Lehi, Utah.
Company’s assets as security for Company’s obligations under the Note (the “Security Agreement”).
1.4. Collateral for the Note. The Note shall be secured by the collateral set forth in that certain Security Agreement attached hereto as Exhibit B listing all of
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1.5. Subordination. This Agreement, the other Transaction Documents, and the obligations of Company hereunder are subject in all respects to the terms of
that certain Deed of Priority and Subordination by and among Company, Investor and Bank of New Zealand of even date herewith (as amended, modified or supplemented, the
“Subordination Deed”), a copy of which is attached hereto as Exhibit C.
1.6. Original Issue Discount; Transaction Expense Amount. The Note carries an original issue discount of $300,000.00 (the “OID”). In addition, Company
agrees to pay $20,000.00 to Investor to cover Investor’s legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the
purchase and sale of the Securities (the “Transaction Expense Amount”), all of which amount is included in the initial principal balance of the Note. The “Purchase Price”,
therefore, shall be $3,000,000.00, computed as follows: $3,320,000.00 initial principal balance, less the OID, less the Transaction Expense Amount.
2. Investor’s Representations and Warranties . Investor represents and warrants to Company that as of the Closing Date: (i) this Agreement has been duly and validly
authorized and all action on Investor’s part required for the execution and delivery of this Agreement and the other Transaction Documents has been taken; (ii) this Agreement
constitutes a valid and binding agreement of Investor enforceable in accordance with its terms; (iii) Investor is an “accredited investor” as that term is defined in Rule 501(a) of
Regulation D of the 1933 Act; (iv) Investor is purchasing the Note (and any Conversion Shares) for its own account, for investment purposes only and has no current
arrangements or understandings for the resale or distribution to others and will only resell such Securities or any part thereof pursuant to a registration or an available exemption
under applicable law; (v) Investor acknowledges that the offer and sale of the Securities have not been registered under the 1933 Act or the securities laws of any state or other
jurisdiction, and that the Securities are being (and the Conversion Shares will be) offered and sold pursuant to an exemption from registration contained in the 1933 Act, and
cannot be disposed of unless they are subsequently registered under the 1933 Act and any applicable state laws or an exemption from such registration is available; (vi) Investor
has reviewed this Agreement and the information set forth in the reports filed by Company with the SEC pursuant to the Securities Exchange Act of 1934, as amended (the
“1934 Act”), and has had both the opportunity to ask questions and receive answers from the officers and directors of Company concerning the business and operations of
Company and to obtain any additional information regarding Company and its business and operations, to the extent Company possesses such information or can acquire it
without unreasonable effort or expense, necessary to verify the accuracy of such information; (vii) Investor possesses sufficient knowledge and experience in financial and
business matters to enable it to evaluate the merits and risks of the purchase of the Note and the transactions contemplated by this Agreement; and (viii) neither Company nor
any of its officers, directors, stockholders, employees, agents or representatives has made any representations or warranties to Investor or any of its officers, directors,
employees, agents or representatives except as expressly set forth in the Transaction Documents and, in making its decision to enter into the transactions contemplated by the
Transaction Documents, Investor is not relying on any representation, warranty, covenant or promise of Company or its officers, directors, members, managers, employees,
agents or representatives other than as set forth in the Transaction Documents.
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3. Company’s Representations and Warranties. Company represents and warrants to Investor that as of the Closing Date: (i) Company is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of incorporation and has the requisite corporate power to own its properties and to carry on its business as
now being conducted; (ii) Company is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where the nature of the business
conducted or property owned by it makes such qualification necessary; (iii) Company has registered its Ordinary Shares under Section 12(b) of the 1934 Act, and is obligated to
file reports pursuant to Section 13 or Section 15(d) of the 1934 Act; (iv) there is no limit on the number of Ordinary Shares the Company is authorized to issue under its
formation documents or applicable company law; (v) each of the Transaction Documents and the transactions contemplated hereby and thereby, have been duly and validly
authorized by Company and all necessary corporate actions related thereto have been taken; (vi) the Transaction Documents have been duly executed and delivered by
Company and constitute the valid and binding obligations of Company enforceable in accordance with their terms; (vii) the execution and delivery of the Transaction
Documents by Company, the issuance of Securities in accordance with the terms hereof, and the consummation by Company of the other transactions contemplated by the
Transaction Documents do not and will not conflict with or result in a breach by Company of any of the terms or provisions of, or constitute a default under (a) Company’s
formation documents, each as currently in effect, (b) any indenture, mortgage, deed of trust, or other material agreement or instrument to which Company is a party or by which
it or any of its properties or assets are bound, including, without limitation, any listing agreement for the Ordinary Shares, or (c) any existing applicable law, rule, or regulation
or any applicable decree, judgment, or order of any court, United States federal, state or foreign regulatory body, administrative agency, or other governmental body having
jurisdiction over Company or any of Company’s properties or assets; (viii) no further authorization, approval or consent of any court, governmental body, regulatory agency,
self-regulatory organization, or stock exchange or market or the stockholders or any lender of Company is required to be obtained by Company for the issuance of the Securities
to Investor or the entering into of the Transaction Documents, other than any filings required to be made with the SEC; (ix) none of Company’s filings with the SEC contained,
at the time they were filed, any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not misleading; (x) Company has filed all reports, schedules, forms, statements and other documents
required to be filed by Company with the SEC under the 1934 Act; (xi) except as disclosed to the Investor in writing, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body pending or, to the knowledge of Company, threatened against or affecting Company before or by any governmental authority or
non-governmental department, commission, board, bureau, agency or instrumentality or any other person, wherein an unfavorable decision, ruling or finding would have a
material adverse effect on Company or which would adversely affect the validity or enforceability of, or the authority or ability of Company to perform its obligations under,
any of the Transaction Documents; (xii) Company has not consummated any financing transaction that has not been disclosed in a periodic filing or current report with the SEC
under the 1934 Act; (xiii) Company is not, nor has it been at any time in the previous twelve (12) months, a “Shell Company,” as such type of “issuer” is described in Rule
144(i)(1) under the 1933 Act; (xiv) with respect to any commissions, placement agent or finder’s fees or similar payments that will or would become due and owing by
Company to any person or entity as a result of this Agreement or the transactions contemplated hereby (“ Broker Fees”), any such Broker Fees will be made in full compliance
with all applicable laws and regulations and only to a person or entity that is a registered investment adviser or registered broker-dealer; (xv) Investor shall have no obligation
with respect to any Broker Fees or with respect to any claims made by or on behalf of other persons for fees of a type contemplated in this subsection that may be due in
connection with the transactions contemplated hereby and Company shall indemnify and hold harmless each of Investor, Investor’s employees, officers, directors, stockholders,
members, managers, agents, and partners, and their respective affiliates, from and against all claims, losses, damages, costs (including the costs of preparation and attorneys’
fees) and expenses suffered in respect of any such claimed Broker Fees; (xvi) when issued, the Conversion Shares will be duly authorized, validly issued, fully paid for and non-
assessable, free and clear of all liens, claims, charges and encumbrances, other than restrictions under the securities laws; (xvii) neither Investor nor any of its officers, directors,
stockholders, members, managers, employees, agents or representatives has made any representations or warranties to Company or any of its officers, directors, employees,
agents or representatives except as expressly set forth in the Transaction Documents and, in making its decision to enter into the transactions contemplated by the Transaction
Documents, Company is not relying on any representation, warranty, covenant or promise of Investor or its officers, directors, members, managers, employees, agents or
representatives other than as set forth in the Transaction Documents; (xviii) Company acknowledges that the State of Utah has a reasonable relationship and sufficient contacts
to the transactions contemplated by the Transaction Documents and any dispute that may arise related thereto such that the laws and venue of the State of Utah, as set forth
more specifically in Section 10.2 below, shall be applicable to the Transaction Documents and the transactions contemplated therein; and (xix) Company has performed due
diligence and background research on Investor and its affiliates including, without limitation, John M. Fife, and, to its satisfaction, has made inquiries with respect to all matters
Company may consider relevant to the undertakings and relationships contemplated by the Transaction Documents including, among other things, the following:
http://investing.businessweek.com/research/stocks/people/person.asp?personId=7505107&ticker=UAHC; SEC Civil Case No. 07-C-0347 (N.D. Ill.); SEC Civil Action No. 07-
CV-347 (N.D. Ill.); and FINRA Case #2011029203701. Company, being aware of the matters described in subsection (xix) above, acknowledges and agrees that such matters,
or any similar matters, have no bearing on the transactions contemplated by the Transaction Documents and covenants and agrees it will not use any such information as a
defense to performance of its obligations under the Transaction Documents or in any attempt to avoid, modify or reduce such obligations.
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4. Company Covenants. Until all of Company’s obligations under all of the Transaction Documents are paid and performed in full, or within the timeframes otherwise
specifically set forth below, Company will at all times comply with the following covenants: (i) so long as Investor beneficially owns any of the Securities and for at least
twenty (20) Trading Days (as defined in the Note) thereafter, Company will timely file on the applicable deadline all reports required to be filed with the SEC pursuant to
Sections 13 or 15(d) of the 1934 Act, and will take all reasonable action under its control to ensure that adequate current public information with respect to Company, as
required in accordance with Rule 144 of the 1933 Act, is publicly available, and will not terminate its status as an issuer required to file reports under the 1934 Act even if the
1934 Act or the rules and regulations thereunder would permit such termination; (ii) when issued, the Conversion Shares will be duly authorized, validly issued, fully paid for
and non-assessable, free and clear of all liens, claims, charges and encumbrances; (iii)Company will use reasonable efforts to ensure that the Ordinary Shares shall be listed or
quoted for trading on any of (a) NYSE, (b) NASDAQ, (c) OTCQX, (d) OTCQB, or (e) OTC Pink Current Information; and (iv) Company will not make any Restricted Issuance
(as defined below) after the Closing Date in which Company receives net proceeds of less than $3,000,000.00 without Investor’s prior written consent, which consent may be
granted or withheld in Investor’s sole and absolute discretion. For purposes hereof, the term “Restricted Issuance” means any issuance of any debt instrument or incurrence of
any debt other than (a) trade payables in the ordinary course of business, obligations for the deferred purchase price of property or services, and lease obligations, (b) debt
incurred from a bank, and (c) debt subordinated in priority and right of payment to the Note.
5. Conditions to Company’s Obligation to Sell. The obligation of Company hereunder to issue and sell the Note to Investor at the Closing is subject to the satisfaction,
on or before the Closing Date, of each of the following conditions:
5.1. Investor shall have executed this Agreement and delivered the same to Company.
5.2. Investor shall have delivered the Purchase Price to Company in accordance with Section 1.2 above.
6. Conditions to Investor’s Obligation to Purchase. The obligation of Investor hereunder to purchase the Note at the Closing is subject to the satisfaction, on or before
the Closing Date, of each of the following conditions, provided that these conditions are for Investor’s sole benefit and may be waived by Investor at any time in its sole
discretion:
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6.1. Company shall have executed this Agreement, the Note, and the Security Agreement and delivered the same to Investor.
form attached hereto as Exhibit D acknowledged and agreed to in writing by Company’s transfer agent (the “Transfer Agent”).
6.2. Company shall have delivered to Investor a fully executed Irrevocable Letter of Instructions to Transfer Agent (the “TA Letter ”) substantially in the
Company’s approval of the Transaction Documents.
6.3. Company shall have delivered to Investor a fully executed Secretary’s Certificate substantially in the form attached hereto as Exhibit E evidencing
delivered to the Transfer Agent.
6.4. Company shall have delivered to Investor a fully executed Share Issuance Resolution substantially in the form attached hereto as Exhibit F to be
6.5. Company shall have delivered to Investor fully executed copies of all other Transaction Documents required to be executed by Company herein or
therein.
7. [Intentionally Omitted].
8. OFAC; Patriot Act.
8.1. OFAC Certification . Company certifies that (i) it is not acting on behalf of any person, group, entity, or nation named by any Executive Order or the
United States Treasury Department, through its Office of Foreign Assets Control (“ OFAC”) or otherwise, as a terrorist, “Specially Designated Nation”, “Blocked Person”, or
other banned or blocked person, entity, nation, or transaction pursuant to any law, order, rule or regulation that is enforced or administered by OFAC or another department of
the United States government, and (ii) Company is not engaged in this transaction on behalf of, or instigating or facilitating this transaction on behalf of, any such person,
group, entity or nation.
8.2. Foreign Corrupt Practices. Neither Company, nor any of its subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of
Company or any subsidiary has, in the course of his actions for, or on behalf of, Company, used any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or employee.
8.3. Patriot Act . Company shall not (i) be or become subject at any time to any law, regulation, or list of any government agency (including, without
limitation, the OFAC) that prohibits or limits Investor from making any advance or extension of credit to Company or from otherwise conducting business with Company, or
(ii) fail to provide documentary and other evidence of Company’s identity as may be requested by Investor at any time to enable Investor to verify Company’s identity or to
comply with any applicable law or regulation, including, without limitation, Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318. Company shall comply with
all requirements of law relating to money laundering, anti-terrorism, trade embargos and economic sanctions, now or hereafter in effect. Upon Investor’s request from time to
time, Company shall certify in writing to Investor that Company’s representations, warranties and obligations under this Section 8.3 remain true and correct and have not been
breached. Company shall immediately notify Investor in writing if any of such representations, warranties or covenants are no longer true or have been breached or if Company
has a reasonable basis to believe that they may no longer be true or have been breached. In connection with such an event, Company shall comply with all requirements of law
and directives of governmental authorities and, at Investor’s request, provide to Investor copies of all notices, reports and other communications exchanged with, or received
from, governmental authorities relating to such an event. Company shall also reimburse Investor any expense incurred by Investor in evaluating the effect of such an event on
the loan secured hereby, in obtaining any necessary license from governmental authorities as may be necessary for Investor to enforce its rights under the Transaction
Documents, and in complying with all requirements of law applicable to Investor as the result of the existence of such an event and for any penalties or fines imposed upon
Investor as a result thereof.
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9. [Intentionally Omitted].
10. Miscellaneous. The provisions set forth in this Section 10 shall apply to this Agreement, as well as all other Transaction Documents as if these terms were fully set
forth therein; provided, however, that in the event there is a conflict between any provision set forth in this Section 10 and any provision in any other Transaction Document, the
provision in such other Transaction Document shall govern.
10.1. Arbitration of Claims. The parties shall submit all Claims (as defined in Exhibit G) arising under this Agreement or any other Transaction Document or
any other agreement between the parties and their affiliates to binding arbitration pursuant to the arbitration provisions set forth in Exhibit G attached hereto (the “Arbitration
Provisions”) and the International Dispute Resolution Procedures (the “IDR Procedures”) established by the International Centre for Dispute Resolution (“ICDR”), the
international division of the American Arbitration Association. In the event of any conflict between or among the Arbitration Provisions and those of the ICDR, the Arbitration
Provisions shall prevail. For the avoidance of doubt, the parties agree that the injunction described in Section 10.3 below may be pursued in an arbitration that is separate and
apart from any other arbitration regarding all other Claims arising under the Transaction Documents. The parties hereby acknowledge and agree that the Arbitration Provisions
are binding on the parties hereto and are severable from all other provisions of this Agreement. By executing this Agreement, Company represents, warrants and covenants that
Company has reviewed the Arbitration Provisions carefully, consulted with legal counsel about such provisions (or waived its right to do so), understands that the Arbitration
Provisions are intended to allow for the expeditious and efficient resolution of any dispute hereunder, agrees to the terms and limitations set forth in the Arbitration Provisions.
Company acknowledges and agrees that Investor may rely upon the foregoing representations and covenants of Company regarding the Arbitration Provisions.
10.2. Governing Law; Venue . This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the internal laws of the State of Utah, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Utah or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Utah. Each party
consents to and expressly agrees that the exclusive venue for arbitration of any dispute arising out of or relating to any Transaction Document or the relationship of the parties or
their affiliates shall be in Salt Lake County, Utah. Without modifying the parties’ obligations to resolve disputes hereunder pursuant to the Arbitration Provisions, for any
litigation arising in connection with any of the Transaction Documents, each party hereto hereby (i) consents to and expressly submits to the exclusive personal jurisdiction of
any state or federal court sitting in Salt Lake County, Utah, (ii) expressly submits to the exclusive venue of any such court for the purposes hereof, (iii) agrees to not bring any
such action outside of any state or federal court sitting in Salt Lake County, Utah, and (iv) waives any claim of improper venue and any claim or objection that such courts are
an inconvenient forum or any other claim, defense or objection to the bringing of any such proceeding in such jurisdiction or to any claim that such venue of the suit, action or
proceeding is improper. Finally, Company covenants and agrees to name Investor as a party in interest in, and provide written notice to Investor in accordance with Section 10.9
below prior to bringing or filing, any action (including without limitation any filing or action against any person or entity that is not a party to this Agreement, including without
limitation the Transfer Agent) that is related in any way to the Transaction Documents or any transaction contemplated herein or therein, including without limitation any action
brought by Company to enjoin or prevent the issuance of any Ordinary Shares to Investor by the Transfer Agent, and further agrees to timely name Investor as a party to any
such action. Company acknowledges that the governing law and venue provisions set forth in this Section 10.2 are material terms to induce Investor to enter into the Transaction
Documents and that but for Company’s agreements set forth in this Section 10.2 Investor would not have entered into the Transaction Documents.
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10.3. Specific Performance. Company acknowledges and agrees that Investor may suffer irreparable harm in the event that Company fails to perform any
material provision of this Agreement or any of the other Transaction Documents in accordance with its specific terms. It is accordingly agreed that Investor shall be entitled to
seek an injunction in connection with an alleged breach of the provisions of this Agreement or such other Transaction Document and to enforce specifically the terms and
provisions hereof or thereof, this being in addition to any other remedy to which the Investor may be entitled under the Transaction Documents, at law or in equity. Company
specifically agrees that following an Event of Default (as defined in the Note) under the Note for: (a) failure to deliver Conversion Shares, (b) failure to make a payment
mutually agreed to be made in Ordinary Shares, or (c) failure to timely pay any Redemption Amount (as defined in the Note), Investor shall have the right to seek and receive
injunctive relief from a court or an arbitrator prohibiting Company from issuing any of its Ordinary Shares or any of its preferred shares to any party unless at least fifty (50%)
of the proceeds from such issuance will be paid simultaneously to Investor. Company specifically acknowledges that Investor’s right to seek specific performance constitutes
bargained for leverage and that the loss of such leverage would result in irreparable harm to Investor. For the avoidance of doubt, in the event Investor seeks to obtain an
injunction from a court or an arbitrator against Company or specific performance of any provision of any Transaction Document, such action shall not be a waiver of any right
of Investor under any Transaction Document, at law, or in equity, including without limitation its rights to arbitrate any Claim pursuant to the terms of the Transaction
Documents, nor shall Investor’s pursuit of an injunction prevent Investor, under the doctrines of claim preclusion, issues preclusion, res judicata or other similar legal doctrines,
from pursuing other Claims in the future in a separate arbitration.
10.4. Counterparts. Each Transaction Document may be executed in any number of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument. The parties hereto confirm that any electronic copy of another party’s executed counterpart of a Transaction Document (or such party’s
signature page thereof) will be deemed to be an executed original thereof.
Agreement.
10.5. Headings. The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this
10.6. Severability. In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform to such statute or rule of law. Any provision hereof
which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.
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10.7. Entire Agreement. This Agreement, together with the other Transaction Documents, contains the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein or therein, neither Company nor Investor makes any representation, warranty, covenant or
undertaking with respect to such matters. For the avoidance of doubt, all prior term sheets or other documents between Company and Investor, or any affiliate thereof, related to
the transactions contemplated by the Transaction Documents (collectively, “Prior Agreements”), that may have been entered into between Company and Investor, or any
affiliate thereof, are hereby null and void and deemed to be replaced in their entirety by the Transaction Documents. To the extent there is a conflict between any term set forth
in any Prior Agreement and the term(s) of the Transaction Documents, the Transaction Documents shall govern.
10.8. Amendments. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by both parties hereto.
10.9. Notices. Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given
on the earliest of: (i) the date delivered, if delivered by personal delivery as against written receipt therefor or by email to an executive officer named below or such officer’s
successor, or by facsimile (with successful transmission confirmation which is kept by sending party), (ii) the earlier of the date delivered or the seventh Trading Day after
deposit, postage prepaid, in the United States Postal Service by certified mail, or (iii) the earlier of the date delivered or the seventh Trading Day after mailing by express
courier, with delivery costs and fees prepaid, in each case, addressed to each of the other parties thereunto entitled at the following addresses (or at such other addresses as such
party may designate by seven (7) calendar days’ advance written notice similarly given to each of the other parties hereto):
If to Company:
Naked Brand Group Limited
Attn: Anna Johnson
c/o Bendon Limited
Building 7B, Huntley Street
NSW 2015, Australia
If to Investor:
St. George Investments LLC
Attn: John Fife
303 East Wacker Drive, Suite 1040
Chicago, Illinois 60601
With a copy to (which copy shall not constitute notice):
Hansen Black Anderson Ashcraft PLLC
Attn: Jonathan Hansen
3051 West Maple Loop Drive, Suite 325
Lehi, Utah 84043
10.10. Successors and Assigns. This Agreement or any of the severable rights and obligations inuring to the benefit of or to be performed by Investor
hereunder may be assigned by Investor to a third party, including its affiliates, in whole or in part, in connection with the transfer or all or a portion of the Note or the
Conversion Shares, without the need to obtain Company’s consent thereto. Company may not assign its rights or obligations under this Agreement or delegate its duties
hereunder without the prior written consent of Investor.
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10.11. Survival. The representations and warranties of Company and the agreements and covenants set forth in this Agreement shall survive the Closing
hereunder notwithstanding any due diligence investigation conducted by or on behalf of Investor. Company agrees to indemnify and hold harmless Investor and all its officers,
directors, employees, attorneys, and agents for loss or damage arising as a result of or related to any breach or alleged breach by Company of any of its representations,
warranties and covenants set forth in this Agreement or any of its covenants and obligations under this Agreement, including advancement of expenses as they are incurred.
10.12. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated hereby.
10.13. Investor’s Rights and Remedies Cumulative. All rights, remedies, and powers conferred in this Agreement and the Transaction Documents are
cumulative and not exclusive of any other rights or remedies, and shall be in addition to every other right, power, and remedy that Investor may have, whether specifically
granted in this Agreement or any other Transaction Document, or existing at law, in equity, or by statute, and any and all such rights and remedies may be exercised from time
to time and as often and in such order as Investor may deem expedient.
10.14. Attorneys’ Fees and Cost of Collection. In the event of any arbitration or action at law or in equity to enforce or interpret the terms of this Agreement
or any of the other Transaction Documents, the parties agree that the party who is awarded the most money (which, for the avoidance of doubt, shall be determined without
regard to any statutory fines, penalties, fees, or other charges awarded to any party) shall be deemed the prevailing party for all purposes and shall therefore be entitled to an
additional award of the full amount of the attorneys’ fees, deposition costs, and expenses paid by such prevailing party in connection with arbitration or litigation without
reduction or apportionment based upon the individual claims or defenses giving rise to the fees and expenses. Nothing herein shall restrict or impair an arbitrator’s or a court’s
power to award fees and expenses for frivolous or bad faith pleading. If (i) the Note is placed in the hands of an attorney for collection or enforcement prior to commencing
arbitration or legal proceedings, or is collected or enforced through any arbitration or legal proceeding, or Investor otherwise takes action to collect amounts due under the Note
or to enforce the provisions of the Note, or (ii) there occurs any bankruptcy, reorganization, receivership of Company or other proceedings affecting Company’s creditors’ rights
and involving a claim under the Note; then Company shall pay the costs incurred by Investor for such collection, enforcement or action or in connection with such bankruptcy,
reorganization, receivership or other proceeding, including, without limitation, attorneys’ fees, expenses, deposition costs, and disbursements.
10.15. Waiver. No waiver of any provision of this Agreement shall be effective unless it is in the form of a writing signed by the party granting the waiver.
No waiver of any provision or consent to any prohibited action shall constitute a waiver of any other provision or consent to any other prohibited action, whether or not similar.
No waiver or consent shall constitute a continuing waiver or consent or commit a party to provide a waiver or consent in the future except to the extent specifically set forth in
writing.
9
10.16. Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT IRREVOCABLY WAIVES ANY AND ALL RIGHTS SUCH PARTY MAY HAVE
TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT, ANY OTHER
TRANSACTION DOCUMENT, OR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS
TO DEMAND A TRIAL BY JURY ARISING UNDER COMMON LAW OR ANY APPLICABLE STATUTE, LAW, RULE OR REGULATION. FURTHER, EACH
PARTY HERETO ACKNOWLEDGES THAT SUCH PARTY IS KNOWINGLY AND VOLUNTARILY WAIVING SUCH PARTY’S RIGHT TO DEMAND TRIAL BY
JURY.
Documents.
10.17. Time is of the Essence. Time is expressly made of the essence with respect to each and every provision of this Agreement and the other Transaction
[Remainder of page intentionally left blank; signature page follows]
10
IN WITNESS WHEREOF, the undersigned Investor and Company have caused this Agreement to be duly executed as of the date first above written.
SUBSCRIPTION AMOUNT:
Principal Amount of Note:
Purchase Price:
$
$
3,320,000.00
3,000,000.00
INVESTOR:
St. George Investments LLC
By: Fife Trading, Inc., its Manager
By:
/s/ John M. Fife
John M. Fife, President
COMPANY:
Naked Brand Group Limited
/s/ Justin Davis-Rice
By:
Printed Name:
Title: Director
Justin Davis-Rice
[Signature Page to Securities Purchase Agreement]
Effective Date: May 13, 2019
SECURED CONVERTIBLE PROMISSORY NOTE
Exhibit 4.8.2
U.S. $3,320,000.00
FOR VALUE RECEIVED, Naked Brand Group Limited, an Australia corporation (“Borrower”), promises to pay to St. George Investments LLC, a Utah limited
partnership, or its successors or assigns (“Lender”), $3,320,000.00 and any interest, fees, charges, and late fees accrued hereunder on the date (the “Maturity Date”) that is
eighteen (18) months after the date first written above (the “Effective Date”) in accordance with the terms set forth herein and to pay interest on the Outstanding Balance at the
rate of ten percent (10%) per annum from the Effective Date until the same is paid in full. All interest calculations hereunder shall be computed on the basis of a 360-day year
comprised of twelve (12) thirty (30) day months, shall compound daily and shall be payable in accordance with the terms of this Note. This Note is issued pursuant to that
certain Securities Purchase Agreement dated May 13, 2019, as the same may be amended from time to time, by and between Borrower and Lender (the “Purchase
Agreement”). Certain capitalized terms used herein are defined in Attachment 1 attached hereto and incorporated herein by this reference.
This Note carries an OID of $300,000.00. In addition, Borrower agrees to pay $20,000.00 to Lender to cover Lender’s legal fees, accounting costs, due diligence,
monitoring and other transaction costs incurred in connection with the purchase and sale of this Note (the “Transaction Expense Amount”), all of which amount is fully earned
and included in the initial principal balance of this Note. The purchase price for this Note shall be $3,000,000.00 (the “Purchase Price”), computed as follows: $3,320,000.00
original principal balance, less the OID, less the Transaction Expense Amount. The Purchase Price shall be payable by Lender by wire transfer of immediately available funds.
1. Payment; Prepayment.
1.1. Payment. All payments owing hereunder shall be in lawful money of the United States of America or Conversion Shares (as defined below), as provided
for herein, and delivered to Lender at the address or bank account furnished to Borrower for that purpose. All payments shall be applied first to (a) costs of collection, if any,
then to (b) fees and charges, if any, then to (c) accrued and unpaid interest, and thereafter, to (d) principal.
1.2. Prepayment. Notwithstanding the foregoing, Borrower shall have the right to prepay all or any portion of the Outstanding Balance (less such portion of
the Outstanding Balance for which Borrower has received a Conversion Notice (as defined below) from Lender where the applicable Conversion Shares have not yet been
delivered). If Borrower exercises its right to prepay this Note, Borrower shall make payment to Lender of an amount in cash equal to 115% multiplied by the portion of the
Outstanding Balance Borrower elects to prepay.
2 . Security; Subordination. This Note is secured by all of Borrower’s assets pursuant to that certain Security Agreement of even date herewith (the “Security
Agreement”), executed by Borrower in favor of Lender, all the terms and conditions of which are hereby incorporated into and made a part of this Note. This Note is subject in
all respects to the Subordination Deed (as defined in the Purchase Agreement).
3. Lender Optional Conversion.
3.1. Conversions. Lender has the right at any time after the Effective Date until the Outstanding Balance has been paid in full, at its election, to convert
(“Conversion”) all or any portion of the Outstanding Balance into shares (“Conversion Shares”) of fully paid and non-assessable ordinary shares, no par value per share
(“Ordinary Shares”), of Borrower as per the following conversion formula: the number of Conversion Shares equals the amount being converted (the “Conversion Amount”)
divided by the Conversion Price (as defined below). Conversion notices in the form attached hereto as Exhibit A (each, a “Conversion Notice”) may be effectively delivered to
Borrower by any method set forth in the “Notices” Section of the Purchase Agreement, and all Conversions shall be cashless and not require further payment from Lender.
Borrower shall deliver the Conversion Shares from any Conversion to Lender in accordance with Section 9 below.
Balance into Ordinary Shares is $0.90 per Ordinary Share (the “Conversion Price”).
3.2. Conversion Price. Subject to adjustment as set forth in this Note, the price at which Lender has the right to convert all or any portion of the Outstanding
4. Defaults and Remedies.
4.1. Defaults. The following are events of default under this Note (each, an “Event of Default”): (a) Borrower fails to pay (i) the Outstanding Balance at the
Maturity Date, (ii) any Redemption Amount when due and payable, or (iii) any other principal, interest, fees, charges, or any other amount within five (5) days of when due and
payable hereunder (for the avoidance of doubt, the foregoing five (5) day cure period only applies to clause (iii); (b) Borrower fails to deliver any Conversion Shares within two
(2) Trading Days of when due hereunder or otherwise fails to deliver any Conversion Shares in accordance with the terms hereof; (c) a receiver, trustee or other similar official
shall be appointed over Borrower or a material part of its assets and such appointment shall remain uncontested for twenty (20) days or shall not be dismissed or discharged
within sixty (60) days; (d) Borrower becomes insolvent or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable
grace periods, if any; (e) Borrower makes a general assignment for the benefit of creditors; (f) Borrower files a petition for relief under any bankruptcy, insolvency or similar
law (domestic or foreign); (g) an involuntary bankruptcy proceeding is commenced or filed against Borrower and such proceeding shall remain uncontested for twenty (20) days
or shall not be dismissed or discharged within sixty (60) days; (h) Borrower or any pledgor, trustor, or guarantor of this Note defaults or otherwise fails to observe or perform
any material covenant, obligation, condition or agreement of Borrower or such pledgor, trustor, or guarantor contained herein or in any other Transaction Document (as defined
in the Purchase Agreement), other than those specifically set forth in this Section 4.1 and Section 4 of the Purchase Agreement; (i) any representation, warranty or other
statement made or furnished by or on behalf of Borrower or any pledgor, trustor, or guarantor of this Note to Lender herein, in any Transaction Document, or otherwise in
connection with the issuance of this Note is false, incorrect, incomplete or misleading in any material respect when made or furnished; (j) the occurrence of a Fundamental
Transaction without Lender’s prior written consent; (k) Borrower effectuates a reverse split of its Ordinary Shares without ten (10) Trading Days prior written notice to Lender;
(l) any money judgment, writ or similar process is entered or filed against Borrower or any subsidiary of Borrower or any of its property or other assets for more than
$500,000.00, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) calendar days unless otherwise consented to by Lender; (m) Borrower fails to be
DWAC Eligible; (n) Borrower fails to observe or perform any covenant set forth in Section 4 of the Purchase Agreement (other than the covenant with respect to Restricted
Issuances); (o) Borrower makes any Restricted Issuance without Lender’s prior written consent; or (p) Borrower, any affiliate of Borrower, or any pledgor, trustor, or guarantor
of this Note breaches any covenant or other term or condition contained in any Other Agreements. Notwithstanding the foregoing, the occurrence of any of the events specified
in Section 4.1(h) – (p) above shall not be considered an Event of Default if cured within thirty (30) days of the occurrence of such event.
2
4.2. Remedies. At any time and from time to time after Lender becomes aware of the occurrence of any Event of Default, Lender may accelerate this Note by
written notice to Borrower, with the Outstanding Balance becoming immediately due and payable in cash at the Mandatory Default Amount. Notwithstanding the foregoing, at
any time following the occurrence of any Event of Default, Lender may, at its option, elect to increase the Outstanding Balance by applying the Default Effect (subject to the
limitation set forth below) via written notice to Borrower without accelerating the Outstanding Balance, in which event the Outstanding Balance shall be increased as of the date
of the occurrence of the applicable Event of Default pursuant to the Default Effect, but the Outstanding Balance shall not be immediately due and payable unless so declared by
Lender (for the avoidance of doubt, if Lender elects to apply the Default Effect pursuant to this sentence, it shall reserve the right to declare the Outstanding Balance
immediately due and payable at any time and no such election by Lender shall be deemed to be a waiver of its right to declare the Outstanding Balance immediately due and
payable as set forth herein unless otherwise agreed to by Lender in writing). Notwithstanding the foregoing, upon the occurrence of any Event of Default described in clauses
(c), (d), (e), (f) or (g) of Section 4.1, the Outstanding Balance as of the date of acceleration shall become immediately and automatically due and payable in cash at the
Mandatory Default Amount, without any written notice required by Lender. At any time following the occurrence of any Event of Default, upon written notice given by Lender
to Borrower, interest shall accrue on the Outstanding Balance beginning on the date the applicable Event of Default occurred at an interest rate equal to the lesser of twenty-two
percent (22%) per annum or the maximum rate permitted under applicable law (“Default Interest”). For the avoidance of doubt, Lender may continue making Conversions at
any time following an Event of Default until such time as the Outstanding Balance is paid in full. In connection with acceleration described herein, except as described herein,
Lender need not provide, and Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and Lender may immediately and without expiration of
any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and
annulled by Lender at any time prior to payment hereunder and Lender shall have all rights as a holder of the Note until such time, if any, as Lender receives full payment
pursuant to this Section 4.2. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon. Nothing herein shall limit
Lender’s right to pursue any other remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect
to Borrower’s failure to timely deliver Conversion Shares upon Conversion of the Note as required pursuant to the terms hereof.
5. Unconditional Obligation; No Offset. Borrower acknowledges that this Note is an unconditional, valid, binding and enforceable obligation of Borrower not subject
to offset, deduction or counterclaim of any kind. Borrower hereby waives any rights of offset it now has or may have hereafter against Lender, its successors and assigns, and
agrees to make the payments or Conversions called for herein in accordance with the terms of this Note.
6. Waiver. No waiver of any provision of this Note shall be effective unless it is in the form of a writing signed by the party granting the waiver. No waiver of any
provision or consent to any prohibited action shall constitute a waiver of any other provision or consent to any other prohibited action, whether or not similar. No waiver or
consent shall constitute a continuing waiver or consent or commit a party to provide a waiver or consent in the future except to the extent specifically set forth in writing.
7. Adjustment of Conversion Price upon Subdivision or Combination of Ordinary Shares. Without limiting any provision hereof, if Borrower at any time on or after the
Effective Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding Ordinary Shares into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. Without limiting any provision hereof, if Borrower at any time on
or after the Effective Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding Ordinary Shares into a smaller number of shares,
the Conversion Price in effect immediately prior to such combination will be proportionately increased. Any adjustment pursuant to this Section 7 shall become effective
immediately after the effective date of such subdivision or combination.
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8. Borrower Redemptions. Beginning on the date that is seven (7) months from the Effective Date and at any time thereafter until this Note is paid in full, Lender shall
have the right to cause the Borrower to redeem any portion of the Note (the amount of each exercise, the “Redemption Amount”) up the Maximum Monthly Redemption
Amount in any given calendar month by providing written notice (each, a “Redemption Notice”) delivered to Borrower by facsimile, email, mail, overnight courier, or personal
delivery. Upon receipt of any Redemption Notice, Borrower shall pay the applicable Redemption Amount in cash to Lender within three (3) Trading Days of Borrower’s receipt
of such Redemption Notice (the “Redemption Amount Payment Date”). For the avoidance of doubt, in the event Borrower fails to pay any Redemption Amount to Lender by
the applicable Redemption Amount Payment Date for any reason, including, but not limited to, Borrower’s inability to make such payment in cash as a result of its payment
restrictions or other obligations under the Subordination Deed, such failure to pay the Redemption Amount shall still be considered an Event of Default hereunder.
9. Method of Conversion Share Delivery. On or before the close of business on the third (3rd) Trading Day following the date of delivery of a Conversion Notice (the
“Delivery Date”), Borrower shall, provided it is DWAC Eligible at such time, deliver or cause its transfer agent to deliver the applicable Conversion Shares electronically via
DWAC to the account designated by Lender in the applicable Conversion Notice. If Borrower is not DWAC Eligible, it shall deliver to Lender or its broker (as designated in the
Conversion Notice), via reputable overnight courier, a certificate representing the number of Ordinary Shares equal to the number of Conversion Shares to which Lender shall
be entitled, registered in the name of Lender or its designee. For the avoidance of doubt, Borrower has not met its obligation to deliver Conversion Shares by the Delivery Date
unless Lender or its broker, as applicable, has actually received the certificate representing the applicable Conversion Shares no later than the close of business on the relevant
Delivery Date pursuant to the terms set forth above. Moreover, and notwithstanding anything to the contrary herein or in any other Transaction Document, in the event
Borrower or its transfer agent refuses to deliver any Conversion Shares without a restrictive securities legend to Lender on grounds that such issuance is in violation of Rule 144
under the Securities Act of 1933, as amended (“Rule 144”), Borrower shall deliver or cause its transfer agent to deliver the applicable Conversion Shares to Lender with a
restricted securities legend, but otherwise in accordance with the provisions of this Section 9. In conjunction therewith, Borrower will also deliver to Lender a written
explanation from its counsel or its transfer agent’s counsel explaining why the issuance of the applicable Conversion Shares violates Rule 144. The Lender acknowledges that
the Conversion Shares shall bear a legend so long as the applicable holding period under Rule 144 has not been met or any other conditions of Rule 144, including the
requirement for current public information to be available, would apply to sale of the Conversion Shares.
10. Conversion Delays. If Borrower fails to deliver Conversion Shares in accordance with the timeframe stated in Section 9, Lender may at any time prior to receiving
the applicable Conversion Shares rescind in whole or in part such Conversion, with a corresponding increase to the Outstanding Balance (any returned amount will tack back to
the Effective Date for purposes of determining the holding period under Rule 144). In addition, for each Conversion, in the event that Conversion Shares are not delivered by the
third (3rd) Trading Day (inclusive of the day of the Conversion), a late fee equal to 2% of the applicable Conversion Share Value rounded to the nearest multiple of $100.00 but
with a floor of $500.00 per day (but in any event the cumulative amount of such late fees for each Conversion shall not exceed 100% of the applicable Conversion Share Value)
will be assessed for each day after the fifth (5th) Trading Day (inclusive of the day of the Conversion) until Conversion Share delivery is made; and such late fee will be added to
the Outstanding Balance (such fees, the “Conversion Delay Late Fees”)
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11. Approved Restricted Issuance. The Outstanding Balance will automatically be increased by five percent (5%) for each Approved Restricted Issuance made by
Borrower (without the need for Lender to provide any notice to Borrower of such increase), if and only if such Approved Restricted Issuance provides for the issuance of
Ordinary Shares upon conversion, exchange or exercise at a price that is based upon and/or varies with the trading prices of or quotations for the Ordinary Shares or that is
subject to being reset at some future date after the Restricted Issuance or upon the occurrence of specified or contingent events directly or indirectly related to the business of the
Company or the market for the Ordinary Shares, which increase will be effective as of the date of each applicable Approved Restricted Issuance.
12. Restriction on Equity Sales. If at any time after the date that is six (6) months from the Purchase Price Date, Borrower is unable to issue Ordinary Shares to Lender
as result of any lock-up or other agreement or restriction prohibiting the issuance of Ordinary Shares for a certain period of time (the “Lock-Up”), then, at Lender’s option, the
Outstanding Balance will be increased by three percent (3%) for each thirty (30) day period that Borrower is prohibited from issuing Ordinary Shares (which increase shall be
pro-rated for any partial period). For the avoidance of doubt, if Lender elects to increase the Outstanding Balance as set forth in the previous sentence, Lender shall be deemed
to have waived its right to call an Event of Default for failure to deliver Conversion Shares as a result of the Lock-Up.
13. Ownership Limitation. Notwithstanding anything to the contrary contained in this Note or the other Transaction Documents, Borrower shall not effect any
conversion of this Note to the extent that after giving effect to such conversion would cause Lender (together with its affiliates) to beneficially own a number of shares
exceeding 4.99% of the number of Ordinary Shares outstanding on such date (including for such purpose the Ordinary Shares issuable upon such issuance) (the “Maximum
Percentage”). For purposes of this section, beneficial ownership and the percentage of beneficial ownership of Ordinary Shares will be determined pursuant to Section 13(d) of
the 1934 Act. Notwithstanding the forgoing, the term “4.99%” above shall be replaced with “9.99%” at such time as the Market Capitalization is less than $10,000,000.00.
Notwithstanding any other provision contained herein, if the term “4.99%” is replaced with “9.99%” pursuant to the preceding sentence, such increase to “9.99%” shall remain
at 9.99% until increased, decreased or waived by Lender as set forth below. By written notice to Borrower, Lender may increase, decrease or waive the Maximum Percentage,
up to a maximum of 9.99%, but any such waiver will not be effective until the 61st day after delivery thereof. The foregoing 61-day notice requirement is enforceable,
unconditional and non-waivable and shall apply to all affiliates and assigns of Lender.
14. Opinion of Counsel. In the event that an opinion of counsel is needed for any matter related to this Note, Lender has the right to have any such opinion provided by
its counsel, provided such counsel is reasonably acceptable to Borrower.
15. Governing Law; Venue . This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and
performance of this Note shall be governed by, the internal laws of the State of Utah, without giving effect to any choice of law or conflict of law provision or rule (whether of
the State of Utah or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Utah. The provisions set forth in the Purchase
Agreement to determine the proper venue for any disputes are incorporated herein by this reference.
16. Arbitration of Disputes. By its issuance or acceptance of this Note, each party agrees to be bound by the Arbitration Provisions (as defined in the Purchase
Agreement) set forth as an exhibit to the Purchase Agreement.
5
17. Cancellation. After repayment or conversion of the entire Outstanding Balance, this Note shall be deemed paid in full, shall automatically be deemed canceled, and
shall not be reissued.
18. Amendments. The prior written consent of both parties hereto shall be required for any change or amendment to this Note.
19. Assignments. Borrower may not assign this Note without the prior written consent of Lender. This Note and any Ordinary Shares issued upon conversion of this
Note may be offered, sold, assigned or transferred by Lender without the consent of Borrower.
20. Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with the subsection of
the Purchase Agreement titled “Notices.”
21. Liquidated Damages. Lender and Borrower agree that in the event Borrower fails to comply with any of the terms or provisions of this Note, Lender’s damages
would be uncertain and difficult (if not impossible) to accurately estimate because of the parties’ inability to predict future interest rates, future share prices, future trading
volumes and other relevant factors. Accordingly, Lender and Borrower agree that any fees, balance adjustments, Default Interest or other charges assessed under this Note are
not penalties but instead are intended by the parties to be, and shall be deemed, liquidated damages (under Lender’s and Borrower’s expectations that any such liquidated
damages will tack back to the Effective Date for purposes of determining the holding period under Rule 144).
22. Severability. If any part of this Note is construed to be in violation of any law, such part shall be modified to achieve the objective of Borrower and Lender to the
fullest extent permitted by law and the balance of this Note shall remain in full force and effect.
[Remainder of page intentionally left blank; signature page follows]
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IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the Effective Date.
BORROWER:
Naked Brand Group Limited
/s/ Justin Davis-Rice
Justin Davis-Rice
By:
Name:
Title: Director
ACKNOWLEDGED, ACCEPTED AND AGREED:
LENDER:
St. George Investments LLC
By: Fife Trading, Inc., its Manager
By:
/s/ John M. Fife
John M. Fife, President
[Signature Page to Secured Convertible Promissory Note]
ATTACHMENT 1
DEFINITIONS
For purposes of this Note, the following terms shall have the following meanings:
A1. “Approved Restricted Issuance” means a Restricted Issuance (as defined in the Purchase Agreement) for which Borrower received Lender’s written consent prior
to the applicable issuance.
A2. “Closing Trade Price” means the last closing trade price for the Ordinary Shares on its principal market, as reported by Bloomberg, or, if its principal market
begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price (as the case may be) then the last trade price, respectively, of
the Ordinary Shares prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or if the foregoing does not apply, the last closing trade price of the Ordinary Shares in
the over-the-counter market on the electronic bulletin board for the Ordinary Shares as reported by Bloomberg, or, if no closing trade price is reported for the Ordinary Shares
by Bloomberg, the average of the bid and ask prices of any market makers for the Ordinary Shares as reported by OTC Markets Group, Inc., and any successor thereto. If the
Closing Trade Price cannot be calculated for the Ordinary Shares on a particular date on any of the foregoing bases, the Closing Trade Price of the Ordinary Shares on such date
shall be the fair market value as mutually determined by Lender and Borrower. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock
combination or other similar transaction during such period.
A3. “Conversion Share Value” means the product of the number of Conversion Shares deliverable pursuant to any Conversion Notice multiplied by the Closing
Trade Price of the Ordinary Shares on the Delivery Date for such Conversion.
A4. “Default Effect” means multiplying the Outstanding Balance as of the date the applicable Event of Default occurred by (a) fifteen percent (15%) for each
occurrence of any Major Default, (b) ten percent (10%) for each occurrence of an Unapproved Restricted Issuance Default, or (c) five percent (5%) for each occurrence of any
Minor Default, and then adding the resulting product to the Outstanding Balance as of the date the applicable Event of Default occurred, with the sum of the foregoing then
becoming the Outstanding Balance under this Note as of the date the applicable Event of Default occurred; provided that the Default Effect may only be applied two (2) times
hereunder with respect to Major Defaults, three (3) times with respect to Unapproved Restricted Issuance Defaults and three (3) times hereunder with respect to Minor Defaults;
provided, further, that the Default Effect shall not in any event result in the addition, in the aggregate, of an amount in excess of twenty-five percent (25%) of the Outstanding
Balance to the Outstanding Balance; and provided further that the Default Effect shall not apply to any Event of Default pursuant to Section 4.1(b) hereof.
A5. “DTC” means the Depository Trust Company or any successor thereto.
A6. “DTC/FAST Program” means the DTC’s Fast Automated Securities Transfer program.
A7. “DWAC” means the DTC’s Deposit/Withdrawal at Custodian system.
A8. “DWAC Eligible” means that (a) Borrower’s Ordinary Shares is eligible at DTC for full services pursuant to DTC’s operational arrangements, including without
limitation transfer through DTC’s DWAC system; (b) Borrower has been approved (without revocation) by DTC’s underwriting department; (c) Borrower’s transfer agent is
approved as an agent in the DTC/FAST Program; (d) the Conversion Shares are otherwise eligible for delivery via DWAC; and (e) Borrower’s transfer agent does not have a
policy prohibiting or limiting delivery of the Conversion Shares via DWAC.
Attachment 1 to Convertible Promissory Note, Page 1
A9. “Fundamental Transaction” means that (a) (i) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, consolidate or
merge with or into (whether or not Borrower or any of its subsidiaries is the surviving corporation) any other person or entity, unless the holders of the voting securities of
Borrower prior to such transaction own 50% or more of the outstanding voting securities of the surviving person or entity, or (ii) Borrower or any of its subsidiaries shall,
directly or indirectly, in one or more related transactions, sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or
assets to any other person or entity, or (iii) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, allow any other person or entity to
make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of voting stock of Borrower (not including any shares of
voting stock of Borrower held by the person or persons making or party to, or associated or affiliated with the persons or entities making or party to, such purchase, tender or
exchange offer), or (iv) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, consummate a stock or share purchase agreement or
other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other person or entity whereby such
other person or entity acquires more than 50% of the outstanding shares of voting stock of Borrower (not including any shares of voting stock of Borrower held by the other
persons or entities making or party to, or associated or affiliated with the other persons or entities making or party to, such stock or share purchase agreement or other business
combination), or (v) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, reorganize, recapitalize or reclassify the Ordinary
Shares, other than an increase in the number of authorized shares of Borrower’s Ordinary Shares, or (b) any “person” or “group” (as these terms are used for purposes of
Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations promulgated thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the
1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding voting stock of Borrower.
A10. “Major Default” means any Event of Default occurring under Sections 4.1(a) or 4.1(n).
A11. “Mandatory Default Amount” means the Outstanding Balance following the application of the Default Effect.
A12. “Market Capitalization” means a number equal to (a) the average VWAP of the Ordinary Shares for the immediately preceding fifteen (15) Trading Days,
multiplied by (b) the aggregate number of outstanding Ordinary Shares as reported on Borrower’s most recently filed Form 10-Q or Form 10-K.
A13. “Maximum Monthly Redemption Amount” means $400,000.00.
A14. “Minor Default” means any Event of Default that is not a Major Default or an Unapproved Restricted Issuance Default.
A15. “OID” means an original issue discount.
A16. “Other Agreements” means, collectively, (a) all existing and future agreements and instruments between, among or by Borrower (or an affiliate), on the one
hand, and Lender (or an affiliate), on the other hand, and (b) any financing agreement or a material agreement that affects Borrower’s ongoing business operations.
A17. “Outstanding Balance” means as of any date of determination, the Purchase Price, as reduced or increased, as the case may be, pursuant to the terms hereof for
payment, Conversion, offset, or otherwise, plus the OID, the Transaction Expense Amount, accrued but unpaid interest, collection and enforcements costs (including attorneys’
fees) incurred by Lender, transfer, stamp, issuance and similar taxes and fees related to Conversions, and any other fees or charges (including without limitation Conversion
Delay Late Fees) incurred under this Note.
A18. “Trading Day” means any day on which the New York Stock Exchange (or such other principal market for the Ordinary Shares) is open for trading.
A19. “Unapproved Restricted Issuance” means a Restricted Issuance for which Borrower did not receive Lender’s written consent prior to the applicable issuance.
A20. “Unapproved Restricted Issuance Default” means an Event of Default occurring under Section 4.1(o) of this Note.
A21. “VWAP” means the volume weighted average price of the Ordinary Shares on the principal market for a particular Trading Day or set of Trading Days, as the
case may be, as reported by Bloomberg.
[Remainder of page intentionally left blank]
Attachment 1 to Convertible Promissory Note, Page 2
Naked Brand Group Limited
Attn: Anna Johnson
c/o Bendon Limited
Building 7B, Huntley Street
Alexandria
NSW 2015, Australia
EXHIBIT A
St. George Investments LLC
303 East Wacker Drive, Suite 1040
Chicago, Illinois 60601
CONVERSION NOTICE
Date: __________________
The above-captioned Lender hereby gives notice to Naked Brand Group Limited, an Australia corporation (the “Borrower”), pursuant to that certain Secured Convertible
Promissory Note made by Borrower in favor of Lender on May 13, 2019 (the “Note”), that Lender elects to convert the portion of the Note balance set forth below into fully
paid and non-assessable Ordinary Shares of Borrower as of the date of conversion specified below. Said conversion shall be based on the Conversion Price set forth below. In
the event of a conflict between this Conversion Notice and the Note, the Note shall govern, or, in the alternative, at the election of Lender in its sole discretion, Lender may
provide a new form of Conversion Notice to conform to the Note. Capitalized terms used in this notice without definition shall have the meanings given to them in the Note.
A. Date of Conversion: ____________
B. Conversion #: ____________
C. Conversion Amount: ____________
D. Conversion Price: _______________
E. Conversion Shares: _______________ (C divided by D)
F. Remaining Outstanding Balance of Note: ____________*
* Subject to adjustments for corrections, defaults, interest and other adjustments permitted by the Transaction Documents (as defined in the Purchase Agreement), the terms of
which shall control in the event of any dispute between the terms of this Conversion Notice and such Transaction Documents.
Please transfer the Conversion Shares electronically (via DWAC) to the following account:
Broker:
DTC#:
Account #:
Account Name:
Address:
To the extent the Conversion Shares are not able to be delivered to Lender electronically via the DWAC system, deliver all such certificated shares to Lender via reputable
overnight courier after receipt of this Conversion Notice (by facsimile transmission or otherwise) to:
_____________________________________
_____________________________________
_____________________________________
[Signature Page Follows]
Exhibit A to Convertible Promissory Note, Page 1
Sincerely,
Lender:
St. George Investments LLC
By: Fife Trading, Inc., its Manager
By:
John M. Fife, President
Exhibit A to Convertible Promissory Note, Page 2
Security Agreement
Exhibit 4.8.3
This Security Agreement (this “Agreement”), dated as of May 13, 2019, is executed by Naked Brand Group Limited, an Australia corporation (“Debtor”), in favor of
St. George Investments LLC, a Utah limited liability company (“Secured Party”).
A. Debtor has issued to Secured Party a certain Secured Convertible Promissory Note of even date herewith, as may be amended from time to time, in the original face
amount of $3,320,000.00 (the “Note”).
B. In order to induce Secured Party to extend the credit evidenced by the Note, Debtor has agreed to enter into this Agreement and to grant Secured Party a security
interest in the Collateral (as defined below).
NOW, THEREFORE, in consideration of the above recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Debtor hereby agrees with Secured Party as follows:
1. Definitions and Interpretation. When used in this Agreement, the following terms have the following respective meanings:
“Collateral” has the meaning given to that term in Section 2 hereof.
“Intellectual Property” means all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses (software or otherwise), information,
know-how, inventions, discoveries, published and unpublished works of authorship, processes, any and all other proprietary rights, and all rights corresponding to all of the
foregoing throughout the world, now owned and existing or hereafter arising, created or acquired.
“Lien” shall mean, with respect to any property, any security interest, mortgage, pledge, lien, claim, charge or other encumbrance in, of, or on such property
or the income therefrom, including, without limitation, the interest of a vendor or lessor under a conditional sale agreement, capital lease or other title retention agreement, or
any agreement to provide any of the foregoing, and the filing of any financing statement or similar instrument under the UCC or comparable law of any jurisdiction.
“Obligations” means (a) all loans, advances, future advances, debts, liabilities and obligations, howsoever arising, owed by Debtor to Secured Party or any
affiliate of Secured Party of every kind and description, now existing or hereafter arising, whether created by the Note, this Agreement, that certain Securities Purchase
Agreement of even date herewith, entered into by and between Debtor and Secured Party (the “Purchase Agreement”), any other Transaction Documents (as defined in the
Purchase Agreement), any other agreement between Debtor and Secured Party (or any affiliate of Secured Party) or any other promissory note issued by Debtor in favor of
Secured Party (or any affiliate of Secured Party), any modification or amendment to any of the foregoing, guaranty of payment or other contract or by a quasi-contract, tort,
statute or other operation of law, whether incurred or owed directly to Secured Party or as an affiliate of Secured Party or acquired by Secured Party or an affiliate of Secured
Party by purchase, pledge or otherwise, (b) all costs and expenses, including attorneys’ fees, incurred by Secured Party or any affiliate of Secured Party in connection with the
Note or in connection with the collection or enforcement of any portion of the indebtedness, liabilities or obligations described in the foregoing clause (a), (c) the payment of all
other sums, with interest thereon, advanced in accordance herewith to protect the security of this Agreement, and (d) the performance of the covenants and agreements of Debtor
contained in this Agreement and all other Transaction Documents.
“Permitted Liens” means (a) Liens for taxes not yet delinquent or Liens for taxes being contested in good faith and by appropriate proceedings for which
adequate reserves have been established, (b) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other similar Liens imposed by law, arising in the ordinary
course of business, (c) Liens in favor of Secured Party under this Agreement or arising under the other Transaction Documents or prior agreements between Debtor and Secured
Party, and (d) a Lien in in favor of Bank of New Zealand.
“UCC” means the Uniform Commercial Code as in effect in the jurisdiction whose laws would govern the security interest in, including without limitation the
perfection thereof, and foreclosure of the applicable Collateral, or any equivalent laws in Australia that govern the grant of a security interest in the types of assets encumbered
by this Agreement.
Unless otherwise defined herein, all terms defined in the UCC have the respective meanings given to those terms in the UCC.
2. Grant of Security Interest. As security for the Obligations, Debtor hereby pledges to Secured Party and grants to Secured Party a security interest in all right, title,
interest, claims and demands of Debtor in and to the property described in Schedule A hereto, and all replacements, proceeds, products, and accessions thereof (collectively, the
“Collateral”).
3. Authorization to File Financing Statements. Debtor hereby irrevocably authorizes Secured Party at any time and from time to time to file in any filing office in any
Uniform Commercial Code jurisdiction or other jurisdiction of Debtor or its subsidiaries any financing statements or documents having a similar effect and amendments thereto
that provide any other information required by the Uniform Commercial Code (or similar law of any non-United States jurisdiction, if applicable) of such state or jurisdiction for
the sufficiency or filing office acceptance of any financing statement or amendment, including whether Debtor is an organization, the type of organization and any organization
identification number issued to Debtor. Debtor agrees to furnish any such information to Secured Party promptly upon Secured Party’s request.
4. General Representations and Warranties. Debtor represents and warrants to Secured Party that (a) Debtor is the owner of the Collateral and that no other person has
any right, title, claim or interest (by way of Lien or otherwise) in, against or to the Collateral, other than Permitted Liens, (b) upon the filing of UCC-1 financing statements with
the appropriate state office (or an equivalent in the appropriate foreign office), Secured Party shall have a perfected security interest in the Collateral to the extent that a security
interest in the Collateral can be perfected by such filing, subject to the Permitted Liens, (c) Debtor has received at least a reasonably equivalent value in exchange for entering
into this Agreement, (d) Debtor is not insolvent, as defined in any applicable state or federal statute, nor will Debtor be rendered insolvent by the execution and delivery of this
Agreement to Secured Party; and (e) as such, this Agreement is a valid and binding obligation of Debtor.
5. Additional Covenants. Debtor hereby agrees:
perfection and priority of such Lien;
5.1. to perform all acts that may be necessary to maintain, preserve, protect and perfect in the Collateral, the Lien granted to Secured Party therein, and the
5.2. to procure, execute (including endorse, as applicable), and deliver from time to time any endorsements, assignments, financing statements, certificates of
title, and all other instruments, documents and/or writings reasonably deemed necessary or appropriate by Secured Party to perfect, maintain and protect Secured Party’s Lien
hereunder and the priority thereof;
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any changes with respect to Debtor’s address or principal place of business, and (c) the formation of any subsidiaries of Debtor;
5.3. to provide at least ten (10) days prior written notice to Secured Party of any of the following events: (a) any changes or alterations of Debtor’s name, (b)
5.4. upon the occurrence of an Event of Default (as defined in the Note) under the Note and so long as such Event of Default is continuing, at Secured Party’s
request, to endorse (up to the outstanding amount under such promissory notes at the time of Secured Party’s request), assign and deliver any promissory notes and all other
instruments, documents, or writings included in the Collateral to Secured Party, accompanied by such instruments of transfer or assignment duly executed in blank as Secured
Party may from time to time specify;
otherwise agreed to by Secured Party in writing), and not to relocate the Collateral to any other locations without the prior written consent of Secured Party;
5.5. to the extent the Collateral is not delivered to Secured Party pursuant to this Agreement, to keep the Collateral at the principal office of Debtor (unless
5.6. [Intentionally omitted]
5.7. not to, directly or indirectly, allow, grant or suffer to exist any Lien upon any of the Collateral, other than Permitted Liens;
5.8. [Intentionally omitted]
5.9. to the extent commercially reasonable and in Debtor’s good faith business judgment: (a) to file and prosecute diligently any patent, trademark or service
mark applications pending as of the date hereof or hereafter until all Obligations shall have been paid in full, (b) to make application on unpatented but patentable inventions and
on trademarks and service marks, (c) to preserve and maintain all rights in all of its Intellectual Property, and (d) to ensure that all of its Intellectual Property is and remains
enforceable. Any and all costs and expenses incurred in connection with each of Debtor’s obligations under this Section 5.9 shall be borne by Debtor. Debtor shall not
knowingly and unreasonably abandon any right to file a patent, trademark or service mark application, or abandon any pending patent application, or any other of its Intellectual
Property, without the prior written consent of Secured Party except for Intellectual Property that Debtor determines, in the exercise of its good faith business judgment, is not or
is no longer material to its business;
5.10. upon the request of Secured Party at any time or from time to time, and at the sole cost and expense (including, without limitation, reasonable attorneys’
fees) of Debtor, Debtor shall take all actions and execute and deliver any and all instruments, agreements, assignments, certificates and/or documents reasonably required by
Secured Party to collaterally assign any and all of Debtor’s patent, copyright and trademark registrations and applications now owned or hereafter acquired to and in favor of
Secured Party; and
5.11. at any time amounts paid by Secured Party under the Transaction Documents are used to purchase Collateral, Debtor shall perform all acts that may be
necessary, and otherwise fully cooperate with Secured Party, to cause (a) any such amounts paid by Secured Party to be disbursed directly to the sellers of any such Collateral,
(b) all certificates of title pertaining to such Collateral (as applicable) to be properly filed and reissued to reflect Secured Party’s Lien on such Collateral, and (c) all such reissued
certificates of title to be delivered to and held by Secured Party.
3
6. Authorized Action by Secured Party. Upon the occurrence of an Event of Default and so long as such Event of Default is continuing, Debtor hereby irrevocably
appoints Secured Party as its attorney-in-fact (which appointment is coupled with an interest) and agrees that Secured Party may perform (but Secured Party shall not be
obligated to and shall incur no liability to Debtor or any third party for failure so to do) any act which Debtor is obligated by this Agreement to perform, and to exercise such
rights and powers as Debtor might exercise with respect to the Collateral, including the right to (a) collect by legal proceedings or otherwise and endorse, receive and receipt for
all dividends, interest, payments, proceeds and other sums and property now or hereafter payable on or on account of the Collateral; (b) enter into any extension, reorganization,
deposit, merger, consolidation or other agreement pertaining to, or deposit, surrender, accept, hold or apply other property in exchange for the Collateral; (c) make any
compromise or settlement, and take any action Secured Party deems advisable, with respect to the Collateral, including without limitation bringing a suit in Secured Party’s own
name to enforce any Intellectual Property; (d) endorse Debtor’s name on all applications, documents, papers and instruments necessary or desirable for Secured Party in the use
of any Intellectual Property; (e) grant or issue any exclusive or non-exclusive license under any Intellectual Property to any person or entity; (f) assign, pledge, sell, convey or
otherwise transfer title in or dispose of any Intellectual Property to any person or entity; (g) cause the Commissioner of Patents and Trademarks, United States Patent and
Trademark Office (or as appropriate, such equivalent agency in foreign countries) to issue any and all patents and related rights and applications to Secured Party as the assignee
of Debtor’s entire interest therein; (h) file a copy of this Agreement with any governmental agency, body or authority, including without limitation the United States Patent and
Trademark Office and, if applicable, the United States Copyright Office or Library of Congress, at the sole cost and expense of Debtor; (i) insure, process and preserve the
Collateral; (j) pay any indebtedness of Debtor relating to the Collateral; (k) execute and file UCC financing statements and other documents, certificates, instruments and
agreements with respect to the Collateral or as otherwise required or permitted hereunder; and (l) take any and all appropriate action and execute any and all documents and
instruments that may be necessary or useful to accomplish the purposes of this Agreement; provided, however, that Secured Party shall not exercise any such powers granted
pursuant to clauses (a) through (g) above prior to the occurrence of an Event of Default and shall only exercise such powers during the continuance of an Event of Default. The
powers conferred on Secured Party under this Section 6 are solely to protect its interests in the Collateral and shall not impose any duty upon it to exercise any such powers.
Secured Party shall be accountable only for the amounts that it actually receives as a result of the exercise of such powers, and neither Secured Party nor any of its stockholders,
directors, officers, managers, employees or agents shall be responsible to Debtor for any act or failure to act, except with respect to Secured Party’s own gross negligence or
willful misconduct. Nothing in this Section 6 shall be deemed an authorization for Debtor to take any action that it is otherwise expressly prohibited from undertaking by way of
other provision of this Agreement.
7. Default and Remedies.
7.1. Default. Debtor shall be deemed in default under this Agreement upon the occurrence of an Event of Default.
7.2. Remedies. Upon the occurrence of any such Event of Default, Secured Party shall have the rights of a secured creditor under the UCC, all rights granted
by this Agreement and by law, including, without limiting the foregoing, (a) the right to require Debtor to assemble the Collateral and make it available to Secured Party at a
place to be designated by Secured Party, and (b) the right to take possession of the Collateral, and for that purpose Secured Party may enter upon premises on which the
Collateral may be situated and remove the Collateral therefrom. Debtor hereby agrees that fifteen (15) days’ notice of a public sale of any Collateral or notice of the date after
which a private sale of any Collateral may take place is reasonable. Secured Party may also have a receiver appointed to take charge of all or any portion of the Collateral and to
exercise all rights of Secured Party under this Agreement. Secured Party may exercise any of its rights under this Section 7.2 without demand or notice of any kind. The
remedies in this Agreement, including without limitation this Section 7.2, are in addition to, not in limitation of, any other right, power, privilege, or remedy, either in law, in
equity, or otherwise, to which Secured Party may be entitled. No failure or delay on the part of Secured party in exercising any right, power, or remedy will operate as a waiver
thereof, nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right hereunder. All of Secured Party’s rights
and remedies, whether evidenced by this Agreement or by any other agreement, instrument or document shall be cumulative and may be exercised singularly or concurrently.
4
7.3. Standards for Exercising Rights and Remedies. To the extent that applicable law imposes duties on Secured Party to exercise remedies in a commercially
reasonable manner, Debtor acknowledges and agrees that it is not commercially unreasonable for Secured Party (a) to fail to incur expenses reasonably deemed significant by
Secured Party to prepare Collateral for disposition, (b) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law,
to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of, (c) to fail to exercise collection remedies
against account debtors or other persons obligated on Collateral or to fail to remove liens or encumbrances on or any adverse claims against Collateral, (d) to exercise collection
remedies against account debtors and other persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (e) to advertise
dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (f) to contact other persons, whether or not
in the same business as Debtor, for expressions of interest in acquiring all or any portion of the Collateral, (g) to hire one or more professional auctioneers to assist in the
disposition of Collateral, whether or not the Collateral is of a specialized nature, (h) to dispose of Collateral by utilizing Internet sites that provide for the auction of assets of the
types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets, (i) to dispose of assets in wholesale rather than retail
markets, (j) to disclaim disposition warranties, (k) to purchase insurance or credit enhancements to insure Secured Party against risks of loss, collection or disposition of
Collateral or to provide to Secured Party a guaranteed return from the collection or disposition of Collateral, or (l) to the extent deemed appropriate by Secured Party, to obtain
the services of other brokers, investment bankers, consultants and other professionals to assist Secured Party in the collection or disposition of any of the Collateral. Debtor
acknowledges that the purpose of this Section is to provide non-exhaustive indications of what actions or omissions by Secured Party would fulfill Secured Party’s duties under
the UCC in Secured Party’s exercise of remedies against the Collateral and that other actions or omissions by Secured Party shall not be deemed to fail to fulfill such duties
solely on account of not being indicated in this Section. Without limitation upon the foregoing, nothing contained in this Section shall be construed to grant any rights to Debtor
or to impose any duties on Secured Party that would not have been granted or imposed by this Agreement or by applicable law in the absence of this Section.
7.4. Marshalling. Secured Party shall not be required to marshal any present or future Collateral for, or other assurances of payment of, the Obligations or to
resort to such Collateral or other assurances of payment in any particular order, and all of its rights and remedies hereunder and in respect of such Collateral and other
assurances of payment shall be cumulative and in addition to all other rights and remedies, however existing or arising. To the extent that it lawfully may, Debtor hereby agrees
that it will not invoke any law relating to the marshalling of Collateral which might cause delay in or impede the enforcement of Secured Party’s rights and remedies under this
Agreement or under any other instrument creating or evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations
is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, Debtor hereby irrevocably waives the benefits of all such laws.
5
7.5. Application of Collateral Proceeds. The proceeds and/or avails of the Collateral, or any part thereof, and the proceeds and the avails of any remedy
hereunder (as well as any other amounts of any kind held by Secured Party at the time of, or received by Secured Party after, the occurrence of an Event of Default) shall be
paid to and applied as follows:
(a) First, to the payment of reasonable costs and expenses, including all amounts expended to preserve the value of the Collateral, of foreclosure or
suit, if any, and of such sale and the exercise of any other rights or remedies, and of all proper fees, expenses, liability and advances, including reasonable legal expenses and
attorneys’ fees, incurred or made hereunder by Secured Party;
second to outstanding principal) and all amounts owed under any of the other Transaction Documents or other documents included within the Obligations; and
(b) Second, to the payment to Secured Party of the amount then owing or unpaid on the Note (to be applied first to accrued interest and fees and
(c) Third, to the payment of the surplus, if any, to Debtor, its successors and assigns, or to whosoever may be lawfully entitled to receive the same.
In the absence of final payment and satisfaction in full of all of the Obligations, Debtor shall remain liable for any deficiency.
8. Miscellaneous.
the terms of which are incorporated herein by this reference.
8.1. Notices. Any notice required or permitted hereunder shall be given in the manner provided in the subsection titled “Notices” in the Purchase Agreement,
any single or partial exercise of any such right preclude any other further exercise thereof or of any other right.
8.2. Non-waiver. No failure or delay on Secured Party’s part in exercising any right hereunder shall operate as a waiver thereof or of any other right nor shall
by Debtor and Secured Party. Each waiver or consent under any provision hereof shall be effective only in the specific instances for the purpose for which given.
8.3. Amendments and Waivers. This Agreement may not be amended or modified, nor may any of its terms be waived, except by written instruments signed
provided, however, that Debtor may not sell, assign or delegate rights and obligations hereunder without the prior written consent of Secured Party.
8.4. Assignment. This Agreement shall be binding upon and inure to the benefit of Secured Party and Debtor and their respective successors and assigns;
8.5. Cumulative Rights, etc. The rights, powers and remedies of Secured Party under this Agreement shall be in addition to all rights, powers and remedies
given to Secured Party by virtue of any applicable law, rule or regulation of any governmental authority, or the Note, all of which rights, powers, and remedies shall be
cumulative and may be exercised successively or concurrently without impairing Secured Party’s rights hereunder. Debtor waives any right to require Secured Party to proceed
against any person or entity or to exhaust any Collateral or to pursue any remedy in Secured Party’s power.
parties to the fullest extent permitted and the balance of this Agreement shall remain in full force and effect.
8.6. Partial Invalidity. If any part of this Agreement is construed to be in violation of any law, such part shall be modified to achieve the objective of the
6
8.7. Expenses. Debtor shall pay on demand all reasonable fees and expenses, including reasonable attorneys’ fees and expenses, incurred by Secured Party in
connection with the custody, preservation or sale of, or other realization on, any of the Collateral or the enforcement or attempt to enforce any of the Obligations which are not
performed as and when required by this Agreement.
8.8. Entire Agreement . This Agreement and the other Transaction Documents, taken together, constitute and contain the entire agreement of Debtor and
Secured Party with respect to this particular matter and supersede any and all prior agreements, negotiations, correspondence, understandings and communications between the
parties, whether written or oral, respecting the subject matter hereof.
8.9. Governing Law; Venue. Except as otherwise specifically set forth herein, the parties expressly agree that this Agreement shall be governed solely by the
laws of the State of Utah, without giving effect to the principles thereof regarding the conflict of laws; provided, however, that enforcement of Secured Party’s rights and
remedies against the Collateral as provided herein will be subject to the UCC. The provisions set forth in the Purchase Agreement to determine the proper venue for any disputes
are incorporated herein by this reference.
8.10. Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT IRREVOCABLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO DEMAND
THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE RELATIONSHIPS OF
THE PARTIES HERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING UNDER
COMMON LAW OR ANY APPLICABLE STATUTE, LAW, RULE OR REGULATION. FURTHER, EACH PARTY HERETO ACKNOWLEDGES THAT IT IS
KNOWINGLY AND VOLUNTARILY WAIVING ITS RIGHT TO DEMAND TRIAL BY JURY.
8.11. Purchase Agreement; Arbitration of Disputes. By executing this Agreement, each party agrees to be bound by the terms, conditions and general
provisions of the Purchase Agreement and the other Transaction Documents, including without limitation the Arbitration Provisions (as defined in the Purchase Agreement) set
forth as an exhibit to the Purchase Agreement.
constitute one instrument. Any electronic copy of a party’s executed counterpart will be deemed to be an executed original.
8.12. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original and all of which together shall
8.13. Further Assurances. Debtor shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as Secured Party may reasonably request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated hereby.
8.14. Time of the Essence. Time is expressly made of the essence with respect to each and every provision of this Agreement.
[Remainder of page intentionally left blank; signature page follows]
7
IN WITNESS WHEREOF, Secured Party and Debtor have caused this Agreement to be executed as of the day and year first above written.
SECURED PARTY:
St. George Investments LLC
By:
By:
Fife Trading, Inc., its Manager
/s/ John M. Fife
John M. Fife, President
DEBTOR:
Naked Brand Group Limited
/s/ Justin Davis-Rice
Justin Davis-Rice
By:
Name:
Title: Director
[Signature Page to Security Agreement]
SCHEDULE A
TO SECURITY AGREEMENT
All right, title, interest, claims and demands of Debtor in and to all of Debtor’s assets owned as of the date hereof and/or acquired by Debtor at any time while the
Obligations are still outstanding, including without limitation, the following property:
1. All equity interests in all wholly- or partially-owned subsidiaries of Debtor.
2. All customer accounts, insurance contracts, and clients underlying such insurance contracts.
3. All goods and equipment now owned or hereafter acquired, including, without limitation, all laboratory equipment, growing equipment, computer equipment, office
equipment, machinery, containers, fixtures, vehicles, and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
4. All inventory now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work
in process and finished products including such inventory as is temporarily out of Debtor’s custody or possession or in transit and including any returns upon any accounts or
other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and
Debtor’s books relating to any of the foregoing;
5. All accounts receivable, contract rights, general intangibles, healthcare insurance receivables, payment intangibles and commercial tort claims, now owned or
hereafter acquired, including, without limitation, all patents, patent rights and patent applications (including without limitation, the inventions and improvements described and
claimed therein, and (a) all reissues, divisions, continuations, renewals, extensions and continuations-in-part thereof, (b) all income, royalties, damages, proceeds and payments
now and hereafter due or payable under or with respect thereto, including, without limitation, damages and payments for past or future infringements thereof, (c) the right to sue
for past, present and future infringements thereof, and (d) all rights corresponding thereto throughout the world), trademarks and service marks (and applications and
registrations therefor), inventions, discoveries, copyrights and mask works (and applications and registrations therefor), trade names, trade styles, software and computer
programs including source code, trade secrets, methods, published and unpublished works of authorship, processes, know how, drawings, specifications, descriptions, and all
memoranda, notes, and records with respect to any research and development, goodwill, license agreements, information, any and all other proprietary rights, franchise
agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, computer programs, computer disks, computer tapes, literature, reports,
catalogs, design rights, income tax refunds, payments of insurance and rights to payment of any kind and whether in tangible or intangible form or contained on magnetic media
readable by machine together with all such magnetic media, and all rights corresponding to all of the foregoing throughout the world, now owned and existing or hereafter
arising, created or acquired;
6. All now existing and hereafter arising accounts, contract rights, royalties, license rights and all other forms of obligations owing to Debtor arising out of the sale or
lease of goods, the licensing of technology or the rendering of services by Debtor (subject, in each case, to the contractual rights of third parties to require funds received by
Debtor to be expended in a particular manner), whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Debtor and Debtor’s books relating to any of the foregoing;
7. All documents, cash, deposit accounts, letters of credit, letter of credit rights, supporting obligations, certificates of deposit, instruments, chattel paper, electronic
chattel paper, tangible chattel paper and investment property, including, without limitation, all securities, whether certificated or uncertificated, security entitlements, securities
accounts, commodity contracts and commodity accounts, and all financial assets held in any securities account or otherwise, wherever located, now owned or hereafter acquired
and Debtor’s books relating to the foregoing;
8. All other assets, goods and personal property of Debtor, wherever located, whether tangible or intangible, and whether now owned or hereafter acquired; and
9. Any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds and products thereof, including,
without limitation, insurance, condemnation, requisition or similar payments and the proceeds thereof.
Exhibit 4.8.4
13 May 2019
Dated
DEED OF PRIORITY AND SUBORDINATION
NAKED BRAND GROUP LIMITED
(Debtor)
BANK OF NEW ZEALAND
(Senior Creditor)
and
ST. GEORGE INVESTMENTS LLC
(Junior Creditor)
CONTENTS
INTERPRETATION
PRIORITY - PPSA
PRIORITY
OTHER PROPERTY
PARAMOUNTCY
SUBORDINATION
SALE AND ENFORCEMENT
ASSIGNMENT
POWER OF ATTORNEY
1.
2.
3.
4.
5.
6.
7.
8.
9.
10. REPRESENTATIONS
11. UNDERTAKINGS
12. NOTICES
13. GENERAL
3
7
8
8
8
9
13
14
14
15
15
17
18
THIS DEED is dated 13 May 2019
PARTIES
1.
2.
3.
NAKED BRAND GROUP LIMITED (a company registered in Australia with ACN 619 054 938) (the “Debtor”);
BANK OF NEW ZEALAND (a company registered in New Zealand with company number 428849) (the “Senior Creditor”); and
ST. GEORGE INVESTMENTS LLC (a company registered in Utah, United States of America with entity number 8931086-0160) (the “Junior Creditor”).
BACKGROUND
A.
B.
C.
Financial accommodation has been made to Bendon Limited by the Senior Creditor and to the Debtor by the Junior Creditor.
The Senior Security has been granted in respect of, among other things, Bendon Limited’s obligations to the Senior Creditor and the Junior Security has been granted in
respect of the Debtor’s obligations to the Junior Creditor.
The Debtor and the Junior Creditor have agreed in favour of the Senior Creditor that, until the Termination Date, the Junior Debt is to be subordinated to the Senior Debt
and the Junior Security is to be subordinated to the Senior Security, in each case on the terms set out in this Deed.
TERMS OF THIS DEED
1.
1.1
INTERPRETATION
Definitions: In this Deed, unless the context otherwise requires:
“Business Day” means a day (other than a Saturday or a Sunday) on which banks are open for business in Auckland.
“Documents” means, in relation to:
(a) the Senior Creditor, the Senior Documents; or
(b) the Junior Creditor, the Junior Documents.
“Enforcement” means the exercise by a Secured Party of any right available to it by way of enforcement or realisation of a security interest under its Security (including,
without limitation, service of a notice under section 119 of the Property Law Act 2007), appointment of a receiver, exercise of a right of set-off or claiming, proving or
accepting payment in a liquidation or administration of, the Debtor.
“Enforcement Date” means, unless the Secured Parties agree in writing to the contrary, the first day on which a Secured Party becomes entitled to exercise any right of
Enforcement available to it under its Security.
“Facility Agreement” means the Senior Facility Agreement or the Junior Facility Agreement, as the context requires.
Page 3
“Junior Debt” means all present and future liabilities and indebtedness of the Debtor to the Junior Creditor, absolute, contingent or otherwise, whether or not matured,
whether or not liquidated, and whether or not owed solely or jointly by the Debtor or to the Junior Creditor solely or jointly, including without limitation (a) liabilities
and indebtedness which the Junior Creditor acquires by purchase, security assignment or otherwise, (b) interest (including any capitalised interest), (c) damages, (d)
claims for restitution, (e) costs and (f) any obligation under a guarantee or indemnity.
“Junior Documents” means each Junior Facility Agreement and each Junior Security.
“Junior Event of Default” means any default or event of default (howsoever defined or described) under any Junior Document.
“Junior Facility Agreement” means the Junior Note Agreement, Junior Securities Purchase Agreement and all other loan facility agreements, deeds or documents
entered into at any time between (among others) the Junior Creditor and the Debtor and each other document constituting or evidencing any financial accommodation
made available by the Junior Creditor to the Debtor or the Junior Debt from time to time.
“Junior Redemption Payments” means the monthly redemption payments (of no more than USD$400,000.00) beginning on the date that is seven months from the
Effective Date (as that term is defined in the Junior Note Agreement) by the Debtor to the Junior Creditor pursuant to the Junior Note Agreement.
“Junior Security” means each guarantee or indemnity and each security interest granted by the Debtor in favour of the Junior Creditor from time to time as security or
support for the Junior Debt including, without limitation, the relevant guarantees (if any) and securities described in Schedule 1.
“Junior Note Agreement” means the ‘Secured Convertible Promissory Note’ dated on or about May 2019 between the Junior Creditor (as lender) and the Debtor (as
borrower).
“Junior Securities Purchase Agreement” means the ‘Securities Purchase Agreement’ dated on or about May 2019 between the Junior Creditor (as company) and the
Debtor (as investor).
“Other Property” means all of the Debtor’s assets and property, including any real property, but excluding the Personal Property, that is subject to the Senior Security
and the Junior Security, and includes any part of it.
“Personal Property” means all personal property of the Debtor that is subject to the Senior Security and the Junior Security, and includes any part of it.
“Pledged Shares” means all of the shares held by the Debtor that, from time to time, are pledged or otherwise secured under Senior Security from time to time, which
includes for the avoidance of doubt, all shares held by the Debtor in Naked Brand Group, Inc., Naked Inc. and FOH Online Corp.
“PPSA” means the Personal Property Securities Act 1999.
“PPSR” means the Personal Property Securities Register (and the equivalent register in any other applicable jurisdiction).
“Secured Debt” means, in relation to:
(a) the Senior Creditor, the Senior Debt; or
(b) the Junior Creditor, the Junior Debt.
Page 4
“Secured Parties” means the Senior Creditor and the Junior Creditor (and “Secured Party” means either of them, as the context requires).
“Secured Property” means all Personal Property and Other Property.
“Security” means, in relation to:
(a) the Senior Creditor, the Senior Security; or
(b) the Junior Creditor, the Junior Security,
and “Securities” means the Senior Security and the Junior Security together.
“Senior Debt” means all present and future liabilities and indebtedness of the Debtor to the Senior Creditor, absolute, contingent or otherwise, whether or not matured
and whether or not liquidated, including without limitation (a) any liability and indebtedness documented under a Senior Document (b) liabilities which the Senior
Creditor acquires by purchase, security assignment or otherwise, (c) interest (including any capitalised interest), (d) damages, (e) claims for restitution and (f) costs.
“Senior Document” means each Senior Facility Agreement and each other ‘Transaction Document’ (however defined or described) in the Senior Facility Agreement
including, without limitation, each Senior Security.
“Senior Event of Default” means any event of default (howsoever described) under any Senior Document.
“Senior Event of Review” means any event of review (howsoever described) under any Senior Document.
“Senior Facility Agreement” means the Facility Agreement dated 27 June 2016 (as amended from time to time) between, among others, Bendon Limited (as initial
borrower) and the Debtor (as initial guarantor), and all other loan facility agreement(s) between (among others) the Senior Creditor and the Debtor from time to time and
also includes each other document evidencing the provision of, or setting out the terms that apply to, any Senior Debt (of whatever nature) made or to be made available
by the Senior Creditor to the Debtor from time to time (howsoever documented).
“Senior Potential Event of Default” means any potential event of default (howsoever described) under any Senior Document.
“Senior Security” means each guarantee or indemnity and each security interest granted by the Debtor or any other party in favour of the Senior Creditor from time to
time as security or support for the Senior Debt including, without limitation, the relevant security described in Schedule 1, and any other document which constitutes a
‘Security Document’ as defined in the Senior Facility Agreement.
“Termination Date” means, subject to clause 13.5, the date upon which the Senior Creditor confirms in writing to the Debtor that it (i) has received final payment in full
of all the Senior Debt and no circumstances exist which would cause it to believe on reasonable grounds that any amount received in payment or repayment of the Senior
Debt may be avoided or required to be paid or refunded to a liquidator or similar person and (ii) is satisfied that it is not under any actual or contingent obligation to
provide any future financial accommodation to the Debtor.
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1.2
Construction of certain references: In this Deed, unless the context otherwise requires, any reference to:
a Senior Event of Default, Senior Potential Event of Default, Senior Event of Review or Junior Event of Default “continuing” is a reference to that Senior Event of
Default, Senior Potential Event of Default, Senior Event of Review or Junior Event of Default having occurred and not having been waived by the Senior Creditor or
remedied to the Senior Creditor’s satisfaction;
“costs” include all costs, fees, commissions, charges, losses, fines, damages, expenses (including any break costs and legal fees and disbursements on a solicitor and
own client basis) and taxes, including any interest or taxes on such costs;
the “dissolution” of a person also includes the winding-up or liquidation of that person and any equivalent or analogous procedure under the law of any jurisdiction in
which that person is incorporated, domiciled, resident, carries on business or has assets;
a “guarantee” also includes an indemnity, letter of credit, bond, third party security or any other obligation (whatever called and of whatever nature) of any person to
pay, purchase, provide funds (whether by the advance of money, the purchase or subscription of shares or other securities, the purchase of assets or services or
otherwise) for the payment or performance of, indemnify against the consequences of default in the payment or performance of, or otherwise to be responsible or assume
liability for, any indebtedness or obligation of any other person;
“indebtedness” includes any obligation (whether present or future, actual, absolute, prospective, contingent or otherwise, secured or unsecured, and whether incurred
alone, severally, jointly or jointly and severally, as principal or surety or otherwise) relating to the payment or repayment of, or arising in connection with, money
borrowed, raised or otherwise owing, or under any finance lease, redeemable preference share, letter of credit, guarantee or indemnity or any financial accommodation
whatsoever and “indebted” shall be construed accordingly;
“law” includes any common law, equity and statute;
“person” includes any individual, any association of persons (whether corporate or not), any trust and any state or agency of a state (in each case whether or not having
separate legal personality);
“real property” includes all freehold and leasehold land, all estates and interests in land and buildings, structures and fixtures (including trade fixtures) for the time
being on that land;
a “receiver” includes a receiver and manager;
“security interest” includes any security interest (as defined in section 17(1)(a) of the PPSA), interest in real property of a security nature, assignment, mortgage, charge,
pledge, lien, hypothecation, encumbrance and any deferred purchase, title retention, finance lease, flawed asset arrangement, sale-and-repurchase or sale-and-leaseback
arrangement and any other arrangement the economic effect of which is to secure a creditor. It shall be deemed to also include any covenants and/or undertakings
provided by third parties under tripartite or similar deeds entered into in favour of a creditor in consideration of financial accommodation being made available to the
Debtor;
Page 6
“writing” includes an email communication and any means of reproducing words in a tangible and visible form;
the terms “at risk”, “collateral”, “default”, “financing change statement”, “financing statement”, “perfection”, “personal property”, “possession”, “proceeds” and
“seriously misleading” each have the meaning given to them in the PPSA;
any document or agreement includes such document or agreement as amended, restated, modified, novated or replaced from time to time;
any enactment includes that enactment as amended, modified and/or replaced from time to time;
a party to this Deed or any other document or agreement includes a reference to that party’s successors and permitted assigns; and
the singular includes the plural and vice versa.
References to legislation: In this Deed, any reference to New Zealand legislation (including the Companies Act 1993, Contract and Commercial Law Act 2017, PPSA
and Property Law Act 2007) includes the equivalent legislation in any other applicable jurisdiction, including for the avoidance of doubt, Australia and Utah, United
States of America.
Headings: Headings and the table of contents shall be ignored in construing this Deed.
PRIORITY - PPSA
Priorities:
(a) The Junior Security is subordinated to the Senior Security for the purposes of section 70 of the PPSA.
(b) The Senior Creditor has priority over the Junior Creditor and may, in accordance with its Documents, take possession of and sell any Personal Property, subject to
the terms of this Deed.
PPSR – Junior Creditor: If required by the Senior Creditor, the Junior Creditor agrees to immediately register a financing change statement (or statements) on the
PPSR to record the subordination of the Junior Security to the Senior Security under this Deed.
Perfection: If the interest of a third party in any Personal Property has priority over a Secured Party’s security interest in that Personal Property as a result of that
Secured Party’s:
(a)
failure to ensure its Security is continuously perfected in accordance with the PPSA; or
(b)
financing statement in relation to that Personal Property being held to be seriously misleading,
the other Secured Party may, by written notice, exclude that Personal Property from the application of this Deed. After such exclusion, the priority position of each
Secured Party in relation to that Personal Property shall be determined in accordance with the PPSA and nothing in these subordination and priority arrangements will
oblige that other Secured Party to do or suffer anything inconsistent with that other Secured Party’s priority position outside of these arrangements where that priority
position is or would be more favourable to that other Secured Party than under these arrangements.
1.3
1.4
2.
2.1
2.2
2.3
Page 7
2.4
Possession: If, at any time, a Secured Party has possession of any Personal Property, for the purposes of perfection and/or priority in relation to that Secured Party’s
security interest, that Secured Party will not release or give up that possession to any person other than the Senior Creditor except as, but only to the extent, required:
(a) by law or order of a court of competent jurisdiction or with the written consent of the other Secured Party; or
(b)
to enforce its security (provided that such enforcement is permitted by, and conducted in accordance with the priority principles set out in, this Deed); or
(c)
in connection with a disposal (or a settlement agreement with any insurers in respect of the Secured Property) by the Debtor permitted under the Senior Documents.
PRIORITY
Order of priority: The Securities, and all moneys from time to time secured or intended to be secured under them, will, in respect of the Secured Property, rank in the
following order of priority:
(a)
the Senior Security will have first priority for all moneys from time to time secured or intended to be secured under it;
(b)
the Junior Security will have second priority for all moneys from time to time secured or intended to be secured under it; and
(c)
the surplus (if any) shall, subject to the rights of any subsequent security holder, be paid to the Debtor or as it shall direct.
OTHER PROPERTY
Priority instruments: The Junior Creditor will, if required by the Senior Creditor, immediately sign and consent to the registration in the relevant register of a priority
instrument reflecting the priority in respect of any Other Property as set out in this Deed.
PARAMOUNTCY
Arrangements not affected: The subordination and priority arrangements in this Deed will have effect in each and every circumstance notwithstanding:
(a) any rule of law or equity to the contrary (including, but not limited to, any application of the rule in Clayton’s Case (1816) 1 Mer. 529 or the rule in Hopkinson v
Rolt (1861) 9 H.L. Case. 514);
(b)
the dates of the Securities, their order of registration or the date upon which a Secured Party may receive notice of the other Secured Party’s Security;
3.
3.1
4.
4.1
5.
5.1
Page 8
(c) any sums which may from time to time be paid to the credit of any account or accounts of the Debtor with a Secured Party;
(d)
the fact that any account or accounts of the Debtor with a Secured Party may at any time or times be or appear to be in credit;
(e) any time or waiver granted to, or composition with the Debtor or other person;
(f)
the fact that any security interest is not enforceable, or any unenforceability, illegality or invalidity of an obligation of the Debtor to a Secured Party;
(g)
the fact that any part of the money secured by a Security may be advanced or re-advanced after the date of the other Security or after notice of that Security to the
other Secured Party or after money has been advanced under a Security; or
(h) any other matter which might otherwise alter or postpone the priority of the Securities.
5.2
Inconsistent provisions not to apply:
(a) Any provision in the Junior Facility Agreement or any Security (including, without limitation, any clause relating to section 92 of the Property Law Act 2007) or
any other agreement or arrangement entered into before or after the date of this Deed which is inconsistent with these subordination and priority arrangements, will,
for so long as this Deed is in effect, be superseded or varied to the extent necessary to give full effect to these arrangements.
(b) The Junior Creditor agrees that the failure by the Debtor to comply with any obligation or undertaking of the Debtor in a Junior Document or any other agreement or
arrangement entered into before or after the date of this Deed which is restricted or subordinated pursuant to this Deed shall not constitute a Junior Event of Default,
provided that nothing in this clause 5.2(b) will prevent the Junior Creditor from taking the action permitted under clause 6.5.
Amendments to Senior Documents: Each of the Debtor and the Junior Creditor agrees for the benefit of the Senior Creditor that the provisions of this Deed shall not be
impaired, discharged or otherwise affected by any amendment, restatement or supplement to any Senior Document.
SUBORDINATION
Subordination of Junior Debt: The Debtor and the Junior Creditor covenant for the benefit of the Senior Creditor that the Junior Debt is and shall at all times be
subordinated and subject in point of priority and right of payment to the prior payment in full of the Senior Debt. For the avoidance of doubt, the Junior Creditor agrees
that:
(a)
for the purposes of section 313(3) of the Companies Act 1993, it is accepting a lower priority in respect of the Junior Debt than that which it might otherwise have
under section 313; and
(b) nothing in section 313 will prevent this Deed from having effect in accordance with its terms.
5.3
6.
6.1
Page 9
6.2
Debtor’s undertakings: Subject to clause 6.5, the Debtor covenants for the benefit of the Senior Creditor that it will not:
(a) directly or indirectly make any payment or distribution to, or to the order of, the Junior Creditor in respect of any of the Junior Debt or under any Junior Document
(including, without limitation, under any guarantee or indemnity in relation to any Junior Document);
(b) create or suffer or permit to exist any security interest, guarantee, indemnity or other assurance against financial loss in respect of the Junior Debt, other than the
Junior Security described in Schedule 1;
(c) amend, supplement, novate or release any of the Junior Documents;
(d)
take or omit any action whereby the subordination contemplated by this Deed may be impaired or terminated;
(e) purchase or acquire any of the Junior Debt;
(f) enter into any agreement (other than the Junior Facility Agreement and the Junior Security described in Schedule 1, in each case in the form reviewed by the Senior
Creditor as at the date of this Deed) that constitutes or evidences any Junior Debt without the prior written consent of the Senior Creditor;
(g) assign, sell, novate or transfer any of its rights or obligations in respect of any Junior Debt or under any Junior Document without the Senior Creditor’s prior written
consent;
(h) discharge any of the Junior Debt by way of set-off; or
(i) make available to the Junior Creditor any financial accommodation (of whatever nature).
6.3
Junior Creditor’s undertakings: Subject to clause 6.5, the Junior Creditor covenants for the benefit of the Senior Creditor that it will not:
(a) demand, accelerate, declare to be due and owing, ask or sue for, take or receive payment or distribution or take or accept any assets in respect of, all or any of the
Junior Debt, directly or indirectly and whether in any composition by the Debtor with its creditors, by exercise of set-off, counterclaim, merger or consolidation of
accounts or in any other manner;
(b) make any claim or demand in respect of any guarantee or indemnity in any Junior Document;
(c) prove in competition with the Senior Creditor in the dissolution of the Debtor;
(d)
take, accept or receive the benefit of any security interest, guarantee, indemnity or other assurance from any person against financial loss in respect of the Junior
Debt, other than the Junior Security described in Schedule 1;
(e) exercise any right of Enforcement in respect of the Secured Property (or any part thereof), or make any claim or demand in respect of any guarantee or indemnity in
any Junior Document;
(f) amend, supplement, terminate or release any of the Junior Documents;
(g) create or suffer or permit to exist any security interest over or affecting any of its right, title or interest in any of the Junior Debt or the Junior Security;
(h) claim, prove or accept payment in composition by, or in a liquidation or administration of, the Debtor;
Page 10
(i)
initiate or support or take any step with a view to:
(i)
any insolvency, liquidation, reorganisation, administration or dissolution proceedings of the Debtor;
(ii) any voluntary arrangement or assignment for the benefit of creditors; or
(iii) any similar proceedings involving the Debtor whether by petition, convening a meeting, voting for a resolution or otherwise;
(j)
exercise any right to require any insurance proceeds to be applied in reinstatement of any asset subject to any Junior Security;
(k)
receive any financial accommodation (of whatever nature) from the Debtor;
(l)
enter into any agreement (other than the Junior Facility Agreement and the Junior Security described in Schedule 1, in each case in the form reviewed by the Senior
Creditor as at the date of this Deed) that constitutes or evidences any Junior Debt without the prior written consent of the Senior Creditor;
(m) assign, sell, novate or transfer any of its rights or obligations in respect of any Junior Debt or under any Junior Document without the Senior Creditor’s prior written
consent;
(n) bring or support any legal proceedings against the Debtor, or otherwise exercise any remedy for the recovery of any Junior Debt; or
(o)
take or omit any action whereby the subordination contemplated by this Deed may be impaired or terminated.
6.4
Postponement absolute: The provisions of clauses 6.1 to 6.3 shall apply notwithstanding that any amount owing to the Junior Creditor may have become due and
payable because of the making of demand for payment or the maturity of such debt or the occurrence of a default under a Junior Document or otherwise.
6.5
Permitted Actions: Notwithstanding anything in this Deed to the contrary:
(a)
the Junior Creditor may declare a Junior Event of Default if the Debtor fails to pay a Junior Redemption Amount in accordance with clause 8 of Junior Facility
Agreement;
the Debtor may only pay the Junior Redemption Payments to the Junior Creditor prior to the Termination Date, provided that such payments are funded in full by
the issue of new equity in the Debtor (and for the avoidance of doubt, not by any debt instrument) and no Senior Event of Default, Senior Potential Event of Default
or Senior Event of Review has occurred and is continuing as at the date of relevant payment;
the Junior Creditor may convert all or any portion of the Outstanding Balance into Ordinary Shares (as each of those capitalised terms are defined in the Junior Note
Agreement) in accordance with the Junior Note Agreement or exchange all or any portion of the Outstanding Balance for Ordinary Shares pursuant to one or more
exchange transactions pursuant to Section 3(a)(9) of the United States Securities Act of 1933, as amended, to be agreed by the Debtor and the Junior Creditor; and
the Junior Creditor may bring a legal proceeding against the Debtor but only for: (i) specific performance wherein the Junior Creditor seeks to cause the Debtor to
deliver Ordinary Shares pursuant to the Junior Creditor’s rights to receive Ordinary Shares described in clause 6.5(b) above; or (ii) specific performance wherein the
Junior Creditor seeks an injunction prohibiting the Debtor from issuing Ordinary Shares as described in clause 10.3 of the Junior Securities Purchase Agreement.
(b)
(c)
(d)
Page 11
6.6
Turnover: If the Junior Creditor:
(a)
receives or recovers a payment or distribution in cash or in kind of, or on account of, any Junior Debt; or
(b) accepts any assets in respect of any Junior Debt; or
(c)
receives a discharge of any of the Junior Debt by the exercise of any rights against the Debtor (whether of set-off, combination of accounts or otherwise),
which is not permitted by the provisions of this Deed, whether upon the dissolution of the Debtor or for any other reason, then the Junior Creditor shall hold each such
payment and any such assets (or, if any of the Junior Debt is discharged by set-off or otherwise, an amount equal to the discharge) on trust as bare trustee for the Senior
Creditor and will pay the relevant amount (plus interest (if any)) and turn over the relevant funds and/or assets to the Senior Creditor in or towards the discharge of the
Senior Debt. Any such amount paid, or the value of any such assets held, by the Junior Creditor on account of being trustee for the benefit of the Senior Creditor and
paid over to the Senior Creditor shall be treated, for the purposes of the obligations of the Debtor in respect of the Junior Debt, as if it had not been paid or turned over by
the Debtor. The Junior Debt shall accordingly be deemed not to be discharged to that extent.
6.7
6.8
Perpetuity Period of Trust: The trust constituted by clause 6.6 of this Deed shall be for a term of 21 years from the date of this Deed.
Duties of the Junior Creditor as trustee: Pending the payment by the Junior Creditor to the Senior Creditor of any of the Junior Debt so taken or received or the
turning over of any assets so accepted by the Junior Creditor, the Junior Creditor shall:
(a) not co-mingle any such amount to be paid or any assets to be turned over to the Senior Creditor with its other assets; and
(b) place any such amount to be paid to the Senior Creditor in a separate, interest-bearing account (to be designated as a trust account) with any bank or financial
institution in New Zealand.
The Junior Creditor as trustee shall account to the Senior Creditor for any of the Junior Debt so taken or received by it or assets so accepted by it.
6.9
Failure of Trust: If and to the extent that the trust constituted by clause 6.6 of this Deed is for any reason not properly constituted or is otherwise not effective, the
Junior Creditor agrees (on an indemnity basis) immediately on demand to pay to the Senior Creditor any of the Junior Debt so taken, recovered or received or any assets
so accepted or any discharge received by the Junior Creditor as described in clause 6.6 of this Deed.
6.10
Exception - capitalisation of interest and fees: Nothing in this Deed is intended to prevent the Junior Creditor from charging interest or fees on or in connection with
the Junior Debt in accordance with the terms of the Junior Documents (as at the date of this Deed), provided that such interest or fees are capitalised to the Junior Debt.
Page 12
7.
7.1
SALE AND ENFORCEMENT
Releases: Without limiting clause 11.2:
(a) on the sale of any Secured Property or any part of it which is approved by the Senior Creditor (whether following enforcement of a Security or otherwise), the Junior
Creditor must promptly (and in any event within 5 Business Days of receiving a request from the Senior Creditor, any receiver appointed by the Senior Creditor or
the Debtor (the “Relevant Party”)) deliver to the Relevant Party duly executed releases of the Junior Security in respect of the Secured Property that is the subject of
the sale, together with any other documents which in the opinion of the Senior Creditor are required to enable settlement of the sale; and
(b) where settlement terms are agreed with an insurer in connection with a claim in respect of the Secured Property or any part of it and those terms are approved by the
Senior Creditor (whether following enforcement of a Security or otherwise), the Junior Creditor must promptly (and in any event within 5 Business Days of
receiving a request from a Relevant Party) deliver to the Relevant Party a duly executed discharge of all of the Junior Creditor’s interest in and claims under the
relevant insurance policy (as an interested party or otherwise) in respect of the Secured Property that is the subject of the settlement, together with any other
documents which in the opinion of the Senior Creditor are required to enable payment of the settlement amount by the insurer (including, without limitation, any
indemnity or release of liability required by the insurer),
in each case, whether or not the Junior Creditor will receive any amount from the proceeds of that sale or settlement.
7.2
Enforcement by the Senior Creditor: If the Senior Creditor enforces any Senior Security then:
(a)
the Junior Creditor will not be entitled to take or have possession of any assets subject to such Security or maintain a receiver in possession in respect of such assets
(except with the prior written consent of the Senior Creditor); and
(b)
the Senior Creditor will control the entire conduct of any sale of assets covered by any Senior Security.
Order of Application after Enforcement: Subject to the rights of any prior security holder or any preferential claim (including any costs incurred by or expenses of any
receiver), the proceeds of any sale or realisation of the Secured Property arising from any Enforcement must be applied in the order set out in clause 3.1.
Direction to Pay: Each Secured Party irrevocably and unconditionally authorises and directs a liquidator, official assignee, administrator, receiver, or similar person
appointed or acting in respect of the Debtor or its assets to pay the proceeds of the realisation of any Secured Property in accordance with the provisions of this Deed.
7.3
7.4
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7.5
7.6
Third party payments: If the Senior Creditor receives any amount otherwise than from the Debtor, the Senior Debt will not be deemed reduced by that amount until
and except to the extent that it is applied towards the Senior Debt.
Currencies: All money received or held by the Senior Creditor under this Deed at any time on or after the Enforcement of any Security in a currency other than a
currency in which the Senior Debt is denominated may be sold for any one or more of the currencies in which the Senior Debt is denominated as the Senior Creditor
considers necessary or desirable. The Senior Creditor has no liability to any party to this Deed in respect of any loss resulting from any fluctuation in exchange rates after
any such sale.
7.7
Deemed Waiver of Default:
Any waiver or consent granted by or on behalf of the Senior Creditor at any time prior to the Termination Date in respect of the Senior Documents will also be deemed to
have been given by Junior Creditor if:
(a)
in order for any such waiver or consent to take effect in accordance with its terms, such waiver or consent is required from the Junior Creditor; or
(b)
the act matter or thing the subject of the waiver or consent would, if such waiver or consent was not provided, result in a Junior Event of Default or a ‘Potential
Event of Default’ (however described) under any Junior Document,
in each case, whether or not an Enforcement Date has already occurred.
ASSIGNMENT
Benefit and Burden of this Deed: This Deed shall be binding upon and enure for the benefit of the parties and their respective successors and any permitted assignee or
transferee.
By the Debtor and the Junior Creditor: Neither the Debtor nor the Junior Creditor may assign or transfer any or all of their respective rights (if any) or obligations
under this Deed without (i) obtaining the prior written consent of the Senior Creditor and (ii) procuring that any assignee or transferee enters into a deed of covenant with
the other parties to this Deed, agreeing to be bound by this Deed in the place of the transferring party.
By the Senior Creditor: The Senior Creditor may assign any or all of its rights and benefits under this Deed subject to the requirement that any assignee enters into a
deed of covenant with the Debtor and the Junior Creditor whereby the assignee agrees to be bound by this Deed as if it were the Senior Creditor.
POWER OF ATTORNEY
The Junior Creditor irrevocably appoints (by way of security) the Senior Creditor, each officer and employee for the time being of the Senior Creditor whose title
includes the term “manager” or “director” and any receiver appointed by the Senior Creditor severally to be its attorney (with full power to appoint substitutes and to
sub-delegate), on its behalf and in its name or otherwise, at such time and in such manner as the attorney may think fit to do any thing which the Junior Creditor may be
obliged to do or ought to do under this Deed and which the Junior Creditor fails to do within 3 Business Days of request, and generally in its name and on its behalf to
carry into effect, complete or facilitate the exercise or purported exercise of all or any of the rights conferred on the Senior Creditor under this Deed (including without
limitation by executing, delivering, registering and/or otherwise perfecting any release or agreement).
8.
8.1
8.2
8.3
9.
9.1
Page 14
9.2
The Junior Creditor agrees to ratify and confirm anything an attorney lawfully does or causes to be done under clause 9.1, and to indemnify the Senior Creditor and each
such attorney on demand against any cost or liability they may suffer or incur as a direct or indirect consequence of the lawful exercise of such power.
10.
REPRESENTATIONS
10.1
The Junior Creditor and the Debtor each make the following representations and warranties to the Senior Creditor on the date of this Deed:
(a)
it has the power to enter into and perform, and has taken all necessary actions to authorise the entry into and performance of, this Deed and the transactions
contemplated by it;
(b)
the entry into and performance by it of, and the transactions contemplated by, this Deed does and will not conflict with:
(i)
any law or regulation applicable to it;
(ii) its constitutional or establishment documents (as the case may be); or
(iii) any agreement or instrument binding upon it or its assets; and
(c)
true, complete and up-to-date copies of all Junior Documents have been provided to the Senior Creditor and there are no documents or agreements in place in
relation to the Junior Debt which have not been disclosed in writing to the Senior Creditor prior to the date of this Deed;
(d)
its obligations under this Deed are legal, valid, binding and enforceable against it in accordance with the terms of this Deed, subject to equitable principles and laws
affecting creditors’ rights generally; and
(e) other than the Junior Security described in Schedule 1, no security interest, guarantee, indemnity or other assurance against financial loss in respect of the Junior
Debt has been granted or exists (whether registered or unregistered).
11.
UNDERTAKINGS
11.1
Undertakings: Each of the Debtor and the Junior Creditor undertakes that it will:
(a) at its own cost, promptly execute and deliver to the Senior Creditor all agreements, consents or any other document whatsoever and do anything else that the Senior
Creditor reasonably requires, to secure to the Senior Creditor the full benefit of this Deed;
(b) not enter into any agreement (other than the Junior Facility Agreement and the Junior Security described in Schedule 1, in each case, in the form reviewed by the
Senior Creditor as at the date of this Deed) that constitutes or evidences any Junior Debt without the prior written consent of the Senior Creditor;
Page 15
(c) not assign, sell, novate or transfer any of its rights or obligations in respect of any Junior Debt or under any Junior Document without the Senior Creditor’s prior
written consent; and
(d) promptly notify the Senior Creditor in writing after it becomes aware of any Junior Event of Default occurring.
11.2
Further Assurance: The Junior Creditor undertakes that it will promptly and at its own cost:
(a) execute and deliver to the Senior Creditor (or any receiver appointed by the Senior Creditor) all agreements, transfers, consents (of whatever nature), discharges of
Junior Security, releases of caveats, assignments, security interests and other documents (including, without limitation, any priority registrations and/or filings), and
do anything else that the Senior Creditor (or any receiver appointed by the Senior Creditor) reasonably considers necessary or desirable, in each case (i) to secure to
the Senior Creditor the full benefit of, and reflect the priorities set out in, this Deed, (ii) to assist with the Senior Debt being fully recovered from the realisation of
the Secured Property or (iii) to remove any impediment to the exercise by the Senior Creditor of its rights under this Deed or the Senior Security; and
(b) on request by the Senior Creditor:
(i) deliver to the Senior Creditor any certificates or instruments held by the Junior Creditor representing Senior Security including certificates evidencing the
Pledged Shares together with an instrument of transfer duly endorsed in blank in respect of the shares;
(ii) attend to any registration relating to the Uniform Commercial Code to reflect the priority agreed pursuant to terms of this Deed.
11.3
Dissolution: In the event of the dissolution of the Debtor:
(a)
the Senior Creditor may, and is irrevocably authorised on behalf of the Junior Creditor to, claim, enforce and prove for the Junior Debt, file claims and proofs,
accept payments, give receipts and do all such things as the Senior Creditor sees fit to recover the Junior Debt and receive all payments and distributions in respect
of the Junior Debt for application towards the Senior Debt;
(b)
the Junior Creditor shall take such action as may be required by the Senior Creditor in order to enable it to enforce payment of the Junior Debt and to collect and
receive all payments and distributions in respect of the Junior Debt for application towards the Senior Debt; and
(c) any payment or distribution of any nature that is payable or deliverable in respect of the Junior Debt shall be paid or delivered by the liquidator or other person
making the distribution directly to the Senior Creditor until the Senior Debt has been irrevocably paid in full to the satisfaction of the Senior Creditor (subject to
clause 3.1). The Junior Creditor will give all notices and do all things as the Senior Creditor may direct to give effect to this provision.
Page 16
12.
NOTICES
12.1
Each notice or other communication under this Deed is to be in writing and is to be made by facsimile, personal delivery, email or post to the addressee at the facsimile
number or address, and marked for the attention of the person or officeholder (if any), set out below (or such other address, facsimile number and/or person as the
relevant party may notify the other parties in writing from time to time):
(a) The Debtor
Address:
Naked Brand Group Limited
c/o Bendon Limited
Building 7B, Huntley Street
NSW 2015, Australia
Attention:
Anna Johnson
(b) The Junior Creditor
St. George Investments LLC
Address:
303 East Wacker Drive, Suite 1040
Chicago, Illinois 60601
Attention:
John Fife
With a copy to:
Hansen Black Anderson Ashcraft PLLC
Address:
3051 West Maple Loop Drive, Suite 325
Lehi, Utah 84043
Attention:
Jonathan Hansen
(c) The Senior Creditor
Address:
Email:
Bank of New Zealand
Level 5, Deloitte Centre, 80 Queen Street
Auckland 1010
Christian_Thomas@bnz.co.nz
Dermot_Rodden@bnz.co.nz
Attention:
Christian Thomas and Dermot Rodden
Page 17
12.2
A communication under this Deed will be effective:
(a)
in the case of personal delivery, when delivered;
(b)
if posted, 3 Business Days, in the place of receipt, after posting (by airmail if to another country);
(c)
if made by facsimile, upon production of a transmission report by the machine from which the facsimile was sent which indicates complete transmission to the
facsimile number of the recipient designated for the purposes of this Deed; and
(d)
if emailed, at the time the notifying party receives an acknowledgement of receipt of delivery from the recipient’s email address or (if earlier) two Business Days, in
the place of receipt, after the email was sent (unless the notifying party receives an error message relating to the sending of the email before that time), otherwise,
upon receipt by the notifying party of a non-automated confirmation of receipt of such notice from the recipient,
provided that any communication received or deemed received after 5pm or on a day which is not a Business Day in the place to which it is delivered, posted or sent
shall be deemed not to have been received until the next Business Day in that place.
13.
GENERAL
13.1
Amendments: This Deed may from time to time be amended if all parties agree in writing.
13.2
Remedies and waivers: Time is of the essence for this Deed but no failure to exercise, and no delay in exercising, any right or remedy of the Senior Creditor under this
Deed is to operate as a waiver of such right or remedy, nor will any single or partial exercise of any right or remedy preclude any other or further exercise thereof or the
exercise of any right or remedy. No waiver by the Senior Creditor of any rights or remedies under this Deed is to be effective unless it is in writing signed by the Senior
Creditor.
13.3
Partial invalidity: The illegality, invalidity or unenforceability of any provision of this Deed under any law will not affect the legality, validity or enforceability of that
provision under any other law or the legality, validity or enforceability of any other provision.
13.4
Expiry: With effect from the Termination Date, this Deed shall terminate and the parties shall have no further obligations hereunder.
Reinstatement: If any payment received or recovered by a Secured Party in respect of its Secured Debt is avoided by law or has to be refunded to any liquidator or other
person, that payment will be deemed not to have discharged the Senior Debt or the Junior Debt (as the context requires) in respect of which the payment was received or
recovered and accordingly, if the Termination Date has occurred in such circumstances then it will be deemed not to have occurred.
Third party payments: If the Senior Creditor receives any amount otherwise than from the Debtor, the Senior Debt will not be deemed reduced by that amount until
and except to the extent that it is applied towards the Senior Debt.
Disclosure of information: Each Secured Party may disclose to the other such information about the Debtor, its Security, the facilities being provided to the Debtor and
any related information as that Secured Party thinks fit.
13.5
13.6
13.7
Page 18
13.8
No requirement to enforce: A Secured Party may refrain from enforcing its Security as long as that Secured Party sees fit. The Junior Creditor waives any right it may
have of first requiring the Senior Creditor (or any party on its behalf) to proceed against or enforce any other right or security or claim payment from any person before
claiming the benefit of this Deed.
13.9
Senior Creditor’s discretion: The Senior Creditor (or any person on its behalf) may:
(a) apply any moneys or property received under this Deed or from the Debtor or any other person against the Senior Debt in such order as it sees fit;
(b) hold in suspense any moneys or distributions received from the Junior Creditor under this Deed.
13.10
Custody of documents: So long as the Senior Documents are in effect, the Senior Creditor will be entitled to hold any title documents, share certificates or similar
original documents in respect of any Secured Property in priority to the entitlement of the Junior Creditor. The Senior Creditor has no responsibility to the Junior
Creditor in connection with obtaining or maintaining custody of such documents.
13.11
Debtor: This Deed is given for the sole benefit of the Secured Parties (or the relevant Secured Party) and does not create any obligation or liability on the part of either
Secured Party to the Debtor.
13.12
Costs:
(a) The Debtor agrees to pay on demand all reasonable costs incurred by the Secured Parties in connection with the preparation, negotiation, execution and performance
of this Deed, and all waivers under and amendments to this Deed.
(b) The Debtor and the Junior Creditor (as the case may be) agree to pay on demand all costs incurred by the Senior Creditor in connection with the enforcement against
the Debtor or the Junior Creditor (as applicable), or (in the case of the Debtor only) review and consideration, of the Senior Creditor’s rights under this Deed. For
the avoidance of doubt, the Junior Creditor shall not be liable for any costs and expenses in connection with the enforcement against the Debtor.
Contracts Privity: The parties acknowledge that, in terms of the Contract and Commercial Law Act 2017, this Deed is made for the benefit of and is intended to be
enforceable by the Senior Creditor and any receiver appointed by it.
Counterparts: This Deed may be signed in any number of counterparts (including scanned PDF counterparts) all of which, when taken together, will constitute one and
the same instrument. Any party may enter into this Deed by executing any such counterpart.
Delivery: For the purposes of section 9 of the Property Law Act 2007 and without limiting any other mode of delivery, this Deed will be delivered by each of the Debtor
and the Junior Creditor immediately on the earlier of:
(a) physical delivery of an original of this Deed, executed by the relevant party, into the custody of the Senior Creditor or its solicitors; or
(b)
transmission by the relevant party, its solicitors or any other person authorised in writing by that party of a facsimile, photocopied or scanned copy of an original of
this Deed, executed by that party, to the Senior Creditor or its solicitors.
13.13
13.14
13.15
Page 19
13.16
Copies: If any party transmits a facsimile, photocopied or scanned copy of this Deed to the Senior Creditor by way of delivery under clause 13.15:
(a)
the other parties may rely on that copy as though it were the original copy; and
(b)
the transmitting party will, as soon as reasonably practicable thereafter, deliver to each other party the executed original of this Deed.
13.17 Governing law: This Deed is to be governed by and construed in accordance with the laws of New Zealand and the parties submit to the non-exclusive jurisdiction of
the courts of New Zealand.
EXECUTION TO FOLLOW
Page 20
EXECUTED as a deed
The Debtor
SIGNED, SEALED and DELIVERED as a DEED for and on behalf of NAKED
BRAND GROUP LIMITED ACN 619 054 938
by its attorney under power of attorney dated:
In the presence of:
/s/
Witness signature
Name of witness (BLOCK LETTERS)
Address of witness
Occupation of witness
The Senior Creditor
EXECUTED as a DEED for and on behalf of BANK OF NEW ZEALAND by its
Attorneys
in the presence of
/s/
Witness signature
Full name
Address
Occupation
)
)
)
)
)
)
)
/s/ Justin Davis-Rice
Signature of Attorney
Justin Davis-Rice
Name of Attorney (BLOCK LETTERS)
)
)
)
)
/s/ Sarah Louise Bartosiak
Signature
Sarah Louise Bartosiak
Name of Attorney
/s/ Shane Andrew Kelley
Signature
Shane Andrew Kelley
Name of Attorney
Note:
-Person authorised by constitution - signature must be witnessed
-Attorney appointed under s181 Companies Act - signature does not need to be witnessed
Page 21
The Junior Creditor
EXECUTED as a DEED for and on behalf of
ST. GEORGE INVESTMENTS LLC
By: Fife Trading, Inc., its Manager
By:
/s/ John M. Fife
John M. Fife, President
Page 22
NAME
Bendon Limited
Naked Merger Sub Inc.
FOH Online Corp.
SUBSIDIARIES OF REGISTRANT
PERCENTAGE OWNERSHIP (%)
STATE OF ORGANIZATION
Exhibit 8.1
100 New Zealand
100 Nevada
100 Delaware
1.
Introduction
The Board of Directors of Bendon Group Holdings Limited has adopted this code of ethics (the “Code”), which is applicable to all directors, officers and employees, to:
CODE OF ETHICS
Exhibit 11.1
●
●
●
●
●
promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
promote the full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the Securities and Exchange
Commission (the “SEC”), as well as in other public communications made by or on behalf of the Company;
promote compliance with applicable governmental laws, rules and regulations;
deter wrongdoing; and
require prompt internal reporting of breaches of, and accountability for adherence to, this Code.
This Code may be amended only by resolution of the Company’s Board of Directors. In this Code, references to the “Company” mean Bendon Group Holdings Limited (the
“Parent”) and, in appropriate context, the Parent’s subsidiaries.
2.
Honest, Ethical and Fair Conduct
Each person owes a duty to the Company to act with integrity. Integrity requires, among other things, being honest, fair and candid. Deceit, dishonesty and subordinating one’s
principles are inconsistent with integrity. Service to the Company never should be subordinated to personal gain and advantage.
Each person must:
●
●
●
act with integrity, including being honest and candid while still maintaining the confidentiality of the Company’s information where required or in the Company’s
interests.
observe all applicable governmental laws, rules and regulations.
comply with the requirements of applicable accounting and auditing standards, as well as Company policies, in order to maintain a high standard of accuracy and
completeness in the Company’s financial records and other business-related information and data.
●
●
●
●
●
●
adhere to a high standard of business ethics and not seek a competitive advantage through unlawful or unethical business practices.
deal fairly with the Company’s customers, suppliers, competitors and employees.
refrain from taking advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair-
dealing practice.
protect the assets of the Company and ensure their proper use.
refrain from taking for themselves personally opportunities that are discovered through the use of corporate assets or by using corporate assets, information or position
for general personal gain outside the scope of employment with the Company.
avoid “related-party transactions” or conflicts of interest, wherever possible, except under guidelines or resolutions approved by the Board of Directors (or the
appropriate committee of the Board). For purposes of this Code, “related-party transactions” are defined as transactions required to be reported under Item 404 of
Regulation S-K or under Form 20-F, Item 7.B, as applicable. A conflict of interest situation can arise when a person takes actions or has interests that may make it
difficult to perform his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives improper
personal benefits as a result of his or her position. Anything that would be a conflict for a person subject to this Code also will be a conflict if it is related to a member of
his or her family or a close relative. Examples of conflict of interest situations include, but are not limited to, the following:
●
●
●
●
●
any significant ownership interest in any supplier or customer;
any consulting or employment relationship with any customer, supplier or competitor;
any outside business activity that detracts from an individual’s ability to devote appropriate time and attention to his or her responsibilities with the Company;
the receipt of any money, non-nominal gifts or excessive entertainment from any company with which the Company has current or prospective business dealings;
being in the position of supervising, reviewing or having any influence on the job evaluation, pay or benefit of any close relative;
●
●
selling anything to the Company or buying anything from the Company, except on the same terms and conditions as comparable officers or directors are
permitted to so purchase or sell; and
any other circumstance, event, relationship or situation in which the personal interest of a person subject to this Code interferes – or even appears to interfere –
with the interests of the Company as a whole.
3.
Disclosure
The Company strives to ensure that the contents of and the disclosures in the reports and documents that the Company files with the SEC and other public communications shall
be full, fair, accurate, timely and understandable in accordance with applicable disclosure standards, including standards of materiality, where appropriate. Each person must:
●
not knowingly misrepresent, or cause others to misrepresent, facts about the Company to others, whether within or outside the Company, including to the Company’s
independent auditors, governmental regulators, self-regulating organizations and other governmental officials, as appropriate; and
●
in relation to his or her area of responsibility, properly review and critically analyze proposed disclosure for accuracy and completeness.
In addition to the foregoing, the Chief Executive Officer and Chief Financial Officer of the Company and each subsidiary of the Company (or persons performing similar
functions), and each other person that typically is involved in the financial reporting of the Company must familiarize himself or herself with the disclosure requirements
applicable to the Company as well as the business and financial operations of the Company.
Each person must promptly bring to the attention of the Chairman of the Audit Committee of the Parent’s Board of Directors (or the Chairman of the Parent’s Board of
Directors if no Audit Committee exists) any information he or she may have concerning (a) significant deficiencies in the design or operation of internal and/or disclosure
controls which could adversely affect the Company’s ability to record, process, summarize and report financial data or (b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the Company’s financial reporting, disclosures or internal controls.
4.
Compliance
It is the Company’s obligation and policy to comply with all applicable governmental laws, rules and regulations. It is the personal responsibility of each person to adhere to the
standards and restrictions imposed by those laws, rules and regulations, including those relating to accounting and auditing matters.
5.
Reporting and Accountability
The Board of Directors or Audit Committee, if one exists, of the Company is responsible for applying this Code to specific situations in which questions are presented to it and
has the authority to interpret this Code in any particular situation. Any person who becomes aware of any existing or potential breach of this Code is required to notify the
Chairman of the Board of Directors or Audit Committee promptly. Failure to do so is itself a breach of this Code.
Specifically, each person must:
●
●
notify the Chairman promptly of any existing or potential violation of this Code; and
not retaliate against any other person for reports of potential violations that are made in good faith.
The Company will follow the following procedures in investigating and enforcing this Code and in reporting on the Code:
●
●
The Board of Directors or Audit Committee, if one exists, will take all appropriate action to investigate any breaches reported to it.
If the Audit Committee, if one exists, determines (by majority decision) that a breach has occurred, it will inform the Board of Directors.
● Upon being notified that a breach has occurred, the Board (by majority decision) will take or authorize such disciplinary or preventive action as it deems appropriate,
after consultation with the Audit Committee (if one exists) and/or General Counsel, up to and including dismissal or, in the event of criminal or other serious violations
of law, notification of the SEC or other appropriate law enforcement authorities.
No person following the above procedure shall, as a result of following such procedure, be subject by the Company or any officer or employee thereof to discharge, demotion
suspension, threat, harassment or, in any manner, discrimination against such person in terms and conditions of employment.
6.
Waivers and Amendments
Any waiver (as defined below) or an implicit waiver (as defined below) from a provision of this Code for the principal executive officer, principal financial officer, principal
accounting officer or controller, and persons performing similar functions or any amendment (as defined below) to this Code is required to be disclosed in the Company’s
Annual Report on Form 20-F or 10-K, as applicable, or in a Report of Foreign Private Issuer on Form 6-K or Current Report on Form 8-K, as applicable, filed with the SEC.
A “waiver” means the approval by the Company’s Board of Directors of a material departure from a provision of the Code. An “implicit waiver” means the Company’s failure
to take action within a reasonable period of time regarding a material departure from a provision of the Code that has been made known to an executive officer of the Company.
An “amendment” means any amendment to this Code other than minor technical, administrative or other non-substantive amendments hereto.
All persons should note that it is not the Company’s intention to grant or to permit waivers from the requirements of this Code. The Company expects full compliance with this
Code.
7.
Other Policies and Procedures
Any other policy or procedure set out by the Company in writing or made generally known to employees, officers or directors of the Company prior to the date hereof or
hereafter are separate requirements and remain in full force and effect.
8.
Inquiries
All inquiries and questions in relation to this Code or its applicability to particular people or situations should be addressed to the Company’s Secretary.
Exhibit 12.1
I, Justin Davis-Rice, certify that:
1. I have reviewed this Annual Report on Form 20-F of Naked Brand Group Limited;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that
material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that
has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s
auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the company’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial
reporting.
Dated: June 14, 2019
By:
/s/ Justin Davis-Rice
Justin Davis-Rice
Executive Chairman
(Principal Executive Officer)
Exhibit 12.2
I, Howard Herman, certify that:
1. I have reviewed this Annual Report on Form 20-F of Naked Brand Group Limited;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that
material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that
has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s
auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the company’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial
reporting.
Dated: June 14, 2019
By:
/s/ Howard Herman
Howard Herman
Chief Financial Officer
(Principal Accounting Officer and
Principal Financial Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 13.1
In connection with the Annual Report of Naked Brand Group Limited (the “Company”) on Form 20-F for the year ended January 31, 2019 as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
Dated: June 14, 2019
By:
By:
/s/ Justin Davis-Rice
Justin Davis-Rice
Executive Chairman
/s/ Howard Herman
Howard Herman
Chief Financial Officer