Case 1:18-cv-07640-VSB Document 1 Filed 08/22/18 Page 1 of 28

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
x
ALRAI NAKED OPPORTUNITY LLC,
Plaintiff,

Civ.

-vNAKED BRAND GROUP LIMITED,

COMPLAINT

Defendant.
x
Plaintiff Alrai Naked Opportunity LLC ("Alrai"), by and through its attorneys,
Otterbourg P.C., as and for its Complaint against Defendant Naked Brand Group Limited
("Naked Brand" or the "Company"), alleges, on knowledge as to its own status and actions and
otherwise upon information and belief, as follows:
NATURE OF THE CASE
1.

On June 19, 2018, Naked Brand closed a reverse merger that brought together two

intimate apparel companies, Naked Brand Group, Inc. ("Naked") (formerly traded on Nasdaq
under the symbol: NAKD) and Bendon Limited ("Bendon"), resulting in the new listing on
Nasdaq of Naked Brand as the publicly-traded parent company of Naked and Bendon. By the
terms of the merger agreement and the agreements amongst Bendon's shareholders, and as
reflected in the Company's public securities filings, Bendon shares were to be exchanged for a
fixed number of Naked Brand shares in the merger. In the case of Alrai, its shares of Bendon
shares were exchanged in the merger for 1,482,022 shares in Naked Brand. However, under
pressure to find shares to use, in lieu of or in addition to much-needed cash, to finance the
growth-by-acquisition strategy that it heavily promoted to the capital markets prior to the closing
of the merger, the Company only registered to Alrai 1,167,437 shares, skimming for itself
314,585 of Alrai's shares and then, when caught, fabricating a contrived share calculation to

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justify its theft. By this action, Alrai seeks redress for the Company's conversion of its shares
and for other relief
THE PARTIES
2.

Plaintiff Alrai is a limited liability company organized under the laws of the State

of Delaware having its principal place of business, care of Alrai Management LLC, in the City
and State of New York, at 215 Park Avenue South, New York, New York 10003. Alrai is a
special purpose entity formed by or on behalf of Vinay Menda ("Menda"), the founder of Alrai
Capital, a stage agnostic venture capital firm, to invest in the shares of Bendon, a New Zealand
intimate apparel and swimwear company.
3.

Defendant Naked Brand, formerly known as Bendon Group Holdings Limited, is

a public limited company organized under the laws of Australia having its principal place of
business, care of Bendon, at Building 7C, Huntley Street, Alexandria, NSW 2015, Australia.
Naked Brand is a publicly-traded holding company that, by virtue of a series of transactions
described below, now owns Bendon and Naked, an United States apparel and lifestyle brand
company focused on innerwear products for women and men and formerly listed on Nasdaq
under the ticker symbol: NAKD. The Company conducts significant business within the City
and State of New York, including business giving rise to the claims asserted herein. It maintains
corporate offices at 180 Madison Avenue, New York, New York. Its shares are listed (under the
ticker symbol: NAKD) on Nasdaq, with which it has consented to jurisdiction in New York City.
Its transfer agent, which controls the disposition of the shares at issue in this action, is
Continental Stock Transfer & Trust Company ("Continental"), located in New York, New York.
Naked Brand's legal counsel with respect to its securities filings, including the registration
statements at issue in this action, is Graubard Miller, which prepared and made such filings in

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New York, New York. A significant number of its shares are held by persons or entities,
including Alrai, located in the City and State of New York. It has designated an agent for service
of process in the City and State of New York; according to its securities filings: "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." And, as set forth
below, the conduct giving rise to Alrai's claims resulted from Naked Brand's deliberate
conducting of activities in the City and State of New York.
JURISDICTION AND VENUE

4.

Venue is proper in this District pursuant to 28 U.S.C. § 1391(b), in that the

defendant resides in this District and/or a substantial part of the events or omissions giving rise to
the claims occurred in this District.
5.

This Court has original jurisdiction to hear this matter pursuant to 28 U.S.C. §

1332, in that this is an action between a citizen of a State and a citizen of a foreign state and the
amount in dispute exceeds $75,000.
FACTUAL BACKGROUND
Alrai's Agreement to Purchase Shares

6.

By Deeds for Sale and Purchase, dated April 2017 (the "Deeds"), Alrai agreed to

purchase, and EJ Group Limited ("EJG") agreed to sell, a total of 22,168 (of the then outstanding
274,839) ordinary shares (i.e., more than 8%) in Bendon, for a total purchase price of
US$12,000,000. EJG is a New Zealand limited company owned by Eric John Watson
("Watson"), a highly publicized New Zealand entrepreneur who, among other things, owns 75%
of the New Zealand Warriors, a National Rugby League team, and who, through multiple
entities, including EJG, owned at the time more than 80% of Bendon.

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7.

At the time that the Deeds were executed (and as expressly stated in the Deeds),

Bendon and Naked had entered into a letter of intent and amendments thereto regarding what the
Deeds described as a "Merger," an "economic merger of the business" of Bendon and Naked,
"with each entity continuing (directly or indirectly) as a subsidiary of . . . a company to be listed
on the NASDAQ." The Deeds collectively provided that, in the Merger, Alrai would receive a
total of at least 9,600,000 ordinary shares of the entity listed on the NASDAQ following
completion of the Merger.
8.

In a contemporaneously-executed side letter, and as additional consideration for

the purchase price, EJG undertook to provide or procure the provision of "warrants to acquire
8,000,000 ordinary shares of the entity listed on the NASDAQ following completion of the
economic merger of the business of Bendon Limited and Naked Brand Group, Inc.," exercisable
"on or before the third anniversary of the date of this letter" at an exercise price of
US$10,000,000. Within a matter of several weeks, EJG issued a second side letter in which it
undertook to provide or procure the provision to Alrai Holdings Ltd. of additional "warrants to
acquire 1,000,000 ordinary shares of the entity listed on the NASDAQ following completion of
the economic merger of the business of Bendon Limited and Naked Brand Group, Inc.,"
exercisable "on or before the second anniversary of the date of this letter" at an exercise price of
US$1,250,000 (the two side letters being hereinafter referred to as the "Warrants")
9.

Under the Shareholders Agreement relating to Bendon Limited, dated as of

September 29, 2016 (the "Shareholders Agreement"), any transfer of existing Bendon shares
required the prior written approval of a "Special Majority of the Shareholders" of Bendon,
defined as "all of the following: Shareholders holding Shares which carry more than 75% of the
total votes attaching to Shares; one Cullen Shareholder [each a company beneficially owned by

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Watson]; and one JDR Shareholder [each a company beneficially owned by Justin Davis-Rice
("Davis-Rice"), then chief executive of Bendon and shortly thereafter chief executive also of
Naked Group]." In addition, in accordance with the tag along and drag along provisions of the
Shareholders Agreement, any Bendon shareholder, such as EJG, wishing to transfer shares, such
as those to Alrai, was required to provide notice of the proposed transfer and its terms to all other
Bendon shareholders.
10.

Further, with respect to the Warrants, the Shareholders Agreement provided "the

Share Capital of Bendon shall not be increased and no Equity Securities may be allotted or
issued in Bendon or in any Group member" unless there is prior written consent or agreement by
a Special Majority of the Shareholders (described below) and prior to the issuance or allotment
the proposed allottee agrees to the terms of the Shareholders Agreement by executing a Deed of
Adherence.
11.

Consistent with the requirements of the Shareholders Agreement, the Deeds

expressly provide for "consent by a Special Majority of Shareholders to the transfer of the
shares," as well as the "passing by the board of directors of [Bendon] of a valid resolution
approving the transfer of the Sale Shares and directing that the name of the Purchaser [Alrai] be
entered in the share register of' Bendon. In accordance with the Deeds (and the Shareholders
Agreement), Bendon (by its Board) and a Special Majority of Shareholders, including Naked
Brand's now CEO, Davis-Rice, provided their prior written consent to the terms of the Deeds
and Warrants.
12.

The Deeds were prepared by the New Zealand law firm of Russell McVeagh,

Bendon's principal outside legal counsel in connection with the Merger, which received and
retained a fully executed copy of the Deeds, as did the Company.

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13.

As explained to Menda by Watson prior to entering into the Deeds, the sale of

EJG's shares benefited the Company and all of its shareholders: According to Watson, public
equities markets tend to disfavor companies with concentrated ownership in a small handful of
insiders, such as Watson and Davis-Rice. Therefore, EJG's sale of a sizeable percentage of
Bendon's shares to Alrai would diversify share ownership and position the Merger more
favorably in the public equities markets.
14.

In accordance with the Deeds, Alrai transferred to EJG US$12,000,000 in good

and sufficient funds. The Company recorded Alrai's ownership of the shares (which were
uncertificated) in its register.
The Transactions and the Company Shares to Be Received by Alrai Therein
15.

On May 25, 2017, Bendon and Naked announced that they had entered into a

definitive Agreement and Plan of Reorganization, which they described as a "Merger
Agreement," pursuant to which "Naked and Bendon, respectively, will become wholly owned
subsidiaries of Bendon Group Holdings Limited [now known as Naked Brand], a newly formed
Australian holding company (`Holdco'), and the shareholders of Bendon and the stockholders of
Naked, respectively, will become the shareholders of Holdco," with Naked shareholders owning
approximately 7% of Naked Brand's ordinary shares, and Bendon shareholders owning the
remaining approximately 93% of Naked Brand's ordinary shares. That same day, Naked (then
listed on Nasdaq) filed a Form 8-K attaching the Agreement and Plan of Reorganization by and
among Naked Brand Group, Inc., Bendon Limited, Bendon Group Holdings Limited, Naked
Merger Sub Inc. and the Principal Shareholder [Bendon Investments Limited (a company
beneficially owned by Watson)], dated as of May 25, 2017 (as amended, the "Merger
Agreement").

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16.

According to press reports, the motivations of each Merger party differed. For

Naked, the smaller of the two companies, the Merger presented the opportunity to gain publicity
and improve access to capital markets. For Bendon, the Merger gave it access to publicly-traded
shares, and the opportunity to create a pop in the price of those shares, that it craved to use, in
lieu of or in addition to cash, to finance the company's growth through acquisition strategy. In
an investment memo prepared by Bendon in or about April 2017 and provided to Alrai at or
about the time of the Deeds' execution, Bendon touted the Merger's benefits as follows:
"Following completion of its merger with NAKD, as a public company listed on NASDAQ,
Bendon will be well positioned to purse an aggressive acquisition strategy focused on the
consolidation of a large number of smaller industry players. Utilising a combination of cash and
stock, Bendon has the opportunity to benefit from the significant private to public value arbitrage
generated by rolling-up private companies into a public vehicle that will generate substantial
shareholder value and share price accretion in the process."
17.

Not included in the investment memo was Bendon's poor financial performance

over the prior few years, which had left the business in serious need of cash that it was otherwise
unable to generate through its money-losing operations. As has now been publicly reported, for
full-year 2015, Bendon lost approximately NZ$13 million, with the loss growing to
approximately NZ$21 million in 2016, and approximately NZ$37 million of losses for the 12
months ending in January 2018. Even with the Merger, the Company was forecasting a cash
shortfall. It securities filings describing the Merger warned: "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

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meet our cash requirements, and that we will need to raise additional capital through investments
to fund our operations and growth."
18.

Consistent with the letter of intent between Naked and Bendon in effect at the

time that the Deeds were executed, the Merger Agreement originally provided for Bendon
shareholders to exchange their shares in Bendon for a total of 138,373,881 shares (out of a total
of 148,716,072 outstanding shares) in Naked Brand (a little more than the 118,812,163 shares
that was to be provided to Bendon shareholders as per the then most recent amendment to the
letter of intent). In the exchange, Bendon would become a wholly owned subsidiary of Naked
Brand, and, immediately following the Bendon-Naked Brand exchange, Naked would merge into
Naked Brand's subsidiary (formed for purposes of the Merger), Naked Merger Sub Inc., with
Naked surviving as a second wholly owned subsidiary of Naked Brand.
19.

The Merger was negotiated extensively in the City and State of New York, where

Naked was headquartered. Senior executives of Naked Brand, Naked and Bendon, including
Rice-Davis (as CEO of both Bendon and Naked Brand at the time) met numerous times in New
York City to negotiate the terms and amended terms of the Merger, including terms regarding the
exchange of shares by Bendon shareholders (including Alrai) and the registration of same. In
addition to meetings, the terms and amended terms of the Merger were negotiated by Naked
Brand executives, including Davis-Rice, through the use of ongoing communications (by
telephone and e-mail) into New York City.
20.

Naked Brand made its first public securities filings on or about October 31, 2017,

including a draft Registration Statement (Form F-4) (the "DRS/A") describing the Merger and
attaching a copy of the Merger Agreement. Consistent with the terms of the Deeds, the DRS/A
filed by Naked Brand disclosed that Alrai owned a significant percentage of ordinary shares of

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Bendon. According to the DRS/A, the number of total outstanding ordinary shares of Bendon
would increase, by share split and/or otherwise, as of a "record date," which had yet to be
determined, from 274,839 ordinary shares at the time of the Deeds' execution to 409,586
ordinary shares as of the record date. Thus, according to the DRS/A, the number of ordinary
shares of Bendon held, or to be held, by Alrai would increase from 22,168 at the time of the
Deeds' execution to 39,655 ordinary shares (9.7% of Bendon) as of the record date. The DRS/A
further disclosed that, on a post-Merger basis, Alrai would own 11,657,699 (out of a total of
148,716,072 outstanding) ordinary shares (i.e., 7.8%) of Naked Brand. The shareholdings
ascribed to Alrai in the DRS/A were consistent with the terms of the Deeds, which, with the
approval of Bendon and its shareholders, transferred to Alrai the right to receive at least
9,600,000 Company shares in the Merger.
21.

On March 20, 2018, Naked Brand filed a Registration Statement (Form F-4)

concerning the Merger (the "Registration Statement"). The Registration Statement continued to
disclose that Alrai would hold 39,655 shares of Bendon as of the record date, albeit then out of a
total of 523,448 outstanding shares (7.6%) of Bendon. It further disclosed that, following the
Merger, Alrai would own 1,584,483 of what was then expected to be a total of 22,983,474
outstanding shares (rather than 148,716,072 outstanding shares as contemplated in the original
Merger Agreement) of Naked Brand (6.9%).
22.

The calculation of Alrai's post-Merger shares reflected in the Registration

Statement was a matter of replicable mathematic calculation, and was consistent with the terms
of the Deeds. Assuming that (as reported in the Registration Statement) Alrai owned 39,655
shares out of a total of 523,448 outstanding shares, or 7.6% (actually 7.5757%), of Bendon, then
Alrai would receive that same percentage of the total number of Naked Brand shares that Bendon

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shareholders collectively would receive in the Merger. The Registration Statement reported that
Bendon shareholders collectively would receive a total 20,915,036 Naked Brand shares in the
Merger. Thus, Alrai's 7.5757% of the 20,915,036 Naked Brand shares allotted to Bendon
shareholders per the Registration Statement would equal (after rounding Alrai's ownership
percentage) 1,584,483 shares of Naked Brand. Had the terms of the original Merger Agreement
(contemplated at the time of the Deeds) governed, Alrai's 1,584,483 out of 22,983,474 total
expected outstanding shares (6.9%) of Naked Brand would have translated to over 10.2 million
of Naked Brand shares at closing. If the total number of outstanding Naked Brand shares were
148,716,072 as contemplated in the original Merger Agreement, then 6.9% (Alrai's post-Merger
share of Naked Brand) of 148,716,072 Naked Brand shares equaled 10,261,409 Naked Brand
shares, consistent with the terms of the Deeds, which (with Bendon's and its shareholders'
approval) provided for Alrai's receipt of a minimum of 9,600,000 Naked Brand shares in the
Merger.
23.

When Naked Brand filed Amendment No. 1 to its Registration Statement (Form

F-4/A) on April 11, 2018, the total number of Alrai shares, both pre-merger in Bendon and postmerger in Naked Brand, remained unchanged from that in the Registration Statement.
24.

On April 23, 2018, the date on which the terms of the Merger Agreement were

amended for the final time, Naked Brand filed Amendment No. 2 to its Registration Statement
(Form-4/A) (the "Amended Registration Statement"). Describing the final terms of the Merger
Agreement, the Amended Registration Statement disclosed that, in the Merger, Bendon
shareholders collectively would exchange their Bendon shares for 22,680,527 shares of Naked
Brand, while Naked shareholders would receive 0.2 Naked Brand shares for each Naked share
that they held, all of which would be subject to adjustment based at closing on Naked's "Net

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Assets" and Bendon's "Net Debt," as defined in the Merger Agreement. The result was that
Naked shareholders were expected to own approximately 8%, and Bendon shareholders
approximately 92%, of the post-Merger Company.
25.

With the terms of the Merger fully and finally resolved, the Amended

Registration Statement disclosed that Alrai owned 39,655 of 523,448 shares (7.6%) of Bendon as
of the record date, by then fixed at April 17, 2018. It further disclosed, albeit mistakenly, that,
following the Merger, Alrai would own 1,292,116 of 24,748,965 ordinary shares (5.2%) of
Naked Brand. The same shareholdings appeared in Amendment No. 3 to Registration Statement
(Form F-4/A) filed on April 25, 2018 (which responded to comments from the United States
Securities & Exchange Commission ("SEC") on the Amended Registration Statement) (the
"Effective Registration Statement").
26.

In an e-mail dated May 7, 2018, sent to one of Alrai's investors in New York,

Naked Brand's CFO, Howard Herman ("Herman"), acknowledged that the Amended
Registration Statement and Effective Registration Statement erroneously transposed the
shareholdings of two shareholders, Enares Pty Ltd. and Alrai, listed therein. As Herman clarified
in his e-mail, the securities filings should have stated that Enares (not Alrai) would hold
1,292,116 ordinary shares (5.2%) of Naked Brand following the Merger, and that Alrai (not
Enares) would hold 1,718,233 ordinary shares (6.9%) of Naked Brand post-Merger.
27.

Again, the number of Naked Brand shares to be issued to Alrai, as reflected in the

Effective Registration Statement, was a matter of replicable mathematic calculation, and was
consistent with the terms of the Deeds. Given that Alrai owned 39,655 shares out of a total of
523,448, or 7.6% (actually 7.5757%), of Bendon's shares as of the record date, Alrai would be
entitled to receive that same percentage of the total number of Naked Brand shares allotted to

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Bendon shareholders in the Merger, i.e., 22,680,527 Naked Brand shares. Giving Alrai 7.5757%
of the 22,680,527 Naked Brand shares allotted to Bendon shareholders in the Merger would
equal (after rounding Alrai's ownership percentage figure) 1,718,233 shares of Naked Brand —
the number of shares reported (or which, as Herman admitted, should have been reported) in the
Effective Registration Statement. Alrai's 1,718,233 out of a total expected 24,748,965
outstanding shares in Naked Brand would translate to 10.3 million Naked Brand shares if the
total number of outstanding Naked Brand shares in the Merger were 148,716,072, as
contemplated in the original Merger Agreement. Thus, the Effective Registration Statement was
consistent with the Deed's provision that Alrai would receive at least 9,600,000 Company shares
in the Merger.
28.

On April 26, 2018, the SEC filed a Notice of Effectiveness of the Registration

Statement, making the Effective Registration Statement effective as of that date.
The Company's Updates Regarding the Merger and Share Issuances
29.

Between the time of Alrai's execution of the Deeds and the effective date of its

Registration Statement, and for a period afterwards, Naked Brand's executive management,
including its CEO, Davis-Rice, gave periodic updates regarding the status of the Merger to Alrai
and Alrai's investors in New York — in person, over the telephone and by e-mail. None of its
updates suggested that Alrai would receive any less than 9,600,000 ordinary shares in the
Company post-Merger.
30.

Indeed, when asked whether the post-Merger number of ordinary shares in the

Company set forth in the Effective Registration Statement would be adjusted further, Naked
Brand's CFO, Herman, sent an e-mail, dated May 16, 2018, to one of Alrai's investors in New
York City and copying Naked Brand's CEO, Davis-Rice, indicating that there had been a

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relatively minor adjustment downward, but that Alrai's "final share count" is 9,600,000, which,
after taking into account "the reverse share-spilt ratio of 6.10195:1," would equal 1,573,267
ordinary shares in Naked Brand.
31.

In fact, the Company's share count calculation was slightly off The Company

appears to have calculated the "reverse split ratio" applicable to Alrai's 9,600,000 post-Merger
shares by comparing 138,373,881 Naked Brand shares allotted to Bendon shareholders in the
original Merger Agreement with the 22,680,527 Naked Brand shares to be allotted to Bendon
shareholders as per the Effective Registration Statement (138,373,881/22,680,527=6.101). In
fact, the reverse split ratio should have been calculated by comparing the total number of all
outstanding Naked Brand shares contemplated in the original Merger Agreement, 148,716,072
ordinary shares, with the total number of all outstanding ordinary Naked Brand shares as
reflected in the Effective Registration Statement, or 24,748,965 ordinary shares, resulting in a
"reverse split ratio" of 6.00898:1 (148,716,072/24,748,965=6.00898). Applying the correct
"reverse split ratio" to Alrai's 9,600,000 post-Merger share count, the number of Naked Brand
ordinary shares Alrai was entitled to receive (assuming 24,748,965 Naked Brand shares were
issued in the Merger) would be 1,597,609 Naked Brand shares — thereby, rendering Herman's
share calculation understated by about 1.5%.
32.

Several days later, on May 15, 2018, Davis-Rice sent an e-mail to an Alrai

investor in New York City attaching a "Bendon and Naked Merger Closing Timeline," reflecting
no changes to the Company's final share count and confirming that: "Upon closing, Bendon will
instruct the transfer agent [Continental in New York City] to issue shares in ListCo [Naked
Brand] to the former Bendon Limited shareholders," including Alrai; "The transfer agent
[Continental in New York City] will then process the issuances and sent out confirmation

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statements to each Bendon Limited shareholder indicating number of shares issued in book entry
form to each shareholder"; and "30 days after closing, Bendon will file a registration statement
with the SEC covering the resale of the shares issued to the Bendon Limited shareholders .
33.

Alrai relied on the Company's statements of fact regarding its share count, the

status of the Merger and the timing of its shares being registered and, thus, tradeable. Alrai
reported the information to its investors, assuring them of the number of shares Alrai would
receive in the Merger and the Company's commitment to register the shares within 30 days of
the Closing. Alrai also made investment decisions based on the Company's representations.
The Company's Financial Pressure to Raise Capital and the Emergence of Disputes
Amongst Alrai and Certain of Its Investors with Whom the Company Sided
34.

Contrary to the rosy forecasts and timelines that Davis-Rice was providing to

Alrai and its investors regarding the Merger, the reality — as is now apparent and as Davis-Rice
was learning from the capital markets during his roadshows to promote the Merger — was that, in
order for the Merger to be viewed as a success, the Company needed more cash (and to improve
its balance sheet by reducing debt), consistent with its warnings in its securities filings "that cash
on hand and cash generated from operations will not be sufficient to meet our cash
requirements." It also needed more shares, at a higher price, to finance the roll-up strategy that
Davis-Rice was promoting in the capital markets, despite the Company being constrained in that
regard by legal and practical restrictions on its ability to dilute Naked and Bendon shareholders
any more than they already were being diluted. The skepticism in the marketplace confronting
the Company (none of which was disclosed to Alrai) resulted in multiple and ongoing delays of
the Merger's Closing.
35.

In order to address its significant cash needs, the Company determined to pursue a

private investment in public equities ("PIPE") that was contemplated to close simultaneously
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with the closing of the Merger. It was hoped that the PIPE would raise as much as $30 million in
cash. Yet the PIPE also would have a dilutive effect on Company shareholders, which would
create legal issues (in light of certain anti-dilution protections enjoyed by certain Bendon and
Naked shareholders) and practical issues (as a result of lessened support for the Merger) with
shareholders.
36.

At or around the same time that the Company was grappling with its urgent need

to raise capital, it also became aware of, and insinuated itself into, an emerging dispute between
Alrai and certain of its investors that had been instigated by Watson at a meeting arranged by
Alrai and requested by those investors, who were growing increasingly concerned with the
ongoing delay of the Merger. In order to deflect blame away from Bendon and the Company for
the Merger's delays, Watson sought to channel toward Alrai the feelings of mistrust and concern
that had developed amongst certain Alrai investors, including a mutual acquaintance of Watson
and Menda who originally introduced the two to each other. Davis-Rice, who also was put into
direct contact with Alrai's investors, deepened the discord.
37.

The division that Watson and Davis-Rice sewed between Alrai and its investors

increased the likelihood that Alrai would not be a long term investor in the Company and, thus,
that, after the Merger, Alrai could put downward pressure on the Company's stock price by
selling off its substantial position. At the same time, Watson and Davis-Rice saw an opportunity
to bypass Alrai, and to develop a positive direct relationship with Alrai's investors, in the hopes
of fostering their confidence in the Company's prospects and their interest and willingness to
contribute more capital to the Company in the PIPE or otherwise.
38.

As a result of the discord between Alrai and its investors created by Watson and

furthered by Davis-Rice, and with Davis-Rice's support and later at his insistence, it was agreed,

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subject to proper documentation, that certain of Alrai's investors would redeem their interests in
Alrai in return for becoming direct shareholders in the Company at or after the Closing of the
Merger.
The Company's Fraudulent Scheme to Steal Alrai's Shares
39.

The combination of the Company's need for additional cash and shares in the

Merger to finance its growth strategy coupled with growing tensions with Alrai over the
dissatisfaction of Alrai's investors inspired Davis-Rice to conceive and develop a scheme to steal
the shares to be issued to Alrai in the Merger. Pursuant to Davis-Rice's scheme, Naked Brand
would issue to Alrai fewer Company shares than Alrai was entitled to receive in exchange for its
39,655 Bendon shares. The shares that the Company would withhold from Alrai would then be
used to give to PIPE investors (without diluting other shareholders), to Alrai's investors to
induce their support and further capital contributions to the Company, and/or to Alrai's insiders,
like Davis-Rice.
40.

At the root of the scheme was an age-old sleight of hand, in which the Company

sought to deceive Alrai into believing that it was receiving 9,600,000 ordinary shares in the
Merger, as Bendon and its shareholders had approved giving Alrai in the Deeds, when, in fact,
Alrai would not be recorded that number of shares in the Company's share registry.
41.

As the Company's securities filings evidenced, absent an overriding agreement

amongst Bendon shareholders to the contrary, the number of shares that any Bendon shareholder,
including Alrai, was entitled to receive per the Merger Agreement was that shareholder's
percentage ownership of Bendon as of the record date as applied to the total number of Naked
Brand shares that Bendon shareholders collectively would received in the Merger.

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42.

For example, as the Effective Registration Statement reflected (as corrected by the

Herman e-mail dated May 7, 2018), since Alrai held 39,655 of a total of 523,448 (7.5757%) of
Bendon's ordinary shares as of the record date, Alrai would be entitled to receive upon the
Merger's Closing that same percentage of the 22,680,527 outstanding Naked Brand ordinary
shares allotted to Bendon shareholders in the Merger. Alrai's 7.5757% of the 22,680,527 Naked
Brand ordinary shares allotted to Bendon shareholders in the Merger would equal (after rounding
Alrai's ownership percentage figure) 1,718,233 shares of Naked Brand — the share count
reported (or, per the Herman e-mail, intended to be reported) in the Effective Registration
Statement.
43.

Nevetheless, Bendon's Board and shareholders had approved the Deeds, which

gave Alrai the right to receive at least 9.6 million ordinary Company shares. Accordingly, if
giving Alrai its ownership percentage of the total number of shares allotted to Bendon
shareholders in the Merger would result in Alrai receiving less than the equivalent of 9.6 million
ordinary shares out of a total of what was originally contemplated in the Merger Agreement to be
148,716,072 Company shares, then Bendon and its shareholders agreed that Alrai would receive
a total of 9.6 million ordinary shares in Naked Brand, as adjusted by a "reverse stock split ratio"
to reflect that the total number of Naked Brand outstanding shares in the Merger was less than
the total of 148,716,072 ordinary shares contemplated in the original Merger Agreement.
Indeed, that is precisely what is reflected in the May 16, 2018 e-mail of the Company's CFO,
Herman, who acknowledged Alrai's "final share count" as being 9.6 million shares adjusted by a
"reverse stock split ratio" (that, as set forth above, was slightly off).
44.

In short, by agreement of Bendon's shareholders, the minimum number of Naked

Brand shares that Alrai was entitled to receive in the Merger if there were a total of 24,748,965

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outstanding Naked Brand shares (as per the Effective Registration Statement) would be
1,597,609 at a "reverse split ratio" of 6.00898:1 (148,716,072 Company shares per the original
Merger Agreement/24,748,965 Company shares per the Effective Registration Statement).
45.

Rather than record in its share registry the number of Naked Brand shares that

Alrai was entitled to receive in the Merger in exchange for its 39,655 shares of Bendon as of the
record date, but in no event less than 1,597,609 Naked Brand shares (assuming total outstanding
Naked Brand shares of 24,748,965), Davis-Rice schemed to give Alrai a substantially reduced
number of shares based on a contrived share "calculation" that made it appear as if Alrai was
receiving 9.6 million shares in Naked Brand, when, in fact, it was not.
46.

The Merger closed on June 19, 2018. According to the Form 6-K describing the

"consummation of business combination" filed by the Company the following day, on June 20,
2018, the Company issued in the Merger 22,958,378 total ordinary shares to the following
shareholders: 4,534,137 ordinary shares to PIPE investors, who invested a total of $17,003,000
in the PIPE; 2,068,438 ordinary Company shares to Naked shareholders; and 16,355,803
Company shares to Bendon shareholders.
47.

Per the terms of the Merger Agreement and the Effective Registration Statement,

Alrai was supposed to have received 7.5757% of the total number of Naked Brand ordinary
shares (16,355,803) allotted to Bendon shareholders in the Merger, i.e. 1,239,066 Naked Brand
shares. However, as per the approval of Bendon's Board and shareholders of the Deeds, Alrai
was entitled to at least 9.6 million out of the originally contemplated 148,716,072 Naked Brand
ordinary shares in the Merger. Because only 22,958,378 total Naked Brand ordinary shares were
issued in the Merger, Alrai's minimum of 9.6 million shares would have to be adjusted

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downward by a reverse stock split ratio of 6.47764:1 (148,716,022/22,958,378). The result was
that Alrai was entitled in the Merger to a minimum of 1,482,022 Naked Brand shares.
48.

Per Davis-Rice's scheme, however, that is not the number of Naked Brand shares

that the Company issued to Alrai. Instead of providing to Alrai the greater of the number of
shares allotted to Bendon shareholders collectively in the Merger according to its percentage
ownership of Bendon or minimum share count provided for in the Deeds (to which Bendon and
its shareholders had consented), i.e., 1,482,022 Naked Brand shares, the Company instead
created a fictitious share calculation deliberately designed to short change the number of shares
recorded in the name of Alrai, so that the Company could steal the difference.
49.

Thus, the day after the Merger closed, on June 20, 2018, the Company's CFO,

Herman, sent an e-mail informing one of Alrai's investors in New York City that the total
number of shares that Alrai was issued in the Merger was 1,167,437 Naked Brand ordinary
shares — 314,585 fewer shares than that to which Alrai was entitled.
50.

The Company's explanation of the share calculation — of which there have been

varied and shifting versions over time and as to which the Company, despite repeated request,
refused to answer questions about over the telephone — only serves to highlight the Company's
scheme. On its face, the calculation is utterly contrived and indefensible.
51.

The Company has explained its calculation of Alrai's Naked Brand shares in the

Merger as follows:

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 Case 1:18-cv-07640-VSB Document 1 Filed 08/22/18 Page 20 of 28

Step 1

Step 2

Step 3

52.

Alrai Group
Total investment
Bendon price per Agreement
Bendon shares
Equivalent price per Naked share

US$12,000,000
540.37
US$
22,207
USS

1.25

Equivalent Naked shares
Post-split ratio (Bendon shareholders)
Total Pre-merger shares prior to dilution
PIPE dilution (19.54%)

9,600,000
6.62

Total Listco share after PIPE dilution

1,167,437

1,451,032

(26 ,,' ‘i',,

The calculation is wholly fictitious, designed to deceive Alrai into believing that

the Company was giving Alrai the shares to which it was entitled under the Deeds, when it
clearly was not.
53.

The calculation's starting point is 9,600,000 shares, but not 9,600,000 in the

Company. Rather, the Company calculates Alrai's number of Company shares in the Merger by
reference to 9.6 million "[e]quivalent Naked shares." According to the Company, the calculation
of Alrai's shares in the Merger begins with the original cost basis of Alrai's investment in
Bendon — US$12,000,000. The Company then calculated the number of "[e]quivalent Naked
shares" that Alrai would be entitled to in the Merger by dividing Alrai's original investment of
US$12,000,000 in Bendon by US$1.25 per Naked "equivalent" share, to arrive at 9.6 million
"[e]quivalent Naked shares." But nothing in the Merger Agreement or any of the Company's
securities filings, including the Effective Registration Statement, provides for converting Bendon
shares into Company shares by reference to "[e]quivalent Naked shares," let alone "[e]quivalent
Naked shares" at a price of US$1.25 per share (a price at which shares of Naked (a then Nasdaq
listed company) did not trade during any relevant time period). In fact, the Effective
Registration Statement (as corrected by the Herman e-mail dated May 7, 2018) makes clear that
the number of Bendon shares that any Bendon shareholder would be entitled to in the Merger
(barring any overriding agreement amongst Bendon shareholders, such as the Deeds) would be
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 Case 1:18-cv-07640-VSB Document 1 Filed 08/22/18 Page 21 of 28

equal to that Bendon shareholder's percentage ownership of Bendon shares applied to the total
number of Naked Brand shares allotted to Bendon shareholders in the Merger. Thus, the
Company's calculation of "[e]quivalent Naked shares" by dividing US$12 million by US$1.25
per share appears to be a mathematical exercise undertaken by the Company for no purpose other
than to deceive Alrai into believing that it was receiving the 9,600,000 post-Merger shares to
which it was entitled under the Deeds.
54.

After determining a hypothetical number of "[e]quivalent Naked shares," the

Company then applied a "[p]ost-split ratio" of 6.62:1. The split ratio appears to have been
calculated by comparing the number of Naked Brand shares allotted to Bendon shareholders
under the original Merger Agreement (138,373,881) with the number of Naked Brand shares
allotted to Bendon shareholders and PIPE investors at Closing (a total of 20,889,940 shares)
(138,373,881/20,889,940=6.62394). Yet applying to a number of "[e]quivalent Naked shares" a
reverse split ratio determined from comparing the number of shares originally allotted to Bendon
shareholders in the Merger Agreement with the number of shares actually allotted to Bendon and
PIPE shareholders at Closing makes no sense. Unlike the 9.6 million Company shares that Alrai
was entitled to receive under the Deeds when the total number of Company shares in the original
Merger Agreement was 148,716,072 (as compared to the actual number of Company shares
issued at Closing (22,958,378)), which would justify applying a "reverse split ratio" (of
6.47763:1) in order to correlate 9.6 million Company shares in the original Merger Agreement
with a number of Company shares issued at Closing, the 9,600,000 "[e]quivalent Naked shares"
had nothing to do with the number of Company shares contemplated in the original Merger
Agreement. Thus, applying a "reverse split ratio" (arrived at by comparing the number of
Company shares allotted to Bendon shareholders in the original Merger Agreement with the

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 Case 1:18-cv-07640-VSB Document 1 Filed 08/22/18 Page 22 of 28

number of Company shares allotted to Bendon and PIPE shareholders at Closing) to the 9.6
million "[e]quivalent Naked shares" is nonsensical.
55.

After adjusting downward the 9.6 million "[e]quivalent Naked shares" to

1,451,032 shares on a "post-split" basis, the Company then further reduced Alrai's share count
by applying a 19.54% dilution factor to take into the PIPE investment. The result, according to
the Company, was that Alrai was entitled in the Merger to "[t]otal Listco share after PIPE
dilution" of 1,167,437 Naked Brand shares. Yet, on June 16, 2018, three days before the
Merger's Closing, with the PIPE investment results undoubtedly known, the Company's CFO,
Herman, sent an e-mail to the Company's CEO, Davis-Rice, who then forwarded the e-mail to
Alrai and its investors in New York City, summarizing that "the number of Alrai shares has
changed from the initial F4/ Proxy to the number of shares to be received on closing of the
merger," due to "the impact of the PIPE investors and warrants," and would be 1,451,032 shares.
The further reduction three days later by another nearly 300,000 shares is unjustifiable.
Moreover, the Company's method for calculating dilution, as explained to Alrai, made no sense.
Rather, applying a "dilution factor" to "[e]quivalent Naked shares" that appears already to
reflect dilution through the use of the contrived US$1.25 share price and fictitious "post-split"
ratio appears to have double counted dilution.
56.

In short, the machinations the Company has undertaken in order to justify its

calculation of Alrai's post-Merger shares in Naked Brand of 1,167,437 shares only serves to
highlight that the calculation is bogus. As set forth above, the actual number of shares to which
Alrai was entitled in the Merger is the greater of (i) its percentage ownership in Bendon
(7.5757%) as of the record applied to the total number of shares allotted to Bendon shareholders
in the Merger (16,355,803), i.e., 1,239,066 Company shares, or (ii) 9.6 million Company shares,

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 Case 1:18-cv-07640-VSB Document 1 Filed 08/22/18 Page 23 of 28

as consented to by Bendon and its shareholders by approving the Deed, adjusted by a "reverse
split ratio" of 6.47764:1 to reflect that the number of Company shares in the original Merger
Agreement of 148,716,022 had been reduced at Closing to 22,958,378, i.e., 1,482,022 shares.
The Company's Theft of Alrai's Shares and Refusal to Register Alrai's Shares
57.

The above-mentioned disputes between Alrai and certain of its investors that were

instigated by Watson and Davis-Rice eventually were resolved by an agreement by which, in
return for the investors' redemption of their interests in Alrai, Alrai would transfer a portion of
the Company shares it received in the Merger directly to its investors. By the terms of such
agreement, the Company — whose consent was required to the transfers — was supposed to have
issued to Alrai the shares that, according to (the false calculations of) the Company, Alrai
received in the Merger (1,167,437), and Alrai, in turn, would transfer a portion of those shares to
its investors. Due to disagreements over the share calculations, which Alrai continued to
question, the Company never gave its consent to the transfer agreement.
58.

Nevertheless, the Company proceeded to issue Company shares purchased by

Alrai, and allocated by the Company to Alrai in the Merger, directly to Alrai's investors.
Specifically, the Company issued a total of 931,889 shares directly to three of Alrai's investors
and issued to Alrai 235,548 shares (for a total of 1,167,437 shares).
59.

The Company's issuance of shares directly to Alrai's investors contrary to the

terms of the agreement that the parties had reached (but not consummated), coupled with the
Company's ongoing inability to satisfactorily explain the share calculation, prolonged the dispute
amongst Alrai and its investors. While the dispute lingered, the Company — through meetings
and communications into New York City — sought to further solidify its relationship with Alrai's
investors and to further marginalize and alienate Alrai. Among other things, the Company

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 Case 1:18-cv-07640-VSB Document 1 Filed 08/22/18 Page 24 of 28

offered, and the investors accepted, what the Company described as "top up" shares to the
investors, provided that the investors exercised by cash payment warrants that the Company also
offered to them.
60.

While the dispute lingered, the Company refused to register for trading — despite

its earlier promises to do so within 30 days — Alrai's shares. The Company also refused to issue
any of the Warrants that Alrai was supposed to receive. Those Warrants, adjusted by the
"reverse split ratio," entitled Alrai to purchase 1,235,017 Company shares (8,000,000
shares/6.47764) at a strike price of US8.10/share (US$10,000,000 strike price for 8,000,000
shares = US$1.25 strike price; adjusted by 6.47764:1 reverse split ratio to US8.10 per share)
within three years.
61.

After months of ongoing division in which the Company continued deliberately to

pit Alrai's investors against Alrai, Alrai and its investors eventually consummated an agreement,
pursuant to which Alrai consented to three Alrai investors' receipt of 931,889 Company shares
previously purchased by Alrai. Separately, the Company gave to Alrai's parting investors
additional "top up" shares, warrants and immediately registered their shares for trading.
62.

By instruction to Continental in New York City, the Company has registered in

the name of Alrai (and/or its parting investors) a total of only 1,167,437 shares -- 314,585 fewer
Company shares than Alrai's Bendon shares actually were exchanged for in the Merger. The
Company converted the 314,585 shares for which Alrai exchanged its Bendon shares for its own
exclusive purposes, using them to offer or give to other shareholders, such as the PIPE investors, Alrai's
parting investors or the Company's insiders like Davis-Rice.
63.

Additionally, purely out of malice and contrary to its written commitment that "30

days after closing, [Naked Brand] will file a registration statement with the SEC covering the

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 Case 1:18-cv-07640-VSB Document 1 Filed 08/22/18 Page 25 of 28

resale of the shares issued to the Bendon Limited shareholders," the Company has refused to
register any of Alrai's shares, on which Alrai had relied in communicating with its investors and
making investment decisions.
64.

The Company's shares closed the day after the Merger, on June 20, 2018, at

US$8.50. A month after the Merger, on July 31, 2018, the Company's shares closed at
US$6/share. As of August 21, 2018, the shares closed at $3.70/share. The Company's
conversion of, and failure to register, Alrai's shares has prevented Alrai from selling them on the
market and realizing their value at the time.
FIRST CAUSE OF ACTION
(Conversion)

65.

Plaintiff repeats each of the allegations set forth in paragraphs 1 through 64 hereof

as if fully set forth herein.
66.

In the Merger, Alrai's shares in Bendon were exchanged for a total of 1,482,022

shares of Naked Brand shares, over which Alrai has or (prior to transferring a portion of those
shares to certain of its investors) had legal ownership.
67.

Naked Brand, however, directed Continental to record in the Company's share

registry a total of 1,167,437 Company shares in the name of Alrai (or Alrai's investors), and
exercised unauthorized and wrongful dominion and control over 314,585 shares belonging to
Alrai.
68.

By virtue of the conduct described above, the Company has converted for itself

314,585 shares of Naked Brand over which Plaintiff has ownership.
69.

As a result, Alrai has suffered damages in an amount to be determined at trial, but

in no event less than $2.5 million.

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 Case 1:18-cv-07640-VSB Document 1 Filed 08/22/18 Page 26 of 28

SECOND CAUSE OF ACTION
(Promissory Estoppel)
70.

Plaintiff repeats each of the allegations set forth in paragraphs 1 through 69 hereof

as if fully set forth herein.
71.

The Company made clear and unambiguous promises to Alrai that (i) its final

share count in the Merger, resulting from its exchange of Bendon shares, was 9,600,000
Company shares, adjusted by a "split ratio" to reflect the fact that less Company shares were
issued in the Merger than were contemplated in the original Merger Agreement, and (ii) Alrai's
shares would be registered by the Company for public trading within 30 days after the Closing of
the Merger.
72.

Alrai reasonably and foreseeably relied on these promises in communicating to its

investors regarding the status of, and performance of Alrai's shares in, the Merger and in making
investment decisions.
73.

The Company's reneging on its promises, which has caused Alrai, among other

things, to be unable to obtain the requisite number of shares to which it was entitled in the
Merger and to publicly trade on them at a superior share price, as Alrai's investors had come to
expect and demand, has injured Alrai.
74.

As a result, Alrai has suffered damages in an amount to be determined at trial, but

in no event less than $4.5 million.
WHEREFORE, Plaintiffs seek the entry of judgment against the Defendant as follows:
(A)

on the First Cause of Action, awarding Plaintiff damages in an amount to be

determined at trial, but in no event less than $2.5 million, or, in the alternative, directing the
Company to instruct Continental to issue in the name of Alrai an additional 314,585 shares;
(B)

on the Second Cause of Action, awarding Plaintiff damages to be proven at trial,
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 Case 1:18-cv-07640-VSB Document 1 Filed 08/22/18 Page 27 of 28

but in no event less than $4.5 million;
(C)

Awarding Plaintiff its costs and expenses in connection with this action,

including, but not limited, reasonable attorneys' fees; and
(D)

awarding such further relief as is just and proper.

Dated: August 22, 2018
New York, New York
OTTERBOURG P.C.
By:
S/Adam Silverstein
Adam Silverstein
Rebecca E. Algie
230 Park Avenue
New York, New York 10169
Tel.: (212) 661-9100
Fax: (212) 682-6104
asilversteingotterbourg.com
ralgie@otterbourg.com
Attorneys for Plaintiff. Alrai Naked Opportunity
LLC

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 Case 1:18-cv-07640-VSB Document 1 Filed 08/22/18 Page 28 of 28

JURY DEMAND
Pursuant to Rule 38 of the Federal Rules of Civil Procedure, plaintiff Alrai Naked
Opportunity LLC hereby demands a trial by jury of all issues triable to a jury in this action.

Dated: August 22, 2018
New York, New York
OTTERBOURG P.C.
By:
S/Adam Silverstein
Adam Silverstein
Rebecca E. Algie
230 Park Avenue
New York, New York 10169
Tel.• (21')) 661-9100
Fax: (212) 682-6104
asilversteingotterbourg.corn
ralgiegotterbourg.coni
Attorneys for Plaintiff Alrai Naked Opportunity
LLC

28