Arohan Financial Services Limited | Annual Report 2022-23

149 | Annual Report | 2022-2023 Arohan Financial Services Limited Summary of significant accounting policies and other explanatory information for the year ended 31 March 2023 (Contd.) (All amounts in ` lakhs unless otherwise stated) Note 23: Share capital (Contd.) (B) Compulsorily convertible preference shares (Contd.) Terms and rights attached to Compulsorily convertible preference shares: The Company has only one class of Compulsorily convertible preference shares (CCPS) which shall rank pari-passu with other preference shares. The CCPS shall carry a dividend of 0.001% payable annually. The Company declares and pays dividend in Indian rupees. Any dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting. The holder of CCPS shall not be entitled to any voting rights in the Company. The conversion of the CCPS into equity shares of the Company shall be triggered and the CCPS shall be converted into equity shares, in case of (i) Scenario 1, in no event later than 7 (seven) days from the date on which the applicable conditions set out in Scenario 1 below are satisfied (“Scenario 1 Trigger Date”); (ii) Scenario 2, within 30 (thirty) days from the date on which the applicable conditions set out in Scenario 2 below are satisfied; and (iii) Scenario 3, within 7 (seven) days from March 31, 2024, at such conversion price and on such terms as set out below: 1. Scenario 1: Occurrence of the full equity infusion that includes a Qualified Investment Raise (as defined below) at a priced round/ pre-determined valuation for the Company, by March 31, 2024; 2. Scenario 2: Occurrence of the full equity infusion without the Qualified Investment Raise (as defined below) by March 31, 2024; and 3. Scenario 3: Full equity infusion not having occurred by March 31, 2024. “Qualified Investment Raise” shall mean a single external investment (that could include a secondary purchase of securities of the Company from its existing shareholders) from not more than 1 (one) external institutional investor (along with its affiliates) of an aggregate amount that is the INR equivalent of USD 25 million (calculated at the Exchange Rate) or more into the Company at a priced round/ pre-determined valuation for the Company, by March 31, 2024. Conversion Terms: 1. Upon occurrence of Scenario 1, the CCPS shall be compulsorily converted into such number of equity shares of the Company so as to provide an extended internal rate of return (XIRR) of 25% per annum (twenty five percent per annum) calculated in INR from the date of the infusion of the investment amount and until the Scenario 1 Trigger Date (“Scenario 1 Conversion Price”). Provided that, the conversion of the CCPS shall be subject to a minimum pre-money valuation floor of ` 1,500 crores and a maximum pre-money valuation cap of ` 2,000 crores. 2. Upon occurrence of Scenario 2, the CCPS shall be compulsorily converted into equity shares at the higher of: (i) pre- money valuation of ` 1,500 crores; or (ii) 1.8x of the book value of the Company as of March 31, 2023 (which shall be calculated by excluding any equity raise undertaken by the Company during FY 22-23, but including the impact from proceeds received pursuant to ‘Assam write-back until September 30, 2023, tax affected’ minus adjustments required pursuant to ‘Deloitte’s analysis’ as of March 31, 2023), subject to a maximum pre-money valuation cap of ` 2,000 crores (“Scenario 2 Conversion Price”). 3. Upon occurrence of Scenario 3, subject to applicable law, the CCPS shall be compulsorily converted into equity shares of the Company at the floor of 1x of the book value of the Company as of September 30, 2022, as certified by the statutory auditor of the Company (including a confirmation on the ECL amount by the statutory auditor) (“Scenario 3 Conversion Price”).