Convertible preference shares - exit rights

[hubertd]

I hope somebody can help with this one, sharing their thoughts or floating the ideas. Seems there's plenty of detailed guidelines regarding the accounting treatment of convertible instruments (shares, notes, etc.) from an issuer perspective but nothing regarding the holder.

We're planning to invest in an early stage company in the form of convertible preference shares with following features:

- convertible at a holder discretion with 1:1 ratio
- no dividends expected but may be introduced in future; if so we would get 8% per annum non-cumulative (at Board discretion)
-shares have voting rights on par with ordinary shares

So far I would say this is an equity investment however we have the following exit rights:
- in case the company creates over 50% jobs outside UK and more than 50% of the expenditure is outside of UK over the next consecutive 3 years we can require the company to purchase all of our shares (most probably to still be preference shares) at the higher of the price originally paid and fair market value (being the price per share paid by investors for the most senior class of shares at the then most recent equity fundraise raising)

My question is: should I take these exit terms into account classifying the instrument? If so, would such terms negate my initial classification of these preference shares being 'equity instrument' given they would be actually be redeemed in cash? This exit is a conditional event but the one the company's actions can avoid triggering (or otherwise) as opposed to an outside condition - does it even matter? I mean, the company can avoid paying cash via sticking to our criteria (I doubt however if such a right is substantive)

[Leo]

My initial thought is that the instrument would still be treated as equity instrument based on the contingent consideration being within the control of the issuer.

[hubertd]

Thanks Leo. Any other thoughts guys? Or girls (not sure there are any here -)

[Marek Muc]

I think this section applies:
https://ifrscommunity.com/knowledge-bas ... provisions

It seems that these exit terms are within the control of the issuer, i.e. it's an equity instrument.

[hubertd]

Thanks Marek