Does the terms of this preferred stock agreement prevent the granting or exercising of stock options?

Question

--- From Prospectus ---

The terms of the Series A Preferred Stock do not permit XXXX to declare, set apart or pay any dividend or make any other distribution of assets on, or redeem, purchase, set apart or otherwise acquire shares of common stock or of any other class of stock of XXXXX ranking junior to the Series A Preferred Stock as to the payment of dividends or as to the distribution of assets upon liquidation, dissolution or winding up of XXXX, unless certain conditions are met.

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I am a current holder of this companies preferred stock. The company is currently experiencing operating difficulties and has already suspended common stock dividends. I suspect the preferred dividends may be halted next. However, the company uses stock options to hire and retain top management. If those options cannot be granted or exercised, I think that would give managment incentive to not halt the preferred dividends.

Answer 1

the way it reads to me is that the company XXXX cannot pay dividends or buyout common stock without paying your preferred dividend first. (which is expected of preferred stock). Then they have to buy you out before other shareholders if the company goes dead.

In theory your preferred dividends are probably cumulative and thus will be owed to you in case of default, so halting payment only delays payment to you and thus gives you the risk of them not being able to pay you the full amount owed. This is just how I read it, but I think it makes sense.