The preferred shareholders are electing 2 new members to the board, increasing it from 7 to 9. They aren't replacing anyone - they are adding 2 people. This was part of the terms when the preferred shares were issued...that if the company skipped 6 dividend payments that the preferred shareholders could elect 2 people to the board.
I own the preferred. I have my proxy somewhere. Can't place my hands on it at the moment. The 2 terms were staggered as I recall. I don't see it as that big of a deal. So once I looked at the 2 people nominated (I posted their backgrounds earlier) I didn't do much more reading. The 2 people nominated are financial types, not scientists. I hope they prod mgt. a little - to focus them toward a partnership and not diluting - but they will be a minority on the board.
The company has missed 6 dividend payments of .15 each (soon to be 7). They will owe 1.05 per share once the 7th dividend is skipped. It's a cumulative preferred, so they still owe those back dividends. If they redeem the series, they have to do so at full price, $10 per share - plus the back dividends. It's trading in the 3.50-4.00 range now. If the company survives, the preferred should pay off about 3 to 1.
They are convertible to common, but that's not a factor right now since the common is trading at such a low price. I factor the convertible feature as being worth nothing. The conversion ratio is not a round number - I'd have to look it up - it's in the area of .43 (going by memory). The common would have to approach $9 before it would impact the preferred price.
I bought the preferred more as a deep discount junk bond. There are still 1.9 million shares outstanding. It's a small enough number that even at full price + the back dividends, the company could pay it off in full if they got a strong partnership. It would cost about $22 million to retire it. Or if they simply paid the back dividends and reinstated it, I'd be happy with that.
It's a very illiquid security. The bid-ask spread is wide. It's only suited for someone who (1) can sit on it and (2) expects the company to have an infusion of cash at some point.
