SCENARIO: OHNuts! Corp., was a closely held company. It was controlled by a brother and sister, Jimmy and Rosalynn. They each had signed a shareholder agreement restricting their right to sell or transfer their stock in the company and per the agreement, any transfer needed to be approved by all shareholders. OHNuts! had been losing profits and market share among peanut processors for several years and sought to make a large investment in obtaining new peanut farms as opposed to using peanut suppliers as well as obtaining new more efficient processing equipment. Interest rates were low on commercial loans, but Jimmy and Rosalynn also were considering obtaining additional financing through brining in a private equity firm. Upon hearing OHNuts! was looking into capital financing, Colonel Mustard Condiments, Corp., a publicly held corporation, held a meeting with their board of directors to discuss a potential acquisition offer. Colonel Mustard was leveraged 1.5 times its projected earnings of $30 million and was seeking to increase their share in the peanut butter industry. The board agreed that their CEO, Coco Williams, should reach out to Jimmy and Rosalynn to gauge whether they may be interested in a deal. The three scheduled an informal lunch meeting for the following week.

In the meantime, Jimmy and Rosalynn also scheduled a meeting with Seraph Adventures who was interested in becoming an angel investor in exchange for 40 percent ownership of OHNuts!

After all their meetings, and upon reviewing their options, Jimmy and Rosalynn disagreed on the route they should take. Rosalynn wanted to obtain a commercial loan so that she and her brother could maintain completed control of the company while Jimmy thought the idea of an acquisition by Colonel Mustard was the best option because he would be able to essentially cash out and retire.

Rosalynn proposed a compromise with her brother. Because she (and the company) did not have the cash to outright buy him out of his shares, she offered to convert his common shares to non-voting, redeemable preferred shares with a guaranteed cash dividend. This would allow her full control and the right to obtain the commercial loan in place of any other financing option. Jimmy liked the idea of the company remaining in control of the family, but still felt like he was sacrificing a larger payout he would get with the Colonel Mustard acquisition.

Jimmy is considering Rosalynn's proposal of converting his common shares to non-voting preferred shares with a guaranteed cash dividend. He discusses the option with his lawyer. Which of the following is the lawyer likely to advise?

a. To accept the offer because a "guaranteed dividend" will always be paid.
b. To accept the offer because preferred share status will ensure he is paid before any other creditor.
c. Even a "guaranteed dividend" may not be available, if payment would render the corporation insolvent.
d. As a non-voting preferred share holder, he will only be entitled to compel a dividend when there is a capital surplus even though the dividend is "guaranteed."