Pre-IPO investors always get their money back first, this is a straightforward defense against founder fraud - effectively meaning that the valuation of the company has to go up before a sale, not down. If it goes down, the founders have lost their gamble and the round should not have happened. The legal machinery for this is - each Series of stock is a custom negotiated contract and can have any number of custom terms; shareholders and/or the existing board have to consent of course. If existing board doesn’t like the terms, then don’t do the deal. The exec comp here was for retention and can include their retention salary - i.e., the $1M can simply be $250k 4 year comp and nobody is allowed to leave.