Stupid question: I didn't see anything about dilution in the agreement. What's to stop someone from diluting out ABC/production company after the option has been exercised?
In the UK at least (and I would imagine there are similar provisions under US laws), the directors have obligations not to act prejudicially against the interests of minority shareholders. Dilution being likely to be an example of such prejudicial conduct.
You're right that they couldn't just act prejudicially against minority shareholders. But they could probably adopt a poison pill (of sorts) that automatically triggered after the option was exercised? I know those exist. But in that case, the producers would have to be aware of it, and in that case, they'd opt for their 2% royalty option. But even in that case, you could probably setup a shell company to route the proceeds away.
That all seems a little extreme though... but I'm surprised that the producers agreement is so short and doesn't take this into account.
