Negotiating Termination Provisions in Film Talent and Distribution Deals

Entertainment attorneys spend a significant part of their time putting deals together and creating agreements reflecting those deals. But these lawyers may occasionally be called on to terminate ' in an amicable fashion ' an agreement that they or someone else has prepared.

For example, a producer enters into a distribution agreement for a completed motion picture. After mostly unsuccessful efforts to exploit, the distributor may become unwilling to commit more time, money and effort to distributing the motion picture. The producer may believe there are other alternative distribution outlets that may be more successful.

As another example, a production company engages the services of a director for its upcoming motion picture. Before the start of principal photography, and before the director has become pay-or-play (thereby obligating the production company to pay the director, except for default or disability, even if the director does not direct the motion picture, the parties realize that they do not see eye-to-eye on the concept for the motion picture). (Editor's Note: For more on pay-or-play, see “Dealing with the Implications of Pay-or-Play Agreements for Talent” by Sunny Brenner in the July 2003 issue of Entertainment Law & Finance.) Perhaps the director has an offer for another motion picture, and another director, preferred by the production company, has become available.

In such instances, the parties may be willing to terminate their agreement, voluntarily and without acrimony. Nevertheless, for the attorneys involved in the transaction, it will usually not be sufficient to have the parties sign a one-page letter stating that they have agreed to terminate their deal.

Some of the principal considerations that the parties must review are:

Timing: Is the termination occurring before either party has provided any performance under the agreement? Or has one party or both parties provided any performance?

Obligations: In addition to obligations that the parties may have undertaken to each other, has either party undertaken any obligations to third parties?

Reliance: Notwithstanding the termination of the agreement, has either party relied (or will either party rely in the future) on any representations and warranties and/or performance of the other party?

Returns/Refunds: If one party has given something of value to the other party, can that something be simply returned or will some other arrangement need to be made?

Future Performance: Are there any new or on-going obligations created and/or to be continued after the termination of the current agreement?

Terminating Talent Agreements

A talent agreement with a pay-or-play clause will permit a production company to terminate the talent at any time provided that the production company pays the talent the remaining fixed compensation due under the parties' agreement. (In the case of termination for default and disability, the producer will be obligated to pay the talent any accrued, unpaid compensation up to the time of termination.) The agreement may provide for the termination of the talent's obligation to provide further services, while otherwise continuing the parties' agreement in full force and effect. The parties may negotiate regarding the amount, if any, of further compensation that the talent will receive, including contingent compensation, such as a participation in net profits.

If the parties' agreement provides a vesting schedule (that is, so much of the talent's contingent compensation vests at various milestones), the talent may also receive contingent compensation notwithstanding the termination. It will be important for the production company to consider the impact on the motion picture's budget of having to pay duplicate compensation to talent.

Depending on the progress of production of the motion picture at the time of termination, the talent may also have a strong argument to be accorded the credit provided by the parties' agreement. However, if the production company is committed to providing credit to the terminated talent, the production company may encounter obstacles in obtaining replacement talent. The production company may be compelled to exercise a certain amount of creativity in satisfying the credit requirements of the new talent.

Certain rights that the talent may have negotiated ' in the case of a director, for example, consultation, approval, editing or other rights with respect to the motion picture, including rights with respect to sequels, remakes and other productions ' will be terminated and the termination agreement will specify those provisions. Talent who receives a copy of the completed motion picture may want this provision to continue in effect.

A final clause may be included to state:

This document constitutes the entire Agreement and understanding between the parties concerning the subject matter hereof, and supersedes and replaces all prior negotiations, proposed agreements and agreements, written and oral, relating thereto. This Agreement may not be modified by either party absent mutual written agreement. Production Company and Artist acknowledge that neither party, nor any agent or attorney of either party, has made any promise, representation or warranty whatever, express or implied, not contained herein concerning the subject matter hereof, to induce either party to execute this Agreement, and both Production Company and Artist acknowledge that they have not executed this instrument in reliance on any such promise, representation or warranty not contained herein.

Terminating Distribution Agreements

In the case of a distribution agreement, the first step is the termination of the deal and all obligations of the parties to each other, except for certain obligations that the parties may agree to maintain. For example, if the distributor has made prior agreements for the licensing and/or exploitation of the motion picture, the parties may agree that those previously made agreements will remain in effect and that the distributor may collect its distribution fees and recoup its expenses for those specific agreements. Otherwise, the distributor will have no right to enter into new agreements and/or receive monies from the exploitation of the motion picture.

The parties may agree that the distributor will retain certain performance obligations. Some examples of such obligations are:

• Transfer of all existing agreements regarding the motion picture to the producer;
• Providing the producer with the original (or copies, if the originals are unavailable) of all existing agreements regarding the motion picture;
• Providing the producer with copies of any and all insurance policies obtained by the distributor for the motion picture;
• Making any payments due third parties on account of or in connection with agreements made or obligations incurred by the distributor;
• Providing the producer with a complete, current and detailed accounting regarding the distributor's distribution of the motion picture through the date of this agreement, including without limitation a statement of any and all sums previously received by the distributor in connection with the distribution of the motion picture as well as any and all sums due but unpaid from the existing agreements;
• Accepting a specified amount as reimbursement in full for any and all of the distributor's distribution fees and expenses incurred in connection with the motion picture, including without limitation, advances, distribution expenses, guarantee, interest, banking expenses, prints and videocassettes and/or discs, lab expenses, shipping, reels, containers, previews, testing, phone expenses, insurance, licenses and residuals; and
• Terminating any and all lab access letters held by the distributor and providing the producer with full and complete access to all negative and pre-print materials or prints and any and all elements of the motion picture in the distributor's possession or under the distributor's control.

The producer will also want to obtain certain representations and warranties so that the producer can be assured regarding any actions taken by the distributor while the distributor was in control of the exploitation of the motion picture. Such a clause might provide, as follows:

Distributor's Representations and Warranties. Distributor represents and warrants that Distributor has not heretofore assigned or transferred, or purported to assign or transfer, to any person, firm or corporation whatsoever the Distribution Agreement or any part thereof, or any rights, title and interests in and to the Picture, except as set forth in Exhibit “A” attached hereto [listing any third party agreements or obligations]; that there are no claims or liens against the Picture, whether by Distributor or any third party; that all existing agreements are in full force and effect and that neither party has committed or threatened to commit a breach of any existing agreement; and that there are no agreements by Distributor with third parties or rights accorded by Distributor to third parties that would require Producer to make any payments or obtain any releases or consents in order to distribute, license and exploit the Picture.

Along with the representations and warranties, the producer should obtain a standard indemnification clause from the distributor.

The termination agreement may further provide that the original distribution agreement terminates effective upon the execution of the termination agreement (or some other mutually-agreed date) and that the producer shall thereupon have, subject to any exceptions specified in Exhibit “A,” all rights, title and interests in and to the motion picture free and clear of any and all liens and claims.

Usually, in connection with a distribution agreement, the distributor obtains the right to include its name and logo at the beginning of the motion picture, sometimes in the form of a “presentation” credit. The parties may want to provide that this credit will be retained or eliminated, or that the producer will have the discretion to decide whether to retain or eliminate the distributor's presentation credit. Sometimes, this credit is important to a subsequent distributor of the motion picture.

The distributor may also obtain an indemnification provision from the producer, because after the closing of the termination agreement, the distributor will no longer have any control over the motion picture, and the distributor may want to obtain protection from any claims that arise subsequent to the closing of the termination agreement.

Entertainment attorneys spend a significant part of their time putting deals together and creating agreements reflecting those deals. But these lawyers may occasionally be called on to terminate ' in an amicable fashion ' an agreement that they or someone else has prepared.

For example, a producer enters into a distribution agreement for a completed motion picture. After mostly unsuccessful efforts to exploit, the distributor may become unwilling to commit more time, money and effort to distributing the motion picture. The producer may believe there are other alternative distribution outlets that may be more successful.

As another example, a production company engages the services of a director for its upcoming motion picture. Before the start of principal photography, and before the director has become pay-or-play (thereby obligating the production company to pay the director, except for default or disability, even if the director does not direct the motion picture, the parties realize that they do not see eye-to-eye on the concept for the motion picture). (Editor's Note: For more on pay-or-play, see “Dealing with the Implications of Pay-or-Play Agreements for Talent” by Sunny Brenner in the July 2003 issue of Entertainment Law & Finance.) Perhaps the director has an offer for another motion picture, and another director, preferred by the production company, has become available.

In such instances, the parties may be willing to terminate their agreement, voluntarily and without acrimony. Nevertheless, for the attorneys involved in the transaction, it will usually not be sufficient to have the parties sign a one-page letter stating that they have agreed to terminate their deal.

Some of the principal considerations that the parties must review are:

Timing: Is the termination occurring before either party has provided any performance under the agreement? Or has one party or both parties provided any performance?

Obligations: In addition to obligations that the parties may have undertaken to each other, has either party undertaken any obligations to third parties?

Reliance: Notwithstanding the termination of the agreement, has either party relied (or will either party rely in the future) on any representations and warranties and/or performance of the other party?

Returns/Refunds: If one party has given something of value to the other party, can that something be simply returned or will some other arrangement need to be made?

Future Performance: Are there any new or on-going obligations created and/or to be continued after the termination of the current agreement?

Terminating Talent Agreements

A talent agreement with a pay-or-play clause will permit a production company to terminate the talent at any time provided that the production company pays the talent the remaining fixed compensation due under the parties' agreement. (In the case of termination for default and disability, the producer will be obligated to pay the talent any accrued, unpaid compensation up to the time of termination.) The agreement may provide for the termination of the talent's obligation to provide further services, while otherwise continuing the parties' agreement in full force and effect. The parties may negotiate regarding the amount, if any, of further compensation that the talent will receive, including contingent compensation, such as a participation in net profits.

If the parties' agreement provides a vesting schedule (that is, so much of the talent's contingent compensation vests at various milestones), the talent may also receive contingent compensation notwithstanding the termination. It will be important for the production company to consider the impact on the motion picture's budget of having to pay duplicate compensation to talent.

Depending on the progress of production of the motion picture at the time of termination, the talent may also have a strong argument to be accorded the credit provided by the parties' agreement. However, if the production company is committed to providing credit to the terminated talent, the production company may encounter obstacles in obtaining replacement talent. The production company may be compelled to exercise a certain amount of creativity in satisfying the credit requirements of the new talent.

Certain rights that the talent may have negotiated ' in the case of a director, for example, consultation, approval, editing or other rights with respect to the motion picture, including rights with respect to sequels, remakes and other productions ' will be terminated and the termination agreement will specify those provisions. Talent who receives a copy of the completed motion picture may want this provision to continue in effect.

A final clause may be included to state:

This document constitutes the entire Agreement and understanding between the parties concerning the subject matter hereof, and supersedes and replaces all prior negotiations, proposed agreements and agreements, written and oral, relating thereto. This Agreement may not be modified by either party absent mutual written agreement. Production Company and Artist acknowledge that neither party, nor any agent or attorney of either party, has made any promise, representation or warranty whatever, express or implied, not contained herein concerning the subject matter hereof, to induce either party to execute this Agreement, and both Production Company and Artist acknowledge that they have not executed this instrument in reliance on any such promise, representation or warranty not contained herein.

Terminating Distribution Agreements

In the case of a distribution agreement, the first step is the termination of the deal and all obligations of the parties to each other, except for certain obligations that the parties may agree to maintain. For example, if the distributor has made prior agreements for the licensing and/or exploitation of the motion picture, the parties may agree that those previously made agreements will remain in effect and that the distributor may collect its distribution fees and recoup its expenses for those specific agreements. Otherwise, the distributor will have no right to enter into new agreements and/or receive monies from the exploitation of the motion picture.

The parties may agree that the distributor will retain certain performance obligations. Some examples of such obligations are:

• Transfer of all existing agreements regarding the motion picture to the producer;
• Providing the producer with the original (or copies, if the originals are unavailable) of all existing agreements regarding the motion picture;
• Providing the producer with copies of any and all insurance policies obtained by the distributor for the motion picture;
• Making any payments due third parties on account of or in connection with agreements made or obligations incurred by the distributor;
• Providing the producer with a complete, current and detailed accounting regarding the distributor's distribution of the motion picture through the date of this agreement, including without limitation a statement of any and all sums previously received by the distributor in connection with the distribution of the motion picture as well as any and all sums due but unpaid from the existing agreements;
• Accepting a specified amount as reimbursement in full for any and all of the distributor's distribution fees and expenses incurred in connection with the motion picture, including without limitation, advances, distribution expenses, guarantee, interest, banking expenses, prints and videocassettes and/or discs, lab expenses, shipping, reels, containers, previews, testing, phone expenses, insurance, licenses and residuals; and
• Terminating any and all lab access letters held by the distributor and providing the producer with full and complete access to all negative and pre-print materials or prints and any and all elements of the motion picture in the distributor's possession or under the distributor's control.

The producer will also want to obtain certain representations and warranties so that the producer can be assured regarding any actions taken by the distributor while the distributor was in control of the exploitation of the motion picture. Such a clause might provide, as follows:

Distributor's Representations and Warranties. Distributor represents and warrants that Distributor has not heretofore assigned or transferred, or purported to assign or transfer, to any person, firm or corporation whatsoever the Distribution Agreement or any part thereof, or any rights, title and interests in and to the Picture, except as set forth in Exhibit “A” attached hereto [listing any third party agreements or obligations]; that there are no claims or liens against the Picture, whether by Distributor or any third party; that all existing agreements are in full force and effect and that neither party has committed or threatened to commit a breach of any existing agreement; and that there are no agreements by Distributor with third parties or rights accorded by Distributor to third parties that would require Producer to make any payments or obtain any releases or consents in order to distribute, license and exploit the Picture.

Along with the representations and warranties, the producer should obtain a standard indemnification clause from the distributor.

The termination agreement may further provide that the original distribution agreement terminates effective upon the execution of the termination agreement (or some other mutually-agreed date) and that the producer shall thereupon have, subject to any exceptions specified in Exhibit “A,” all rights, title and interests in and to the motion picture free and clear of any and all liens and claims.

Usually, in connection with a distribution agreement, the distributor obtains the right to include its name and logo at the beginning of the motion picture, sometimes in the form of a “presentation” credit. The parties may want to provide that this credit will be retained or eliminated, or that the producer will have the discretion to decide whether to retain or eliminate the distributor's presentation credit. Sometimes, this credit is important to a subsequent distributor of the motion picture.

The distributor may also obtain an indemnification provision from the producer, because after the closing of the termination agreement, the distributor will no longer have any control over the motion picture, and the distributor may want to obtain protection from any claims that arise subsequent to the closing of the termination agreement.