4  Banking Documents

Lucy Walker and Philip Alberstat

 

I don't care, I do not want to be an investor in this movie. Unnamed banker to producer during lengthy conference call

 

 

Banks and Security Documents — An Introduction

This chapter looks at the form and content of the agreements that a bank typically will require a borrower to enter into in connection with a secured loan facility for the purposes of financing a film transaction.

This chapter is written on the basis that a film production partnership, or company, is the borrower and that the bank, as security for its loan facility, requires a charge and assignment over the borrower's rights in the film and key contracts in connection with the film. The content and principal terms of a standard facility letter will be explored together with an explanation of the nature of security and the terms of the bank's security documents and the form and content of other documents that may be required by a bank, such as a letter of credit by a third party bank.

Generally, a borrower will approach a bank and request its terms, or best offer, in respect of the amount and type of loan facility that the borrower wishes to borrow from the bank. Depending on the bank's own internal protocol for approving borrower facilities, it may be able to give an agreement in principle to the borrower fairly swiftly, particularly if there is a pre-existing relationship between bank and borrower. In nearly every case however, any offer made by a bank will be expressed to be subject to credit committee approval (which is the bank's internal control mechanism for vetting the credit worthiness of borrowers) and negotiation of satisfactory loan and security documentation.

The primary document is usually the facility letter, which is the document that contains the main contractual terms and governs the relationship between bank and borrower regarding the loan facility. The terms and conditions relating to any security given by the borrower in favour of the bank, together with any other necessary contractual arrangements normally will be documented in separate agreements as this chapter explains.

Registration of Security

Where a company (that is a company formed under the Companies' Acts) or a limited liability partnership (‘LLP’) creates a registerable security interest over its property and assets then, under section 395 of the Companies' Act, that mortgage, charge or security document must be registered at Companies' House within 21 days of the date of its creation. Section 396 of the Companies' Act 1985 lists what constitutes a registerable security interest. A charge and assignment by way of security as set out in this chapter would be registerable if the borrower was a company or LLP.

If a company or LLP fails to register a registerable security interest within the 21 day time limit then the security interest is void against a liquidator, administrator or other creditor of the company or LLP. This is a matter of great importance for any bank or lender. As we have seen earlier in the chapter, the primary purpose of taking security from a borrower for its loan obligations is to ensure that the bank has recourse to specified secured assets for realization, in the event that the borrower fails to repay. Effectively, a security interest ringfences the secured assets from any other property and assets of the borrower and (subject to certain contractual arrangements and conditions) gives the bank exclusive recourse to those secured assets, in priority to other creditors of the borrower. Equally, registration gives the bank priority over the interest of any other lender registering a later charge in relation to the same secured assets. Crucially, in the event that the borrower was in liquidation or administration, a properly registered and enforceable security interest would also prevent a liquidator or administrator of the borrower from using or realizing the secured assets for the benefit of any other creditors of the borrower.

Failure to register a security interest means that the bank loses its priority interest in the secured assets and undermines to a very large extent the purpose of taking the security in the first place. Registration is effected by completion of a simple form (Companies Form M395 - see Companies' House website for further details: http:/­/www­.c­om­pan­ies­hou­se.­gov­.uk) which must then be filed at Companies' House accompanied by the original security document and the requisite registration fee.

The register of security interests, known as the register of mortgages and charges, created by each company or LLP is available for public inspection. On the basis of the importance of registration, it is common for a bank to take responsibility for registration of any registerable security created in its favour.

Bank Facility Letter

From: [Name of Bank]

To: [Producer]

Date: [  ] 200 [  ]

Dear Sirs,

The bank has agreed to provide you with production finance of up to [amount of Facility] [£ ] (the ‘Production Finance Facility’) in respect of the Film (as defined below) inclusive of all applicable interest, costs and fees subject to the following terms and conditions and repayable in accordance with the Repayment Schedule:

This is the introductory paragraph to the Facility Letter which is addressed to the Borrowers. The paragraph should contain an indication of the Bank's willingness to lend, either on a committed or an uncommitted basis and the amount of the facility should also be stated.

A. Definitions

In this Facility letter, the following expressions shall have the following meanings, unless the context otherwise requires.
‘Account’
‘Bank’
‘Borrower’
‘Borrowing’
‘Budget’
‘Cashflow’
‘Charges'
‘Completion Guarantee’
‘Completion Guarantor’
‘Co-producers'
‘Co-production Agreement’
‘Delivery of the Film’
‘Distribution Agreement(s)’
‘Distributor’
‘Distributor Notices'
‘Facility’
‘Facility Letter’
‘Film’
[‘Gap Amount’] (if applicable)
‘Insurance Policies'
‘Interparty Agreement’
‘Laboratory’
‘Letter(s) of Credit’
‘Producer’
‘Production Agreements'
‘Production Finance Facility’
‘Repayment Date’
‘Repayment Schedule’
‘Rights'
‘Rights Documents'
‘Sales Agent’
‘Sales Agency Agreement’
‘Sales Estimates' (Gap deals only)

The definitions section is self-evident, but operates to set out the full meaning of any defined terms that are used throughout the Facility Letter, and also to clarify the interpretation of certain terms and phrases as they are used.

B. Purpose

The Facility is to be used to assist the Borrower by the provision of the production finance to be utilized exclusively for the proper costs of production of the Film in all respects in accordance with the provisions of this Facility Letter.

Unless a bank has agreed to lend monies for general purposes, it will usually lend monies to a Borrower for a specific purpose; for example, to pay certain production costs in respect of a film. Nevertheless, a bank will not accept any responsibility for ensuring that the monies are actually applied for that purpose. The ‘purpose’ clause gives the bank the best of both worlds in that the Borrower is placed under a contractual obligation to apply the facility for the specified purpose but the clause also makes it clear that the bank is not under any obligation to check or ensure that the monies are actually used in this way.

C. Conditions precedent

No Drawing may be made under the Facility until the Bank has received the following (which shall be originals or certified copies as the Bank shall require) in relation to the Films:

1. The Rights Documents and/or evidence that the Borrower and/or either of the Co-producers, as the case may be, have title to the Rights, together with such legal opinions in relation thereto as the Bank may require;
2. The Production Agreements fully executed or in agreed format, in which case any subsequent variations to their standard form provisions are subject to the Bank's prior approval;
3. Evidence satisfactory to the Bank of the subsistence of the Insurance Policies, including the Completion Guarantee, and evidence that any fee due there under to the Completion Guarantor and/or the insurers shall be paid prior to or out of the first Drawing under this Facility Letter;
4. [The Letter(s) of Credit, fully issued, in form and substance satisfactory to the Bank];
5. Evidence of the following duly executed agreements:
   
   1. The Co-production Agreement;
   2. The Sales Agency Agreement;
   3. The [any other(s)] Agreement(s);
   4. The Distribution Agreement(s).
6. Together with evidence of satisfaction of all the conditions precedent of all the aforementioned agreements, satisfactory in all respects in form and substance to the Bank;
7. Evidence of the subsistence of duly executed Distributor Notices duly executed by the parties thereto;
8. The Laboratory Pledgeholder's Agreement duly executed by the Laboratory and the other parties thereto;
9. The duly executed security documentation referred to in paragraph (e) below satisfactory in all respects in form and substance to the Bank;
10. Evidence that all relevant pre-production approvals required of the Sales Agent and the Borrower, pursuant, respectively, to the Sales Agency Agreement, have been satisfied or waived prior to the date hereof;
11. Written confirmation from the Completion Guarantor that all funds required to be paid towards the production of the Film before drawing is to be made under the Facility in accordance with the Cashflow (such funds being equal to the ‘Strike Price’ under the Completion Guarantee less the Production Finance Amount) have been so paid;
12. [Evidence that the Sales Estimates have either been reviewed and approved by an independent expert to be appointed by the Bank prior to the date hereof; (this applies only to gap deals)];
13. Certified true copy of a resolution of the Borrower accepting the terms and conditions of the Bank's security documentation;
14. The Borrower's original Certificate of Incorporation and Memorandum and Articles of Association, or certified copies thereof;
15. The Borrower's acceptance of this offer signed on the Borrower's behalf as evidence of its acceptance of the terms and conditions stated herein; and
16. A mandate in the Bank's approved form duly signed on the Borrower's behalf.

When agreeing to make available a facility to a borrower, a bank needs assurance that its understanding of the factual and commercial circumstances relating to the borrower and any connected transaction is correct. Conditions precedent act as the bank's proof that agreements, financial circumstances and other relevant matters are correct and exist in accordance with the bank's expectations. Essentially, this clause is a list of evidence that the bank needs to see before it is willing to make available the facility. Collectively, these items are known as conditions precedent because delivery of these items is a condition of the availability of the facility. If the borrower failed to deliver any item and/or the bank was not happy, then it would be entitled to withhold availability of the facility. Sometimes a bank may be happy to receive certain agreements or items after the availability date, in which case they are known as conditions subsequent. The status of these items is exactly the same as a condition precedent except that the bank is acknowledging that they may be delivered within a certain time frame subsequent to the facility being made available.

The nature of the conditions precedent and/or conditions subsequent required by the bank will reflect the purpose for which the facility is required and, usually, the nature of the borrower's business. In film finance transactions, it is usual to require items such as the relevant distribution and production agreements, recoupment schedules, chain of title documentation, cast agreements, together with evidence of the borrower's due incorporation and/or organization and other items such as the bank's security requirements.

D. Offer period

This offer will be available to the Borrower for acceptance until [  ] from the date of this Facility Letter, after which date the offer will lapse [unless extended in writing by the Bank].

A bank may attach certain conditions to the time-frame within which a borrower may actually draw down the facility. This caters for circumstances in which both the bank and the borrower might sign the agreement but where the borrower does not require the Facility monies on day one of the facility letter. Therefore, for the sake of certainty for both bank and borrower this clause specifies the period during which the facility will be available.

E. Security

1. The obligations of the Borrower to the Bank under this Facility Letter shall be secured by security in the Bank's preferred form as follows:
   (a) The Completion Guarantee;
   (b) The Charges;
   (c) The Interparty Agreement;
   (d) The Laboratory Pledgeholder's Agreement;
   (e) Such Distributor Notices as may be relevant; and

   Any future security which the Bank may from time to time hold for the Borrower's liabilities relating to the Film.

2. For the avoidance of doubt, the Borrower acknowledges that all security held and to be held by the Bank for the Borrower's liabilities shall, unless the relevant security document expressly states otherwise, secure all the Borrower's liabilities to the Bank for whatsoever purpose.
3. The Borrower hereby undertakes at the request of the Bank to execute such deeds, documents, mortgages, charges, assignments, notices, communications and other securities or agreements whatsoever as the Bank may require for the purpose of securing the obligations of the Borrower under this Facility Letter or for protecting, perfecting or enforcing the rights and remedies of the Bank under this Agreement or under any security document.

In most cases, a bank will require security for repayment of the facility that it is making available to a borrower. The purpose of security is to give the bank recourse to certain assets of the borrower (or to assets of a third party in the case of a guarantee or third party security) in the event that the borrower fails to repay the facility. The security clause (E) of the facility letter specifies the nature of the security required by the bank, namely a charge covering the Borrower's rights in the Film and an assignment of the benefit of the Borrower's rights and remedies under the Distribution Agreement and any connected guarantee or letter of credit. The nature of security agreements is explored later in this chapter.

Clause (E)(iii) contains what is commonly referred to as a further assurance’ undertaking. When a bank makes a decision to lend, it will assess the value of the assets offered to it by way of security against the amount of the required facility. This assessment is normally expressed as a percentage and it is common for banks to monitor that the security cover for the amount of the Facility always exceeds a certain percentage. The purpose of this clause is to give the bank a right at any time to require the borrower to execute further security for its obligations under the facility letter in the event that the bank felt uncomfortable about the level of available security cover. Equally, it gives the bank a general power to require the borrower to enter into further security agreements in the event that any defect or problem was found in relation to any existing security or if further documentation was required to supplement, amend or perfect any existing security held by the bank.

F. Right to draw funds

This clause is very straightforward as its sets out the way in which a borrower may actually request the facility monies to be drawn down from the bank. The clause does contain protections for the bank however, as it makes clear that if an event of default has occurred or if the borrower is otherwise in breach of the facility letter, the bank shall not be obliged to make any monies available to it.

G. Interest

The Borrower shall pay interest on the Facility from time to time outstanding of [%] per annum.

This clause sets out the rate of interest applicable to the facility. Obviously, the borrower is required to pay back both the principalamount of any facility plus the accrued interest. This clause should detail the applicable rate of interest, explains the way in which interest is calculated and the dates on which the borrower must repay the amount of accrued interest to the bank. In some cases, a borrower may repay accrued interest on payment dates that are different to the scheduled repayment dates for the principal amount of the Facility.

H. Maximum amount of facility/increased costs

A bank is similar to any other corporate entity in that it is subject to tax on its profits against which it may set off its losses and it is also subject to special statutory requirements imposed on banks in order to ensure that, for the protection of bank customers, a bank has adequate capital reserves at any given time. When making available a Facility a bank will always calculate the rate of return or, put simply, amount of profit, that it will earn as a result of lending to the borrower. The purpose of this clause is to protect the bank in the event that any change in law or taxation as applicable to the bank results in any reduction in the bank's rate of return. In these circumstances, the bank is entitled to recover from the borrower additional amounts so as to preserve its anticipated rate of return.

I. Fees and costs

A bank will always charge a fee for making available a facility and may well seek to recover its legal and other costs from the borrower. These items are specified and described in this clause. It is important for the borrower always to check the terms and dates on which any fees or expenses will be payable. It is common practice for the bank to deduct its fees and expenses from the principal amount of the Facility made available to the borrower. Potentially, this could result in the borrower actually receiving a net amount less than the headline amount of the facility.

J. Repayment/pre-payment

This clause describes how and when the borrower must repay the facility. There are many repayment possibilities and, usually, repayment is structured to match the borrower's projected ability to repay. Some facility letters may require a borrower to make scheduled repayments of principal and interest throughout the term of any facility. Other facility letters may require a borrower to makeregular scheduled repayments of interest but with the principal amount of the facility only falling due for repayment in a single bullet repayment at the end of term. Alternatively, other facilities may require a combination of these options.

Many facility letters will also include an option for the borrower to ‘pre-pay’ the facility. Pre-payment differs from repayment in that repayment relates to scheduled repayments of the facility. Prepayment refers to early repayment of a facility. Some facilities may permit the borrower to pre-pay the facility either in whole or in part, prior to the anticipated repayment dates. A bank will always specify terms and conditions that may apply to pre-payment.

K. Representations, warranties and indemnity

In many respects, the purpose of this clause correlates with the purpose of the conditions precedent clause. A bank will lend on the basis of a certain set of facts as presented to it by the borrower. Whilst the conditions precedent constitute documentary evidence of those facts, the representations and warranties are statements made by the borrower confirming the set of facts is true. Again, as with conditions precedent, the nature of the representations to be made by the borrower will closely reflect the nature of the borrower's business and the purposes for which the facility is to be made available. Representations and warranties may cover basic issues such as the due incorporation of the borrower (assuming the borrower is a company); and the borrower's financial condition, together with more specialized representations and warranties relating to the ownership of the film, due performance of items such as the production agreement and the distribution agreement and that, for example, the screenplay does not contain any defamatory or libellous material.

L. Covenants

This clause contains covenants that are essentially promises by the borrower in favour of the bank to do or undertake certain actions. Covenants will vary in subject matter in accordance with the nature of the borrower's business and the purposes for which the facility is required. Some covenants may aid the flow of information between the bank and the borrower, for example a covenant by the borrower to provide the bank with specified information regarding the progress of the film; covenants by the borrower agreeing to maintain insurance over the film and its other assets; covenants by the borrower agreeing not to amend certain key agreements in relation to the film such as the distribution agreement and/or the production agreement; covenants by the borrower informing the bank upon the occurrence of any event of default; and covenants by the borrower for the purpose of protecting the bank's security (known as the negative pledge clause under which the borrower agrees not to mortgage, charge or assign any of its assets in favour of a third party save with the prior written consent of the bank).

M. Information

N. Payments

O. Events of default

Events of default are the levers by which the bank is entitled to demand repayment of the facility. This clause contains a list of those events that constitute a default. Mostly, events of default will be obvious, for example, if the borrower failed to make any repayments under the facility on the due date, if any kind of insolvency event affected the borrower, if the borrower otherwise breached any of its obligations under the agreement and the more general event of default, being any event that would be likely to have a material adverse effect on the ability of the borrower to comply with its obligations under the facility letter. A borrower should always look very closely at the events of default as a borrower may be able to negotiate with the bank for ‘grace periods', which essentially allow a borrower additional time to make payment and/or perform its obligations. Grace periods prolong the period before which any failure by the borrower to perform actually becomes a default.

P. Illegality

Q. Borrower's liability

R. Notices

S. Waiver

T. Law and jurisdiction

Yours faithfully,

[  ]

For and on behalf of
Bank

Accepted on the terms and conditions stated herein, pursuant to a resolution of the Board of Directors, a certified true copy of which is attached hereto.

[  ]

For and on behalf of
the Borrower

Schedule 1.The Budget

Schedule 2. The Cashflow

Schedule 3. The Insurance Policies

Schedule 4. The Rights Documents

Schedule 5. Production Agreements

Schedule 6. Laboratory Pledgeholder's Agreement

Charge and Assignment

Chargedated

Parties

1. [Bank]acting through its branch at [  ] (the ‘Bank’);
2. [Borrower], (registered no: [Borrower registered number]), of [Borrower address] (the ‘Borrower’).

Recitals

A. The Bank has agreed to make available to the Borrower a loan facility of up to [amount] (the ‘Facility’) in accordance with a facility letter dated on or about the date of this Charge (the ‘Facility Letter’) for the production and completion of the Film (as defined in Clause 1.1);

B. The Borrower has agreed to execute this Charge as security for the repayment of the Facility together with interest thereon and all other sums from time to time owing to the Bank from the Borrower.

This clause sets the background and explains the purpose of the Charge. As mentioned earlier in connection with the loan facility, the Borrower is giving the assets covered by the Charge as security for repayment of the monies owed to the Bank under the Facility Letter. The Charge apportions certain of the Borrower's assets so that the Bank has recourse to those assets in the event that the Borrower fails to repay the Facility.

Operative provisions

1. Interpretation

1.1 In this Charge, the following expressions shall have the following meanings unless the context otherwise requires:

‘Bank’includes persons deriving title under the Bank;

‘Borrower’includes persons deriving title under the Borrower or entitled to redeem this security;

‘Charge’means this charge and any and all schedules, annexures and exhibits attached to it or incorporated by reference;

‘Charged Assets' means, to the extent of the Borrower's right in and title to such assets, the Film, the Rights, the Co-production Agreement, the Sales Agency Agreement, the Distribution Agreement, the Letter of Credit and all property and assets charged or to be charged under this Charge in favour of the Bank and all other property and assets which at any time are or are required to be charged in favour of the Bank under this Charge;

‘Distributor’ means [  ];

‘Event of Default’ shall mean those events defined as events of default under the Facility Letter;

‘Facility Letter’ means the facility letter referred to in Recital (A) above;

‘Film’ means the feature film provisionally entitled ‘[Film]’, short particulars of which are set out in Schedule 1;

‘Letter of Credit’ means the letter of credit dated on or about the date of this Charge and issued by [  ] in favour of the Borrower in respect of the obligations of the Distributor to the Borrower under the Distribution Agreement;

‘Physical Materials'means the materials required to be delivered to the Sales Agent pursuant to the Sales Agency Agreement, and the Distributor pursuant to the Distribution Agreement, together with all physical properties of every kind or nature of or relating to the Film whether now in existence or hereafter made and all versions thereof, including, without limitation, exposed film, developed film, positives, negatives, prints, answer prints, special effects, pre-print materials, soundtracks, recordings, audio and video tapes and discs of all types and gauges, cutouts, trims and any and all other physical properties of every kind and nature relating to the Film in whatever state of completion, and all duplicates, drafts, versions, variations and copies of each thereof;

‘Receiver’ means any receiver or manager or administrative receiver appointed by the Bank either solely or jointly (and if more than one on the basis that they may act jointly and severally) under or by virtue of this Charge or any other security interest of the Bank or the Bank's statutory powers;

‘Rights' means the rights in respect of the Film short particulars of which are set out in Schedule 1;

‘Sales Agent’ means [Sales Agent legal name] of [Sales Agent address];

‘Sales Agency Agreement’ means the sales agency agreement entered into by the Borrower with the Sales Agent on [date] in connection with the distribution of the Film in the Territory;

‘Secured Amounts' means all monies or liabilities which shall for the time being (and whether on or at any time after demand) be due, owing or incurred to the Bank by the Borrower whether actually or contingently and whether solely or jointly with any other person and whether as principal or surety, including interest, discount commission or other lawful charges and expenses which the Bank may in the course of its business charge in respect of any of the matters aforesaid or for keeping the Borrower's account and so that interest shall be computed and compounded according to the usual mode of the Bank as well after as before any demand made or judgement obtained hereunder; and

‘Source Material’ means, to the extent of the Borrower's right in and title to the following, all underlying literary, dramatic, lyrical, musical, artistic and other material including, without limitation, the format, all titles, trade marks, designs, and logos used in or in connection with the Film. For the purposes of this Charge, all capitalized expressions not otherwise defined herein shall have the meanings ascribed to them in the Facility Letter.

1.2 Any reference in this Charge to any statute or statutory provision shall be construed as including a reference to that statute or statutory provision as from time to time amended, modified, extended or re-enacted, whether before or after the date of this Charge, and to all statutory instruments, orders and regulations for the time being made pursuant to it or deriving validity from it.

1.3 Expressions used herein that are defined in The Copyright, Designs and Patents Act 1988, shall, unless the context otherwise requires, have the meaning attributed thereto in that Act.

The definitions should be the same as those found in the Facility Letter.

2. Charge and security assignment

2.1 The Borrower hereby covenants to pay or discharge to the Bank the Secured Amounts in accordance with the provisions of the Facility Letter.

2.1.1 As continuing security for the payment and discharge of the Secured Amounts and for the performance of the obligations of the Borrower under the Facility Letter and this Charge, the Borrower with full title guarantee hereby unconditionally and irrevocably assigns absolutely to the Bank by way of security throughout the world (and insofar as necessary by way of present assignment of future copyright pursuant to s.91 of the Copyright Designs and Patents Act 1988) the Borrower's right, title and interest in and to:

a. the Rights (subject to and with the benefit of the Sales Agency Agreement, and the Distribution Agreement);

b.the Sales Agency Agreement and all of the Borrower's right, title, benefit and interest to and in the same including, without limitation, any and all sums of money whatever payable to or on account of the Borrower by the Sales Agent pursuant to the Sales Agency Agreement;

c.the Distribution Agreement and all of the Borrower's right, title, benefit and interest to and in the same including, without limitation, any and all sums of money whatever payable to or on account of the Borrower by the Distributor pursuant to the Distribution Agreement;

d.the benefit of all policies of insurance now or in the future taken out by the Borrower in respect of the Film and/or the Rights, including the Insurance Policies; and

e.the Letter of Credit;

f.charges by way of a first fixed charge to the Bank the Borrower's right, title and interest in and to:

i.the Film (as both presently existing and to be created or acquired);

ii.the Physical Materials;

iii.the proceeds of all policies of insurance now or in the future taken out by the Borrower in respect of the Film and/or the Rights, including the Insurance Policies;

iv.all sums from time to time standing to the credit of the Collection Account; and

g. charges by way of a floating charge any and all of the Borrower's rights and interest detailed in sub-clauses 2.1.1 above if and to the extent that the first fixed charge may fail for any reason to operate as a fixed charge.

2.1.2 The Borrower hereby undertakes to hold in trust for the Bank any monies paid to the Borrower by the Sales Agent pursuant to the Sales Agency Agreement, and by the Distributor pursuant to the Distribution Agreement or by any insurers pursuant to the Insurance Policies and will notify the Bank forthwith upon the receipt of any such monies and immediately credit the same to the Collection Account to be paid subject to the Recoupment Schedule and the Collection Agreement.

Clause 2 is where the Borrower actively creates charges and assigns its assets in favour of the Bank. The assets being charged and assigned are described and listed in this clause. In a film transaction, the items such as the rights and physical materials and soundtrack in relation to the film, the benefit of agreements such as the co-production agreement and the right to receive the income streams from agreements such as the sale agency agreement and the distribution agreement, and in this particular case, the benefit of the Letter of Credit (which is, itself, security for the payments to be made by the Distributor under the Distribution Agreement).

Where, under the Charge and Assignment the Borrower assigns in favour of the Bank the right to receive the income payable under agreements such as the Sales Agency Agreement and the Distribution Agreement, the Bank may well require that any such income is paid directly to the Bank into a blocked account. This means that the Borrower will be unable to withdraw or utilize any of those monies thus protecting the Bank's collateral. Alternatively, as set out in this clause, the Borrower will, upon receiving those monies, hold the monies on trust for the Bank and pay them directly into the collection account (which may or may not be charged in favour of the Bank).

3. Enforcement

3.1. The security and charge created pursuant to this Charge shall become enforceable at any time after the occurrence of an Event of Default.

3.2. In addition to the foregoing provisions of this Clause, the Bank may at any time after an Event of Default is declared appoint in writing a Receiver or Receivers of the Charged Assets on such terms as to remuneration and otherwise as it shall think fit, and may from time to time remove any Receiver and appoint an alternative receiver.

3.3. If a Receiver is appointed, such Receiver shall be the agent of the Borrower and have all the powers set out in Schedule 1to the Insolvency Act 1986 and, in addition, shall have the power:

a.to take possession of, get in and enforce the Charged Assets;

b.to take any steps that may be necessary or desirable to effect compliance with any or all of the agreements charged or assigned pursuant to this Charge and to carry on, manage or concur in carrying on and managing the business of the Borrower or any part of the same in relation to the Film, and for any of those purposes to raise or borrow from the Bank or otherwise any money that may be required upon the security of the whole or any part of the property or assets charged or assigned by this Charge;

c.to institute proceedings and sue in the name of the Borrower and to appoint managers, agents and employees at such salaries as the Receiver may determine;

d.to sell or license or concur in selling or licensing the interest of the Borrower in the Charged Assets or otherwise deal therewith and on such terms in the interest of the Bank as the Receiver thinks fit;

e.to appoint and discharge managers, advisers, officers, agents, contractors, workmen and employees for any of the aforesaid purposes for such remuneration and on such other terms as the Bank or the Receiver shall think fit;

f.to do all such other acts and things as may be considered to be incidental or conducive to any of the matters or powers aforesaid and which he lawfully may or can do; and

g.to make any arrangement or compromise and enter into any contract or do any other act or make any omission which he shall think expedient in the interest of the Bank and to do any other act or thing which a Receiver appointed under the Law of Property Act 1925 or the Insolvency Act 1986 would have power to do subject to the provisions of this Charge, provided always that nothing contained in this Charge shall make the Bank liable to such Receiver as aforesaid in respect of the Receiver's remuneration, costs, charges or expenses or otherwise.

3.4. At any time after the security created hereunder becomes enforceable, the Bank or a Receiver may (but shall not be obliged to) do all such things and incur all such expenditure as the Bank or such Receiver shall in its sole discretion consider necessary or desirable to remedy such default or protect or realize the Charged Assets or its interests under this Charge, and in particular (but without limitation) may enter upon the Borrower's property and may pay any monies which may be payable in respect of any of the Charged Assets, and any monies expended in so doing by the Bank or the Receiver shall be deemed an expense properly incurred and paid by the Bank, and the Borrower shall reimburse the same on demand to the Bank.

This clause describes the circumstances in which the Charge will become enforceable. Upon the occurrence of an event of default under the Facility letter, the Bank will be entitled to enforce the Charge and assert its rights to receive, sell or otherwise deal with the assets charged and assigned in favour of the Bank under the Charge. The Bank has the power to deal with the Charged Assets in any way that it thinks fit and to apply them in repayment of the loan facility and/or in repayment of the Bank's costs and expenses as the Bank may decide. The Bank also has the power to appoint a Receiver over the Borrower and this clause also sets out wide powers to enable the Receiver to get in and realize (essentially, into cash) the Charged Assets.

4. Covenants and warranties

4.1 The Borrower hereby warrants, undertakes and agrees for the benefit of the Bank as follows:

a. that it is the sole, absolute legal owner of the Charged Assets and that none of the Charged Assets are the subject of any mortgage, charge, lien, pledge, incumbrance or security interest other than any such arising in favour of the Bank;

b. that the execution of this Charge by the Borrower will not conflict with or cause a breach of any agreement, instrument or mortgage to which the Borrower is a party or which is binding on the Borrower or its assets;

c. that it has acquired the Rights, which are unencumbered subject to the Sales Agency Agreement, the Distribution Agreement [and the Completion Guarantor's Security];

d. not, without the prior written consent of the Bank, to sell, transfer, dispose of or part with possession or control of or attempt to sell, transfer or dispose of the Charged Assets or any part of them or any interest in them, nor directly or indirectly create or permit to exist or be created any mortgage, charge, lien, pledge, incumbrance or security interest upon or in the Charged Assets or any part of them;

e. to maintain the Physical Materials in good and serviceable condition (fair wear and tear excepted) and not to permit the same to be used, handled or maintained other than by persons properly qualified and trained;

f. not, without the prior written consent of the Bank, to make any modification or permit any modification to be made to the Film or the Rights if such modification may have an adverse effect on the security of the Bank whether under this Charge or otherwise;

g. promptly to pay all taxes, fees, licence duties, registration charges, insurance premiums and other outgoings in respect of the Film and the Rights or any part of any of them, and on demand to procure evidence of payment to the Bank;

h. to obtain or cause to be obtained all necessary certificates, licences, permits and authorizations from time to time required for the production of the Film and the protection of the Rights in accordance with the provisions of the Sales Agency Agreement and the Distribution Agreement and not to do or permit to be done any act or omission whereby the Film or its production, distribution, broadcast or exhibition would contravene any relevant rules and regulations for the time being in force;

i. immediately to notify the Bank of any material loss, theft, damage or destruction to the Physical Materials and/or breach of the Rights or any part of them;

j. to give the Bank such information concerning the location, condition, use and operation of the Physical Materials as the Bank may reasonably require, and to permit any persons designated by the Bank at all reasonable times to inspect and examine the Physical Materials and the records maintained in connection with them;

k. immediately to notify the Bank in writing if it becomes aware of any claims made by a third party with respect to the Film and/or the Rights and to use its best endeavours to protect and preserve the Rights;

l. not to enter into any agreements relating to the distribution or exploitation of the Film or any of the Rights without the prior written approval of the Bank, such approval not to be unreasonably withheld or delayed;

m. not to modify or vary or waive any of its rights pursuant to the Sales Agency Agreement, or the Distribution Agreement or the Laboratory Pledgeholder's Agreement or breach or terminate any such agreements;

n. that it has no knowledge of any notification or assertion of any prior claims by any third party in priority to the Bank's to any of the advances or other payments required to be made pursuant to the Sales Agency Agreement or to the Borrower's or any other party's right to compensation or other payment under the Distribution Agreement;

o. to keep all necessary and proper accounts of its dealings with the Sales Agent under the Sales Agency Agreement, and the Distributor under the Distribution Agreement and such accounts shall at all reasonable times be open to the inspection of the Bank or of any Receiver appointed under this Charge or of any person authorized by the Bank or any such Receiver;

p. that it will in a timely manner perform its obligations under the Sales Agency Agreement and the Distribution Agreement and will comply with all laws and regulations from time to time relating to the Sales Agency Agreement and the Distribution Agreement or affecting their enforceability; and

q. that it shall procure that all sums charged or assigned to the Bank hereunder shall be paid to the Bank or as the Bank may direct from time to time.

4.2 The Borrower further covenants:

a.not to do anything nor to allow anything to be done whereby any policy or policies of insurance on the Film and/or the Rights may be or become void or voidable or whereby any such insurances might be prejudiced, cancelled, avoided or made subject to average;

b.to renew (or procure the renewal of) all insurances (where applicable) at least 14 days before the relevant policies or contracts expire, and to procure that the approved broker shall promptly confirm in writing to the Bank when each such renewal has been effected;

c.promptly to pay or procure for the payment of all premiums, calls, contributions, or other sums payable in respect of all such insurances and to produce all relevant receipts when so required by the Bank, failing which the Bank may pay such premiums itself and the amount of the premiums and all costs, charges and expenses relating to that payment shall be repaid by the Borrower to the Bank, and until so repaid shall be added to this security;

d.upon the happening of any event giving rise to a claim under any insurances, forthwith to give notice to the appropriate insurers and to the Bank; and

e.to reimburse the Bank the cost to the Bank of effecting any policy of insurance to protect the interest of the Bank in the Film and/or the Rights as mortgagee.

4.3 Prior to the date hereof and on the occasion of each renewal of the insurances required pursuant to Clause 4.2, the Borrower shall procure that its insurance brokers issue to the Bank a letter confirming the subsistence of the insurances in accordance with the terms hereof.

4.4 The Bank shall apply monies received pursuant to a claim for an actual, agreed or constructive total loss of the Physical Materials in the following order:

a. in or towards repayment of any part of the Secured Amounts as the Bank decides; and

b. the surplus (if any) to be paid to the Borrower or other person entitled thereto.

4.5 The Bank shall apply all monies received pursuant to a claim for any other loss in paying directly for repairs or other charges in respect of which such proceeds were paid, or in reimbursing the Borrower for any such repairs or other charges.

4.6 The Bank shall not be obliged to make any enquiry as to the nature or sufficiency of any payment made under any of the Sales Agency Agreement, or the Distribution Agreement or to make any claim or take any other action to collect any money or to enforce any rights and benefits assigned to the Bank or to which the Bank may at any time be entitled under this Charge.

The covenants and warranties contained in this clause operate in a very similar manner to the covenants and undertakings found in the Facility Letter. Again, they represent an assertion by the Borrower that certain factual circumstances that have induced the Bank to enter into its arrangements with the Borrower are true and contain promises by the Borrower to protect the Charged Assets and to supply certain information to the Bank.

5. Set-off

This clause gives the Bank a right of set-off which enables the Bank at any time, to set-off any credit balance held by the Borrower with the Bank against any debit balance, namely the amount of the Facility.

6. Grant of time or indulgence

This clause provides protection for the Bank by making it clear that any delay or failure on the part of the Bank to exercise any of its rights and remedies under the Charge, shall not constitute a waiver of those rights and remedies.

7. Assignment

The Bank shall be entitled to assign, transfer, charge, sub-charge or otherwise grant security over or deal in all or any of its rights, title and interest in this Charge.

8. Protection of third parties

8.1 No purchaser, mortgagee or other third party dealing with the Bank and/or any Receiver shall be concerned to enquire whether any of the powers which they have exercised or purported to exercise has arisen or become exercisable or whether the Secured Amounts remain outstanding or as to the propriety or validity of the exercise or purported exercise of any such power, and the title of a purchaser or other person and the position of such a person shall not be prejudiced by reference to any of those matters.

8.2 The receipt of the Bank or any Receiver shall be an absolute and conclusive discharge to any such purchaser, mortgagee or third party, and shall relieve such person of any obligation to see to the application of any sums paid to or by the direction of the Bank or any Receiver.

Protection of the bank and receiver

9.1 Neither the Bank nor the Receiver shall be liable to the Borrower in respect of any loss or damage which arises out of the exercise or the attempted or purported exercise of or the failure to exercise any of their respective powers.

9.2 Without prejudice to the generality of Clause 9.1, entry into possession of the Film or the Rights or any part of them shall not render the Bank or any Receiver liable to account as mortgagee in possession, and if and whenever the Bank or any Receiver enters into possession of the Film or the Rights or any part of them they may at any time go out of such possession.

10. Power of Attorney

It is standard for a charge or security document of this type to contain a power of attorney. Under this clause, the Borrower appoints the Bank as its attorney to sign any documents and take any action on behalf of the Borrower as required under the Charge. This provides the Bank with protection in circumstances where the Borrower is, for example, being uncooperative or where relevant signatories are unavailable. In such cases the Bank could sign for and on behalf of the Borrower as the Borrower's Attorney under the power given by this clause.

11. Indemnity

The indemnity clause contains a promise by the Borrower to compensate the Bank for all expenses incurred by the Bank in connection with the preparation and completion of the Charge, together with any other expenses incurred by the Bank in connection with the Charge. Typically these costs and expenses might include items such as receiver's fees and the Bank's legal fees and other costs connected with enforcement of the Charge.

12. Further assurance

The Borrower shall on demand execute any document and do any other act or thing which the Bank may reasonably specify for perfecting any security created or intended to be created by this Charge or which the Bank or the Receiver may specify with a view to facilitating the exercise, or the proposed exercise, of any of their powers.

13. Other security

This security is in addition to, and shall not be merged in or in any way prejudice or be prejudiced by, any other security, interest, document or right which the Bank may now or at any time hereafter hold or have as regards the Borrower or any other person in respect of the Secured Amounts.

14. Waivers, remedies cumulative

The powers which this Charge confers on the Bank are cumulative and without prejudice to its powers under general law, and may be exercised as often as the Bank deems appropriate. The rights of the Bank and the Receiver (whether arising under this Charge or under the general law) shall not be capable of being waived or varied otherwise than by an express waiver or variation in writing; and, in particular, any failure to exercise or any delay in exercising on the part of the Bank or the Receiver any of these rights shall not operate as a waiver or variation of that or any other such right; any defective or partial exercise of any such right shall not preclude any other or further exercise of that or any other such right; and no act or course of conduct or negotiation on the part of either the Bank or the Receiver or on its or their behalf shall in any way preclude either the Bank or the Receiver from exercising any such right or constitute a suspension or variation of any such right.

This clause protects the rights and remedies of the Bank, by making it clear that the Bank may exercise its rights as many times as it thinks fit. The Bank's rights are always cumulative.

15. Bank's costs and expenses

The Bank has a power under this clause to recover all of its costs, charges and expenses from the Borrower.

16. Discharge and re-assignment

Upon repayment in full to the Bank of the Secured Amounts, the Bank will, at the request of the Borrower, release the charges created under this Charge and re-assign to the Borrower all rights in and to the assets assigned pursuant to Clause 2 hereof, including, without limitation, the Sales Agency Agreement and the Distribution Agreement.

17. Power of sale

18. Invalidity of any provision

If at any time any one or more of the provisions of this Charge becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

19. Notices

20. Governing law

This Charge shall be governed by and construed in accordance with the laws of England, the courts of which shall be the courts of competent jurisdiction.

Duly Executed as a Deed the day and year first above written.

Schedule 1

The film

The full length feature film having a provisional running time of between [  ] and [  ] minutes and entitled ‘[FILM]’, to be produced by the Borrower [jointly with [Co-Producer 1] and [Co-Producer 2] pursuant to the terms of the Co-production Agreement,] together with all tangible property now in existence and owned by the Borrower or hereafter created or acquired by the Borrower for use in the production of the Film.

The rights

All proprietary, statutory, contractual and common law rights throughout the world acquired by the Borrower whether as owner, maker, author or otherwise, in and to the Film and any other videotape, computer film, computer disk, film and any sound recordings made in the course of the production of the Film, including the Source Material, and without prejudice to the generality of the foregoing but subject to the Sales Agency Agreement, the Distribution Agreement, [and the Completion Guarantee Security]:

1. The sole, exclusive and irrevocable right to distribute, reproduce, exhibit, license and otherwise exploit and deal in and with the Film and any and all parts of the Film by all methods and means in any and all media systems and processes now known or in the future devised.
2. All rights of copyright in the original screenplay of the Film and in all other literary, artistic, dramatic and musical works created or to be created for and whether or not used and/or contained in the Film and, in respect of the music, all rights including the right to synchronize the same with and incorporate the same in the Film and to exploit the music and the Source Material independently of the Film (except for musical performing rights if the composer is a member of the Performing Right Society).
3. All ancillary publishing, spin-off and merchandising rights of every kind and nature in or to the Film, including but not limited to novelization and publishing rights and commercial tie-ups and sponsorship.
4. All rights of the Borrower pursuant to any agreement, arrangement or contract made with any person, firm or company in connection with or relating to the production or distribution of the Film.

Schedule 2

Part I: Form of Notice of Assignment/Irrevocable Payments Instructions

See example later in this chapter.

 

Part II: Form of Acknowledgement of Notice of Assignment

See example later in this chapter.

 

 

DULY EXECUTED AND DELIVERED

as a DEED by [    ]         [    ]

Director

 

and for and on behalf of
[BORROWER] [    ]

Director/Secretary

 

Signed and acknowledged

by [  ]

duly authorized signatory

for and on behalf of

[Bank]

Letter of Credit

To: [Beneficiary]

From: [Issuer]

Dear Sirs

Irrevocable Letter of Credit -[insert name of film production partnership or company]

On the terms and subject to the conditions set out below, [Issuer] hereby issues this irrevocable Letter of Credit in favour of the Beneficiary at the request of the Distributor.

The introductory paragraph relates to issuance of the letter of credit in favour of the Beneficiary. In this example, the letter of credit has been issued at the request of the Distributor. In film transactions, letters of credit and/or guarantees are frequently used as security for the payment obligations of, for example, the Distributor under the Distribution Agreement. In this example, the Distributor will have certain payment obligations to the Production Partnership under the Distribution Agreement between the Production Partnership and the Distributor. The letter of credit, or guarantee, is effectively a promise by the Issuer to pay the Beneficiary (the Production Partnership) in the event that the Distributor fails to make payment under the relevant Distribution Agreement.

1. Definitions

In this Letter of Credit and in the Schedules hereto, except where the context otherwise requires, the following expressions have the following meanings:
‘Abandonment Amount’
‘Account’
‘Beneficiary’
‘Business Day’
‘Certificate of Delivery’
‘Distribution Agreement’
‘Distributor’
‘Expiry Date’
‘Film’
‘Holding Company’
‘Issuer’
‘L/C Demand’
‘LC Table’
‘Minimum Guarantee Payment’
‘Non-delivery Pre-payment Date’ [  ]
‘Payment Amount’
‘Payment Date’
‘Subsidiary’has the meaning given to it in section 736 of the Companies Act 1985 (as amended).
The definitions set out the full meaning of defined terms and phrases used throughout the letter of credit. The use of defined terms is essential to ensure that there is no ambiguity or inconsistency in the letter of credit.

2. Undertaking to pay

The Beneficiary may make L/C Demands under this Letter of Credit in accordance with this Clause.

The undertaking to pay (clause 2) contains the actual promise by the Issuer to pay the Beneficiary in the event of a failure by the Distributor to pay certain amounts owed. This clause contains a lot of detail as to the terms and conditions upon which the Issuer will be obliged to meet its promise under the letter of credit. In many cases, the payments owed by the Distributor under the Distribution Agreement will be structured over a certain period of time, perhaps as much as a 20-year period. On this basis, the payment obligations of the Issuer under the letter of credit need to match the payment obligations of the Distributor. The undertaking to pay also contains provisions for payment of interest that will have accrued on the payment amounts owed by the Distributor. The letter of credit also contains specific provisions dealing with the amount that would be payable by the Issuer to the Beneficiary in the event that a demand was made because the film had not been completed and delivered. This amount is known as the ‘Abandonment Amount’.

In most cases the Issuer will require to see certain documentation in support of any demand for payment made by the Beneficiary. Under the example letter of credit, the demand must be in an agreed format together with a certificate of delivery in circumstances where a demand is made after the film has been completed and delivered.

3. Termination of obligations

The Issuer shall be released from its obligations under Clause 2 (without prejudice to any then outstanding liability of the Issuer to the Beneficiary as a result of a L/C Demand complying with the terms of this Letter of Credit having already been made) on the earlier to occur of:

1. the date (if any) notified by the Beneficiary to the Issuer in writing as the date upon which the obligations of the Issuer hereunder are to be released and this Letter of Credit is returned; or
2. if no L/C Demand shall have been presented under Clause 2 by that date which is forty-five (45) Business Days after the first Payment Date under the LC Table and the Beneficiary shall not by such date have delivered to the Issuer a Certificate of Delivery (which delivery shall be deemed made if the Certificate is delivered by hand to the Issuer's address set forth above and/or one business day after the Certificate is sent by first class post to the Issuer's address set forth above); or
3. upon payment in full by the Issuer pursuant to a L/C Demand.

This clause contains provisions for the benefit of the Issuer, setting out the circumstances in which the Issuer may be released from its obligations to make payment under the letter of credit. For example, the Beneficiary may choose to release the Issuer by giving written notice and the obligations of the Issuer may terminate once the Beneficiary has been paid out in full.

4. Payments

Save as required by law or any competent authority, all payments under this Letter of Credit shall be made:

1. without set-off or counterclaim whatsoever; and
2. free and clear of any deduction or withholding for or on account of any taxes.

In addition, all payments, under this Letter of Credit shall be made in pounds sterling and in immediately available funds and for value on the due date.

Clause 4 contains specific provisions relating to payments made under the letter of credit and the possible application of any taxes or increased costs in relation to those payments. Briefly, the Issuer is obliged to make any payments owed to the Beneficiary under the letter of credit, gross. This means that in the event that the Issuer was required by any law to make any deduction or withholding on account of tax from any amounts payable under the letter of credit then the amount of deduction or withholding would be for the account of the Issuer alone. In other words, the Issuer would still be liable to pay all amounts under the Letter of Credit gross, as if such deduction or withholding had not been made. Therefore, this represents an additional cost for the Issuer as its actual liability in these circumstances would be the amounts payable under the letter of credit plus the amount of any required deduction or withholding.

5. Assignment

Clause 5 contains provisions allowing the Beneficiary to assign the benefit of the letter of credit to any person. In practice, this means that the Beneficiary gives away its rights to receive any payments under the letter of credit to a specified third party. In a film transaction, this clause is usually necessary because a bank lending to the film partnership will require security. The film partnership is Beneficiary of both the right to receive payments under the Distribution Agreement and the right to receive payment under the letter of credit. Therefore, this gives the film partnership two income streams to offer to its lending bank as security. It can, therefore, assign in favour of its lending bank the benefit of the letter of credit together with the benefit of the right to receive payments under the Distribution Agreement. The nature of the charge and assignment is discussed elsewhere in the chapter.

6. Disclosure of information

This clause is very straightforward and provides for the disclosure and sharing of any relevant information in connection with the letter of credit or about the acquisition and distribution of the relevant film.

7. Security review

The security review clause, clause 7, contains provisions for the benefit of the Beneficiary that enable the Beneficiary to review the adequacy and value of the security represented by the letter of credit. The general right of review is applicable on or after the fifth anniversary of the date of the letter of credit and there is also a specific provision which applies at any time following the second anniversary of the date of the letter of credit in circumstances where the Issuer's credit rating has fallen below AA[min]. To the extent that the Issuer's credit rating fell below this threshold, it would be of concern to the Beneficiary as it might operate as an early warning that the Issuer may encounter problems meeting any demand made under the letter of credit. In the event that the Beneficiary was concerned for any reason as to the Issuer's ability to pay under the letter of credit, under the security review provisions it could require the Issuer to arrange a substitute letter of credit or require a cash deposit to be placed in a nominated account for the benefit of the Beneficiary as substitute security for the letter of credit.

8. Notices

8.1 Every notice or other communication (other than a L/C Demand) under this Letter of Credit:

1. shall be in writing delivered personally or by pre-paid registered or recorded letter or, in the case of any communication other than a notice from the Beneficiary to the Issuer releasing the Issuer from its obligations hereunder in accordance with the terms of Clause 3(A) (which shall be delivered by hand in writing), by fax confirmed by letter;
2. shall be deemed to have been received, in the case of a letter, when delivered personally or on actual receipt and, in the case of a fax, at the time of receipt of the confirming letter; and
3. shall be sent to the addressee at its address or fax number as set out below or to such other address or fax number as is notified by the addressee in accordance with this Clause 8:
   The Issuer

   Address:    [  ]
   Fax No:    [  ]
   Attention:    [  ]
   The Beneficiary
   Address:    [  ]
   Fax No:    [  ]
   Attention:    [  ]
   

8.2 A notice or other communication (including a L/C Demand) received on a day that is not a Business Day or after 5.00 p.m. shall be deemed to be received on the next following Business Day.

8.3 Each L/C Demand shall:

1. be delivered personally or by pre-paid registered or recorded letter to the Issuer at the address specified in Clause 8.1(C) marked ‘FOR THE URGENT ATTENTION OF [  ]’; and
2. be deemed to have been received when delivered in accordance with this sub-clause.

9. Waivers and amendments

9.1 Writing required
A waiver or amendment of a term of this Letter of Credit will only be effective if it is in writing signed by both parties.

9.2 Expenses
Each party agrees to reimburse the other party for the expenses that second party incurs as a result of any proposal made by the first party to waive or amend a term of this Letter of Credit.

10. Miscellaneous

10.1  Exercise of rights
If either party does not exercise a right or power when it is able to do so this will not prevent it exercising that right or power. When it does exercise a right or power it may do so again in the same or a different manner. Each party's rights and remedies under this Letter of Credit are in addition to any other rights and remedies it may have. Those other rights and remedies are not affected by this Letter of Credit.

10.2  Counterparts
This Letter of Credit may be signed in any number of separate counterparts. Each counterpart shall constitute an original and all counterparts, when taken together shall constitute a single document.

10.3  Contracts (Rights of Third Parties) Act 1999
The parties to this Letter of Credit do not intend that any term of this Letter of Credit should be enforceable, byvirtue of the Contracts (Right of Third Parties) Act 1999, by any person who is not a party to this Letter of Credit.

11. Reliance

Each of the Beneficiary and the Issuer may rely upon any communication or document reasonably believed by it to be genuine and to have been made or delivered by the proper person or persons.

12. Governing law

This Letter of Credit shall be governed by and construed in accordance with English law.

Yours faithfully

[  ]

For and on behalf of

[  ]

Schedules 1A and B set out the form of demand that must be completed by the Beneficiary in order to make proper demand upon the Issuer.

Schedule 1A: Form of L/C Demand Certificate

To:  [  ]

FOR THE URGENT ATTENTION OF: [  ]

 [Date]

Dear Sirs

a. L/C Demand

Irrevocable Letter of Credit No [  ]

Dated [  ] 200 [  ] issued by [  ]

In favour of [  ]

We refer to the above Letter of Credit (the ‘Letter of Credit’). Terms defined in the Letter of Credit have the same meanings when used in this L/C Demand certificate.

The Distributor has failed to pay £[  ] ([  ] pounds sterling) in respect of the Payment due on the Payment Date which fell on [insert date]. Accordingly, we hereby demand payment of this amount of £[  ] ([  ] pounds sterling) and, in addition, of interest on this the amount as described in paragraph 2.2(B) of the Letter of Credit. In each case, this payment is demanded in accordance with, and is due under, Clause 2 of the Letter of Credit.

 

Yours faithfully
(Authorized Signatory)

For and on behalf of

[  ]

 

Schedule 1B: Form of L/C Demand Certificate

To: [  ]

FOR THE URGENT ATTENTION OF: [  ]

[Date]

Dear Sirs

b. L/C Demand
Irrevocable Letter of Credit No [  ]
Dated [  ] 200 [  ] issued by [  ]
In favour of [  ]

We refer to the above Letter of Credit (the ‘Letter of Credit’).
Terms defined in the Letter of Credit have the same meanings when used in this L/C Demand certificate.

We are not in receipt of the Certificate of Delivery. Accordingly we hereby demand the amount of £[  ] ([  ] pounds sterling). This payment is demanded in accordance with, and is due under, Clause 2 of the Letter of Credit.

 

Yours faithfully
(Authorized Signatory)

For and on behalf of
[  ]

Schedule 2 contains the details of the payment obligations under the letter of credit. As mentioned earlier, the payment obligations must match the underlying payment obligations of the Distributor under the Distribution Agreement and the contents of the schedule provide certainty for both the Issuer and the Beneficiary as to the maximum amounts that will be payable under the letter of credit at any given date.

Schedule 2: LC Schedule

Schedule 3 is the form of certificate of delivery in respect of the film. The certificate is important, as the amounts payable under the letter of credit will vary depending on whether or not the film has been completed and delivered.

 

Schedule 3: Form of Certificate of Delivery

Dated [  ]

The undersigned, [  ] (‘Guarantor’) hereby certifies and confirms to [  ] (‘ ’) the following in respect of the feature length theatrical film tentatively entitled ‘[  ]’ (‘the Film’).

1. The Film stars [  ] as ‘[  ]’, [  ] as ‘[  ]’, [  ] as ‘[  ]’ or substitute actresses and/or actors engaged in accordance with the terms of the Interparty Agreement relating to the Film between, inter alia, [  ] and Guarantor. The Film is directed by [  ] or a substitute director engaged in accordance with the terms of the Interparty Agreement relating to the Film between, inter alia, [  ] and Guarantor.
2. The Film, is based on the script dated [  ] written by [  ] (‘the Script’) subject to minor changes or variations as may be necessitated by exigencies of production (which in no event shall alter the plot, storyline, or the nature of any characters or characters or characterizations) and no changes, modifications, or revisions have been made to the Script (except as provided above) without the express prior approval of [  ], or which changes have not been disapproved in writing by [  ] within Five (5) business days following receipt of request for approval thereof.
3. The Film has a duration of between [  ] and [  ] minutes.
4. The Film is capable of obtaining a MPAA censorship rating which is not more restrictive than ‘R’ in the United States and of obtaining a BBFC censorship rating which is not more restrictive than ‘15’ in the United Kingdom.
5. The Film [insert agreed undertakings regarding qualification as British].
6. Delivery (as defined in the Distribution Agreement dated [  ] between [  ] and the Distributor relating to the Film (the ‘Distribution Agreement’)) of the Film has been completed fully in accordance with the terms of theDistribution Agreement (or as otherwise agreed by Distributor).

Guarantor acknowledges that this Certificate is a material document and is a condition precedent to the first payment due to be made under a letter of credit issued by [  ] for the account of [  ] and that [  ] is relying on the truth and accuracy of the statements contained herein.

[  ]
For and on behalf of [  ]
By: [  ]
Its: [  ]

Notice of Assignment and Irrevocable Payment Instruction

From: [Film Partnership as Borrower and Chargor] (the ‘[Film Partnership]’, ‘we’ or ‘us’)

To: [Party to contract] (the ‘Licensee’ or ‘you’)

Date: [  ]

Dear Sirs

‘[Film Title]’ (‘Film’)

This Notice is given pursuant to the agreement (the ‘Agreement’) made between us and you dated [  ] relating to the Film.

We hereby give you notice that under a deed of charge and assignment dated [  ] we have assigned our right to receive advances or other sums payable by you to us pursuant to the Agreement (the ‘Payments’) to the bank (‘Bank’) by way of security, and we hereby give you irrevocable authority and instructions to make the Payments to the Bank in accordance with the instruction set out below. This notice hereby replaces and takes priority over any previous payment instructions given to you whether pursuant to the Agreement or otherwise.

The Payments are to be sent by telegraphic transfer to:

Bank: [  ]

Sort Code: [  ]

Account Name: [  ]

Account Number: [  ]

Address: [  ]

We also hereby notify you that we have no authority, without the prior written consent of the Bank, to waive any provisions of or rights under the Agreement or to modify or amend the Agreement or to enter into any other agreement with you which may in any way affect the Bank's security.

This authority and instruction is coupled with an interest and may not be revoked or altered without the prior written consent of the Bank.

Please sign and return to the Bank (with a copy to us) the attached Acknowledgement of Assignment to indicate your receipt of these instructions and your agreement to the terms set out herein.

By its counter-signature below, you give your consent to the foregoing.

Signed by [  ]
For and on behalf of
[  ]

Signed by [  ]
For and on behalf of
[  ]

 

Notes to the Agreement

In order for an assignment of the benefit of any agreement or other assets to be legally effective, the party assigning its rights must give written notice to the other party or parties to the agreement. In this particular example, the Notice includes a payment instruction that the other party to the agreement should pay all amounts payable under that agreement direct to the Bank. For example, if giving notice to a distributor following assignment of the benefit of a Distribution Agreement, the distributor upon receipt of this Notice would be obliged to pay all monies payable under the Distribution Agreement direct to the Bank. Owing to the fact that Notice of Assignment is a legal requirement, banks normally insist that the Notice and attendant Acknowledgement of Notice of Assignment are prepared and served on the relevant parties at the same time as the underlying Charge and Assignment itself, is executed.

Acknowledgement of Notice of Assignment

From: [Party to Contract]

To: [Bank name and address]
(the ‘Bank’)

Date: [  ]

Dear Sirs

‘[Film Title]’ (‘Film’)

We hereby acknowledge receipt of the Notice of Assignment and Irrevocable Payment Instructions (the ‘Notice’) dated [  ] relating to the Film and hereby undertake for the benefit of the Bank to comply with the Notice. Capitalized terms used in this Acknowledgement shall bear the meanings ascribed to them in the Notice.

In consideration of £1 and of other valuable consideration (the receipt and adequacy of which we hereby acknowledge), we hereby undertake and agree that:

1. we will not invoke or assert any rights of termination, set-off, cross-collateralization, counter-claim or defence or make any withholding so as to extinguish or reduce the Payments;
2. we have irrevocably exercised all approval rights which would otherwise be a pre-condition to our making the Payments, and any and all other pre-conditions thereto have either been fulfilled or waived by us, save the condition that ‘Delivery’, as defined in the Agreement, may be effected on or before the ‘Delivery Date’, as defined in the Agreement;
3. the failure by [Film Partnership/Company] (or by any other person or entity) to observe or perform any representation, warranty, term, condition, obligation, covenant or requirement, whether provided for in the Agreement or otherwise (including, without limitation, any failure to comply with any censorship or rating requirements in the Agreement), shall not excuse, constitute a defence to or otherwise adversely affect the timely payment by us to the Bank of the Payments, provided always that Delivery has been made;
4. we will not modify or amend the Agreement in any way whatsoever;
5. we will send to the Bank duplicates of all notices relating to the Film under the Agreement;
6. without limiting the generality of the foregoing and notwithstanding anything to the contrary contained in the Agreement or elsewhere, we hereby acknowledge (insofar as our rights and interests are concerned) that we have approved the chain of title relating to the Film and the underlying rights thereto and that (without prejudice to [Film Partnership/Company]’s obligations under the Agreement) we may not refuse to pay all or any portion of the Payments or refuse to accept Delivery by reason of any deficiency with respect to such underlying rights;
7. without prejudice to [Film Partnership/Company]’s obligations to us under the Agreement, we will not refuse to pay any sum due to the Bank under the Agreement or refuse to accept Delivery by reason of any deficiency with respect to any literary material, music, musical compositions or other intellectual property included in the Film, or any claim arising out of such actual or claimed deficiency, or [Film Partnership/ Company] not having obtained title to or licence to use a story, script, music or other rights in connection with the Film (including copyright and title), or the Film or its title infringing or claims being made that the Film or the title infringe the rights of others;
8. we will not assign the benefit or burden of the Agreement without the prior written consent of the Bank;
9. we will, at the request of the Bank and at the expense of [Film Partnership/Company], execute and deliver any agreement, document or other instrument as the Bank may reasonably require to evidence, establish, enforce or secure the arrangements and transactions envisaged herein;
10. we will make the Payments directly to the Bank as directed in the Notice and such payments will constitute good and valid discharge of our obligations to make the Payments under the Agreement; and
11. once paid to the Bank in full, Payments shall not be subject to refund or return to us for any reason.

We further acknowledge that the Bank has taken as an assignment only the Payments and the Bank has not assumedany obligations or liabilities of [Film Partnership/Company] under the Agreement, and we shall look solely to [Film Partnership/Company] for the performance and discharge of such obligations and liabilities.

We hereby consent to the assignment of the right to receive the Payments to the Bank and we agree that the Bank is now entitled to receive the Payments in place of [Film Partnership/Company] until such time as the Bank shall notify us in writing to the contrary.

This Acknowledgement shall be capable of signature in separate counterparts which together shall constitute a single instrument.

This Acknowledgement of Assignment shall be governed by and construed in accordance with the laws of England.

Signed by [  ]
For and on behalf of
[  ]

Signed by [  ]
For and on behalf of
[  ]

Date : [  ], 200 [  ]

 

Notes to the Agreement

This letter is by way of Acknowledgement of the Notice of Assignment and payment instructions and serves as evidence to the Bank that the legal requirement to serve Notice of Assignment has been complied with. The Acknowledgement creates a direct contractual link between the Bank and the relevant party to the Agreement that has been assigned. The Bank will usually require that the Acknowledgement of Notice of Assignment contains certain acknowledgements and undertakings on the part of the relevant party to the agreement. This will include an agreement to pay any sums payable under the agreement direct to the Bank and any other matters that the Bank may consider necessary.

Laboratory Pledgeholder's Agreement

When a bank is involved in a film financing transaction, they will require an agreement from the laboratory that processes the film materials stating that the negatives and all of the materials in possession at the laboratory will be held to the order of the bank and will not be released to the producer without the bank's prior written approval. The bank will give the laboratory permission for any distributors or the sales agents to duplicate negatives to meet their specific print requirements or delivery requirements.

This Laboratory Pledgeholder's Agreementis made on [  ], 200[  ]

Between:

1. [Film Laboratory] of [  ]
2. [Name of Producer] of [  ] (‘Producer’)
3. [Name of Bank] of [  ] (‘Bank’)
4. Completion Guarantor of [  ] (‘Guarantor’)
5. Sales Agent of [  ] (‘Sales Agent’)

Addressed to Bank
Dated:as of [  ]

Dear Sirs
[  ] (the ‘Film’)

We refer to the proposed arrangement with the Producer and the Sales Agent, pursuant to which we have been engaged as the laboratory with respect to the Film (the ‘Agreement’). Capitalized words and expressions used herein shall have the following meanings unless otherwise specified:

a. Definitions and interpretations

‘Producers' Materials'shall mean all materials, information, documentation and any other thing whatsoever deposited with us by the Producer in relation to the Film in order for us duly to perform our obligations under the Agreement.

‘Delivery Materials'shall mean all materials, information, documentation and any other thing whatsoever which we shall create or produce in relation to the Film in preparation for the delivery of the Film to the Sales Agent or the Producer.

‘Materials'shall mean the Producer's Materials and the Delivery Materials.

In accordance with the instructions that we have today received from the Producers and in consideration of the Bank, Guarantor (hereinafter ‘you’) agreeing that the general production services and laboratory work on the Film will be carried out by us and of other valuable consideration (the receipt of which we hereby acknowledge), subject to:

1. The rights of the Guarantor to obtain access to the Materials in accordance with its rights to take over production of the Film (in which event we will accept instructions solely from the Guarantor to the exclusion of all other parties) under the terms of its Completion Guaranty to you dated on or about the date hereof and its Security Agreement (the ‘Security Agreement’) with the Producer dated on or about the date hereof; and
2. The rights of the Sales Agent to obtain access to the Delivery Materials strictly in accordance with the terms of the sale agency agreement with [  ] dated [  ] (the ‘Sales Agent Agreement’) and solely for the purpose of properly marketing and selling the Film throughout the world (but provided that the Sales Agent is not at any time in material breach of the Sales Agent Agreement or of the Interparty Agreement between, inter alia, you, the Sales Agent and the Producer of even date herewith (the ‘Interparty Agreement’)); and

In this Agreement, unless the context otherwise requires we agree with you that:

1. We will retain and hold in the name of the Producer but to your order from the time they reach our possession the Producer's Materials and all other materials, documents, information and any other thing whatsoever on deposit with us or placed with us by the Producer after the date hereof relating to the Film.
2. We will also retain and hold in the name of the Producer but to your order from the time each of them is created or produced by us the Delivery Materials to be delivered to the Producer pursuant to the Agreement and by them on to the Sales Agent.
3. We shall keep the Materials on our premises and shall not part with possession of any of the Materials except (a) for the purpose of cutting, scoring or performing special optical or sound work or similar purposes or (b) otherwise in accordance with your written directions or with your prior written consent. Upon receipt of such written directions or consent, we will deliver the Materials to you or to your nominee named therein.
4. We shall not allow any other person, firm or company other than you or the Guarantor and persons duly authorized by you or the Guarantor to have any access to any of the Materials or to any copy masters or positive prints made from any of the Materials or to any other materials made from them, save that the Producer or the Guarantor may be permitted access to the Materials solely for the purposes of the proper production of the Film and may be supplied with any Delivery Materials (subject to our standard terms of trade) solely for the purpose of proper production of the Film, but shall not be permitted to remove any of the Materials from our premises without your and the Guarantor's prior written consent save as provided in para 3 above.
5. We shall not, without prior written instructions, accept orders from any of the Producers for any of the Materials in connection with the Film other than those orders relating to production requirements and delivery to distributors previously approved by you in writing.
6. We shall not assert any claims against the Materials or any of them other than against the Producer for our charges for work done in relation to the Film pursuant to the Agreement.
7. In the event that we shall receive written notice from you requiring us so to do, we shall not allow the Producer or the Sales Agent or any persons authorized by the Producer or the Sales Agent to have access to any other Materials or to any materials made from them, but we shall at all times continue to permit you, the Guarantor and your and their authorized nominees to have rights of access to the Materials and to any materials made from them.

We acknowledge, undertake and agree that this agreement is irrevocable and may not be altered or modified except with your prior written consent.

Upon written request from the Producer, you shall promptly give us written notice when your security interest with respect to the Film has been terminated. Upon receipt of such written notice, our obligations herein shall continue on the terms set out herein but as if references to you were references to the Producer. [Any party (if any) (other than the Producer and the Guarantor) entitled to access to the Materials agrees not to exercise that right in such a way as would interfere with the obligations of the Producer and the Guarantor to complete the production of the Film and will comply with the reasonable instructions of the Producers or the Guarantor in that connection.]

The signatories hereto hereby agree and confirm that this agreement shall be governed by the laws of England, and that any disputes arising under any of the provisions of this agreement shall be subject to the exclusive jurisdiction of the Courts of England.

The Producer and the Sales Agent, by its counter-signature, agrees and consents to our entering into this Agreement, and the Guarantor by its counter-signature, confirms its acceptance of the provisions of this Agreement. The Producer further agrees and undertakes that, save as set out in this Agreement, none of the Materials will deliver to any person other than ourselves.

Please confirm your acceptance of the aforementioned by signing and returning the attached copy of this letter.

 

Yours faithfully

Signed by [  ] For and on behalf of

[Film Laboratory] )
) [  ]
)

Signed by [  ]
For and on behalf of

[Producer] )
) [  ]
)

Signed by [  ]
For and on behalf of

[Sales Agent] )
) [  ]
)

Signed by [  ]
For and on behalf of

[Bank] )
) [  ]
)

Signed by [  ]
For and on behalf of

[Completion Guarantor] )
) [  ]
)