But now, we have an actor (supporting role) wanting payment in "profit share' form.

... And so now you're going to sit everybody down to negotiate everything again? Just when you've secured their agreement? For this supporting actor? Really?

...I think paying someone for distribution is not the best way to spend the money...

Yeah, that's kinda bassackwards. You shouldn't be paying out-of-pocket to have your film distributed, unless you're self-distributing and having to front your own material and duplication costs. You'll likely have to lay out some cash for some of the deliverables but not for the actual distribution, if you're working with a reputable sales agent who's sold a region to a legitimate distributor. They recoup their costs right off the top.

/\ What he said :)

@goanna

I'm going to plays devils advocate here but if he has $40,000 to shoot the thing but not going to pay anyone anything, do you think that is right?

I think paying someone for distribution is not the best way to spend the money. As Rhoades said, getting anything back from distributors is pretty much a lost cause now. They will make all profits disappear, it's what they do. This is simply money thrown away in these times.

Pay your crew, feed them well and hope for the best.

This is roughly the budget of Sick Boy which is now in distribution in worldwide home video markets. For that money we had SAG actors that were paid the minimum allowed and a paid crew, with catering. What it didn't allow was for us to pay ourselves, but that was the decision we made given we stood the most to gain by the film being completed and successful.

As @vicharris says, you pay your crew, something, and you feed them. This is very important. Being willing to pay even a token daily rate that helps with gas and some pocket money, plus making sure they're fed, gets you their respect and you can get good, hard working folks that will make a huge impact on how well things run versus asking people to work for free. Even if they're good and agree to no money, they won't respect you. We've made two independent features and both times had zero crew turn-over because even though we couldn't pay the crew a whole lot we made sure they knew we weren't asking them to apply their craft and trade for free. Knowing they would turn right around and do it again with us is a point of pride.

Actors or certain key crew asking for deferrals is pretty normal. If it's not their first trip to the rodeo they know, like you may not know, this is money nobody is ever likely to see. Profit participation on a movie this level, with the kind of options for sales you're going to have, is easy enough to give away. There will likely never be any profits. That's just a simple fact.

There are the occasional exception but know that once you get to distribution (and most filmmakers, if they've completed the shoot, if they've completed post, still don't make it this far) the system is such that it's practically engineered to never pay the filmmaker. You don't want to highlight this with your backers but they'd have to be living under a rock by now to not know that independent film is a horrible "investment". They'll be lucky to break even in a few years even on a film with this little to pay back. True story. An independent feature has the chance of paying itself back, or making a profit, unlike the short film, which is a complete write-off, but this is very slim and it doesn't happen fast. Hope is almost cruel in this case.

So, realistically, if the actor or crew is integral to your vision of the film it's not really a difficult concession to make, given there will likely never be the funds for them to collect from later on. If you're incredibly lucky and there are actual profits, well, what's the harm in giving them a portion, given they helped make it happen? Nobody is losing here. But don't feel like you need to make or even offer the same deal to everyone.

While I firmly believe in "real world experience/credit" in lieu of payment (for inexperienced crew and/or film students who will receive school credit), for cast and crew with some experience, they should be getting paid. The profit sharing model is appealing but ultimately, without a good accountant (like Shian said) and a lawyer, you're going to run into problems, and may ending having spent a good portion of your budget paying people to help you figure out how to pay people... You can't say you don't have money to pay people, and then turn around and say you have money ($40k) for the film. The people are the film - payroll, catering, these are generally a film's biggest expenses. I would suggest you pay people upfront and save yourself the future hassle, put together a budget for your cast/crew and then budget for the rest of your film with what's left. If it's not enough to make your ideal version of the film, get creative or get more money.