Artisan in battle over IPO failure

Co. sues financier, producer Hoffman

HOLLYWOOD — Artisan Entertainment has sued financier and producer Peter Hoffman over the company’s IPO failure.

Suit alleges that when an insurance-back financing deal that Artisan entered into based on Hoffman’s representations fell apart, Artisan was forced to pull its IPO and halt production on films.

Also named as defendants are U.K. insurer Royal & Sun Alliance Insurance, Hoffman’s associate Graham Bradstreet, ICE Media and insurance broker Heath Insurance Broking Limited.

According to the complaint, which was filed last week in L.A. Superior Court and seeks in excess of $100 million in damages, Hoffman approached former Artisan CEO Mark Curcio in May 1998. Hoffman apparently proposed a means for the company to obtain sufficient financing for a slate of eight pictures by obtaining cash flow insurance as security for a Chase Manhattan Bank loan.

Hoffman told Artisan that he was very familiar with cash flow insurance and used it for major film financing deals.

Symbolic gesture

The Artisan financing represents one of the last of the insurance-backed deals that were popular in the mid-90s, and to a large extend, pioneered and perfected by Hoffman. The concept was that if an independent film company put together a pool of movies, it represented an insurable risk. The theory for the insurer was that if the pool of films was large enough, chances were that one success would cover the cost of the flops.

As for the film company, it could go to a bank and borrow money for film production, using the insurance as security.

But by the late ’90s, insurers had started to renege on their deals, leading to a spate of lawsuits involving, among other parties Chase and insurer AXA.

According to the complaint, Hoffman said that a key feature of the financing was that it was non-recourse, meaning that the bank would only look at the film revenue and the insurance for repayment. He also represented to Artisan that in return for the hefty premium of 10%-15% of the total amount insured, the insurer would insure that the revenues from the film would equal the insured portion or the insurer would pay the shortfall to the lender. Artisan alleges that the non-recourse nature of the financing was of paramount importance.

In August 1998, Hoffman obtained a term sheet from Chase, which ultimately led to a complex $163 million cash-flow insurance based financing arrangement with Chase in October 1999. At the same time, Artisan made a deal with Royal & Sun to provide cash flow insurance for each picture in an eight-picture slate.

That month, Artisan obtained financing for the first two pictures in the pool, “Stir of Echoes” and “The Ninth Gate.” But in June 2000, when the company presented documentation for the next three films, “Way of the Gun,” “Blair Witch 2” and “Soul Survivors,” the insurance company refused to issue the cash flow insurance and Chase would not release financing for the films and made it clear that they did not intend to insure the rest of the slate.

As a result, Artisan was forced to halt new production on the remaining films in the slate and had to use its own funds to complete production of “Novocaine.” Artisan was forced to abandon its IPO because it was no longer able to purse the business activities it identified in SEC filings.

Hoffman could not be reached for comment. An Artisan spokesman said the company does not comment on litigation.