By JASON BOOTH

Staff Reporter

Lewis Horwitz is considered a pioneer in the independent film financing industry. When he opened a film-financing department at Beverly Hills National Bank in the early 1970s, most independent filmmakers had to depend on rich investors to get their movies made. During Horwitz's time, it has become standard practice for producers to use international distribution contracts as collateral to secure bank loans. In 1997 alone, the Lewis Horwitz Organization, currently a division of Imperial Bancorp, financed 62 films, nearly all of them low-budget affairs.

Horwitz, who in his youth dreamed of becoming an actor, said his love of Hollywood has been the key to his success. Bankers will not survive in the entertainment industry, he said, unless they also live and breathe the Hollywood experience.

Imperial is in the process of spinning off the Lewis Horwitz Organization as part of an independent non-bank public company to be called Imperial Financial Group Inc.

Imperial Bancorp will continue to maintain its own distinct Entertainment Group, headed by Morgan Rector, which financed 75 films in 1997.

Once an independent finance company, the Lewis Horwitz Organization will no longer be bound by banking regulations and thus will be free to enter into more creative financing structures. In particular, it will be able to take equity stakes in films, which will become increasingly important in film financing in the future, Horwitz said.

Q: How did you get started in financing independent films?

A: I've always enjoyed the entertainment side of the business and for a long time when I was younger I wanted to be an actor. I still have a Screen Actors Guild card.

At the advent of the independent films, I happened to be a branch manager of a little bank on Wilshire Boulevard in Beverly Hills. Producers, business managers, attorneys, actors used to come into the office and talk about what they or their clients wanted to do. That's when I saw there was a business opportunity. Luckily my boss agreed. My first independent film was "Ginger in the Morning" with Sissy Spacek.

Q: Since you started how has the business changed?

A: In the old days, there was no international market to pre-sell to, so independents depended on private investors. But with the advent of the video, the international market began to grow tremendously. Video was always the area that we could count on for protection. For years we always knew we could get X dollars from the video market. Well, that's peaked out now. Today it is television that is driving the independent film business (overseas) rather than the video industry. But if you want the best prices from TV you have to play on prime time and that demands less violence and less gratuitous violence.

Q: What is the current state of the industry?

A: I believe there may have been 100 films made last year that probably should not have been financed. At the very same time when the U.S. economy was booming, and the U.S. dollar was going way up, Asia was falling down and the rest of the world just so-so. That created an imbalance of supply and demand.

It's my opinion that it will take all of 1998 and into 1999 to work that out. It is kind of like a forest fire in which the biggest trees with the longest roots survive. There will be a lot of drop-out among distributors; banks will start to pull back. But like a forest fire, it will be healthy for the business as people who shouldn't have been there are going to drop out.

Q: What about the future? Where is this industry going?

A: You will require three forms of financing to put deals together. Traditional pre-sale financing, gap financing and some form of equity financing. Whether it comes in the form of straight financing, a tax arrangement or co-production, you will need some way of putting additional funds into the film.

Q: Is there a serious culture clash between banks and producers?

A: No. In fact, the bankers who survive in entertainment are unique to bankers. When I'm hiring, if I can't find an experienced entertainment banker, I will look for someone who is willing to be unique, different, loves the arts and who is creative. That's the kind of person you will find in the film or entertainment business. So there really isn't a culture clash.

Q: Do you lend based on whether you personally like a film or not?

A: We don't do that. A banker should never get involved in whether he likes or dislikes a film. That's what an investor does. If he feels that it is worth his while he will put his life blood into a film. They may get a big upside from it.

But a traditional bank lender does not get an upside. He gets his interest and his loan fees and he's done. We have converted a creative enterprise into a credit enterprise. We look to our collateral and decide if this film can generate sufficient revenues even if the producer and other investors never get paid.

Q: People on the creative side sometimes curse the so-called money men like yourself for turning filmmaking into a business rather than an art.

A: People think we make fortunes and we don't. We are like a grocery store, we make our money on volume. We have the same cost of funds as anyone else and we do not have an upside. There are times when we would love to do a deal but can't. Because it takes an awful lot of profit to make up for a sizable loss.

Q: As someone who once wanted to be an actor, do you live vicariously through the films you fund?

A: Absolutely. I believe one of the reasons we have been successful is because we love the business. I live vicariously through every picture. I cry when I watch the screenings. Sometimes it's because I'm upset. But sometimes because I'm very happy about what I'm watching and know we helped put it together.

Q: On what film did you have the hardest time getting your money back?

A: "Jack Frost" a film about a snowman that is possessed by an evil human spirit and kills people.

What was wrong with this film was that they were running out of snow where they were shooting up in Canada. Instead of getting a snow machine they used cotton on the ground and when you saw the film it looked like cotton. It was not only a bad film, it was terrible. Nobody would touch it.

So we called on a friend in the video industry and they put together a video cover (with a three-dimensional image of a snowman who changes into a monster) that was so good that just the video sold over 40,000 units in the U.S. alone.

Q: What do you hope to gain from being spun off by Imperial?

A: There are two answers: the bank's and then my own.

The bank's answer is that the value of our company outside of the bank is stronger than within the bank.

My answer is that it will give us a great deal more flexibility. After the spinoff we will not be a bank, we will be a finance company. We will not have the same restrictions as a bank.

It doesn't mean that we are going to change lending habits. But when we chose to make loans in a certain matter, we can. Our company, Imperial Financial Group Inc., will have an investment fund that will be utilized as an adjunct to our lending. If it is felt that a film is worthy, then we might suggest that the fund be involved with that (as an equity partner). It will help us be more creative and meet the challenges of the new environment.

Q: There has been talk of friction between yourself and Imperial. Is that true?

A: Not really friction. The bank decided that it wanted to have competition within its own bank when it came to the entertainment business. When you compete, things happen. You might have a particular client who tries to get each division to outdo the other and occasionally that leads to turmoil.

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