Media Coverage

Finally, a settlement
New Dominion, Waterside agree out of court

By Michael Schwartz, Inside Business - Hampton Roads, August 13, 2007

After more than seven months, an agreement was reached on Aug. 3 in the lawsuit between New Dominion Pictures and Waterside Capital Corp., avoiding a trial and bringing the parties one step closer to ending their recent rocky financial relationship.

Norfolk-based Waterside filed the lawsuit in Norfolk Circuit Court on Dec. 19 seeking accounting documents from New Dominion.

The lawsuit stated that Waterside, a publicly traded SBA-licensed Small Business Investment Company that invested in New Dominion, needed the documents to fulfill its regulatory requirements with the Securities and Exchange Commission.

Waterside eventually admitted its desire to exit its investment in New Dominion and that it needed the documents to better assess the value of the Suffolk-based film and television production company.

Throughout the legal battle, communication or a lack thereof has been an issue.

New Dominion had said all along that it had been cooperating in handing over documents Waterside requested.

“For all intents and purposes, I never understood what this lawsuit was all about,” said Greg Stillman, an attorney with Hunton & Williams representing New Dominion.

John Barry, New Dominion’s CFO, said the company’s executives sat with Waterside’s accountant the week prior to an Aug. 7 trial date and finally worked things out.

“We think they were satisfied,” Barry said. “Our opinion is that it was resolved.”

Lin Earley, Waterside’s CEO, seemed satisfied.

“We’ve reached an agreement, gotten some financial information that we needed so there’s no need to pursue the legal action,” Earley said.

Earley’s presence might have been the catalyst that helped re-establish communication between the two parties, which for many months were corresponding through attorneys.

The lawsuit was filed during the reign of Waterside’s founder, Alan Lindauer, who has since left the company.

Nicolas Valcour, New Dominion’s CEO and COO, said Earley’s arrival at Waterside earlier this year has helped turn the tide of the dispute.

“He’s a diplomat,” Valcour said.

Earley, a lifelong banker and Lindauer, who left the oil supply business for the high-risk world of venture capital, have different styles, Barry said.

“Everybody has a different style,” he said. “Alan made it what it is today. Lin’s taking it from there.”

Valcour said part of the reason the relationship has been rocky is that a production company and an SBIC don’t understand each other’s jargon.

“They don’t use the same language as us,” he said.

Whereas New Dominion’s lexicon is made up of gaffers and docudramas, Waterside speaks of exercising puts and EBITDA, a term as difficult to define as it is to pronounce.

The next step for the two companies is to negotiate the terms of Waterside’s exit from its investment in New Dominion. That exit is also known as exercising warrants or a put option. Through two loans, Waterside invested approximately $3 million in New Dominion. As part of that investment agreement, Waterside took ownership of 17 percent of the company.

The value of that 17 percent remains in question and is the reason why Waterside wanted to examine certain accounting records.

“I am hopeful within the next 30 days we will have a resolution for the put for the warrants,” Earley said.

Collecting on the warrants in the venture capital/SBIC industry can often lead to legal disputes. Earley said he hopes the two can reach an agreement that would lead to a mutually beneficial ending and there will be no need to take further legal action.

“If we keep fussing, we’ve got multiple court dates ahead of us,” Earley said.

Barry said both parties have an incentive to finalize New Dominion’s buyout from Waterside.

For Waterside, that incentive is the chance for a profitable exit. For New Dominion, Barry said, the incentive is to have this financial relationship behind them and to begin the search for new financing alternatives.

“This suit was distracting the last year and a half,” Valcour said.

New Dominion’s next line of financing will fund the company’s next round of productions.

“It’s operating money,” Barry said.

The company typically deficit-finances its productions with the hopes of recouping the costs once the shows get into the market, Barry said.

Valcour said future financing from investors is also needed to allow New Dominion to transition some of its equipment into high definition, a format that some in the industry, such as the Discovery Channel, now request.

The dispute over New Dominion’s value dates back to Waterside’s annual report filed with the SEC on Sept. 15. Waterside declared that the SBA was examining the company’s valuation of New Dominion. A wide range of appraisal values were listed, between $10.2 million and $44 million. At the time, a third-party appraisal was being reviewed by the SBA.

For a company like New Dominion, Barry said valuation is tough.

“It’s normal that the valuation would be in question,” Barry said.

Attaching a tangible value to New Dominion’s programming is not an exact science. For example, Barry and Valcour said a deal in the works to syndicate some of their old shows is valuable, but that value is not easily calculated in the short term. IB