Media Coverage

Waterside, Suffolk TV programmer settle out of court

By Tom Shean, The Virginian-Pilot, August 7, 2007

NORFOLK | Waterside Capital Corp., a Norfolk company that invests in small businesses, said Monday that it had reached an out-of-court agreement with New Dominion Pictures, averting a trial that was scheduled to start today.

Waterside, an investor in New Dominion, brought suit against the Suffolk producer of TV programming in Norfolk Circuit Court in December over access to financial records.

Waterside filed the complaint after a prolonged dispute over the value of its 13 percent stake. The terms of its investment agreement allowed Waterside to sell its stake back to New Dominion in early to mid-2006, said Lin Earley, Waterside's chief executive officer.

However, the companies' discussions about the value of that stake became strained during the past year, Earley said. In May, Waterside's lawyers sought to subpoena New Dominion's tax returns for the past five years and accountants' work papers and documents for preparing financial statements.

"We had gotten to the point where there was no dialogue between Waterside and New Dominion," Earley said. "Communications occurred through our lawyers, and that's expensive. One of the things I tried to do was reopen the dialogue."

Attorneys for Waterside and New Dominion worked out an agreement late Thursday, and New Dominion has provided most of the financial documents that Waterside sought, Earley said. The settlement, he said, is a "big step" toward resolving their dispute over what Waterside's stake in New Dominion is worth.

Waterside, like many small-business investment companies, derives its earnings from interest income on loans and the increase in equity that it puts into companies.

Despite their repeated use of valuations by third parties, Waterside and New Dominion failed during the past year to agree on what the stake was worth, Earley said. Waterside has valued the stake in New Dominion on its books at $6.2 million, but that amount may change, said Earley, a former Bank of America regional chief who took over as Waterside's CEO in April.

The lead attorney for New Dominion was out of the office and could not be reached for comment on Monday.

The dispute over what Waterside's stake in New Dominion is worth is significant because the Small Business Administration raised questions about the adequacy of Waterside's capital last year. An SBA contractor reviewed Waterside's valuation of the New Dominion investment and said it was overstated, Waterside disclosed in its annual report for the fiscal year ended June 30, 2006.

Waterside, which is licensed by the SBA and has borrowed money from the agency, said in the annual report that it responded by hiring an independent appraiser and that the appraiser's analysis supported Waterside's valuation.

Earley said that Waterside's differences with the SBA are likely to be resolved after the company reports financial results for its latest fiscal year. Waterside, he said, will issue those results in about 30 days.

Tom Shean, (757) 446-2379, tom.shean@pilotonline.com