Pinnacle Systems resolved its earnout dispute with former shareholders of Digital Editing Services (DES). Pinnacle's acquisition of DES in March 2000 included a provision that allowed DES shareholders to receive an earnout payable in shares of the company's common stock based on certain financial results of DES operations. In April 2001, Pinnacle took the position that no earnout amount was payable, while the shareholders asserted that approximately $22.5 million was due. The matter was submitted to an arbitrator in October 2001.
An arbitrator in the case ruled that Pinnacle is required to issue approximately 1.5 million shares ($11.5 million) of its common stock to the shareholders. The amount will likely lead to a goodwill impairment charge of the same amount in Q2 2004.
"Although we would have preferred a ruling that resulted in absolutely no earnout payment, we are pleased that the final resolution was substantially less than the initial amount asserted by the shareholders," said Chuck Vaughn, president and CEO of Pinnacle.
