Travelzoo 2007 Annual Report Download - page 47

We may be liable as a result of information retrieved from or transmitted over the Internet.
We may be sued for defamation, negligence, copyright or trademark infringement or other legal claims relating
to information that is published or made available in our products. These types of claims have been brought,
sometimes successfully, against online services in the past. The fact that we distribute information via e-mail may
subject us to potential risks, such as liabilities or claims resulting from unsolicited e-mail or spamming, lost or
misdirected messages, security breaches, illegal or fraudulent use of e-mail or interruptions or delays in e-mail
service. In addition, we could incur significant costs in investigating and defending such claims, even if we
ultimately are not liable. If any of these events occur, our business could be materially adversely affected. We do not
carry general liability insurance.
Claims may be asserted against us relating to shares not issued in our 2002 merger.
The merger of Travelzoo.com Corporation into the Company became effective on April 25, 2002. Stock-
holders of Travelzoo.com Corporation were allowed a period of two years following the effective date to receive
shares in the Company. After April 25, 2004, two years following the effective date, we ceased issuing shares to the
former stockholders of Travelzoo.com Corporation. Many of the “Netsurfer stockholders,” who had applied to
receive shares of Travelzoo.com Corporation in 1998 for no cash consideration, did not elect to receive their shares
which were issuable in the merger prior to the end of the two-year period. A total of 4,115,532 of our shares which
had been reserved for issuance in the merger were not claimed.
It is possible that claims may be asserted against us in the future by former stockholders of Travelzoo.com
Corporation seeking to receive our shares, whether based on a claim that the two-year deadline for exchanging their
shares was unenforceable or otherwise. In addition, one or more jurisdictions, including the Bahamas or the State of
Delaware, may assert rights to unclaimed shares under escheat statutes. If such escheat claims are asserted, we
intend to challenge the applicability of escheat rights in that, among other reasons, the identity, residency and
eligibility of the holders in question cannot be determined. There were certain conditions applicable to the issuance
of shares to the Netsurfer stockholders, including requirements that (i) they be at least 18 years of age, (ii) they be
residents of the U.S. or Canada and (iii) they not apply for shares more than once. The Netsurfer stockholders were
required to confirm their compliance with these conditions, and were advised that failure to comply could result in
cancellation of their shares in Travelzoo.com Corporation. Travelzoo.com Corporation was not able to verify that
the applicants met the requirements referred to above at the time of their applications for issuance of shares. If
claims are asserted by persons claiming to be former stockholders of Travelzoo.com Corporation, we intend to
assert that their rights to receive their shares expired two years following the effective date of the merger, as
provided in the merger agreement. We also expect to take the position, if escheat or similar claims are asserted in
respect of the unissued shares in the future, that we are not required to issue such shares. Further, even if it were
established that unissued shares were subject to escheat claims, we would assert that the claimant must establish that
the original Netsurfer stockholders complied with the conditions to issuance of their shares. We are not able to
predict the outcome of any future claims which might be asserted relating to the unissued shares. If such claims were
asserted, and were fully successful, that could result in us being required to issue up to an additional
4,070,000 shares of common stock for no additional payment, which would result in substantial dilution of the
ownership interests of the other stockholders, and in our earnings per share, which could adversely affect the market
price of the common stock.
On October 15, 2004, we announced a program under which we would make cash payments to people who
establish that they were former stockholders of Travelzoo.com Corporation, and who failed to submit requests to
convert shares into Travelzoo Inc. within the required time period. The accompanying consolidated financial
statements include a charge in general and administrative expenses of $87,000 for these cash payments for the year
ended December 31, 2007, of which $5,000 remains as a liability as of December 31, 2007. The liability is based on
the actual number of valid requests received from former stockholders through December 31, 2007 that remain
unpaid. The total cost of this program is not reliably estimable because it is based on the ultimate number of valid
requests received and future levels of our common stock price. Our common stock price affects the liability because
the amount of cash payments under the program is based in part on the recent level of the stock price at the date valid
requests are received. We do not know how many of the requests for shares originally received by Travelzoo.com
Corporation in 1998 were valid, but we believe that only a portion of such requests were valid. As noted above, in
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