Travelzoo 2007 Annual Report Download - page 72

reduction of the number of shares reported as outstanding. As of December 31, 2007, there were 14,250,479 shares
of common stock outstanding.
It is possible that claims may be asserted against the Company in the future by former stockholders of
Travelzoo.com Corporation seeking to receive shares in the Company, 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 of the Company under
escheat statutes. If such escheat claims are asserted, the Company intends 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, the Company intends 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. The Company also expects to take the position, if escheat or similar claims are asserted in respect of the
unissued shares in the future, that it is not required to issue such shares. Further, even if it were established that
unissued shares were subject to escheat claims, the Company would assert that the claimant must establish that the
original Netsurfer stockholders complied with the conditions to issuance of their shares. The Company is 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 the Company’s being required to issue up to an additional
approximately 4,070,000 shares of common stock for no additional payment.
On October 15, 2004, the Company announced a program under which it 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 included a charge in general and administrative expenses of $87,000 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 the reporting date which had not yet been processed for
payment. 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 the Company’s common stock price. The Company’s 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. The Company does not know how many of the requests for shares
originally received by Travelzoo.com Corporation in 1998 were valid, but the Company believes that only a portion
of such requests were valid. As noted above, in order to receive payment under the program, a person is required to
establish that such person validly held shares in Travelzoo.com Corporation. Assuming 100% of the requests from
1998 were valid, former stockholders of Travelzoo.com Corporation holding approximately 4,070,000 shares had
not submitted claims under the program.
The merger of Travelzoo.com Corporation into Travelzoo Inc. was accounted for as a combination of entities
under common control using “as-if pooling-of-interests” accounting. Under this method of accounting, the assets
and liabilities of Travelzoo.com Corporation and Travelzoo Inc. were carried forward at their historical costs. In
addition, all prior period financial statements of Travelzoo Inc. were restated to include the combined results of
operations, financial position and cash flows of Travelzoo.com Corporation. The restated results of operations and
cash flows of Travelzoo Inc. are identical to the combined results of Travelzoo.com Corporation and Travelzoo Inc.
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TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)