Travelzoo 2010 Annual Report Download - page 44

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.
Claims may be asserted against us relating to shares not issued in our 2002 merger, including claims
which may arise under the current Delaware unclaimed property review.
The merger of Travelzoo.com Corporation into the Company became effective on April 25, 2002.
Stockholders 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. As indicated below, the Company is
currently the subject of an unclaimed property review by representatives of the State of Delaware. If such escheat
claims are asserted, whether as result of such unclaimed property review or otherwise, 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 4,067,000 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 $20,000 for these cash payments for the year
ended December 31, 2010. 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 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 4,067,000 shares had not submitted claims
under the program as of December 31, 2010.
17