Travelzoo 2005 Annual Report Download - page 59

TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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 conÑrm 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 eÅective 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 4,079,000 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
persons who establish that they were former stockholders of Travelzoo.com Corporation, and who failed to
submit requests for shares in Travelzoo Inc. within the required time period. The accompanying consolidated
Ñnancial statements included a charge in general and administrative expenses of $1.2 million for the year
ended December 31, 2005 of which $11,000 remains as a liability as of December 31, 2005. The liability is
based on the number of actual 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 aÅects 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 4,079,000 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 Ñnancial statements of Travelzoo Inc. were restated to include the
combined results of operations, Ñnancial position and cash Öows of Travelzoo.com Corporation. The restated
results of operations and cash Öows of Travelzoo Inc. are identical to the combined results of Travelzoo.com
Corporation and Travelzoo Inc.
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