Travelzoo 2010 Annual Report Download - page 83

effective date of the merger to receive shares of Travelzoo Inc. The records of Travelzoo.com Corporation showed
that, assuming all of the shares applied for by the Netsurfer stockholders were validly issued, there were
11,295,874 shares of Travelzoo.com Corporation outstanding. As of April 25, 2004, two years following the
effective date of the merger, 7,180,342 shares of Travelzoo.com Corporation had been exchanged for shares of
Travelzoo Inc. Prior to that date, the remaining shares which were available for issuance pursuant to the merger
agreement were included in the issued and outstanding common stock of Travelzoo Inc. and included in the
calculation of basic and diluted earnings per share. After April 25, 2004, the Company ceased issuing shares to the
former stockholders of Travelzoo.com Corporation, and no additional shares are reserved for issuance to any former
stockholders, because their right to receive shares has now expired. On April 25, 2004, the number of shares
reported as outstanding was reduced from 19,425,147 to 15,309,615 to reflect actual shares issued as of the
expiration date.
(7) Stock-based Compensation and Stock Options
The Company accounts for its employee stock options under the fair value method, which requires stock-based
compensation to be estimated using the fair value on the date of grant using an option-pricing model. The value of
the portion of the award that is expected to vest is recognized as expense over the related employees’ requisite
service periods in the Company’s Condensed Consolidated Statements of Income. Cash flows resulting from tax
deductions in excess of the compensation cost recognized for those options (excess tax benefits) are classified as
financing cash flows. For fiscal year 2008, the Company recorded $110,000 of excess tax benefit.
In October 2001, the Company granted to each director fully vested and exercisable options to purchase
30,000 shares of common stock with an exercise price of $2.00 per share for their services as a director in 2000 and
2001. A total of 210,000 options were granted. The options expire in October 2011. 150,000 options, 17,275 options
and 30,000 options were exercised during the years ended December 31, 2004, 2005 and 2008, respectively. As of
December 31, 2010, 12,725 options are vested and remain outstanding.
In March 2002, Travelzoo Inc. granted to each director options to purchase 5,000 shares of common stock with
an exercise price of $3.00 per share that vested in connection with their services as a director in 2002. A total of
35,000 options were granted. In October 2002, 1,411 options were cancelled upon the resignation of a director. The
options expire in March 2012. 23,589 of these options and 5,000 of these options were exercised during the year
ended December 31, 2004 and 2008, respectively. As of December 31, 2010, 5,000 options are vested and remain
outstanding.
In January 2009, 2,158,349 options were exercised at $1.00 per share. As described in Note 1, these options
were granted in 2001 as part of the combination and merger of entities founded by the Company’s majority
stockholder, Ralph Bartel.
In November 2009, the Company granted to one if its employees options to purchase 300,000 shares of
common stock with an exercise price of $14.97. 75,000 options vest and become exercisable annually starting in
July 1, 2011. The options expire in November 2019. As of December 31, 2010, none of the options are vested and
300,000 options are outstanding. Total stock-based compensation for fiscal years 2010 and 2009 were $750,000 and
$94,000, respectively. The Company did not provide any stock-based compensation in fiscal year 2008.
The Company utilized the Black-Scholes option pricing model to value the stock options granted in 2009. The
Company does not have enough historical exercise data to estimate the expected life of the options and therefore
used an expected life of 6.25 years, as defined under the simplified method. The risk-free interest rate used for the
award is based on the U.S. Treasury yield curve in effect at the time of grant. The Company used a forfeiture rate of
0% as the Company does not have enough historical forfeiture data to estimate the forfeiture rate.
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TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)