Travelzoo 2013 Annual Report Download - page 98

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63
Note 5: Commitments and Contingencies
On September 28, 2012, Metasearch Systems, LLC filed a lawsuit in the United States District Court for the Eastern
District of Delaware against Travelzoo Inc. d/b/a Fly.com alleging infringement of several U.S. patents. Metasearch Systems
alleges that the trip-planning metasearch service available on Fly.com infringes one or more claims of the asserted patents.
During September 2012, Metasearch Systems filed similar lawsuits against several of Travelzoo's competitors including
Expedia, Inc., Orbitz Worldwide, Inc., Travelocity.com, LP, Priceline.com, Inc., Yahoo! Inc., American Express Company,
KAYAK Software Corp., and BookIt.com. The action seeks unspecified damages and we are unable to estimate the possible
loss or range of losses that could potentially result from the action. The Company believes that the action is without merit and
intends to defend the suits vigorously.
On January 27, 2012, a purported shareholder of Travelzoo commenced a suit in the Supreme Court of New York that
asserts claims derivatively on behalf of Travelzoo Inc. for breaches of fiduciary duty against Travelzoo’s board of directors. The
complaint also asserts claims for breaches of fiduciary duty and unjust enrichment against Ralph Bartel and Azzurro Capital
Inc. The complaint challenges Travelzoo’s sale of its Asia Pacific division for $3.6 million to Azzurro and alleges that the
transaction was not entirely fair to the Company. On January 21, 2014, the court granted defendants’ motions to dismiss and
dismissed the action in its entirety with prejudice. The plaintiff may decide to appeal the decision. Since derivative claims are
an attempt by a plaintiff shareholder to assert claims on behalf of the Company, we do not anticipate any potential loss to the
Company from these actions.
On April 21, 2011, the Company entered into an agreement with the State of Delaware resolving all claims relating to an
unclaimed property review which began in 2010. The primary issue raised in the preliminary findings from the review, received
by the Company on April 12, 2011, concerned the promotional shares, which remained unexchanged in the 2002 merger
(unexchanged promotional shares) as discussed further in Note 1. In the preliminary findings under the unclaimed property
review, up to 3.0 million shares were identified as “demandable” under Delaware escheat laws. While the Company continues
to take the position that such shares were a promotional incentive and were issuable only to persons who established their
eligibility as stockholders, the Company determined that it was in its best interest to promptly resolve all claims relating to the
unclaimed property review. The Company made a $20.0 million cash payment to the State of Delaware in April, 2011 and
received a complete release of those claims.
As discussed in Note 1 above, since March 2012, the Company has become subject to unclaimed property reviews by
most of the other states in the U.S. that relate primarily to the unexchanged promotional merger shares, which were not covered
by the settlement and release by the State of Delaware. During the three months ended March 31, 2012, the Company recorded
a $3.0 million charge related to this unexchanged promotional merger shares contingency.
In October 2013, the Company entered into settlement agreements with 35 additional states to resolve those states’ claims
related to similar unclaimed property audits. The multi-state settlement relates to approximately 700,000 additional shares of
the Company that were not claimed by residents of those states following the merger, which those states claim are subject to
escheat. While the Company disputes the states’ claims, the Company determined that it was in its best interest to resolve the
disputes and settle with 35 of the states. The remaining states have or may raise claims on approximately 400,000 additional
shares that were not claimed following the merger by residents in those states.
During the three months ended September 30, 2013, the Company recorded a $22.0 million charge related to the
settlements it entered into and for potential future settlements with the remaining states. During the three months ended
December 31, 2013, the Company made cash payments of $12.3 million to the settled states after completion of the required
due diligence.