Travelzoo 2014 Annual Report Download - page 101

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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 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.
Since March 2012, the Company became 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 claimed were 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, which were not included in the multi-state settlement as of
October 2013, had potential claims on approximately 400,000 additional shares that were not claimed by residents in those
states following the merger.
During the year ended December 31, 2013, the Company recorded a $22.0 million charge related to settlements it entered
into and for potential future settlements with the remaining states. During the year ended December 31, 2013, the Company
made cash payments of $12.3 million to the settled states after completion of the required due diligence. During the year ended
December 31, 2014, the Company settled with the remaining states and made cash payments of $3.7 million to the settled states
after completion of the required due diligence. During the year ended December 31, 2014, the Company released a $7.6 million
of the reserve related to potential future settlements with the remaining states in connection with unexchanged promotional
shares based upon the actual settlements with the remaining states under more favorable terms than previously estimated. As of
December 31, 2014, the Company has maintained estimated reserves related to the remaining settled states, which will be paid
after completion of the required due diligence during the three months ending March 31, 2015.
Although the Company has settled the states unclaimed property claims with all states, the Company may still receive
inquiries from certain potential Netsurfer promotional stockholders that had not provided their state of residence to the
Company by April 25, 2004. Therefore, the Company is continuing its voluntary program under which it makes cash payments
to individuals related to the promotional shares for individuals whose residence was unknown by the Company and who
establish that they satisfy the original conditions required for them to receive shares of Travelzoo.com Corporation, and who
failed to submit requests to convert their shares into shares of Travelzoo Inc. within the required time period. This voluntary
program is not available for individuals whose promotional shares have been escheated to a state by the Company, except those
individuals for which their residence was unknown to the Company. The accompanying consolidated financial statements
include a charge for payments under this voluntary program in general and administrative expenses of $6,000 for the year
ended December 31, 2014.