Travelzoo 2015 Annual Report Download - page 119

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Note 13: Related Party Transactions
On August 20, 2015, Travelzoo acquired the Travelzoo Asia Pacific business (“Asia Pacific”), which includes the
Travelzoo businesses in Australia, China, Hong Kong, Japan, Taiwan, and Southeast Asia. This business was independently
operated by Azzurro Capital Inc. ("Azzurro") under a licensing agreement with Travelzoo Inc. The Company held an option
right to acquire Asia Pacific at fair market value as determined by a third party valuation expert. Under the terms of the
definitive acquisition agreement, Travelzoo (Europe) Limited, a United Kingdom subsidiary of the Company, was authorized
by the Company to exercise the option right to acquire Asia Pacific for a fair market transaction value of $22.6 million, subject
to a working capital adjustment, using available cash of $17.0 million and a promissory note of $5.7 million with a maturity
date of three years.
The Company’s board of directors established a special committee (the “Special Committee”), consisting of independent
and disinterested directors and provided it with the exclusive power and authority to determine whether any potential
transaction to acquire Asia Pacific was advisable, fair to and in the best interests of the Company's stockholders other than
Azzurro Capital Inc., the principal stockholder of Travelzoo Inc. The Special Committee engaged independent legal counsel
and an independent financial advisor, Stout Risius Ross, Inc. (“SRR”). The Special Committee obtained the right to select its
own independent financial advisor, SRR, to independently determine the fair market value of Asia Pacific to be used as the
option exercise price and received an opinion from SRR regarding the fairness of the Asia Pacific transaction from a financial
point of view. SRR determined that $22.6 million represented the fair market value of Asia Pacific to be used as the option
exercise price based upon the use of established valuation methodologies. The Special Committee, which was composed solely
of independent and disinterested directors, unanimously approved the acquisition of Asia Pacific at the fair market value option
exercise price with the assistance of its independent legal and financial advisors.
Ralph Bartel, who founded Travelzoo and who is a Director of the Company is the sole beneficiary of the Ralph Bartel
2005 Trust, which is the controlling shareholder of Azzurro Capital Inc. As of December 31, 2015, Azzurro is the Company's
largest stockholder, holding approximately 51.2% of the Company's outstanding shares.
Since Azzurro Capital Inc. had a controlling interest in both Travelzoo Inc. and the Travelzoo Asia Pacific business at the
time of the transaction and in prior periods, this transaction is accounted for as a common control transaction and a change in
reporting entity for the Company. The financial results for Travelzoo Inc. have been retrospectively adjusted to include the
financial results of Asia Pacific in the current and prior periods as though the transaction occurred at the beginning of each
period presented, including the following adjustments:
Year Ended December 31,
2015 2014 2013
Revenue $ 10,774 $ 11,218 $ 12,402
Operating Loss $(2,436) $ (3,382) $ (1,445)
Net Loss $(3,096) $ (3,288) $ (1,571)
Other Comprehensive Income $ 305 $ 239 $ 89
Basic and diluted earnings per share $(0.21) $ (0.22) $ (0.10)
The Asia Pacific assets and liabilities have been combined with Travelzoo Inc. at their carrying values as though the
transaction occurred at the beginning of each period presented. At December 31, 2015 and December 31, 2014, Asia Pacific net
liabilities, total assets minus total liabilities, were $6.8 million and $4.0 million, respectively.
The Asia Pacific transaction proceeds of $22.6 million were reflected as an equity transaction, included in retained
earnings, during the period the transaction occurred, which was in the year ended December 31, 2015.
Travelzoo (Europe) Limited, a United Kingdom subsidiary of the Company, acquired the Asia Pacific business, which
include certain customary seller indemnifications, through the acquisition of Travelzoo (Asia) Limited, including its wholly
owned subsidiaries, and Travelzoo Japan KK. All significant intercompany accounts and transactions between Travelzoo Inc.
and the acquired Asia Pacific entities have been eliminated for all periods presented.
In November 2014, Azzurro provided a loan to Asia Pacific of $1.0 million with a stated interest rate of 8%. There were
$1.0 million loans and $5,000 accrued interest due to Azzurro as of December 31, 2014. From January 1, 2015 to August 20,
2015, Azzurro provided loans to the Asia Pacific amounting to $2.2 million with a stated interest rate of 10%. In September
2015, the Company paid the due and outstanding principal loan amount of $3.3 million and accrued interest of $128,000.