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 June 30, 2015, Azzurro held a proxy given to it by Holger Bartel that provides it with a total of 50.4% of the voting power. On July 2, 2015, Azzurro purchased 200,000 shares of the Company’s stock held by Holger Bartel; thereafter, and as of September 30, 2015, Azzurro directly held approximately 50.4% of the Company’s outstanding shares. In addition, Azzurro was the majority stockholder of the Travelzoo Asia Pacific business that was acquired by the Company.

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:



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2015			2014				2015			2014
Revenue	$	2,718		$	2,790			$	8,079		$	8,297
Operating loss	(414		)	(864		)		(1,515		)	(2,324		)
Net Loss	(480		)	(754		)		(2,148		)	(1,949		)
Other Comprehensive income	115			181				303			112
Basic and diluted earnings per share	$	(0.03	)	$	(0.05	)		$	(0.15	)	$	(0.13	)

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 September 30, 2015, December 31, 2014 and September 30, 2014, Asia Pacific net liabilities, total assets minus total liabilities, were $6.0 million, $4.0 million and $2.8 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 three months ended September 30, 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%. During nine months ended September 30, 2015, Azzurro provide loans to the Asia Pacific amounting to $2.2 million with a stated interest rate of 10%. During the three months ended September 30, 2015, the Company repaid these loans amounting to a principal loan amount of $3.3 million and accrued interest of $128,000. On August 20, 2015, as part of the transaction proceeds Travelzoo (Europe) Limited issued a promissory note to Azzurro with a principal amount of $5.7 million, which is due in three years on August 20, 2018 and has a stated interest rate of 7%, which is due and payable on a quarterly basis. Accrued interest for the loans and promissory note outstanding was $84,000 and $166,000 for the three and nine months ended September 30, 2015. There were no loans outstanding and no accrued interest due to Azzurro during the three and nine months ended September 30, 2014.

On September 28, 2015, Holger Bartel, Executive Chairman and Chairman of the Board of Directors, was granted 400,000 stock options that vest through December 31, 2017 in connection with his appointment to the role of Global Chief Executive Officer. See Note 8 to the accompanying unaudited condensed consolidated financial statements for further information.