Shutterfly 2013 Annual Report Download - page 23

The loss of key personnel and an inability to attract and retain additional personnel could affect our ability to
successfully grow our business.
We are highly dependent upon the continued service and performance of our senior management
team and key technical, marketing and production personnel. The loss of these key employees, each of
whom is ‘‘at will’’ and may terminate his or her employment relationship with us at any time, may
significantly delay or prevent the achievement of our business objectives. A lack of management continuity
could result in operational and administrative inefficiencies and added costs, which could adversely impact
our results of operations and stock price and may make recruiting for future management positions more
difficult.
We believe that our future success will also depend in part on our continued ability to identify, hire,
train and motivate qualified personnel. We face intense competition for qualified individuals from
numerous technology, marketing, financial services, manufacturing and e-commerce companies. In
addition, competition for qualified personnel is particularly intense in the San Francisco Bay Area, where
our headquarters are located. We may be unable to attract and retain suitably qualified individuals who are
capable of meeting our growing operational and managerial requirements, or we may be required to pay
increased compensation in order to do so. Our failure to attract and retain qualified personnel could
impair our ability to implement our business plan.
If we do not obtain shareholder approval for the issuance of additional shares under our 2006 Equity Incentive
Plan, our ability to attract and retain key personnel may be adversely affected.
At the 2013 annual meeting, our stockholders approved an amendment to our 2006 Equity Incentive
Plan (the ‘‘2006 Plan’’) to increase the maximum number of shares of our common stock available for
issuance under the 2006 Plan such that the number of shares will automatically increase as follows: (i) on
January 1, 2014 by 1,200,000 shares and (ii) on January 1, 2015 by 1,200,000 shares. As these increases
expire, we will need to seek stockholder approval for the issuance of additional shares under the 2006 Plan,
so that we can continue to attract and retain key personnel. Although we obtained approval to increase the
authorized number of shares available for issuance under the 2006 Plan at our 2013 annual meeting, there
can be no assurances that our stockholders will approve further increases.
In order to attract new personnel, we will need to grant inducement equity awards outside of our 2006 Equity
Incentive Plan, which dilutes the ownership of our existing stockholders.
Inducement stock options and restricted stock unit awards granted to new employees upon hire and in
connection with mergers and acquisitions in accordance with NASDAQ Listing Rule 5635(c) do not
require stockholder approval. In 2007, 2008, 2009 and 2012 the Board approved inducement equity awards
to supplement our 2006 Plan for an aggregate of 1,451,673 shares of our common stock. During 2013, we
granted inducement equity awards outside of our 2006 Plan to certain new employees that we acquired as
part of our acquisition of R&R Images and BorrowLenses for an aggregate of 307,888 shares of our
common stock. The issuance of additional shares of common stock may significantly dilute the equity
interest of our stockholders and could cause a change in control if a substantial number of shares of
common stock are issued, which may affect, among other things, our ability to use our net operating loss
carryforwards, if any, and may adversely affect prevailing market prices for our common stock.
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