Shutterfly 2014 Annual Report Download - page 42

any fractional share)) or the last trading day of the relevant observation period (if we elect to pay and
deliver, as the case may be, a combination of cash and shares of our common stock in respect of the
relevant conversion), such holder will not be entitled to vote on the amendment, although such holder will
nevertheless be subject to any changes affecting our common stock.
The conditional conversion feature of the notes could result in holders receiving less than the value of our common
stock into which the notes would otherwise be convertible.
Holders of notes may convert their notes only if specified conditions are met. If the specific conditions
for conversion are not met, holders will not be able to convert their notes, and may not be able to receive
the value of the cash, common stock or a combination of cash and common stock, as applicable, into which
the notes would otherwise be convertible.
Upon conversion of the notes, holders may receive less valuable consideration than expected because the value of our
common stock may decline after holders exercise their conversion rights but before we settle our conversion
obligation.
Under the notes, a converting holder will be exposed to fluctuations in the value of our common stock
during the period from the date such holder surrenders notes for conversion until the date we settle our
conversion obligation. Upon conversion of the notes, we have the option to pay or deliver, as the case may
be, cash, shares of our common stock, or a combination of cash and shares of our common stock. If we
elect to satisfy our conversion obligation in cash or a combination of cash and shares of our common stock,
the amount of consideration that holders will receive upon conversion of their notes will be determined by
reference to the volume weighted average prices of our common stock for each trading day in a
30 trading-day observation period. Accordingly, if the price of our common stock decreases during such
observation period, the amount and/or value of consideration holders receive will be adversely affected. In
addition, if the market price of our common stock at the end of such period is below the average of the
volume weighted average price of our common stock during such period, the value of any shares of our
common stock that holders will receive in satisfaction of our conversion obligation will be less than the
value used to determine the number of shares that holders will receive.
If we elect to satisfy our conversion obligation solely in shares of our common stock upon conversion
of the notes, we will be required to deliver the shares of our common stock, together with cash for any
fractional share, three business days after the relevant conversion date. Accordingly, if the price of our
common stock decreases during this period, the value of the shares that holders receive will be adversely
affected and would be less than the conversion value of the notes on the conversion date.
The notes are not protected by restrictive covenants.
The indenture governing the notes does not contain any financial or operating covenants or
restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of
securities by us or any of our subsidiaries. The indenture contains no covenants or other provisions to
afford protection to holders of the notes in the event of a fundamental change or other corporate
transaction involving us except under limited circumstances.
The increase in the conversion rate for notes converted in connection with a make-whole fundamental change may
not adequately compensate holders for any lost value of their notes as a result of such transaction.
If a make-whole fundamental change occurs prior to the maturity date, under certain circumstances,
we will increase the conversion rate by a number of additional shares of our common stock for notes
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