Shutterfly 2014 Annual Report Download - page 44

registration requirements of the Securities Act and applicable state securities laws. We do not intend to
file a registration statement for the resale of the notes and the common stock, if any, into which the notes
are convertible.
An active trading market may not develop for the notes.
Prior to our issuance of the notes, there had been no trading market for the notes. We do not intend to
apply to list the notes on any securities exchange or to arrange for quotation on any automated dealer
quotation system. The liquidity of the trading market in the notes, and the market price quoted for the
notes, may be adversely affected by changes in the overall market for this type of security and by changes in
our financial performance or prospects or in the prospects for companies in our industry generally. As a
result, we cannot assure holders that an active trading market will develop for the notes. If an active
trading market does not develop or is not maintained, the market price and liquidity of the notes may be
adversely affected. In that case holders may not be able to sell their notes at a particular time or holders
may not be able to sell their notes at a favorable price.
Any adverse rating of the notes may cause their trading price to fall.
We do not intend to seek a rating on the notes. However, if a rating service were to rate the notes and
if such rating service were to lower its rating on the notes below the rating initially assigned to the notes or
otherwise announces its intention to put the notes on credit watch, the trading price of the notes could
decline.
Holders of the notes may be subject to tax if we make or fail to make certain adjustments to the conversion rate of the
notes even though such holders do not receive a corresponding cash distribution.
The conversion rate of the notes will be adjusted in certain circumstances. Under Section 305(c) of the
Internal Revenue Code of 1986, or the Code, adjustments (or failures to make adjustments) that have the
effect of increasing the holders’ proportionate interest in our assets or earnings may in some circumstances
result in a deemed distribution to the holders. Certain of the conversion rate adjustments with respect to
the notes (including, without limitation, adjustments in respect of taxable dividends to holders of our
common stock) will result in deemed distributions to the holders of notes even though they have not
received any cash or property as a result of such adjustments. In addition, an adjustment to the conversion
rate in connection with a make-whole fundamental change may be treated as a deemed distribution. Any
deemed distributions will be taxable as a dividend, return of capital, or capital gain. If holders are a
‘‘non-U.S. holder’’ under the Code any deemed dividend may be subject to U.S. withholding tax at a 30%
rate or such lower rate as may be specified by an applicable tax treaty, which may be set off against
subsequent payments on the notes (or in certain circumstances, on the common stock). Under proposed
regulations relating to certain ‘‘dividend equivalent’’ payments, an adjustment to the conversion rate of the
notes as a result of a dividend on our common stock may be subject to withholding tax at a different time
or in a different amount than the withholding tax otherwise imposed on dividends and constructive
dividends.
The convertible note hedge and warrant transactions may affect the value of the notes and our common stock.
In connection with the pricing of the notes, we entered into convertible note hedge transactions with
Morgan Stanley & Co. International plc, Credit Suisse International, Citibank, N.A., and Bank of America,
N.A., or the option counterparties. We also entered into warrant transactions with the option
counterparties pursuant to which we will sell warrants for the purchase of our common stock. The
convertible note hedge transactions are expected generally to reduce the potential dilution upon any
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