Shutterfly 2015 Annual Report Download - page 41

shares of our common stock in respect of the relevant conversion), but holders of notes will be subject to all
changes affecting our common stock. For example, if an amendment is proposed to our certificate of
incorporation or bylaws requiring stockholder approval and the record date for determining the stockholders of
record entitled to vote on the amendment occurs prior to the conversion date related to a holder’s conversion of
its notes (if we have elected to settle the relevant conversion by delivering solely shares of our common stock
(other than paying cash in lieu of delivering 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.
39