Shutterfly 2015 Annual Report Download - page 43

We have not registered the notes or the common stock issuable upon conversion, if any, which will limit
holders’ ability to resell them.
The notes and the shares of common stock issuable upon conversion of the notes, if any, have not been
registered under the Securities Act of 1933, as amended, or the Securities Act, or any state securities laws. Unless
the notes and any shares of common stock issuable upon conversion of the notes have been registered, they may
not be transferred or resold except in a transaction exempt from or not subject to the 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
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