Shutterfly 2013 Annual Report Download - page 42

In addition, if any such convertible note hedge and warrant transactions fail to become effective, the
option counterparties may unwind their hedge positions with respect to our common stock, which could
adversely affect the value of our common stock and the value of the notes. The potential effect, if any, of
these transactions and activities on the market price of our common stock or the notes will depend in part
on market conditions and cannot be ascertained at this time. Any of these activities could adversely affect
the value of our common stock and the value of the notes (and as a result, the value of the consideration,
the amount of cash and/or the number of shares, if any, that holders would receive upon the conversion of
the notes) and, under certain circumstances, holders’ ability to convert the notes. The convertible note
hedge transactions and the warrant transactions are separate transactions (in each case entered into
between us and the option counterparties), are not part of the terms of the notes and will not affect the
holders’ rights under the notes. Holders of the notes will not have any rights with respect to the convertible
note hedge transactions or the warrant transactions.
We do not make any representation or prediction as to the direction or magnitude of any potential
effect that the transactions described above may have on the price of the notes or our common stock. In
addition, we do not make any representation that the option counterparties will engage in these
transactions or that these transactions, once commenced, will not be discontinued without notice.
We are subject to counterparty risk with respect to the convertible note hedge transactions.
The option counterparties are financial institutions, and we will be subject to the risk that any or all of
them might default under the convertible note hedge transactions. Our exposure to the credit risk of the
option counterparties will not be secured by any collateral. Recent global economic conditions have
resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an option
counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those
proceedings, with a claim equal to our exposure at that time under our transactions with that option
counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be
correlated to an increase in the market price and in the volatility of our common stock. In addition, upon a
default by an option counterparty, we may suffer adverse tax consequences and more dilution than we
currently anticipate with respect to our common stock. We can provide no assurances as to the financial
stability or viability of the option counterparties.
Risks Related to Our Common Stock
Our stock price may be volatile or may decline regardless of our operating performance.
The market price of our common stock may fluctuate significantly in response to numerous factors,
many of which are beyond our control. In particular, the stock market as a whole recently has experienced
extreme price and volume fluctuations that have affected the market price of many technology companies
in ways that may have been unrelated to those companies’ operating performance. Factors that could cause
our stock price to fluctuate include:
• slow economic growth, and market conditions or trends in our industry or the macro-economy
as a whole;
• price and volume fluctuations in the overall stock market;
• changes in operating performance and stock market valuations of other technology companies
generally, or those in our industry in particular;
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