Shutterfly 2015 Annual Report Download - page 38

Risks Related to Our 0.25% Senior Convertible Senior Notes Due in 2018 (the “Notes”)
Although the notes are referred to as convertible senior notes, they are effectively subordinated to any of our
secured debt and any liabilities of our subsidiaries.
The notes will rank senior in right of payment to any of our indebtedness that is expressly subordinated in
right of payment to the notes; equal in right of payment to any of our liabilities that are not so subordinated;
effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets
securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade
payables) of our subsidiaries. In the event of our bankruptcy, liquidation, reorganization or other winding up, our
assets that secure debt ranking senior in right of payment to the notes will be available to pay obligations on the
notes only after the secured debt has been repaid in full from these assets, and the assets of our subsidiaries will
be available to pay obligations on the notes only after all claims senior to the notes (including any amounts
drawn under our credit facility) have been repaid in full. There may not be sufficient assets remaining to pay
amounts due on any or all of the notes then outstanding. The indenture governing the notes does not prohibit us
from incurring additional senior debt or secured debt, nor does it prohibit any of our subsidiaries from incurring
additional liabilities.
Recent and future regulatory actions and other events may adversely affect the trading price and liquidity of
the notes.
We expect that many investors in, and potential purchasers of, the notes will employ, or seek to employ, a
convertible arbitrage strategy with respect to the notes. Investors would typically implement such a strategy by
selling short the common stock underlying the notes and dynamically adjusting their short position while
continuing to hold the notes. Investors may also implement this type of strategy by entering into swaps on our
common stock in lieu of or in addition to short selling the common stock. The Securities and Exchange
Commission (“SEC”) and other regulatory and self-regulatory authorities have implemented various rules and
taken certain actions, and may in the future adopt additional rules and take other actions, that may impact those
engaging in short selling activity involving equity securities (including our common stock). Such rules and
actions include Rule 201 of SEC Regulation SHO, the adoption by the Financial Industry Regulatory Authority,
Inc. and the national securities exchanges of a “Limit Up-Limit Down” program, the imposition of market-wide
circuit breakers that halt trading of securities for certain periods following specific market declines, and the
implementation of certain regulatory reforms required by the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010. Any governmental or regulatory action that restricts the ability of investors in, or
potential purchasers of, the notes to effect short sales of our common stock or enter into swaps on our common
stock could adversely affect the trading price and the liquidity of the notes.
In addition, if investors and potential purchasers seeking to employ a convertible arbitrage strategy are
unable to borrow or enter into swaps on our common stock, in each case on commercially reasonable terms, the
trading price and liquidity of the notes may be adversely affected.
Volatility in the market price and trading volume of our common stock could adversely impact the trading
price of the notes.
The stock market in recent years has experienced significant price and volume fluctuations that have often
been unrelated to the operating performance of companies. The market price of our common stock could
fluctuate significantly for many reasons, including in response to the risks described in this section, or for reasons
unrelated to our operations, such as reports by industry analysts, investor perceptions or negative announcements
by our customers, competitors or suppliers regarding their own performance, as well as industry conditions and
general financial, economic and political instability. A decrease in the market price of our common stock would
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