Shutterfly, Inc. Proposed Offering of $220 Million Convertible Senior Notes

  Shutterfly, Inc. Proposed Offering of $220 Million Convertible Senior Notes

Business Wire

REDWOOD CITY, Calif. -- May 13, 2013

Shutterfly, Inc. (NASDAQ:SFLY) (the “Company”), the leading manufacturer and
digital retailer of high-quality personalized products and services offered
through a family of lifestyle brands, announced today that it intends to
offer, subject to market conditions and other factors, $220 million aggregate
principal amount of convertible senior notes due 2018 in a private offering to
qualified institutional buyers pursuant to Rule 144A under the Securities Act
of 1933, as amended (the “Securities Act”). In connection with the offering of
the notes, the Company expects to grant the initial purchasers a 30-day option
to purchase up to an additional $30 million aggregate principal amount of such
notes.

The initial conversion rate, interest rate and certain other terms of the
notes will be determined by negotiations between the Company and the initial
purchasers. When issued, the notes will be unsecured senior obligations of the
Company. The notes will pay interest semi-annually. The notes will mature in
2018, unless repurchased or converted in accordance with their terms prior to
such date. Prior to December15, 2017, the notes will be convertible at the
option of holders only upon satisfaction of certain conditions and during
certain periods, and thereafter, at any time until the close of business on
the second scheduled trading day immediately preceding the maturity date. Upon
conversion, the notes may be settled in shares of the Company’s common stock,
cash or a combination of cash and shares of the Company’s common stock, at the
Company’s option. Holders of the notes will have the right to require the
Company to repurchase all or some of their notes at 100% of their principal,
plus any accrued and unpaid interest, upon the occurrence of certain events.

The Company intends to use a portion of the net proceeds from the offering of
the notes to fund acquisitions and other strategic transactions. The Company
also intends to use a portion of the net proceeds from the offering of the
notes to pay the cost of certain convertible note hedge transactions
(described below), taking into account the proceeds to the Company of certain
warrant transactions (described below) and to repurchase up to $30 million of
shares of the Company’s common stock in privately negotiated transactions,
which could affect the market price of the Company’s common stock concurrently
with, or shortly after, the pricing of the notes, and could result in a higher
effective conversion price for the notes. The Company expects to use the
remainder of the net proceeds from the offering of the notes for general
corporate purposes.

If the initial purchasers exercise their option to purchase additional notes,
the Company intends to use the resulting additional proceeds of the sale of
the additional notes and any additional warrants to pay the cost of entering
into additional convertible note hedge transactions and for general corporate
purposes.

In connection with the pricing of the notes, the Company expects to enter into
convertible note hedge transactions with one or more financial institutions,
which may include one or more of the initial purchasers or their respective
affiliates (the “option counterparties”). The convertible note hedge
transactions are expected generally to reduce the potential dilution and/or
offset the potential cash payments the Company is required to make in excess
of the principal amount upon conversion of the notes in the event that the
market price of the Company’s common stock is greater than the strike price of
the convertible note hedge transactions. The Company also expects to enter
into warrant transactions with the option counterparties. The warrant
transactions could separately have a dilutive effect if the market price of
the Company’s common stock exceeds the strike price of the warrant
transactions, unless the Company elects, subject to certain conditions, to
settle the warrant transactions in cash.

The Company has been advised by the option counterparties that in connection
with establishing their initial hedge of the convertible note hedge
transactions and warrant transactions, the option counterparties and/or their
respective affiliates expect to enter into various derivative transactions
with respect to the Company’s common stock and/or purchase shares of the
Company’s common stock in privately negotiated transactions and/or open market
transactions concurrently with, or shortly after, the pricing of the notes.
This activity could increase (or reduce the size of any decrease in) the
market price of the Company’s common stock or the notes at that time.

In addition, the Company has been advised by the option counterparties that
the option counterparties or their respective affiliates may modify their
hedge positions by entering into or unwinding various derivative transactions
with respect to the Company’s common stock and/or purchasing or selling the
Company’s common stock in secondary market transactions following the pricing
of the notes and prior to the maturity of the notes (and are likely to do so
during any observation period related to a conversion of the notes). This
activity could also cause an increase or avoid a decrease in the market price
of the Company’s common stock or the notes, which could affect the ability of
noteholders to convert the notes and, to the extent the activity occurs during
any observation period related to a conversion of the notes, it could affect
the amount and value of the consideration that noteholders will receive upon
conversion of the notes.

The notes will be offered to qualified institutional buyers pursuant to Rule
144A under the Securities Act. Neither the notes nor the shares of common
stock issuable upon conversion of the notes, if any, have been registered
under the Securities Act or the securities laws of any other jurisdiction and
may not be offered or sold in the United States absent registration or an
applicable exemption from such a registration requirement.

This press release does not and shall not constitute an offer to sell or the
solicitation of an offer to buy any notes or common stock, nor shall there be
any sale of notes or common stock in any state or jurisdiction in which such
an offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any state or any jurisdiction. Any
offer, if at all, will be made only pursuant to Rule 144A under the Securities
Act.

Notice Regarding Forward-Looking Statements

This press release includes certain forward-looking statements related to
Shutterfly, Inc. within the meaning of the Private Securities Litigation
Reform Act of 1995. All statements, other than statements of historical facts,
including all statements regarding the proposed offering of the notes, are
forward-looking statements. These statements are based on management’s current
estimates, assumptions, expectations or beliefs and are subject to uncertainty
and changes in circumstances. These forward-looking statements are estimates
reflecting the judgment of the Company’s senior management and actual results
may vary materially from those expressed or implied by the forward-looking
statements herein. All of Shutterfly’s forward-looking statements, whether
written or oral, are expressly qualified by this safe harbor statement and any
other cautionary statements that may accompany such forward-looking
statements. Shutterfly is under no obligation to, and expressly disclaims any
obligation to, update or alter its forward-looking statements, whether as a
result of new information, future events, changes in assumptions or otherwise.

Contact:

Shutterfly, Inc.
Investor Relations:
Michael Look, 650-610-5910
mlook@shutterfly.com
Media Relations:
Nicole Stier, 650-610-6013
nstier@shutterfly.com