def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(RULE
14a-101)
SCHEDULE
14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment
No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
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Preliminary Proxy Statement. |
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Confidential, for Use of the Commission Only (as permitted by
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Definitive Proxy Statement. |
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Definitive Additional Materials. |
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Soliciting Material Pursuant to §240.14a-12. |
Shutterfly, Inc.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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April 16, 2007
To Our Stockholders:
You are cordially invited to attend the 2007 Annual Meeting of
Stockholders of Shutterfly, Inc. to be held at 1300 Island
Drive, Redwood City, California 94065, on May 17, 2007, at
11:00 a.m. local time.
The matters expected to be acted upon at the meeting are
described in detail in the following Notice of Annual Meeting of
Stockholders and Proxy Statement.
It is important that you use this opportunity to take part in
the affairs of Shutterfly, Inc. by voting on the business to
come before this meeting. WHETHER OR NOT YOU EXPECT TO ATTEND
THE MEETING, PLEASE VOTE YOUR SHARES BY SUBMITTING YOUR
INSTRUCTIONS BY INTERNET OR BY TELEPHONE, OR COMPLETE,
DATE, SIGN, AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE SO THAT YOUR SHARES MAY BE
REPRESENTED AT THE MEETING. Returning the proxy does not deprive
you of your right to attend the meeting and to vote your shares
in person.
We look forward to seeing you at the meeting.
Sincerely,
Jeffrey T. Housenbold
Chief Executive Officer and President
TABLE OF CONTENTS
SHUTTERFLY,
INC.
2800
Bridge Parkway, Suite 101
Redwood City, California 94065
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 17, 2007
Dear Stockholder:
You are cordially invited to attend the 2007 Annual Meeting of
Stockholders of Shutterfly, Inc., a Delaware corporation. The
meeting will be held on May 17, 2007 at 11:00 a.m.
local time at 1300 Island Drive, Redwood City, CA 94065, for the
following purposes:
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1.
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To elect two Class I directors to hold office until our
2010 Annual Meeting of Stockholders.
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2.
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To ratify the selection by the audit committee of our Board of
Directors of PricewaterhouseCoopers LLP as our independent
registered public accounting firm for the fiscal year ending
December 31, 2007.
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3.
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To conduct any other business properly brought before the
meeting.
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These items of business are more fully described in the proxy
statement accompanying this notice.
The record date for the annual meeting is April 4, 2007.
Only stockholders of record at the close of business on that
date may vote at the meeting or any adjournment or postponement
thereof.
By Order of the Board of Directors
Jeffrey T. Housenbold
Chief Executive Officer and President
Redwood City, California
April 16, 2007
You are cordially invited to attend the meeting in person.
Whether or not you expect to attend the meeting, please vote
your shares by submitting your instructions by internet or by
telephone, or complete, date, sign and return the proxy
accompanying this notice as promptly as possible in order to
ensure your representation at the meeting. A return envelope
(which is postage prepaid if mailed in the United States) is
enclosed for your convenience. Even if you have voted by proxy,
you may still vote in person if you attend the meeting. Please
note, however, that if your shares are held of record by a
broker, bank or other agent and you wish to vote at the meeting,
you must request and obtain a proxy issued in your name from
that record holder.
1
SHUTTERFLY,
INC.
2800
Bridge Parkway, Suite 101
Redwood City, California 94065
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 17, 2007
QUESTIONS
AND ANSWERS
Why am I
receiving these proxy materials?
We sent you this proxy statement and the accompanying proxy card
because the Board of Directors of Shutterfly, Inc. is soliciting
your proxy to vote at its 2007 Annual Meeting of Stockholders.
You are invited to attend the annual meeting to vote on the
proposals described in this proxy statement. However, you do not
need to attend the meeting to vote your shares. Instead, you may
simply complete, sign and return the accompanying proxy card or
vote your shares by the Internet or telephone.
We mailed this proxy statement, the accompanying proxy card and
our annual report on or about April 16, 2007 to all
stockholders of record entitled to vote at the annual meeting.
Who can
vote at the annual meeting?
Only stockholders of record at the close of business on
April 4, 2007, the record date for the annual meeting, will
be entitled to vote at the annual meeting. That time and date is
referred to as the record date. At the close of
business on the record date, there were 24,007,033 shares
of common stock outstanding and entitled to vote.
Stockholder
of Record: Shares Registered in Your Name
If at the close of business on the record date, your shares were
registered directly in your name with our transfer agent, Mellon
Investor Services, then you are a stockholder of record. As a
stockholder of record, you may vote in person at the meeting or
vote by proxy. Whether or not you plan to attend the meeting, we
urge you to vote your shares by the Internet or telephone, or
fill out and return the accompanying proxy card to ensure your
vote is counted.
2
Beneficial
Owner: Shares Registered in the Name of a Broker, Bank or
Other Agent
If on the record date, your shares were held, not in your name,
but rather in an account at a brokerage firm, bank or other
agent, then you are the beneficial owner of shares held in
street name and these proxy materials have been
forwarded to you by your broker, bank or other agent. The
broker, bank or other agent holding your account is considered
to be the stockholder of record for purposes of voting at the
annual meeting.
As a beneficial owner, you have the right to direct your broker,
bank or other agent on how to vote the shares in your account.
You are also invited to attend the annual meeting. However,
since you are not the stockholder of record, you may not vote
your shares in person at the meeting unless you request and
obtain a valid proxy issued in your name from your broker, bank
or other agent.
What am I
being asked to vote on?
There are two matters scheduled for a vote at the annual meeting:
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the election of two Class I directors to hold office until
our 2010 Annual Meeting of Stockholders, and
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the ratification of the selection by the audit committee of our
Board of Directors of PricewaterhouseCoopers LLP as our
independent registered public accounting firm for the fiscal
year ending December 31, 2007.
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How do I
vote my shares?
For the election of directors, you may either vote
For the two nominees or you may Withhold
your vote for any nominee you specify. For any other matter to
be voted on, you may vote For or Against
or abstain from voting. The procedures for voting are as follows:
Stockholder
of Record: Shares Registered in Your Name
If you are a stockholder of record, you may vote in person at
the annual meeting. Alternatively, you may vote by proxy by
using the accompanying proxy card, over the internet or by
telephone. Whether or not you plan to attend the meeting, we
urge you to vote by proxy to ensure your vote is counted. You
may still attend the meeting and vote in person even if you have
already voted by proxy.
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To vote in person, come to the annual meeting and we will give
you a ballot when you arrive.
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To vote using the proxy card, simply complete, sign and date the
accompanying proxy card and return it promptly in the envelope
provided. If you return your signed proxy card to us before the
annual meeting, we will vote your shares as you direct.
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To vote over the Internet, go to http://www.proxyvoting.com/sfly
and follow the instructions to obtain your records and to create
an electronic voting instruction form.
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To vote by telephone, dial 1-866-540-5760 using any touch-tone
telephone and follow the instructions to transmit your voting
instructions.
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Beneficial
Owner: Shares Registered in the Name of Broker, Bank or
Other Agent
If you are a beneficial owner of shares registered in the name
of your broker, bank or other agent, you should have received a
voting instruction card and voting instructions with these proxy
materials from that organization rather than from us. Simply
complete and mail the voting instruction card to ensure that
your vote is counted. To vote in person at the annual meeting,
you must obtain a valid proxy from your broker, bank or other
agent. Follow the instructions from your broker, bank or other
agent included with these proxy materials, or contact your
broker, bank or other agent to request a proxy form.
How do I
vote via the Internet or telephone?
If you wish to vote by Internet, go to
http://www.proxyvoting.com/sfly and follow the instructions to
obtain your records and to create an electronic voting
instruction form. If you wish to vote by telephone, dial
1-866-540-5760 using any touch-tone telephone and follow the
instructions to transmit your voting instructions. Please have
your proxy card in hand when you vote over the Internet or by
telephone. Please be aware that if you vote over the Internet,
you may incur costs such as telephone and Internet access
charges for which you will be responsible. The Internet and
telephone voting facilities for eligible stockholders of record
will close at 11:59 p.m. Eastern Time on May 16, 2007.
Mellon Investor Services will tabulate the votes.
How many
votes do I have?
On each matter to be voted upon, you have one vote for each
share of common stock you owned as of the close of business on
April 4, 2007, the record date for the annual meeting.
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What if I
return a proxy card but do not make specific voting
choices?
If you return a signed and dated proxy card without marking any
voting selections, your shares will be voted For the
election of the two nominees for director, and For
the ratification of the selection of PricewaterhouseCoopers LLP
as our independent registered public accounting firm. If any
other matter is properly presented at the meeting, one of the
individuals named on your proxy card as your proxy will vote
your shares using his best judgment.
Who is
paying for this proxy solicitation?
Shutterfly will pay for the entire cost of soliciting proxies.
In addition to these mailed proxy materials, our directors,
officers and employees may also solicit proxies in person, by
telephone, or by other means of communication. Directors,
officers, and employees will not be paid any additional
compensation for soliciting proxies. We may also reimburse
brokerage firms, banks and other agents for the cost of
forwarding proxy materials to beneficial owners.
What does
it mean if I receive more than one proxy card?
If you receive more than one proxy card, your shares are
registered in more than one name or are registered in different
accounts. Please vote your shares listed on each proxy card to
ensure that all of your shares are voted.
Can I
change my vote after submitting my proxy?
Yes. You can revoke your proxy at any time before the applicable
vote at the meeting. If you are the record holder of your
shares, you may revoke your proxy in any one of three ways:
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you may submit another properly completed proxy with a later
date;
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you may send a written notice that you are revoking your proxy
to our Secretary at 2800 Bridge Parkway, Suite 101, Redwood
City, California 94065; or
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you may attend the annual meeting and vote in person (however,
simply attending the meeting will not, by itself, revoke your
proxy).
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If your shares are held by your broker, bank or other agent, you
should follow the instructions provided by them.
When are
stockholder proposals due for next years annual
meeting?
To be considered for inclusion in next years proxy
materials, a stockholder proposal must be submitted in writing
by December 17, 2007, to our Secretary at 2800 Bridge
Parkway, Suite 101, Redwood City, California 94065. If
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you wish to submit a proposal that is to be included in the
proxy materials for the following year, your proposal generally
must be submitted in writing to the same address no later than
March 3, 2008 but no earlier than February 2, 2008.
Please review our bylaws, which contain additional requirements
regarding advance notice of stockholder proposals.
How are
votes counted?
Votes will be counted by Mellon Investor Services, LLO
(Mellon). Mellon has been appointed as the inspector
of elections for the meeting and is also Shutterflys
transfer agent. Mellon will separately count For and
Withhold votes with respect to the election of
directors and, with respect to any proposals other than the
election of directors, For and Against
votes, abstentions and broker non-votes. A broker
non-vote occurs when a nominee (such as a broker) who
holds shares for a beneficial owner does not vote on a
particular proposal because the nominee does not have
discretionary voting power to do so and has not received
specific voting instructions for that proposal from the
beneficial owner. Abstentions and broker non-votes have no
effect and will not be counted towards the vote total for any
proposal.
If your shares are held by your broker, bank or other agent as
your nominee (that is, in street name), you will
need to obtain a proxy form from the institution that holds your
shares and follow the instructions included on that form
regarding how to instruct your broker, bank or other agent to
vote your shares. If you do not give instructions to your
broker, bank or other agent, they can vote your shares with
respect to discretionary items, but not with respect
to non-discretionary items. Discretionary items
include a vote for directors and ratification of the appointment
of accountants, as well as other proposals considered routine
under the rules of the New York Stock Exchange. On these
matters, your broker, bank or other agent may vote shares held
in street name even if you have not given them specific voting
instructions.
How many
votes are needed to approve each proposal?
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For the election of directors, the two nominees receiving the
most For votes (among votes properly cast in person
or by proxy) will be elected.
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To be approved, the ratification of the selection of
PricewaterhouseCoopers LLP as our independent registered public
accounting firm must receive a For vote from the
majority of shares present and entitled to vote either in person
or by proxy.
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What is
the quorum requirement?
A quorum of stockholders is necessary to hold a valid meeting. A
quorum will be present if at least a majority of the outstanding
shares as of the close of business on the record date are
represented by stockholders present at the meeting or by proxy.
At the close of business on the record date, there were
24,007,033 shares outstanding and entitled to vote.
Therefore, in order for a quorum to exist,
12,003,517 shares must be represented by stockholders
present at the meeting or by proxy.
Your shares will be counted towards the quorum only if you
submit a valid proxy (or one is submitted on your behalf by your
broker, bank or other agent) or if you vote in person at the
meeting. Abstentions and broker non-votes will be counted
towards the quorum requirement. If there is no quorum, a
majority of the votes present at the meeting may adjourn the
meeting to another date.
How can I
find out the results of the voting at the annual
meeting?
Preliminary voting results will be announced at the annual
meeting. Final voting results will be published in our Quarterly
Report on
Form 10-Q
for the second quarter of 2007.
7
PROPOSAL NO. 1
ELECTION
OF DIRECTORS
Our Board of Directors consists of seven members and is divided
into three classes, each of which has a three-year term. The
Class I directors are standing for re-election at this
annual meeting to serve until our 2010 Annual Meeting of
Stockholders and until their successors are duly elected and
qualified, or until their death, resignation or removal. The
terms of the directors in Classes II and III expire at our
2008 and 2009 Annual Meetings of Stockholders, respectively.
The two nominees for Class I directors are Nancy J.
Schoendorf and Eric J. Keller. Each of the nominees is currently
a director of Shutterfly. Neither of the nominees was elected by
our stockholders, as Ms. Schoendorf and Mr. Keller
were both previously appointed by our Board of Directors prior
to our initial public offering.
Directors are elected by a plurality of the votes present at the
meeting or by proxy and entitled to vote at the meeting. The two
nominees receiving the most For votes (among votes
properly cast in person or by proxy) will be elected. Unless a
stockholder provides different voting instructions to the proxy
holders, shares represented by executed proxies will be voted
For the election of the two nominees named above or,
if any nominee becomes unavailable for election as a result of
an unexpected occurrence, For the election of a
substitute nominee designated by our Board of Directors. Each
nominee has agreed to serve as a director if elected, and we
have no reason to believe that any nominee will be unable to
serve.
THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH NOMINEE
NAMED ABOVE.
The following is biographical information as of April 4,
2007 for each nominee for Class I director and each person
whose term of office as a Class II or III director
will continue after the annual meeting.
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Name
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Age
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Position
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Jeffrey T. Housenbold
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37
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President, Chief Executive Officer
and Director
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Philip A. Marineau
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60
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Chairman of the Board
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Patricia A. House
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Director
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Eric J. Keller
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Director
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Stephen J. Killeen
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44
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Director
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Nancy J. Schoendorf
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52
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Director
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James N. White
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45
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Director
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8
Nominees
for Election for a Three-year Term Expiring at the 2010 Annual
Meeting
Nancy J. Schoendorf has served on our Board of
Directors since February 2004. Ms. Schoendorf has been a
managing partner with Mohr, Davidow Ventures, a venture capital
firm, since June 1993. Previously, she served as director of
systems software development at Sun Microsystems, Inc., a
provider of network computing products and services, from 1988
to 1989, as an officer and Vice President of Research and
Development and Product Development at Software Publishing
Corporation, an international supplier of business productivity
software, from 1985 to 1988, and as an engineering section
manager at Hewlett-Packard Company, a global technology company,
from 1976 to 1985. She currently serves on the Board of
Directors of Agile Software Corporation, a provider of product
lifecycle management solutions, as well as several privately
held companies. Ms. Schoendorf holds a Bachelor of Science
degree in Computer Science and Mathematics from Iowa State
University and a Master of Business Administration degree from
the University of Santa Clara.
Eric J. Keller has served on our Board of
Directors since March 2006. Mr. Keller has been the Chief
Executive Officer of Movaris, Inc., a financial software
company, since March 2004. From September 2003 to February 2004
and from September 2001 to December 2001, Mr. Keller served
as a consultant to various technology companies. From January
2002 to September 2002, Mr. Keller served as interim Chief
Financial Officer to Cardica, Inc., a medical device company.
From October 2002 to August 2003, he served as President and
Chief Executive Officer of Endovasix, Inc., a medical device
company. From February 2000 to July 2001, Mr. Keller served
as Chief Financial Officer of Corio, Inc., an enterprise
application service provider. Mr. Keller holds a Bachelor
of Science degree in Industrial Relations from Cornell
University and a Master of Business Administration degree from
the University of California, Berkeley.
Directors
Continuing in Office Until the 2008 Annual Meeting
Philip A. Marineau has served on our Board of
Directors since February 2007, and currently is the chairman of
the Board. From 1999 to 2006, Mr. Marineau served as the
President and Chief Executive Officer of Levi
Strauss, & Co. From 1997 to 1999, he served as
President and Chief Executive Officer of Pepsi-Cola North
America. He currently serves on the Board of Directors of Kaiser
Permanente, the American Institute of Public Service, the Holy
Family Day Home, the Golden Gate National Parks Conservancy, and
Meredith Corporation where he serves as the chair of the audit
committee. Mr. Marineau holds a Bachelor of Arts degree
from Georgetown University and a Master of Business
Administration degree from Northwestern University.
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Patricia A. House has served on our Board of
Directors since January 2006. Ms. House was a co-founder of
Siebel Systems, Inc., a provider of enterprise applications and
now a wholly owned subsidiary of Oracle Corporation. From
January 2001 to February 2006, Ms. House served as Siebel
Systems, Inc.s Vice Chairman, Co-Founder and Vice
President of Strategic Planning. From February 1996 to January
2001, she served as its Co-Founder and Executive Vice President
and from July 1993 to February 1996 as its Co-Founder and Senior
Vice President of Marketing. She currently serves on the Board
of Directors of BDNA Corporation, a provider of business
software, and Levi Strauss & Co., a jeans and casual
wear manufacturer. Ms. House holds a Bachelor of Arts
degree in Education from Western Michigan University.
Directors
Continuing in Office Until the 2009 Annual Meeting
Jeffrey T. Housenbold has served as our President,
Chief Executive Officer and a director since January 2005. Prior
to joining Shutterfly, Mr. Housenbold served as Vice
President of Business Development and Internet Marketing at eBay
Inc., an online marketplace for the sale of goods and services,
from January 2002 to January 2005. Previously, he was the Vice
President & General Manager,
Business-to-Consumer
Group at eBay from June 2001 to January 2002, and served as Vice
President, Mergers & Acquisitions of eBay from March to
June 2001. Mr. Housenbold holds Bachelor of Science degrees
in Economics and Business Administration from Carnegie Mellon
University and a Master of Business Administration degree from
the Harvard Graduate School of Business Administration.
James N. White has served on our Board of
Directors since November 2005. Mr. White has been a
managing director at Sutter Hill Ventures, a venture capital
firm, since October 2000. Mr. White previously held senior
executive positions at Macromedia, Inc., a software developer;
Silicon Graphics, Inc., a provider of graphical computing
workstations; and Hewlett-Packard Company. Mr. White serves
on the Board of Directors of numerous privately held companies.
Mr. White holds a Bachelor of Science degree in Industrial
Engineering from Northwestern University and a Master of
Business Administration degree from the Harvard Graduate School
of Business Administration.
Stephen J. Killeen has served on our Board of
Directors since February 2007. From November 2002 to March 2006,
Mr. Killeen served as the President and Chief Executive
Officer of WorldWinner, a casual gaming company that he
successfully sold to London-based Fun Technologies. From
February 2001 to November 2002, he served as President of
TerraLycos, the worlds fourth-largest media property. He
has served on the Board of Directors of Switchboard, Lycos
Europe, Molecular and Marketing Services Group, and Junior
Achievement of New England. Mr. Killeen holds a Bachelor of
Arts degree from Union College.
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There are no family relationships among any of our directors and
executive officers.
Executive
Officers
The following is biographical information as of April 4,
2007 for our executive officers not discussed above.
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Name
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Age
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Position
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Stephen E. Recht
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55
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Chief Financial Officer
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Stanford S. Au
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46
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Senior Vice President, Technology
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Dwayne A. Black
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46
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Senior Vice President, Operations
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Douglas J. Galen
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45
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Senior Vice President, Business
and Corporate Development
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John A. Kaelle
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38
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Vice President, Finance
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Andrew F. Young
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Chief Marketing Officer
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Stephen E. Recht has served as our Chief Financial
Officer since June 2004. Prior to joining Shutterfly,
Mr. Recht served as Chief Operating Officer and Chief
Financial Officer at SkyStream Networks, Inc., a provider of IP
video delivery platforms, from August 2003 to June 2004.
Previously, he was the Chief Financial Officer at Brience, Inc.,
a provider of mobile infrastructure software, from July 2001 to
May 2002, and from May 2002 to July 2003, he served as its Chief
Executive Officer. Mr. Recht was previously the Chief
Financial Officer at Allegis, Inc., an application services
provider for partner relationship management software, from
April 2000 to May 2001. Mr. Recht was the Chief Financial
Officer of NetGravity Inc., an Internet advertising provider
that was acquired by DoubleClick Inc., from November 1996 to
October 1999. Mr. Recht also served as a Director and Chair
of the Audit Committee of the Board of Directors of Marimba,
Inc., a provider of products and services for software change
and configuration management, from August 2003 to July 2004.
Mr. Recht holds a Bachelor of Arts degree in Economics from
Stanford University and a Master of Business Administration
degree from the Wharton School at the University of Pennsylvania.
Stanford S. Au has served as our Senior Vice
President, Technology since April 2006. Prior to joining
Shutterfly, Mr. Au served as Vice President of Engineering
at WebEx Communications, Inc., a provider of online meeting
services, from October 2003 to November 2005. Previously, he was
the Senior Vice President of Engineering at Virage, Inc., a
provider of security and surveillance systems, from January 2002
to August 2003, and served as Vice President of Engineering and
General Manager of the Internet Bill Presentment and Payment
(IBPP) business at AOL Time Warner Inc., a media and
communications company, from July 1997 to September 2001.
Mr. Au holds a Bachelor of
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Science degree in Electrical Engineering and Computer Science
from the University of California, Berkeley.
Dwayne A. Black has served as our Senior Vice
President, Operations since February 2007. Prior to joining
Shutterfly, Mr. Black held multiple positions at Banta
Corporation, a provider of a leading provider of printing and
digital imaging solutions to publishers and direct marketers
owned by RR Donnelley (NYSE: RRD), including Vice President of
Operations, from 1994 to 2006. Mr. Black holds a Bachelors
of Science degree in Engineering from Purdue University.
Douglas J. Galen has served as our Senior Vice
President, Business and Corporate Development since March 2005.
Prior to joining Shutterfly, Mr. Galen served as President
of Fourth Fleet Financial Inc., an auto finance company, from
March 2004 to March 2005, as Vice President of New Ventures for
eBay from April 2001 to March 2004, and Vice President of Sales
and Business Development for
E-LOAN,
Inc., a provider of loans, lines of credit and credit card
referrals, from June 1997 to December 2000. Mr. Galen
serves on the Board of Directors of Positive Coaching Alliance.
He holds a Bachelor of Arts degree in Economics and a Master of
Business Administration degree in Real Estate and Finance from
University of California, Berkeley.
John A. Kaelle has served as our Vice President,
Finance since October 2004. Prior to joining Shutterfly,
Mr. Kaelle was a Vice President in the Mergers and
Acquisitions group at Thomas Weisel Partners LLC, an investment
banking firm, from August 2000 to July 2004. Previously, he was
the Assistant Controller at TriNet Corporate Realty Trust, Inc.,
a real estate investment trust, from April 1997 until July 1998.
Mr. Kaelle holds a Bachelor of Arts degree in Economics
from the University of Michigan, a Masters degree in Taxation
from Golden Gate University and a Master of Business
Administration degree in Finance from The Wharton School at the
University of Pennsylvania. Mr. Kaelle is a certified
public accountant in the State of California.
Andrew F. Young has served as our Chief Marketing
Officer since July 2001. Prior to joining Shutterfly,
Mr. Young served as Vice President of Marketing at Vivaldi
Networks, a retail-based technology company, from July 2000 to
May 2001. Previously, he was the Senior Vice President of
Marketing in the Interactive Division at Mattel, Inc., a leading
toy and game manufacturer, from January 1998 to January 2000,
and served as Director of Marketing at Del Monte Foods Company,
a manufacturer and distributor of canned fruit and vegetables,
from May 1991 to December 1997. Mr. Young holds a Bachelor
of Arts degree in Economics from the University of Virginia and
a Master in Business Administration degree from the Wharton
School at the University of Pennsylvania.
12
Independence
of the Board of Directors and its Committees
As required under The NASDAQ Stock Market listing standards, a
majority of the members of a listed companys Board of
Directors must qualify as independent, as
affirmatively determined by the board. Our Board of Directors
consults with our counsel to ensure that the Boards
determinations are consistent with all relevant securities and
other laws and regulations regarding the definition of
independent, including those set forth in applicable
NASDAQ listing standards, as in effect from time to time.
Consistent with these considerations, after review of all
relevant transactions or relationships between each director, or
any of his or her family members, and Shutterfly, Inc., our
senior management and our independent registered public
accounting firm, our Board of Directors believes that six of our
directors are independent as required by the rules of The NASDAQ
Stock Market: Philip A. Marineau, Patricia A. House, Eric J.
Keller, Stephen J. Killeen, Nancy J. Schoendorf and James N.
White.
Ms. Schoendorf and Mr. White are affiliated with two
of our principal stockholders, Mohr, Davidow Ventures and Sutter
Hill Ventures, respectively, and were appointed to our Board of
Directors under the provisions of a voting agreement between us
and certain of our stockholders prior to our initial public
offering. Upon the completion of our initial public offering,
the voting agreement was terminated.
James H. Clark, who served on our Board of Directors and
compensation committee during fiscal year 2006, is affiliated
with one of our principal stockholders, Monaco Partners. Under
the applicable rules and regulations of The NASDAQ Stock Market,
Mr. Clark was not considered an independent
director because of interest payments received by Monaco
Partners, L.P. in 2003 and 2004. Under the rules and regulations
of The NASDAQ Stock Market, we were allowed one year to phase in
our compliance with having a compensation committee comprised
solely of independent directors. Mr. Clark resigned from
his position on our Board of Directors and compensation
committee effective January 1, 2007.
As required under applicable NASDAQ listing standards, our
independent directors meet in regularly scheduled executive
sessions at which only independent directors are present. All of
the committees of our Board of Directors are comprised entirely
of directors determined by the Board to be independent within
the meaning of applicable NASDAQ listing standards.
13
Information
Regarding the Board of Directors and its Committees
Our Board of Directors has an audit committee, a compensation
committee and a governance committee. The following is
membership and meeting information for each of these committees
during the fiscal year ended December 31, 2006, as well as
a description of each committee and its functions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit
|
|
|
Compensation
|
|
|
Governance
|
|
Name
|
|
Committee
|
|
|
Committee
|
|
|
Committee
|
|
|
James H. Clark(1)
|
|
|
|
|
|
|
X
|
|
|
|
|
|
Patricia A. House
|
|
|
X
|
|
|
|
X
|
*
|
|
|
|
|
Eric J. Keller
|
|
|
X
|
*
|
|
|
|
|
|
|
|
|
Stephen J. Killeen(2)
|
|
|
|
|
|
|
X
|
|
|
|
X
|
*
|
Nancy J. Schoendorf
|
|
|
|
|
|
|
X
|
|
|
|
X
|
|
James N. White(3)
|
|
|
X
|
|
|
|
|
|
|
|
X
|
|
Total meetings in fiscal year 2006
|
|
|
5
|
|
|
|
5
|
|
|
|
0
|
|
|
|
|
*
|
|
Committee Chairperson
|
|
(1)
|
|
Mr. Clark resigned from his
position on our Board of Directors and the compensation
committee as of January 1, 2007.
|
|
(2)
|
|
Mr. Killeen joined the Board
and his committees on February 6, 2007.
|
|
(3)
|
|
Mr. White was replaced by
Mr. Killeen as chair of the governance committee on
February 6, 2007.
|
Audit
Committee
The audit committee operates pursuant to a written charter that
is available on our website at
http://www.shutterfly.com.
The audit committee oversees the integrity of our accounting and
financial reporting process and the audits of our financial
statements. Among other matters, the audit committee is directly
responsible for: the selection, compensation, retention and
oversight of our independent registered public accounting firm;
reviewing our independent registered public accounting
firms continuing independence; approving the fees and
other compensation to be paid to our independent registered
public accounting firm; pre-approving all audit and non-audit
related services provided by our independent registered public
accounting firm; reviewing and discussing with management and
our independent registered public accounting firm the results of
the quarterly and annual financial statements; reviewing and
discussing with management and our independent registered public
accounting firm our selection, application and disclosure of our
critical accounting policies; discussing with our independent
registered public accounting firm both privately and with
management the adequacy of our accounting and financial
reporting processes and systems of internal control; reviewing
any significant deficiencies and material weaknesses in the
design or operation over internal control over financial
reporting; and annually reviewing and evaluating the composition
and
14
performance of the audit committee, including the adequacy of
the audit committee charter.
The current members of our audit committee are Eric J. Keller,
who is the chair of the audit committee, James N. White and
Patricia A. House. Mr. Keller is our audit committee
financial expert, as defined under applicable SEC rules. We
believe that each member of our audit committee meets the
requirements for independence and financial literacy under the
applicable rules and regulations of the SEC and The NASDAQ Stock
Market.
Compensation
Committee
The compensation committee operates pursuant to a written
charter that is available on our website at
http://www.shutterfly.com. The compensation committee
evaluates, recommends and approves all components of
compensation for our executive officers, as well as general
policies relating to compensation and benefits of our employees.
Among other matters, the compensation committee is responsible
for annually reviewing and approving corporate goals and
objectives relevant to the compensation of our chief executive
officer and other executive officers; evaluating the performance
of these officers in light of those goals and objectives and
setting the compensation of these officers based on such
evaluations; administering and interpreting our cash and
equity-based compensation plans; annually reviewing and making
recommendations to the Board of Directors with respect to all
cash and equity-based incentive compensation plans and
arrangements; and annually reviewing and evaluating the
composition and performance of the compensation committee,
including the adequacy of the compensation committee charter.
The committee has delegated authority to our Chief Executive
Officer to grant stock options for up to 35,000 shares of
common stock to newly-hired employees, who are not directors of
the company or executive officers.
The agenda for meetings of the compensation committee is
determined by its Chairman with the assistance of our Chief
Executive Officer and Chief Financial Officer. Compensation
committee meetings are regularly attended by our Chief Executive
Officer and our Chief Financial Officer. The compensation
committees Chairman reports the committees
recommendations and decisions on executive compensation to our
Board of Directors. The compensation committee also reviews our
total fees paid to outside consultants to ensure that the
consultant maintains its objectivity and independence when
rendering advice to the committee.
The current members of our compensation committee are Patricia
A. House, who is the chair of the compensation committee, Nancy
J. Schoendorf, and Stephen J. Killeen. We believe that each of
Ms. House, Ms. Schoendorf and Mr. Killeen: is
(a) an independent director under the
applicable rules and
15
regulations of The NASDAQ Stock Market, (b) a
non-employee director within the meaning of
Rule 16b-3
of the Securities Exchange Act of 1934, and (c) an
outside director, as that term is defined under
Section 162(m) of the Internal Revenue Code of 1986.
Governance
Committee
The governance committee operates pursuant to a written charter
that is available on our website at
http://www.shutterfly.com. The governance committee is
responsible for making recommendations to the Board of Directors
regarding candidates for directorship and the structure and
composition of our Board of Directors and committees of the
Board of Directors. Among other things, the governance committee
is responsible for identifying, evaluating and nominating
candidates for appointment or election as members of our Board
of Directors; developing, recommending and evaluating a code of
conduct and ethics applicable to all of our employees, officers
and directors and a code applicable to our chief executive
officer and a senior finance department personnel; recommending
that our Board of Directors establish special committees as may
be necessary or desirable from time to time; recommending
policies and procedures for stockholder nomination of directors
and annually reviewing and evaluating the composition and
performance of the governance committee, including the adequacy
of the governance committee charter.
The current members of the governance committee are Stephen J.
Killeen, who is the chair of the governance committee, James N.
White and Nancy J. Schoendorf. We believe that the members of
our governance committee are independent directors
under the applicable rules and regulations of The NASDAQ Stock
Market.
All nominees for the Board of Directors should be committed to
enhancing long-term stockholder value and must possess a high
level of personal and professional ethics, sound business
judgment and integrity. The governance committees goal is
to identify potential directors who can make significant
contributions to our ability to fulfill our vision and mission,
uphold our company values and achieve our corporate goals. The
governance committee may from time to time assess the
appropriate skills and characteristics required of our Board of
Directors, including such factors as independence, diversity,
integrity, skills, financial and other expertise, breadth of
experience, knowledge about our business and industry, and
willingness to devote adequate time and effort to Board of
Directors responsibilities. In evaluating potential candidates
for the Board of Directors, the governance committee considers
these factors in the light of the specific needs of the Board of
Directors at that time. Each member of our Board of Directors is
expected to thoroughly prepare for, attend and actively
16
participate in meetings of the Board of Directors and committees
on which they serve.
The governance committee will consider director candidates
recommended by stockholders. The governance committee does not
intend to alter the manner in which it evaluates candidates,
including the minimum criteria set forth above, based on whether
or not the candidate was recommended by a stockholder.
Stockholders who wish to recommend individuals for consideration
by the governance committee to become nominees for election to
the Board of Directors at an annual meeting of stockholders must
do so in accordance with the procedures set forth in When
are stockholder proposals due for next years annual
meeting? in this proxy statement. Each submission must set
forth: the name and address of the stockholder on whose behalf
the submission is made; the class and number of our shares that
are owned beneficially by such stockholder as of the date of the
submission; and the candidates written consent to being
named in such proxy statement as a nominee and to serving as a
director if elected. To date, the governance committee has not
received a director nominee from a stockholder or stockholders
holding more than five percent of our voting stock.
Meetings
of the Board of Directors, Board and Committee Member Attendance
and Annual Meeting Attendance
Our Board of Directors met 10 times during the last fiscal year.
During 2006, each Board member attended 75% or more of the
aggregate of the meetings of the Board and of the committees on
which he or she served, held during the period for which he or
she was a director or committee member, respectively.
We encourage all of our directors and nominees for director to
attend our annual meeting of stockholders. This is the first
year we will be having an annual meeting as a public company.
Stockholder
Communications with the Board of Directors
Should stockholders wish to communicate with the Board, such
correspondences should be sent to the attention of the
Companys Secretary, at 2800 Bridge Parkway,
Suite 101, Redwood City, California 94065. The
Companys Secretary will forward the communication to the
other Board members.
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee is comprised entirely of independent
directors. None of the members of our compensation committee has
at any time been
17
one of our officers or employees. None of our executive officers
serves or in the past has served as a member of the Board of
Directors or compensation committee of any entity that has one
or more of its executive officers serving on our Board of
Directors or our compensation committee.
CODE OF
BUSINESS CONDUCT AND ETHICS
We have adopted a Code of Conduct and Ethics that applies to all
of our officers, directors and employees. We have also adopted
an additional written code of ethics, the Code of Conduct and
Ethics for Chief Executive Officer and Senior Finance Department
Personnel, for financial employees that applies to our principal
executive officer, principal financial officer, principal
accounting officer, controller and other employees of the
finance department designated by our Chief Financial Officer.
These codes are available on our website at
http://www.shutterfly.com. If we make any substantive
amendments to the codes or grant any waiver from a provision of
the codes to any executive officer or director, we will promptly
disclose the nature of the amendment or waiver on our website,
as well as via any other means then required by NASDAQ listing
standards or applicable law.
18
PROPOSAL NO. 2
RATIFICATION
OF SELECTION OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The audit committee of our Board of Directors has engaged
PricewaterhouseCoopers LLP as our independent registered public
accounting firm for the fiscal year ending December 31,
2007 and is seeking ratification of such selection by our
stockholders at the annual meeting. PricewaterhouseCoopers LLP
has audited our financial statements since 2001. Representatives
of PricewaterhouseCoopers LLP are expected to be present at the
annual meeting. They will have an opportunity to make a
statement if they so desire and will be available to respond to
appropriate questions.
Neither our bylaws nor other governing documents or law require
stockholder ratification of the selection of
PricewaterhouseCoopers LLP as our independent registered public
accounting firm. However, the audit committee is submitting the
selection of PricewaterhouseCoopers LLP to our stockholders for
ratification as a matter of good corporate practice. If our
stockholders fail to ratify the selection, the audit committee
will reconsider whether or not to retain PricewaterhouseCoopers
LLP. Even if the selection is ratified, the audit committee in
its discretion may direct the appointment of a different
independent registered public accounting firm at any time during
the year if they determine that such a change would be in the
best interests of Shutterfly and our stockholders.
To be approved, the ratification of the selection of
PricewaterhouseCoopers LLP as our independent registered public
accounting firm must receive a For vote from the
majority of shares present and entitled to vote either in person
or by proxy. Abstentions and broker non-votes will be counted
towards a quorum, but will not be counted for any purpose in
determining whether this matter has been approved.
19
Principal
Accountant Fees and Services
The following table provides information regarding the fees
billed to us by PricewaterhouseCoopers LLP for the fiscal years
ended December 31, 2006 and 2005. All fees described below
were approved by the audit committee.
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Audit Fees(1)
|
|
$
|
1,593,100
|
|
|
$
|
721,000
|
|
Audit-Related Fees
|
|
|
|
|
|
|
|
|
Tax Fees
|
|
|
25,500
|
|
|
|
70,894
|
|
All Other Fees
|
|
|
1,500
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
|
$
|
1,620,100
|
|
|
$
|
793,394
|
|
|
|
|
(1) |
|
Represents fees for services rendered for the audit
and/or
reviews of our financial statements. Also includes fees for
services associated with SEC registration statements, periodic
reports and other documents filed with the SEC or other
documents issued in connection with securities offerings (e.g.,
comfort letters and consents), and assistance in responding to
SEC comment letters. |
Audit
Fees
The aggregate fees billed to us by PricewaterhouseCoopers LLP
for the audit of our financial statements during fiscal 2006 and
2005 were approximately $1,593,100 and $721,000, respectively.
Audit fees for fiscal 2006 were primarily for the audit of our
fiscal 2005 consolidated financial statements and the review of
our quarterly 2006 and 2005 financial statements. Audit fees for
2006 also include fees and expenses of $642,750 for services
related to our initial public offering and our Registration
Statement on
Form S-1.
Audit fees for 2005 were primarily for the performance of the
quarterly reviews of our 2005 financial statements, the audit
and quarterly reviews of our 2004 financial statements and the
audit of our 2003 financial statements.
Tax
Fees
The aggregate fees billed to us by PricewaterhouseCoopers LLP
for services rendered for tax compliance, tax advice, and tax
planning during fiscal 2006 and 2005 were $22,500 and $70,894,
respectively. Tax related services for fiscal 2006 and 2005 were
primarily for tax advice and tax planning.
20
All Other
Fees
All other fees billed to us by PricewaterhouseCoopers LLP were
$1,500 during each of fiscal 2006 and 2005 and were related to
fees for access to certain online applications.
Pre-Approval
Policies and Procedures
The audit committee pre-approves all audit and non-audit
services provided by its independent registered public
accounting firm. This policy is set forth in the charter of the
audit committee and available at www.shutterfly.com.
The audit committee considered whether the non-audit services
rendered by PricewaterhouseCoopers LLP were compatible with
maintaining PricewaterhouseCoopers LLPs independence as
the independent registered public accounting firm of the
companys consolidated financial statements and concluded
they were.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS
OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL
YEAR ENDING DECEMBER 31, 2007.
21
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information as to the beneficial
ownership of our common stock as of April 4, 2007:
|
|
|
|
|
each stockholder known by us to be the beneficial owner of more
than 5% of our common stock;
|
|
|
|
each of our directors;
|
|
|
|
each named executive officer as set forth in the summary
compensation table below; and
|
|
|
|
all executive officers and directors as a group.
|
Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities. Unless
otherwise indicated below, to our knowledge, the persons and
entities named in the table have sole voting and sole investment
power with respect to all shares beneficially owned, subject to
community property laws where applicable. Shares of our common
stock subject to options that are currently exercisable or
exercisable within 60 days of April 4, 2007 are deemed
to be outstanding and to be beneficially owned by the person
holding the options for the purpose of computing the percentage
ownership of that person, but are not treated as outstanding for
the purpose of computing the percentage ownership of any other
person.
22
Percentage ownership of our common stock in the table is based
on 24,007,033 shares of our common stock outstanding on
April 4, 2007. Unless otherwise indicated, the address of
each of the individuals and entities named below is
c/o Shutterfly, Inc., 2800 Bridge Parkway, Suite 101,
Redwood City, California 94065.
|
|
|
|
|
|
|
|
|
|
|
Shares of Common
|
|
|
|
Stock Beneficially
|
|
Name of
|
|
Owned
|
|
Beneficial Owner
|
|
Number
|
|
|
Percentage
|
|
|
5% Stockholders:
|
|
|
|
|
|
|
|
|
Entities affiliated with James H.
Clark(1)
|
|
|
7,167,692
|
|
|
|
29.9
|
%
|
Mohr, Davidow Ventures and
affiliated entities(2)
|
|
|
4,088,510
|
|
|
|
17.0
|
|
Sutter Hill Ventures and affiliated
persons and entities(3)
|
|
|
1,613,730
|
|
|
|
6.7
|
|
Directors and Executive
Officers:
|
|
|
|
|
|
|
|
|
Nancy J. Schoendorf(2)
|
|
|
4,088,510
|
|
|
|
17.0
|
|
James N. White(4)
|
|
|
1,210,378
|
|
|
|
5.0
|
|
Patricia A. House(5)
|
|
|
50,368
|
|
|
|
*
|
|
Eric J. Keller(6)
|
|
|
58,333
|
|
|
|
*
|
|
Philip A. Marineau(7)
|
|
|
7.083
|
|
|
|
*
|
|
Stephen J. Killeen(8)
|
|
|
4,166
|
|
|
|
*
|
|
Jeffrey T. Housenbold(9)
|
|
|
1,288,146
|
|
|
|
5.4
|
|
Stephen E. Recht(10)
|
|
|
301,000
|
|
|
|
1.3
|
|
Douglas J. Galen(11)
|
|
|
250,000
|
|
|
|
1.0
|
|
Jeannine M. Smith Thomas(12)
|
|
|
474,453
|
|
|
|
2.0
|
|
Stanford S. Au(13)
|
|
|
210,000
|
|
|
|
*
|
|
All 13 directors and executive
officers as a group(14)
|
|
|
7,808,441
|
|
|
|
32.5
|
|
|
|
|
* |
|
Represents beneficial ownership of less than one percent of the
outstanding shares of common stock. |
|
(1) |
|
Consists of 5,018,610 shares held by Monaco Partners, L.P.,
1,947,082 shares held by JHC Investments, LLC,
17,000 shares held by JHC Investments 2000, LLC,
125,000 shares held by Woodside Ventures Limited
Partnership, 50,000 shares held by Atherton Properties
Partnership, L.P. and 10,000 shares held by Mountain Wood
Properties, LLC. Mr. Clark has sole voting and investment
power over the shares held by Monaco Partners, L.P., JHC
Investments LLC, JHC Investments 2000, LLC and Woodside Ventures
Limited Partnership. Two of Mr. Clarks adult children
and one of their spouses have voting and investment power over
the shares held by Atherton Properties Partnership, L.P. and
Mountain Wood Properties, LLC. The address of Mr. Clark is
1700 Seaport Blvd., 4th Floor, Redwood City, CA 94063 and
the address of the entities listed above is 777 East William
Street #201, Carson City, NV 89701. |
23
|
|
|
|
|
Mr. Clark resigned from his position on our Board of
Directors as of January 1, 2007. |
|
(2) |
|
Consists of 2,419,867 shares held by Mohr, Davidow
Ventures V, L.P., 1,516,168 shares held by Mohr,
Davidow Ventures V-L, L.P, and 152,475 shares held by Mohr,
Davidow Ventures V, L.P. as nominee for MDV
Entrepreneurs Network Fund II (A), L.P. and MDV
Entrepreneurs Network Fund II (B), L.P.
Ms. Schoendorf is a managing member of the general partners
of the foregoing entities and shares voting and investment power
with respect to the shares held by these entities with Jon
Feiber, the other managing member of the general partners.
Ms. Schoendorf disclaims beneficial ownership of these
shares except to the extent of her individual pecuniary interest
in these entities. The address of Mohr, Davidow Ventures and
Ms. Schoendorf is 3000 Sand Hill Road, Building 3,
Suite 290, Menlo Park, CA 94025. |
|
(3) |
|
Consists of (a) 1,204,205 shares held by Sutter Hill
Ventures, A California Limited Partnership (SHV),
(b) 1,684 shares held by SHV Profit Sharing Plan for
the benefit of James N. White, one of our directors and a
managing director of the general partner of SHV,
(c) 323 shares held by James N. White and Patricia A.
OBrien as Trustees of The White Family Trust U/A/D
4/3/97,
(d) 397,165 shares held by eight other managing
directors of the general partner of SHV and by family trusts,
family partnerships or other entities associated with these
individuals and (e) 10,353 shares held by other
individuals affiliated with Sutter Hill and by entities
associated with them. Mr. White shares voting and
investment power with respect to the shares held by SHV with
David L. Anderson, G. Leonard Baker, Jr., Tench Coxe,
Gregory P. Sands, James C. Gaither, William H.
Younger, Jr., Jeffrey W. Bird and David E. Sweet, each of
whom is a managing director of the general partner of SHV.
Messrs. White, Anderson, Baker, Coxe, Sands, Gaither,
Younger, Bird and Sweet disclaim beneficial ownership of these
shares except to the extent of their individual pecuniary
interest, in SHV. Mr. White has sole voting and investment
power with respect to the shares held by SHV Profit Sharing Plan
for the benefit of James N. White and has shared voting and
investment power with respect to the shares held by The White
Family Trust, and disclaims beneficial ownership of the shares
held by The White Family Trust except to the extent of his
individual pecuniary interest in such trust. Mr. White and
SHV do not have voting or investment power with respect to the
shares referenced under part (d) and (e) of this
footnote. The address of SHV and Mr. White is 755
Page Mill Road,
Suite A-200,
Palo Alto, CA
94304-1005. |
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(4) |
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Includes 1,204,205 shares held by SHV, 1,684 shares
held by SHV Profit Sharing Plan for the benefit of James N.
White, 323 shares held by James |
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N. White and Patricia A. OBrien as Trustees of The White
Family Trust U/A/D
4/3/97, and
4,166 shares subject to options exercisable within
60 days of April 4, 2007. Mr. White has shared
voting and investment power as described in footnote
(3) with respect to the shares held by SHV, sole voting and
investment power with respect to the shares held by SHV Profit
Sharing Plan for the benefit of James N. White and shared voting
and investment power with respect to the shares held by The
White Family Trust. Mr. White disclaims beneficial
ownership of shares held by SHV and The White Family Trust
except to the extent of his individual pecuniary interest in SHV
and The White Family Trust. The address of SHV and
Mr. White is 755 Page Mill Road,
Suite A-200,
Palo Alto, CA
94304-1005. |
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(5) |
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Consists of 50,368 shares subject to options that are
exercisable within 60 days of April 4, 2007. |
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(6) |
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Consists of 58,333 shares subject to options that are
exercisable within 60 days of April 4, 2007. |
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(7) |
|
Consists of 7,083 shares subject to options that are
exercisable within 60 days of April 4, 2007. |
|
(8) |
|
Consists of 4,166 shares subject to options that are
exercisable within 60 days of April 4, 2007. |
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(9) |
|
Consists of 1,288,146 shares subject to options that are
exercisable within 60 days of April 4, 2007. |
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(10) |
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Includes 201,000 shares subject to options that are
exercisable within 60 days of April 4, 2007 and
100,000 shares that were exercised on August 6, 2004. |
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(11) |
|
Consists of 250,000 shares subject to options that are
exercisable within 60 days of April 4, 2007. |
|
(12) |
|
Includes 81,600 shares subject to options that are
exercisable within 60 days of April 4, 2007 and
72,000 shares held in a trust for the benefit of
Ms. Smith Thomas minor children. |
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(13) |
|
Consists of 210,000 shares subject to options that are
exercisable within 60 days of April 4, 2007. |
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(14) |
|
Includes the following directors and executive officers: Nancy
J. Schoendorf, James N. White, Patricia A. House, Eric J.
Keller, Philip A. Marineau, Stephen J. Killeen, Jeffrey T.
Housenbold, Stephen E. Recht, Douglas J. Galen, Stanford S. Au,
Dwayne A. Black, Andrew F. Young and John A. Kaelle. |
25
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934
requires our directors and executive officers, and persons who
own more than ten percent of a registered class of our equity
securities, to file with the SEC initial reports of ownership
and reports of changes in ownership of our common stock and
other equity securities. Officers, directors and greater than
ten percent stockholders are required by SEC regulation to
furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of such
reports furnished to us and written representations that no
other reports were required, during the fiscal year ended
December 31, 2006, all Section 16(a) filing
requirements applicable to our officers, directors and greater
than ten percent beneficial owners were complied with.
26
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
This Compensation Discussion and Analysis provides qualitative
information and context for the information presented in the
Summary Compensation table and other tables and narrative that
follow. This section describes (1) the objectives and
philosophy underlying our executive compensation policies and
decisions; (2) the primary elements of our executive
compensation program; (3) the process by which we establish
executive compensation programs and awards; and (4) our
2006 compensation programs and awards earned in 2006 under those
programs by our Chief Executive Officer, Chief Financial Officer
and each of the three other executive officers listed in the
Summary Compensation tables below. We refer to these five
executive officers as our named executive officers elsewhere in
this proxy statement. The Compensation Committee of our Board of
Directors (the Committee) plays an active role in
all aspects of executive compensation.
Compensation
Objectives
The objective of our executive compensation program is to
attract, motivate and retain the exceptional leaders we need to
fulfill our vision and mission, uphold our company values and
achieve our corporate goals. These elements are described below.
Our Vision: Our vision is to make the world a better
place by helping people share lifes joy.
Our Mission: Our mission is to build an unrivaled service
that enables deeper, more personal relationships between our
customers and those who matter most in their lives.
Our Values: We passionately pursue excellence in
everything we do. We inspire customers and each other to be
creative and to achieve more than was thought possible. We act
as owners of Shutterfly, doing the right thing proactively,
decisively and based on facts. We are committed to supporting
each other and providing great service, quality and value to our
customers. We treat each other and our customers as we would
want to be treated.
Our Corporate Goals: We establish specific corporate and
financial goals each year. Our executive compensation programs
and decisions are designed to reward our employees for achieving
Shutterflys corporate and financial goals.
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More specifically, our executive compensation programs are
designed to:
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Attract executives who have the skills and experience necessary
to achieve our corporate goals.
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Reinforce a sense of ownership, urgency and overall
entrepreneurial spirit among executives by rewarding them fairly
over time, and by linking virtually all of their compensation in
excess of base salary to their performance against measurable
corporate and individual performance.
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Retain those individuals who continue to perform at a high level.
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Compensation
Philosophy
Our compensation philosophy provides the guiding principles for
structuring a compensation program that meets the objectives
outlined above.
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Compensation Should Reflect our Pay for Performance
Culture. A core element of our compensation
philosophy is our firm belief that pay should be directly linked
to performance. Accordingly, a significant portion of executive
compensation is contingent on, and varies based on, achievement
of corporate and individual performance goals.
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Compensation Should Reflect Responsibility and
Accountability. Total compensation is higher for
individuals with greater responsibility, greater ability to
influence our achievement of our corporate goals, and greater
accountability for those goals. As responsibility increases, a
greater portion of the executives total compensation is
performance-based pay, contingent on the achievement of company
and individual performance goals. Equity-based compensation is
accordingly higher for executives with higher levels of
responsibility and accountability for results. A significant
portion of their total compensation is dependent on long-term
stock appreciation.
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Compensation Should Enhance Stockholder
Value. Compensation should focus management on
achieving its short-term (annual) results in a manner that also
supports our long-term success and profitability. Annual
performance-based pay creates incentives for achieving results
that enhance stockholder value in the short term, while stock
options serve to align the interests of our executives with our
stockholders over a longer time frame.
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Compensation Should be Reasonable and
Responsible. Shutterflys overall executive
compensation levels must be sufficiently competitive to attract
and retain talented leaders and motivate those leaders to
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achieve company goals. At the same time, we believe that
compensation should be set at reasonable and fiscally
responsible levels.
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Compensation
Programs
Our executive compensation currently has three primary
components:
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Base compensation or salary
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Annual performance-based cash bonuses
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Equity awards
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Executive officers are also eligible to participate in all of
our employee benefit plans, such as medical, dental, vision,
group life, employee assistance program, short term and long
term disability, and accidental death and dismemberment
insurance and our 401(k) plan, in each case on the same basis as
other employees.
We view the three primary components of executive compensation
as related but distinct. We do not believe that total
compensation should be derived from one component, or that
significant compensation from one component should negate or
reduce compensation from other components.
The Committee determines the appropriate level for each
compensation component based primarily on (1) competitive
benchmarking consistent with our recruiting and retention goals;
(2) internal consistency; and (3) other relevant
considerations such as rewarding extraordinary performance.
Compensation (salary, bonus and equity) is set at competitive
levels. In addition, equity compensation is established at a
level that will provide the opportunity for an executive to be
well rewarded if we perform well over time. The Committee
believes it is important to achieve an appropriate balance
between current compensation (salary and bonus) and long-term
compensation (equity), as well as between cash and non-cash
compensation.
Base Pay. The Committee sets executive base
compensation at a level it believes will enable us to hire and
retain individuals in a competitive environment and to reward
individual performance and contribution to our overall corporate
goals. In determining base salaries, the Committee considers the
executives qualifications and experience, scope of
responsibilities and future potential, the goals established for
the executive, the executives past job performance, and
competitive salary practices at companies with whom we compete
for executives.
Annual Performance-Based Cash Bonuses. Our
executive bonuses reward executives for achieving key corporate
and financial objectives and individual goals. We use cash
bonuses to reward performance and achievements with a time
horizon of one year. For bonuses earned in 2006, the executive
bonus program
29
was informal and unwritten, and there were no formulas used to
determine payments. Thus, the amounts paid were subject to the
Committees discretion. However, the Committee did link
payments to specific, written objectives for each executive.
The Board recently approved a formal performance-based bonus
plan for fiscal 2007 (the 2007 Bonus Plan), in which
all employees, including the named executive officers, are
eligible to participate. The target bonus pool for all
employees, including the named executive officers, is
$1 million for 2007. At the discretion of the Committee,
the bonus pool may be adjusted upward if our financial
performance exceeds 2007 targets, up to a total bonus pool not
to exceed $2.76 million.
Bonus target levels for the named executive officers under the
2007 Bonus Plan have been determined based on contractual
commitments, the executives job level and salary grade and
survey data from the Radford Executive Survey. Under the terms
of his employment agreement, our Chief Executive Officer,
Jeffrey Housenbold, is entitled to receive a minimum bonus of
50% of his base salary. Under the 2007 Bonus Plan, our Chief
Financial Officer (Stephen Recht), our Senior Vice President,
Corporate and Business Development (Douglas Galen) and our
Senior Vice President, Technology (Stanford Au) are each
eligible to receive a target bonus of 30% of their respective
salaries. A bonus target was not established for Jeannine Smith,
our other named executive officer, because she plans to
terminate her employment during the first half of 2007 and she
ceased to be an executive officer in January, 2007.
The amounts of actual bonus awards under the 2007 Bonus Plan
could be higher or lower than the target levels, at the
discretion of the Committee, based on achievement of company and
individual goals. Actual bonuses for the named executive
officers will be paid based on our achievement of specified
revenue and earnings before interest, taxes, depreciation and
amortization (EBITDA) targets and on each
executives achievement of his or her individual objectives.
Stock Options. We use stock options as a
long-term incentive vehicle for several reasons:
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In the technology sector, equity awards are the primary factor
in attracting and retaining executive officers. Salary and bonus
levels are secondary considerations to most executives.
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Stock options foster employee stock ownership and focus
executives on increasing long-term value for the stockholders.
Thus, options reflect our compensation philosophy of aligning
the interests of executives with those of our stockholders.
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Stock options are performance-based. Their value depends
entirely on an increase in the stock price above the option
exercise price. All of our options are granted with an exercise
price no less than the fair market value of the stock on the
grant date.
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The vesting period for all employees including executives is
four years, which encourages executive retention.
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Our 2006 Equity Incentive Plan (the 2006 Plan) was
approved by our stockholders in conjunction with our initial
public offering in September 2006. It is the successor plan to
our 1999 Stock Plan (the 1999 Plan), which was
terminated on September 29, 2006. The 1999 Plan will
continue to govern all awards granted through September 29,
2006, even if they have not yet been exercised. The 2006 Plan
gives the Committee more latitude to design stock-based
incentive compensation by giving out restricted stock awards,
stock bonuses, stock appreciation rights, and restricted stock
units in order to promote high performance and achievement of
corporate goals, and to encourage the growth of stockholder
value.
In determining the number of options to be granted to executive
officers, the Committee takes into account the individuals
position and scope of responsibility; the vesting period (and
thus, retention value) remaining on the executives
existing options, the executives ability to affect
profitability and stockholder value; the individuals
historic and recent job performance; equity compensation for
similar positions at comparable companies, and the value of
stock options in relation to other elements of total
compensation.
Tax and Accounting Considerations. We record
cash compensation as an expense at the time the obligation is
accrued. Historically, all cash compensation we have paid has
been tax deductible for us. Under Section 162(m) of the
Internal Revenue Code, compensation in excess of
$1,000,000 per year to named executive officers is not tax
deductible to us unless certain requirements are met. The
deductibility of compensation to the named executive officers in
2006 was not affected by the limitations of Section 162(m),
and we expect the same for 2007. However, since corporate
objectives may not always be consistent with the requirements
for full deductibility, it is conceivable that, in the future,
we may enter into compensation arrangements for which payments
are not deductible under Section 162(m).
We account for equity compensation paid to our executives and
employees under the rules of SFAS No. 123R, which
requires us to estimate and record a non-cash expense over the
term of the equity compensation award. Any gain recognized by
employees from nonqualified stock options is tax-deductible for
us. However, gain recognized by an employee with respect to an
incentive stock option will not be deductible unless there is a
disqualifying disposition of the
31
shares by the employee. A disqualifying disposition occurs when
an employee sells or disposes of incentive stock option shares
within two years after the grant date or within one year after
the exercise date. The employee is taxed on the gain at ordinary
income tax rates. In addition, if in the future we grant
restricted stock or restricted stock unit awards that are not
subject to performance vesting, they may not be fully deductible
by us at the time the award is otherwise taxable to the employee.
Overview
of the Executive Compensation Process
Role of the Compensation Committee. The
Committee makes all decisions regarding compensation (including
salary and bonus levels and specific bonus and equity awards)
for all of our executive officers, including our named executive
officers. Prior to our initial public offering in September
2006, all Committee decisions with respect to the Chief
Executive Officer were subject to review by the full Board. Now
that we are publicly traded, the Committee makes all
compensation decisions regarding our Chief Executive Officer.
The Committee meets on a regularly scheduled basis and at other
times as needed. At the Committees request, Committee
meetings typically have included, for all or a portion of each
meeting, our Chief Executive Officer, our Chief Financial
Officer, our Vice President, human resources, our Vice
President, legal
and/or our
outside corporate legal counsel.
The Committee generally conducts an annual review of our
executive officers compensation to assess whether
compensation programs and decisions: (1) are aligned with
our vision, mission, values and corporate goals;
(2) provide appropriate short-term and long-term incentives
and motivation to our executive officers; and (3) are
competitive with compensation for comparable officers in
companies with which we compete for executives. The Chief
Executive Officer annually evaluates the performance of each
member of the senior executive team other than himself. He makes
recommendations to the Committee regarding salary adjustments
for the current year, as well as performance bonus payments and
equity awards based on performance of the company and individual
performance of each executive during the preceding year. The
conclusions reached and recommendations based on these
evaluations are presented to the Committee. The Committee, in
its sole discretion, determines whether to accept, modify or
reject any recommended adjustments or awards to the senior
executives. The Committee evaluates the performance of the Chief
Executive Officer each year and makes all decisions regarding
salary adjustments, bonus payments and equity awards.
Our Peer Group and Benchmarking of Executive
Compensation. In the first quarter of 2006,
Shutterfly worked with Watson Wyatt Worldwide to identify a peer
group of companies (the 2006 Peer Group) for
purposes of benchmarking
32
executive compensation. Watson Wyatt is one the top three
executive compensation consulting firms globally.
The 2006 Peer Group companies were selected based on
comparability with Shutterfly with respect to their stage of
development and their median sales, and whether Shutterfly
competed with the companies for executive talent. These were the
2006 Peer Group companies:
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Audible, Inc
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Red Envelope Inc.
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Blue Nile, Inc.
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Stamps.Com, Inc.
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Celebrate Express Inc.
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VistaPrint, Ltd.
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iVillage Inc.
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Websidestory, Inc.
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Jamdat Mobile Inc.
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WebMD Health Holdings Inc.
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NetRatings Inc.
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ZipRealty Inc.
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Although all of the Compensation Peer Group companies are
publicly traded, executive compensation information for each
company was available for the year immediately preceding its
initial public offering in the IPO prospectus.
In addition to using 2006 Peer Group information, Watson Wyatt
also used data obtained as a result of our participation in the
Radford/AON 2005 Total Compensation Survey, and MDV
Partners Venture Capital 2005 Executive Compensation
Survey, to benchmark executive compensation in 2006. For 2006 we
benchmarked cash and equity compensation only for our Chief
Executive Officer.
In the fourth quarter of 2006, the Committee engaged Watson
Wyatt to recommend updates to the Peer Group companies to
reflect changes in Shutterflys situation most
importantly, its status as a public company with a readily
ascertainable market capitalization. The Committee approved a
new peer group of companies (the 2007 Peer Group) of
publicly-traded Software, Internet, and Ecommerce companies and
companies that financial analysts use to value Shutterfly. The
specific companies were selected primarily based on similar
annual revenues (average of $150M) and market capitalization
(average of $455M), and consisted of companies with which
Shutterfly competes for executive talent and investor interest.
The 2007 Peer Group consisted of the following companies:
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1800 Flowers.com, Inc.
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Red Envelope Inc.
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Audible, Inc.
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Stamps.com, Inc.
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Blue Nile, Inc.
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TheStreet.com, Inc.
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Drugstore.com, Inc.
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TravelZoo, Inc.
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InnerWorkings, Inc.
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VistaPrint, Ltd.
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The Knot, Inc.
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Websidestory, Inc.
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Loopnet, Inc.
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33
In benchmarking executive compensation in 2007, the Committee
reviewed executive compensation information that Watson Wyatt
gathered from 2007 Peer Company proxy statements and Statements
of Beneficial Ownership filings with the SEC, as well as data
obtained as a result of our participation in the Radford/AON
2006 Total Compensation Survey. For 2007, benchmark data was
collected for all of our named executive officers.
At its January 2007 meeting, the Committee set 2007 executive
officer base salaries at approximately the
75th percentile
for the 2007 Peer Group. The Committee believes that the
75th percentile
for base salaries is the appropriate cash compensation level
that will allow us to attract and retain the exceptional leaders
we need to fulfill our vision and mission, uphold our company
values and achieve our corporate goals. Annual bonus target
levels were set at the
50th percentile
of our 2007 Peer Group for executives, based upon the bonuses of
executives in similar roles within our 2007 Peer Group. The
Committee believes that the
50th percentile
for annual bonuses is the appropriate level that will allow us
to attract and retain the exceptional leaders we need to fulfill
our vision and mission, uphold our company values and achieve
our corporate goals. Stock option grants as a percentage of
outstanding shares were set at or near the
75th percentile
for executives in similar positions as our 2007 Peer Group. The
Committee believes that the
75th percentile
for stock option grants is the appropriate level that will allow
us to attract and retain the exceptional leaders we need to
fulfill our vision and mission, uphold our company values and
achieve our corporate goals.
The Committee approved 2007 salary increases for all of the
named executive officers. Salaries for our named executive
officers (except for Mr. Au) had not been increased in 2005
or 2006, so increases were necessary to bring salaries more in
line with the Committees target of approximately the
75th percentile
for the 2007 Peer Group. Within that general guideline, the
Committee determined specific increases for each named executive
officer by considering the executives qualifications and
experience, scope of responsibilities, future potential, and
achievement of specific goals established for the executive and
the executives past job performance. The specific
increases were as follows: Mr. Housenbold: from $275,000 to
$300,000 (an increase of 9%); Mr. Recht: from $235,000 to
$250,000 (an increase of 6%); and Mr. Galen: from $225,000
to $240,000 (an increase of 7%). Mr. Au was hired in 2006
with a salary that was competitive with the Compensation Peer
Group at the time, so his increase was smaller than the
increases for the other named executive officers.
Mr. Aus salary was increased to $244,000, an increase
of 4%.
The Committees choice of target percentiles for cash,
bonus, and stock options was designed to result in compensating
what was necessary, to achieve our corporate goals, while
conserving cash and equity as much as practicable.
34
This is consistent with our philosophy of ensuring that
compensation decisions promote both the short-term and long-term
interests of stockholders. In instances where an executive
officer is uniquely critical to our success, the Committee may
establish compensation levels in excess of these percentiles.
The Committee realizes that using a single benchmark may not
always be appropriate, but it believes that benchmarking data
from a variety of sources is an important factor in ensuring
that we maintain executive compensation at a competitive level.
Fiscal
2006 Compensation
2006 Salaries. The Committee established 2006
salary levels in light of executive performance, financial
considerations and the other components of each executives
compensation. For the Chief Executive Officers , the
Committee also considered comparable company survey data,
including data from the 2006 Peer Group companies, as described
above under Our Peer Group and Benchmarking of
Executive Compensation. The Committee decided to leave
2006 salaries for the named executive officers at their 2005
levels. The Committee concluded that doing so would not likely
impact retention of those executives, and would preserve cash
for other purposes. The Board reviewed and concurred with the
Committees recommendation regarding the Chief Executive
Officers 2006 salary.
2006 Cash Bonuses. In order to determine cash
bonuses to be awarded to the named executive officers with
respect to fiscal 2006 performance, the Committee considered
(1) achievement of corporate and financial goals;
(2) achievement of individual performance objectives; and
(3) with respect to our Chief Executive Officer, the terms
in his employment contract. Bonus amounts other than those
specified by Mr. Housenbolds employment contract were
not dictated by any specific formula; they were determined by
the Committee, in its discretion, based on the factors noted
above. The principal factors considered by the Committee were
achievement of corporate financial objectives relating to
revenue and EBITDA, and achievement of individual objectives.
The relative weight given to each factor depended on the
executives accountability for, and ability to influence,
corporate objectives. The Committee set the target level for
revenue and EBITDA moderately higher than the Companys
publicly-announced long-term revenue / EBITDA objectives. The
Committee established final award amounts that were
proportionate to the level of achievement, rather than on an all
or nothing basis. For example, the Committee had the discretion
to award modest bonuses for substantial achievement of certain
objectives (particularly individual objectives), and higher than
targeted bonuses for achievements well above objectives.
Generally, the Committee tries to establish both target
financial objectives and individual objectives each year so that
the relative difficulty of achieving the
35
objectives is roughly consistent from year to year. Over the
past several years, the companys performance has ranged
from exceeding the target level corporate objectives, to meeting
the objectives and failing to achieve the objectives. The level
of achievement of individual performance objectives has also
varied by individual in any given year, as well as by the named
executive officers as a group from year to year.
For 2006, Shutterfly exceeded its revenue and EBITDA goals. This
was a major factor in the Committees bonus award decisions
for the named executive officers. The Committee awarded Jeffrey
Housenbold, our Chief Executive Officer, the target bonus of
$137,500 specified in his employment contract. The Committee
awarded an additional bonus in the amount of $12,500 in
recognition of company performance that exceeded our financial
targets, as well as Mr. Housenbolds achievement of
individual objectives. Mr. Housenbolds total bonus
was equivalent to 55% of his base salary.
Each of the other named executive officers also substantially
achieved, achieved or exceeded his or her individual objectives.
Based on company and individual performance, the Committee
awarded discretionary bonuses to the other named executive
officers, in the following amounts: Stephen Recht, Chief
Financial Officer - $50,000 (21% of salary); Jeannine
Smith, Senior Vice President, Operations - $36,000 (17% of
salary); Douglas Galen, Vice President, Business and Corporate
Development - $68,000 (30% of salary); and Stanford Au,
Senior Vice President, Technology - $40,000 (17% of salary
on a prorated basis). Mr. Au also received a new-hire bonus
of $15,000 in April 2006. The Committee concluded that this
amount was necessary to induce Mr. Au to accept our offer
of employment.
2006 Equity Awards. Executives who met certain
performance criteria were eligible to participate in our 2006
annual stock option program. The amounts and other details of
the grants for the named executive officers are shown in the
table entitled Grants of Plan-Based Awards. The
amounts granted to the named executive officers were determined
by the Committee to be the appropriate amount necessary for
long-term retention of those individuals
particularly in light of the fact that those executives had not
received 2005 or 2006 salary increases. The grant to Jeffrey
Housenbold, Chief Executive Officer, was subject to approval of
the full Board. Stanford Au, Senior Vice President, Technology,
received a new hire grant for 210,000 shares, so he did not
receive a grant under the annual stock option program. The
Committee concluded that Mr. Aus new-hire grant was
necessary to induce him to accept our offer of employment. All
options granted to the named executive officers had an exercise
price equal to the fair market value on the date of grant. The
options vest at a rate of 25% on the one-year anniversary of the
vesting start date, and then monthly for an additional
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three years, so that each option is fully vested no later than
four years into the ten-year option term.
Stock
Option Practices Grants
Timing of Grants Prior to December 2006. Prior
to December 2006, we did not have any formal policies regarding
timing of equity grants. Because we were not a public company,
we did not make equity grants in connection with the release or
withholding of material non-public information.
In December 2006, the Committee adopted the following practices
for awarding equity grants on specific, pre-designated dates, in
order to prevent equity grants from being made in connection
with the release or withholding of material non-public
information.
CEO Option Grants for New Employees. In
December 2006, we adopted a policy permitting our Chief
Executive Officer to grant up to 35,000 options to each newly
hired employee on the 15th day of the month if the employee
is hired before the 10th day of the month, and on the
30th day of the month if the employee is hired between the
10th and the 25th day of the month. The grants must be
consistent with our option grant guidelines for new employees.
If the designated grant date is not a business day, the grant
will occur on the next business day.
Committee Grants. In February 2007, the
Committee adopted a policy for grants to executives and
employees as follows:
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Grant Date. The grant date of any equity award
approved by the Committee is the date of the meeting at which
the award is approved. If the grant is approved by written
consent, the grant date is the date that the last consent is
obtained.
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Timing of Equity Grants for Newly Hired
Employees. The Committee approves equity awards
to newly-hired executives (employees at or senior to the Vice
President level) on a quarterly basis on February 28,
May 31, August 31 and November 30 (or, if that
day in not a business day, on the following business day). A
grant is generally awarded on the first grant date following the
executives date of hire. The Committee also approves
equity grants to newly-hired employees below the title of Vice
President who receive more than 35,000 stock options, as those
grants do not fall under the authority of the Chief Executive
Officer.
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Timing of Equity Grants for Newly-Promoted Employees and
Performance Grants. The Committee approves equity
award to newly-promoted employees and performance grants on a
quarterly basis on February 28, May 31, August 31
and November 30 (or, if that day in
|
37
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|
not a business day, on the following business day). The
Committee may exercise its discretion to grant equity awards
other than on the designated dates. A grant is generally awarded
on the first grant date following the employees promotion
date or the date on which the employees performance is
formally recognized.
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Ongoing Annual Grants. In connection with
employee annual performance reviews, the Vice President of Human
Resources or the Chief Executive Officer submits a list of
recommended employee ongoing annual grants to the Committee for
consideration. The Committee approves annual grants for
employees on August 31 each year (or, if that day is not a
business day, on the following business day). The Committee may
approve annual refresh grants on a different date if performance
reviews are not completed by August 31. It may also approve
refresh grants other than on August 31 to select
individuals under extraordinary circumstances.
|
Stock
Option Practices Exercise Prices
To assist the Board and the Committee in determining the fair
market value (and thus the exercise price) for option grants
prior to our initial public offering, we hired an independent
valuation firm. The valuation firm conducted a series of
valuations for us, including valuations effective as of
November 30, 2005, March 31, 2006 and June 30,
2006. Exercise prices for grants made between these valuation
dates were based on the most recent independent valuation,
adjusted as necessary to reflect events that would suggest to
the Board or the Committee a change to the valuation result or
underlying assumptions. Since our initial public offering, the
exercise price for all equity awards has been and will continue
to be the closing price of our common stock on the NASDAQ Global
Market on the grant date. If the NASDAQ is closed for trading on
that date, the exercise price shall be the closing price on the
next trading day.
Severance
and Change of Control Payments
We have entered into employment, termination of employment and
change-in-control
arrangements with certain executive officers. Our Board decided
to provide these employment, severance and change of control
arrangements to enable us to induce these executives to work at
a small, dynamic and rapidly growing company where their
longer-term compensation would largely depend on future stock
appreciation. All of these individuals have had competitive
alternatives that may have appeared to them to be more
attractive
and/or less
risky than working at Shutterfly. The arrangements also mitigate
a potential disincentive for executives when they are evaluating
a potential acquisition of the company, particularly when the
services of the executive officers may not be
38
required by the acquiring company. For a detailed description of
these severance and change of control benefits, please see the
discussion under Executive
Compensation Potential Payments upon Termination or
Change of Control below.
Summary
Compensation Table
The following table presents compensation information for the
year ended December 31, 2006 awarded to, earned by or paid
to our Chief Executive Officer, Chief Financial Officer and each
of our three other most highly compensated executive officers.
We refer to these five executive officers as our named executive
officers elsewhere in this proxy statement.
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Change in
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Pension
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Value and
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Nonqualified
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Non-Equity
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Deferred
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Option
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Incentive Plan
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Compensation
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All Other
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Name and Principal
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Stock Awards
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Awards
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Compensation
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Earnings
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Compensation
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Total
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Position
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Year
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Salary ($)
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Bonus ($)(1)
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($)
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($)(2)
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($)(3)
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($)
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($)(4)
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($)
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Jeffrey T. Housenbold
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2006
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$
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263,366
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$
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12,500
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-
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$
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328,946
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$
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137,500
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-
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-
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$
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742,312
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President and Chief Executive
Officer
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Stephen E. Recht
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2006
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$
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225,058
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$
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50,000
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-
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$
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182,880
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-
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-
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$
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963
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$
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458,901
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Chief Financial
Officer
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Jeannine M. Smith Thomas(5)
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2006
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$
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194,654
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$
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36,000
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-
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$
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82,502
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-
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-
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-
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$
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313,157
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Senior Vice President,
Operations
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Stanford S. Au(6)
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2006
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$
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172,635
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$
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55,000
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-
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$
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162,021
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|
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-
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-
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-
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$
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389,655
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Senior Vice President,
Technology
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Douglas J. Galen
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2006
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$
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220,349
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$
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68,000
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-
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$
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80,705
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|
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-
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|
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-
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$
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1,024
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$
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370,078
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Vice President, Business and
Corporate Development
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(1)
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These amounts represent
discretionary bonuses determined by the compensation committee
of the board of directors with respect to Shutterflys 2006
financial performance and, with respect to Mr. Au, includes
a new hire bonus of $15,000.
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(2)
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These amounts reflect the dollar
amount recognized for financial statement reporting purposes for
the year ended December 31, 2006 in accordance with
FAS 123(R), with the exception that estimated forfeitures
related to service-based vesting were disregarded in these
amounts, for awards pursuant to our 1999 Stock Plan. Assumptions
used in the calculation of this amount for years ended
December 31, 2004, 2005 and 2006 are included in
footnote 8 to our audited financial statements for the year
ended December 31, 2006 included in our annual report on
Form 10-K
filed with the Securities and Exchange Commission on
March 20, 2007.
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(3)
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Represents amounts earned under the
incentive bonus plan described in the section above entitled
Compensation Discussion and Analysis Fiscal
2006 Compensation 2006 Cash Bonuses.
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(4)
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The amounts represent our
discretionary contributions to the employees 401(k)
account.
|
39
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(5)
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On January 23, 2007,
Ms. Smith Thomas ceased being an executive officer of
Shutterfly.
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(6)
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Mr. Au joined Shutterfly on
April 3, 2006.
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Grants of
Plan-Based Awards
The following table provides information with regard to cash
bonuses for 2006 under our performance-based, non-equity
incentive plan, and with regard to each stock option granted to
each named executive officer during 2006.
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All Other
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Option
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Awards:
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Number of
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Grant Date
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Shares
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Exercise
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Fair Value
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Estimated Future Payouts Under Non-Equity
|
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Underlying
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Price of
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of
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Grant
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Incentive Plan Awards
|
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Option
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Option
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Option
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Name
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Date
|
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Threshold(1)
|
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Target(1)
|
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Maximum(1)
|
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Awards(2)
|
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Awards(3)
|
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Awards
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Jeffrey T. Housenbold
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N/A
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$137,500
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$137,500
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-
|
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-
|
|
-
|
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|
5/9/2006
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-
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|
-
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-
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250,000
|
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$10.39
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$1,164,650
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Stephen E. Recht
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5/9/2006
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-
|
|
-
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-
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47,800
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$10.39
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$222,681
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Jeannine M. Smith Thomas
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5/9/2006
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-
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|
-
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-
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40,000
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$10.39
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$186,344
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Stanford S. Au
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5/9/2006
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-
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-
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|
-
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210,000
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$10.39
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$978,306
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Douglas J. Galen
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5/9/2006
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-
|
|
-
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|
-
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50,000
|
|
$10.39
|
|
$232,930
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|
|
(1)
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In 2006 the compensation committee
put in place a bonus plan under which Mr. Housenbold could
earn $137,500 if Shutterfly achieved certain revenue and EBITDA
targets. The $137,500 was earned and is reflected in the Summary
Compensation Table above.
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(2)
|
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All option awards granted in 2006
were made under our 1999 Stock Plan. Each of these options vest
over four years, with 25% vesting after one year and an
additional 1/48th of the total number of shares vesting
each month thereafter. Options expire ten years from the date of
grant.
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(3)
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Represents the fair market value of
a share of our common stock as determined by the Board of
Directors on the grant date.
|
40
Outstanding
Equity Awards at December 31, 2006
The following table provides information regarding each
unexercised stock option held by each named executive officer as
of December 31, 2006.
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Number of
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|
|
|
|
Securities Underlying
|
|
|
Option
|
|
|
Option
|
|
|
|
Unexercised Options(1)
|
|
|
Exercise
|
|
|
Expiration
|
|
Name
|
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Exercisable
|
|
|
Unexercisable
|
|
|
Price(2)
|
|
|
Date
|
|
|
Jeffrey T. Housenbold
|
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|
497,445
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|
|
|
540,701
|
|
|
$
|
5.50
|
|
|
|
1/16/15
|
|
|
|
|
-
|
|
|
|
250,000
|
|
|
$
|
10.39
|
|
|
|
5/9/16
|
|
Stephen E. Recht
|
|
|
43,750
|
|
|
|
86,250
|
|
|
$
|
0.30
|
|
|
|
6/21/14
|
|
|
|
|
7,733
|
|
|
|
15,467
|
|
|
$
|
6.00
|
|
|
|
8/17/15
|
|
|
|
|
-
|
|
|
|
47,800
|
|
|
$
|
10.39
|
|
|
|
5/9/16
|
|
Jeannine M. Smith Thomas
|
|
|
5,000
|
|
|
|
-
|
|
|
$
|
0.50
|
|
|
|
5/8/11
|
|
|
|
|
53,000
|
|
|
|
-
|
|
|
$
|
0.50
|
|
|
|
10/4/11
|
|
|
|
|
50,000
|
|
|
|
30,000
|
|
|
$
|
0.30
|
|
|
|
6/22/14
|
|
|
|
|
3,866
|
|
|
|
7,734
|
|
|
$
|
6.00
|
|
|
|
8/17/15
|
|
|
|
|
-
|
|
|
|
40,000
|
|
|
$
|
10.39
|
|
|
|
5/9/16
|
|
Stanford S. Au
|
|
|
-
|
|
|
|
210,000
|
|
|
$
|
10.39
|
|
|
|
5/9/16
|
|
Douglas J. Galen
|
|
|
87,500
|
|
|
|
112,500
|
|
|
$
|
5.50
|
|
|
|
3/18/15
|
|
|
|
|
-
|
|
|
|
50,000
|
|
|
$
|
10.39
|
|
|
|
5/9/16
|
|
|
|
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(1)
|
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Each of these options vest over
four years, with 25% vesting after one year and an additional
1/48th of the total number of shares vesting each month
thereafter. All of these options are immediately exercisable.
|
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(2)
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Represents the fair market value of
a share of our common stock, as determined by our board of
directors, on the options grant date. Please see
Compensation Discussion and
Analysis Stock Option Practices
Grants above for a discussion of how we have valued our
common stock.
|
2006
Option Exercises and Stock Vested
There were no option exercises in 2006 by our named executive
officers. None of our named executive officers hold restricted
stock of Shutterfly.
Potential
Payments upon Termination or Change of Control
We have entered into employment, termination of employment and
change-in-control
arrangements with our named executive officers as summarized
below:
Jeffrey T.
Housenbold. Mr. Housenbolds offer
letter provides that if, within 12 months following a
change of control of Shutterfly, his employment is terminated
without cause or if Mr. Housenbold terminates his
employment for
41
good reason (including an adverse change in title,
responsibility or authority, a relocation of employment location
more than 60 miles from our current headquarters or a
material reduction in base salary), Mr. Housenbold will
receive a payment equal to 15 months of salary plus 125% of
the maximum target bonus for the year in which the termination
occurred, and all unvested shares of our common stock subject to
options granted to Mr. Housenbold will fully vest on his
termination date.
If Shutterfly terminates Mr. Housenbolds employment
without cause, or if Mr. Housenbold terminates his
employment for good reason, Mr. Housenbold will receive
12 months salary plus the maximum target bonus for the year
in which the termination occurred as severance, and
12 months of unvested shares of our common stock subject to
options granted to Mr. Housenbold will fully vest. Our
obligation to make any severance payments is expressly
conditioned upon Mr. Housenbolds execution and
delivery of a general release and waiver of all claims.
If a portion of the severance and other benefits provided to
Mr. Housenbold under the offer letter or any other
agreement, benefit, plan or policy of Shutterfly are subject to
a specified federal excise tax in connection with a change of
control, such severance and other benefits will be reduced on a
pre-tax basis if necessary to provide Mr. Housenbold with a
greater amount of severance and other benefits on an after-tax
basis.
For purposes of Mr. Housenbolds employment offer
letter, a change of control includes: (1) an acquisition of
50% or more of our outstanding voting stock by any person or
entity; (2) a merger or consolidation of Shutterfly after
which our then-current stockholders own less than a majority of
the voting power of the surviving entity; (3) a sale of all
or substantially all of our assets; or (4) a liquidation or
dissolution of Shutterfly.
The following table summarizes the potential payments and
benefits payable to Mr. Housenbold upon termination of
employment or a change in our control under each situation
listed below, modeling, in each situation, that
Mr. Housenbold was terminated on December 31, 2006.
Mr. Housenbolds employment contract requires that the
severance payment be in a lump sum.
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Following a
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|
Change of Control(1)
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
Involuntary
|
|
Termination
|
|
Involuntary
|
|
Termination
|
Executive Benefits and
|
|
or Termination
|
|
Termination
|
|
For Good
|
|
Termination
|
|
For Good
|
Payments Upon Termination:
|
|
For Cause
|
|
Not For Cause
|
|
Reason
|
|
Not For Cause
|
|
Reason
|
|
Base salary
|
|
$ -
|
|
$275,000
|
|
$275,000
|
|
$343,750
|
|
$343,750
|
Bonus
|
|
$ -
|
|
$137,500
|
|
$137,500
|
|
$171,875
|
|
$171,875
|
Health Benefits
|
|
$ -
|
|
$14,631(2)
|
|
$14,631(2)
|
|
$ -
|
|
$ -
|
Value of accelerated
stock options
|
|
$ -
|
|
$2,748,460
|
|
$2,748,460
|
|
$5,814,739
|
|
$5,814,739
|
42
(1) In the event of a
change in control, the 1999 Stock Plan provides that options
held by employees, directors and consultants that are not
assumed will immediately vest in full prior to such change in
control and all options will expire on the consummation of the
change in control.
(2) This amount reflects
our maximum 12 month obligation. If Mr. Housenbold
becomes covered by another employers health plan during
such 12 month period, then our obligation to pay
Mr. Housenbolds health plan coverage shall cease.
Stephen E. Recht. Mr. Rechts
offer letter provides that in the event of a change of control,
merger or acquisition of Shutterfly, and in connection with the
change of control, merger or acquisition, Mr. Recht is no
longer our Chief Financial Officer, Mr. Recht will receive
six months of salary as severance, and 12 months of
unvested shares of our common stock subject to options granted
to Mr. Recht will fully vest. However, in the event of a
change of control, merger or acquisition of Shutterfly where
Mr. Recht continues to report to Shutterfly (or its
acquirer), Mr. Recht will not receive such severance and
acceleration.
We have also agreed that in the event we terminate
Mr. Rechts employment without cause, he will receive
12 months of salary as severance and 12 months of
unvested shares of our common stock subject to options granted
to Mr. Recht will fully vest. Our obligation to make any
severance payments is expressly conditioned upon
Mr. Rechts execution and delivery of a general
release and waiver of all claims.
For purposes of Mr. Rechts employment offer letter, a
change of control includes: (1) a merger or consolidation
of Shutterfly after which our then-current stockholders own less
than a majority of the voting power of the surviving entity or
(2) a sale or transfer of all or substantially all of our
assets.
The following table summarizes the potential payments and
benefits payable to Mr. Recht upon termination of
employment or a change in our control under each situation
listed below, modeling, in each situation, that Mr. Recht
was terminated on December 31, 2006. There is no
requirement that the severance payment be in a lump sum and can
be paid in accordance with normal payroll procedures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Following a
|
|
|
|
|
|
|
|
|
Change of Control(1)
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
Involuntary
|
|
Termination
|
|
Involuntary
|
|
|
Executive Benefits and
|
|
or Termination
|
|
Termination
|
|
For Good
|
|
Termination
|
|
Constructive
|
Payments Upon Termination:
|
|
For Cause
|
|
Not For Cause
|
|
Reason
|
|
Not For Cause
|
|
Termination
|
|
Base salary
|
|
$ -
|
|
$235,000
|
|
$ -
|
|
$117,500
|
|
$117,500
|
Value of accelerated
stock options
|
|
$ -
|
|
$935,339
|
|
$ -
|
|
$935,339
|
|
$935,339
|
(1) In the event of a
change in control, the 1999 Stock Plan provides that options
held by employees, directors and consultants that are not
assumed will immediately vest in full prior to such change in
control and all options will expire on the consummation of the
change in control.
43
Jeannine M. Smith
Thomas. Ms. Smith Thomas offer
letter provides that in the event of a change of control, merger
or acquisition of Shutterfly and within 12 months following
the change of control, merger or acquisition, we terminate her
employment without cause or if Ms. Smith Thomas terminates
her employment for good reason (including an adverse change in
title, responsibility or authority, a relocation of employment
more than 35 miles from our current headquarters or a
material reduction in base salary), all unvested shares of our
common stock subject to options granted to Ms. Smith Thomas
will fully vest.
For purposes of Ms. Smith Thomas employment offer
letter, a change of control includes: (1) a merger or
consolidation of Shutterfly after which our then-current
stockholders own less than a majority of the voting power of the
surviving entity or (2) a sale or transfer of all or
substantially all of our assets.
The following table summarizes the potential payments and
benefits payable to Ms. Smith Thomas upon termination of
employment or a change in our control under each situation
listed below, modeling, in each situation, that Ms. Smith
Thomas was terminated on December 31, 2006. Ms. Smith
Thomas voluntarily resigned from the company effective June
2007. There is no requirement that the severance payment be in a
lump sum and can be paid in accordance with normal payroll
procedures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Following a
|
|
|
|
|
|
|
|
|
Change of Control(1)
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
Involuntary
|
|
Termination
|
|
Involuntary
|
|
Termination
|
Executive Benefits and
|
|
or Termination
|
|
Termination
|
|
For Good
|
|
Termination
|
|
For Good
|
Payments Upon Termination:
|
|
For Cause
|
|
Not For Cause
|
|
Reason
|
|
Not For Cause
|
|
Reason
|
|
Value of accelerated
stock options
|
|
$ -
|
|
$ -
|
|
$ -
|
|
$648,366
|
|
$648,366
|
(1) In the event of a
change in control, the 1999 Stock Plan provides that options
held by employees, directors and consultants that are not
assumed will immediately vest in full prior to such change in
control and all options will expire on the consummation of the
change in control.
Douglas J. Galen. Mr. Galens
offer letter provides that in the event of a change of control,
merger or acquisition of Shutterfly and in connection with the
change of control, merger or acquisition,
(1) Mr. Galen is no longer our Senior Vice President
of Business Development, (2) Mr. Galens role is
materially diminished or (3) our corporate office are
relocated from our current headquarters and Mr. Galen
chooses not to relocate, Mr. Galen will receive six months
of salary as severance and 12 months of unvested shares of
our common stock subject to options granted to Mr. Galen
will fully vest. However, in the event of a change of control,
merger or acquisition of Shutterfly where Mr. Galen
continues to report to the Board of Directors of Shutterfly (or
its acquirer), Mr. Galen will not receive such severance
and acceleration.
We have also agreed that in the event we terminate
Mr. Galens employment without cause, Mr. Galen
will receive six months salary as severance and
44
six months of unvested shares of our common stock subject to
options granted to Mr. Galen will fully vest. Our
obligation to make any severance payments is expressly
conditioned upon Mr. Galens execution and delivery of
a general release and waiver of all claims.
For purposes of Mr. Galens employment offer letter, a
change of control includes: (1) a merger or consolidation
of Shutterfly after which our then-current stockholders own less
than a majority of the voting power of the surviving entity or
(2) a sale or transfer of all or substantially all of our
assets.
The following table summarizes the potential payments and
benefits payable to Mr. Galen upon termination of
employment or a change in our control under each situation
listed below, modeling, in each situation, that Mr. Galen
was terminated on December 31, 2006. There is no
requirement that the severance payment be in a lump sum and can
be paid in accordance with normal payroll procedures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Following a
|
|
|
|
|
|
|
|
|
Change of Control(1)
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
Involuntary
|
|
Termination
|
|
Involuntary
|
|
|
Executive Benefits and
|
|
or Termination
|
|
Termination
|
|
For Good
|
|
Termination
|
|
Constructive
|
Payments Upon Termination:
|
|
For Cause
|
|
Not For Cause
|
|
Reason
|
|
Not For Cause
|
|
Termination
|
|
Base salary
|
|
$ -
|
|
$112,500
|
|
$ -
|
|
$112,500
|
|
$112,500
|
Value of accelerated
stock options
|
|
$ -
|
|
$247,563
|
|
$ -
|
|
$524,353
|
|
$524,353
|
(1) In the event of a
change in control, the 1999 Stock Plan provides that options
held by employees, directors and consultants that are not
assumed will immediately vest in full prior to such change in
control and all options will expire on the consummation of the
change in control.
Stanford S. Au. Mr. Aus
offer letter provides that in the event of a change of control,
merger or acquisition of Shutterfly and in connection with the
change of control, merger or acquisition, (1) Mr. Au
is no longer our Senior Vice President of Technology,
(2) he experiences a diminishment in responsibility or
authority or (3) there is a relocation of employment more
than 50 miles from our current headquarters and Mr. Au
chooses not to relocate, Mr. Au will receive six months of
salary as severance and 12 months of unvested shares of our
common stock subject to options granted to Mr. Au will
fully vest. However, in the event of a change of control, merger
or acquisition of Shutterfly where Mr. Au continues to
report to the President of Shutterfly (or its acquirer),
Mr. Au will not receive such severance and acceleration.
For purposes of Mr. Aus employment offer letter, a
change of control includes: (1) a merger or consolidation
of Shutterfly after which our then-current stockholders own less
than a majority of the voting power of the surviving entity or
(2) a sale or transfer of all or substantially all of our
assets.
45
The following table summarizes the potential payments and
benefits payable to Mr. Au upon termination of employment
or a change in our control under each situation listed below,
modeling, in each situation, that Mr. Au was terminated on
December 31, 2006. There is no requirement that the
severance payment be in a lump sum and can be paid in accordance
with normal payroll procedures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Following a
|
|
|
|
|
|
|
|
|
Change of Control(1)
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
Involuntary
|
|
Termination
|
|
Involuntary
|
|
|
Executive Benefits and
|
|
or Termination
|
|
Termination
|
|
For Good
|
|
Termination
|
|
Constructive
|
Payments Upon Termination:
|
|
For Cause
|
|
Not For Cause
|
|
Reason
|
|
Not For Cause
|
|
Termination
|
|
Base salary
|
|
$ -
|
|
$ -
|
|
$ -
|
|
$112,500
|
|
$112,500
|
Value of accelerated stock
options
|
|
$ -
|
|
$ -
|
|
$ -
|
|
$350,875
|
|
$350,875
|
(1) In the event of a change in control, the 1999
Stock Plan provides that options held by employees, directors
and consultants that are not assumed will immediately vest in
full prior to such change in control and all options will expire
on the consummation of the change in control.
COMPENSATION
OF DIRECTORS
The following table provides information for 2006 regarding all
compensation awarded to, earned by or paid to each person who
served as a director for some portion or all of 2006. Other than
as set forth in the table and the narrative that follows it, to
date we have not paid any fees to or reimbursed any expenses of
our directors, made any equity or non-equity awards to
directors, or paid any other compensation to directors.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
Option
|
|
|
Incentive Plan
|
|
|
All Other
|
|
|
|
|
Name
|
|
Paid in Cash
|
|
|
Awards(2)
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Total
|
|
|
|
|
James H. Clark(1)
|
|
|
$-
|
|
|
|
$-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
$-
|
|
Patricia A. House
|
|
|
$2,500
|
|
|
|
$69,652
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$72,152
|
|
Eric J. Keller
|
|
|
$3,750
|
|
|
|
$77,098
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$80,848
|
|
Nancy J. Schoendorf
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
James N. White
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Jeffrey T. Housenbold(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
(1)
|
|
Mr. Clark resigned from his
position on our Board of Directors effective January 1,
2007.
|
|
(2)
|
|
These amounts reflect the dollar
amount recognized for financial statement reporting purposes for
the year ended December 31, 2006 in accordance with
FAS 123(R), with the exception that estimated forfeitures
related to service-based vesting were disregarded in these
amounts, for awards pursuant to our 1999 Stock Plan. Assumptions
used in the calculation of this amount for years ended
December 31, 2004, 2005 and 2006 are included in
footnote 8 to our audited financial statements for the year
ended
|
46
|
|
|
|
|
December 31, 2006 included in
our annual report on Form
10-K filed
with the Securities and Exchange Commission on March 20,
2007. At December 31, 2006, Ms. House had options
outstanding for 50,000 shares and Mr. Keller had
options outstanding for 58,333 shares. All option awards
were made under our 1999 Stock Plan. Each of these options vest
monthly over three years except that the grant for 8,333 to
Mr. Keller vests monthly over a one year period. Options
expire ten years from the date of grant.
|
|
|
|
(3)
|
|
Mr. Housenbold receives no
compensation as a director.
|
Cash Compensation Paid to Directors. Each of our
independent directors who is not affiliated with one of our
major stockholders who serves as a chairperson of a board
committee receives the following annual cash retainer, paid in
quarterly installments, for each year of such service: for
service as the chairperson of the audit committee, $15,000; for
chairperson of the compensation committee, $10,000; for
chairperson of the governance committee, $10,000. For 2007, the
chair of the audit committee is Eric J. Keller; the chair of the
compensation committee is Patricia A. House; and the chair of
the governance committee is Stephen J. Killeen.
Stock Options Granted to Directors. Each non-employee
director, other than a director affiliated with a major
stockholder whose policies do not so permit, receives an initial
stock option grant of 50,000 shares of our common stock
upon joining our Board of Directors. The shares subject to the
option vest monthly over a three-year period from the date of
grant.
On the date of our annual meeting, each non-employee director,
other than a director affiliated with a major stockholder whose
policies do not so permit, will receive an additional stock
option grant of 10,000 shares of our common stock that will
vest monthly over a three-year period from the date of grant.
Each director who received an initial grant or annual refresh
grant within twelve (12) months prior to the date of the
annual meeting of stockholders shall be granted a pro-rated
refresh grant. At the 2007 annual stockholder meeting, our
directors will be granted the following stock options: Eric J.
Keller 10,000 stock options; James N.
White 10,000 stock options; Patricia A.
House 10,000 stock options; Stephen J.
Killeen 2,740 stock options (pro-rated as he joined
the board on February 6, 2007); and Philip A. Marineau, our
new Chairman 2,740 stock options (pro-rated as he
joined the board on February 6, 2007). Such grants are
based on a formula established by the board on February 6,
2007. The shares subject to the option vest monthly over a
three-year period from the date of grant.
In addition, if the chairman of the audit committee is an
independent, non-major stockholder affiliated director, each
year such director will receive a stock option grant of
8,333 shares of our common stock that will vest monthly
over a
12-month
period from the date of grant.
47
On January 20, 2006, we granted Patricia A. House an option
to purchase 50,000 shares of our common stock with an
exercise price of $10.00 per share and on May 9, 2006
we granted Eric J. Keller an option to purchase
50,000 shares of our common stock with an exercise price of
$10.39 per share, in each case pursuant to the terms and
conditions of our 1999 Stock Plan. On July 20, 2006, we
granted Mr. Keller an option under the 1999 Stock Plan to
purchase 8,333 shares of our common stock with an exercise
price of $14.20 per share as compensation for his service
as audit committee chairman. On February 7, 2007, we
granted Ms. House an option to purchase 3,315 shares
of our common stock and we granted James N. White an option to
purchase 50,000 shares of our common stock, in each case
pursuant to the terms and conditions of our 2006 Equity
Incentive Plan and our equity based award and vesting policy.
The grants to each of Ms. House and Mr. White were effective and
priced at the closing price of our common stock on February 28,
2007.
EQUITY
COMPENSATION PLAN INFORMATION
The following table provides certain information as of
December 31, 2006, with respect to all of our equity
compensation plans in effect on that date.
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
Remaining Available for Future
|
|
|
Number of Securities to be
|
|
Weighted-Average
|
|
Issuance Under
|
|
|
Issued Upon Exercise of
|
|
Exercise Price of
|
|
Equity Compensation Plans
|
|
|
Outstanding Options,
|
|
Outstanding Options,
|
|
(Excluding Securities Reflected
|
|
|
Warrants and Rights
|
|
Warrants and Rights
|
|
in Column (a))
|
Plan Category
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity Compensation Plans Approved
by Stockholders(1)
|
|
5,033,921
|
|
$7.28
|
|
1,377,797
|
Equity Compensation Plans Not
Approved by Stockholders(2)
|
|
|
|
|
|
|
Total
|
|
5,033,921
|
|
$7.28
|
|
1,377,797
|
|
|
|
(1) |
|
Includes the 1999 Stock Plan and the 2006 Equity Incentive Plan. |
|
(2) |
|
As of December 31, 2006, we did not have any equity
compensation plans that were not approved by our stockholders. |
48
REPORT OF
THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON
EXECUTIVE COMPENSATION
The material in this report is not soliciting
material, is not deemed filed with the
Securities and Exchange Commission, and is not to be
incorporated by reference into any filing of Shutterfly under
the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended.
The Compensation Committee has reviewed and discussed the
Compensation Discussion and Analysis required by
Item 402(b) of
Regulation S-K
with management and, based on such review and discussions, the
Compensation Committee recommended to the Board of Directors
that the Compensation Discussion and Analysis be included in
this Proxy Statement.
Compensation Committee
Patricia A. House, Chairman
Stephen J. Killeen
Nancy J. Schoendorf
49
REPORT OF
THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The material in this report is not soliciting
material, is not deemed filed with the
Securities and Exchange Commission, and is not to be
incorporated by reference into any filing of Shutterfly under
the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended.
The primary purpose of the audit committee is to oversee our
financial reporting processes on behalf of our Board of
Directors. The audit committees functions are more fully
described in its charter, which is available on our website at
http://www.shutterfly.com. Management has the primary
responsibility for our financial statements and reporting
processes, including our systems of internal controls. In
fulfilling its oversight responsibilities, the audit committee
reviewed and discussed with management Shutterflys audited
financial statements as of and for the fiscal year ended
December 31, 2006.
The audit committee reviewed with PricewaterhouseCoopers LLP
such matters as are required to be discussed with the audit
committee under generally accepted auditing standards, including
the matters required to be discussed by Statement on Auditing
Standards No. 61. In addition, the audit committee
discussed with PricewaterhouseCoopers LLP their independence,
and received from PricewaterhouseCoopers LLP the written
disclosures and the letter required by Independence Standards
Board Standard No. 1. Finally, the audit committee
discussed with PricewaterhouseCoopers LLP, with and without
management present, the scope and results of
PricewaterhouseCoopers LLPs audit of such financial
statements.
Based on these reviews and discussions, the audit committee has
recommended to our Board of Directors that such audited
financial statements be included in our annual report on
Form 10-K
for the year ended December 31, 2006 for filing with the
Securities and Exchange Commission. The audit committee also has
engaged PricewaterhouseCoopers LLP as our independent registered
public accounting firm for the fiscal year ending
December 31, 2007 and is seeking ratification of such
selection by the stockholders.
Audit Committee
Eric J. Keller, Chairman
Patricia A. House
James N. White
50
CERTAIN
TRANSACTIONS
From January 1, 2006 to the present, there have been no
(and there are no currently proposed) transactions in which the
amount involved exceeded $120,000 to which the company was (or
is to be) a party and in which any executive officer, director,
5% beneficial owner of our common stock or member of the
immediate family of any of the foregoing persons had (or will
have) a direct or indirect material interest, except as set
forth below.
Our Audit Committee reviews the fairness and approval of any
proposed transaction between management and other related
parties of the company (other than transactions that are subject
to review by the Compensation Committee) that are brought to the
attention of the Audit Committee. In addition, our Code of
Conduct and Ethics sets forth factors that should be considered
in determining whether there may be a direct or indirect
material interest, such as the size and nature of the
persons interest; the nature of the companys
relationship with the other entity; whether the person has
access to confidential company information; and whether the
person has an ability to influence company decisions that would
affect the other entity.
Purchases
of Our Common Stock by Sutter Hill from Third Parties
From December 2005 through May 2006, Sutter Hill and affiliated
persons and entities purchased an aggregate of
260,000 shares of our common stock from three of our former
officers at a weighted-average price of $10.19 per share.
We had agreed to assign to Sutter Hill our right of first
refusal with respect to transfers of our capital stock.
OTHER
MATTERS
Our Board of Directors knows of no other matters that will be
presented for consideration at the annual meeting. If any other
matters are properly brought before the meeting, it is the
intention of the persons named in the accompanying proxy to vote
on such matters in accordance with their best judgment.
ANNUAL
REPORTS
A copy of our annual report to stockholders, which includes
financial statements, is being mailed with this proxy statement.
We have filed our annual report on
Form 10-K
for the fiscal year ended December 31, 2006 with the SEC.
It is available free of charge at the SECs web site at
www.sec.gov. Upon written request by a Shutterfly stockholder,
we will mail without charge a copy of our
Form 10-K,
including the financial statements and financial statement
schedules, but excluding exhibits
51
to the
Form 10-K.
Exhibits to the
Form 10-K
are available upon payment of a reasonable fee, which is limited
to our expenses in furnishing the requested exhibit. All
requests should be directed to Investor Relations, Shutterfly,
Inc., 2800 Bridge Parkway, Suite 101, Redwood City,
California 94065.
Requests for copies of our annual report to stockholders or our
annual report on
Form 10-K
should be directed to Investor Relations, Shutterfly, Inc., 2800
Bridge Parkway, Suite 101, Redwood City, California 94065.
By Order of the Board of Directors
Jeffrey T. Housenbold
Chief Executive Officer
and President
Redwood City, California
April 16, 2007
52
PROXY
SHUTTERFLY, INC.
Annual Meeting of Stockholders May 17, 2007
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned hereby appoints Jeffrey T. Housenbold and Stephen E.
Recht, and each of them, with power to act without the other and with power of
substitution, as proxies and attorneys-in-fact and hereby authorizes them to
represent and vote, as provided on the other side, all the shares of Shutterfly,
Inc. Common Stock which the undersigned is entitled to vote, and, in their
discretion, to vote upon such other business as may properly come before the Annual
Meeting of Stockholders of the company to be held May 17, 2007 at 1300 Island Drive,
Redwood City, CA 94065, or at any adjournment or postponement thereof, with all
powers which the undersigned would possess if present at the Meeting.
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(Continued and to be marked, dated and signed, on the other side) |
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Address Change/Comments (Mark the corresponding box on the reverse side) |
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5FOLD AND DETACH HERE5
You can now access your Shutterfly, Inc. account online.
Access your Shutterfly, Inc. stockholder account online via Investor
ServiceDirect®
(ISD).
Mellon Investor Services LLC, Transfer Agent for Shutterfly, Inc., now makes it easy
and convenient to get current information on your stockholder account.
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View account status
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View payment history for dividends |
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View certificate history
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Make address changes |
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View book-entry information
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Obtain a duplicate 1099 tax form |
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Establish/change your PIN |
Visit us on the web at http://www.melloninvestor.com
For Technical Assistance Call 1-877-978-7778 between 9am-7pm
Monday-Friday Eastern Time
Investor
ServiceDirect® is a registered trademark of Mellon Investor Services LLC
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED FOR THE
PROPOSALS.
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Please
Mark Here
for Address
Change or
Comments
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SEE REVERSE SIDE |
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FOR ALL
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WITHHELD FOR ALL |
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FOR |
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AGAINST |
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ABSTAIN |
ITEM 1
Election of two Class
I Directors to hold
office until our 2010
Annual Meeting of
Stockholders
Nominees:
01 Nancy J. Schoendorf
02 Eric J. Keller
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ITEM 2
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RATIFY THE
SELECTION OF
PRICEWATERHOUSECOOPERS LLP AS OUR
INDEPENDENT
REGISTERED PUBLIC
ACCOUNTING FIRM FOR
THE FISCAL YEAR
ENDING DECEMBER 31,
2007
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Withheld for the nominees you list below: (Write that |
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nominees name in the space provided below.) |
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I PLAN TO ATTEND THE MEETING
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NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title as such.
5FOLD AND DETACH HERE5
WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING,
BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK.
Internet and telephone voting is available through 11:59 PM Eastern Time
the day prior to annual meeting day.
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
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INTERNET
http://www.proxyvoting.com/sfly
Use the internet to vote your proxy.
Have your proxy card in hand when
you access the web site.
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OR
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TELEPHONE
1-866-540-5760
Use any touch-tone telephone to vote
your proxy. Have your proxy card in
hand when you call. |
If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy
card.
To vote by mail, mark, sign and date your proxy card and return it in the enclosed postage-paid
envelope.
Choose
MLinkSM for fast, easy and secure
24/7 online access to your future proxy materials, investment plan
statements, tax documents and more. Simply log on to Investor
ServiceDirect®
at
www.melloninvestor.com/isd where step-by-step instructions will
prompt you through enrollment.
You can view the Annual Report and Proxy Statement
on the internet at http://ir.shutterfly.com/sec.cfm