DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

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Shutterfly, Inc.

(Name of Registrant as Specified In Its Charter)

 

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LETTER FROM THE CEO

 

LOGO

April 13, 2018

DEAR STOCKHOLDERS,

 

2017 was a pivotal year for Shutterfly. We’re proud of the results we delivered and the progress we made on a number of fronts, setting the company up well for 2018 and beyond.

Back in February of 2017, we shared our plans to restructure our Consumer business, consolidating and simplifying our brand portfolio, bringing the vast majority of our customers together on a single website, Shutterfly.com, and focusing our resources on our greatest opportunities. At the same time, we articulated four areas of strategic focus going forward: simplifying the process of creating and purchasing personalized products, expanding our range of products, pivoting to mobile, and leveraging our manufacturing platform to serve business customers.

I’m pleased to report that we succeeded against all of our major objectives for 2017. Even while shutting down brands and consolidating platforms, we retained the majority of revenue and customers from the migrating brands and shuttered websites. The

core Shutterfly brand achieved healthy like-for-like growth of 6%, and we held overall Consumer revenue flat while reducing our marketing expenditure by 15% and eliminating around 250 positions. In our Enterprise segment, SBS revenues grew 41% year-over-year as we onboarded a major new program from a large technology client.

At Shutterfly, we believe that the surest path to long-term, profitable growth is through customer-facing innovation; that is, by continually improving and expanding our products and services. The evolution of our mobile app is a great example. Over the course of 2017, we shipped dozens of new app builds; added more than 40 new products, now covering every category; and created an elegantly simple product creation experience. As a result, app revenues more than doubled year-over-year in the fourth quarter and mobile is now an important contributor to our Consumer business.

Throughout this period of transition, we’ve continued to focus on financial discipline and cost control. We significantly improved

profitability and quality of earnings in 2017. At the same time, we entered into a new credit facility with low-cost flexible debt, and returned $110 million to stockholders via share repurchases, following our capital allocation strategy.

Turning to 2018, we couldn’t be more excited about our transformational acquisition of Lifetouch, the leader in school photography. This acquisition brings together two uniquely complementary companies, gives Shutterfly access to more than 10 million highly desirable households, positioning Shutterfly to increase revenue and profitability.

Shutterfly and Lifetouch’s businesses are both built around helping consumers capture, preserve, and share images linked to important moments in their lives. This deep-seated and enduring human need is reflected in the large and stable demand for our products and services over many years to date and, we predict, for many years to come.

 


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LOGO

As a combined company, we’re able to serve our customers across all of the key milestones in the life of a family, helping them commemorate important moments starting at birth, and then throughout the school years from pre-school to graduation, and on to marriage and family holidays. And our combined scale will allow us to better serve our customers and to drive better financial results for investors, through our shared manufacturing platform and large customer base.

Even as we work to integrate Lifetouch into the Shutterfly family, we expect to make significant progress against our four areas of strategic focus. We’ll further simplify the

creation and purchase of personalized products, improving targeting and personalization across the entire customer journey. We’ve announced two new categories, Kids and Pets, launching in Q3. We have ambitious plans for mobile, including adding more products and driving improved monetization. And in Enterprise, we’ll focus on gross margin improvements as we move into the second phase of the large deal signed in Q3 last year while expanding our sales pipeline and opening our manufacturing platform to a broader range of customer use-cases.

I want to share a few thoughts about where we are on our journey as a company. As of the end of 2017, we’ve completed the first phase of our transformation during which we simplified the Consumer business; articulated four areas of strategic focus; put in place the operational, process, and financial discipline to support our business as we scale; and delivered significant financial improvements.

As we enter the second phase between 2018 and 2020, we have three clear priorities:

 

1. Successfully integrate Lifetouch while realizing significant cost and revenue synergies.
2. Re-accelerate Shutterfly’s Consumer growth via simplification, range expansion, and mobile.

 

3. Leverage our world-class digital manufacturing platform to capitalize on the secular shift from analog to digital manufacturing, serving a broader range of enterprise customers.

Looking further ahead, as we repay our acquisition debt, we’ll be in a powerful position to create further stockholder value by optimizing capital allocation across organic re-investment in the business, further M&A, and returning excess capital to stockholder. We expect to have compelling organic and inorganic opportunities, and will continue to be disciplined in considering these competing uses of capital.

In closing, I want to thank you for your continued support.

Sincerely,

 

  LOGO    

LOGO

CHRISTOPHER NORTH

President and Chief

Executive Officer

 


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LOGO

CONSUMER The leading digital retailer and manufacturer of high-quality personalized products and services. The leading online cards and stationery boutique, offering stylish announcements, invitations and personal stationery for every occasion. Built on the tradition of “Picture Day,” Lifetouch captures smiling faces, preschool through high school graduation. Product lines include sports, events, seniors and yearbooks. Lifetouch also has a Specialty business which includes retail and church photography. The premier online marketplace for photographic and video equipment rentals. WHO WE ARE 2017 BY THE NUMBERS $1.2B 40B+ REVENUES HOSTED PHOTOS ~$38 26M AVERAGE ANNUAL ORDER VALUE ORDERS ~75% 10M RETURNING CUSTOMERS CUSTOMERS $190M+ ENTERPRISE REVENUE SHUTTERFLY BUSINESS SOLUTIONS Variable print-on-demand solutions for large enterprises. TARGETED DIRECT MAIL JUST-IN-TIME, INVENTORY-FREE PRINTING SHUTTERFLY PRODUCT CATEGORY EVOLUTION TINY PRINTS KIDS & PETS BOUTIQUE SHUTTERFLY WEDDING CARDS TINY PRINTS HOME DECOR / STATEMENT SHOP LIFETOUCH EXPANSION ACQUISITION PHOTO EXPANSION GIFTS GIFTS ACQUISITION 1999 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 2018


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LOGO

PHASE 1: 2017 WHAT WE DID Focus all of our resources on our largest opportunities. Brought the vast majority of Consumer customers and brands onto a single platform. WHAT HAPPENED Success of platform migration seen in Q4 results - retained majority of revenue and customers from migrating brands. Significant cost savings allow both reinvestment and improved bottom line. OUR STRATEGY PHASE 2: 2018 TO 2020 2018 FOCUS Launch Kids and Pets Increase personalization and targeting Drive mobile monetization Expand Enterprise gross margin and pipeline MAKE PURCHASING OFFER A PIVOT TO LEVERAGE OUR PERSONALIZED BROADER RANGE MOBILE MANUFACTURING PRODUCTS SIMPLE OF PRODUCTS PLATFORM WEDDING HOLIDAYS & BIRTH SEASONAL Leader in + Leader in photo-based products school photography GRADUATION PRESCHOOL K-12 +12% ADJUSTED EBITDA +49% FREE CASH FLOW FREE CASH FLOW SUMMARY ($ in Millions) $169 $88 $114 $74 $69 2013 2014 2015 2016 2017 2020 MINIMUM ADJUSTED EBITDA TARGET $50m $270m** Revenue & Shutterfly Cost Synergies $450m $37m* $100m Base Growth Lifetouch *Assumes minimum growth of 5%. ** Mid point of 2018 Shutterfly standalone guidance provided as of January 30, 2018


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NON-GAAP FINANCIAL MEASURES

This Proxy Statement contains Non-GAAP financial measures. The following tables reconcile the Non-GAAP financial measures that the Company uses to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles (GAAP). These Non-GAAP financial measures include Adjusted EBITDA and free cash flow. The method the Company uses to produce Non-GAAP financial measures is not computed according to GAAP and may differ from methods used by other companies.

To supplement the Company’s consolidated financial statements presented on a GAAP basis, we believe that these Non-GAAP measures provide useful information about the Company’s core operating results and thus are appropriate to enhance the overall understanding of the Company’s past financial performance and its prospects for the future. These adjustments to the Company’s GAAP results are made with the intent of providing both management and investors a more complete understanding of the Company’s underlying operational results and trends and performance. Management uses these Non-GAAP measures to evaluate the Company’s financial results, develop budgets, manage expenditures, and determine employee compensation. The presentation of additional information is not meant to be considered in isolation or as a substitute for or superior to gross margins, operating income (loss), net income (loss), or cash flows provided by (used in) operating activities determined in accordance with GAAP. For more information, please see Shutterfly’s SEC Filings, including the most recent Form 10-K and Form 10-Q, which are available on the Securities and Exchange Commission’s Web site at www.sec.gov.

We have provided a reconciliation of each Non-GAAP financial measure to the most directly comparable GAAP financial measure, where possible, except that we have not reconciled our 2020 Non-GAAP Adjusted EBITDA target of $450 million to comparable GAAP operating income at this stage of the process because it is unreasonably difficult to provide guidance for stock-based compensation expense, capitalization and amortization of internal-use software and charges related to the proposed acquisition, which are reconciling items between GAAP operating loss and Non-GAAP Adjusted EBITDA. The factors that may impact our future stock-based compensation expense and capitalization and amortization of internal-use software are out of our control and/or cannot be reasonably predicted, and therefore we are unable to provide such guidance without unreasonable effort. Factors include our market capitalization and related volatility of our stock price and our inability to project the cost or scope of internally produced software and charges related to the proposed acquisition during this time period.

RECONCILIATION OF NET INCOME (LOSS) TO NON-GAAP ADJUSTED EBITDA

(In Thousands)

 

    YEAR ENDED DECEMBER 31,  
     2017     2016     2015     2014     2013  

Net income (loss)

  $ 30,085     $ 15,906     $ (843   $ (7,860   $ 9,285  

Add back:

         

Interest expense

    27,836       23,023       20,998       16,732       9,446  

Interest and other income, net

    (1,481     (501     (744     (508     (308

Benefit from (provision for) income taxes

    5,160       10,682       (1,146     (2,119     3,635  

Depreciation and amortization

    103,862       113,651       113,277       98,752       74,856  

Stock-based compensation expense

    43,573       45,692       60,458       61,762       53,528  

Capital lease termination

    8,098                          

Restructuring

    16,966                          

Non-GAAP Adjusted EBITDA

  $ 234,099     $ 208,453     $ 192,000     $ 166,759     $ 150,442  

RECONCILIATION OF CASH FLOW FROM OPERATING ACTIVITIES TO NON-GAAP FREE CASH FLOW

(In Thousands)

 

    YEAR ENDED DECEMBER 31,  
     2017     2016     2015      2014      2013  

 

 

Net cash provided by operating activities

 

 

 

$

 

 

239,524

 

 

 

 

 

 

$

 

 

193,423

 

 

 

 

 

 

$

 

 

165,037

 

 

 

  

 

 

$

 

 

166,488

 

 

 

  

 

 

$

 

 

147,268

 

 

 

 

 

Less: Capital expenditures [1]

 

 

 

 

 

 

70,751

 

 

 

 

 

 

 

 

 

79,860

 

 

 

 

 

 

 

 

 

76,669

 

 

 

  

 

 

 

 

 

92,201

 

 

 

  

 

 

 

 

 

78,342

 

 

 

 

 

Free Cash Flow

 

 

 

$

 

 

168,773

 

 

 

 

 

 

$

 

 

113,563

 

 

 

 

 

 

$

 

 

88,368

 

 

 

  

 

 

$

 

 

74,287

 

 

 

  

 

 

$

 

 

68,926

 

 

 

 

[1] Excludes purchase of printers of $9.8 million that we acquired and immediately sold during the second quarter of 2016

NOTICE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Proxy Statement, including in the introduction and summary pages, other than purely historical information, are “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties. These forward-looking statements include estimates, projections, statements relating to our business plans, objectives, expected operating results and expected Adjusted EBITDA levels. Forward-looking statements may appear throughout this report, including without limitation, the “Compensation Discussion and Analysis.” You can identify these statements by the use of terminology such as “believe”, “expect”, “will”, “should,” “could”, “estimate”, “anticipate” or similar forward-looking terms. Factors that might contribute to such differences include, among others, the retention of Lifetouch employees and our ability to successfully integrate the Lifetouch businesses; risks inherent in the achievement of anticipated synergies and the timing thereof; and general economic conditions and changes in laws and regulations. You should not rely on these forward-looking statements as they involve risks and uncertainties that may cause actual results to vary materially from the forward-looking statements. For more information regarding the risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward-looking statements, as well as risks relating to our business in general, we refer you to the “Risk Factors” section of our SEC filings, including our most recent Form 10-K and 10-Q, which are available on the Securities and Exchange Commission’s website at www.sec.gov. These forward-looking statements are based on current expectations and the Company assumes no obligation to update this information.

 

 

  2018 PROXY STATEMENT  


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PROXY SUMMARY

YOUR VOTE MATTERS

This summary highlights information described in more detail elsewhere in this Proxy Statement. We recommend that you read the entire Proxy Statement carefully and consider all information before voting. Page references are supplied to help you find further information in this proxy statement.

VOTING MATTERS, VOTE RECOMMENDATIONS AND RATIONALE

 

PROPOSAL

   BOARD RECOMMENDS        

Proposal 1: Election of Directors (page 7)

 

The Corporate Governance Committee and the Board believe that the Director nominees and the entire Board provide Shutterfly with a diverse range of perspectives and business acumen and allow our Directors to effectively engage each other and management to effectively address our evolving needs and represent the best interests of our stockholders.

 

   FOR Each Nominee   

Proposal 2: Advisory Vote on Frequency of Vote on Compensation of Named Executive Officers (page 24)

 

As described in detail under the heading “Compensation Discussion and Analysis,” the objective of our executive compensation program is to attract, motivate and retain the exceptional leaders we need to drive stockholder value, fulfill our vision and mission, uphold our company values and achieve our corporate goals. We accomplish these goals in a manner consistent with our strategy, competitive practice, sound corporate governance principles, and stockholder interests and concerns. We believe the compensation program for the Named Executive Officers was strongly aligned with the long-term interests of our stockholders and was instrumental in helping us achieve strong financial performance in 2017.

 

   FOR   

Proposal 3: Amendment of 2016 Equity Incentive Plan (pages 50 to 58)

 

Our Board believes the Company’s success is due to its highly talented employee base and that future success depends on our ability to continue attracting and retaining high-caliber employees. Our operations are primarily located in Silicon Valley, where we compete with many technology companies, including high profile start-ups, for a limited pool of talented people. Our ability to grant equity awards is a necessary and powerful recruiting and retention tool to maintain and create stockholder value. Non-approval of the Plan Amendment may compel us to increase the cash component of employee compensation because the Company would need to replace components of compensation previously delivered in equity awards.

 

   FOR   

Proposal 4: Ratification of Selection of Independent Registered Public Accounting Firm (pages 59 to 60)

 

The Board and the Audit Committee believe that the continued retention of PricewaterhouseCoopers LLP for the fiscal year ending December 31, 2018 is in the best interests of the Company and its stockholders. As a matter of good corporate governance, stockholders are being asked to ratify the Audit Committee’s selection of the independent registered public accounting firm.

 

   FOR         

 

  2018 PROXY STATEMENT SUMMARY   1


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    PROXY SUMMARY

 

 

 

BUSINESS STRATEGY UPDATE AND 2017 BUSINESS RESULTS

 

At the beginning of 2017, we refined our business strategy around four key areas of focus:

 

1) simplifying the process of creating and purchasing personalized products

 

2) expanding the range of products,

 

3) pivoting to mobile, and

4) leveraging our manufacturing platform for business customers.

As the first step of our long-term strategy, we made the decision to restructure our Consumer business, simplifying our brand portfolio and shifting customers to our flagship Shutterfly.com website. We believed effectively executing our strategy would position the Company to deliver

sustainable, profitable growth and create value for our stockholders. We delivered strong results during 2017, setting us up for success in 2018 and beyond (see “2017 Business Results”).

Under the leadership of our executive team, we exceeded our plan for 2017, delivering 5% growth in net revenues and 12% growth in Adjusted EBITDA. In addition, after the close of 2017, we announced our agreement to acquire Lifetouch, a national leader in school photography. We are targeting a minimum of $450 million in Adjusted EBITDA by 2020, through the strength of each other’s core businesses as well as our realization of unique revenue and cost synergies available from combining our two complementary

companies. By executing our long-term strategy, we delivered strong financial performance and created value for our stockholders over the past year. Our 1-year total stockholder return (TSR) over calendar year 2017 was -0.9%. However, we believe it is also relevant to evaluate TSR from the day after the release of our 2016 Fourth Quarter Earnings (February 2, 2017) through the day after the release of our 2017 Fourth Quarter Earnings and Lifetouch acquisition announcement (January 31, 2018). Over this period reflecting when our 2017 financial results were publicly-disclosed, our total stockholder return was 55.9% compared to 16.0% for the Russell 2000 index. For additional information, see pages 25 to 27.

 

 

LOGO    LOGO    LOGO

 

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PROXY SUMMARY    

 

 

DIRECTOR NOMINEES AND OTHER DIRECTORS

The following are the Class III Directors who are the nominees for the 2018 Annual Meeting. For additional information regarding the Shutterfly Board of Directors, please read their biographies which begin on page 9.

 

 
   

    AGE    

 

 

TITLE

 

 

DIRECTOR
SINCE

 

 

TERM
EXPIRATION

 

 

INDEPENDENT  

 

 

    AUDIT    

 

   

COMPENSATION

 

   

GOVERNANCE

 

 

Thomas D. Hughes

 

  58

 

 

Director

 

  2015

 

  2018

 

  Yes  

 

         

 

 

 

 

LOGO

 

 

 

 

 

 

 

 

 

LOGO

 

 

 

 

Eva Manolis

 

  54

 

 

Director

 

  2016

 

  2018

 

  Yes  

 

     

 

 

 

 

LOGO

 

 

 

 

Elizabeth Sartain

 

  63

 

 

Director

 

  2016

 

  2018

 

  Yes  

 

         

 

 

 

 

LOGO

 

 

 

 

       

 

The following are the Class I and Class II Directors who will continue on the Board of Directors after the 2018 Annual Meeting.

 

 

 
 
   

AGE

 

 

TITLE

 

 

DIRECTOR
SINCE

 

 

TERM
EXPIRATION

 

 

INDEPENDENT  

 

 

    AUDIT    

 

   

COMPENSATION

 

   

GOVERNANCE

 

 
                 

Christopher North

 

  47   President and Chief Executive Officer, Director   2016   2019        

William Lansing

 

  59   Chairman of the Board, Director   2017   2019   Yes        

Ann Mather

 

  58   Director   2013   2020   Yes        

Elizabeth S. Rafael

 

  56   Director   2016   2019   Yes    

 

 

 

LOGO

 

 

   

H. Tayloe Stansbury

 

  56   Director   2016   2020   Yes    

 

 

 

LOGO

 

 

   

Brian T. Swette

 

  64   Director   2009   2020   Yes    

 

 

 

LOGO

 

 

   

 

 

 

LOGO

 

 

Michael P. Zeisser

 

  53   Director   2013   2019   Yes            

 

 

 

LOGO

 

 

       

LOGO – Chairperson              LOGO – Member

DIRECTOR DASHBOARD

 

LOGO   LOGO    LOGO    LOGO

 

  2018 PROXY STATEMENT SUMMARY   3


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    PROXY SUMMARY

 

 

 

CORPORATE GOVERNANCE/DIRECTOR QUALIFICATIONS

The Corporate Governance at Shutterfly section beginning on page 16 describes our governance practices, which include the following highlights that our Governance Committee takes into consideration when determining whether to recommend a candidate for a position on the Shutterfly Board of Directors:

 

  character,

 

  integrity,

 

  judgment,

 

  skills,

 

  business acumen,

 

  experience,

 

  commitment,

 

  diligence,

 

  conflicts of interest and the

 

  ability to act in the interests of all stockholders.

COMPENSATION PROGRAM CHANGES

Our Compensation and Leadership Development Committee has taken steps to redesign our executive compensation program to support our business strategy and in response to ongoing dialogue with our stockholders. Over the last few years, we have undertaken a robust stockholder engagement program, speaking with stockholders representing over 50% of our outstanding common stock in the past year. These conversations have included our Chairman, CEO, other members of the Board, CFO and other members of senior management, and covered matters of importance to Shutterfly and our stockholders in a variety of areas, including our executive compensation program. We believe changes made to simplify our programs over the last two years have been effective in driving stockholder value creation. For additional information on key feedback and changes, refer to the section titled “Compensation Program Changes” which begins on page 26.

EXECUTIVE COMPENSATION HIGHLIGHTS

Our compensation philosophy provides the guiding principles for structuring our executive compensation program. The objective of our program is to

attract, motivate and retain the key executives we need in order to drive stockholder value, fulfill our vision and mission, uphold our values and achieve our corporate objectives. Additional information can be found in the section entitled “Our Corporate Values, Compensation Philosophy, and Practices” which begins on page 29.

 

  Compensation Should Reflect our Pay-for-Performance Culture. Pay should be directly linked to performance. Accordingly, a significant portion of executive compensation is contingent on, and varies based on, growth in stockholder value, achievement of our corporate performance goals and individual contributions to our success.

 

  Compensation Should Align with Creation of Stockholder Value. Compensation should incentivize management to achieve short-term results in a manner that also supports our long-term strategic and financial goals. Performance-based cash bonuses create incentives for achieving results that enhance stockholder value in the short-term, while equity awards serve to align the interests of our executives with our stockholders over the long-term. Our compensation policies and practices are designed to balance short-term and long-term interests, and to prevent the opportunity for inappropriate risk-taking that would have a material adverse effect on us.

 

  Compensation Level and Mix Should Reflect Responsibility and Accountability. Total compensation is higher for individuals with greater responsibility, greater ability to influence achievement of our corporate goals and greater accountability for those goals. Furthermore, as responsibility increases, a greater portion of the executive’s total compensation is performance-based pay and tied to long-term value creation for our stockholders.

Our Executive Compensation Practices

Our executive compensation policies and practices reinforce our pay for performance philosophy and align with sound governance principles. Our executive compensation program is composed of three primary elements: base salary; short-term incentive compensation in the form of quarterly performance-based cash bonuses; and long-term incentive compensation in the form of equity awards.

 

 

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PROXY SUMMARY    

 

 

Below are certain highlights of our fiscal 2017 executive compensation policies and practices. Additional information can be found in the section entitled “Our Corporate Values, Compensation Philosophy, and Practices” which begins on page 29.

 

LOGO   WHAT WE DO   LOGO   WHAT WE DON’T DO

   Pay for Performance. Our program is designed to align executive pay with our financial performance and stockholder value.

 

   Peer Group Analysis. The Committee reviews total direct compensation (base salary, annual cash incentive and long-term incentive awards) and the mix of the compensation components for our peer group as one of the factors in determining the compensation for our NEOs.

 

   CEO Stock Ownership Guideline. Our CEO is required to hold four times his base salary in our stock, which must be achieved within five years of hire.

 

   Use of Independent Compensation Consultant. The Committee is advised by an independent compensation consulting firm that provides no other services to us.

 

   Clawback Policy. The Committee has adopted a clawback policy applicable to all incentive payments provided to executive officers.

 

 

   No Single Trigger Change-in-Control Payments. No payments or benefits are payable solely on the occurrence of a change-in-control of the company.

 

   No Tax Gross-Ups for Excise Taxes. Our NEOs are not entitled to any tax gross-up payments with respect to excise taxes that may be imposed on certain payments.

 

   No Hedging, Speculative Trading, or Pledging. Our trading policies prohibit employees and directors from hedging, speculative trading or pledging of our stock.

 

  2018 PROXY STATEMENT SUMMARY   5


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NOTICE OF 2018 ANNUAL MEETING

 

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Meeting Date & Time

Wednesday, May 23, 2018

10:30 a.m. PST

  

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Meeting Place

Shutterfly, Inc.

2800 Bridge Parkway

Redwood City, California

94065

  

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Record Date

March 26, 2018

DEAR STOCKHOLDER:

Notice is hereby given that the 2018 Annual Meeting of Stockholders (the “Annual Meeting”) of Shutterfly, Inc., a Delaware corporation (“we” or “our”), will be held at 2800 Bridge Parkway, Redwood City, California 94065, on May 23, 2018, at 10:30 a.m., Pacific Daylight Time, for the following purposes:

1. To elect three Class III directors to hold office until our 2021 Annual Meeting of Stockholders;

2. To approve, on an advisory basis, the compensation of our named executive officers;

3. To approve the amendment of our 2015 Equity Incentive Plan to increase the number of shares available for issuance thereunder by 900,000 shares;

4. To ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ending December 31, 2018; and

5. To conduct any other business properly brought before the Annual Meeting.

 

These items of business are more fully described in our Proxy Statement accompanying this Notice (the “Proxy Statement”).

Our Board of Directors recommends that you vote FOR the election of the director nominees named in Proposal No. 1; FOR the proposal regarding our advisory vote on the compensation of our named executive officers in Proposal No. 2; FOR the amendment of our 2015 Equity Incentive Plan as described in Proposal No. 3; and FOR the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm as described in Proposal No. 4.

The Board of Directors of Shutterfly, Inc. (the “Board”) has fixed the close of business on March 26, 2018 as the record date for the meeting. Only holders of our common stock as of the record date are entitled to notice of and to vote at the meeting and at any adjournment or postponement of the Annual Meeting. Further information regarding voting rights and the

matters to be voted upon is presented in this proxy statement.

In accordance with rules promulgated by the Securities and Exchange Commission, we have elected to use the Internet as our primary means of providing our proxy materials to stockholders. On or about April 13, 2018, we mailed to our stockholders a Notice of Internet Availability of Proxy Materials (the “Notice”) with instructions for accessing the proxy materials online, including this Proxy Statement and our annual report, as well as for voting in person, by telephone, by mail or via the Internet. The Notice also provides information on how stockholders may obtain paper or email copies of our proxy materials free of charge, if they so choose. The electronic delivery of our proxy materials significantly reduces our printing and mailing costs and the environmental impact of distributing proxy materials.

Your vote is important. Whether or not you plan to attend the Annual Meeting, we encourage you

to read the accompanying Proxy Statement and to mark, date, sign and submit your proxy card or voting instructions as soon as possible. For specific instructions on how to vote your shares, please refer to the instructions on the Notice of Internet Availability of Proxy Materials you received in the mail or, if you received printed proxy materials, on the enclosed proxy card.

By Order of the Board of Directors,

 

 

LOGO

Christopher North

President and Chief Executive Officer

Redwood City, California

April 13, 2018

 


Table of Contents
       

 

 

PROXY STATEMENT

TABLE OF CONTENTS

 

2  

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

 

7

 

 

PROPOSAL NO. 1 ELECTION OF DIRECTORS

 

8

 

 

Board of Directors

 

13

 

 

Executive Officers

 

16

 

 

CORPORATE GOVERNANCE

 

21

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

 

23

 

 

SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE

 

24

 

 

PROPOSAL NO. 2 ADVISORY VOTE TO APPROVE
THE COMPANY’S EXECUTIVE COMPENSATION

 

25

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

38

 

 

REPORT OF THE COMPENSATION AND LEADERSHIP
DEVELOPMENT COMMITTEE OF THE BOARD OF DIRECTORS

 

39

 

 

COMPENSATION TABLES

 

39

 

 

Summary Compensation Table

 

40

 

 

Grants of Plan-Based Awards

 

41

 

 

Outstanding Equity Awards at Year-End

 

42

 

 

Option Exercises and Stock Vested

42  

 

CEO Pay Ratio

 

42

 

 

Potential Payments upon Termination or Change of Control

48  

DIRECTOR COMPENSATION

 

50

 

 

PROPOSAL NO. 3 AMENDMENT OF 2015 EQUITY
INCENTIVE PLAN

 

59

 

 

PROPOSAL NO. 4 RATIFICATION OF SELECTION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

59

 

 

Principal Accountant Fees and Services

 

59

 

 

Audit Fees

 

59

 

 

Audit Related Fees

 

59

 

 

Tax Fees

 

59

 

 

All Other Fees

 

60

 

 

Pre-Approval Policies and Procedures

 

61

 

 

REPORT OF THE AUDIT COMMITTEE OF THE BOARD
OF DIRECTORS

 

62

 

 

CERTAIN TRANSACTIONS

 

62

 

 

OTHER MATTERS

 

63

 

 

ANNUAL REPORT ON FORM 10-K

 

A-1

 

 

APPENDIX A SHUTTERFLY, INC. 2015 EQUITY INCENTIVE PLAN

 

 

 

2018 PROXY STATEMENT


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SHUTTERFLY, INC.

2800 Bridge Parkway

Redwood City, California 94065

 

 

 

 

LOGO

PROXY STATEMENT

 

 

 

The Board of Directors of Shutterfly, Inc. is soliciting your proxy to vote at the Annual Meeting of Stockholders to be held on May 23, 2018, at 10:30 a.m., Pacific Daylight Time, and any adjournment or postponement of that meeting (the “Annual Meeting”). The Annual Meeting will be held at 2800 Bridge Parkway, Redwood City, California 94065. This Proxy Statement and the accompanying Proxy Card, Notice of Meeting, and Annual Report to Stockholders was first sent or made available, on or about April 13, 2018, to stockholders of record as of the close of business on March 26, 2018 (the “Record Date”). For those stockholders receiving a Notice of Internet Availability of Proxy Materials, the Notice of Internet Availability of Proxy Materials was first

mailed on or about April 13, 2018 to stockholders of record as of the close of business on the Record Date. The only voting securities of Shutterfly, Inc. are shares of Common Stock, $0.0001 par value per share (the “Common Stock”), of which there were 33,107,322 shares outstanding as of the Record Date (excluding any treasury shares). A majority of the shares of Common Stock outstanding on the Record Date must be present, in person or by proxy, to hold the Annual Meeting.

In this Proxy Statement, we refer to Shutterfly, Inc. as the “Company,” “Shutterfly,” “we,” “our” or “us,” and the Board of Directors as the “Board” or “Board of Directors.” When we refer to our “fiscal year,” or “fiscal” followed by a year, we mean the

twelve-month period ending or ended December 31 of the stated year.

Our Annual Report to Stockholders, which contains consolidated financial statements for fiscal 2017, accompanies this Proxy Statement. You also may obtain a copy of our Annual Report on Form 10-K for fiscal 2017 that was filed with the Securities and Exchange Commission, without charge, by writing to our Investor Relations department at the above address. Our Annual Report on Form 10-K for fiscal 2017 is also available in the “Investor Relations” section of our website at ir.shutterfly.com.

 

 

  2018 PROXY STATEMENT   1


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THE PROXY PROCESS AND STOCKHOLDER VOTING

 

WHO CAN VOTE AT THE

ANNUAL MEETING?

Only stockholders of record at the close of business on the Record Date will be entitled to vote at the Annual Meeting. At the close of business on the Record Date, there were 33,107,322 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 of Common Stock were registered directly in your name with our transfer agent, Computershare Trust Company, N.A., then you are a stockholder of record. As a stockholder of record, you may vote in person at the Annual Meeting or vote by proxy. Whether or not you plan to attend the Annual Meeting, we urge you to complete, sign and return the accompanying proxy card to ensure your vote is counted.

Beneficial Owner: Shares Registered in the Name of a Broker, Bank or Other Agent

If at the close of business on the Record Date, your shares of Common Stock were held in an account at a brokerage firm, bank or other agent rather than in your name, then you are the beneficial owner of shares of Common Stock held in “street name” and these proxy materials are being 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 instruct your broker, bank or other agent on how to vote the shares of Common Stock 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 Annual 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?

You are being asked to vote:

 

  Proposal No. 1: FOR the election of three Class III directors to hold office until our 2021 Annual Meeting of Stockholders;

 

  Proposal No. 2: FOR the approval, on an advisory basis, of the compensation of our named executive officers;

 

  Proposal No. 3: FOR the amendment of our 2015 Equity Incentive Plan to increase the number of shares available for issuance thereunder by 900,000 shares; and

 

  Proposal No. 4: FOR the ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018.

WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE SET OF MATERIALS?

This means you hold shares of Common Stock in more than one way. For example, you may own some shares of Common Stock directly as a “Registered Holder” and other shares of Common Stock through a broker or you may own shares of Common Stock through more than one broker. In these situations, you may receive multiple sets of proxy materials. In order to vote all of the shares of Common Stock you own, you must either sign and return all of the proxy cards or follow the instructions for any alternative voting procedure on each of the proxy cards you receive. Each proxy card you received came with its own prepaid return envelope. If you vote by mail, make sure you return each proxy card in the return envelope which accompanied that proxy card.

DOES MY VOTE MATTER?

YES! We are required to obtain stockholder approval for the election of directors and other important matters. Each share of Common Stock is entitled to one vote and every share voted has the same weight. In order for the Company to obtain the necessary stockholder approval of proposals, a “quorum” of stockholders (i.e., a majority of the shares entitled to vote at the Annual Meeting, excluding treasury shares) must be represented at the Annual Meeting in person or by proxy. If a quorum is not obtained, we must postpone the Annual Meeting and solicit additional proxies. This

 

 

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        THE PROXY PROCESS AND STOCKHOLDER VOTING     

 

 

is an expensive and time-consuming process that is not in the best interests of the Company or its stockholders. Since few stockholders can spend the time or money to attend stockholder meetings in person, voting by proxy is important to obtain a quorum and complete the stockholder vote.

WHAT IS THE QUORUM REQUIREMENT?

A quorum of stockholders is necessary to hold a valid Annual Meeting. A quorum will be present if at least a majority of the shares of Common Stock entitled to vote at the Annual Meeting, excluding treasury shares, as of the close of business on the Record Date are represented by stockholders present at the Annual Meeting or represented by proxy. At the close of business on the Record Date, there were 33,107,322 shares of Common Stock outstanding and entitled to vote. Therefore, in order for a quorum to exist, 16,553,662 shares of Common Stock 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 nominee) or if you vote in person at the Annual Meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum, the chairperson of the Annual Meeting or the holders of a majority of the votes present at the Annual Meeting may adjourn the Annual Meeting to another date.

HOW DO I VOTE?

You may vote by mail or follow any alternative voting procedure described on the proxy card. To use an alternative voting procedure, follow the instructions on each proxy card or on the Notice of

Internet Availability of Proxy Materials that you receive.

For the election of directors, you may either vote “FOR” the three Class III nominees or you may “WITHHOLD” your vote for any nominee you specify. For the advisory vote on the compensation of our named executive officers, the approval of the amendment to our 2015 Equity Incentive Plan and the ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018, 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 Annual Meeting, we urge you to vote by proxy to ensure your vote is counted. Even if you have submitted a proxy before the Annual Meeting, you may still attend the Annual Meeting and vote in person. In such case, your previously submitted proxy will be disregarded.

 

  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.

 

  To vote over the Internet, go to www.proxyvote.com and follow the instructions
   

to obtain your records and to create an electronic voting instruction form.

 

  To vote by telephone, call 1-800-690-6903 and follow the instructions to transmit your voting instructions.

 

  To vote in person, come to the Annual Meeting and we will give you a ballot when you arrive.

Beneficial Owner: Shares Registered in the Name of Broker, Bank or Other Agent

If you are a beneficial owner of shares of Common Stock 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.

WHO COUNTS THE VOTES?

Broadridge Financial Services, Inc. (“Broadridge”) has been engaged as the tabulator of our stockholder votes. A representative of Broadridge will serve as the independent inspector of election to do the final tabulation and certification of stockholder votes.

HOW ARE VOTES COUNTED?

Brokers, banks or other agents who hold shares of Common Stock for the accounts of their clients may vote such shares of Common Stock either as

 

 

  2018 PROXY STATEMENT   3


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    THE PROXY PROCESS AND STOCKHOLDER VOTING        

 

 

 

instructed by their clients or in the absence of such instruction, in their own discretion if permitted by the stock exchange or other organization of which they are members. Members of the New York Stock Exchange are permitted to vote their clients’ proxies in their own discretion as to certain routine proposals, such as the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal 2018. If a broker votes shares of Common Stock that are not voted by its clients “For” or “Against” a routine proposal, those shares of Common Stock are considered present and entitled to vote at the Annual Meeting and will be counted toward determining whether or not a quorum is present. Those shares of Common Stock will also be taken into account in determining the outcome of all routine proposals.

Where a proposal is not routine, such as the election of our Class III directors, the advisory vote on the compensation of our named executive officers and the amendment of our 2015 Equity Incentive Plan, a broker does not have discretion to vote its clients’ uninstructed shares on such proposals. When a broker indicates on a proxy that it does not have discretionary authority to vote certain shares of Common Stock on a particular proposal, the missing votes are referred to as “Broker Non-votes.” Those shares of Common Stock are considered present for the purpose of determining whether or not a quorum is present, but are not considered shares of Common Stock entitled to vote or votes cast on a particular proposal, and are not taken into account in determining the outcome of non-routine proposals.

Because brokers cannot vote uninstructed shares on behalf of their customers for “non-routine”

matters, such as the election of our Class III directors, the advisory vote on the compensation of our named executive officers, and the amendment of our 2015 Equity Incentive Plan, it is more important than ever that stockholders vote their shares of Common Stock. If you do not vote your shares of Common Stock, you will not have a say in these important issues to be presented at the Annual Meeting.

Abstentions, or shares of Common Stock present at the Annual Meeting and voting “Abstain,” are counted for the purpose of determining whether a quorum is present, but are not considered votes cast for a particular proposal and are not taken into account in determining the outcome of the matters voted upon at the Annual Meeting.

WHAT ARE THE VOTING REQUIREMENTS TO ELECT THE DIRECTORS AND TO APPROVE EACH OF THE PROPOSALS DISCUSSED IN THIS PROXY STATEMENT?

Proposal No. 1—Election of Directors

Under our Restated Bylaws (“Bylaws”) and our Corporate Governance Principles, directors must be elected by a majority of the votes cast in uncontested elections. This means that the number of votes cast “For” a director nominee must exceed the number of votes cast “Against” that nominee. Abstentions and broker non-votes are not counted as votes “For” or “Against” a director nominee. In an uncontested election, any nominee who does not receive a majority of votes cast “For” his or her election is required to tender his or her resignation promptly following the failure to receive the required vote. Within 90 days following certification of the stockholder vote, the

Governance Committee of the Board is required to make a recommendation to the Board as to whether it should accept such resignation. Thereafter, the Board is required to decide whether to accept such resignation. In contested elections, the required vote would be a plurality of votes cast.

Proposal No. 2—Advisory Vote on Executive Compensation

Under our Bylaws, the votes cast “For” must exceed the votes cast “Against” to approve, on an advisory basis, the compensation of our named executive officers. Abstentions and broker non-votes are not counted as votes “For” or “Against” this proposal.

Proposal No. 3—Amendment of 2015 Equity Incentive Plan

Under our Bylaws, the votes cast “For” must exceed the votes cast “Against” to approve the amendment of our 2015 Equity Incentive Plan. Abstentions and broker non-votes are not counted as votes “For” or “Against” this proposal.

Proposal No. 4—Ratification of PricewaterhouseCoopers LLP

Under our Bylaws, the votes cast “For” must exceed the votes cast “Against” to approve the ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal 2018. The vote to approve the ratification of our independent registered public accounting firm is considered a routine proposal, and therefore if your shares of Common Stock are held by your broker, bank or other agent and you do not provide voting instructions and the broker, bank or other agent has discretionary authority to vote

 

 

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        THE PROXY PROCESS AND STOCKHOLDER VOTING     

 

 

such shares of Common Stock, your shares of Common Stock may be voted at the discretion of the broker, bank or other agent. Abstentions are not counted as votes “For” or “Against” this proposal.

HOW DO I VOTE BY INTERNET OR TELEPHONE?

If you wish to vote by Internet, go to www.proxyvote.com and follow the instructions to obtain your records and to create an electronic voting instruction form. If you wish to vote by telephone, call 1-800-690-6903 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. The Internet and telephone voting availability will close at 11:59 p.m., Eastern Daylight Time on May 22, 2018. The giving of such a telephonic or Internet proxy will not affect your right to vote in person should you decide to attend the Annual Meeting.

The telephone and Internet voting procedures are designed to authenticate stockholders’ identities, to allow stockholders to give their voting instructions and to confirm that stockholders’ instructions have been recorded properly.

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 the Record Date.

WHAT IF I RETURN A PROXY CARD BUT DO NOT MAKE SPECIFIC CHOICES?

If you return a signed and dated proxy card but you do not indicate your voting preferences, your shares of Common Stock will be voted in the

manner recommended by the Board on all matters presented in this Proxy Statement and as the proxy holders may determine in their discretion with respect to any other matters properly presented for a vote at the Annual Meeting.

CAN I CHANGE MY VOTE AFTER SUBMITTING MY PROXY?

Yes. You can revoke your proxy at any time before the applicable vote at the Annual Meeting. If you are the stockholder as of the close of business on the Record Date, you may revoke your proxy in any one of three ways:

 

  you may submit another properly completed proxy with a later date;

 

  you may send a written notice that you are revoking your proxy to our Corporate Secretary at 2800 Bridge Parkway, Redwood City, California 94065; or

 

  you may attend the Annual Meeting and give notice to the Inspector of Election that you intend to vote your shares in person.

If you are the beneficial owner of shares of Common Stock held in street name by your broker, bank, or other agent, then you should follow the instructions they provide on how to vote the shares of Common Stock in your account.

WHO IS SOLICITING MY PROXY AND PAYING FOR THIS PROXY SOLICITATION?

Our Board of Directors is soliciting your proxy to vote. We will pay the entire cost of preparing, assembling, printing, mailing, and distributing these proxy materials. We will also bear the cost of soliciting proxies on behalf of the Board. We have

also retained MacKenzie Partners, Inc. to assist in the solicitation of proxies for a fee of up to $50,000 plus the reimbursement of out-of-pocket expenses incurred on behalf of Shutterfly.

We will provide copies of these proxy materials to banks, brokerage houses, fiduciaries, and custodians holding shares of our Common Stock beneficially owned by others in street name so that they may forward these proxy materials to the beneficial owners.

In addition to mailing 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.

In addition, we may reimburse brokerage firms and other persons representing beneficial owners of shares of Common Stock for their expenses in forwarding solicitation materials to such beneficial owners.

HOW CAN I FIND OUT THE RESULTS OF THE VOTING AT THE ANNUAL MEETING?

Voting results will be announced by the filing of a Current Report on Form 8-K within four business days after the day the Annual Meeting ends. If final voting results are unavailable at that time, we will file an amended Current Report on Form 8-K within four business days after the day final results are available.

 

 

  2018 PROXY STATEMENT   5


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    THE PROXY PROCESS AND STOCKHOLDER VOTING        

 

 

 

WHEN ARE STOCKHOLDER PROPOSALS DUE FOR NEXT YEAR’S ANNUAL MEETING OF STOCKHOLDERS?

To be considered for inclusion in next year’s proxy materials, a stockholder proposal must be submitted in writing to our Corporate Secretary at 2800 Bridge Parkway, Redwood City, California 94065 no later than December 14, 2018. If you wish to submit a proposal for consideration at our 2018 Annual Meeting but not for inclusion in our proxy statement for that meeting, your proposal must be submitted in writing to the same address no earlier than February 7, 2019 and no later than March 10, 2019. Please review our Bylaws, which contain additional requirements regarding advance notice of stockholder proposals.

HOW DO I ATTEND THE ANNUAL MEETING AND VOTE IN PERSON?

You are cordially invited to attend the Annual Meeting to be held at 2800 Bridge Parkway, Redwood City, California 94065, on May 23, 2018, at 10:30 a.m., Pacific Daylight Time. Attendance at

the Annual Meeting will be limited to Shutterfly stockholders as of the close of business on the Record Date. It is important that you let us know in advance whether you plan to attend the Annual Meeting by marking the appropriate box on your proxy card if you requested to receive printed proxy materials, or, if you vote by telephone or Internet, indicating your plans when prompted. You will be required to check-in and register before being admitted to the Annual Meeting. Check-in and registration will begin promptly at 9:45 a.m., Pacific Daylight Time, at 2800 Bridge Parkway, Redwood City, California 94065. Admission will be on a first-come, first-served basis. Please allow ample time for check-in. Photography and video recording are prohibited at the Annual Meeting.

Each stockholder should be prepared to present valid photo identification, such as a driver’s license or passport and stockholders holding their shares of Common Stock through a broker, bank or other agent will need to bring proof of beneficial ownership as of the Record Date, such as their

most recent account statement reflecting their Common Stock ownership prior to the Record Date, a copy of the voting instruction card provided by their broker, bank, or other agent, or similar evidence of ownership.

If you are a stockholder as of the close of business on the Record Date and wish to vote in person, we will provide you with a ballot to use to vote at the Annual Meeting. If you are a beneficial owner, like a vast majority of our stockholders, and hold shares of Common Stock through a broker, bank or other agent, you may not vote your shares of Common Stock in person at the Annual Meeting unless you obtain a “legal proxy” from the broker, bank or other agent that holds your shares of Common Stock giving you the right to vote the shares of Common Stock at the Annual Meeting. Even if you plan to attend the Annual Meeting, we recommend that you also submit your proxy or voting instructions as described in the Proxy Statement so that your vote will be counted if you later decide not to attend the Annual Meeting.

 

 

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PROPOSAL NO. 1 ELECTION OF DIRECTORS

 

Our Board of Directors is presently composed of ten members, nine of whom are currently independent directors within the meaning of the listing standards of the Nasdaq Stock Market (“Nasdaq”). Our Certificate of Incorporation and Bylaws provide for the Board to be divided into three classes. Each class serves for a three-year term. At the 2018 Annual Meeting of stockholders, three Class III directors are to be elected to serve until our 2021 annual meeting of stockholders, and until their successors are elected and qualified. The terms of our four Class 1 directors and three Class II directors expire at our 2019 and 2020 annual meetings of stockholders, respectively.

The three Class III director nominees are:

Thomas D. Hughes

Eva Manolis

Elizabeth (Libby) Sartain

Each of the nominees is currently a member of our Board. Mr. Hughes was previously elected at the 2015 annual meeting of stockholders. The Board appointed Ms. Manolis in October 2016 and Ms. Sartain in December 2016. Each of the nominees has been recommended by the Governance Committee of the Board (the “Governance Committee”) and was approved by the Board. In addition, each of the nominees has consented to serve as a nominee and to be named as a nominee in this Proxy Statement, and to serve as a director if elected.

 

Under our Bylaws and Corporate Governance Principles, a majority of votes cast is required for the election of directors in an uncontested election (which is the case for the election of directors at the Annual Meeting). A majority of the votes cast means that the number of votes cast “For” a director nominee must exceed the number of votes cast “Against” that nominee. In contested elections (an election in which the number of nominees for election as director is greater than the number of directors to be elected), the voting standard would be a plurality of the votes cast.

In accordance with our Corporate Governance Principles, the Board will nominate for election only candidates who agree, if elected, to tender, promptly following their failure to receive the required vote for election at the next annual meeting of stockholders at which they would stand for election, an irrevocable resignation that will be effective upon acceptance by the Board. In addition, the Board will fill director vacancies and new directorships only with candidates who agree to tender the same form of resignation promptly following their election to the Board.

If an incumbent director fails to receive the required vote for election, then, within 90 days following certification of the stockholder vote, the Governance Committee will act to determine whether to recommend acceptance of the director’s resignation and will submit the recommendation for prompt consideration by the

Board, and the Board will act on the Governance Committee’s recommendation.

Our Board is currently composed of a group of leaders with broad and diverse experience in many fields, including management of large global consumer brands, technology and innovation leadership, financial services, and corporate governance and compliance. In these positions, they have also gained significant and diverse management experience, including industry knowledge, strategic financial planning, public company financial reporting, compliance, risk management and leadership development. Many of the directors also have experience serving as executive officers, or on board of directors and board committees of other public companies, and have an understanding of corporate governance practices and trends. The biographies of the nominees describe the skills, qualities, attributes and experiences of each of the nominees that led to the Board to determine that it is appropriate to nominate these directors.

The Governance Committee and the Board believe the skills, qualities, attributes and experiences of its current directors and director nominees provide Shutterfly with a diverse range of perspectives and business acumen and allow our directors to effectively engage each other and management to effectively address our evolving needs and represent the best interests of our stockholders.

 

 

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    PROPOSAL NO. 1 ELECTION OF DIRECTORS        

 

 

 

 

LOGO

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR

THE ELECTION OF EACH NOMINEE

BOARD OF DIRECTORS

The following is biographical information as of April 13, 2018 for each nominee for Class III, Thomas D. Hughes, Eva Manolis and Elizabeth Sartain, director and each person whose term of office as a Class I or II director will continue after the Annual Meeting.

 

        AGE        TITLE       INDEPENDENT        

 

    AUDIT    

    COMPENSATION       GOVERNANCE  

 

Christopher North

 

 

 

47

 

  

 

President and Chief Executive Officer, Director

 

                   

 

William Lansing

 

 

 

59

 

  

 

Chairman of the Board, Director

 

 

 

 

 

 

Yes

 

 

 

 

     

 

Thomas D. Hughes

 

 

 

58

 

  

 

Director

 

 

 

 

 

 

Yes

 

 

 

 

    LOGO

 

  LOGO

 

 

Eva Manolis

 

 

 

54

 

  

 

Director

 

 

 

 

 

 

Yes

 

 

 

 

      LOGO

 

 

Ann Mather

 

 

 

58

 

  

 

Director

 

 

 

 

 

 

Yes

 

 

 

 

     

 

Elizabeth S. Rafael

 

 

 

56

 

  

 

Director

 

 

 

 

 

 

Yes

 

 

 

 

  LOGO

 

   

 

Elizabeth Sartain

 

 

 

63

 

  

 

Director

 

 

 

 

 

 

Yes

 

 

 

 

    LOGO

 

 

 

H. Tayloe Stansbury            

 

 

 

56

 

  

 

Director

 

 

 

 

 

 

Yes

 

 

 

 

  LOGO

 

   

 

Brian T. Swette

 

 

 

64

 

  

 

Director

 

 

 

 

 

 

Yes

 

 

 

 

  LOGO

 

    LOGO

 

 

Michael P. Zeisser

 

 

 

53

 

  

 

Director

 

 

 

 

 

 

Yes

 

 

 

 

      LOGO

 

   

LOGO = Chairperson              LOGO = Member

Below are certain key competencies and attributes represented on our Board. More details on each Director’s competencies are included in the Director profiles which follows.

KEY COMPETENCIES AND ATTRIBUTES

 

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Nominees for Election for a Three-year Term Expiring at the 2021 Annual Meeting of Stockholders    

 

 

        PROPOSAL NO. 1 ELECTION OF DIRECTORS     

 

 

 

 

LOGO

 

 

 

 

THOMAS D.

HUGHES

 

Age: 58

Director since: 2015

 

EXPERIENCE: Thomas D. Hughes has served on our Board of Directors since July 2015. Mr. Hughes currently serves as a Partner of Cedar Grove Investments, LLC, an early-stage venture firm. From September 2013 to October 2014, Mr. Hughes served as the Vice President of Yahoo, where he ran Flickr, an image hosting and video hosting website. From 1991 to 1998, Mr. Hughes founded and served as President of PhotoDisc, Inc. which was acquired by Getty Images, Inc. in 1998, he was employed by Getty Images through 1999. Prior to PhotoDisc, he served as President of Northshore Publishing Systems, Inc., a publishing industry systems Integrator from 1984 to 1991. Mr. Hughes previously served as a member of the Boards of Directors or as an advisor to the Boards of Directors of; Loudeye, Inc., an encoding company that was later sold to Nokia, from 1999 to 2001, Avenue A, Inc./aQuantive, an online advertising, planning and metrics-based media firm that was later sold to Microsoft Corp., from 1998 to 2001, Vacationspot.com, an ecommerce vacation-booking site, that was later sold to Expedia, from 1998 to 2001, Avolo.com, an aerospace industry exchange, from 2000 to 2003, and RPI Print Inc., a producer of on-demand private-label personalized photo books, greeting cards and stationery for retailers, from July 2011 to September 2013.

Marathon Partners L.P. (“Partners LP”) paid Mr. Hughes $10,000 in cash upon submission of his nomination to serve as a nominee to the Board of Directors and an additional $10,000 in cash upon the filing of a definitive proxy statement with the Securities and Exchange Commission by Partners LP relating to the solicitation of proxies or written consents for the election of Partners LP’s nominees to our Board of Directors at our 2015 annual meeting of stockholders. Pursuant to Mr. Hughes’ arrangement with Partners LP, Mr. Hughes agreed to use the after-tax proceeds from such compensation to acquire shares of our Common Stock at such time that Mr. Hughes shall determine, and Mr. Hughes agreed not to sell, transfer or otherwise dispose of any such shares within two years of his election as a director, except in accordance with the terms of a business combination.

QUALIFICATIONS: Mr. Hughes received a Bachelor of Arts in History from the University of Washington. Mr. Hughes brings experience from the photo and publishing industry providing important insights and guidance to our Board.

 

 

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EVA

MANOLIS

 

Age: 54

Director since: 2016

 

EXPERIENCE: Eva Manolis has served on our Board of Directors since October 2016. For over ten years prior to joining our Board, Ms. Manolis served as Vice President of Consumer Shopping Experience at Amazon.com, Inc., an electronic commerce and cloud-computing company, where she led the worldwide development of core consumer-facing features, functionality and user interface designs across multiple websites, mobile apps, and business lines. She further led cross-company initiatives around customer experience, design and innovation. Prior to joining Amazon.com, Ms. Manolis was the co-founder and Senior Vice President of Products at Shutterfly. Ms. Manolis has also held roles at KeepMedia, LivePicture Inc. and Silicon Graphics. Ms. Manolis has served on the board of FICO, a data analytics company, since April 2018. She holds 22 patents issued in the areas of imaging, operating systems, and user interaction.

QUALIFICATIONS: Ms. Manolis brings to the Board more than 30 years of experience leading product and engineering teams, designing and building innovative customer products and services in the technology industry. Ms. Manolis earned a Bachelor of Science and Master of Science degrees in Electrical Engineering from Brown University.

 

 

LOGO

 

 

 

 

ELIZABETH
(LIBBY) SARTAIN

 

Age: 63

Director since: 2016

 

EXPERIENCE: Elizabeth (Libby) Sartain has served on our Board of Directors since December 2016. Ms. Sartain has over 30 years of experience as a senior human resources leader in the technology, media, consumer products, professional services, and manufacturing industries. Since 2008, Ms. Sartain has served as a Principal at Libby Sartain LLC, an independent human resources advisory and consultancy firm. Ms. Sartain previously served as Chief People Officer at Yahoo! Inc., a multinational technology company, from 2001 to 2008, and as the Vice President of People at Southwest Airlines, an airline carrier, from 1988 until 2001 where she led all human resources functions including employment, development and training, benefits, compensation, and employee relations and compliance. Ms. Sartain has served on the board of directors of ManpowerGroup Inc., a multinational human resource consulting firm, since 2010 and AARP, Inc., a senior citizen advocacy group, since June 2014, and previously served on the board of directors of Peet’s Coffee & Tea, Inc. Ms. Sartain holds Master of Business Administration from the University of North Texas and a Bachelor of Business Administration from Southern Methodist University.

QUALIFICATIONS: Ms. Sartain brings to the Board significant and diverse human resources expertise and general business experience.

 

 

 

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    PROPOSAL NO. 1 ELECTION OF DIRECTORS        

 

 

    Directors Continuing in Office until the 2019 Annual Meeting of Stockholders

 

 

 

 

 

LOGO

 

 

 

 

WILLIAM J.

LANSING

 

Age: 59

Director since: 2017

 

EXPERIENCE: William J. Lansing has served on our Board of Directors as the Chairman of the Board since February 2017. Mr. Lansing has more than 30 years of strategic and operational experience, helping technology and consumer businesses innovate and drive growth. Since 2012, Mr. Lansing has served as the Chief Executive Officer of FICO, a data analytics company, where he also served as a director since 2006. Previous to his role with FICO, Mr. Lansing served as Chief Executive Officer and President of InfoSpace, Inc. (now Blucora), an Internet search company, and ValueVision Media (now Evine), a broadcast television company. Mr. Lansing also served as a Partner of General Atlantic Partners, a global private equity investment firm. Prior to his work at General Atlantic Partners, Mr. Lansing served as Chief Executive Officer of NBC Internet, an integrated Internet media company. Mr. Lansing also held several leadership positions in organizations including Fingerhut Companies, General Electric, Prodigy and McKinsey & Company. Previously, Mr. Lansing served on the board of directors of Digital River, a payment services company, and RightNow Technologies, a CRM software company that was subsequently acquired by Oracle Corporation.

QUALIFICATIONS: Mr. Lansing received a Bachelor of Arts from Wesleyan University and a Juris Doctor from Georgetown University. Mr. Lansing brings to the Board extensive knowledge of operating a public company in the technology sector and diverse business experience.

 

 

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CHRISTOPHER

NORTH

 

Age: 47

Director since: 2016

 

EXPERIENCE: Christopher North has served as our President and Chief Executive Officer and on our Board of Directors since May 2016. Mr. North was employed by Amazon.com, Inc. from 2006 to May 2016. Mr. North served as Amazon’s UK Country Manager from January 2011, initially as Managing Director of Amazon.co.uk Ltd. until May 2015 and then as UK Managing Director of Amazon EU Sarl until May 2016. Prior to January 2011, he served as Vice President, UK Media, and prior to that role, as Vice President, UK Books at Amazon. Prior to joining Amazon, Mr. North served as Managing Director of Phaidon Press Ltd., as Chief Operating Officer at HarperCollins Canada Ltd., as Vice President and General Manager, Electronic Publishing at HarperCollins Publishers, and as a management consultant at Booz Allen Hamilton.

QUALIFICATIONS: Mr. North received a Bachelor of Arts in Economics from Harvard College and a Master of Arts in Philosophy from New York University. Mr. North serves as our Chief Executive Officer and therefore brings to the Board his knowledge of all aspects of our business, as well as extensive experience in the publishing and e-commerce industries.

 

 

 

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Directors Continuing in Office until the 2019 Annual Meeting of Stockholders    

 

 

        PROPOSAL NO. 1 ELECTION OF DIRECTORS     

 

 

 

 

 

LOGO

 

 

 

 

ELIZABETH S.

RAFAEL

 

Age: 56

Director since: 2016

 

EXPERIENCE: Elizabeth S. Rafael has served on our Board of Directors since June 2016. Ms. Rafael served as Principal Accounting Officer of Apple Inc., a consumer technology company, from January 2008 to October 2012, and as its Vice President and Corporate Controller from August 2007 until October 2012. From April 2002 to September 2006, Ms. Rafael served as Vice President, Corporate Controller and Principal Accounting Officer of Cisco Systems, Inc., a multinational technology company, and subsequently held the position of Vice President, Corporate Finance from September 2006 to August 2007. From December 2000 to April 2002, Ms. Rafael was the Executive Vice President, Chief Financial Officer, and Chief Administrative Officer of Aspect Communications, Inc., a provider of customer relationship portals. From April 2000 to November 2000, Ms. Rafael was Senior Vice-President and CFO of Escalate, Inc., an enterprise e-commerce application service provider. From 1994 to 2000, Ms. Rafael held a number of senior positions at Silicon Graphics International Corp. (“SGI”), a computing solutions company, culminating her career at SGI as Senior Vice President and Chief Financial Officer. Prior to SGI, Ms. Rafael held senior management positions in finance with Sun Microsystems, Inc. and Apple Computers. Ms. Rafael began her career with Arthur Young & Company (now Ernst & Young). Ms. Rafael has served on the board of directors of Echelon Corporation, a control networking company, since November 2005, Autodesk, Inc., a multinational software company, since September 2013, and GoDaddy Inc., an Internet domain registrar and web hosting company, since March 2014, and previously served on the board of directors of PalmSource, Inc.

QUALIFICATIONS: Ms. Rafael holds a Bachelor of Science degree in accounting from Santa Clara University. Ms. Rafael brings over 30 years of financial experience and expertise to our Board and significant experience in the technology industry.

 

 

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MICHAEL P.

ZEISSER

 

Age: 53

Director since: 2013

 

EXPERIENCE: Michael P. Zeisser has served on our Board of Directors since March 2013. Mr. Zeisser has served as Chairman, US Investments for Alibaba Group Holding Ltd., one of the largest Internet companies in the world, since October 2013. Prior to Alibaba, Mr. Zeisser served as Senior Vice President of Liberty Interactive Corporation (formerly known as Liberty Media Corporation), a digital media and Internet commerce company, from September 2003 to November 2012 where he oversaw consumer-facing Internet and e-commerce investments and companies. Prior to his tenure at Liberty, Mr. Zeisser was a partner at McKinsey & Company, a global management consulting firm, from December 1996 to September 2003. Mr. Zeisser currently serves on the board of directors of XO Group, Inc., a consumer Internet company. During the past five years Mr. Zeisser has served as a member of the boards of directors of Time, Inc., a media company, TripAdvisor, Inc., a travel website company, and IAC/Interactive Corp, a digital media and eCommerce company.

QUALIFICATIONS: Mr. Zeisser graduated from the University of Strasbourg, France and the J.L. Kellogg Graduate School of Management at Northwestern University. Mr. Zeisser is currently a member of the Media Advisory Group of the American Association for the Advancement of Science. Mr. Zeisser has extensive insight into, and unique and specialized experience regarding, the Internet and digital media. He also possesses significant experience with respect to international operations and business strategy.

 

 

 

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    PROPOSAL NO. 1 ELECTION OF DIRECTORS        

 

 

    Directors Continuing in Office until the 2020 Annual Meeting of Stockholders

 

 

 

 

 

LOGO

 

 

 

 

ANN

MATHER

 

Age: 58

Director since: 2013

 

EXPERIENCE: Ann Mather has served on our Board of Directors since May 2013. Ms. Mather has been a director of Glu Mobile Inc., a mobile phone games publisher, since September 2005, Alphabet, Inc., a technology company, since November 2005, MGM Holdings Inc., a media production and distribution company, since December 2010, Netflix, Inc., a media company, since July 2010, and Arista Networks, Inc., a computer networking company, since June 2013. Since 2011, Ms. Mather has been an independent trustee to the Dodge & Cox Funds, a mutual fund company, board of trustees. Ms. Mather serves as the audit committee chair for Alphabet, Netflix and Arista Networks. From 1999 to 2004, Ms. Mather was Executive Vice President and Chief Financial Officer of Pixar, a computer animation studio where she was responsible for finance, administration, business affairs, investor relations and human resources. Prior to her service at Pixar, Ms. Mather was Executive Vice President and Chief Financial Officer at Village Roadshow Pictures, the film production division of Village Roadshow Limited. Ms. Mather also held a senior financial executive position with Disney, a multinational mass media and entertainment conglomerate.

QUALIFICATIONS: Ms. Mather holds a Master of Arts degree from Cambridge University. Ms. Mather brings executive and financial experience to our Board and her service on other public company boards provides considerable experience that contributes to our Board’s overall effectiveness.

 

 

LOGO

 

 

 

 

H. TAYLOE STANSBURY

 

Age: 56

Director since: 2016

 

EXPERIENCE: H. Tayloe Stansbury has served on our Board of Directors since December 2016. Mr. Stansbury has almost 35 years of experience at various technology companies. Mr. Stansbury currently serves as Executive Vice President and Chief Technology Officer at Intuit, a business and financial software company. He previously served as Chief Information Officer at VMware, Inc., which subsequently became a subsidiary of Dell Technologies. Mr. Stansbury previously was Executive Vice President of Ariba Inc., an information technology company, which was subsequently acquired by SAP, where he led product management, engineering, hosting and customer support. He has also previously held executive engineering and general management roles at Calico Commerce, Inc., which was ultimately acquired by Oracle Corporation, and Xerox Corporation. Mr. Stansbury serves on the board of directors of Coupa Software Inc., a cloud-based platform for business spend, since September 2015 and previously served on the board of directors for several nonprofit organizations.

QUALIFICATIONS: Mr. Stansbury holds an A.B. with honors in Applied Mathematics from Harvard University. Mr. Stansbury brings to the Board his experience building scalable technology platforms and large organizations at many companies.

 

 

LOGO

 

 

 

 

BRIAN T.

SWETTE

 

Age: 64

Director since: 2009

 

EXPERIENCE: Brian T. Swette has served on our Board of Directors since September 2009 and as Interim Chairman of the Board from June 2016 through February 2017. Mr. Swette served as a director of Burger King Holdings, Inc., the world’s second largest fast food hamburger restaurant chain, from 2002 to 2011 and served as Burger King’s Non-Executive Chairman from 2006 to 2011. Previously, he served as the Chief Operating Officer of eBay Inc., an online commerce company, from 1998 to 2002. Prior to eBay, Mr. Swette was Executive Vice President and Chief Marketing Officer of Pepsi-Cola (now PepsiCo Inc.). Mr. Swette currently serves as the President of Sweet Earth Natural Foods, a food & beverage company that specializes in handcrafted vegetarian foods. Mr. Swette also currently serves on the board of directors of Care.com, Inc., an Internet care services company, as well as on the boards of directors of privately held companies. From 2006 to 2014, Mr. Swette previously served on the board of directors of Jamba, Inc., a retail beverage company. Mr. Swette holds a Bachelor of Science degree in Economics from Arizona State University.

QUALIFICATIONS: Mr. Swette brings to the Board his marketing, strategy and management experience as well as significant knowledge of Internet companies and consumer industries. In addition to his marketing skills, Mr. Swette’s experience building fast-growth e-commerce businesses brings a unique and relevant perspective to our Board and management.

 

 

There are no family relationships among any of our directors and executive officers.

 

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        EXECUTIVE OFFICERS    

 

 

EXECUTIVE OFFICERS

The following is biographical information for our executive officers, other than Mr. North, our Chief Executive Officer, as of April 13, 2018.

 

NAME

   AGE        POSITION

 

Michele Anderson

 

  

 

 

 

 

52 

 

 

 

 

    

 

Senior Vice President, Retail

 

 

Scott Arnold

 

  

 

 

 

 

54 

 

 

 

 

    

 

Senior Vice President, Enterprise

 

 

Dwayne Black

 

  

 

 

 

 

50 

 

 

 

 

    

 

Senior Vice President and Chief Operations Officer

 

 

Tracy Layney

 

  

 

 

 

 

45 

 

 

 

 

    

 

Senior Vice President and Chief Human Resources Officer

 

 

Ishantha Lokuge

 

  

 

 

 

 

51 

 

 

 

 

    

 

Senior Vice President and Chief Product Officer

 

 

Satish Menon

 

  

 

 

 

 

60 

 

 

 

 

    

 

Senior Vice President and Chief Technical Officer

 

 

Michael Pope

 

  

 

 

 

 

51 

 

 

 

 

    

 

Senior Vice President and Chief Financial Officer

 

 

 

 

LOGO

 

 

 

 

MICHELE

ANDERSON

 

Age: 52

Executive Officer since: 2017

 

EXPERIENCE: Michele Anderson has served as our Senior Vice President, Retail since February 2017. Ms. Anderson joined Shutterfly from Activate Inc., a specialist advisory firm that develops and implements growth strategies and builds new digital-first businesses, where she served as Chief Operating Officer and Managing Director from 2010 to 2017. Prior to Activate, from 2003 to 2010, Ms. Anderson held the role of General Manager, North America, at Australian Vintage Ltd., an Australian wine company. Prior to Australian Vintage, Ms. Anderson held senior roles at iVillage Inc., a media company, and Booz Allen & Hamilton, a management consulting firm. Ms. Anderson serves on the board of directors of a private UK-based company.

Ms. Anderson has a Bachelor of Commerce and Bachelor of Law from the University of New South Wales and an M.B.A from the Wharton Business School.

 

 

LOGO

 

 

 

 

SCOTT

ARNOLD

 

Age: 54

Executive Officer since: 2017

 

EXPERIENCE: Scott Arnold has served as our Senior Vice President, Enterprise since June 2017. Prior to Shutterfly, Mr. Arnold served from May 2013 to April 2016 as President and Chief Executive Officer at AppSense, a leading provider of user environment management solutions enabling a productive, secure workspace. Prior to AppSense, from July 2007 to August 2012, Mr. Arnold held the roles of Chief Operating Officer and then President and Chief Executive Officer of MarketTools, Inc., an internet-based market research company, and Chief Operating Officer and then Interim Chief Executive Officer of Borland Software, a software company that facilitates software deployment projects. Prior to his operating roles, Mr. Arnold was a partner at McKinsey & Company where he served clients across the technology and telecom industries and helped build the Firm’s practice in Silicon Valley. Mr. Arnold currently serves on the Board of Directors of MetricStream and on Duke University’s Pratt School of Engineering Board of Visitors.

Mr. Arnold has a Bachelor of Science in Electrical Engineering from Duke University and an M.B.A from the Stanford Graduate School of Business.

 

 

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    EXECUTIVE OFFICERS        

 

 

 

 

 

 

LOGO

 

 

 

 

DWAYNE

BLACK

 

Age: 50

Executive Officer since: 2007

 

EXPERIENCE: Dwayne Black has been with Shutterfly since February 2007 and is currently serving as our Senior Vice President, Chief Operations Officer. Prior to joining Shutterfly, Mr. Black held multiple positions at Banta Corporation, a leading provider of printing and digital imaging solutions to publishers and direct marketers owned by R.R. Donnelley and Sons Co., including Vice President of Operations, from 1994 to 2006.

Mr. Black attended the Engineering program at Purdue University.

 

 

LOGO

 

 

 

 

TRACY

LAYNEY

 

Age: 45

Executive Officer since: 2015

 

EXPERIENCE: Tracy Layney joined Shutterfly in June 2015 as Senior Vice President and Chief Human Resources Officer and oversees the Shutterfly Foundation. Prior to joining Shutterfly, from 2004 to 2014, Ms. Layney held various HR roles at Gap Inc., a retail apparel company. Most recently, she served as Senior Vice President of Global Human Resources and Communications at Old Navy, and before that as Vice President of Global HR Strategy, Technology and Operations. From 2003 to 2004, Ms. Layney served as Senior Organization Readiness Manager at Levi Strauss & Company, a retail apparel company, and from 1999 to 2003, she served as a Principal Consultant in the Organization and Change Strategy practice at PricewaterhouseCoopers/IBM Business Consulting Services, the consulting division of IBM.

Ms. Layney holds a Bachelor of Arts degree in English from the University of Pennsylvania.

 

 

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ISHANTHA

LOKUGE

 

Age: 51

Executive Officer: 2012

 

EXPERIENCE: Ishantha Lokuge has served as our Senior Vice President and Chief Product Officer since July 2012. Previously, Mr. Lokuge was Vice President of Product at Shutterfly. Mr. Lokuge joined Shutterfly in 2006 as Senior Director of User Experience. Prior to joining Shutterfly, from 2003 to 2006, Mr. Lokuge served as a Director at eBay, Inc. where he led the Selling Experience team. From 2000 to 2002, Mr. Lokuge served as Chief Executive Officer and cofounder of Urbanpixel, an integrated social networking company. From 1996 to 2000, Mr. Lokuge held operational roles at Healtheon/WebMD, an online medical information source, at Netscape, a computer services company, and Silicon Graphics, Inc., a computer hardware and software company.

Mr. Lokuge earned his Master of Media Arts and Sciences degree from the MIT Media Lab, a Master of Science degree in Computer Science from Tufts University, and a Bachelor of Arts degree in Computer Science from Brandeis University.

 

 

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        EXECUTIVE OFFICERS    

 

 

 

 

 

LOGO

 

 

 

 

SATISH

MENON

 

Age: 60

Executive Officer since: 2014

 

EXPERIENCE: Satish Menon has served as our Senior Vice President and Chief Technical Officer since November 2014. Mr. Menon joined Shutterfly from UV Labs, a technology incubator, where he served as Chief Executive Officer from December 2012 to October 2014. Prior to UV Labs, from 2009 to November 2012, Mr. Menon was the Senior Vice President and Chief Technical Officer of Apollo Education Group, Inc., an educational services and support company. From 2006 to 2009, Mr. Menon served as Vice President of the Consumer Platforms Group at Yahoo! Inc.. Mr. Menon also held technology leadership positions at Kasenna, Inc., a video on demand company, from 2000 to 2006 and Silicon Graphics, Inc. from 1994 to 2000. Mr. Menon has served on the Scientific Advisory Board of MedGenome Labs Pvt Ltd, a provider of clinical genomics solutions for personalized healthcare, since November 2012.

Mr. Menon holds a Ph.D. in Computer Science from Georgia Institute of Technology, Master of Science degrees in Computer Science and Mechanical Engineering from New Jersey Institute of Technology and a Bachelor of Science degree in Mechanical Engineering from the University of Calicut, India.

 

 

LOGO

 

 

 

 

MICHAEL

POPE

 

Age: 51

Executive Officer since: 2015

 

EXPERIENCE: Michael Pope has served as our Senior Vice President and Chief Financial Officer since October 2015. Previously, from 2013 to 2015, Mr. Pope served as Chief Financial Officer of Clean Power Finance, a residential solar power financing company. From 2008 to 2012, Mr. Pope held the positions of Chief Operating Officer and Chief Financial Officer at MarketTools, Inc., an internet-based market research company. Prior to that he served in various positions, including Vice President at BearingPoint, a management and technology consulting firm, President and Chief Operating Officer at Network General, a packet-analysis technology company, President and Chief Executive Officer at DigitalThink, an e-learning enterprise solutions company, and Chief Financial Officer and Chairman of the Audit Committee at Dionex, a chemical systems company, which was subsequently acquired by Thermo Scientific.

Mr. Pope started his career in banking and earned a Bachelor of Arts from Stanford University and a Master of Business Administration degree from the Haas School of Business at the University of California, Berkeley.

 

 

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CORPORATE GOVERNANCE

 

BOARD LEADERSHIP STRUCTURE

Our business is managed under the direction of the Board, whose members are elected by our stockholders. The basic responsibility of the Board is to lead the company by exercising its business judgment to act in what each director reasonably believes to be the best interests of Shutterfly and our stockholders. Leadership is important to facilitate the Board acting effectively as a working group so that Shutterfly and its financial and operational performance may benefit. The role of the Chairman of the Board includes leading the Board in its annual evaluation of the Chief Executive Officer (in conjunction with the recommendations of the Compensation and Leadership Development Committee of the Board), regularly attending each Committee meeting, providing continuous feedback on the direction, performance and strategy of the company, serving as Chair of regular and executive sessions of the Board, setting the Board’s agenda with the Chief Executive Officer, and leading the Board in anticipating and responding to crises. At this time, our Board is led by an independent Chairman, William J. Lansing. Our Chief Executive Officer, Mr. North, is the only member of the Board who is not an independent director. We believe that this leadership structure facilitates the accountability of our Chief Executive Officer to the Board and strengthens the Board’s independence from management. In addition, separating these roles allows our Chief Executive Officer to focus his efforts on running

our business and managing the day-to-day company operations, while allowing our Chairman to lead the Board in its fundamental role of providing advice to, and independent oversight of, management.

INDEPENDENCE OF THE BOARD OF DIRECTORS AND ITS COMMITTEES

The Nasdaq listing standards require a majority of the members of a listed company’s board of directors qualify as “independent,” as affirmatively determined by the company’s board of directors. Our Board consults with our legal counsel to ensure that the Board’s 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 and the rules and regulations of the Securities and Exchange Commission, 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, our senior management and PricewaterhouseCoopers LLP, our independent registered public accounting firm, our Board of Directors believes that each of our current directors, other than Mr. North, is independent as required by the Nasdaq listing standards.

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 composed entirely of directors determined by the Board to be independent within the meaning of applicable Nasdaq listing standards and Securities and Exchange Commission rules and regulations.

BOARD MEETINGS AND COMMITTEES

During 2017, our Board of Directors and its committees held 27 meetings (including regularly scheduled and special meetings), and each current director attended at least 75% of the aggregate of (i) the total number of meetings our Board held during the period for which he or she served as a director and (ii) the total number of meetings held by all committees of our Board on which he or she served during the periods that he or she served.

It is the policy of our Board of Directors to regularly have separate meetings for independent directors, without management participating.

We do not have a formal policy regarding attendance by members of our Board at annual meetings of stockholders. Nonetheless, we encourage our directors to attend.

 

 

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        CORPORATE GOVERNANCE    

 

 

Our Board of Directors has an Audit Committee, a Compensation and Leadership Development Committee and a Governance Committee. Each committee operates pursuant to a written charter that is available on our website at http://ir.shutterfly.com/corporate-governance/committee-composition. The following table presents committee memberships as of the date of this proxy statement:

 

NAME

   AUDIT      COMPENSATION      GOVERNANCE  

 

William Lansing

 

        

 

Thomas D. Hughes

 

     

 

 

 

 

 

LOGO

 

 

 

  

 

 

 

 

 

LOGO

 

 

 

 

Eva Manolis

 

        

 

 

 

 

 

LOGO

 

 

 

 

Ann Mather

 

        

 

Elizabeth S. Rafael

 

  

 

 

 

 

 

LOGO

 

 

 

     

 

Elizabeth Sartain

 

     

 

 

 

 

 

LOGO

 

 

 

  

 

H. Tayloe Stansbury

 

  

 

 

 

 

 

LOGO

 

 

 

     

 

Brian T. Swette

 

  

 

 

 

 

 

LOGO

 

 

 

     

 

 

 

 

 

LOGO

 

 

 

 

Michael P. Zeisser

 

           

 

 

 

 

 

LOGO

 

 

 

        

 

Total meetings in 2017

 

  

 

 

 

 

7

 

 

 

 

  

 

 

 

 

7

 

 

 

 

  

 

 

 

 

5

 

 

 

 

LOGO = Chairperson              LOGO = Member

 

* William J. Lansing, Ann Mather and Christopher North do not currently serve on any committee of the Board.

 

Audit Committee

The Audit Committee of the Board of Directors (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, retention and oversight of our independent registered public accounting firm, reviewing our independent registered public accounting firm’s 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 quarterly and annual financial statements, reviewing and discussing with management and

our independent registered public accounting firm our selection, application and disclosure of 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 of our internal control over financial reporting, reviewing and discussing with management the Company’s program to identify, assess, manage, and monitor significant business risks of the Company, including financial, operational, privacy, cybersecurity and business continuity risks; and annually reviewing and evaluating the composition and performance of the Audit Committee, including the adequacy of the Audit Committee charter.

The Board has determined that each member of the Audit Committee is an independent director under applicable Securities and Exchange Commission and Nasdaq listing standards and meets the requirements for financial literacy under applicable Nasdaq listing standards. The Board has also determined that Ms. Rafael is an “audit committee financial expert” as that term is defined in applicable Securities and Exchange Commission rules and Nasdaq listing standards.

Compensation and Leadership Development Committee

At the January 23, 2018 meeting of the Board of Directors, the Board approved a revision to the name of the Shutterfly Compensation and Leadership Development Committee to the Compensation and Leadership Development Committee (the “Compensation and Leadership

 

 

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    CORPORATE GOVERNANCE        

 

 

 

Development Committee”) as this name more accurately reflects the responsibilities of this Committee. The Compensation and Leadership Development Committee has principal responsibility to evaluate, recommend, approve and review executive officer and director compensation arrangements, plans, policies and programs we maintain, and to administer our cash-based and equity-based compensation plans. Among other matters, the Compensation and Leadership Development Committee is responsible for setting our overall compensation philosophy, reviewing and approving our compensation programs annually, including 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 with respect to all cash and equity-based incentive compensation plans and arrangements, and reviewing and evaluating the composition and performance of the Compensation and Leadership Development Committee on an annual basis, including the adequacy of the Compensation and Leadership Development Committee charter. The Compensation and Leadership Development Committee engages outside consultants to provide compensation data and consulting services. In 2017, the Compensation and Leadership Development Committee engaged Frederic W. Cook & Co., Inc. as an outside

consultant. The Compensation and Leadership Development Committee has delegated authority to our Chief Executive Officer to grant equity awards annually to individual employees who are not our directors or executive officers.

The agenda for meetings of the Compensation and Leadership Development Committee is determined by its chair with the assistance of our Chief Executive Officer and Senior Vice President, Chief Human Resources Officer. Compensation and Leadership Development Committee meetings are regularly attended by the Chief Executive Officer and the Senior Vice President, Chief Human Resources Officer. The Compensation and Leadership Development Committee’s chair reports its recommendations on executive compensation to the Board. The Compensation and Leadership Development Committee reviews the total fees paid to outside consultants to ensure that the consultant maintains its objectivity and independence when rendering advice to the Compensation and Leadership Development Committee.

The Board has determined that each member of the Compensation and Leadership Development Committee is an independent director under Nasdaq listing standards, a non-employee director within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”), and an outside director, as that term is defined under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”).

Compensation and Leadership Development Committee Interlocks and Insider Participation

During fiscal 2017, the members of our Compensation and Leadership Development Committee were Thomas D. Hughes, Elizabeth Sartain and Michael P. Zeisser. None of the members of our Compensation and Leadership Development Committee in 2017 was at any time during 2017 or at any other time an officer or employee of Shutterfly or any of its subsidiaries, and none had or have any relationships with Shutterfly that are required to be disclosed under Item 404 of Regulation S-K. None of our executive officers has served as a member of our Board, or as a member of the Compensation and Leadership Development Committee or similar committee, of any entity that has one or more executive officers who served on our Board or Compensation and Leadership Development Committee during fiscal 2017.

Governance Committee

The Governance Committee of the Board of Directors (the “Governance Committee”) is responsible for making recommendations to the Board regarding director candidates and the structure and composition of our Board and committees of the Board. Among other things, the Governance Committee is responsible for identifying, evaluating and nominating candidates for appointment or election as members of our Board, 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 senior finance department personnel,

 

 

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recommending that our Board 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 Board has determined that each member of the Governance Committee is an independent director under Nasdaq listing standards.

BOARD OF DIRECTORS’ ROLE IN RISK OVERSIGHT

Together with the Board’s standing committees, the Board is responsible for ensuring that material risks are identified and managed appropriately. The Board and its committees regularly review material operational, financial, compensation and compliance risks with senior management. As part of its responsibilities as set forth in its charter, the Audit Committee is responsible for reviewing with management our major financial risk exposures, including reviewing and discussing with management of the Company’s program to identify, assess, manage, and monitor potential business risks such as financial, operational, privacy, cybersecurity and business continuity risks, and the steps management has taken to monitor such exposures, including our procedures and any related policies, with respect to risk assessment and risk management. For example, our Chief Financial Officer reports to the Audit Committee on a regular basis with respect to compliance with our risk management policies. The Audit Committee also performs a central oversight role with respect to financial and

compliance risks, and reports on its findings at each regularly scheduled meeting of the Board. The Compensation and Leadership Development Committee considers risk in connection with its design of compensation programs for our executives. The Governance Committee annually reviews our corporate policies and their implementation. Each committee regularly reports to the Board.

CODE OF 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 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://ir.shutterfly.com/essential-governance-documents. To satisfy the disclosure requirement under Item 5.05 of Form 8-K, any amendments to the codes or grant of any waiver from a provision of the codes to any executive officer or director, will be promptly disclosed on our website at the above-referenced address, as well as by any other means then required by Nasdaq rules or applicable law.

STOCKHOLDER NOMINATIONS TO THE BOARD OF DIRECTORS

The Governance Committee will consider director candidates recommended by stockholders in the same manner in which it evaluates candidates generally. Stockholders who wish to recommend individuals for consideration by the Governance Committee to become nominees for election to

the Board at an annual meeting of stockholders must do so in accordance with the procedures set forth in our Bylaws. See “When are stockholder proposals due for next year’s annual meeting of stockholders?” above for additional information.

In general, each submission must set forth: (a) as to the stockholder (1) the name and address of the stockholder on whose behalf the submission is made; (2) the class and number of our shares that are directly or indirectly beneficially owned by such stockholder as of the date of the submission; (3) any derivative position in our securities beneficially held by such stockholder as of the date of the submission; (4) any performance-related fees that such stockholder is entitled to, based on any increase or decrease in the value of our shares or derivative position, if any, as of the date of the submission; and (5) a representation whether such stockholder intends to deliver a proxy statement and/or form of proxy to holders of a sufficient number of shares to elect the nominee or nominees submitted; and (b) as to each person whom the stockholder proposes to nominate for election (1) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, including such person’s written consent to being named in such proxy statement as a nominee and to serving as a director if elected; and (2) a statement whether such person, if elected, intends to tender, promptly following such person’s election, an irrevocable resignation effective upon such person’s failure to receive the required vote for re-election at the next meeting at which such person would face re-election and upon acceptance of such resignation by the Board of Directors, in accordance with our Corporate

 

 

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Governance Principles. Stockholder nominations of directors must be addressed to our Corporate Secretary, at 2800 Bridge Parkway, Redwood City, CA 94065.

DIRECTOR QUALIFICATIONS

In considering whether to recommend any candidate for inclusion in the Board’s slate of recommended director nominees, including candidates recommended by stockholders, the Board considers the Board’s diversity. The Board seeks nominees with a broad diversity of experience, professions, skills, geographic

representation and backgrounds. Nominees for directors are not discriminated against on the basis of race, religion, national origin, sexual orientation, disability or any other basis proscribed by law. Other characteristics considered by our Governance Committee include the candidate’s character, integrity, judgment, skills, business acumen, experience, commitment, diligence, conflicts of interest and the ability to act in the interests of all stockholders.

Our Board and each of its committees engage in an annual self-evaluation process. As part of that process, directors provide feedback on, among

other things, whether the Board has the right set of skills, experience and expertise. This evaluation encompasses a consideration of diversity as described above.

STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS

Should stockholders wish to communicate with the Board, such correspondence should be sent to the attention of our Corporate Secretary, at 2800 Bridge Parkway, Redwood City, California 94065. Our Corporate Secretary will forward the communication to our Board members.

 

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table presents information as to the beneficial ownership of our Common Stock as of March 26, 2018 for:

  each stockholder known by us to be the beneficial owner of more than 5% of our Common Stock;

 

  each of our directors or director nominees;
  each Named Executive Officer (as defined below in Compensation Discussion and Analysis) as set forth in the summary compensation table below; and

 

  all current executive officers and directors as a group.
 

 

Percentage ownership of our Common Stock in the table is based on 33,107,322 shares of our Common Stock outstanding as of March 26, 2018. In accordance with Securities and Exchange Commission rules and regulations, shares of our Common Stock subject to equity awards that are currently vested or will vest within 60 days of March 26, 2018 (i.e., by May 25, 2018) are deemed to be beneficially owned by the holder of the equity award 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. Unless otherwise indicated, the address of each person named below is c/o Shutterfly, Inc., 2800 Bridge Parkway, Redwood City, California 94065.

 

                                                                         
    

SHARES OF COMMON STOCK

BENEFICIALLY OWNED

 

 

NAME OF BENEFICIAL OWNER

  

 

NUMBER

    

 

PERCENTAGE

 

5% Stockholders

     

 

Primecap Management Company (1)

  

 

 

 

5,059,482

 

 

  

 

15.3%

 

BlackRock, Inc. (2)

  

 

 

 

4,127,633

 

 

  

 

12.5%

 

The Vanguard Group (3)

  

 

 

 

3,009,168

 

 

  

 

9.1%

 

Park West Asset Management, LLC (4)

  

 

 

 

1,811,637

 

 

  

 

5.5%

 

Thomas D. Hughes (5)

  

 

 

 

8,565

 

 

  

 

 

William Lansing (6)

  

 

 

 

27,124

 

 

  

 

 

Eva Manolis (7)

  

 

 

 

6,986

 

 

  

 

 

Ann Mather (8)

  

 

 

 

7,868

 

 

  

 

 

Christopher North (9)

  

 

 

 

249,685

 

 

  

 

 

Elizabeth S. Rafael (10)

  

 

 

 

8,615

 

 

  

 

 

Elizabeth Sartain (11)

  

 

 

 

6,627

 

 

  

 

 

H. Tayloe Stansbury (12)

  

 

 

 

6,025

 

 

  

 

 

Brian T. Swette (13)

  

 

 

 

27,765

 

 

  

 

 

Michael P. Zeisser (14)

  

 

 

 

20,161

 

 

  

 

 

Michele Anderson (15)

  

 

 

 

6,020

 

 

  

 

 

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    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT         

 

 

 

                                                                         
    

SHARES OF COMMON STOCK

BENEFICIALLY OWNED

 

 

NAME OF BENEFICIAL OWNER

  

 

NUMBER

    

 

PERCENTAGE

 

Scott Arnold (16)

  

 

 

 

 

 

  

 

 

Dwayne A. Black (17)

  

 

 

 

22,886

 

 

  

 

 

Tracy Layney (18)

  

 

 

 

2,095

 

 

  

 

 

Ishantha Lokuge (19)

  

 

 

 

2,513

 

 

  

 

 

Satish Menon (20)

  

 

 

 

3,980

 

 

  

 

 

Michael Pope (21)

  

 

 

 

24,616

 

 

  

 

 

All current directors and executive officers as a group (17 persons)

           

 

1.3%

 

Represents beneficial ownership of less than 1% of the outstanding shares of common stock.

 

(1) PRIMECAP Management Company stated in its Schedule 13G/A filed with the SEC on February 27, 2018 that, of the 5,059,482 shares beneficially owned by it, it has (a) sole voting power over 4,375,427 shares, and (b) sole dispositive power over 5,059,482 shares. According to the 13G/A filing, the address of the principal office of PRIMECAP Management Company is 177 E. Colorado Blvd., 11th Floor, Pasadena, CA 91105.

 

(2) BlackRock, Inc. stated in its Schedule 13G/A filed with the SEC on January 19, 2018 that, of the 4,127,633 shares beneficially owned by it, it has (a) sole voting power over 4,052,276 shares and (b) sole dispositive power over 4,127,633 shares. According to the 13G/A filing, the address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055.

 

(3) The Vanguard Group Inc. stated in its Schedule 13G/A filed with the SEC on February 12, 2018 that, of the 3,009,168 shares beneficially owned by it, it has (a) sole voting power over 64,604 shares, (b) shared voting power over 4,518 shares, (c) sole dispositive power over 2,942,846 shares, and (d) shared dispositive power over 66,322 shares. According to the Schedule13G/A filing, the address of The Vanguard Group Inc. is 100 Vanguard Blvd., Malvern, PA 19355.

 

(4) Based solely on Schedule 13G/A filed with the SEC on February 14, 2018, reporting beneficial ownership as of December 31, 2017, Park West Asset Management, LLC. and Peter S. Park, as the sole member and manager of Park West Asset Management, LLC, reported beneficial ownership of the 1,811,637 shares. Of the 1,811,637 beneficially owned shares, it has (a) shared voting power over 1,811,637 shares and (b) shared dispositive power over 1,811,637 shares. According to the 13G/A filing, the address of Park West Asset Management, LLC. is 900 Larkspur Landing Circle, Suite 165, Larkspur, California 94939.

 

(5) Consists of 4,625 shares of common stock over which Mr. Hughes has sole voting and dispositive power and 3,940 RSUs eligible for vesting within 60 days of March 26, 2018.

 

(6) Consists of 21,510 shares of common stock over which Mr. Lansing has sole voting and dispositive power and 5,614 RSUs eligible for vesting within 60 days of March 26, 2018.

 

(7) Consists of 3,046 shares of common stock over which Ms. Manolis has sole voting and dispositive power and 3,940 RSUs eligible for vesting within 60 days of March 26, 2018.

 

(8) Consists of 3,928 shares of common stock over which Ms. Mather has sole voting and dispositive power and 3,940 RSUs eligible for vesting within 60 days of March 26, 2018.
(9) Consists of 12,394 shares of common stock over which Mr. North has sole voting and dispositive power and 237,291 shares subject to options that are exercisable within 60 days of March 26, 2018.

 

(10) Consists of 3,986 shares of common stock over which Ms. Rafael has sole voting and dispositive power and 4,629 RSUs eligible for vesting within 60 days of March 26, 2018.

 

(11) Consists of 2,293 shares of common stock over which Ms. Sartain has sole voting and dispositive power and 4,334 RSUs eligible for vesting within 60 days of March 26, 2018.

 

(12) Consists of 2,085 shares of common stock over which Mr. Stansbury has sole voting and dispositive power and 3,940 RSUs eligible for vesting within 60 days of March 26, 2018.

 

(13) Consists of 23,825 shares of common stock over which Mr. Swette has sole voting and dispositive power and 3,940 RSUs eligible for vesting within 60 days of March 26, 2018.

 

(14) Consists of 16,221 shares of common stock over which Mr. Zeisser has sole voting and dispositive power and 3,940 RSUs eligible for vesting within 60 days of March 26, 2018.

 

(15) Consists of 6,020 shares subject to options that are exercisable within 60 days of March 26, 2018. Ms. Anderson joined Shutterfly on February 27, 2017.

 

(16) Mr. Arnold joined Shutterfly on June 30, 2017.

 

(17) Consists of 19,535 shares of common stock over which Mr. Black has sole voting and dispositive power and 3,351 shares subject to options that are exercisable within 60 days of March 26, 2018.

 

(18) Consists of 2,095 shares subject to options that are exercisable within 60 days of March 26, 2018.

 

(19) Consists of 2,513 shares subject to options that are exercisable within 60 days of March 26, 2018.

 

(20) Consists of 3,980 shares subject to options that are exercisable within 60 days of March 26, 2018.

 

(21) Consists of 24,616 shares subject to options that are exercisable within 60 days of March 26, 2018.
 

 

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act requires our directors and executive officers, and persons who own more than 10 percent of a registered class of our equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of our Common Stock and other equity securities. Officers, directors and

greater than 10 percent stockholders are required by Securities Exchange Commission 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 fiscal 2017, all Section 16(a) filing

requirements applicable to our officers, directors and greater than 10 percent beneficial owners were timely met except that the following forms were inadvertently filed late: Form 4s for Lisa Blackwood-Kapral to report a new grant of RSUs; and a Form 4 for William Lansing to report the purchase of common stock.

 

 

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PROPOSAL NO. 2 ADVISORY VOTE TO APPROVE THE COMPANY’S EXECUTIVE COMPENSATION

 

In accordance with Section 14A of the Securities Exchange Act, we are including in this Proxy Statement the opportunity for our stockholders to vote to approve, on a non-binding, advisory basis, the compensation of our Named Executive Officers (as defined below in “Compensation Discussion and Analysis”) as disclosed in this Proxy Statement.

As described in detail under the heading “Compensation Discussion and Analysis,” the objective of our executive compensation program is to attract, motivate and retain the exceptional leaders we need to drive stockholder value, fulfill our vision and mission, uphold our company values and achieve our corporate goals. We accomplish these goals in a manner consistent with our strategy, competitive practice, sound corporate governance principles, and stockholder interests and concerns. We believe the compensation program for the Named Executive Officers was strongly aligned with the long-term interests of our stockholders and was instrumental in helping us achieve strong financial performance in 2017.

Accordingly, we are asking you to approve, on an advisory basis, the compensation of our Named Executive Officers, as described in this Proxy Statement, pursuant to Securities and Exchange Commission compensation disclosure rules, including the “Compensation Discussion and Analysis” below and the related compensation tables and other narrative executive compensation disclosure contained herein.

The following resolution is hereby submitted for a stockholder vote at the Annual Meeting:

“RESOLVED, that the stockholders of Shutterfly approve, on an advisory basis, the compensation of Shutterfly’s Named Executive Officers, as disclosed in the “Compensation Discussion and Analysis,” the compensation tables and the related narrative discussion of the Proxy Statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission.”

Although the advisory vote is non-binding, the Compensation and Leadership Development Committee and the Board will review the results of the vote. The Compensation and Leadership Development Committee will consider our

stockholders’ concerns to the extent there is any significant vote against the compensation of our Named Executive Officers as disclosed in this Proxy Statement and take them into account in future determinations concerning our executive compensation program. The Board therefore recommends that you indicate your support for the compensation of the Named Executive Officers, as described in this Proxy Statement, and recommends that our stockholders should cast an advisory vote on the compensation of our Named Executive Officers on an annual basis as was approved by the stockholders in a non-binding advisory vote at the 2017 Annual Meeting. Our next advisory vote on the compensation of our Named Executive Officers will be at the 2019 Annual Meeting of Stockholders.

THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE, ON AN ADVISORY BASIS, “FOR” THE APPROVAL OF THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS’ DESCRIBED IN THE COMPENSATION DISCUSSION AND ANALYSIS, THE COMPENSATION TABLES AND THE RELATED NARRATIVE DISCUSSION OF THIS PROXY STATEMENT.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

    TABLE OF CONTENTS

 

   

This Compensation Discussion and Analysis (“CD&A”) provides a detailed description of our compensation philosophy, practices, and the factors and process used in making compensation decisions with respect to our named executive officers for the year ended December 31, 2017 (“NEOs”). Our NEOs are:

 

   Christopher North, President and Chief Executive Officer (“CEO”);

   Michael Pope, Senior Vice President and Chief Financial Officer (“CFO”);

   Michele Anderson, Senior Vice President, Retail;

   Scott Arnold, Senior Vice President, Enterprise; and

   Satish Menon, Senior Vice President and Chief Technology Officer.

 

EXECUTIVE SUMMARY

 

Overview. As the leading provider and online retailer of high-quality personalized products and services offered through our lifestyle brands, we operate in numerous dynamic and competitive market segments. The market in which we compete for skilled executive management talent is highly competitive. Our executive compensation program is designed to attract, motivate, and retain the key executives who drive success for our stockholders, customers, and employees. Compensation that reflects performance and aligns with the long-term interests of our stockholders is fundamental to our compensation program design and decisions.

 

Business Strategy Update. At the beginning of 2017, we refined our business strategy around four key areas of focus: 1) simplifying the process of creating and purchasing personalized products, 2) expanding the range of products, 3) pivoting to mobile, and 4) leveraging our manufacturing platform for business customers. As the first step of our long-term strategy, we made the decision to restructure our Consumer business, simplifying our brand portfolio and shifting customers to our flagship Shutterfly.com website. We believed effectively executing our strategy would position the Company to deliver sustainable, profitable growth and create value for our stockholders. We delivered strong results during 2017, setting us up for success in 2018 and beyond (see “2017 Business Results”).

 

 

            25

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

   

 

            38

 

 

Report of the Compensation and Leadership Development Committee of the Board of Directors

 

   

 

            39

 

 

 

Summary Compensation Table

 

   

 

            40

 

 

 

Grants of Plan-Based Awards

 

   

 

            41

 

 

 

Outstanding Equity Awards at Year-End

 

   

 

            42

 

 

 

Option Exercises and Stock Vested

 

   

 

            42

 

 

 

CEO Pay Ratio

 

   

 

            42

 

 

Potential Payments upon Termination or Change of Control

 

 

   

 

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    COMPENSATION DISCUSSION AND ANALYSIS        

 

 

 

Compensation Program Changes. Our Compensation and Leadership Development Committee (“Committee”) has taken steps to redesign our executive compensation program to support our business strategy and in response to ongoing dialogue with our stockholders. Over the last few years, we have undertaken a robust stockholder engagement program, speaking with stockholders representing over 50% of our outstanding common stock in the past year. These conversations have included our Chairman, CEO, other members of the Board, CFO and other members of senior management, and covered matters of importance to Shutterfly and our stockholders in a variety of areas, including our executive compensation program. We believe changes made to simplify our programs over the last two years have been effective in driving stockholder value creation. Below is a summary of key feedback and changes:

 

WHAT WE HEARD:

 

 

 

1.

 

 

IMPROVE QUALITY OF EARNINGS AND DELIVER PROFITABLE GROWTH

 

 

 

WHAT WE DID:

 

 

 

LOGO  Changed our bonus plan for 2017 to be based only on Adjusted EBITDA, which now provides clarity of focus on profitability for the executive team and our broader employee base

 

LOGO  Carefully managed our overall equity compensation program, reducing stock-based compensation expense by 27% from 2015 to 2017

 

LOGO  Outside of the compensation program, we have also focused on financial discipline and become more strategic in our investments on high-value initiatives, reducing capital expenditures as a percent of revenue by 20% over the last two years

 

 

 

WHAT WE HEARD:

 

 

 

2.

 

 

TIE LONG-TERM INCENTIVES TO VALUE CREATION FOR STOCKHOLDERS

 

 

 

WHAT WE DID:

 

 

 

LOGO  Changed the performance-based component of our long-term incentive program from RSUs tied to 1-year Adjusted EBITDA goals to stock options, first with our CEO’s 2016 hiring award and then for our other NEOs in their 2017 annual grants. Our Board, as well as several key stockholders, views stock options as an effective, performance-based long-term incentive vehicle. Our overall compensation program emphasizes a long-term orientation with near-term financial and operational discipline.

 

 

 

 

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        COMPENSATION DISCUSSION AND ANALYSIS    

 

 

2017 Business Results. Under the leadership of our executive team, we exceeded our plan for 2017, delivering 5% growth in net revenues and 12% growth in Adjusted EBITDA. In addition, after the close of 2017, we announced our agreement to acquire Lifetouch, a national leader in school photography. We are targeting a minimum of $450 million in Adjusted EBITDA by 2020, through the strength of each other’s core businesses as well as our realization of unique revenue and cost synergies available from combining our two complementary companies. By executing our long-term strategy, we delivered strong financial performance and created value for our stockholders over the past year. Our 1-year total stockholder return (TSR) over calendar year 2017 was -0.9%. However, we believe it is also relevant to evaluate TSR from the day after the release of our 2016 Fourth Quarter Earnings (February 2, 2017) through the day after the release of our 2017 Fourth Quarter Earnings and Lifetouch acquisition announcement (January 31, 2018). Over this period reflecting when our 2017 financial results were publicly-disclosed, our total stockholder return was 55.9% compared to 16.0% for the Russell 2000 index.

 

Net Revenue

($ Millions)

  

Adjusted EBITDA

($ Millions)

   Total Stockholder Return
LOGO    LOGO    LOGO

 

Key 2017 Decisions and Pay Outcomes. Our executive compensation program for 2017 reflects a simplified program consisting principally of base salaries, short-term cash incentives, and long-term incentives:

 

  Base Salary: The Committee awarded no base salary increases for incumbent NEOs. Salaries for our two new-hire NEOs were set in connection with their hire based on arms-length negotiation and consideration of market data and internal equitability.

 

  Short-Term Incentive Compensation: For 2017, the Committee set our Adjusted EBITDA goal at $230 million, which represented a 10.3% increase over 2016 results. We exceed our goal
   

and NEO bonuses were earned at 122% of target.

 

  Long-term Incentive Compensation: The Committee balanced performance-based and fixed-awards by granting annual awards to our NEOs as approximately 50% stock options and 50% RSUs. No award was granted to our CEO because he was provided a multi-year grant upon hire. One other NEO, Mr. Menon, was also provided a retention RSU award in addition to his annual award of stock options and RSUs.

Our Corporate Values, Compensation Philosophy, and Practices

Our Values. Our vision and values shape our strategy and corporate goals, which are supported by the design of our compensation program:

 

  Our Vision: Our two-part vision describes our intention to be the leader in our field in both the consumer and enterprise sides of our business. On the consumer side, we aim to help people share life’s joy by being the leading online retailer and provider of high-quality personalized products, complemented by our enterprise vision to be the leading digital manufacturing platform for business.
 

 

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  Our Values: We act as owners. We invest in the long-term while delivering results today. We use data and insights to inform decisions. We passionately innovate on behalf of our customers. We inspire customers through creativity and beautiful design. We do the right thing for customers. We are warm, inclusive, and collaborative. We invest in great talent. We debate the most important decisions, then fully commit. We share life’s joy.

 

  Our Strategies: We have articulated four primary strategies for the next three to five years that support our long-term vision: (1) making purchasing personalized products simple; (2) offering customers a broader range of products; (3) pivoting towards mobile; and (4) leveraging our manufacturing platform.

 

  Our Corporate Goals: Informed by our long-term vision and strategies, each year, we establish overall corporate financial and non-financial goals as an integral part of our strategy to improve corporate performance and increase stockholder value. Our executive compensation program, policies and practices are designed to create incentives for outstanding execution and to reward our employees, including our NEOs, for their contributions towards achieving such goals.

Our Compensation Philosophy. Our compensation philosophy provides the guiding principles for structuring our executive compensation program. The objective of our program is to attract, motivate and retain the key executives we need in order to drive stockholder value, fulfill our vision and mission, uphold our values and achieve our corporate objectives.

 

  Compensation Should Reflect our Pay-for-Performance Culture. Pay should be directly linked to performance. Accordingly, a significant portion of executive compensation is contingent on, and varies based on, growth in stockholder value, achievement of our corporate performance goals and individual contributions to our success.

 

  Compensation Should Align with Creation of Stockholder Value. Compensation should incentivize management to achieve short-term results in a manner that also supports our long-term strategic and financial goals. Performance-based cash bonuses create incentives for achieving results that enhance stockholder value in the short-term, while equity awards serve to align the interests of our executives with our stockholders over the long-term. Our compensation policies and practices are designed to balance short-term
   

and long-term interests, and to prevent the opportunity for inappropriate risk-taking that would have a material adverse effect on us.

 

  Compensation Level and Mix Should Reflect Responsibility and Accountability. Total compensation is higher for individuals with greater responsibility, greater ability to influence achievement of our corporate goals and greater accountability for those goals. Furthermore, as responsibility increases, a greater portion of the executive’s total compensation is performance-based pay and tied to long-term value creation for our stockholders.

Over the last two years, the Committee reviewed how our executive compensation program aligns with the foregoing philosophy, including the selection of performance metrics in annual and long-term incentive compensation programs. In the compensation package for our CEO, the Committee focused on aligning compensation with stock price growth instead of a specific financial measure to directly link compensation value with increases in stockholder value. This was carried through to the equity awards for the rest of our NEOs in 2017.

 

 

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EXECUTIVE COMPENSATION PROGRAM HIGHLIGHTS

 

LOGO   WHAT WE DO   LOGO   WHAT WE DON’T DO

   Pay for Performance. Our program is designed to align executive pay with our financial performance and stockholder value.

 

   Peer Group Analysis. The Committee reviews total direct compensation (base salary, annual cash incentive and long-term incentive awards) and the mix of the compensation components for our peer group as one of the factors in determining the compensation for our NEOs.

 

   CEO Stock Ownership Guideline. Our CEO is required to hold four times his base salary in our stock, which must be achieved within five years of hire.

 

   Use of Independent Compensation Consultant. The Committee is advised by an independent compensation consulting firm that provides no other services to us.

 

   Clawback Policy. The Committee has adopted a clawback policy applicable to all incentive payments provided to executive officers.

 

 

   No Single Trigger Change-in-Control Payments. No payments or benefits are payable solely on the occurrence of a change-in-control of the company.

 

   No Tax Gross-Ups for Excise Taxes. Our NEOs are not entitled to any tax gross-up payments with respect to excise taxes that may be imposed on certain payments.

 

   No Hedging, Speculative Trading, or Pledging. Our trading policies prohibit employees and directors from hedging, speculative trading or pledging of our stock.

 

EXECUTIVE COMPENSATION PROCESS

Role of the Compensation and Leadership Development Committee. The Committee establishes our overall compensation philosophy and reviews and approves our executive compensation program, including the specific compensation of our NEOs. The Committee relies on its compensation consultant and legal counsel, as well as our CEO, our Chief Human Resources Officer and our executive compensation staff to formulate recommendations with respect to specific compensation actions. During its discussions, the Committee met in executive session without our CEO or other management present. The Committee made all relevant decisions for 2017 compensation for our NEOs. The Committee reviews compensation for our NEOs at least annually.

The factors considered by the Committee in determining the compensation of our NEOs for 2017 included:

 

  Shutterfly’s performance and the NEOs individual performance;

 

  Market data on compensation at comparable companies;

 

  Recommendations of our CEO (except with respect to his own compensation);

 

  Expected future contribution of the individual NEO;

 

  Retention;

 

  Compensation levels of executives with similar responsibilities (“internal pay equity”); and

 

  Feedback from our stockholders.

The Committee did not weigh these factors in any predetermined manner, nor did it apply any formulas in making its decisions. Instead, the Committee considers this information in light of its knowledge of Shutterfly, knowledge of each executive officer, and using its business judgment in making executive compensation decisions.

Role of Management. Our CEO annually evaluates the performance of each of our executive officers, including the other NEOs, based on one or more individual performance objectives established at the beginning of the year. Using his subjective evaluation of each executive officer’s performance, accomplishments during the year and areas of strength and areas for development, and taking into consideration our corporate and financial performance during the preceding year, he then makes recommendations to the

 

 

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Committee regarding base salary and target bonus adjustments for the current year, as well as equity awards for each of our executive officers (other than himself). The Committee considers these recommendations, as well as the competitive market analysis prepared by its compensation consultant, in order to determine the individual compensation elements for our NEOs (other than our CEO). While the Committee considers these recommendations and other factors described above, they are only two of several factors that the Committee considers in making its decisions with respect to the compensation of our NEOs. No executive officer participates in the determination of the amounts or elements of their own compensation.

Role of Compensation Consultants. Pursuant to its charter, the Committee has the authority to engage its own legal counsel and other advisors, including compensation consultants, to assist it in carrying out its responsibilities. During 2017, the Committee retained Frederic W. Cook & Co., Inc. (“FW Cook”), a national executive compensation consulting firm, as its independent compensation

consultant. FW Cook provided the Committee with support regarding the amount and types of compensation that we provide to our executive officers, how these amounts and types of compensation compare to the compensation practices of other companies and advice regarding other compensation-related matters, such as emerging market best practices and regulatory developments. The Committee assessed the independence of FW Cook and determined that no conflicts of interests existed.

Stockholder “Say on Pay” Vote. We hold an annual “Say on Pay” vote for our stockholders to affirm our executive compensation program. At our 2017 Annual Meeting of Stockholders, stockholders representing only 53.4% of the votes cast supported our annual “Say on Pay” resolution. Leading up to and following this vote, we have undertaken extensive stockholder outreach to discuss the pay-for-performance nature of our executive compensation program, as well as to gain a better understanding of our stockholders’ views. These discussions highlighted the multi-year nature of our CEO’s 2016 new-hire

equity award. Based on our ongoing stockholder engagement and review of our compensation policies and decisions, we believe the structure of our executive compensation program effectively aligns the interests of our NEOs with our long-term goals. The Committee will continue to consider the outcome of our “Say on Pay” votes and our stockholders’ views when making future compensation decisions for our NEOs.

Use of Market Data; Compensation Peer Group. To assess the competitiveness of our executive compensation program, the Committee considers the compensation practices of a peer group of high-growth technology companies of reasonably similar size to us. The Committee periodically reviews and approves changes to the peer group based on the recommendation of its independent compensation consultant. The Committee considers the compensation practices of the peer group companies as one factor in its compensation deliberations, but does not “benchmark” compensation at a specific level as compared to our peer group.

 

 

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In late 2016, the Committee approved changes to the peer group to reposition Shutterfly near the median of our peer group by revenue and market cap. The peer group for 2017 was comprised of companies similar to Shutterfly on the basis of revenue, market capitalization, industry (focused on e-commerce, Internet, and software companies), and geography (focused on the San Francisco Bay Area and other major metropolitan markets). This data is supplemented with data from a survey of executive compensation by Radford Associates, a unit of Aon Hewitt, representing both public and private technology companies that are of similar size with revenues between $500 million and $3 billion. Our peer group for 2017 was comprised of the following companies:

 

2017 PEER GROUP

1-800-Flowers.com, Inc.

   Groupon, Inc.    Shutterstock, Inc.    WebMD Health Corp

Box, Inc.

   GrubHub Inc.    Stamps.com Inc.    Yelp Inc.

Cimpress N.V.

   Match Group, Inc.    TripAdvisor, Inc.    Zillow Group, Inc.

Etsy, Inc.

   Pandora Media, Inc.    TrueCar, Inc.    Zynga, Inc.

GoDaddy Inc.

 

  

Quotient Technology Inc.

 

  

Wayfair Inc.

 

    

The table below shows how Shutterfly compares to the peer group used in 2017:

 

    

REVENUE –

LATEST
DISCLOSED
FOUR
QUARTERS AS OF
12/31/2017
(1)

    

MARKET
CAPITALIZATION

AS OF
12/31/2017
(1)

 

75th Percentile

 

   

 

$

 

 

1,556

 

 

 

      

 

$

 

 

6,375

 

 

 

 

Median

 

   

 

$

 

 

861

 

 

 

      

 

$

 

 

3,382

 

 

 

 

25th Percentile

 

   

 

$

 

 

479

 

 

 

      

 

$

 

 

1,419

 

 

 

 

Shutterfly

 

   

 

$

 

 

1,190

 

 

 

      

 

$

 

 

1,633

 

 

 

(1) Expressed in millions.

 

Compensation Program Elements

Our executive compensation program is composed of three primary elements:

 

  Base salary;
  Short-term incentive compensation in the form of quarterly performance-based cash bonuses; and

 

  Long-term incentive compensation in the form of equity awards.

 

Other elements include employment agreements, severance and change-in-control arrangements, retirement, health and welfare benefits, and limited perquisites with a sound business purpose.

 

 

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Base Salary. We provide base salaries to provide executives with a competitive level of fixed, short-term compensation. The Committee sets the annual base salaries of our NEOs at levels 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 takes into account each NEO’s qualifications and experience, position and scope of responsibilities, external pay benchmarks, internal pay equity, and job performance. Salary reviews are conducted annually; however, individual salaries are not necessarily adjusted each year. For 2017, salaries for incumbent NEOs (Messrs. North, Pope and Menon) were maintained at 2016 levels. The salaries for Ms. Anderson and Mr. Arnold were set at the time of their hire.

 

NEO

   2016 BASE SALARY        2017 BASE SALARY        PERCENTAGE
ADJUSTMENT
 

Mr. North

   $ 700,000        $ 700,000          0.0

Mr. Pope

     415,000          415,000          0.0

Ms. Anderson

     N/A          350,000          N/A  

Mr. Arnold

     N/A          350,000          N/A  

Mr. Menon

     375,000          375,000          0.0

 

Short-term Performance-based Incentive Program. We use cash bonuses to reward the performance of executive officers, including our NEOs, for their contributions to our overall

corporate financial and operational performance for the current fiscal year. We evaluate and reward the performance of our executive officers based on quarterly performance periods because

the Committee has determined this is the most efficient method to set rigorous goals in the face of significant seasonality on our business.

 

 

For 2017, we redesigned and simplified our short-term incentive plan to be based solely on Adjusted EBITDA to encourage a singular focus on increasing profitability as we undertook initiatives to consolidate our consumer brands and position the Company for profitable growth.

 

      2016 PLAN    2017 PLAN

Goal Setting

   Quarterly    Annual

Performance Period

   Quarterly    Quarterly

Financial Metrics

   Adjusted EBITDA (threshold), Revenue    Adjusted EBITDA

Individual Performance

   Modifier up to +/- 50%    No adjustment for individual performance

 

Individual Bonus Targets

Under the 2017 Bonus Plan, the annual target cash bonus opportunities were set at 100% of base salary for our CEO and 40% of base salary for the other NEOs. Bonus opportunities for Ms. Anderson and Mr. Arnold were pro-rated as of their hire date. In addition, the annual target cash

bonus opportunities for all participants were weighted by fiscal quarter at 20% of the target annual cash bonus opportunity for each of the first three fiscal quarters of 2017, and 40% for the fourth fiscal quarter to reflect the proportional weight of our quarterly financial target levels relative to our annual revenue and profits.

Individual awards under the 2017 Bonus Plan could range from 0% to 200% of the target award in total, but payouts during the first three quarters were capped at 100% of target with above-target amounts held-back and contingent on exceeding the full-year plan.

 

 

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Financial Metrics

The 2017 performance goals for Adjusted EBITDA were developed based on recent historical financial performance, planned strategic initiatives, and the then-existing economic

environment. The 2017 Bonus Plan was structured so that if we missed our Adjusted EBITDA goal, then bonuses would be reduced potentially all the way to a zero payout. The Committee believed that this design would help ensure that any bonus

payments made under the 2017 Bonus Plan would be made only if warranted by our actual financial and operational performance, consistent with our pay-for-performance philosophy.

 

 

The sum of the quarterly Adjusted EBITDA goals for 2017 represents an aggregate 10% increase from 2016. The Adjusted EBITDA threshold performance levels set by the Committee under the 2017 Bonus Plans are detailed below (amounts shown in millions):

 

PERIOD

   PERIOD
WEIGHTING
  2016 ACTUAL
ADJUSTED EBITDA
($ MIL.)
  

2017 ADJUSTED
EBITDA GOAL

($ MIL.)

   2017 ACTUAL
ADJUSTED EBITDA
($ MIL.) 
(1)
   2017 BONUS
FUNDING

 

First Quarter

 

    

 

 

 

 

20

 

 

%

 

   

 

-$

 

 

2.6

 

 

 

    

 

-$

 

 

4.4

 

 

 

    

 

-$

 

 

1.9

 

 

 

    

 

 

 

 

100

 

 

%(2)

 

 

Second Quarter

 

    

 

 

 

 

20

 

 

%

 

   

 

 

 

 

18.2

 

 

 

    

 

 

 

 

17.4

 

 

 

    

 

 

 

 

17.4

 

 

 

    

 

 

 

 

98

 

 

%

 

 

Third Quarter

 

    

 

 

 

 

20

 

 

%

 

   

 

 

 

 

-2.0

 

 

 

    

 

 

 

 

3.0

 

 

 

    

 

 

 

 

3.0

 

 

 

    

 

 

 

 

100

 

 

%

 

 

Fourth Quarter

 

    

 

 

 

 

40

 

 

%

 

   

 

 

 

 

194.8

 

 

 

    

 

$

 

 

214.0

 

 

 

    

 

 

 

 

215.6

 

 

 

    

 

 

 

 

156

 

 

%(2)

 

 

Total

 

              

 

$

 

 

208.5

 

 

 

    

 

$

 

 

230.0

 

 

 

    

 

$

 

 

234.1

 

 

 

    

 

 

 

 

122

 

 

%

 

 

(1) Excludes $17 million of restructuring charges relating to our single platform migration and capital lease termination charges related to the HP printer upgrade of $8.1 million.

 

(2) First quarter payout was capped at 100% with earnout for overachievement paid as part of the fourth quarter bonus, once full-year results were determined.

Bonus Decisions

At each of its quarterly meetings where it reviewed our financial results for purposes of the 2017 Bonus Plan, the Committee considered the potential bonus payments for each of our executive officers, including our NEOs. The following table presents the quarterly bonus payments that were made to the NEOs under the 2017 Bonus Plan.

 

NEO

   Q1   Q2    Q3    Q4    TOTAL    % SAL.   % TARGET

 

Mr. North

 

    

 

$

 

 

140,000

 

 

 

   

 

$

 

 

137,200

 

 

 

    

 

$

 

 

140,000

 

 

 

    

 

$

 

 

439,600

 

 

 

    

 

$

 

 

856,800

 

 

 

    

 

 

 

 

122

 

 

%

 

   

 

 

 

 

122

 

 

%

 

 

Mr. Pope

 

    

 

 

 

 

33,200

 

 

 

   

 

 

 

 

32,536

 

 

 

    

 

 

 

 

33,200

 

 

 

    

 

 

 

 

104,248

 

 

 

    

 

 

 

 

203,184

 

 

 

    

 

 

 

 

49

 

 

%

 

   

 

 

 

 

122

 

 

%

 

 

Ms. Anderson

 

    

 

 

 

 

10,360

 

 

(1)

 

   

 

 

 

 

27,440

 

 

 

    

 

 

 

 

28,000

 

 

 

    

 

 

 

 

87,920

 

 

 

    

 

 

 

 

153,720

 

 

 

    

 

 

 

 

44

 

 

%

 

   

 

 

 

 

122

 

 

%

 

 

Mr. Arnold

 

    

 

 

 

 

N/A

 

 

 

   

 

 

 

 

N/A

 

 

 

    

 

 

 

 

28,000

 

 

 

    

 

 

 

 

87,920

 

 

 

    

 

 

 

 

115,920

 

 

 

    

 

 

 

 

33

 

 

%

 

   

 

 

 

 

122

 

 

%

 

 

Mr. Menon

 

    

 

 

 

 

30,000

 

 

 

   

 

 

 

 

29,400

 

 

 

    

 

 

 

 

30,000

 

 

 

    

 

 

 

 

94,200

 

 

 

    

 

 

 

 

183,600

 

 

 

    

 

 

 

 

49

 

 

%

 

   

 

 

 

 

122

 

 

%

 

 

(1) Pro-rated to Ms. Anderson’s start date.

 

Long-term Incentive Compensation. We use long-term incentive compensation in the form of equity awards to motivate our executive officers, including our NEOs, by providing them with the opportunity to build an equity interest in

Shutterfly and to share in the potential appreciation of the value of our common stock. In 2015 and 2016, the Committee undertook a comprehensive review of our long-term incentive program and approved changes that were

reflected in both 2016 and 2017 compensation decisions. The primary change was to replace our performance-based RSU awards (“PBRSU”) with grants of stock options, first in the 2016 new-hire package for our CEO, and then in 2017 annual

 

 

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equity awards for our other NEOs. In approving the change, the Committee determined that options provide an excellent compensation mechanism for motivating our NEOs to create sustainable long-term stockholder value (and conversely, no reward if we do not create value for stockholders). The Committee considers options to be inherently performance-based because our NEOs will only realize value if our share price increases and they continue to serve through the vesting period applicable to the stock option grants. The decision to replace PBRSUs with stock options was based in part on the Committee’s review of long-term incentive practices within our peer group and feedback we received from our stockholders during outreach meetings.

In determining the amount of the long-term incentive compensation awards the Committee

considers a number of reference points, including the NEO’s performance, the NEO’s then-current total direct compensation (i.e., the sum of base salary, target cash bonuses and the annualized value of equity awards), the compensation paid to such executive’s peers within Shutterfly, the compensation paid to executives in comparable positions at other companies within our peer group, the remaining vesting period and expected value (and thus, retention value) of the NEO’s outstanding equity awards, and the NEO’s ability to affect profitability and stockholder value. In making equity award decisions, the Committee’s primary objectives are to reward long-term performance, align the long-term incentive compensation of our NEOs with stockholder interests, and maximize executive retention. The Committee does not place any specific weight on these factors, nor does it apply a formula to determine the amounts awarded.

2017 Equity Awards

In February 2017, the Committee approved annual equity awards for our incumbent NEOs other than our CEO. These equity awards consisted of stock option and RSU awards. The award mix was set at approximately 50% stock options and 50% RSUs by value, to balance increases for growth with ongoing retention. Additionally, in February 2017, the Committee approved a supplemental RSU grant for Mr. Menon for retention purposes.

In connection with their hires, Ms. Anderson and Mr. Arnold were provided hiring awards, also in an approximate value mix of 50% stock options and 50% RSUs.

 

 

The equity awards granted to the NEOs were as follows:

 

NEO

 

 

ANNUAL / NEW HIRE SHARE TOTALS

 

    

RETENTION RSU

AWARDS

(NO.)

    

AGGREGATE GRANT

DATE FAIR VALUE OF

EQUITY AWARDS ($)

 
 

STOCK OPTION

AWARDS (NO.)

    

RSU AWARDS

(NO.)

       

Mr. North

                          

Mr. Pope

    78,771        23,500               1,994,908  

Ms. Anderson

    144,483        48,161               3,996,140  

Mr. Arnold

    157,894        50,170               4,392,544  

Mr. Menon

    63,687        19,000        10,000        2,060,402  

 

The stock option awards were granted with exercise price equal to the closing price on the date of grant, have a seven-year term, and are subject to a four-year vesting schedule with 25% vesting on the first anniversary of the grant date and in equal monthly installments thereafter. The annual and new-hire RSU awards vest over four years in 25% installments on each anniversary of

the grant date. The retention RSU award provided to Mr. Menon vests 100% on the 2nd anniversary of the grant date.

OTHER COMPENSATION ELEMENTS

Health and Welfare Benefits. Our NEOs participate in our retirement, health, and welfare benefits on the same basis as all our full-time employees. We

maintain a tax-qualified Section 401(k) retirement plan for all employees who satisfy certain eligibility requirements, including requirements relating to age and length of service. We do not currently provide Company matching contributions to our 401(k) retirement plan. In addition, we also offer medical, dental and vision benefits, medical and dependent care flexible

 

 

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spending accounts, short-term and long-term disability insurance, accidental death and dismemberment insurance, and basic life insurance coverage.

Perquisites and Other Personal Benefits. We do not provide perquisites to our executive officers, including the NEOs, except in situations where we believe it is appropriate to assist an individual in the performance of his or her duties, to make our executive officers more efficient and effective, and for recruitment and retention purposes. Mr. North is eligible to be reimbursed for up to $15,000 annually in tax planning expenses through his third year of employment.

Sign-On Transition Bonuses. In connection with their hires and as an inducement to join the Company, Ms. Anderson and Mr. Arnold were provided sign-on bonuses of $500,000. Ms. Anderson’s sign-on bonus was to be paid 50% following her start date, then in equal monthly

installments during her second year of employment. Mr. Arnold’s sign-on bonus was to be paid in 50% installments following his start date and on the first anniversary of his start date. The bonuses are subject to pro-rata repayment upon resignation or termination for cause during the first two years of employment.

TERMINATION AND CHANGE IN CONTROL ARRANGEMENTS

To enable us to attract talented executives, as well as ensure ongoing retention when considering potential corporate transactions that may create uncertainty as to future employment, we offer certain post-employment payments and benefits to our NEOs. These benefits are generally standard for NEOs other than the CEO and included in each executive’s Retention Agreement and Amended Retention Agreements (each as defined under the heading “Executive Compensation Tables—Potential Payments upon Termination or Change in

Control”); the CEO’s benefits were negotiated at the time of hire. We believe these arrangements reinforce the commitment of our executives to pursue increased stockholder value amid personal uncertainties that may arise during times of transition, including in a transaction setting, and serve as an important retentive tool to promote stability in our management team through the completion of any such period. Payment of any severance benefits requires termination of employment (i.e., we have no “single-trigger” severance or equity vesting provisions that are contingent solely on occurrence of a change in control (“CIC”)). In addition, we do not provide 280G excise tax gross-up payments. For a summary of the material terms and conditions of the severance and change in control agreements in effect as of December 31, 2017, see the information under the heading “Executive Compensation Tables—Potential Payments upon Termination or Change in Control”.

 

 

OTHER POLICIES

Stock Ownership Policy. Our stock ownership guidelines are designed to encourage our CEO and Board to achieve and maintain a significant equity stake in Shutterfly and more closely align their interests with those of our stockholders. The current ownership levels are as follows:

 

INDIVIDUAL SUBJECT TO STOCK OWNERSHIP POLICY

   MINIMUM REQUIRED LEVEL OF
STOCK OWNERSHIP

Chief Executive Officer

   Four times current annual base salary

Non-Employee Members of our Board of Directors

   $200,000

 

Owned shares and vested RSUs are included for purposes of calculating ownership. The minimum level of ownership is expected to be achieved within five years of hire for the CEO and within two years of appointment for a non-employee director. During these grace periods, we have

established policies to ensure that covered individuals are on track to meet the minimum level of ownership within the required time periods. As of December 31, 2017, the Committee was satisfied that all covered individuals were on track to do so.

Compensation Recovery Policy. We maintain an Executive Officer Recoupment Policy that provides for the recovery of annual incentive compensation from any of our executive officers, including the NEOs, in the event of a substantial financial restatement resulting from the fraud or intentional misconduct of any executive officer.

 

 

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This policy would enable the Committee to seek recoupment of the incremental portion of bonuses paid to executive officers in excess of the awards that would have been paid based on the restated financial statements. We intend to update this policy, to the extent necessary, once the SEC adopts final rules implementing Section 954 of the Dodd-Frank Act.

Anti-Hedging Policy. Under our stock ownership policy, our CEO and the members of our Board are prohibited from speculating in our equity securities, including the use of short sales, “sales against the box,” or any equivalent transaction involving our equity securities. In addition, they may not engage in any other hedging transactions, such as “cashless” collars, forward sales, equity swaps and other similar or related arrangements, with respect to the securities that they hold. Under our insider trading policy, no employee, officer or member of our Board may acquire, sell or trade in any interest or position relating to the future price of our equity securities.

TAX CONSIDERATIONS

The accounting impact of our compensation programs and the tax deductibility of our compensation programs are each one of many factors that are considered in determining the size and structure of our programs, so that we can ensure that our compensation programs are reasonable and in the best interests of our stockholders. Section 162(m) of the Code generally disallows the deductibility by any publicly held corporation of individual compensation expenses in excess of $1 million paid to certain executive officers within a taxable year. Recent changes to Section 162(m) in connection with the passage of the Tax Cuts and

Jobs Act repealed exceptions to the deductibility limit that were previously available for “qualified performance-based compensation,” including stock option grants, effective for taxable years after December 31, 2017. As a result, any compensation paid to certain of our executive officers in excess of $1 million will be non-deductible unless it qualifies for transition relief afforded to compensation payable pursuant to certain binding arrangements in effect on November 2, 2017. We believe that compensation expense incurred in respect of our stock options granted prior to November 2, 2017, will be deductible pursuant to this transition rule. However, because of uncertainties in the interpretation and implementation of the changes to Section 162(m), including the scope of the transition relief, we can offer no assurance of such deductibility. All other cash and equity compensation in excess of $1 million paid to certain executive officers will not be deductible.

The Compensation and Leadership Development Committee seeks to balance the cost and benefit of tax deductibility with our executive compensation goals designed to promote long-term stockholder interests, and continues to reserve discretion to approve new compensation or modify existing compensation arrangements that result in a loss of deductibility when it believes that such payments are appropriate to attract and retain executive talent. Accordingly, we expect that a portion of our future cash compensation and equity awards to executive officers will not be deductible under Section 162(m).

RISK CONSIDERATIONS

Our Committee regularly considers potential risks when reviewing and approving our compensation

programs, including our executive compensation program, and our Committee does not believe that our compensation programs encourage excessive or inappropriate risk taking. As described in further detail in this “Compensation Discussion and Analysis,” we structure our programs with specific features to address potential risks while rewarding employees for achieving our financial and strategic objectives through prudent business judgment and appropriate risk taking. In 2018, the Committee and management considered whether our compensation programs for employees created incentives for employees to take excessive or unreasonable risks that could materially harm Shutterfly. The Committee believes that our compensation plans are typical for companies in our industry and that the risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on Shutterfly.

 

 

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        COMPENSATION DISCUSSION AND ANALYSIS    

 

 

NON-GAAP FINANCIAL MEASURE

Regulation G, conditions for use of Non-GAAP financial measures, and other Securities Exchange Commission regulations define and prescribe the conditions for use of certain Non-GAAP financial information. We closely monitor Adjusted EBITDA, which meets the definition of a Non-GAAP financial measure. We define “Adjusted EBITDA” as earnings before interest, taxes, depreciation, amortization, and stock-based compensation.

We have not reconciled our combined company non-GAAP Adjusted EBITDA target of $450 million for 2020 to comparable GAAP operating income at this stage of the process because it is unreasonably difficult to provide guidance for stock-based compensation expense, capitalization and amortization of internal-use software and charges related to the proposed acquisition, which are reconciling items between GAAP operating loss and non-GAAP Adjusted EBITDA.

The factors that may impact our future stock-based compensation expense and capitalization and amortization of internal-use software are out of our control and/or cannot be reasonably predicted, and therefore we are unable to provide such guidance without unreasonable effort. Factors include our market capitalization and related volatility of our stock price and our inability to project the cost or scope of internally-produced software and charges related to the proposed acquisition during this time period.

To supplement our consolidated financial statements presented on a GAAP basis, we believe that Non-GAAP measures, including Adjusted EBITDA, provide useful information about our core operating results and thus are appropriate to enhance the overall understanding of our past financial performance and our prospects for the future. These adjustments to our GAAP results are made with the intent of

providing both management and investors a more complete understanding of our underlying operational results and trends and performance. Management uses Non-GAAP measures to evaluate our financial results, develop budgets, manage expenditures, and determine employee compensation. The presentation of additional information is not meant to be considered in isolation or as a substitute for or superior to net income (loss) or net income (loss) per share determined in accordance with GAAP. Management strongly encourages stockholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.

The following is a reconciliation of Adjusted EBITDA for the years ended December 31, 2017 and 2016 (in thousands):

 

 

RECONCILIATION OF NET INCOME (LOSS) TO NON-GAAP ADJUSTED EBITDA

 

     YEAR ENDED DECEMBER 31,  
            2017                         2016        

Net income (loss)

   $ 30,085        $ 15,906  

Add back:

       

Interest expense

     27,836          23,023  

Interest and other income, net

     (1,481        (501

Tax expense

     5,160          10,682  

Depreciation and amortization

     103,862          113,651  

Stock-based compensation expense

     43,573          45,692  

Capital lease termination

     8,098           

Restructuring

     16,966                 

Non-GAAP Adjusted EBITDA

   $ 234,099              $ 208,453  

 

  2018 PROXY STATEMENT   37


Table of Contents
       

 

REPORT OF THE COMPENSATION AND LEADERSHIP DEVELOPMENT 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.

The Compensation and Leadership Development 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 and Leadership Development Committee recommended to the Board of Directors that the Compensation

Discussion and Analysis be included in this Proxy Statement.

Compensation and Leadership Development Committee

Elizabeth Sartain, Chair

Thomas D. Hughes

Michael P. Zeisser

 

 

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COMPENSATION TABLES

SUMMARY COMPENSATION TABLE

The following table presents compensation information for each NEO for the year ended December 31, 2017, and, to the extent required by the Securities and Exchange Commission compensation disclosure rules, the years ended December 31, 2016 and 2015. The table does not include columns for “Change in Pension Value and Nonqualified Deferred Compensation Earnings” because there were no amounts to report for the years presented.

 

NAME AND

PRINCIPAL

POSITION

   YEAR     

SALARY

($)(1)

    

BONUS

($)(2)

    

STOCK
AWARDS

($)(3)

    

OPTION
AWARDS

($)(4)

    

NON EQUITY
INCENTIVE PLAN
COMPENSATION

($)(5)

     ALL OTHER
COMPENSATION
    

TOTAL

($)

 

Christopher North

 

    

 

2017

 

 

 

    

 

700,000

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

856,800

 

 

 

    

 

 

 

 

    

 

1,556,800

 

 

 

President and Chief

 

    

 

2016

 

 

 

    

 

411,202

 

 

 

    

 

1,972,450

 

 

 

    

 

7,245,000

 

 

 

    

 

11,475,000

 

 

 

    

 

 

 

 

    

 

354,333

 

(6) 

 

    

 

21,457,985

 

 

 

Executive Officer

 

    

 

2015

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

Michael Pope

 

    

 

2017

 

 

 

    

 

415,000

 

 

 

    

 

 

 

 

    

 

1,051,625

 

 

 

    

 

943,283

 

 

 

    

 

203,184

 

 

 

    

 

 

 

 

    

 

2,613,092

 

 

 

Senior Vice President,

 

    

 

2016

 

 

 

    

 

415,000

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

105,450

 

 

 

    

 

 

 

 

    

 

520,450

 

 

 

Chief Financial Officer

 

    

 

2015

 

 

 

    

 

75,551

 

 

 

    

 

 

 

 

    

 

5,651,875

 

 

 

    

 

 

 

 

    

 

46,800

 

 

 

    

 

 

 

 

    

 

5,774,226

 

 

 

Michele Anderson

 

    

 

2017

 

 

 

    

 

296,154

 

 

 

    

 

 

 

 

    

 

2,199,994

 

 

 

    

 

1,766,146

 

 

 

    

 

153,720

 

 

 

    

 

 

 

 

    

 

4,416,014

 

 

 

Senior Vice President,

 

    

 

2016

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

Retail

 

    

 

2015

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

Scott Arnold

 

    

 

2017

 

 

 

    

 

176,346

 

 

 

    

 

 

 

 

    

 

2,383,075

 

 

 

    

 

2,009,470

 

 

 

    

 

115,920

 

 

 

    

 

 

 

 

    

 

4,684,811

 

 

 

Senior Vice President,

 

    

 

2016

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

Enterprise

 

    

 

2015

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

Satish Menon

 

    

 

2017

 

 

 

    

 

375,000

 

 

 

    

 

 

 

 

    

 

1,297,750

 

 

 

    

 

762,652

 

 

 

    

 

183,600

 

 

 

    

 

 

 

 

    

 

2,619,002

 

 

 

Senior Vice President,

 

    

 

2016

 

 

 

    

 

374,180

 

 

 

    

 

 

 

 

    

 

1,899,993

 

 

 

    

 

 

 

 

    

 

85,350

 

 

 

    

 

 

 

 

    

 

2,359,523

 

 

 

Chief Technical Officer

 

    

 

2015

 

 

 

    

 

369,333

 

 

 

    

 

 

 

 

    

 

336,075

 

 

 

    

 

 

 

 

    

 

150,190

 

 

 

    

 

 

 

 

    

 

855,598

 

 

 

 

(1) The amount in this column reflects a pro-rated base salary for Mr. North in 2016 and his annual base salary in 2017; a pro-rated base salary for Mr. Pope in 2015 and his annual base salary in 2016 and 2017; a pro-rated base salary for Ms. Anderson and Mr. Arnold in 2017; and a pro-rated base salary for Mr. Menon in 2015 and 2016 and his annual base salary in 2017.

 

(2) Mr. North became our President and Chief Executive Officer on May 31, 2016. As part of Mr. North’s offer letter, he received a $1,500,000 sign in bonus and a contractually committed 2016 bonus of $472,450 as an inducement to join the Company. Going forward, Mr. North has no guaranteed bonus payments.

 

(3) The amounts reported in this column represent the aggregate grant date fair value of RSUs and PBRSUs awarded to each NEO in the respective years computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation—Stock Compensation. The grant date fair value for time-based RSUs is determined using the closing fair market value of our common stock on the date of grant. The grant date fair value of PBRSUs was calculated based on the probable outcome of the
  performance measures on the date of grant. For information regarding the assumptions used to calculate grant date fair value, see note 8 of the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017. The amounts reported in this column reflect stock-based compensation expense for these equity awards, and do not correspond to the actual value that may be recognized by each NEO.

 

(4) The amount reported in this column represents the aggregate grant date fair value of stock options awarded to each NEO in 2016 and 2017. We estimated the fair value of each stock option award on the date of grant using the Black-Scholes option-pricing model and assumptions are included in our Annual Report on Form 10-K for the year ended December 31, 2017.

 

(5) The amounts reported in this column represent cash awards earned by each NEO under our 2015, 2016 and 2017 Quarterly Bonus Plans for executive staff. The 2017 Quarterly Bonus Plan is described in greater detail in “Compensation Discussion and Analysis”

 

(6) As part of Mr. North’s offer letter, he received $354,333 in relocation-related expenses which are included in the “All Other Compensation” column.
 

 

  2018 PROXY STATEMENT   39


Table of Contents

    COMPENSATION TABLES        

 

 

 

GRANTS OF PLAN-BASED AWARDS

The following table provides information on incentive awards granted to each NEO during the year ended December 31, 2017.

 

             

ESTIMATED FUTURE PAYOUTS UNDER
NON-EQUITY INCENTIVE PLAN AWARDS

 

    

ESTIMATED FUTURE PAYMENTS UNDER
EQUITY INCENTIVE PLAN AWARDS

 

   

ALL OTHER
STOCK AWARDS:
NUMBER OF
SHARES OF
STOCK OR UNITS

(#)

   

GRANT DATE FAIR
VALUE OF

STOCK AND
OPTIONS
AWARDS

($)(1)

 

NAME

  TYPE OF
AWARD
  GRANT
DATE
   

 

MINIMUM

($)

    

TARGET

($)

    

MAXIMUM

($)

    

THRESHOLD

(#)

    

TARGET

(#)

    

MAXIMUM

(#)

     

Christopher North

 

 

Cash (2)

 

   

 

 

 

 

   

 

 

 

 

    

 

700,000

 

 

 

    

 

1,400,000

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

   

 

 

 

 

   

 

 

 

 

                        
                                                                                  

Michael Pope

 

 

Cash (2)

 

   

 

 

 

 

   

 

 

 

 

    

 

166,000

 

 

 

    

 

332,000

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

   

 

 

 

 

   

 

 

 

 

 

RSU (3)

 

   

 

2/14/2017

 

 

 

   

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

   

 

23,500

 

 

 

   

 

1,051,625

 

 

 

 

Option (4)

 

   

 

2/14/2017

 

 

 

   

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

   

 

78,771

 

 

 

   

 

943,283

 

 

 

Michele Anderson

 

 

Cash (2)

 

   

 

 

 

 

   

 

 

 

 

    

 

105,000

 

 

 

    

 

210,000

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

   

 

 

 

 

   

 

 

 

 

 

RSU (3)

 

   

 

2/27/2017

 

 

 

   

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

   

 

48,161

 

 

 

   

 

2,199,994

 

 

 

 

Option (4)

 

   

 

2/27/2017

 

 

 

   

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

   

 

144,483

 

 

 

   

 

1,766,146

 

 

 

Scott Arnold

 

 

Cash (2)

 

   

 

 

 

 

   

 

 

 

 

    

 

70,000

 

 

 

    

 

140,000

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

   

 

 

 

 

   

 

 

 

 

 

RSU (3)

 

   

 

6/30/2017

 

 

 

   

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

   

 

50,170

 

 

 

   

 

2,383,075

 

 

 

 

Option (4)

 

   

 

6/30/2017

 

 

 

   

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

   

 

157,894

 

 

 

   

 

2,009,470

 

 

 

Satish Menon

 

 

Cash (2)

 

   

 

 

 

 

   

 

 

 

 

    

 

150,000

 

 

 

    

 

300,000

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

   

 

 

 

 

   

 

 

 

 

 

RSU (3)

 

   

 

2/14/2017

 

 

 

   

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

   

 

19,000

 

 

 

   

 

850,250

 

 

 

 

RSU (3)

 

   

 

2/14/2017

 

 

 

   

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

   

 

10,000

 

 

 

   

 

447,500

 

 

 

   

Option (4)

 

   

 

2/14/2017

 

 

 

   

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

 

   

 

63,687

 

 

 

   

 

762,652

 

 

 

 

(1) The amounts reported in this column represent the grant date fair value of each equity award computed in accordance with FASB ASC Topic 718. The grant date fair value for time-based RSUs is determined using the closing fair market value of the Company’s common stock on the date of grant. The grant date fair value of stock options was calculated using the Black-Scholes option-pricing model. For information regarding the assumptions used to calculate grant date fair value, see note 8 of the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017. These amounts reflect our stock-based compensation expense for these awards, and do not correspond to the actual value that may be recognized by the NEOs.

 

(2) The amounts reported represent possible aggregate annual cash awards payable to each NEO under our 2017 Quarterly Bonus Plan for executive staff. Each NEO could earn a range from 0% to
  200% of the target award (but subject to the overall pool funding cap of 125% of target). Actual payouts under the 2017 Bonus Plan were approved by the Compensation and Leadership Development Committee on a quarterly basis based on our actual performance. The 2017 Quarterly Bonus Plan is described in greater detail in “Compensation Discussion and Analysis”.

 

(3) The amounts reported represent RSUs subject to time-based vesting requirements granted under the 2015 Plan or pursuant to an inducement award agreement between the NEO and Shutterfly entered into during 2017.

 

(4) The amounts reported represent stock options subject to time-based vesting requirements granted under the 2015 Plan or pursuant to an inducement award agreement between the NEO and Shutterfly entered into during 2017.
 

 

The material terms of our 2017 Quarterly Bonus Plan necessary to an understanding of the possible aggregate cash awards payable to our NEOs, including the quarterly corporate performance measures under the plan, are described in “Compensation Discussion and Analysis” above under “Compensation Program Elements—Short-term Performance-based Incentive Program.”

The material terms of the RSUs and stock options awarded to NEOs during 2017, including the vesting schedules applicable to the RSUs and stock options are described in “Compensation Discussion and Analysis.”

 

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Table of Contents
 

        COMPENSATION TABLES    

 

 

OUTSTANDING EQUITY AWARDS AT YEAR-END

The following table provides information regarding equity awards held by each NEO as of December 31, 2017. No NEO has any other outstanding form of equity award.

 

NAME

  GRANT DATE     NUMBER OF
SHARES OR
UNITS OF STOCK
THAT HAVE NOT
VESTED
(#)
   

MARKET VALUE
OF SHARES OR
UNITS OF STOCK
THAT HAVE

NOT VESTED

($)(1)

   

EQUITY
INCENTIVE
PLAN AWARDS
NUMBER OF
UNEARNED
SHARES OR
OTHER RIGHTS
THAT HAVE
NOT VESTED

(#)

    EQUITY
INCENTIVE
PLAN AWARDS:
MARKET OR
PAYOUT VALUE
OF UNEARNED
SHARES, UNITS,
OR OTHER
RIGHTS THAT
HAVE NOT
VESTED
($)
   

NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS
EXERCISABLE

(#)

   

NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS
UNEXERCISABLE

(#)

    OPTION
EXERCISE
PRICE
($)
    OPTION
EXPIRATION
DATE
 

Christopher North

    5/31/2016  (2)      110,000       5,472,500                                      
    5/31/2016  (3)                              336,458       513,542       48.30       5/30/2023  

Michael Pope

    10/27/2015  (4)      35,000       1,741,250                                      
    10/27/2015  (4)      35,000       1,741,250                                      
    2/14/2017  (4)      23,500       1,169,125                                      
    2/14/2017  (3)                                    78,771       44.75       2/13/2024  

Michele Anderson

    2/27/2017  (4)      48,161       2,396,010                                      
    2/27/2017  (3)                                    144,483       45.68       2/26/2024  

Scott Arnold

    6/30/2017  (4)      50,170       2,495,958                                      
    6/30/2017  (3)                                    157,894       47.50       6/30/2024  

Satish Menon

    11/3/2014  (4)      12,500       621,875                                      
    11/3/2014  (4)      12,500       621,875                                      
    2/10/2016  (4)      18,642       927,440                                      
    2/10/2016  (4)      18,642       927,440                                      
    2/14/2017  (4)      19,000       945,250                                      
    2/14/2017  (5)      10,000       497,500                                      
      2/14/2017  (3)                                    63,687       44.75       2/13/2024  

 

(1) Value is calculated by multiplying the number of RSUs that have not vested by the closing market price of our stock ($49.75) on December 29, 2017, the last trading day of 2017.

 

(2) The shares subject to this RSU will vested as follows: (i) 50,000 shares on May 31, 2018, and (ii) 60,000 shares on May 31, 2019, provided the NEO is still employed by us on each such vesting date.

 

(3) The shares subject to this option grant will vest over four years, with 25% of such shares vesting one year after the grant date, and 1/48th of such shares to vest monthly thereafter, provided the NEO is still employed by us on each such vesting date.
(4) The shares subject to this RSU vested or will vest in four equal annual installments on the anniversary of the grant date each year following the year of grant, provided the NEO is still employed by us on each such vesting date.

 

(5) The shares subject to this RSU will 100% vest on February 14, 2019 provided the NEO is still employed by us on such vesting date.
 

 

  2018 PROXY STATEMENT   41


Table of Contents

    COMPENSATION TABLES        

 

 

 

OPTION EXERCISES AND STOCK VESTED

The following table provides information regarding stock option exercises by our NEOs during the year ended December 31, 2017, and the number of shares issued to each NEO upon vesting of RSUs during 2017. No options were exercised by any of our NEOs during 2017. Value realized on vesting of RSUs is based on the fair market value of our Common Stock on the vesting date multiplied by the number of shares vested and does not necessarily reflect proceeds received by the NEO.

 

   

OPTION AWARDS

 

  

STOCK AWARDS

 

NAME

  NUMBER OF SHARES
ACQUIRED ON
EXERCISE
   VALUE REALIZED ON
EXERCISE
($)
   NUMBER OF
SHARES ACQUIRED
ON VESTING
   VALUE REALIZED ON
VESTING
($)

Christopher North

                    40,000        1,979,600

Michael Pope

                    35,000        1,465,100

Michele Anderson

                          

Scott Arnold

                          

Satish Menon

                    37,428        1,587,832

 

CEO PAY RATIO

As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K, we are required to disclose the median of the annual total compensation of our employees (excluding our chief executive officer), the annual total compensation of our chief executive officer, Mr. North, and the ratio of these two amounts.

We have determined the median of the total compensation of our employees to be $77,446. The total 2017 compensation of Mr. North, as reported in the Summary Compensation Table above, was $1,556,800. Accordingly, the ratio of the 2017 annual total compensation of Mr. North to the median of the 2017 annual total compensation of our employees was approximately 20 to 1.

We identified the median of the total compensation of our employees by identifying the median employee, by examining taxable earnings from January 1, 2017 through October 31, 2017, as reported on W-2 forms, or the foreign equivalent, for all individuals employed by us as of October 31, 2017, other than our chief executive officer. We included all employees, whether employed on a full-time, part-time, or seasonal basis, and we did not annualize the compensation of any full-time employees who were employed for less than the full calendar year. For purposes of identifying the median employee, we converted amounts paid in foreign currencies to U.S. dollars based on the applicable foreign exchange rate as of October 31, 2017.

We believe that the pay ratio reported above is a reasonable estimate calculated in a manner consistent with SEC rules based on our internal records and the methodology described above.

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL

We have entered into termination of employment and change-in-control arrangements with our Named Executive Officers as summarized below:

Offer Letters and Potential Payments: CEO

Christopher North. Mr. North’s offer letter with Shutterfly provides that if Mr. North’s employment with Shutterfly is terminated without cause (as defined in the offer letter) or he resigns his employment for good reason (as defined in the offer letter), whether or not in connection with a change in control (as defined in the offer letter) of Shutterfly, then Mr. North will be entitled to receive, conditioned on execution by Mr. North of a release of claims in favor of Shutterfly:

 

  A lump sum cash payment equal to 12 months of his then-current base salary;
 

 

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  A lump sum payment equal to 100% of his target bonus (assuming target achievement for the then-current fiscal year);

 

  Waiver of the obligation to repay any portion of (x) $1,000,000 of the transition bonus that remains subject to the repayment provision (as described above) if the termination occurs during the first year of employment or (y) $500,000 of the transition bonus that remains subject to the repayment provision (as described above) if the termination occurs during the second year of employment;

 

  A lump sum payment equal to the applicable COBRA payments for 18 months;

 

  Acceleration of all then-unvested shares subject to the RSU granted to Mr. North pursuant to the terms of his offer letter; and
  If the termination occurs after the first anniversary of his employment with Shutterfly, acceleration of the number of then-unvested shares subject to the option granted to Mr. North pursuant to the terms of his offer letter (the “North Option”) that would have vested during the next 12 months.

If Mr. North’s employment with Shutterfly is terminated without cause (as defined in the offer letter) or he resigns his employment for good reason (as defined in the offer letter) within 90 days before or 12 months of a change in control (as defined in the offer letter) of Shutterfly, then Mr. North will be entitled to receive the same benefits as described above plus (i) a 12 month period in which to exercise any vested portion of the North Option and (ii) if the termination occurs (x) after May 31, 2017, acceleration of the number of then-unvested shares subject to the “North

Option” that would have vested during the next 12 months or (y) after May 31, 2018, acceleration of all then-unvested shares subject to the North Option. Receipt of these severance benefits is conditioned on execution by Mr. North of a release of claims in favor of the Company.

In connection with Mr. North’s termination of employment for any reason, Mr. North’s offer letter also provides for payment of any earned but unpaid base salary, the amount of any Actual Bonus (as defined in Mr. North’s offer letter) earned and payable from a prior bonus period which remains unpaid by Shutterfly as of the date of the termination (except in the case of termination for cause), other unpaid and then-vested amounts, and reimbursement for all reasonable and necessary expenses incurred in connection with his performance of services on behalf Shutterfly.

 

 

The following table summarizes the potential payments and benefits payable to Mr. North upon termination of employment or a qualifying termination in connection with a change in control under each situation listed below, modeling, in each situation, that Mr. North was terminated on December 31, 2017.

 

                         

FOLLOWING A CHANGE IN CONTROL

 

 

EXECUTIVE BENEFITS AND PAYMENTS UPON TERMINATION

  

VOLUNTARY
TERMINATION

FOR CAUSE

     INVOLUNTARY
TERMINATION
NOT FOR CAUSE
     TERMINATION
FOR GOOD
REASON
     INVOLUNTARY
TERMINATION
NOT FOR CAUSE
     TERMINATION
FOR GOOD
REASON
 

Base Salary

   $      $ 700,000      $ 700,000      $ 700,000      $ 700,000  

Bonus

                                  

Health Benefits (1)

            50,359        50,359        50,359        50,359  

Value of Accelerated Stock Options

            308,125        308,125        308,125        308,125  

Value of Accelerated Restricted Stock Units

            5,472,500        5,472,500        5,472,500        5,472,500  
(1) This amount reflects our maximum 18 month obligation. If Mr. North became covered by another employer’s health plan during such 18 months period, then our obligation to pay Mr. North’s health plan coverage shall cease.

 

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    COMPENSATION TABLES        

 

 

 

 

Amended and Restated Executive Retention Agreements: Other NEOs

In February 2017, the Board approved management to negotiate and prepare new amended and restated retention agreements for our NEOs other than our current Chief Executive Officer (the “Amended Retention Agreements”), to provide him or her with certain severance benefits in the event that his or her employment is terminated under specified circumstances, as set forth in the Amended Retention Agreements. Additionally, each Amended Retention Agreement supersedes in full the terms and provisions of the offer letters, as amended, of the NEOs (other than our Chief Executive Officer) as it relates to certain terms and benefits resulting from a change in control of Shutterfly. The Amended Retention Agreements because effective (1) with respect to any CIC Qualifying Termination (as defined in the Amended Retention Agreement), the date in 2017 on which the NEO signed the Amended Retention Agreement and (b) with respect to any Qualifying Termination (as defined in the Amended Retention Agreement), January 1, 2018.

The Amended Retention Agreements will terminate on the earlier of:

 

  The third anniversary of the CIC Qualifying Termination Effective Date (the “Expiration Date”); or

 

  The date the NEO’s employment with the Company terminates for a reason other than a Qualifying Termination or CIC Qualifying Termination; provided however, that if a definitive agreement relating to a change in
   

control (as defined in the Amended Retention Agreement) has been signed Shutterfly on or before the Expiration Date, then the Amended Retention Agreement will remain in effect through the earlier of:

 

    The date the NEO’s employment with Shutterfly terminates for a reason other than a Qualifying Termination or CIC Qualifying Termination; or

 

    The date Shutterfly or its successor has met all of its obligations under the Amended Retention Agreement following a termination of the NEO’s employment with Shutterfly due to a Qualifying Termination or CIC Qualifying Termination.

The Amended Retention Agreements will renew automatically and continue in effect for three year periods measured from the initial Expiration Date and each subsequent Expiration Date unless the Company provides the NEO notice of non-renewal at least three months prior to the date on which the Amended Retention Agreement would otherwise renew.

Termination Not in Connection with a Change in Control

If the NEO’s service had been terminated by Shutterfly without cause or by the NEO for good reason prior to January 1, 2018 (other than within 12 months following a Change in Control (as defined in the Amended Retention Agreements)), the Company’s original retention agreements for our NEOs (the “Retention Agreements”) will govern. Pursuant to the terms of the Retention

Agreement, the NEO is entitled to receive the following benefits, subject to a general release of claims:

 

  Lump sum cash payment equal to 12 months of the NEO’s monthly base salary for the year during which the termination occurs; and

 

  Acceleration of that number of the NEO’s Equity Awards (as defined in the Retention Agreement) that would have vested had the executive completed an additional 12 months of service, including any performance-based awards (subject to achievement of the applicable performance criteria); and

 

  Continued employee benefits whereby Shutterfly will pay the NEO’s COBRA premiums for continuation of all health, dental and vision plans for the executive and his/her dependents for 12 months (or cash equivalent).

The Retention Agreements also provide for payment of any accrued but unpaid base salary and other vested but unpaid cash entitlements and any other vested benefits earned by the executive for the period through and including the termination date under any of our other benefit plans and arrangements.

If the NEO’s service is terminated by Shutterfly without cause or by the NEO for good reason on or after January 1, 2018 (other than within 12 months following a Change in Control) and during the term of the Amended Retention Agreement, the Amended Retention Agreement will govern. Pursuant to the terms of the Amended Retention Agreement, the NEO is entitled to receive the following benefits, subject to a general release of claims:

 

 

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  Lump sum cash severance payment equal to 6 months of the NEO’s base salary for the year during which the termination occurs;

 

  Acceleration of that number of the NEO’s Equity Awards (as defined in the Amended Retention Agreement) equal to a number of shares subject to each equity award calculated by multiplying 50% by the number of shares subject to such Equity Award that would have vested had the NEO completed an additional 12 months of service following the termination date, including any performance-based awards (subject to achievement of the applicable performance criteria); and
  Continued employee benefits whereby Shutterfly will pay the NEO’s COBRA premiums for continuation of all health, dental and vision plans for the NEO and his/her dependents for 6 months (or cash equivalent).

Termination in Connection with a Change in Control

If within 12 months following the consummation of a Change in Control (as defined in the Amended Retention Agreement), the NEO’s service is terminated by the Company or its successor without Cause (as defined in the Amended Retention Agreement) or by the NEO for Good Reason (as defined in the Retention Agreement),

the NEO is entitled to receive the following benefits, subject to the NEO’s execution of a general release of claims:

 

  Lump sum cash severance payment equal to 12 months’ base salary for the year during which the termination occurs;

 

  Acceleration of 100% of the NEO’s unvested Equity Awards (as defined in the Amended Retention Agreement), including any performance-based awards (measured at 100% of target); and

 

  Continued employee benefits whereby Shutterfly or its successor will pay the NEO’s COBRA premiums for continuation of all health, dental and vision plans for 12 months.
 

Michael Pope. The following table summarizes the potential payments and benefits payable to Mr. Pope upon termination of employment or a qualifying termination in connection with a change in control under each situation listed below, modeling, in each situation that Mr. Pope was terminated on December 31, 2017. The table is pursuant to the terms set forth in Mr. Pope’s offer letter, the Retention Agreement and the Amended and Restated Retention Agreement, as applicable (each as set forth above).

 

                         

FOLLOWING A CHANGE IN CONTROL

 

 

EXECUTIVE BENEFITS AND PAYMENTS UPON TERMINATION

  

VOLUNTARY
TERMINATION

FOR CAUSE

     INVOLUNTARY
TERMINATION
NOT FOR CAUSE
     TERMINATION
FOR GOOD
REASON
     INVOLUNTARY
TERMINATION
NOT FOR CAUSE
     TERMINATION
FOR GOOD
REASON
 

Base Salary

   $      $ 415,000      $ 415,000      $ 415,000      $ 415,000  

Bonus

                                  

Health Benefits (1)

            33,572        33,572        33,572        33,572  

Value of Accelerated Stock Options

            98,465        98,465        393,855        393,855  

Value of Accelerated Restricted Stock Units

            2,033,531        2,033,531        4,651,625        4,651,625  

 

(1) This amount reflects our maximum 12 month obligation. If Mr. Pope became covered by another employer’s health plan during such 12 month period, then our obligation to pay Mr. Pope’s health plan coverage shall cease.

 

  2018 PROXY STATEMENT