Item 1.01 Entry Into Material Definitive Agreements
On August 17, 2017 (the Closing Date), Shutterfly, Inc. (the Company) entered into a Credit Agreement (the Credit
Agreement), by and among the Company, the lenders from time to time party thereto, and Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent. The Credit Agreement provides for (a) a secured revolving loan
facility in an aggregate principal amount of up to $200.0 million, none of which was drawn at closing, and (b) a secured delayed draw term loan facility in an aggregate principal amount of up to $300.0 million, none of which was drawn
at closing. The Credit Agreement permits the Company to add one or more incremental term loan facilities and/or increase the commitments for revolving loans in an aggregate principal amount of up to $200.0 million, plus an additional amount
equal to the amount of any voluntary prepayments, plus an unlimited amount that is subject to pro forma compliance with a secured net leverage ratio test. Incremental loans are subject to certain additional conditions, including obtaining additional
commitments from the lenders then party to the Credit Agreement or new lenders.
The Company may draw the initial term loans at any time during the first
six months following the Closing Date. The initial term loans will mature on the seventh anniversary of the Closing Date and the initial revolving commitments will mature on the fifth anniversary of the Closing Date. Commencing on the last day of
the first full fiscal quarter following the Companys borrowing of the initial term loans, such loans will amortize in equal quarterly installments of 0.25% of the original principal thereof, with the principal balance payable on the maturity
date.
The proceeds of the loans may be used (i) to repay all obligations under the Companys existing Credit Agreement, dated as of
November 22, 2011, by and among the Company, the lenders from time to time party thereto, and JPMorgan Chase Bank, N.A., as administrative agent, as amended as of May 10, 2013, and as further amended and restated as of June 10, 2016
(the Existing Credit Agreement), (ii) to pay fees and expenses incurred in connection with the Credit Agreement and the transactions contemplated thereby, (iii) to settle the Companys existing 0.25% Convertible Senior Notes
due 2018, and (iv) for working capital and general corporate purposes.
The initial term loans under the Credit Agreement bear interest, at the
election of the Company, at either (a) the base rate (the Base Rate), which is defined as a fluctuating rate per annum equal to the greatest of (A) the prime rate then in effect, (B) the federal funds rate then in effect,
plus 0.50%, and (C) an adjusted LIBOR rate determined on the basis of a
one-month
interest period, plus 1.0% or (b) an adjusted LIBOR Rate, subject to a floor of 0.0% (the LIBOR Rate), in
each case, plus an applicable margin of 1.50% per annum in the case of Base Rate Loans and 2.50% per annum in the case of LIBOR Rate loans. The revolving loans under the Credit Agreement bear interest, at the election of the Company, at either
(a) the Base Rate or (b) the LIBOR Rate, in each case, plus an applicable margin of (A) initially, 0.75% per annum in the case of Base Rate loans and 1.75% per annum in the case of LIBOR Rate loans or (B) following the
Companys delivery of financial statements for the first full fiscal quarter following the Closing Date, 0.50% to 0.75% per annum in the case of Base Rate loans and 1.50% to 1.75% per annum in the case of LIBOR Rate loans, in each case based on
the Companys consolidated secured net leverage ratio, measured as of the end of the most recently ended fiscal quarter. The Company is also required to pay other customary commitment fees, closing fees, arrangement fees, ticking fees and
administration fees, and other customary fees and costs.
The Companys obligations under the Credit Agreement are required to be guaranteed by
certain of its domestic subsidiaries meeting materiality thresholds set forth in the Credit Agreement. Such obligations, including the guaranties, are secured by substantially all of the assets of the Company and the subsidiary guarantors pursuant
to a Security Agreement, dated as of August 17, 2017, by and among the Company, the subsidiary guarantors from time to time party thereto, and Morgan Stanley Senior Funding, Inc., as collateral agent. As of the Closing Date, none of the
Companys subsidiaries were required to guarantee the Companys obligations under the Credit Agreement.
The Company is required to make
mandatory prepayments of the outstanding principal amount of the initial term loans with the net cash proceeds from the disposition of certain assets and the receipt of insurance proceeds upon certain casualty and condemnation events, in each case,
to the extent that such proceeds are not reinvested in assets of the Company or its subsidiaries within specified time periods. The Company is also required to make mandatory prepayments of the outstanding principal amount of the initial term loans
with the net cash proceeds from the incurrence of certain indebtedness and, commencing with the fiscal year ending December 31, 2018, from excess cash flow beyond stated threshold amounts.
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The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or
restrict the Companys and its subsidiaries ability to, among other things, incur indebtedness, grant liens, undergo certain fundamental changes, dispose of assets, make investments, enter into transactions with affiliates, and make
certain restricted payments, in each case subject to limitations and exceptions set forth in the Credit Agreement. The Company is also required to maintain compliance, measured as of the end of each fiscal quarter, with a consolidated secured net
leverage ratio and a consolidated interest expense coverage ratio.
The Credit Agreement contains customary events of default that include, among other
things, certain payment defaults, covenant defaults, cross-defaults to other indebtedness, change of control defaults, judgment defaults, and bankruptcy and insolvency defaults. If an event of default exists, the lenders may require immediate
payment of all obligations under the Credit Agreement and may exercise certain other rights and remedies provided for under the Credit Agreement, the other loan documents and applicable law.
Certain of the lenders under the Credit Agreement and their affiliates have engaged in, and may in the future engage in, investment banking and other
commercial dealings in the ordinary course of business with the Company or the Companys affiliates. The lenders and their affiliates have received, or may in the future receive, customary fees and commissions for these transactions.
The foregoing description of the Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the Credit Agreement, which
is filed as Exhibit 10.1 hereto and incorporated by reference herein.