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Proc-Type: 2001,MIC-CLEAR
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UNITED STATES FORM 10-Q (Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________to _________
Commission file number: 0-32259
Align Technology, Inc.
851 Martin Avenue
(408) 470-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ],
The number of shares of the Registrant's Common Stock outstanding as of March
31, 2002 was 47,956,647.
Align Technology, Inc.
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALIGN TECHNOLOGY, INC.
The accompanying notes are an integral part of these
condensed consolidated financial statements.
ALIGN TECHNOLOGY, INC.
The accompanying notes are an integral part of these
condensed consolidated financial statements.
ALIGN TECHNOLOGY, INC.
The accompanying notes are an integral part of these
condensed consolidated financial statements.
ALIGN TECHNOLOGY, INC. (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated
financial statements as of March 31, 2002, and for the three months ended March
31, 2002 and 2001, have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial statements and
pursuant to the rules and regulations of the Securities and Exchange Commission,
and include the accounts of Align Technology, Inc. and its wholly-owned
subsidiaries (collectively "Align" or the "Company"). Certain information and
footnote disclosures normally included in annual financial statements prepared
in accordance with accounting principles generally accepted in the United States
of America have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the unaudited condensed consolidated
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the financial
position of the Company. These unaudited condensed consolidated financial
statements should be read in conjunction with the Company's audited consolidated
financial statements and notes for the year ended December 31, 2001, included in
the Company's Annual Report Form 10K. The results of operations for the three months ended March
31, 2002 are not necessarily indicative of results that may be expected for any
other interim period or for the full fiscal year ending December 31, 2002. The
balance sheet at December 31, 2001 has been derived from the audited
consolidated financial statements at that date, but does not include all the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. 2. INVENTORIES Inventories comprise (in thousands): 3. NET LOSS PER SHARE Basic and diluted net loss per share is computed by
dividing the net loss available to common stockholders for the period by the
weighted average number of shares of common stock outstanding during the period.
The calculation of diluted net loss per share excludes potential shares of
common stock if their effect is anti-dilutive. Potential common stock consists
of common stock subject to repurchase, incremental common shares issuable upon
the exercise of stock options and warrants and shares issuable upon conversion
of the preferred stock. The following is a reconciliation of the numerator (net loss
available to common stockholders) and the denominator (number of shares) used in
the basic and diluted net loss per share calculations (in thousands, except per
share data ): The following table sets forth potential shares of
common stock that are not included in the basic and diluted net loss per share
available to common stockholders because to do so would be anti-dilutive for the
three month periods indicated (in thousands): 4. CONTINGENCIES The Company was involved in a patent infringement
proceeding with a plaintiff asserting infringement of two of its patents. On
June 30, 2000, the Company entered into a stipulation of dismissal with the
plaintiff whereby the plaintiff agreed not to recommence a suit against the
Company for two years with respect to the disputed patents. Pursuant to the
agreement, if a patent is subsequently issued to the plaintiff and the plaintiff
believes the Company is infringing it, then the plaintiff may commence suit
after one year from the effective date of the agreement and include in such
action claims involving the two previously disputed patents. If any such action
is successful, it could result in a significant monetary damages judgment
against the Company. The Company is subject to claims and assessments from time to
time in the ordinary course of business. Management does not believe that any
such matters, individually or in the aggregate, will have a material adverse
effect on the Company's financial condition, results of operations or cash
flows. 5. ACCUMULATED OTHER COMPREHENSIVE INCOME Accumulated other comprehensive income consists entirely of the change in unrealized
gains or losses on available-for-sale securities at March 31, 2002 and December 31,
2001. 6. SUBSEQUENT EVENTS In April 2002 the Company announced it will assume all marketing and
clinical support responsibilities for general dentists in the United States and
Canada. Previously, Invisalign certification, marketing and clinical support was
available to general dentists via Align's exclusive marketing agreement with
Discus Dental. The Company exercised its right to terminate the agreement with
Discus Dental Impressions, Inc., dated October 18, 2001. On April 9, 2002, the Company
exercised its right to terminate the agreement pursuant to the express terms of the agreement. On May 14, 2002 the Company received notice that it was
named as a respondent in a demand for arbitration submitted by Discus Dental
with the American Arbitration Association in San Jose, California. In its
arbitration demand, Discus Dental seeks damages of approximately $30 million,
including commissions and bonus payments it claims it would have received under
the Agreement as well as other expenses, attorneys' fees and injunctive relief
to prevent Align from selling Invisalign to dentists in the U.S. and Canada. The Company
has not been formally served with Discus' demand by the American Arbitration
Association and no date for the Company's response has been set. However, prior to
terminating the Agreement Align conducted a thorough review of the Agreement and
each party's performance thereunder. Based upon that review of the factual and
legal issues, Align denies all claims made by Discus Dental in its demand and contend
that such claims are entirely without merit. This quarterly report contains certain forward-looking statements (as such
term is defined in Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934) and information relating to the Company
that are based on the beliefs of the management of the Company as well as
assumptions made by and information currently available to the management of the
Company. For example,
statements that are not based on
historical facts, which can be identified by the use of such words as "likely,"
"will," "suggests," "target," "may," "would," "could," "anticipate," "believe,"
"estimate," "expect," "intend," "plan," "predict," and similar expressions and
their variants, are forward-looking. Such statements reflect the judgment of the Company as of the
date of this quarterly report and they involve many risks and uncertainties,
such as those described below and those contained in " Factors That May Affect
Future Operating Results." These factors could cause actual results to differ materially
from those predicted in any forward-looking statements. Although we believe that
the expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. Moreover, neither we nor any other person assumes responsibility
for the accuracy and completeness of these forward-looking statements. The
Company undertakes no obligation to update forward looking statements. The following discussion and analysis should be read in conjunction with the
condensed consolidated financial statements and the notes thereto included in
Item 1 in this quarterly report and our audited consolidated financial
statements and notes for the year ended December 31, 2001, included in the
Company's Annual Report on Form 10-K. Overview From our inception in April 1997, we were engaged in the design,
manufacture and marketing of Invisalign, a proprietary new system for treating
malocclusion, or the misalignment of teeth. In July 1999, we commenced
commercial sales of Invisalign. Prior to July 1999, we devoted nearly all our
resources to developing our software and manufacturing processes, clinical
trials of Invisalign and building our sales force, customer support and
management teams. We exited the development stage in July 2000. Invisalign has two components: ClinCheck and Aligners. ClinCheck is an
Internet-based application that allows dental professionals to simulate
treatment, in three dimensions, by modeling two-week stages of tooth movement.
Aligners are thin, clear plastic, removable dental appliances that are
manufactured in a series to correspond to each two-week stage of the ClinCheck
simulation. Aligners are customized to perform the treatment prescribed for an
individual patient by a dental professional using ClinCheck. While our expansion outside of our domestic market (U.S. and Canada) is still
in the initial stages, we do incur substantial operating costs outside of our
domestic market. Two of our key production steps are performed in operations
located outside of the U.S. In our facilities in Pakistan, the United Arab Emirates, or the U.A.E., and Costa
Rica, technicians use a sophisticated, internally-developed computer modeling
program to prepare electronic treatment plans, which are transmitted via the
Internet back to the U.S. These files form the basis of our ClinCheck product
and are used for the manufacture of Aligner molds. In addition, a third party
manufacturer in Mexico fabricates and performs finishing work on completed
Aligners and ships the completed products to our customers. Our costs associated
with these operations are denominated in Pakistani rupees, U.A.E.
dirhams and Mexican pesos. Our reliance on international operations exposes us
to risks and uncertainties that may affect our business or results of operations
including, among others, difficulties in staffing and managing international
operations, controlling quality of manufacture, political, social and economic
instability, acts of war or terrorism, interruptions and limitations in telecommunication services,
product or material transportation delays or disruption, and trade restrictions
and changes in tariffs. However, we believe these risks in Pakistan, the U.A.E. and
Costa Rica are mitigated by the fact that our operations there do not involve
the shipping or manufacturing of any physical products, and in Mexico by the
fact that our operations there are governed under the provisions of the North
American Free Trade Agreement, or NAFTA. We have not been profitable for any period since April 3, 1997 (our inception).
As of March 31, 2002, we had an accumulated deficit of $224.6 million. We expect
to have net operating losses and negative operating cash flows for at least the
next 12 months due, in part, to our national consumer advertising campaign, the
expansion of manufacturing capacity, the launching of our international sales
and marketing efforts and continued research and development efforts. We will
need to generate significant revenue growth to achieve profitability and
positive operating cash flow. Even if we do achieve profitability and positive
cash flow, we may not be able to sustain or increase profitability or positive
operating cash flow on a quarterly or annual basis. We earn revenue primarily from the sale of Invisalign. In our domestic market and in other
selected international locations, our revenue consists of fees
charged for both the ClinCheck and for Aligners. We charge dental professionals
a fixed fee for the treatment simulation viewed via ClinCheck on our website,
Invisalign.com. This fee is invoiced when the dental professional orders
ClinCheck prior to the production of Aligners. In addition, we charge dental
professionals a fee for Aligners upon shipment. In other international locations, the dental
professionals are invoiced for the entire Invisalign case upon the shipment of the Aligners. Historically, we have shipped Aligners in batches. The first batch,
which typically represented the first several months of treatment, was produced
once the prescribing dental professional approved ClinCheck. Thereafter,
Aligners were sent at approximately six month intervals until completion of
treatment. In mid-February 2001, for cases where ClinCheck was approved, we
began shipping all the Aligners in a single batch. Fees from the sale of ClinCheck and Aligners, taken together, are treated as
revenues from a single Invisalign case. For cases where ClinCheck was approved prior
to mid-February 2001, revenues associated with a given case are recognized ratably as batches
of Aligners are shipped to the dental professional. For orders placed subsequent to
notification of our change to single batch shipments, all of the revenues associated with a
given case, including ClinCheck fees, will be recognized at the time the Aligners are shipped.
The costs of producing the ClinCheck treatment plan, which
are incurred prior to the production of Aligners, are deferred and recognized
as related revenue is earned. In the cases where we expect a net loss, the
entire loss is recognized immediately. Results of Operations Revenues. Revenues for the quarter ended March 31, 2002 increased
to $17.1 million, compared with $7.7 million for the quarter ended March
31, 2001. The increase in revenues was primarily due to the increase in
Invisalign cases shipped and an increase in training revenue of $2.3 million,
compared with no training revenue in the prior year. Substantially all of our training revenue
was derived from our Discuss Dental agreement, which was cancelled in April
2002. As a result, we expect training revenue to decrease in future periods. Cost of revenues. Cost of revenues for the quarter ended March 31,
2002 was $12.5 million, compared with $11.6 million for the quarter ended
March 31, 2001. Cost of revenues includes the salaries of staff involved in
production, the cost of materials and packaging used in production and shipping,
depreciation on the capital equipment used in the production process, unabsorbed
manufacturing capacity that resulted from our substantial increase in our
manufacturing capacity in fiscal 2001, training costs and an allocation of the
cost of facilities. For the first quarter of fiscal 2002, we achieved positive
gross margins mainly due to efficiencies achieved in manufacturing as well as
reducing overcapacity in many areas. Our gross margin is affected by changes in
manufacturing volume, manufacturing capacity and changes in our pricing
policies. Sales and marketing expenses. Sales and marketing expenses for the
quarter ended March 31, 2002 were $9.8 million, compared with $16.7 million for
the quarter ended March 31, 2001. Sales and marketing expenses include sales
force compensation together with expenses of professional marketing,
conducting training workshops and market surveys, advertising and attending
orthodontic trade shows. The decrease in sales and marketing expenses in the quarter ended
March 31, 2002 resulted primarily from decreases of approximately $8.7 million in advertising
expenses related to our national advertising campaign which ran in the quarter ended March 31, 2001.
Partially offsetting this decrease in sales and marketing expenses is the increase in
sales and marketing in our international locations. General and administrative expenses. General and administrative
expenses for the quarter ended March 31, 2002 were $10.5 million,
compared with $6.9 million for the quarter ended March 31, 2001. General and
administrative expenses include costs for the compensation of administrative
personnel, outside consulting services, facilities, legal expenses and general
corporate expenses. The increase was primarily attributable to increased
headcount and administrative costs relating to being a public company and due to
the growth of our international operations. Research and development expenses. Research and development expenses
for the quarter ended March 31, 2002 were $3.1 million, compared with
$3.9 million for the quarter ended March 31, 2001. Research and development
expenses include the costs associated with software engineering, the costs of
designing, developing and testing our products and the conduct of both clinical
and post-marketing trials. We expense our research and development costs as
they are incurred. Research and development expenses decreased slightly from
year to year due to the continued reduction in outside services. Interest and other income (expense), net. Other income was $297,000
for the quarter ended March 31, 2002 compared to other expense of $533,000 for the
quarter ended March 31, 2001. The interest income in the first quarter of 2002
was primarily generated from the Company's cash and cash equivalents balance and
investments in short-term marketable securities. This is compared to other expense in the first
quarter of fiscal 2001, which was primarily due to a non-cash interest expense of $1.8
million, recorded in January 2001, related to the beneficial conversion feature
embedded in convertible subordinated notes. Offsetting this expense in 2001 was interest
income generated from cash and cash equivalents balance and investments in
short-term and long-term marketable securities. Dividend related to beneficial conversion feature of preferred stock.
In 2000 we issued 9,535,052 shares of Series D preferred stock which were
subject to an antidilution conversion price adjustment feature which we
triggered when we granted options to purchase our common stock beyond the number
of options that were authorized under our 1997 Plan at the time we commenced our
Series D preferred stock offering in May 2000. The conversion feature provided
that if, during the period between May 12, 2000 (the commitment date for our
Series D preferred stock offering) and the earlier of the closing of an initial
public offering or January 31, 2001, we had granted more than an aggregate of
3,331,978 options to purchase our common stock, then the conversion price of our
Series D preferred stock would be adjusted downward from its original conversion
price of $10.625 per share. As of the end of January 2001, we had granted an
aggregate of 3,591,458 options to purchase shares of our common stock in excess
of the 3,331,978 options permitted, and we were therefore required to issue an
additional 790,342 shares of common stock upon the conversion of the Series D
preferred stock. These shares were in addition to the 419,700 additional
shares of common stock that we were required to issue upon conversion of the
Series D preferred stock as of December 31, 2000. As a result, we recorded a
deemed dividend for the three months ended March 31, 2001 based on the fair
value of the common stock at the commitment date of the Series D preferred stock
offering of $11.2 million related to the preferred stock sold and a charge to
interest expense of $1.8 million for the beneficial conversion feature embedded
in convertible subordinated notes that were previously converted. Deferred Compensation. In connection with the grant of stock options
to employees and non-employees, we recorded deferred stock-based compensation as
a component of stockholders' equity. Deferred stock- based compensation for
options granted to employees is the difference between the fair value of our
common stock on the date such options were granted and their exercise price. For
stock options granted to non-employees, the fair value of the options, estimated
using the Black-Scholes valuation model, is initially recorded on the date of
grant. As the non-employee options become exercisable, we revalue the remaining
unvested options, with the change in fair value from period to period
represented as a change in the deferred compensation charge. This stock-based
compensation is amortized as charges to operations over the vesting periods of
the options. We recorded amortization of deferred compensation of $5.6 million
and $5.7 million for the periods ended March 31, 2002 and 2001, respectively.
During the quarter ended March 31, 2002, the Company accelerated the vesting of options to several
employees in connection with severance packages. The acclerations were accounted for as a charge
to the statement of operations. The charge was $118,000 for the quarter ended March 31, 2002. The
charge is equal to the intrinsic value difference between the exercise price of the accelerated
options and the fair valud of the common stock on the date of acceleration. There was no
acceleration charges for the quarter ended March 31, 2001. Liquidity and Capital Resources Historically, we have funded our operations with the proceeds from the
sale of our common and preferred stock, equipment leases and bridge loans. As of
March 31, 2002, we had $49.0 million in cash and cash equivalents and marketable
securities and an accumulated deficit of $224.6 million. Additionally, we had
$336,000 of restricted cash. Net cash used in operating activities totaled $14.7 million and $31.7 million
for the three-month periods ended March 31, 2002 and 2001, respectively. In each
of these periods, net cash used by operating activities consisted primarily of
net operating losses, partially offset by increases in depreciation and
amortization and amortization of deferred stock-based compensation. Net cash used in investing activities totaled $157,000 and $42.1 million for
the three-month periods ended March 31, 2002 and 2001, respectively. For the
three-month period ended March 31, 2002, net cash used in investing activities
consisted primarily of purchases of property and equipment, partially offset by sales and
maturities of marketable securities and a decrease in restricted cash. For the
three-month period ended March 31, 2001, net cash used in investing activities
consisted primarily of purchase of property and equipment and marketable
securities, partially offset by proceeds from the sales and maturities of marketable
securities and a decrease in restricted cash. Net cash provided by financing activities was $459,000 and $127.5 million for
the quarters ended March 31, 2002 and 2001, respectively. For the three-month
period ended March 31, 2002 net cash provided by financing activities consisted
primarily of proceeds from the issuance of common stock. In January 2001, we
completed our initial public offering of 10 million shares of common stock. In
March 2001, the underwriters exercised an overallotment option for 628,706
shares. Net proceeds to us were approximately $126.2 million. We expect that our operating expenses will increase with an overall increase
in the level of our business activity, including increased sales and the related
costs of products sold, our national consumer advertising campaign, continuing
efforts to expand our manufacturing capacity, increases in our international
sales and marketing efforts, research and development and other costs.
The change from batch shipments of Aligners in February 2001 has nad a negligable effect
on our cash flows.
In addition, we may use cash to fund acquisitions of
complementary businesses or technologies. We believe that our current cash and
cash equivalents, short-term and long-term marketable securities will be
sufficient to meet our operating, working capital and capital expenditure
requirements for at least the next 12 months. Thereafter, we may find it
necessary to obtain additional equity or debt financing. In the event additional
financing is required, we may not be able to raise it on acceptable terms or at
all. Factors That May Affect Future Operating Results Since we have a history of losses and negative operating cash flows,
and we expect our operating expenses to continue to increase, we may not achieve
or maintain profitability in the future. We have incurred significant operating losses, negative operating cash flows
and have not achieved profitability. From inception through July 2000, we spent
significant funds in organizational and start-up activities, recruiting key
managers and employees, developing Invisalign and developing our manufacturing
and customer support resources. We also spent significant funds on clinical
trials and training programs to train dental professionals in the use of
Invisalign. We expect to have net losses and negative operating cash flows for
at least the next 12 months. We intend to increase our operating expenses as we continue to: As a result, we will need to increase our revenue significantly, while
controlling our expenses, to achieve profitability. It is possible that we will
not achieve profitability, and even if we do achieve profitability, we may not
sustain or increase profitability in the future. We may be unable to raise additional capital if it should be necessary,
which could harm our ability to compete. We have incurred significant operating losses and negative operating cash
flows since inception and have not achieved profitability. As of March 31, 2002,
we had an accumulated deficit of approximately $224.6 million. We expect to expend significant capital to establish a national brand, build
manufacturing infrastructure and develop both product and process technology. We
believe that the existing cash balances and other potential financing
alternatives will be sufficient to meet our capital and operating requirements
for at least the next 12 months. We are currently working towards our objective of realizing profitability by
achieving the key goal of successfully marketing our product throughout our
domestic market and internationally, while controlling our expenses. The failure
to win increased acceptance of Invisalign by dental professionals could
have a material adverse effect on our business, results of operations and
financial conditions. If we are unable to generate adequate operating cash flows, we may need to
seek additional sources of capital through equity or debt financing,
collaborative or other arrangements with other companies, bank financing and
other sources in order to realize our objectives and to continue our operations.
There can be no assurance that we will be able to obtain additional debt or
equity financing on terms acceptable to us, or at all. If adequate funds are not
available, we could be required to delay establishing a national brand, building
manufacturing infrastructure and developing our product and process technology,
or to reduce our expenditures in general. Accordingly, the failure to obtain
sufficient funds on acceptable terms when needed could have a material adverse
effect on our business, results of operations and financial condition. We have a limited operating history and expect our future financial
results to fluctuate significantly, which may cause our stock price to
decline. We were incorporated in April 1997 and began sales of Invisalign in July
1999. Thus, we have a limited operating history, which makes an evaluation of
our future prospects and your investment in our stock difficult. In addition, we
expect our future quarterly and annual operating results to fluctuate as we
increase our commercial sales. These fluctuations could cause our stock price to
decline. Some of the factors that could cause our operating results to fluctuate
include: To respond to these and other factors, we may need to make business decisions
that could adversely affect our operating results. Most of our expenses, such as
employee compensation and lease payment obligations, are relatively fixed in the
short term. Moreover, our expense levels are based, in part, on our expectations
regarding future revenue levels. As a result, if our revenue for a particular
period falls below our expectations, we may be unable to adjust spending quickly
enough to offset any unexpected shortfall in revenue growth or any decrease in
revenue levels. Due to these and other factors, we believe that quarter-to-quarter
comparisons of our operating results may not be meaningful. You should not rely
on our results for any one quarter as an indication of our future
performance. We have limited product offerings, and if demand for Invisalign declines
or fails to develop as we expect, our revenue will decline. We expect that revenue from the sale of Invisalign will continue to
account for a substantial portion of our total revenue. Continued and widespread
market acceptance of Invisalign is critical to our future success. Invisalign
may not achieve market acceptance at the rate at which we expect, or at all,
which could reduce our revenue. If dental professionals do not adopt Invisalign in sufficient numbers or as
rapidly as we anticipate, our operating results will be harmed. As of March 31, 2002, approximately 4,500 dental professionals have submitted
one or more cases to us. Our success depends upon increasing acceptance of Invisalgin by
dental professionals. Invisalign requires dental professionals and
their staff to undergo special training and learn to interact with patients in
new ways and to interact with us as a supplier. In addition, because Invisalign
has only been in clinical testing since July 1997 and commercially available
since July 1999, dental professionals may be reluctant to adopt it until more
historical clinical results are available. Also, increasing adoption by dental
professionals will depend on factors such as the capability, safety, efficacy,
ease of use, price, quality and reliability of our products and our provision of
effective sales support, training and service. In the future, unanticipated poor
clinical performance of Invisalign could result in significant adverse publicity
and consequently in reduced acceptance by dental professionals. If Invisalign
does not achieve growing acceptance in the orthodontic and dental communities,
our operating results will be harmed. If consumers do not adopt Invisalign in sufficient numbers or as rapidly
as we anticipate, our operating results will be harmed. Invisalign represents a significant change from traditional orthodontic
treatment, and patients may be reluctant to accept it or may not find it
preferable to conventional treatment. In addition, patients may not comply with
recommended treatment guidelines which could compromise the effectiveness of
their treatment. While we have generally received positive feedback from both
dental professionals and patients regarding Invisalign as both an alternative to
braces and as a clinical method for treatment of malocclusion, our success will
depend upon the rapid acceptance of Invisalign by the substantially larger
number of potential patients to which we are now actively marketing. We have had
a limited number of complaints from patients and prospective patients generally
related to shipping delays and minor manufacturing irregularities. Market
acceptance will depend in part upon the recommendations of dentisal professionals,
as well as other factors including effectiveness, safety,
reliability, improved treatment aesthetics and greater comfort and hygiene
compared to conventional orthodontic products. Furthermore, consumers may not
respond to our direct marketing campaigns or we may be unsuccessful in reaching
our target audience. Adoption by consumers may also be impacted by general
macroeconomic conditions, levels of consumer confidence and consumer spending.
If consumers prove unwilling to adopt Invisalign as rapidly or in the numbers
that we anticipate, our operating results will be harmed. We are dependent on our international manufacturing operations, which
exposes us to foreign operational, political and other risks that may harm our
business. Two of our key production steps are performed in manufacturing operations
located outside the U.S. We currently rely on our facilities in Pakistan, the U.A.E.
and Costa Rica to create electronic treatment plans with the assistance of
sophisticated software. In addition, we rely on third party manufacturers in
Mexico to fabricate Aligners and to ship the completed product to customers. Our
reliance on international operations exposes us to risks and uncertainties,
including: If any of these risks materialize, our operating results may be harmed. Our success depends in part on our proprietary technology and if we are
unable to successfully enforce our intellectual property rights, our competitive
position may be harmed. Our success will depend in part on our ability to maintain existing
intellectual property and to obtain and maintain further intellectual property
protection for our products, both in the U.S. and in other countries. Our
inability to do so could harm our competitive position. As of April 30, 2002, we
have 12 issued U.S. patents and 61 pending U.S. patent applications. We have 15
foreign-issued patents and 119 pending foreign patent applications. We intend to
rely on our portfolio of issued and pending patent applications in the U.S. and
in other countries to protect a large part of our intellectual property and our
competitive position. However, our currently pending or future patent filings
may not issue as patents. Additionally, any patents issued to us may be
challenged, invalidated, held unenforceable, circumvented, or may not be
sufficiently broad to prevent third parties from producing competing products
similar in design to our products. In addition, protection afforded by foreign
patents may be more limited than that provided under U.S. patents and
intellectual property laws. We also rely on protection of copyrights, trade secrets, know-how and
proprietary information. We generally enter into confidentiality agreements with
our employees, consultants and our collaborative partners upon commencement of a
relationship with us. However, these agreements may not provide meaningful
protection against the unauthorized use or disclosure of our trade secrets or
other confidential information and adequate remedies may not exist if
unauthorized use or disclosure were to occur. Our inability to maintain the
proprietary nature of our technology through patents, copyrights or trade
secrets would impair our competitive advantages and could have a material
adverse effect on our operating results, financial condition and future growth
prospects. In particular, a failure of our proprietary rights might allow
competitors to copy our technology, which could adversely affect pricing and
market share. If we infringe the patents or proprietary rights of other parties, our
ability to grow our business will be severely limited. Extensive litigation over patents and other intellectual property rights
is common in the medical device industry. We have been sued for infringement of
another party's patent in the past and, while that action has been dismissed, we
may be the subject of patent or other litigation in the future. In January 2000, Ormco Corporation filed suit against us asserting an
infringement of U.S. Patent Nos. 5,447,432 and 5,683,243. The complaint sought
unspecified monetary damages and equitable relief. The complaint alleged that
Invisalign infringed certain claims of the two patents relating to computer
modeling of an ideal dentition and the production of orthodontic appliances
based upon the ideal dentition. The suit has been dismissed but can be
recommenced under certain circumstances. See "Part II-Item 1--Legal Proceedings." If the
Ormco suit were recommenced and if Ormco were to prevail, we would have to seek
a license from Ormco, which license might not be available on commercially
reasonable terms or at all. In that event, we could be subject to damages or an
injunction, which could materially adversely affect our business. From time to time, we have received and may again receive letters from third
parties drawing our attention to their patent rights. While we do not believe
that we infringe any valid and enforceable rights which have been brought to our
attention, there may be other more pertinent rights of which we are presently
unaware. The defense and prosecution of intellectual property suits,
interference proceedings and related legal and administrative proceedings could
result in substantial expense to us and significant diversion of effort by our
technical and management personnel. An adverse determination in a patent suit by
Ormco or in any other litigation or interference proceeding to which we may
become a party could subject us to significant liabilities. An adverse
determination of this nature could also put our patents at risk of being
invalidated or interpreted narrowly or require us to seek licenses from third
parties. Licenses may not be available on commercially reasonable terms or at
all, in which event, our business would be materially adversely affected. We currently rely on third parties to provide key inputs to our
manufacturing process, and if our access to these inputs is diminished, our
business may be harmed. We currently outsource key portions of our manufacturing process. We rely
on a third party manufacturer in Mexico to fabricate Aligners and to ship the
completed product to customers. In addition, third party rapid prototyping
bureaus fabricate some molds from which the Aligners are formed. As a result, if
any of our third party manufacturers fail to deliver their components or if we
lose their services, we may be unable to deliver our products in a timely manner
and our business may be harmed. Finding substitute manufacturers may be
expensive, time-consuming or impossible. Although we are in the process of
developing the capability to fabricate all molds and Aligners internally, we may
not be successful and may continue to rely on outsourcing in the future. In addition, we are highly dependent on manufacturers of specialized scanning
equipment, rapid prototyping machines, resin and other advanced materials. We
maintain single supply relationships for many of these machines and materials
technologies. Our rapid growth may exceed the capacity of these manufacturers to
produce the needed equipment and materials in sufficient quantities to support
our growth. In the event of delivery delays or shortages of these items, our
business and growth prospects may be harmed. We are growing rapidly, and our failure to manage this growth could harm
our business. We have experienced significant growth in recent periods. Our headcount increased from approximately 50 employees as of June 30,
1999 to approximately 1,100 employees as of March 31, 2002. We expect that our
growth will place significant demands on our management and other resources and
will require us to continue to develop and improve our operational, financial
and other internal controls both in the U.S. and internationally. In particular,
continued growth increases the challenges involved in a number of areas,
including: recruiting and retaining sufficient skilled personnel, providing
adequate training and supervision to maintain our high quality standards, and
preserving our culture and values. Our inability to manage this growth
effectively would harm our business. If we lose our key personnel or are unable to attract and retain key
personnel, we may be unable to pursue business opportunities or develop our
products. We are highly dependent on the key employees in our clinical engineering
and management teams. The loss of the services of those individuals may
significantly delay or prevent the achievement of our product development and
other business objectives and could harm our business. Our future success will
also depend on our ability to identify, recruit, train and retain additional
qualified personnel. There is currently a shortage of skilled clinical,
engineering and management personnel and intense competition for these
personnel, especially in Silicon Valley where our headquarters is located. In
addition, few orthodontists are accustomed to working in a manufacturing
environment since they are generally trained to work in private practices,
universities and other research institutions. Thus, we may be unable to attract
and retain personnel with the advanced qualifications necessary for the further
development of our business. Furthermore, we may not be successful in retaining
our key personnel or their services. We experience competition from manufacturers of traditional braces and
expect aggressive competition in the future. We are not aware of any company that is marketing or developing a system
directly comparable to Invisalign. However, manufacturers of traditional braces,
such as 3M Company, Sybron Dental Specialities and Dentsply International, Inc.
have substantially greater financial resources and manufacturing and marketing
experience than we do and may, in the future, attempt to develop an orthodontic
system similar to ours. Large consumer products companies may also enter the
orthodontic supply market. Furthermore, we may face competition in the future
from new companies that may introduce new technologies. We may be unable to
compete with these competitors and one or more of these competitors may render
our technology obsolete or economically unattractive. If we are unable to
compete effectively with existing products or respond effectively to any
products developed by our competitors, our business will be harmed. Complying with the Food and Drug Administration (FDA) and other
regulations is an expensive and time-consuming process, and any failure to
comply could result in substantial penalties. Our products are medical devices and subject to extensive regulation in
the U.S. and internationally. FDA regulations are wide ranging and govern, among
other things: Noncompliance with applicable regulatory requirements can result in
enforcement action which may include recalling products, ceasing product
marketing, and paying significant fines and penalties, which could limit product
sales, delay product shipment and adversely affect our profitability. In the U.S., we must comply with facility registration and product listing
requirements of the FDA and adhere to applicable Quality System regulations. The
FDA enforces its Quality System regulations through periodic unannounced
inspections, which we have yet to undergo. If we or any third party manufacturer
of our products do not conform to applicable Quality System regulations, we may
be required to find alternative manufacturers, which could be a long and costly
process. Before we can sell a new medical device in the U.S., we must obtain FDA
clearance or approval, which can be a lengthy and time-consuming process. Even
though the devices we market have obtained the necessary clearances from the FDA
through the pre-market notification provisions of Section 510(k) of the federal
Food, Drug, and Cosmetic Act, we may be unable to maintain the necessary
clearances in the future. Furthermore, we may be unable to obtain the necessary
clearances for new devices that we market in the future. Extensive and changing government regulation of the healthcare industry
may be expensive to comply with and exposes us to the risk of substantial
government penalties. In addition to medical device laws and regulations, numerous state and
federal healthcare-related laws regulate our business, covering areas such as:
Complying with these laws and regulations could be expensive and time-
consuming, and could increase our costs or reduce or eliminate certain of our
activities or our revenues. We face risks related to our international operations, including the need
to obtain necessary foreign regulatory clearance or approvals. Sales of our products outside the U.S. are subject to foreign regulatory
requirements that vary widely from country to country. The time required to
obtain clearances or approvals required by other countries may be longer than
that required for FDA clearance or approval, and requirements for such approvals
may differ from FDA requirements. We may be unable to obtain regulatory
approvals in other countries. We may also incur significant costs in attempting
to obtain and in maintaining foreign regulatory approvals. If we experience
delays in receipt of approvals to market our products outside of the U.S., or if
we fail to receive these approvals, we may be unable to market our products or
enhancements in international markets in a timely manner, if at all. We have
recently launched sales of our product in Germany, France and the U.K. and
intend to further expand our international operations. We do not know whether
orthodontists, dentists and consumers will adopt Invisalign in sufficient
numbers or as rapidly as we anticipate. Our business exposes us to risks of product liability claims, and we may
incur substantial expenses if we are sued for product liability. Medical devices involve an inherent risk of product liability claims and
associated adverse publicity. We may be held liable if any product we develop or
any product that uses or incorporates any of our technologies causes injury or
is otherwise found unsuitable. Although we intend to continue to maintain
product liability insurance, adequate insurance may not be available on
acceptable terms and may not provide adequate coverage against potential
liabilities. A product liability claim, regardless of its merit or eventual
outcome, could result in significant legal defense costs. These costs would have
the effect of increasing our expenses and could harm our business. The market price for our common stock may be highly volatile. The trading price of our common stock is likely to be highly volatile and
could be subject to wide fluctuations in price in response to various factors,
many of which are beyond our control, including: In addition, the stock market in general, and the market for technology and
medical device companies in particular, have experienced extreme price and
volume fluctuations that have often been unrelated to or disproportionate to the
operating performance of those companies. These broad market and industry
factors may seriously harm the market price of our common stock, regardless of
our operating performance. In the past, following periods of volatility in the
market price of a company's securities, class action litigation has often been
brought against the company. If a securities class action suit is filed against
us, we would incur substantial legal fees and our management's attention and
resources would be diverted from operating our business in order to respond to
the litigation. Concentrations of ownership and agreements among our existing executive
officers, directors and principal stockholders may prevent other stockholders
from influencing significant corporate transactions. The interest of management could conflict with the interest of our other
stockholders. As of March 31, 2002, our executive officers, directors and
principal stockholders beneficially owned, in total, approximately 46.9% of our
outstanding common stock. These stockholders, if acting together, would be able
to influence significantly all matters requiring stockholder approval, including
the election of directors and approval of significant corporate transactions.
This could have the effect of delaying or preventing a change of control of the
Company, which in turn could reduce the market price of our stock. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Quantitative Disclosures We are exposed to market risks inherent in our operations,
primarily related to interest rate risk and currency risk. These risks arise
from transactions and operations entered into in the normal course of business.
We do not use derivatives to alter the interest characteristics of our
marketable securities or our debt instruments. We have no holdings of derivative
or commodity instruments. Interest Rate Risk. We are subject to interest rate
risks on cash and cash equivalents, available-for-sale marketable securities,
existing long-term debts and any future financing requirements. Interest rate
risks related to marketable securities are managed by managing maturities in our
marketable securities portfolio. Our long-term debt at March 31, 2002 consists
only of outstanding balances on lease obligations. The fair value of our investment portfolio or related income
would not be significantly impacted by changes in interest rates since the
marketable securities maturities do not exceed fiscal year 2002 and the interest
rates are primarily fixed. Our capital lease obligations of $1.3 million at
March 31, 2002 carry fixed interest rates of 6.53% and 11.15% per annum with
principle payments due in 60 and 48 equal annual installments, respectively,
and which originated in 2000. Qualitative Disclosures Interest Rate Risk. Our primary interest rate risk
exposures relate to: We have the ability to hold at least a portion of the fixed
income investments until maturity and therefore would not expect the operating
results or cash flows to be affected to any significant degree by a sudden
change in market interest rates on our short- and long-term marketable
securities portfolio. We manage interest rate risk on our outstanding long-term
debts through the use of fixed rate debt. Management evaluates our financial
position on an ongoing basis. Currency Rate Risk. Our primary currency rate risk
exposures relate to: We do not hedge any balance sheet exposures and intercompany
balances against future movements in foreign exchange rates. The exposure
related to currency rate movements would not have a material impact on future
net income or cash flows. PART II. -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In February 2001 Align Technology was named in a class
action lawsuit filed on behalf of all licensed dentists (excluding
orthodontists) in the U.S. The complaint alleged that Align Technology's policy
of selling Invisalign exclusively to orthodontists violated the U.S. antitrust
laws. Without admitting any wrongdoing, the company entered into a Stipulation
and Agreement of Settlement with the plaintiffs to settle the lawsuit. The total
legal and other settlement costs that Align has agreed to pay are approximately
$400,000. Pursuant to the settlement, Align will undertake to train and certify
5,000 general practice dentists each year over the next four years. In November
2001, the Court approved the Stipulation and Agreement of Settlement. In January 2000, Ormco Corporation filed suit against us
asserting infringement of U.S. Patent Nos. 5,447,432 and 5,683,243. The
complaint sought unspecified and monetary damages and injunctive relief. In
March 2000, we answered the complaint and asserted counterclaims seeking a
declaration by the Court of invalidity and non-infringement of the asserted
patents. In June 2000, we entered into a Stipulation of Dismissal with
Ormco. Ormco agreed for a period of at least two years not to pursue litigation
with respect to these patents, except as set forth below. Further, Ormco agreed
that it would not bring any patent action against us for at least a period of
one year with respect to any as yet unissued patents. If Ormco were to bring
such an action concerning as yet unissued patents after one year, the
Stipulation of Dismissal would allow Ormco to include in such an action claims
involving U.S. Patent Nos. 5,447,432 and 5,683,243. In August 2001, Ormco
notified us of the issuance of U.S. Patent No. 6,244,861 and offered a license
for this patent. No assurance can be given that Ormco will not bring another
action against us or, that if brought, it will not be successful. Should the
suit be recommenced and should our technology be found to infringe, we would
have to seek a license from Ormco, which license might not be available on
commercially reasonable terms or at all. In that event, we could be subject to
damages or an injunction which could materially adversely affect our business.
It is possible that, depending on the scope of any new patents that are issued
to Ormco, Ormco will bring another patent action after a period of one year has
passed. The claims at issue in the Ormco suit relate to methods and
systems for forming and manufacturing custom orthodontic appliances. The
relevant claims are limited to the calculation of the final positioning of a
patient's teeth based upon a derived or ideal dental archform of the patient.
The treatment plan simulation developed in our Pakistan facilities determines
the final positioning of a patient's teeth but is not based on a derived or
ideal dental archform of the patient. On April 9, 2002, we exercised our right to terminate an Exclusive
Marketing Agreement dated October 18, 2001 with Discus Dental Impressions, Inc.
pursuant to the express terms of the Agreement and we issued a press release
reporting this termination. On May 14, 2002 we received notice that we were
named as a respondent in a demand for arbitration submitted by Discus Dental
with the American Arbitration Association in San Jose, California. In its
arbitration demand, Discus Dental seeks damages of approximately $30 million,
including commissions and bonus payments it claims it would have received under
the Agreement as well as other expenses, attorneys' fees and injunctive relief
to prevent us from selling Invisalign to dentists in the U.S. and Canada. We
have not been formally served with Discus' demand by the American Arbitration
Association and no date for our response has been set. However, prior to
terminating the Agreement we conducted a thorough review of the Agreement and
each party's performance thereunder. Based upon that review of the factual and
legal issues, we deny all claims made by Discus Dental in its demand and contend
that such claims are entirely without merit. From time to time, we have received, and may again receive,
letters from third parties drawing our attention to their patent rights. While
we do not believe that we infringe any such rights which have been brought to
our attention, there may be other more pertinent rights of which we are
presently unaware. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Use of Proceeds from Sales of Registered Securities. On January 25, 2001
the Securities and Exchange Commission declared effective our Registration
Statement on Form S-1 (File No. 333-49932) relating to our initial public
offering of our common stock. The 10,000,000 shares offered by us under the
Registration Statement were sold at a price of $13.00 per share on January 31,
2001. The managing underwriters for the offering were Deutsche Banc Alex. Brown,
Bear, Stearns & Co. Inc., JP Morgan and Robertson Stephens. The underwriters
also exercised an overallotment option on March 15, 2001 for 628,706 shares. The
overallotment shares were sold at a price of $13.00 per share. The aggregate
proceeds to the Company from the offering were $128.5 million after deducting
the underwriting discounts and commissions of $9.7 million, and excluding
expenses incurred in connection with the offering of approximately $2.3 million.
Of the net proceeds, as of March 31, 2002, we have used net offering proceeds
to purchase plant machinery and equipment, leasehold improvements and working
capital in the amounts of approximately $20.2 million, $1.6 million and $68.1
million, respectively. No direct or indirect payments were made to directors,
officers, general partners of the issuer or their associates, or to persons
owning 10% or more of any class of equity securities of the issuer, or to any
affiliates of the issuer in connection with the
offering. ITEM 3. DEFAULTS UPON SENIOR SECURITIES ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS ITEM 5. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Exhibit Number Description of Document
10.18
Agreement to confirm consulting and board duties, dated February 26, 2002, between the registrant and Kelsey Wirth.
10.19
Transition, Consulting and Separation Agreement, dated March 27, 2002, between the registrant
and Muhammad Ziaullah Chishti.
10.20
Employment Agreement, dated March 27, 2002, between the registrant and Thomas M. Prescott.
10.21
Separation Agreement, dated March 28, 2002, between the registrant and Ike Udechuku.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Exact name of registrant as specified in its charter)
Santa Clara, California 95050
(Address of principal executive offices including zip code)
(Registrant's telephone number, including area code)
TABLE OF CONTENTS
PART I. Financial Information
Page No.
Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets
as of March 31, 2002 and December 31, 2001
Condensed Consolidated Statements of Operations
for the three months ended March 31, 2002 and 2001
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2002 and 2001
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Index to Exhibits
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, December 31,
2002 2001
----------- ------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents........................... $ 36,169 $ 50,550
Restricted cash..................................... 336 723
Marketable securities, short-term................... 12,830 12,494
Accounts receivable, net............................ 14,473 11,556
Inventories, net.................................... 1,454 1,549
Deferred costs...................................... 547 714
Other current assets................................ 4,728 3,997
----------- ------------
Total current assets............................... 70,537 81,583
Property and equipment, net......................... 31,874 32,021
Marketable securities, long-term.................... -- 2,627
Other long-term assets.............................. 1,918 1,987
----------- ------------
Total assets....................................... $ 104,329 $ 118,218
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 2,498 $ 4,376
Other accrued liabilities........................... 12,286 11,909
Deferred revenue.................................... 1,778 1,551
----------- ------------
Total current liabilities.......................... 16,562 17,836
Capital lease obligations, net of current portion... 853 980
Contingencies (Note 4)
Stockholders' equity:
Common stock........................................ 5 5
Additional paid-in capital.......................... 351,011 355,055
Deferred stock-based compensation................... (38,447) (48,324)
Notes receivable from stockholders.................. (1,137) (1,484)
Accumulated other comprehensive income.............. 60 226
Accumulated deficit................................. (224,578) (206,076)
----------- ------------
Total stockholders' equity......................... 86,914 99,402
----------- ------------
Total liabilities and stockholders' equity ......... $ 104,329 $ 118,218
=========== ============
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended
March 31,
--------------------
2002 2001
--------- ---------
Revenues.................................... $ 17,141 $ 7,689
Cost of revenues............................ 12,505 11,554
--------- ---------
Gross profit (loss)....................... 4,636 (3,865)
--------- ---------
Operating expenses:
Sales and marketing....................... 9,818 16,711
General and administrative................ 10,524 6,905
Research and development.................. 3,093 3,944
--------- ---------
Total operating expenses.................... 23,435 27,560
--------- ---------
Loss from operations........................ (18,799) (31,425)
Interest and other income (expense), net.... 297 (533)
--------- ---------
Net loss.................................... (18,502) (31,958)
Dividend related to beneficial conversion
feature of preferred stock................. -- (11,191)
--------- ---------
Net loss available to common stockholders... $ (18,502) $ (43,149)
========= =========
Net loss per share available to common
stockholders basic and diluted............. $ (0.40) $ (1.29)
========= =========
Shares used in computing net loss per share
available to common stockholders, basic
and diluted................................ 46,152 33,574
========= =========
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
--------------------
2002 2001
--------- ---------
Cash Flows from Operating Activities:
Net loss.......................................................... $ (18,502) $ (31,958)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of deferred stock compensation..................... 5,598 5,658
Depreciation and amortization................................... 2,913 1,499
Loss on retirement of assets.................................... 3 61
Allowance for doubtful accounts................................. (1) 70
Non-cash interest income on notes receivable.................... 6 (44)
Non-cash interest expense on convertible subordinated note...... -- 1,803
Non-cash accretion on marketable securities..................... 25 (454)
Changes in Operating Assets and Liabilities:
Accounts receivable............................................ (2,916) (2,323)
Deferred costs................................................. 167 (1,176)
Inventories.................................................... 95 (590)
Other current assets........................................... (731) 303
Accounts payable............................................... (1,900) (3,125)
Other accrued liabilities...................................... 333 (2,027)
Deferred revenue............................................... 227 601
--------- ---------
Net cash used in operating activities........................ (14,683) (31,702)
--------- ---------
Cash Flows from Investing Activities:
Purchase of property, plant and equipment......................... (2,713) (2,585)
Decrease in restricted cash....................................... 387 7,047
Purchases of marketable securities................................ -- (62,338)
Proceeds from sales and maturities of marketable securities....... 2,100 15,837
Change in other assets............................................ 69 (24)
--------- ---------
Net cash used in investing activities......................... (157) (42,063)
--------- ---------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock............................ 556 127,654
Proceeds from repayment of notes receivable from shareholders..... 195 --
Repurchase of common stock........................................ (175) (1)
Payments on loan and capital leases............................... (117) (111)
--------- ---------
Net cash provided by financing
activities................................................. 459 127,542
--------- ---------
Net (Decrease) Increase in Cash and Cash Equivalents............... (14,381) 53,777
Cash and Cash Equivalents at Beginning of Period................... 50,550 2,828
--------- ---------
Cash and Cash Equivalents at End of Period......................... $ 36,169 $ 56,605
========= =========
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, December 31,
2002 2001
----------- -----------
Raw materials.......................................... $ 1,150 $ 1,122
Work in progress....................................... 259 182
Finished goods......................................... 45 245
----------- -----------
Total inventories...................................... $ 1,454 $ 1,549
=========== ===========
Three Months Ended
March 31,
------------------------
2002 2001
----------- -----------
Basic and diluted:
Net loss available to common stockholders.............. $ (18,502) $ (43,149)
=========== ===========
Weighted average common stock outstanding.............. 47,946 37,094
Less: Weighted-average shares subject to repurchase.... (1,794) (3,520)
----------- -----------
Weighted-average shares used in basic and diluted
net loss per share.................................... 46,152 33,574
=========== ===========
Net loss per share available to common stockholders.... $ (0.40) $ (1.29)
=========== ===========
March 31,
------------------------
2002 2001
----------- -----------
Options to purchase common stock....................... 5,731 5,058
Common stock subject to repurchase..................... 1,560 3,416
Warrants............................................... -- 113
----------- -----------
7,291 8,587
=========== ===========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Align Technology, Inc. |
(Registrant) |
Dated: May 15, 2002
By: | /s/ Stephen J. Bonelli |
| |
Stephen J. Bonelli | |
Chief Financial Officer
and Vice President, Finance (Principal Financial and Principal Accounting Officer) |
INDEX TO EXHIBITS
Exhibit Number |
Description of Document |
10.18 |
Agreement to confirm consulting and board duties, dated February 26, 2002, between the registrant and Kelsey Wirth. |
10.19 |
Transition, Consulting and Separation Agreement, dated March 27, 2002, between the registrant and Muhammad Ziaullah Chishti. |
10.20 |
Employment Agreement, dated March 27, 2002, between the registrant and Thomas M. Prescott. |
10.21 |
Separation Agreement, dated March 28, 2002, between the registrant and Ike Udechuku. |
EXHIBIT 10.18
February 26, 2002 Kelsey WirthThis letter is to confirm your consulting and Board arrangements with Align Technology, Inc. ("Align"), following your resignation as President on November 9, 2001.
You will provide consulting services to the Board of Directors and the Chief Executive Officer of Align and such employees as the Board or the CEO designates for one year from the time that you resigned as President. It is understood that you will not be required to consult more than 30 hours per month and the consulting services to Align will not preclude you from engaging in other employment that is not competitive with the business of Align. In this regard, the terms of your Employee Proprietary Information and Confidentiality Agreement that you signed as an employee of Align will continue to apply to your services as a consultant.
In consideration of your consulting services, Align will pay you a monthly consulting fee through November 8, 2002 of $ 18,750.00, which is equal to your gross monthly salary that Align was paying you at the time of your resignation. Align will pay you an additional amount through November 8, 2002 equal to your monthly COBRA payments so that you may maintain the same level of health insurance coverage and related benefits that you were receiving as a full-time officer of Align.
In accordance with the Stock Option Agreement governing the options to purchase 1,000,000 shares of common stock granted to you on January 4, 2001 at an exercise price of $15.00 per share, the options will continue to vest and you will be entitled to exercise them so long as you remain a consultant to Align or a member of the Board of Directors; provided, however, that vesting of these options will terminate on the second anniversary of the date of grant of the options (on January 3, 2003), at which point you will be fully vested in 500,000 of such options, and such vested options will remain exercisable by you so long as you are a consultant or a member of the Board of Directors. Although it is not possible to assure you that you'll be elected to the Board of Directors of Align, it is the Board of Directors' present intention to nominate you to the slate of directors submitted to the stockholders for the annual meeting of stockholders, at least for 2002.
You were an important contributor to the company during the time that you served as an officer and your advice and counsel as a director since your resignation as President has been valued by the entire Board. We look forward to working with you as a Board member in the future. If you are in agreement with the foregoing, please sign the enclosed copy of this letter and return it to me.
Sincerely,
/S/ Joe Lacob
Joe Lacob
Member of the Board of Directors of Align Technology
The foregoing is accepted and agreed to:
/S/ Kelsey Wirth
Kelsey Wirth
Date: February 26, 2002
EXHIBIT 10.19
ALIGN TECHNOLOGY, INC.
TRANSITION, CONSULTING AND SEPARATION AGREEMENT
This Transition, Consulting and Separation Agreement ("Agreement") is entered into as of March 27, 2002 by and between Align Technology, Inc., a Delaware corporation (the "Company"), and Muhammad Ziaullah Chishti ("Mr. Chishti").
WHEREAS, Mr. Chishti is currently employed as Chief Executive Officer of the Company and serves on the Company's Board of Directors (the "Board"); and
WHEREAS, the Company and Mr. Chishti have mutually agreed to terminate the existing employment relationship, to enter into a consulting relationship and to provide for certain other matters.
NOW, THEREFORE, in consideration of the mutual promises made herein, the Company and Mr. Chishti (collectively referred to as the "Parties") hereby agree as follows:
1. Resignation as Chief Executive Officer. Mr. Chishti and the Company acknowledge and agree that Mr. Chishti shall resign as Chief Executive Officer of the Company, effective as of the date on which the Company has hired a new Chief Executive Officer (the "Resignation Date"). In this regard, Mr. Chishti agrees that he shall use his best efforts to assist and cooperate with the Company in transitioning for a period of six months the day-to-day leadership of the Company to the Company's new Chief Executive Officer by meeting with the new Chief Executive Officer as reasonably requested by him and responding to requests for information to Mr. Chishti's knowledge (including with respect to Pakistan and Europe) concerning past activities of the Company, its technologies, its future plans, its key employees, problems that may be facing the Company and suggested solutions for them, and similar matters, and by encouraging present key employees to assist and cooperate with the new Chief Executive Officer, and by making introductions to key suppliers and customers with whom Mr. Chishti is acquainted (the "CEO Transition Process"). Mr. Chishti acknowledges and agrees that in the event he fails to perform his obligations to the Company in the CEO Transition Process, or undertakes any actions regarding the activities of the Company that are not Requested Actions (as defined in Section 2(a)), such failure or action shall constitute an event of Cause (as such term is defined in Section 3(c) below) for termination of his position as Chairman of the Board and of the Consulting Arrangement after the Resignation Date and termination of the Company's obligations to him under this Agreement or otherwise.
2. Chairman of the Board. Mr. Chishti shall serve as the Chairman of the Board after the Resignation Date until the occurrence of any of the following: (i) Mr. Chishti's resignation as Chairman; or (ii) the six month anniversary of commencement of his service as Chairman of the Board; or (iii) such time as the Board identifies, in its sole discretion, that he should resign as Chairman of the Board (the "Termination Date"). Upon the occurrence of the event described in (iii) above, Mr. Chishti shall resign as Chairman of the Board and thereafter he shall be entitled to remain as a nonexecutive member of the Board during his then-current term. Following the Termination Date, the Board may, in its sole discretion, grant Mr. Chishti the honorary title of Chairman Emeritus. In addition, Mr. Chishti may continue to serve as a consultant to the Company as described in Section 3 below. Notwithstanding the above, the Board can terminate Mr. Chishti's relationship as Chairman of the Board for Cause, as defined in Section 3(c) below, after which Mr. Chishti shall no longer be entitled to receive the benefits described in this Agreement. Mr. Chishti shall remain a member of the Board after the Termination Date until he resigns or is not re-elected by the Company's stockholders for an additional term. Subject to the Board's discretion in the exercise of its fiduciary duties, the Board would presently intend to recommend Mr. Chishti as a Board member together with the recommendations of the Board for his re-election to the Board.
(a) Responsibilities. As Chairman of the Board, Mr. Chishti shall be available to assist the Company's new Chief Executive Officer as, and to the extent that, the new Chief Executive Officer, in his sole discretion, requests. Except with respect to Board of Directors matters and as a stockholder, Mr. Chishti will not take any actions regarding the activities of the Company except at the request of the new Chief Executive Officer ("Requested Actions").
(b) Compensation. While serving as Chairman of the Board, Mr. Chishti shall be paid a monthly compensation of $25,000 ($300,000 on an annualized basis). In accordance with the terms of the stock option granted to Mr. Chishti by the Company on January 4, 2001 (the "First Option"), the First Option shares shall continue to vest while Mr. Chishti remains a consultant to the Company. In addition, the parties hereto agree and acknowledge that the grant of a nonstatutory stock option to Mr. Chishti on February 8, 2002 was for the total aggregate amount of 200,000 shares of the Company's common stock (the "New Option"), which option has an exercise price equal to the fair market value of the Company's common stock on the date of grant. The New Option shall vest on a monthly basis at the rate of 1/12 of the New Option shares commencing as of the date of grant and continuing during Mr. Chishti's service as Chairman and during the Consulting Period (as defined below), and shall not vest thereafter; provided however that if Mr. Chishti's service as Chairman, or the Consulting Arrangement itself, ends for any reason other than for "Cause" (as defined in Section 3(c) below) or his voluntary resignation prior to the 12 month anniversary of the vesting commencement date of the New Option, the vesting of the New Option shares shall be accelerated such that all of the New Option shares shall become fully vested as of the date such service ends. The other applicable terms of the New Option shall be as set forth in the stock option agreement issued by the Company as of the date of grant. Further, if requested to do so by Mr. Chishti, the Company shall loan Mr. Chishti up to $200,000, which loan shall be full recourse, shall carry the minimum interest rate determined under applicable tax law to avoid imputation of income to Mr. Chishti, and which shall be secured by shares of the Company's common stock owned without restriction by Mr. Chishti.
(c) Office Space. While serving as Chairman of the Board, the Company shall provide Mr. Chishti with an office at an off-site location to be approved by the Board and reasonably acceptable to Mr. Chishti. Mr. Chishti's office privileges shall include full-time administrative support from his current assistant at the Company, or, in the event her employment by the Company is terminated, from an individual reasonably agreed to by the Parties.
3. Consulting Arrangement. The Company shall retain Mr. Chishti as a consultant to perform such services as may reasonably be requested in writing by the Company (the "Consulting Arrangement") for the period from the Resignation Date through the earlier of (i) Mr. Chishti's resignation as a consultant; (ii) the fourth anniversary of the Resignation Date; or (iii) the date on which the Company terminates the Consulting Arrangement for Cause (as defined below) (the "Consulting Period").
(a) Responsibilities. During the Consulting Period, Mr. Chishti agrees to make himself available at reasonable times and places to perform consulting services as requested by the new Chief Executive Officer or his designee. Mr. Chishti further agrees that during the Consulting Period he will make himself available and use his best efforts in the CEO Transition Process. Mr. Chishti's commitment to the Company for the first two years of the Consulting Period shall be 200 hours per year and for the remaining two years of the Consulting Period shall be 100 hours per year.
(b) Compensation. During the portion of the Consulting Period beginning immediately after the Termination Date, Mr. Chishti shall be paid a monthly retainer of $25,000 ($300,000 on an annualized basis) for the remainder of the first two years of the Consulting Period. For the remaining two years of the Consulting Period, Mr. Chishti shall be paid a monthly retainer of $16,667 ($200,000 on an annualized basis). The First Stock Option shall continue to vest through the end of the Consulting Period; the New Option shall vest during the Consulting Period, unless accelerated as set forth in Section 2(b) above. The Company shall reimburse Mr. Chishti for reasonable expenses incurred on behalf of the Company during the Consulting Period, provided that such expenses are substantiated in accordance with Company policies.
(c) Cause. For all purposes under this Agreement, a termination of Mr. Chishti's position as Chairman of the Board, or of the Consulting Arrangement itself, for "Cause" shall mean a good faith determination by the Board that Mr. Chishti's position as Chairman or the Consulting Arrangement be terminated for any of the following reasons: (i) failure to perform his obligations hereunder in the CEO Transition Process; (ii) undertaking any actions regarding the activities of the Company that are not Requested Actions; (iii) willful misconduct, including but not limited to a willful breach of his duty of confidentiality to the Company; (iv) conviction of, or a plea of "guilty" or "no contest" to, a felony under the laws of the United States or any state thereof; (v) willful and material breach of either Section 7(e) or 7(f) of this Agreement; and (vi) Mr. Chishti's willful use or unauthorized willful disclosure of any proprietary information or trade secrets of the Company or any other party to whom Mr. Chishti owes an obligation of nondisclosure as a result of his relationship with the Company.
4. Employee Benefits.
(a) Mr. Chishti shall continue to receive the Company's standard medical, dental, vision and life insurance benefits at the Company's expense, to the same extent it pays such premiums for other similarly situated employees, until the latest date provided under the terms of the applicable insurance programs. Following such date, Mr. Chishti shall have the right to continue coverage under the Company's medical, dental and vision insurance programs as provided by COBRA at his own expense. If Mr. Chishti makes an accurate and timely election for continuation coverage, the Company agrees to reimburse Mr. Chishti for the applicable premiums for continuation coverage for himself and his then-currently enrolled dependents (as applicable) until the earlier of the end of the Consulting Period or the date on which Mr. Chishti is no longer eligible for such continuation coverage, in which latter case the Company will reimburse Mr. Chishti for his reasonable costs of comparable, alternative coverage until the end of the Consulting Period.
(b) Except as provided above, Mr. Chishti's participation in the Company's employee benefit programs, including without limitation, the long term and short term disability, 401(k), and employee stock purchase plans, shall cease as of the Resignation Date. No additional personal time off shall accrue following the Resignation Date.
5. Stock Options. All outstanding stock options granted to Mr. Chishti by the Company, including the New Option granted to Mr. Chishti on February 8, 2002, shall continue to vest according to the respective terms set forth in the option agreements issued to Mr. Chishti and as described in this Agreement and shall remain exercisable to the extent vested for a period of three (3) months after the end of the Consulting Period.
6. Legal Fees. The Company will pay Mr. Chishti's reasonable attorneys' fees in connection with negotiating and drafting this Agreement.
7. Covenants.
(a) General. Mr. Chishti agrees that for all periods described in this Agreement, he shall continue to conduct himself in a professional manner that is supportive of the business of the Company.
(b) Confidential Information. Mr. Chishti understands and agrees that his obligations to the Company under the Employee Proprietary Information and Inventions Agreement entered into between Mr. Chishti and the Company (the "Proprietary Agreement"), a copy of which is attached hereto as Exhibit A, shall continue through the Consulting Period and shall survive the termination of his relationship with the Company under this Agreement.
(c) Confidentiality of this Agreement. Mr. Chishti and the Company agree to use reasonable efforts to maintain in confidence the existence and terms of this Agreement, except as may be disclosed in a press release and except for disclosures required by law or necessary to effectuate the terms of this Agreement. Mr. Chishti understands and acknowledges that the Company will be required to file a copy of this Agreement with the Securities and Exchange Commission and to disclose its terms in the Company's next proxy statement. Notwithstanding the foregoing, each party shall be permitted to discuss the provisions of this Agreement in confidence with its attorneys, accountants, tax advisors and family members. Mr. Chishti agrees not to disclose that he has resigned or is going to resign, until the Company makes an announcement thereof or to the extent that the Board or its authorized committee specifically permits such disclosure. Unless specifically permitted by the Board or its authorized committee, Mr. Chishti will not make any such disclosure to any Company employee, consultant, customer, supplier or present or prospective Company business partner prior to the date the Company makes such announcement.
(d) Cooperation. Mr. Chishti shall make himself available at reasonable times and places upon reasonable notice to give deposition and trial testimony and otherwise to assist the Company's attorneys in the prosecution or defense of any legal proceedings involving the Company. The Company will make reasonable efforts to accommodate any other employment or obligations that Mr. Chishti may have. Mr. Chishti shall cooperate with the Company in providing information with respect to all reports required to be filed by the Company with the Securities and Exchange Commission as they relate to required information with respect to Mr. Chishti. The Company shall pay Mr. Chishti's reasonable out-of-pocket expenses incurred in the above activities.
(e) Nonsolicitation. During the Consulting Period and for a period of one (1) year thereafter, Mr. Chishti will not: (a) divert or attempt to divert, directly or indirectly, any business of the Company; (b) either directly or indirectly solicit, induce, recruit or encourage any of the Company's employees or consultants to terminate their relationship with the Company, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for himself or for any other person or entity; or (c) induce or attempt to induce any customer, supplier, licensor or other business partner of the Company to cease doing business with the Company or in any way interfere with the existing business relationship between any such customer, supplier, licensor or business partner and the Company.
(f) Noncompetition; Duty of Loyalty. During the Consulting Period Mr. Chishti may engage in other employment, consulting or businesses, provided such activity does not preclude him from making himself reasonably available to provide consulting services to the Company as provided above and further provided that Mr. Chishti shall not engage in any employment, consulting or business with or for the benefit of any party that is competitive with the present, proposed, or reasonably and anticipated business activities of the Company; provided that if, without having violated this Agreement, Mr. Chishti is already engaged in a business activity that the Company proposes or anticipates to enter, Mr. Chishti may continue such activity.
8. Non-Disparagement. Each party agrees to refrain from (and the Company shall take reasonable steps to cause its executive officers and directors to refrain from) any disparagement or criticism of the other party (and in the case of the Company, its officers, directors and employees).
9. Breach of this Agreement. Mr. Chishti acknowledges that upon material breach of any provision of this Agreement or the Proprietary Agreement, the Company would sustain irreparable harm from such breach, and, therefore, Mr. Chishti agrees that in addition to any other remedies which the Company may have under this Agreement, the Proprietary Agreement or otherwise, the Company shall be entitled to obtain equitable relief including specific performance, injunctions and restraining Mr. Chishti from committing or continuing any such violation of this Agreement or the Proprietary Agreement.
10. Authority. The Company represents and warrants that the undersigned has the authority to act on behalf of the Company and to bind the Company and all who may claim through it to the terms and conditions of this Agreement. Mr. Chishti represents and warrants that he has the capacity to act on his own behalf and on behalf of all whom might claim through him to bind them to the terms and conditions of this Agreement.
11. No Representations. Neither Party has relied upon any representations or statements made by the other Party hereto which are not specifically set forth in this Agreement.
12. Severability. In the event that any provision hereof becomes or is declared by a court or other tribunal of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision.
13. Arbitration. The Parties shall attempt to settle all disputes arising in connection with this Agreement through good faith consultation. In the event no agreement can be reached on such dispute within fifteen (15) days after notification in writing by either Party to the other concerning such dispute, the dispute shall be settled by binding arbitration to be conducted in Santa Clara County, California before the American Arbitration Association under its California Employment Dispute Resolution Rules, or by a judge to be mutually agreed upon. The arbitration decision shall be final, conclusive and binding on both Parties and any arbitration award or decision may be entered in any court having jurisdiction. The Parties agree that the prevailing party in any arbitration shall be entitled to injunctive relief in any court of competent jurisdiction to enforce the arbitration award. The Parties further agree that the prevailing Party in any such proceeding shall be awarded reasonable attorneys' fees and costs. This Section 13 shall not apply to the Proprietary Agreement. The parties hereby waive any rights they may have to trial by jury in regard to arbitrable claims.
14. Indemnification. The Indemnification Agreement entered into by Mr. Chishti and the Company, a copy of which is attached hereto as Exhibit B, shall remain in effect following the Resignation Date in accordance with the terms of such agreement.
15. Entire Agreement. This Agreement, and the exhibits hereto, represent the entire agreement and understanding between the Company and Mr. Chishti concerning Mr. Chishti's separation from the Company, and supersede and replace any and all prior agreements and understandings concerning Mr. Chishti's relationship with the Company and his compensation by the Company.
16. No Oral Modification. This Agreement may only be amended in writing signed by Mr. Chishti and the Company.
17. Governing Law. This Agreement shall be governed by the laws of the State of California, without regard to its conflicts of law provisions.
18. Effective Date. This Agreement shall be effective upon execution by the Parties.
19. Counterparts. This Agreement may be executed in counterparts, and each counterpart shall have the same force and effect as an original and shall constitute an effective, binding agreement on the part of each of the undersigned.
20. Assignment. This Agreement may not be assigned by Mr. Chishti or the Company without the prior written consent of the other party. Notwithstanding the foregoing, this Agreement may be assigned by the Company to a corporation controlling, controlled by or under common control with the Company without the consent of Mr. Chishti.
21. Voluntary Execution of Agreement. This Agreement is executed voluntarily and without any duress or undue influence on the part or behalf of the Parties hereto, with the full intent of releasing all claims. The Parties acknowledge that:
(a) they have read this Agreement;
(b) they have been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of their own choice or that they have voluntarily declined to seek such counsel;
(c) they understand the terms and consequences of this Agreement; and
(d) they are fully aware of the legal and binding effect of this Agreement.
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IN WITNESS WHEREOF, each of the Parties has executed this Agreement, in the case of the Company by its duly authorized director, as of the day and year first written above.
ALIGN TECHNOLOGY, INC.
_/S/ Joseph Lacob_
Joseph Lacob, on behalf of the Board of
Directors
MUHAMMAD ZIAULLAH CHISHTI, an individual
_____/S/ Zia Chishti_________________________
Muhammad Ziaullah Chishti
EXHIBIT A
EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
EXHIBIT B
INDEMNIFICATION AGREEMENT
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the 27th day of March, 2002, by and between Align Technology, Inc., a Delaware corporation (the "Company"), and Thomas M. Prescott (hereinafter referred to as "Executive") (together, the "Parties").
WITNESSETH
WHEREAS, the Company desires to employ Executive, and Executive desires to be employed by the Company, upon the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the promises and the mutual covenants hereinafter set forth, the Parties agree as follows:
AGREEMENT
Without limiting the generality of the foregoing, Executive does hereby covenant not to, during the Employment Period:
If, after the receipt by Executive of an amount advanced by the Company pursuant to this Section 7(D), Executive becomes entitled to receive any refund with respect to the claim, Executive shall, subject to the Company's compliance with the requirements of this Section 7(D), promptly pay to the Company the amount of the refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to this Section 7(D), a determination is made that Executive shall not be entitled to any refund with respect to the claim and the Company does not notify Executive in writing of its intent to contest the denial of refund prior to the expiration of 30 days after the determination, then the advance shall be forgiven and shall not be required to be repaid and the amount of the advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. Notwithstanding the above, Executive and not the Company shall be liable for the payment of any interest or penalty that is due because of Executive's failure to notify the Company or cooperate with the Company as required by this Section 7.
To the Company:
Align Technology, Inc.
851 Martin Avenue
Santa Clara, CA 95050
Attention: Human Resources
With a Copy to:
Brobeck, Phleger & Harrison LLP
One Market, Spear Street Tower
San Francisco, CA 94105
Attention: John W. Larson
To Executive:
Thomas M. Prescott
3253 E. Ruby Hill Drive
Pleasanton, CA 94566
or to such other address as the Parties may designate from time to time by written notice to the other party given in the above manner. Notice given by personal service shall be deemed effective upon service. Notice given by registered or certified mail shall be deemed effective three (3) days after deposit in the mail.
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IN WITNESS WHEREOF, the Parties have caused this Employment Agreement to be executed effective as of the date first set forth above.
ALIGN TECHNOLOGY, INC.
By: /S/ Joseph Lacob
Name: Joseph S. Lacob
Title: Director
THOMAS M. PRESCOTT
By: /S/ Thomas Prescott
Name: Thomas M. Prescott
EXHIBIT A
CHANGE IN CONTROL DEFINITION
A Change in Control shall be deemed to occur in the event of a change in ownership or control of the Company effected through either of the following transactions:
(A) a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its controlling entity) at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity (or its controlling entity) outstanding after such merger or consolidation.
(C) a change in the composition of the Board over a period of twenty-four (24) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (i) have been Board members continuously since the beginning of such period or (ii) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (i) who were still in office at the time the Board approved such election or nomination.
(D) the date of the consummation of the sale or disposition by the Company of all or substantially all of the Company's assets to any person (as such term is used in Section 13(d) of the Securities and Exchange Act of 1934, as amended), entity or group acting in concert.
EXHIBIT B
EMPLOYEE PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
ALIGN TECHNOLOGY, INC.
EMPLOYEE PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
In consideration of my employment or continued employment by ALIGN TECHNOLOGY, INC. (the "Company"), and the compensation now and hereafter paid to me, I hereby agree as follows:
1. PROPRIETARY INFORMATION
. At all times during my employment and thereafter, I will hold in strictest confidence and will not disclose, use, lecture upon or publish any of the Company's Proprietary Information (defined below), except as such disclosure, use or publication may be required in connection with my work for the Company, or unless the Board of Directors of the Company expressly authorizes such in writing. "Proprietary Information" shall mean any and all confidential and/or proprietary knowledge, data or information of the Company, its affiliated entities, customers and suppliers, including but not limited to information relating to products, processes, know-how, designs, formulas, methods, developmental or experimental work, improvements, discoveries, inventions, ideas, source and object codes, data, programs, other works of authorship, and plans for research and development. During my employment by the Company I will not improperly use or disclose any confidential information or trade secrets, if any, of any former employer or any other person to whom I have an obligation of confidentiality, and I will not bring onto the premises of the Company any unpublished documents or any property belonging to any former employer or any other person to whom I have an obligation of confidentiality unless consented to in writing by that former employer or person.
2. ASSIGNMENT OF INVENTIONS.
2.1 Proprietary Rights
. The term "Proprietary Rights" shall mean all trade secret, patent, copyright, mask work and other intellectual property rights throughout the world.
2.2 Inventions
. The term "Inventions" shall mean all trade secrets, inventions, mask works, ideas, processes, formulas, source and object codes, data, programs, other works of authorship, know-how, improvements, discoveries, developments, designs and techniques.
2.3 Prior Inventions
. I have set forth on Exhibit B (Previous Inventions) attached hereto a complete list of all Inventions that I have, alone or jointly with others, made prior to the commencement of my employment with the Company that I consider to be my property or the property of third parties and that I wish to have excluded from the scope of this Agreement (collectively referred to as "Prior Inventions"). If no such disclosure is attached, I represent that there are no Prior Inventions. If, in the course of my employment with the Company, I incorporate a Prior Invention into a Company product, process or machine, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license (with rights to sublicense through multiple tiers of sublicensees) to make, have made, modify, use and sell such Prior Invention. Notwithstanding the foregoing, I agree that I will not incorporate, or permit to be incorporated, Prior Inventions in any Company Inventions without the Company's prior written consent.
2.4 Assignment of Inventions
. Subject to Section 2.6 and except for those Inventions which I can prove qualify fully under the provisions of California Labor Code 2870 (as set forth in Exhibit A), I hereby assign and agree to assign in the future (when any such Inventions or Proprietary Rights are first reduced to practice or first fixed in a tangible medium, as applicable) to the Company all my right, title and interest in and to any and all Inventions (and all Proprietary Rights with respect thereto). I will, at the Company's request, promptly execute a written assignment to the Company of any such Company Invention, and I will preserve any such Invention as part of the Proprietary Information of the Company (the "Company Inventions").
2.5 Obligation to Keep Company Informed
. I will promptly and fully disclose in writing to the Company all Inventions during my employment and for one (1) year after my employment, including any that may be covered by Section 2870. I agree to assist in every proper way and to execute those documents and take such acts as are reasonably requested by the Company to obtain, sustain and from time to time enforce patents, copyrights and other rights and protections relating to Inventions in the United States or any other country.
2.6 Government or Third Party
. I also agree to assign all my right, title and interest in and to any particular Company Invention to a third party, including without limitation the United States, as directed by the Company.
3. NO CONFLICTING OBLIGATION
. I represent that my performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence information acquired by me in confidence or in trust prior to my employment by the Company. I have not entered into, and I agree I will not enter into, any agreement either written or oral in conflict herewith.
4. RETURN OF COMPANY DOCUMENTS
. Upon termination of my employment with the Company for any reason whatsoever, voluntarily or involuntarily, and at any earlier time the Company requests, I will deliver to the person designated by the Company all originals and copies of all documents and other property of the Company in my possession, under my control or to which I may have access. I will not reproduce or appropriate for my own use, or for the use of others, any property, Proprietary Information or Company Inventions.
5. LEGAL AND EQUITABLE REMEDIES
. Because my services are personal and unique and because I may have access to and become acquainted with the Proprietary Information of the Company, the Company shall have the right to enforce this Agreement and any of its provisions by injunction, specific performance or other equitable relief, without bond and without prejudice to any other rights and remedies that the Company may have for a breach of this Agreement.
6. NOTICES
. Any notices required or permitted hereunder shall be given to the appropriate party at the address specified below or at such other address as the party shall specify in writing. Such notice shall be deemed given upon personal delivery to the appropriate address or if sent by certified or registered mail, three (3) days after the date of mailing.
7. EMPLOYMENT
. I agree and understand that nothing in this Agreement shall confer any right with respect to continuation of employment by the Company, nor shall it interfere in any way with my right or the Company's right to terminate my employment at any time, with or without cause.
8. GENERAL PROVISIONS. This Agreement will be governed by and construed according to the laws of the State of California, as such laws are applied to agreements entered into and to be performed entirely within California between California residents. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and its assigns. The provisions of this Agreement shall survive the termination of my employment and the assignment of this Agreement by the Company to any successor in interest or other assignee. No waiver by the Company of any breach of this Agreement shall be a waiver of any preceding or succeeding breach. No waiver by the Company of any right under this Agreement shall be construed as a waiver of any other right. The obligations pursuant to Sections I and 2 of this Agreement shall apply to any time during which I was previously employed, or am in the future employed, by the Company as a consultant if no other agreement governs nondisclosure and assignment of inventions during such period. This Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matter hereof and supersedes and merges all prior discussions between us. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing and signed by the party to be charged. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement.
This Agreement shall be effective as of the first day of my employment with the Company.
Dated : |
(Signature) |
(Printed Name) |
ACCEPTED AND AGREED TO: |
ALIGN TECHNOLOGY, INC. |
By: |
Title: |
(Address) |
Dated: |
EXHIBIT A
LIMITED EXCLUSION NOTIFICATION
THIS IS TO NOTIFY you in accordance with Section 2872 of the California Labor Code that the foregoing Agreement between you and the Company does not require you to assign or offer to assign to the Company any invention that you developed entirely on your own time without using the Company's equipment, supplies, facilities or trade secret information except for those inventions that either:
1. Relate at the time of conception or reduction to practice of the invention to the Company's business, or actual or demonstrably anticipated research or development of the Company;
2. Result from any work performed by you for the Company.
To the extent a provision in the foregoing Agreement purports to require you to assign an invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or invention covered by a contract between the Company and the United States or any of its agencies requiring full title to such patent or invention to be in the United States.
I ACKNOWLEDGE RECEIPT of a copy of this notification.
By:
(PRINTED NAME OF EMPLOYEE)
Date:
WITNESSED BY:
(PRINTED NAME OF REPRESENTATIVE)
EXHIBIT B
TO: ALIGN TECHNOLOGY, INC.
FROM: _____________________________
DATE: _____________________________
SUBJECT: Previous Inventions
1. Except as listed in Section 2 below, the following is a complete list of all inventions or improvements relevant to the subject matter of my employment by ALIGN TECHNOLOGY, INC. (the "Company") that have been made or conceived or first reduced to practice by me alone or jointly with others prior to my engagement by the Company:
¨ No inventions or improvements.
¨ See below:
¨ Additional sheets attached.
2. Due to a prior confidentiality agreement, I cannot complete the disclosure under Section I above with respect to inventions or improvements generally listed below, the proprietary rights and duty of confidentiality with respect to which I owe to the following party(ies):
Invention or Improvement |
Party(ies) |
Relationship |
|||
1. |
|||||
2. |
|||||
3. |
|||||
¨ Additional sheets attached.