<PAGE>
As filed with the Securities and Exchange Commission on November 14, 2000
Registration No. 333-
-------------------------------------------------------------------------------
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ALIGN TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 3843 94-3267295
<S> <C> <C>
(State or other jurisdiction
of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
851 Martin Avenue, Santa Clara, California 95050, (408) 470-1000
(Address, including zip code, and telephone number, including area code, of
the registrant's principal executive offices)
---------------
Zia Chishti
Chief Executive Officer
Align Technology, Inc.
851 Martin Avenue, Santa Clara, California 95050, (408) 470-1000
(Name and address, including zip code, and telephone number, including area
code, of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
John W. Larson, Esq. John T. Sheridan, Esq.
Patrick J. Shea, Esq. Richard S. Au, Esq.
Jeanine M. Larrea, Esq. Carolynn W. Jones, Esq.
Mark C. Hornor, Esq. WILSON SONSINI GOODRICH & ROSATI, P.C.
BROBECK, PHLEGER & HARRISON LLP 650 Page Mill Road
One Market Palo Alto, CA 94304-1050
Spear Street Tower (650) 493-9300
San Francisco, CA 94105
(415) 442-0900
</TABLE>
---------------
As soon as practicable after the effective date of this Registration
Statement.
(Approximate date of commencement of proposed sale to the public)
---------------
If the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title of Each Class of Proposed Maximum Amount of
Securities to be Registered Aggregate Offering Price(1)(2) Registration Fee
------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.0001 par
value....................... $200,000,000 $52,800
</TABLE>
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(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o).
(2) Includes amount subject to the over-allotment option granted to the
underwriters.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission becomes effective. This +
+preliminary prospectus is not an offer to sell these securities nor does it +
+seek offers to buy these securities in any jurisdiction where the offer or +
+sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated November 14, 2000
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-37020
Align Technology, Inc.
--------------------------------------------------------------------------------
Shares
Common Stock
--------------------------------------------------------------------------------
This is the initial public offering of Align Technology, Inc. and we are
offering shares of our common stock. We anticipate that the initial
public offering price will be between $ and $ per share. We have
applied to list our common stock on the Nasdaq National Market under the
symbol "ALGN."
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary
is a criminal offense.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Align
<S> <C> <C> <C>
Per share $ $ $
Total $ $ $
</TABLE>
We have granted the underwriters the right to purchase up to additional
shares to cover over-allotments.
Deutsche Banc Alex. Brown
Bear, Stearns & Co. Inc.
J.P. Morgan & Co.
Robertson Stephens
The date of this prospectus is , 2000
<PAGE>
Description of artwork
Inside front cover page:
Middle top: "Align Technology, Inc. Presents Invisalign, A New Way To
Straighten Teeth Without Braces"
Middle center: Invisalign mark
Middle center: Align logo
Middle bottom: Graphic of hand holding Aligner between thumb and forefinger.
Inside foldout:
Center of Page: Close-up of smiling woman wearing an Aligner--surrounded by
various smaller graphics and captions as listed below.
Moving from top center left clockwise: Graphic: two smiling faces, facing each
other displaying teeth. One of the smiles is wearing braces, the other is
wearing an Aligner. Caption: "Both of these people are straightening their
teeth."
Top right corner: Graphic: three pictures of smiling people. Caption: "Which
of these people is wearing Invisalign? They all are."
Right of page: Graphic: three pairs of before and after pictures with numbers
1, 2, 3. Caption: "Invisalign Aligners effectively straighten teeth more
gently and comfortably than braces."
Bottom right corner: Align logo and Invisalign mark
Bottom center: Graphic: three pictures of a woman placing an Aligner on her
teeth. Caption: "Invisalign Aligners are removable and nearly invisible."
Bottom left: Graphic: hand holding an Aligner between thumb and forefinger.
Caption: "A series of clear, removable Invisalign Aligners is custom
manufactured to match each stage of treatment."
Left center of page: Graphic: computer graphic of human dentition. Caption:
"Our proprietary software, ClinCheck, lets orthodontists visualize their
treatment plans by projecting how the teeth will move over time."
Left center of page: Graphic: impression of human dentition. Caption: "The
impression is scanned into our 3-D graphics computers."
Left top of page: Graphic: impression of human dentition. Caption: "Treatment
begins when the orthodontist makes an impression."
<PAGE>
SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our common stock. You should carefully read the
entire prospectus, including "Risk Factors" and the financial statements,
before making an investment decision.
Our Company
We design, manufacture and market the Invisalign System, a proprietary new
method for treating malocclusion, or the misalignment of teeth. The System
corrects malocclusion using a series of clear, removable appliances that gently
move teeth to a desired final position. Because it does not rely on the use of
metal or ceramic brackets and wires, the System significantly reduces the
aesthetic and other limitations associated with braces. The Invisalign System
also offers orthodontists a new means of carrying out their diagnosis and
treatment planning processes. We believe the Invisalign System has the
potential to transform the traditional practice of orthodontics by appealing to
people who would not otherwise seek treatment.
In the U.S. alone, over 200 million individuals have some form of
malocclusion. Each year, less than one percent of these individuals, or
approximately two million Americans, enter orthodontic treatment, spending
approximately $7 billion in aggregate. We believe the Invisalign System is a
compelling treatment alternative for most of the patients who would seek
traditional orthodontic treatment. In addition, given the significant benefits
of our System, we have the opportunity to expand the U.S. orthodontic market by
addressing the needs of millions of individuals who would not otherwise seek
treatment. Further, we believe the international opportunity is larger than the
U.S. opportunity.
We received FDA clearance to market the Invisalign System in 1998 and
started commercial sales of the System in July 1999. Our 510(k) clearance from
the FDA allows us to market the Invisalign System to treat patients with any
type of malocclusion. We voluntarily restrict the use of the Invisalign System
to adults and adolescents with mature dentition and who are otherwise suitable
for treatment, a group that represents approximately 130 million people in the
U.S. Currently, we do not treat children whose teeth and jaws are still
developing, as the effectiveness of the Invisalign System relies on our ability
to accurately predict the movement of teeth over the course of treatment. Based
on our clinical studies to date, we recommend that orthodontists use the
Invisalign System as a complete treatment for mild and moderate malocclusions
and as a component of treatment for unusually severe malocclusions.
As of October 2000, we had trained more than 5,300 orthodontists to use the
Invisalign System, representing over 60% of all U.S. and Canadian
orthodontists. To date, over 7,600 patients have commenced treatment with the
Invisalign System, including more than 1,000 patients in September 2000.
Our objective is to establish the Invisalign System as the standard method
for treating orthodontic malocclusion. Our sales and marketing efforts focus on
educating both consumers and orthodontists on the significant benefits of the
System. We continue to train orthodontists and work with them to increase the
use of the Invisalign System within their practices. We recently initiated a
national advertising campaign to create awareness of the Invisalign System as a
treatment alternative and to stimulate demand for treatment with the System.
1
<PAGE>
The Invisalign System
The Invisalign System has two components: ClinCheck and Aligners. ClinCheck
is an Internet-based application that allows orthodontists to simulate
treatment in three dimensions by modeling two-week stages of tooth movement.
Aligners are thin, clear plastic, removable dental appliances that correspond
to each stage of the ClinCheck simulation. Each custom-fabricated Aligner is
worn over the teeth for two weeks before being disposed of and replaced by the
next Aligner, until the last Aligner in the series is worn and treatment is
complete.
The Invisalign System addresses many of the significant limitations of
conventional braces. Braces call attention to the patient's condition and
treatment and are often identified with adolescence. Braces are uncomfortable
and at times painful. Braces trap food and make it more difficult to brush and
floss.
By contrast, Aligners are nearly invisible when worn. Aligners move teeth
more gently than braces and are made of smooth polymer rather than sharp metal,
making them substantially more comfortable and less abrasive. Patients can
remove Aligners to eat, brush and floss, improving oral hygiene.
The Invisalign System is straightforward for orthodontists to learn and to
use, since the System relies on the same biomechanical principles that underlie
traditional orthodontic treatment. Our initial certification training is
generally completed in a one day workshop, and orthodontists can be equipped to
submit cases immediately thereafter with minimal financial outlay.
We believe our Invisalign System provides orthodontists with an opportunity
to substantially increase the profitability of their practices. The Invisalign
System allows orthodontists to broaden their patient base by offering a new,
attractive treatment alternative to people who would not otherwise elect
treatment. We believe that orthodontists using the System have generally been
able to command a premium over the fees charged for conventional treatment. In
addition, since our System eliminates many time-intensive activities associated
with conventional treatment, orthodontists are able to reduce the time spent on
each case and, accordingly, increase practice capacity.
2
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by Align Technology.... shares
Common stock to be outstanding after this
offering................................... shares
Use of proceeds............................. Expansion of manufacturing
capacity, advertising and other
sales and marketing activities,
research and development,
working capital and general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol...... ALGN
</TABLE>
The number of shares of common stock to be outstanding upon completion of
this offering is based on the number of shares outstanding as of September 30,
2000. This number assumes the conversion into common stock of all of our
preferred stock outstanding on that date, including the sale of 718,355 shares
of Series D preferred stock issued in October 2000, which converts into 733,194
shares of common stock, and excludes:
. 2,155,998 shares of common stock issuable upon exercise of outstanding
options at a weighted average exercise price of $1.59 per share;
. 322,917 shares of common stock issuable upon exercise of outstanding
warrants to purchase preferred stock, or common stock upon the
completion of this offering, at a weighted average exercise price of
$3.87 per share;
. 1,177,621 shares of common stock available for grant under our 1997
Equity Incentive Plan;
. 2,700,000 shares of common stock reserved for issuance under our 2001
Stock Incentive Plan; and
. 500,000 shares of common stock to be reserved for issuance under our
Employee Stock Purchase Plan upon completion of the offering.
----------------
Unless otherwise indicated, the information in this prospectus assumes:
. the conversion of all outstanding shares of preferred stock into common
stock upon the closing of this offering, taking into account the Series
D preferred stock antidilution conversion price adjustment described in
"Certain Transactions--Preferred Stock Sales;" and
. no exercise of the underwriters' over-allotment option.
3
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period from
April 3, 1997 Nine Months
(date of Year Ended Ended
inception) to December 31, September 30,
December 31, ----------------- -----------------
1997 1998 1999 1999 2000
------------- ------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue.................... $ -- $ -- $ 411 $ 77 $ 3,236
Cost of revenue............ -- -- 1,754 357 11,313
------ ------- -------- ------- --------
Gross loss................. -- -- (1,343) (280) (8,077)
------ ------- -------- ------- --------
Operating expenses:
Sales and marketing....... 283 133 5,688 2,726 19,664
General and
administrative........... -- 2,344 3,474 2,000 12,349
Research and development.. 405 1,474 4,200 3,068 5,904
------ ------- -------- ------- --------
Total operating
expenses................ 688 3,951 13,362 7,794 37,917
------ ------- -------- ------- --------
Loss from operations....... (688) (3,951) (14,705) (8,074) (45,994)
Interest and other income
(expense), net............ 24 176 (710) (499) (7,317)
------ ------- -------- ------- --------
Net loss................... (664) (3,775) (15,415) (8,573) (53,311)
Dividend related to
beneficial conversion
feature of preferred
stock..................... -- -- -- -- (44,150)
------ ------- -------- ------- --------
Net loss available to
common stockholders....... $ (664) $(3,775) $(15,415) $(8,573) $(97,461)
====== ======= ======== ======= ========
Net loss per share
available to common
stockholders, basic and
diluted................... $(0.86) $ (2.66) $ (7.31) $ (4.22) $ (35.87)
====== ======= ======== ======= ========
Shares used in computing
net loss per share
available to common
stockholders, basic and
diluted................... 771 1,421 2,109 2,030 2,717
====== ======= ======== ======= ========
Pro forma net loss per
share available to common
stockholders, basic and
diluted (unaudited)....... $ (1.85) $ (4.22)
======== ========
Shares used in computing
pro forma net loss per
share available to common
stockholders, basic and
diluted (unaudited)....... 8,339 12,635
======== ========
</TABLE>
<TABLE>
<CAPTION>
September 30, 2000
-------------------------------------
Pro Forma
Actual Pro Forma(1) As Adjusted(2)
-------- ------------ --------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and marketable
securities............................. $ 37,867 $53,079
Working capital......................... 47,758 62,970
Total assets............................ 75,567 90,779
Long term obligations, net of current
portion................................ 1,569 1,569
Convertible preferred stock and
warrants............................... 115,708 --
Total stockholders' equity (deficit).... (56,086) 74,834
</TABLE>
--------
(1) The pro forma column reflects the sale of 718,355 shares of Series D
preferred stock in October 2000 at an offering price of $21.25 less
estimated offering expenses of $53,000, and the conversion of all
outstanding shares of preferred stock, including the 718,355 shares of
Series D preferred stock issued in October 2000, into 12,990,503 shares of
common stock effective upon the closing of this offering.
(2) The pro forma, as adjusted column reflects the sale of shares of our
common stock in the public offering at an assumed initial public offering
price of $ per share, after deducting underwriting discounts, commissions
and estimated offering expenses.
4
<PAGE>
We incorporated in Delaware on April 3, 1997. We are located at 851 Martin
Avenue, Santa Clara, California, 95050 and our telephone number is (408) 470-
1000. Our website is located at www.invisalign.com. The information on our
website is not incorporated into and is not intended to be a part of this
prospectus.
ClinCheck(R) is our registered trademark. We have filed applications for
several trademarks with the U.S. Patent and Trademark Office, including
Invisalign and Invisalign System, as well as the Invisalign System logo and the
Align logo. Trademarks, trade names and service marks of other companies
appearing in this prospectus are the property of the respective holders. Use or
display by Align of other parties' trade names, trademarks or service marks is
not intended to and does not imply a relationship with, or endorsement or
sponsorship of Align by, the trade name, trademark or service mark owners.
5
<PAGE>
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should consider carefully the following information about these risks, together
with the other information contained in this prospectus, before you decide
whether to buy our common stock. If any of the following risks actually occur,
our business, results of operations and financial condition could suffer
significantly. In any such case, the market price of our common stock could
decline, and you may lose all or part of the money you paid to buy our common
stock.
Risks Related to Our Business
Since we have a history of losses and negative 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 and have not achieved
profitability. We have incurred net losses of $73.2 million for the period from
our inception in April 1997 through September 30, 2000, including a net loss of
$15.4 million in 1999 and $53.3 million for the nine months ended September 30,
2000. We incurred negative cash flows of $11.6 million from operating
activities in 1999 and $31.2 million for the nine months ended September 30,
2000. From inception through July 2000, we have spent significant funds in
organizational and start-up activities, to recruit key managers and employees,
to develop the Invisalign System and to develop our manufacturing and customer
support resources. We have also spent significant funds on clinical trials and
training programs to train orthodontists in the use of the Invisalign System.
We expect to have increasing net losses and negative operating cash flows for
at least the next two years.
We intend to increase our operating expenses as we continue to:
. scale our manufacturing operations;
. develop new software and increase the automation of our manufacturing
processes;
. execute our national direct to consumer marketing campaign;
. increase the size of our sales force and orthodontist training staff;
. undertake quality assurance and improvement initiatives; and
. increase our general and administrative functions to support our growing
operations.
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 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 have only recently begun selling our
Invisalign System in commercial quantities. 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:
. changes in the timing of product orders;
. unanticipated delays in production caused by insufficient capacity or in
the introduction of new production processes;
6
<PAGE>
. inaccurate forecasting of revenue, production and other operating costs;
and
. the development and marketing of directly competitive products by
potential competitors.
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 fall 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.
If orthodontists do not adopt our Invisalign System in sufficient numbers or as
rapidly as we anticipate, our operating results will be harmed.
To date, a substantial portion of our cases and revenue have been derived
from a limited number of orthodontists. Our success depends upon increasing
acceptance by orthodontists and dentists of the Invisalign System. The
Invisalign System requires orthodontists 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 our Invisalign System has only been in
clinical testing since July 1997 and commercially available since July 1999,
orthodontists may be reluctant to adopt it until more historical clinical
results are available. Also, increasing adoption by orthodontists 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 the Invisalign System could result in significant adverse
publicity and consequently in reduced acceptance by orthodontists. If our
Invisalign System does not achieve growing acceptance in the orthodontic and
dental communities, our operating results will be harmed.
If consumers do not adopt our Invisalign System in sufficient numbers or as
rapidly as we anticipate, our operating results will be harmed.
Our Invisalign System 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. Patient acceptance will depend in part upon
the recommendations of dentists and orthodontists, 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. If consumers prove
unwilling to adopt our Invisalign System as rapidly or in the numbers that we
anticipate, our operating results will 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
7
<PAGE>
U.S. and in other countries. Our inability to do so could harm our competitive
position. We have one issued U.S. patent, 46 pending U.S. applications, of
which two are allowed and nine are provisional applications. We have two
foreign-issued patents and 111 pending foreign 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
applications may not issue as patents. Additionally, any patents issued to us
may be challenged, invalidated, held unenforceable or circumvented. In
addition, our intellectual property rights may not be sufficiently broad to
prevent third parties from producing competing products similar in design to
our products. We also believe that foreign patents and the protection afforded
by such foreign patents and foreign intellectual property laws, may be more
limited than that provided under U.S. patents and intellectual property laws.
We also rely on protection of trade secrets, know-how and confidential 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. The exposure of our
trade secrets and other proprietary information would impair our competitive
advantages and could have a material adverse effect on our operating results,
financial condition and future growth prospects. Further, other parties may
independently develop substantially equivalent know-how and technology.
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 devices 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. In March 2000, we answered
the complaint and asserted counterclaims seeking a declaration, among other
things, by the court of non-infringement and invalidity of the asserted
patents. In June 2000, we entered into a Stipulation of Dismissal with Ormco in
which Ormco agreed not to recommence suit against us on either of the two
asserted patents for a period of two years. However, in the event that Ormco is
issued a patent which it believes is infringed by the Invisalign System, it may
commence suit after the one year anniversary of the stipulation of dismissal.
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. No assurance
can be given that Ormco will not bring another action against us or, that if
brought, it will not be successful. If successful, it could result in
significant monetary damages or other penalties against us. 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.
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
8
<PAGE>
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 any other litigation or
interference proceedings to which we may become a party could subject us to
significant liabilities to Ormco or any other person who brings such an action,
could put our patents at risk of being invalidated or interpreted narrowly or
require us to seek licenses from third parties which may not be available on
commercially reasonable terms or at all.
We have limited experience in manufacturing our products and if we encounter
manufacturing problems or delays, our ability to generate revenue will be
limited.
We have manufactured a limited number of our products to date. Our
manufacturing processes rely on complex three-dimensional scanning, geometrical
manipulation and modeling technologies that have historically not been used on
the scale we require. Each item that we manufacture is geometrically unique and
we have not manufactured our products in the commercial volumes which will be
required to make us profitable. Accordingly, we may be unable to establish or
maintain reliable, high-volume manufacturing capacity. Even if this capacity
can be established and maintained, the cost of doing so may increase the cost
of our products. We may encounter difficulties in scaling up production to meet
demand, including:
. problems involving production yields;
. shortages of key manufacturing equipment;
. shortages of qualified personnel, in particular dental and orthodontic
personnel;
. failure to develop new software processes; and
. compliance with applicable Quality System regulations enforced by the
Food and Drug Administration, or FDA.
Our manufacturing process is complex. Since all our products are designed
for individual patients, we manufacture our products to fill purchase orders
rather than maintaining inventories of assembled products. If demand for our
products exceeds our manufacturing capacity, we could develop a substantial
backlog of customer orders. If we are unable to establish and maintain larger-
scale manufacturing capabilities, our ability to generate revenue will be
limited and our reputation in the marketplace would be damaged.
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
9
<PAGE>
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 dependent on our international manufacturing operations, which exposes
us to foreign operational and political 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 manufacturing facilities in
Pakistan to create virtual treatment plans with the assistance of sophisticated
software. We employ approximately 550 people in Lahore, Pakistan in this
effort. We anticipate that we will need to expand our personnel and facilities
in Pakistan in order to scale our manufacturing operations. 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:
. difficulties in staffing and managing international operations;
. controlling quality of manufacture;
. political, social and economic instability;
. interruptions and limitations in telecommunication services;
. product or material transportation delays or disruption;
. trade restrictions and changes in tariffs;
. import and export license requirements and restrictions;
. fluctuations in currency exchange rates; and
. potential adverse tax consequences.
If any of these risks materialize, our operating results 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 50 employees as of June 30, 1999 to approximately 910 employees
as of September 30, 2000. In mid-2000, we approved major expansions to our
existing facilities and the building of new facilities. 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
10
<PAGE>
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 our Invisalign System. However, manufacturers of
traditional braces, such as 3M Company, Sybron International Corporation 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 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:
. product design, development, manufacture and testing;
. product labeling;
. product storage;
. premarket clearance or approval;
. advertising and promotion; and
. product sales and distribution.
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 premarket 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
11
<PAGE>
to obtain the necessary clearances for new devices that we market in the
future. Please see "Business--Government Regulation" for a more detailed
discussion of the regulations that govern our industry.
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:
. storage, transmission and disclosure of medical information and
healthcare records;
. prohibitions against the offer, payment or receipt of remuneration to
induce referrals to entities providing healthcare services or goods; and
. the marketing and advertising of our products.
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. See "Business--Government Regulation."
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.
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.
We may be unable to raise additional capital if it should be necessary which
could harm our ability to compete.
We expect to expend significant capital to establish a national brand, build
manufacturing infrastructure and develop both product and process technology.
These initiatives may require us to raise additional capital over the next few
years. We believe that the proceeds from this offering and the capital that we
have already raised should be sufficient to fund our operations for at least
the next 12 months. However, we may consume available resources more rapidly
than anticipated and we may not be able to raise additional funds when needed,
or on acceptable terms.
12
<PAGE>
Risks Related to This Offering
The market price for our common stock may be highly volatile, and you may not
be able to resell your shares at or above the initial public offering price.
Before this offering, there has not been a public market for our common
stock. An active trading market for our common stock may not develop following
this offering. You may not be able to sell your shares quickly or at the market
price if trading in our stock is not active. Further, the market price of our
common stock may decline below the price you paid for your shares. The initial
public offering price for the shares will be determined by negotiations between
us and the representatives of the underwriters and may not be indicative of
prices that will prevail in the trading market. Please see "Underwriting" for
more information regarding our arrangement with the underwriters and the
factors considered in setting the initial public offering price.
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:
. quarterly variations in our results of operations;
. changes in recommendations by the investment community or in their
estimates of our revenues or operating results;
. speculation in the press or investment community;
. strategic actions by our competitors, such as product announcements or
acquisitions; and
. general market conditions.
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.
The large number of shares eligible for public sale after this offering could
cause our stock price to decline.
The market price of our stock could decline as a result of sales by our
existing stockholders of a large number of shares of our stock in the market
after this offering or the perception that these sales could occur. These sales
also might make it more difficult for us to sell equity securities in the
future at a time and at a price that we deem appropriate. Please see "Shares
Eligible for Future Sale" for a description of sales that may occur in the
future.
Anti-takeover provisions in our charter documents and under Delaware law may
make an acquisition of us more difficult.
Provisions of our certificate of incorporation and bylaws could make it more
difficult for a third party to acquire us, even if doing so would be beneficial
to our stockholders. These provisions:
. prevent stockholders from taking action by written consent;
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<PAGE>
. limit the persons who may call special meetings of stockholders;
. authorize the issuance of preferred stock in one or more series; and
. require advance notice for stockholder proposals and director
nominations.
In addition, Section 203 of the Delaware General Corporation Law also
imposes restrictions on mergers and other business combinations between us and
any holder of 15% or more of our common stock. Please see "Description of
Capital Stock--Preferred Stock" and "Description of Capital Stock--Antitakeover
Effects of Provisions of the Certificate of Incorporation, Bylaws and Delaware
Law" for a more detailed discussion of these anti-takeover provisions.
Concentrations of ownership and agreements among our existing executive
officers, directors and principal stockholders may prevent new investors from
influencing significant corporate transactions.
The interest of management could conflict with the interest of our other
stockholders. Upon completion of this offering, our executive officers,
directors and principal stockholders will beneficially own, in total, % of
our outstanding common stock. As a result, these stockholders will be able to
exercise control over 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 Align,
which in turn could reduce the market price of our stock.
New investors in our common stock will experience immediate and substantial
dilution.
The offering price of our common stock will be substantially higher than the
net tangible book value per share of our existing capital stock. As a result,
if you purchase common stock in this offering, you will incur immediate and
substantial dilution of $ in net tangible book value per share of common
stock, based on as assumed public offering price of $ per share. You will
also experience additional dilution upon the exercise of outstanding stock
options and warrants. Please see "Dilution" for a more detailed discussion of
the dilution new investors will incur in this offering.
14
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
We make many statements in the prospectus under the captions Summary, Risk
Factors, Management's Discussion and Analysis of Financial Condition and
Results of Operations, Business and elsewhere that are forward-looking and are
not based on historical facts. These statements relate to our future plans,
objectives, expectations and intentions. We may identify these statements by
the use of words such as believe, expect, will, anticipate, intend and plan and
similar expressions. These forward-looking statements involve a number of risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including those we discuss in Risk Factors and elsewhere in this prospectus.
These forward-looking statements speak only as of the date of this prospectus,
and we caution you not to rely on these statements without considering the
risks and uncertainties associated with these statements and our business that
are addressed in this prospectus.
Given these uncertainties, you should not place undue reliance on such
forward-looking statements. We are not under any duty to update any of the
forward-looking statements after the date of this prospectus to conform these
statements to actual results except as required by law.
Information regarding market and industry statistics contained in the
Summary and Business sections is included based on information available to us
that we believe is accurate. It is generally based on academic and other
publications that are not produced for purposes of securities offerings or
economic analysis. We have not reviewed or included data from all sources and
cannot assure you of the accuracy of the data we have included.
15
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of shares of common stock we are
offering are estimated to be $ million ($ million if the underwriters'
over-allotment option is exercised in full) assuming an initial public offering
price of $ per share and after deducting the underwriting discounts and
commissions and our estimated offering expenses.
We currently intend to use the net proceeds of this offering, along with our
existing cash balances, primarily to expand our manufacturing capacity, to fund
our national advertising campaign and other sales and marketing activities, to
continue to develop our product and manufacturing process technology, to fund
working capital and for general corporate purposes. As of the date of this
prospectus, we have not allocated any specific amount of the proceeds for the
purposes listed in this paragraph. A portion of the net proceeds may also be
used to acquire or invest in complementary businesses, technologies, product
lines or products. Pending our use of the proceeds, the net proceeds of this
offering will be invested in short term, interest-bearing, investment-grade
securities.
DIVIDEND POLICY
Payments of future dividends, if any, will be at the discretion of our board
of directors after taking into account various factors our board of directors
deems relevant, including our financial condition, operating results, current
and anticipated cash needs, plans for expansion and debt covenants. We have
never declared or paid any cash dividends on shares of our capital stock and do
not intend to do so at any time in the foreseeable future.
16
<PAGE>
CAPITALIZATION
The following table sets forth the following information:
. our actual capitalization as of September 30, 2000;
. our pro forma capitalization, which gives effect to the sale of 718,355
shares of Series D preferred stock in October 2000 at an offering price
of $21.25 per share, after deducting estimated offering expenses of
$53,000, and the conversion of all outstanding shares of preferred
stock, including the 718,355 shares of Series D preferred stock issued
in October 2000, into 12,990,503 shares of common stock upon completion
of this offering; and
. our pro forma as adjusted capitalization to reflect the sale of
shares of common stock at an assumed initial public offering price of
$ per share in this offering, less the underwriting discounts and
commissions and estimated offering expenses.
<TABLE>
<CAPTION>
As of September 30, 2000
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(in thousands)
<S> <C> <C> <C>
Long term obligations, net of current portion.. $ 1,569 $ 1,569 $
-------- -------- -------
Convertible preferred stock, $0.0001 par value;
13,605,427 shares authorized, actual and pro
forma; 5,000,000 shares authorized, pro forma
as adjusted; 12,175,512 shares issued and
outstanding, actual; and no shares outstanding
pro forma and pro forma as adjusted........... 113,890 --
-------- -------- -------
Preferred stock warrants....................... 1,818 --
-------- -------- -------
Stockholders' equity (deficit):
Common stock, $0.0001 par value; 60,000,000
shares authorized; 3,594,196 shares issued and
outstanding, actual; 16,584,699 shares issued
and outstanding, pro forma; shares issued
and outstanding, pro forma as adjusted........ -- 2
Additional paid-in capital..................... 91,926 222,844
Deferred stock-based compensation.............. (74,847) (74,847)
Accumulated deficit............................ (73,165) (73,165)
-------- -------- -------
Total stockholders' equity (deficit)........... (56,086) 74,834
-------- -------- -------
Total capitalization........................... $ 61,191 $ 76,403 $
======== ======== =======
</TABLE>
The number of shares of common stock referenced above excludes as of
September 30, 2000:
. 2,155,998 shares of common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $1.59 per
share;
. 322,917 shares of common stock issuable upon the exercise of outstanding
warrants to purchase preferred stock, or common stock upon the
completion of this offering at a weighted average exercise price of
$3.87 per share;
. 1,177,621 shares of common stock available for grant under our 1997
Equity Incentive Plan;
. 2,700,000 shares of common stock reserved for issuance under our 2001
Stock Incentive Plan; and
. 500,000 shares of common stock to be reserved for issuance under our
Employee Stock Purchase Plan upon completion of the offering.
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<PAGE>
DILUTION
Our net tangible book value of the common stock as of September 30, 2000 was
approximately $59.6 million, or approximately $ per share of common stock
assuming conversion of all outstanding preferred stock into an aggregate of
12,257,309 shares of common stock upon completion of the offering. Our net
tangible book value per share has been determined by dividing net tangible book
value (total tangible assets less total liabilities) by the pro forma number of
shares of common stock outstanding at September 30, 2000.
After giving effect to the sale of shares of common stock in this
offering at an assumed price of $ per share and after deduction of the
underwriting discount and estimated offering expenses, our net tangible book
value after the offering would have been approximately $ million, or
$ per share. The offering will result in an increase in net tangible book
value of $ per share to existing investors and an immediate dilution of
$ per share to new investors, or approximately % of the assumed
offering price of $ per share.
Pro forma net tangible book value dilution per share represents the
incremental dilutive effect of the sale of 718,355 shares of Series D preferred
stock which convert into 733,194 shares of common stock at an offering price of
$21.25 per share, after deducting estimated offering expenses of $53,000. These
shares convert into 733,194 shares of common stock as a result of an
antidilution conversion feature of our Series D preferred stock offering. See
"Certain Transactions." The following table illustrates this calculation of per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $
Net tangible book value per share as of September 30, 2000...... $3.78
Increase per share attributable to new investors................
-----
Net tangible book value per share after this offering............
----
Dilution per share to new investors..............................
Incremental dilution occurring upon sale of Series D preferred
stock...........................................................
----
Pro forma dilution per share to new investors.................... $
====
</TABLE>
The following table summarizes, on the pro forma basis described above, the
differences between the number of shares of common stock issued by us, the
total consideration paid and the average price per share paid by the existing
stockholders and by new investors, before deducting underwriting discounts and
commissions and estimated offering expenses, at an assumed initial public
offering price of $ per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ -------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 16,584,699 % $129,093,000 % $7.78
New investors...........
---------- --- ------------ ---
Total.................. 100% $ 100%
========== === ============ ===
</TABLE>
These tables do not assume exercise of stock options and warrants
outstanding as of September 30, 2000. As of September 30, 2000, there were
2,155,998 shares of common stock issuable upon exercise of outstanding stock
options at a weighted average exercise price of $1.59 per share and 322,917
shares of common stock issuable upon exercise of outstanding warrants at a
weighted average exercise price of $3.87 per share. There are 2,700,000 shares
of common stock reserved for issuance under our 2001 Stock Incentive Plan.
There will be 500,000 shares of common stock reserved for issuance under our
Employee Stock Purchase Plan upon completion of the offering. Giving effect to
the exercise of the options and warrants outstanding and exercisable as of
September 30, 2000, the pro forma net tangible book value per share would be
$ and the dilution per share to the new investors would be $ .
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
You should read the following selected consolidated financial data in
conjunction with the Consolidated Financial Statements and related Notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement
of operations data for the period from April 3, 1997 (date of inception) to
December 31, 1997 and for each of the two years in the period ended December
31, 1999, and the balance sheet at December 31, 1998 and 1999, are derived from
the audited consolidated financial statements included elsewhere in this
prospectus. The consolidated balance sheet data at December 31, 1997 is derived
from audited consolidated financial statements not included in this prospectus.
The selected consolidated results of operations for the nine months ended
September 30, 1999 and 2000 and the selected consolidated balance sheet data as
of September 30, 2000 are derived from unaudited financial statements included
in this prospectus. In the opinion of management, the unaudited consolidated
financial statements include all adjustments, consisting principally of normal
recurring adjustments, necessary for a fiscal presentation of the results of
operations for the periods. Our historical results are not necessarily
indicative of results to be expected for future periods. See the Notes to our
Consolidated Financial Statements for a detailed explanation of the
determination of the shares used to compute basic and diluted net loss per
share.
<TABLE>
<CAPTION>
Period
from
Inception
(April 3, Year Ended Nine Months Ended
1997) to Dec. 31, Sept. 30,
Dec. 31, ----------------- ------------------
1997 1998 1999 1999 2000
--------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue...................... $ -- $ -- $ 411 $ 77 $ 3,236
Cost of revenue.............. -- -- 1,754 357 11,313
------ ------- -------- ------- --------
Gross loss................... -- -- (1,343) (280) (8,077)
------ ------- -------- ------- --------
Operating expenses:
Sales and marketing......... 283 133 5,688 2,726 19,664
General and administrative.. -- 2,344 3,474 2,000 12,349
Research and development.... 405 1,474 4,200 3,068 5,904
------ ------- -------- ------- --------
Total operating expenses.... 688 3,951 13,362 7,794 37,917
------ ------- -------- ------- --------
Loss from operations......... (688) (3,951) (14,705) (8,074) (45,994)
Interest and other income
(expense), net.............. 24 176 (710) (499) (7,317)
------ ------- -------- ------- --------
Net loss..................... (664) (3,775) (15,415) (8,573) (53,311)
Dividend related to
beneficial conversion
feature of preferred stock.. -- -- -- -- (44,150)
------ ------- -------- ------- --------
Net loss available to common
stockholders................ $ (664) $(3,775) $(15,415) $(8,573) $(97,461)
====== ======= ======== ======= ========
Net loss per share available
to common stockholders,
basic and diluted........... $(0.86) $ (2.66) $ (7.31) $ (4.22) $ (35.87)
====== ======= ======== ======= ========
Shares used in computing net
loss per share available to
common stockholders, basic
and diluted................. 771 1,421 2,109 2,030 2,717
====== ======= ======== ======= ========
<CAPTION>
Dec. 31,
--------------------------- Sept. 30,
1997 1998 1999 2000
--------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
marketable securities....... $1,506 $ 6,923 $ 12,085 $ 37,867
Working capital.............. 1,370 6,815 10,027 47,758
Total assets................. 1,642 8,117 17,091 75,567
Total long term obligations.. 4 10 3 1,569
Convertible preferred stock
and warrants................ 2,164 12,147 32,755 115,708
Total stockholders' deficit.. (661) (4,433) (19,414) (56,086)
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results
of operations should be read together with "Selected Consolidated Financial
Data" and our financial statements and related notes appearing elsewhere in
this prospectus. This discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. The actual
results may differ materially from those anticipated in these forward-looking
statements as a result of many factors, including but not limited to those set
forth under "Risk Factors" and elsewhere in this prospectus.
Overview
From inception in April 1997 to July 2000, we were engaged in the design,
manufacture and marketing of the Invisalign System, a proprietary new System
for treating malocclusion, or the misalignment of teeth. In July 1999, we
commenced commercial sales of our Invisalign System. Prior to July 1999, we
devoted nearly all our resources to developing our software and manufacturing
processes, clinical trials of the Invisalign System and to building our sales
force, customer support and management teams. We exited the development stage
in July 2000.
The Invisalign System has two components: ClinCheck and Aligners. ClinCheck
is an Internet-based application that allows orthodontists 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 an orthodontist using ClinCheck.
In the third quarter of 1999, we recognized revenue for the first time from
the sale of the Invisalign System and related dental impression machines
manufactured by ESPE America, Inc. We expect to sell dental impression machines
only once. Accordingly, sales of such machines are expected to represent a
lower proportion of our revenue in the future. Substantially all our revenue is
generated in the U.S. and Canada, which, taken together, we regard as our
domestic market.
We incurred net losses of $664,000 in 1997, $3.8 million in 1998 and $15.4
million in 1999. For the nine months ended September 30, 2000, we incurred a
net loss of $53.3 million compared to a net loss of $8.6 million for the nine
months ended September 30, 1999. As of September 30, 2000, we had an
accumulated net deficit of $73.2 million. We expect to continue to incur losses
for the foreseeable future, in part, due to our national advertising campaign,
the expansion of manufacturing capacity and continued research and development
efforts.
We earn revenue primarily from the sale of our Invisalign System. Our
revenue consists of the ClinCheck fee and the charge for each Aligner. We
charge orthodontists a fixed fee for the treatment simulation viewed via
ClinCheck on our website, Invisalign.com. This fee is invoiced when the
orthodontist orders ClinCheck prior to the production of Aligners. In addition,
we charge orthodontists a fee for Aligners as we ship them. Fees from the sale
of ClinCheck and Aligners, taken together, are treated as revenue from a single
System and are recognized ratably as batches of Aligners are shipped to the
orthodontist.
To date, we have shipped Aligners in batches. The first batch, which
typically represents the first several months of treatment, is produced once
the prescribing orthodontist approves ClinCheck. Thereafter, Aligners are sent
at approximately six month intervals until treatment is complete.
20
<PAGE>
The costs of producing the ClinCheck treatment plan, which are incurred
prior to the production of Aligners, are capitalized and recognized as related
revenue is earned. In the cases where we expect a loss on the contract, the
entire loss is recognized immediately and the remaining costs are deferred and
recognized ratably as batches of Aligners are shipped to the orthodontist.
We are in the process of changing the pattern of Aligner shipments. We
intend to ship all the Aligners associated with a given case in a single batch
beginning in early 2001. When this happens, all the revenue associated with a
given case, including ClinCheck fees, will be recognized at the time the
Aligners are shipped.
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' deficit. Deferred stock 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 $394,000 for the year ended
December 31, 1999 and $7.9 million for the nine months ended September 30,
2000.
Results of Operations
Nine Months Ended September 30, 1999 and 2000
Revenue. We recorded revenue for the first time in the third quarter of
1999. For the nine months ended September 30, 1999, we recorded revenue of
$77,000. Almost all our revenue in this period related to the sale to
orthodontists of dental impression machines. In the nine months ended September
30, 2000, we recorded revenue of $3.2 million, of which approximately
$2.3 million was derived from the sale of Invisalign System products. The
balance of our revenue for the nine month period ended September 30, 2000
represented sales of dental impression machines. We expect to sell a dental
impression machine to an orthodontist only once. Accordingly, sales of these
machines are expected to represent a substantially lower proportion of our
revenue in the future.
Cost of revenue. Cost of revenue includes the salaries of staff involved in
production, the cost of materials and packaging used in production and shipping
together with an allocation of the cost of facilities and depreciation on the
capital equipment used in the production process. We reported cost of revenue
of $357,000 for the nine months ended September 30, 1999. For the nine months
ended September 30, 2000, we reported cost of revenue of $11.3 million, which
includes start-up manufacturing costs and reflects a substantial increase in
the scale of our manufacturing operations.
Sales and marketing. Sales and marketing expenses include sales force
compensation together with the expense of professional marketing, principally,
conducting training workshops and market surveys, advertising and attending
orthodontic trade shows. Sales and marketing expenses increased from $2.7
million for the nine months ended September 30, 1999 to $19.7 million for the
nine months ended September 30, 2000. This increase resulted from a substantial
increase in doctor training, our participation in the annual convention of the
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American Association of Orthodontists in April and May, 2000 and the launch of
our national advertising campaign in September 2000.
General and administrative. General and administrative expenses include
costs for the compensation of administrative personnel, outside consulting
services, facilities, legal expenses and general corporate expenses. General
and administrative expenses increased from $2.0 million for the nine months
ended September 30, 1999 to $12.3 million for the nine months ended September
30, 2000, primarily due to increased personnel cost. We expect administrative
expenses to continue to increase in the future to support expanding business
activities and the additional administrative costs related to being a public
company.
Research and development. 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. Research and development is expensed as incurred. Research and
development expenses increased from $3.1 million for the nine months ended
September 30, 1999 to $5.9 million for the nine months ended September 30,
2000. The expenses incurred in the 1999 period included the costs of
researching processes to manufacture our product. Starting in the third quarter
of 1999, we transitioned from recording manufacturing process research as
research and development expense to recognizing it as cost of sales.
Interest and other income (expense), net. Net interest and other expense
increased from $499,000 for the nine months ended September 30, 1999 to $7.3
million for the nine months ended September 30, 2000. This increase resulted
primarily from non-cash interest expense related to the beneficial conversion
feature of a bridge loan financing.
Dividend related to beneficial conversion feature of preferred stock. In the
three months ended June 30, 2000, we issued 4,048,836 shares of Series D
preferred stock. The difference between the conversion price and the fair
market value per share of the common stock on the transaction date resulted in
a beneficial conversion feature of $44.2 million which has been reflected as a
preferred stock dividend in the September 30, 2000 consolidated interim
financial statements.
Period from April 3, 1997 (date of inception) to December 31, 1997, and the
Years Ended December 31, 1998 and 1999
Revenue. Revenue was recorded for the first time in 1999. For the year ended
December 31, 1999, we recorded $411,000 in revenue from sales of the Invisalign
System and related ancillary products. Approximately $98,000 was derived from
the sale of the Invisalign System products. The balance of our revenue, or
$313,000, represented sales to orthodontists of dental impression machines.
Cost of revenue. No cost of revenue was incurred in 1997 and 1998. We
incurred cost of revenue of $1.8 million relating to the manufacture of
products sold for the year ended December 31, 1999.
Sales and marketing. Sales and marketing expenses in 1997 and 1998 were
insignificant because we had not launched our product commercially. Sales and
marketing expenses decreased from $283,000 in 1997 to $133,000 in 1998 and
increased to $5.7 million in 1999, reflecting the hiring of our sales force,
the training of doctors to support our commercial launch and the testing of
direct advertising in two markets.
General and administrative. General and administrative expenses increased
from none in 1997 and $2.3 million in 1998 to $3.5 million in 1999, reflecting
the growth in our
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administrative staff, rent on our facilities and other general expenses as we
prepared for commercial launch of the Invisalign System.
Research and development. Research and development expenses increased from
$405,000 in 1997 to $1.5 million in 1998, reflecting the commencement of
clinical trials of the Invisalign System and the development of software and
processes for the manufacture of the Invisalign System. In 1999, research and
development expenses increased to $4.2 million, reflecting the development of
manufacturing processes and continuation of our clinical trials.
Interest and other income (expense), net. Net interest and other income
increased from a negligible amount in 1997 to $176,000 in 1998 due to interest
income earned on higher average cash balances, resulting from the sale of
preferred stock in July 1998. In 1999, net interest expense was $710,000 due to
non-cash interest expense created by the amortization of warrants issued in
connection with a line of credit.
Income Taxes
We have not incurred any income tax expense to date since we have not been
profitable. As of December 31, 1999, we had federal net operating loss
carryforwards of $10.5 million. As of December 31, 1999, we had recorded a full
valuation allowance for our existing net deferred tax assets due to
uncertainties regarding their realization. We also have federal research tax
credit carryforwards of $606,000 as of December 31, 1999. The federal net
operating loss and credit carryforwards expire beginning in the year 2017 if
not utilized. Utilization of the federal net operating losses and credit
carryforwards may be limited by the change of ownership provisions contained in
Section 382 of the Internal Revenue Code.
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
September 30, 2000, we had $37.9 million in cash, cash equivalents and
marketable securities and an accumulated deficit of $73.2 million. Our
equipment lease line was repaid in July 2000.
Net cash used in operating activities totaled $522,000 in 1997, $3.8 million
in 1998 and $11.6 million in 1999. For the nine months ended September 30,
2000, net cash used in operations totaled $31.2 million compared to $6.8
million for the nine months ended September 30, 1999. In each of these periods
net cash used by operating activities consisted primarily of net operating
losses, partially offset by increases in accounts payable, depreciation and
amortization of deferred stock compensation.
Net cash used in investing activities totaled $1.6 million in 1997, $3.8
million in 1998 and $3.6 million in 1999. For the nine months ended September
30, 2000, net cash used in investing activities totaled $24.3 million compared
to net cash provided by investing activities of $1.8 million for the nine
months ended September 30, 1999. In each of these periods, net cash used in
investing activities consisted primarily of purchases of property and equipment
and marketable securities offset by sales and maturities of marketable
securities. For the nine months ended September 30, 2000, there was a
substantial increase in restricted cash related to the transfer of funds to our
media buying agent to fund our national advertising campaign.
Net cash from financing activities was $2.2 million in 1997, $10.0 million
in 1998 and $19.6 million in 1999. For the nine months ended September 30,
2000, net cash from financing activities totaled $82.6 million compared to
$17.9 million for the nine months ended September 30, 1999. In May 2000, we
sold $14.0 million of convertible promissory notes to
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preferred stockholders. In May and June 2000, we sold $72.0 million of
preferred stock to investors. Also in May 2000, the convertible promissory
notes were converted to preferred stock. In October 2000, we sold an additional
$15.3 million of preferred stock.
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, the launch of our national advertising
campaign, continuing efforts to expand our manufacturing capacity, research and
development and other costs. We are in the process of changing the pattern of
Aligner shipments, which will have a negligible effect on our cash flows. In
addition, we may use cash to fund acquisitions of complementary businesses or
technologies. We believe the net proceeds from this offering will be sufficient
to meet our operating, working capital and capital expenditure requirements for
at least the next 12 months.
Quantitative and Qualitative Disclosures about Market Risk
Our exposure to market risk is currently confined to our cash and cash
equivalents that have maturities of less than three months. We currently do not
hedge interest rate exposure. Because of the short-term maturities of our cash
and cash equivalents and marketable securities, we do not believe that an
increase in market rates would have any significant negative impact on the
realized value of our investments.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes new standards of accounting and reporting for derivative
instruments and hedging activities. SFAS No. 133 requires that all derivative
instruments be recognized at fair value in the statement of financial position,
and that the corresponding gains and losses be reported either in the statement
of operations or as a component of comprehensive income, depending on the type
of relationship that exists. We have not engaged in significant hedging
activities or invested in derivative instruments. In July 1999, the Financial
Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133." SFAS No. 137 deferred the effective date of SFAS No. 133
until fiscal years beginning after June 15, 2000.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation--an Interpretation of APB
25." This interpretation clarifies (1) the definition of employee for purposes
of applying Opinion 25, (2) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (3) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (4)
the accounting for an exchange of stock compensation awards in a business
combination. This interpretation is effective July 1, 2000, but certain
conclusions in this interpretation cover specific events that occur after
either December 15, 1998 or January 12, 2000. To the extent that this
interpretation covers events occurring during the period after December 15,
1998 or January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying this interpretation are recognized on a prospective basis
from July 1, 2000. The adoption of FIN 44 did not have a material impact on our
financial statements.
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BUSINESS
Overview
We design, manufacture and market the Invisalign System, a proprietary new
method for treating malocclusion, or the misalignment of teeth. The System
corrects malocclusion using a series of clear, removable appliances that gently
move teeth to a desired final position. Because it does not rely on the use of
metal or ceramic brackets and wires, the System significantly reduces the
aesthetic and other limitations associated with braces. The Invisalign System
also offers orthodontists a new means of carrying out their diagnosis and
treatment planning processes. We believe the Invisalign System has the
potential to transform the traditional practice of orthodontics by appealing to
people who would not otherwise seek treatment.
In the U.S. alone, over 200 million individuals have some form of
malocclusion. Each year, less than one percent of these individuals, or
approximately two million Americans, enter orthodontic treatment, spending
approximately $7 billion in aggregate. We believe the Invisalign System is a
compelling treatment alternative for most of the patients who would seek
traditional orthodontic treatment. In addition, given the significant benefits
of our System, we have the opportunity to expand the U.S. orthodontic market by
addressing the needs of millions of individuals who would not otherwise seek
treatment. Further, we believe the international opportunity is larger than the
U.S. opportunity.
We received FDA clearance to market the Invisalign System in 1998 and
started commercial sales of the System in July 1999. Our 510(k) clearance from
the FDA allows us to market the Invisalign System to treat patients with any
type of malocclusion. We voluntarily restrict the use of the Invisalign System
to adults and adolescents with mature dentition and who are otherwise suitable
for treatment, a group that represents approximately 130 million people in the
U.S. Currently, we do not treat children whose teeth and jaws are still
developing, as the effectiveness of the Invisalign System relies on our ability
to accurately predict the movement of teeth over the course of treatment. Based
on our clinical studies to date, we recommend that orthodontists use the
Invisalign System as a complete treatment for mild and moderate malocclusions
and as a component of treatment for unusually severe malocclusions.
As of October 2000, we had trained more than 5,300 orthodontists to use the
Invisalign System, representing over 60% of all U.S. and Canadian
orthodontists. To date, over 7,600 patients have commenced treatment with the
Invisalign System, including more than 1,000 patients in September 2000.
Our objective is to establish the Invisalign System as the standard method
for treating orthodontic malocclusion. Our sales and marketing efforts focus on
educating both consumers and orthodontists on the significant benefits of the
System. We continue to train orthodontists and work with them to increase the
use of the Invisalign System within their practices. We recently initiated a
national advertising campaign to create awareness of the Invisalign System as a
treatment alternative and to stimulate demand for treatment with the System.
Industry Background
Malocclusion
Malocclusion is one of the most prevalent clinical conditions, affecting
over 200 million individuals, or approximately 75% of the U.S. population.
Approximately two million people annually elect orthodontic treatment in the
U.S., generating industry revenues of approximately
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$7 billion. While most individuals seek orthodontic treatment to improve their
appearance, malocclusion may also be responsible for dental problems such as
tooth decay, tooth loss, gum disease, jaw joint pain and headaches. Only a
relatively small proportion of people with malocclusion seek treatment because
of the compromised aesthetics, discomfort and other drawbacks associated with
conventional orthodontic treatments.
Traditional Orthodontic Treatment
Orthodontists apply traditional techniques and principles of treatment
developed in the early 20th century. In the U.S., orthodontists treat
malocclusion primarily with metal archwires and brackets, commonly referred to
as braces. Occasionally, in an attempt to improve treatment aesthetics,
orthodontists use ceramic, tooth-colored brackets or bond brackets on the
inside, or lingual surfaces, of the patient's teeth. Orthodontists also augment
braces with elastics, metal bands, headgear and other ancillary devices.
The average treatment takes approximately two years to complete and requires
several hours of direct orthodontist involvement, or chair time. To initiate
treatment, an orthodontist will diagnose a patient's condition and create an
appropriate treatment plan. In a subsequent visit, the orthodontist will bond
brackets to the patient's teeth with cement and attach an archwire to the
brackets. Thereafter, by tightening or otherwise adjusting the braces
approximately every six weeks, the orthodontist is able to exert sufficient
force on the patient's teeth to achieve desired tooth movement. Because of the
length of time between visits, the orthodontist must tighten the braces to a
degree sufficient to achieve sustained tooth movement during the interval. In a
final visit, the orthodontist removes each bracket and residual cement from the
patient's teeth.
Fees for orthodontic treatment typically range between $3,000 to $5,000 and
are generally not reimbursed by insurance. In addition, orthodontists commonly
charge a premium for lingual or ceramic alternatives. Fees are based on the
difficulty of the particular case and on the orthodontist's estimate of chair
time and are generally negotiated in advance. A treatment that exceeds the
orthodontist's estimate of chair time generally results in decreased fees per
hour of chair time, or reduced profitability for the orthodontist.
Limitations of Traditional Orthodontic Treatment
Although braces are generally effective in correcting a wide range of
malocclusions, they are subject to many limitations and disadvantages.
Conventional orthodontic treatment is associated with:
. Unattractive appearance. Braces call attention to the patient's
condition and treatment. In addition, braces trap food, which can
further compromise appearance. Braces can also result in permanent
discoloration of teeth. Many adults associate braces with adolescence.
As a result of these and other limitations, less than one half of one
percent of American adults with malocclusion elect orthodontic treatment
annually.
. Oral discomfort. Braces are sharp and bulky and can abrade and irritate
the interior surfaces of the mouth. The tightening or adjustment of
braces results in root and gum soreness and discomfort, especially in
the days after an orthodontic visit.
. Poor oral hygiene. Braces compromise oral hygiene by making it more
difficult to brush and floss. These problems can result in tooth decay
and periodontal damage. Additionally, the bonding of brackets to teeth
can cause permanent markings on the teeth.
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. Inability to project treatment. Historically, orthodontists have not had
a means to model the movement of teeth over a course of treatment.
Accordingly, orthodontists must rely on intuition and judgment to plan
and project treatment. As a result, they cannot be precise about the
direction or distance of expected tooth movement between patient visits.
This lack of predictability may result in unwanted tooth movements and
can limit the orthodontist's ability to estimate the duration of
treatment. Because most orthodontic treatment is performed on a fixed
price basis, extended treatment duration reduces profitability for the
orthodontist.
. Physical demands on orthodontists. The manipulation of wires and
brackets requires sustained manual dexterity and visual acuity, and may
place other physical burdens on the orthodontist.
. Root resorption. The sustained high levels of force associated with
conventional treatment can result in root resorption, a shortening of
tooth roots. This shortening can have substantial adverse periodontal
consequences for the patient.
. Emergencies. At times, braces need to be repaired or replaced on an
emergency basis. Such emergencies cause significant inconvenience to
both the patient and the orthodontist.
Due to the poor aesthetics, discomfort and other limitations of braces,
relatively few people with malocclusion elect orthodontic treatment.
Accordingly, we believe there is a large unmet need for an orthodontic system
that addresses these patient concerns. We also believe there is an unmet need
among orthodontists for a treatment system that increases the predictability
and efficiency of treatment and enhances practice profitability.
The Align Solution
Our Invisalign System is a proprietary new system for treating malocclusion.
The Invisalign System consists of two components: ClinCheck and Aligners.
ClinCheck. ClinCheck is an interactive Internet application that allows
orthodontists to diagnose and plan treatment for their patients. We use a
dental impression and a treatment prescription submitted by an orthodontist to
develop a customized, three-dimensional treatment plan that simulates
appropriate tooth movement in a series of two-week increments. ClinCheck allows
the orthodontist to view this three-dimensional simulation with a high degree
of magnification and from any angle. Accordingly, ClinCheck enables the
orthodontist to project tooth movement with a level of accuracy not previously
possible.
Upon review of the ClinCheck simulation, the orthodontist may immediately
approve our projected treatment, or may provide us with feedback for
modification. We reflect any requested adjustments in a modified simulation.
Upon the orthodontist's approval of the ClinCheck simulation, we use the data
underlying the simulation to manufacture the patient's Aligners.
Aligners. Aligners are custom-manufactured, clear, removable dental
appliances that, when worn in prescribed series, provide orthodontic treatment.
Each Aligner covers a patient's teeth and is nearly invisible when worn.
Aligners are commonly worn in pairs, over the upper and lower dental arches.
Aligners are generally worn for consecutive two-week periods which correspond
to the approved ClinCheck treatment simulation. After two weeks of use, the
patient discards the Aligners and replaces them with the next pair in the
series. This process is repeated until the final Aligners are used and
treatment is complete. In our experience to date, the typical Invisalign System
patient uses 22 sets of Aligners over 44 weeks of treatment.
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Benefits of the Invisalign System
We believe that the Invisalign System provides benefits to patients and
orthodontists that have the potential to establish the System as the preferred
alternative to conventional braces.
Benefits to the Patient
. Excellent aesthetics. Aligners are nearly invisible when worn,
eliminating the aesthetic concerns associated with conventional braces.
. Comfort. By replacing the six-week adjustment cycle of traditional
braces with two-week stages, Aligners move teeth more gently. Also,
Aligners are thin, smooth and low in profile. As a result, Aligners are
substantially more comfortable and less abrasive than conventional
braces.
. Improved oral hygiene. Patients can remove Aligners for tasks that are
difficult with conventional braces, such as eating, brushing and
flossing. We believe this feature has the potential to reduce tooth
decay and periodontal damage during treatment.
. Potentially reduced overall treatment time. Aligners control force by
distributing it broadly over the exposed surfaces of the teeth. In
addition, the ClinCheck simulation from which Aligners are produced is
designed to reduce unintended and unnecessary tooth movements. Together,
these factors may significantly reduce overall treatment time relative
to conventional braces.
. Potentially reduced root resorption. We believe that controlling force
and shortening treatment time has the potential to reduce the incidence
of root resorption.
. Reduced incidence of emergencies. Typically, a lost or broken Aligner is
simply replaced with the next Aligner in series, minimizing
inconvenience to both patient and orthodontist.
We believe that these benefits will prove attractive to people who currently
do not seek treatment because of the limitations of conventional braces.
Benefits to the Orthodontist
. Ability to visualize treatment and likely outcomes. We believe that
ClinCheck is the only product that enables orthodontists to preview a
course of treatment and the likely final outcome of treatment in an
interactive three-dimensional computer model. ClinCheck allows
orthodontists to analyze multiple treatment alternatives before
selecting the alternative they feel is most appropriate for the patient.
. Minimal additional training. The biomechanical principles that underlie
the Invisalign System are consistent with those of traditional
orthodontics. Orthodontists can complete our initial training and
certification program within a day. As of October 2000, we have trained
more than 5,300 U.S. and Canadian orthodontists.
. Ease of use. When treating patients with the Invisalign System,
orthodontists do not spend their time manipulating wires and brackets.
This allows them to spend proportionately more time diagnosing and
interacting with their patients.
. Significantly expanded patient base. We believe the Invisalign System
has the potential to transform the practice of orthodontics. Currently,
less than one percent of the over 200 million people with malocclusion
in the U.S. enter treatment each year. We believe that our System will
allow orthodontists to attract patients who would not otherwise seek
orthodontic treatment.
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. Higher fees. Orthodontists typically charge between $3,000 and $5,000
for a course of conventional treatment. Due to the substantial patient
benefits of the Invisalign System, we believe orthodontists offering our
System have generally been able to command a significant premium. In our
experience, the premiums charged by orthodontists for the Invisalign
System have been comparable to other treatment alternatives that attempt
to improve the aesthetics of conventional braces, such as ceramic and
lingual braces.
. Decreased orthodontist and staff time. The Invisalign System reduces
both the frequency and length of patient visits. The Invisalign System
eliminates the need for time-intensive processes such as bonding
appliances to the patient's teeth, adjusting archwires during the course
of treatment and removing the appliances at the conclusion of treatment.
As such, use of the Invisalign System significantly reduces orthodontist
and staff chair time and can increase practice throughput.
We believe the combination of increased patient volume, higher fees per case
and reduced chair time has the potential to substantially improve orthodontic
practice profitability.
Our Target Market
Commercial sales of our Invisalign System commenced in the U.S. in July
1999. Since then, over 7,600 patients have entered treatment using the
Invisalign System.
Our 510(k) clearance from the FDA allows us to market the Invisalign System
to treat patients with any type of malocclusion. We voluntarily restrict the
use of the Invisalign System to adults and adolescents with mature dentition
and who are otherwise suitable for treatment, a group that represents
approximately 130 million people in the U.S. Currently, we do not treat
children whose teeth and jaws are still developing, as the effectiveness of the
Invisalign System relies on our ability to accurately predict the movement of
teeth over the course of treatment. Based on our clinical studies to date, we
recommend that orthodontists use the Invisalign System as a complete treatment
for mild and moderate malocclusions and as a component of treatment for
unusually severe malocclusions.
Approximately two million patients enter into traditional orthodontic
treatment in the U.S. annually. These patients represent less than one percent
of the population of people with malocclusion. Of these, over 50%, or more than
one million patients, have mature dentition and are therefore natural
candidates for the Invisalign System.
In addition, we believe that we have an immediate and substantial market
expansion opportunity. Our market research indicates that the great majority of
people with malocclusion who desire treatment do not elect traditional
treatment because of its many limitations. We believe that by addressing the
primary limitations of braces, our Invisalign System will encourage this group
to seek treatment. Adults, who are particularly sensitive to the aesthetic
limitations of traditional treatment, represent our most significant market
expansion opportunity.
We are currently focused on the domestic market opportunity but we also
believe that a large international market opportunity exists.
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Business Strategy
Our objective is to establish the Invisalign System as the standard method
for treating orthodontic malocclusion. Key elements of our strategy include the
following:
Educate orthodontists and stimulate demand for Invisalign System
treatment. Our market research indicates that the great majority of people with
malocclusion who desire treatment do not elect traditional treatment because of
its many limitations. By communicating the benefits of the Invisalign System to
both orthodontists and consumers, we intend to significantly increase the
number of patients who seek orthodontic treatment annually. As of October 2000,
we have trained over 5,300 orthodontists in the U.S. and Canada on the use and
benefits of the Invisalign System, and intend to continue training
orthodontists at a rapid pace. We have successfully tested consumer advertising
in two lead markets and recently initiated a national advertising campaign in
order to create awareness of the Invisalign System as a treatment alternative
and to establish the Invisalign brand name.
Communicate practice benefits of the Invisalign System to orthodontists. The
Invisalign System provides substantial financial incentives to orthodontists by
enabling them to increase patient volume, charge a premium price and reduce
chair time per treatment. We intend to continue to emphasize these practice
benefits to orthodontists through our sales and training efforts.
Expand and enhance manufacturing capability. Our manufacturing operations
are designed to produce large numbers of custom Aligners at a high level of
quality. To improve cost efficiency, we conduct labor intensive processes in
relatively low wage countries, including Pakistan and Mexico. We intend to
maintain manufacturing capacity in excess of projected demand to reduce the
risk that manufacturing capacity constrains our ability to grow. Our
proprietary software underlies our manufacturing process. By continually
developing this software and other manufacturing processes, we plan to increase
the level of production automation. Increased automation will enhance
production capacity and reduce both unit costs and production times.
Extend and defend technology leadership. The Invisalign System represents a
significant technological advancement in orthodontics. We believe that our
issued patents, multiple pending patents and other intellectual property
provide a substantial lead over potential competitors. Our issued U.S. patent
is written to broadly cover any algorithmic method of segmenting orthodontic
treatment into a sequence of three or more steps, based on calculated initial
and final representations of a patient's dentition. We continue to pursue
further intellectual property protection through U.S. and foreign patent
applications and non-disclosure agreements. We also seek to protect our
software, documentation and other written materials under trade secret and
copyright laws.
Expand our target patient base. The Invisalign System can provide complete
treatment for those patients with mature dentition and mild or moderate
malocclusion. In addition, we believe that the System can provide partial
treatment of unusually severe malocclusions. In an effort to demonstrate the
System's ability to comprehensively treat such cases, we are undertaking post-
marketing studies and making additional improvements to the product.
Build an international presence. In the near term, we intend to focus our
sales and marketing efforts on the U.S. and Canadian market opportunities.
However, we are developing our strategy for introducing the Invisalign System
in selected international markets. We believe that potential international
demand for the Invisalign System exceeds that of our domestic markets.
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Manufacturing
We produce highly customized, close tolerance, medical quality products in
volume. To do so, we have developed a number of proprietary processes and
technologies. These technologies include complex software solutions, laser,
destructive and white light scanning techniques and stereolithography, wax
modeling and other rapid prototyping methods.
We believe the complexity inherent in producing such highly customized
devices in volume is a barrier to potential competitors. Furthermore, we
believe the sophisticated software we use to guide a custom manufacturing
process on a large scale was not available until we developed it.
Manufacturing is coordinated in Santa Clara, California where, as of
September 2000, we employed a manufacturing staff of approximately 190 people.
In addition, as of September 2000, we employed a software development team
comprising approximately 30 software engineers with backgrounds in
computational geometry, animation, computer-aided design and manufacturing
industries. We also employ approximately 550 software operators and other staff
in our facilities in Lahore, Pakistan, who are responsible for the creation of
treatment simulations. In addition, we outsource the fabrication and packaging
of Aligners to a contract manufacturer based in Juarez, Mexico.
The Invisalign Treatment Process
The Invisalign System treatment process comprises the following five stages:
Orthodontic diagnosis and transmission of treatment data to us. In an
initial patient visit, the orthodontist determines whether the Invisalign
System is an appropriate treatment. The orthodontist then prepares treatment
data which consists of an impression of the relevant dental arches, x-rays of
the patient's dentition, photographs of the patient, a wax bite depicting the
relationship between the patient's upper and lower dental arches and an
Invisalign System treatment planning form, or prescription. The prescription is
a critical component, describing the desired positions and movement of the
patient's teeth. The orthodontist sends the treatment data to our Santa Clara
facility.
Preparation of three-dimensional computer models of the patient's initial
malocclusion. Upon receipt, we use the treatment data to construct plaster
models of the patient's dentition. We scan the plaster models to develop a
digital, three-dimensional computer model of the patient's current dentition.
We then transmit this initial computer model together with the orthodontist's
prescription via the Internet to our facilities in Lahore, Pakistan.
Preparation of computer-simulated treatment and viewing of treatment using
ClinCheck. In Pakistan, we transform this initial model into a customized,
three-dimensional treatment plan that simulates appropriate tooth movement in a
series of two-week increments. This simulation is then transmitted back to our
Santa Clara facility for review. Upon passing review, the simulation is then
delivered to the prescribing orthodontist via ClinCheck on our website at
www.invisalign.com. The orthodontist then reviews the ClinCheck simulation and,
on occasion, asks us to make adjustments. At this point, the orthodontist may
also invite the patient to review ClinCheck, allowing the patient to see the
projected course of treatment. The orthodontist then approves the proposed
treatment and, in doing so, engages us for the manufacture of corresponding
Aligners.
Construction of molds corresponding to each step of treatment. We use the
approved ClinCheck simulation to construct a series of molds of the patient's
teeth. Each mold is a
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replica of the patient's teeth at each two-week stage of the simulated course
of treatment. These molds are fabricated at our Santa Clara facility using
custom manufacturing techniques that we have adapted for use in orthodontic
applications.
Manufacture of Aligners and shipment to orthodontist. We ship these molds to
Juarez, Mexico, where our contract manufacturer fabricates Aligners by pressure
forming polymeric sheets over each mold. The Aligners are then trimmed,
polished, cleaned, packaged and, following final inspection, shipped directly
to the prescribing orthodontist. In certain cases, orthodontists may use the
Invisalign System in conjunction with clear attachments bonded to the patient's
teeth. These attachments are used to increase the force applied to a tooth or
teeth in circumstances where the Aligners alone may have difficulty in
effecting the desired movement.
To date, we have shipped Aligners in batches. The first batch, which
typically represents the first several months of treatment, is produced once
the prescribing orthodontist approves ClinCheck. Thereafter, Aligners are sent
at approximately six month intervals until treatment is complete. We are in the
process of changing the pattern of Aligner shipments. We intend to ship all the
Aligners associated with a given case in a single batch beginning in early
2001.
Throughput Management
Because we manufacture each case on a build-to-order basis, we cannot build
inventories. As a result, we must conservatively build manufacturing throughput
for anticipated demand. To increase throughput, we must improve the efficiency
and increase the scale of our manufacturing processes.
In order to increase the efficiency of our manufacturing processes, we focus
our efforts on software development and the improvement of rate-limiting
processes. Our next generation of software is being developed to enhance
computer analysis of treatment data, reducing time spent for each case on
manual and judgmental tasks, thereby increasing the efficiency of our
technicians in Pakistan. We are also developing an automated system for the
fabrication of Aligners currently conducted in Mexico.
In order to scale our manufacturing capacity, we continue to add labor and
invest in facilities and capital equipment. In particular, we recently expanded
our operations to two facilities in Santa Clara, California, together totaling
approximately 70,000 square feet, which serve as our manufacturing
headquarters. We are also expanding our technician base in Pakistan and
continue to hire in Santa Clara.
Quality Assurance
Our quality assurance team maintains compliance with FDA regulations,
monitors customer satisfaction with our products and services, and helps ensure
a high level of quality of final product. The prescribing orthodontist's review
of the ClinCheck treatment simulation represents an important step in our
overall quality control procedures.
Sales and Marketing
We market the Invisalign System by communicating the System's benefits
directly to consumers with a nationwide advertising campaign. Based on our
experience with advertising and commercial sales in our test markets, we
believe that making consumers aware of the Invisalign System as a new treatment
alternative generates significant demand for the System. In order to serve
anticipated demand in North America, we are training a broad base of
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orthodontists. As of October 2000, we have trained over 5,300 orthodontists,
representing over 60% of the orthodontists in the U.S. and Canada.
Consumer Marketing
We tested our consumer marketing strategy in two markets, Austin, Texas and
San Diego, California. Based on the positive results of these initial marketing
efforts, we recently have launched a nationwide consumer marketing campaign to
create awareness and stimulate demand for the Invisalign System. Our national
consumer marketing efforts primarily focused on television advertising and will
be supported by print, public relations and direct mail campaigns.
Our experience indicates that prospective patients exposed to our
advertising seek information from four primary sources:
. a general practice dentist;
. an orthodontist;
. our toll-free support line (1-800-INVISIBLE); and
. our website (www.invisalign.com).
Our marketing efforts have generated substantial consumer interest directed
toward our telephone support line and our website. In the first five weeks of
our national advertising campaign, our support line received approximately
150,000 calls and we received a comparable number of visitors to our website.
Our telephone support line and our website not only provide consumers with
information on the Invisalign System, but, importantly, also allow us to
channel consumer interest to orthodontists of our choice. We outsource the
telephone support function to a large national call center operator.
Professional Marketing
As of September 2000, our sales team comprised approximately 30 salespeople
experienced in orthodontic product sales. Approximately 25 technical support
staff, together with the marketing department and our in-house orthodontic
staff, support the sales team. Our sales and support staff has been engaged in
marketing the Invisalign System to orthodontists since July 1999. Professional
marketing consists of training orthodontists and assisting them in building
their practices. In addition, we are creating awareness of the System among
general practice dentists to help them refer patients to orthodontists.
As of October 2000, we had trained over 5,300 orthodontists, representing
over 60% of the orthodontists in the U.S. and Canada. Our sales and orthodontic
teams conduct training primarily in a workshop format. The key topics covered
in training include case selection criteria, instructions on filling out the
Invisalign prescription form, guidance on pricing and instructions on
interacting with our ClinCheck software and the many other features of our
website.
The Invisalign System relies on the same orthodontic principles that apply
to traditional treatment, and we present our training material in a manner
consistent with orthodontists' training and experience. As a result, we are
able to complete these training workshops within one day. Our success in
training a large number of orthodontists confirms our belief that training
represents a minimal barrier to adoption for most orthodontists.
After training, sales representatives follow up with orthodontists to ensure
that their staff is prepared to handle Invisalign System cases. Such follow up
may include assisting
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orthodontists in taking dental impressions, establishing an Internet connection
and familiarizing them with our website. Sales representatives may also provide
practice-building assistance, including helping orthodontists market to local
general practice dentists and to prospective patients through direct mail or
other media. Indeed, many practices have commenced promotional activity in
their local region with our assistance.
We have developed a system of tiering orthodontists that encourages our
sales force to devote more time to those orthodontists most proficient in the
use of the Invisalign System.
We use objective criteria, primarily the number of cases initiated with the
Invisalign System, to tier orthodontists. Inquiries from prospective patients
through our customer call center and our website are directed to higher tier
orthodontists. We believe the tiering process will rapidly increase the
penetration of our product within selected orthodontists' offices.
General dentists play an important role in informing their patients about
orthodontics and are a key source of referrals to orthodontists. There are over
120,000 active general practice dentists in the U.S. and Canada. We have
commenced educating these general dentists and staff to encourage them to
recommend the Invisalign System to their patients. We communicate with the
dental community using a combination of direct mail, telemarketing, journal
advertising and trade shows.
Research and Development
As of September 2000, our research and development team consisted of 18
individuals with medical device development, orthodontic and other relevant
backgrounds. From inception to September 30, 2000, we spent approximately
$12.0 million in research and development expenses to develop the Invisalign
System.
Prior to commercial launch in July 1999, our research and development
strategy had three primary objectives: developing the Invisalign System,
establishing the ability of the System to treat malocclusion and developing
software and processes to enable the manufacture of Aligners in volume. Since
our commercial launch, our research and development effort has focused on
extending the range of clinical applicability of the Invisalign System,
enhancing the software used in the manufacturing process and enhancing our
product suite.
We are conducting a number of post-marketing studies to establish the
effectiveness of the System in comprehensively treating unusually severe cases
of malocclusion. We are developing a next-generation of software primarily to
increase our manufacturing capacity and efficiency. Our product development
team is testing enhanced materials and a number of complementary products that
we expect will provide additional revenue opportunities.
Intellectual Property
We believe our intellectual property position represents a substantial
business advantage. We have one issued U.S. patent, 46 pending U.S.
applications, of which two are allowed and nine are provisional applications.
We have two foreign-issued patents and 111 pending foreign applications. The
issued U.S. patent is written to cover any algorithmic method of segmenting
orthodontic treatment into a sequence of three or more steps, based on
calculated initial and final representations of a patient's dentition.
We continue to pursue further intellectual property protection through U.S.
and foreign patent applications and non-disclosure agreements. We also seek to
protect our software, documentation and other written materials under trade
secret and copyright laws. We cannot
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assure you that patents will be issued as a result of any patent application or
that patents that have been issued to us or may issue in the future will be
found to be valid and enforceable and sufficient to protect our technology or
products.
Competition
We are not aware of any company that has developed or is marketing a system
comparable to our Invisalign System. However, we compete for the attention of
orthodontists with manufacturers of other orthodontic products. These suppliers
include manufacturers of traditional orthodontic appliances such as 3M Company,
Sybron International Corporation and Dentsply International, Inc.
We believe that, in addition to price, the principal competitive factors in
the market for orthodontic appliances include the following factors:
. aesthetic appeal of the treatment method;
. comfort associated with the treatment method;
. effectiveness of treatment;
. ease of use; and
. orthodontist chair time.
We believe that the Invisalign System compares favorably with respect to
each of these factors.
Government Regulation
FDA Regulation of Medical Devices. The Invisalign System is regulated as a
medical device. Accordingly, our product development, labeling, manufacturing
processes and promotional activities are subject to extensive review and
rigorous regulation by government agencies in countries in which we sell our
products.
In the U.S., the FDA regulates the design, manufacture, distribution,
preclinical and clinical study, clearance and approval of medical devices.
Medical devices are classified in one of three classes on the basis of the
controls necessary to reasonably assure their safety and effectiveness. Class I
or II devices require the manufacturer to submit a premarket notification
requesting permission for commercial distribution, which is known as 510(k)
clearance. Class III devices, which are deemed by the FDA to pose greater risk
than Class I and II devices, require FDA approval of a premarket approval
application which includes, among other things, extensive preclinical and
clinical trial data and information about the device's and its components'
design, manufacturing and labeling.
The Invisalign System is a Class I device, the least stringent class, which
only requires general controls, including labeling, premarket notification and
adherence to the FDA's Quality System regulations.
In November 1998, our Invisalign System received 510(k) Pre-Market
Notification by the FDA, allowing us to market the Invisalign System in the
U.S. In addition, we have recently applied for FDA registration for our Santa
Clara facility. The manufacture and distribution of the Invisalign System are
subject to continuing regulation by the FDA. We are subject to routine
inspections by the FDA to determine compliance with facility registration,
product listing requirements, medical device reporting regulations and Quality
System requirements.
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The Quality System regulation is similar to good manufacturing practices and
relates to product testing and quality assurance, as well as the maintenance of
records and documentation.
If the FDA finds that we have failed to comply, it can institute a wide
variety of enforcement actions against us, ranging from a public Warning Letter
to more severe sanctions, including but not limited to financial penalties,
withdrawal of 510(k) premarket notification clearances already granted, and
criminal prosecution.
When introduced in Europe, the Invisalign System will be regulated as a
custom device. As such, we will not be subject to regulations promulgated by
the European Community, although we have the option to CE mark our product. We
are working toward the certification of our manufacturing process under ISO
9001, an internationally recognized quality standard, which will facilitate the
commercialization of the Invisalign System outside the U.S.
Other Federal and State Laws. As a participant in the health care industry
we are subject to extensive and frequently changing regulation under many other
laws administered by governmental entities at the federal, state and local
levels, some of which are, and others of which may be, applicable to our
business. Furthermore, our health care service provider customers are also
subject to a wide variety of laws and regulations that could affect the nature
and scope of their relationships with us.
Laws regulating medical device manufacturers and health care providers cover
a broad array of subjects. For example, the confidentiality of patient medical
information and the circumstances under which such information may be released
for inclusion in our databases, or released by us to third parties, are subject
to substantial regulation by state governments. These state laws and
regulations govern both the disclosure and the use of confidential patient
medical information and are evolving rapidly. In addition, provisions of the
Social Security Act prohibit, among other things, paying or offering to pay any
remuneration in exchange for the referral of patients to a person participating
in, or for the order, purchase or recommendation of items or services that are
subject to reimbursement by Medicare, Medicaid and similar other federal or
state healthcare programs. Most states have also enacted illegal remuneration
laws that are similar to the federal laws. These laws are applicable to our
financial relationships with, and any marketing or other promotional activities
involving, our orthodontist customers. Finally, various states regulate the
operations of an advertising and referral service for dentists, and may require
registration of such services with a state agency as well as compliance with
various requirements and restrictions on how they conduct business and
structure their relationships with participating dentists. Violations of any of
these laws or regulations could subject us to a variety of civil and criminal
sanctions.
Employees
As of September 2000, we had approximately 910 employees, of whom
approximately 360 were employed in the U.S., with the balance employed in
Pakistan. In the U.S., manufacturing accounts for 190 of our staff. As of
September 2000, we also employed approximately 30 software engineers, 30 sales
representatives and 24 customer support staff.
We employ a staff of approximately 550 employees in our two facilities in
Pakistan, most of whom are computer operators and about 50 of whom are dental
and orthodontic supervisors. We believe that our relations with our employees
are good.
Facilities
Our headquarters are located in Santa Clara, California. We lease
approximately 70,000 square feet of space where we house our manufacturing,
customer support, software
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engineering and administrative personnel. The lease for the larger of the two
Santa Clara facilities will expire in August 2005, while the lease for the
smaller facility, roughly 15,000 square feet, will expire in August 2002. The
combined monthly rent for the Santa Clara facilities is approximately $240,000.
We operate two facilities in Pakistan, both in the city of Lahore. Each
facility accommodates approximately 300 employees. The main facility comprises
over 5,000 square feet of office space. The lease for this facility expires at
the end of 2002. The second facility comprises over 10,000 square feet of
office space. The lease for this facility expires in August 2010.
Legal Proceedings
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 to not 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. No assurance can be given that Ormco will
not bring another action against us or, that if brought, it will not be
successful. If successful, it could result in significant monetary damages or
other penalties against us. It is entirely 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.
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.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth information regarding our executive officers
and directors as of November 10, 2000:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Zia Chishti............. 29 Chief Executive Officer and Chairman of the Board
Kelsey Wirth............ 30 President, Secretary and Director
Stephen Bonelli......... 38 Chief Financial Officer and Vice President, Finance
Ike Udechuku............ 34 Vice President, Corporate Strategy
Joe Breeland............ 48 Vice President, Sales
Len Hedge............... 43 Vice President, Manufacturing
Amir Abolfathi.......... 35 Vice President, Research and Development
Ken Vargha.............. 36 Vice President, Marketing
Christian Skieller...... 52 Vice President, Operations
James Heslin............ 49 Vice President, General Counsel
Ross Miller, DDS, MS.... 38 Chief Clinical Officer
Charlie Wen............. 34 Chief Technology Officer
Peter Riepenhausen...... 64 Chairman, Align Technology, Europe
Brian Dovey............. 59 Director
Joe Lacob............... 43 Director
Mark Logan.............. 61 Director
H. Kent Bowen........... 58 Director
</TABLE>
Zia Chishti is one of our founders and has served as our Chief Executive
Officer and the Chairman of our Board of Directors since inception. From July
1992 to September 1995, Mr. Chishti worked for Morgan Stanley's investment
banking division. Mr. Chishti received his M.B.A. from Stanford University's
Graduate School of Business and his B.S. and B.A. from Columbia College.
Kelsey Wirth is one of our founders and has served as our President and
Secretary and as a Director since inception. From 1993 to 1995, Ms. Wirth
worked for the Environmental Working Group and World Resources Institute as an
environmental consultant, and in 1992 she worked for the Lamm Senate campaign
as director of constituency outreach. Ms. Wirth received her M.B.A. from
Stanford University's Graduate School of Business and her B.A. from Harvard
College.
Stephen Bonelli has served as our Chief Financial Officer and Vice President
of Finance since November 2000. From April 2000 to November 2000, Mr. Bonelli
was a financial consultant for various medical device and telecommunications
companies. From February 2000 to April 2000, Mr. Bonelli was the Chief
Financial Officer and Treasurer at Oplink Communications, Inc., an optical
networking components company. Prior to joining Oplink, Mr. Bonelli was the
Chief Financial Officer, Vice President of Finance and Administration and
Treasurer of General Surgical Innovations, Inc., a medical device company, from
September 1994 until shortly after General Surgical Innovations was acquired by
Tyco International Ltd. in November 1999. From November 1993 to August 1994,
Mr. Bonelli held a financial management position at Coactive Computing
Corporation, a computer networking company. Mr. Bonelli received his B.S. in
business administration from California Polytechnic State University, San Luis
Obispo. Mr. Bonelli is a Certified Public Accountant.
Ike Udechuku has served as our Vice President of Corporate Strategy since
November 2000. From January 2000 until July 2000, Mr. Udechuku served as one of
our consultants in
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various financial positions. In July 2000, he became an employee, serving as
Chief Financial Officer from July 2000 to November 2000. From 1989 to January
2000, Mr. Udechuku worked for Morgan Stanley's investment banking division in
London, most recently as an Executive Director. While at Morgan Stanley,
Mr. Udechuku concentrated on mergers and acquisitions and capital raising for
European clients. From 1985 to 1989, Mr. Udechuku worked for the Australian
government in the Treasury. Mr. Udechuku graduated with B.A. degrees in both
economics and law from the Australian National University in 1988.
Joe Breeland has served as our Vice President of Sales since August 1998.
Mr. Breeland was Regional Manager for the "A" Company Orthodontics, a leading
manufacturer of orthodontic devices. Prior to that, Mr. Breeland served as
Southwest Regional Manager for Allergan, Inc., a manufacturer and distributor
of ophthalmic implantables and associated capital equipment, and National Sales
Director for Ioptex Research, a manufacturer of intraocular lenses. Mr.
Breeland received his M.B.A. from Golden Gate University and his B.S. in
pharmacy from the University of Texas.
Len Hedge has served as our Vice President of Manufacturing since January
1999. Mr. Hedge served as Vice President of Operations for Plynetics Express
Corporation, a rapid-prototyping and stereolithography services supplier, from
December 1996 to December 1998. From October 1991 to December 1996, Mr. Hedge
worked at Beckman Instruments Corporation as Manager for Prototype
Manufacturing and Process Development. Prior to joining Beckman, Mr. Hedge
spent 13 years with General Dynamics Corporation, holding positions of
increasing responsibility from Machinist to Manager of Mechanical Fabrication.
Mr. Hedge received his B.S. from La Verne University.
Amir Abolfathi has served as our Vice President of Research and Development
since March 2000. From November 1999 to March 2000, Mr. Abolfathi served as our
Senior Director of Planning and Execution. Mr. Abolfathi served as a consultant
for a number of medical device companies from February 1999 through November
1999. From April 1995 through January 1999, Mr. Abolfathi served as Senior
Director of Research and Development for EndoTex Interventional Systems, Inc.,
a company focused on the treatment of neurovascular diseases which he co-
founded. From 1991 to 1995, he served as Program Manager at Pfizer, Inc. From
1989 to 1991, Mr. Abolfathi served as Group Leader of Reliability Engineering
at Guidant Corporation. Mr. Abolfathi received his M.S. in engineering
management from the University of Southern California and his B.S. in
biomedical engineering from the University of California at San Diego.
Ken Vargha has served as our Vice President of Marketing since September
1998. From November 1994 through August 1998, Mr. Vargha served in a number of
positions for Pharmacia & Upjohn, Inc. including Brand Manager, Senior Brand
Manager and Director of Marketing. At Pharmacia & Upjohn, Mr. Vargha was
responsible for the strategic direction, marketing research, and advertising
development for Pharmacia & Upjohn's hair care brands, of which Rogaine is the
largest. Prior to that, Mr. Vargha worked in beauty care at both Maybelline,
Inc., where he was responsible for a targeted line of cosmetics, and at the
Procter & Gamble Company, where Mr. Vargha was responsible for the advertising
and launch of Pantene Pro-V styling products. Mr. Vargha received his M.B.A.
from the University of California at Los Angeles' Anderson School of Business
and his B.A. from Brigham Young University.
Christian Skieller has served as our Vice President of Operations since July
2000. From November 1998 to June 2000, Mr. Skieller served as Vice President of
Operations at CardioVention, a medical device company. From August 1996 through
May 1998, he was Vice President of Operations at CardioThoracic Systems, a
manufacturer of devices for cardiac surgery. From January 1992 through July
1996, Mr. Skieller served as Vice President of
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Manufacturing for Medtronic CardioRhythm, a manufacturer of catheters for
electrophysiology. Mr. Skieller, received his M.B.A from Stanford University's
Graduate School of Business and his B.S. from the Technical University in
Copenhagen, Denmark.
James Heslin has served as our Vice President and General Counsel since
August 2000. Since 1986, Mr. Heslin was a Partner at Townsend, Townsend and
Crew LLP. Mr. Heslin was head of the firm's Medical Device Practice Group and a
member of its Executive Committee. Mr. Heslin's practice concentrated on
advising clients on how to best obtain, protect, and enforce their intellectual
property rights. Prior to Townsend, Townsend and Crew LLP, Mr. Heslin was a
patent attorney with FMC Corporation and a process engineer with Fluor
Corporation. Mr. Heslin received his J.D. from the University of California's
Boalt Hall School of Law and his B.S. in chemical engineering from University
of California at Santa Barbara.
Ross Miller, DDS, MS, has served as our Chief Clinical Officer since July
1998. Dr. Miller served in private clinical practice for seven years, most
recently as Dental Director for the Tuolumne Indian Health Center. Dr. Miller
received his M.S. and B.S. in Oral Biology from the University of California at
San Francisco, his D.D.S and Certificate of Orthodontics from the University of
California at San Francisco and his B.S. in Biological Sciences from the
University of California at Irvine.
Charlie Wen has served as our Chief Technology Officer since July 2000,
having joined us as Director of Software Engineering in June 1998. Mr. Wen has
over 10 years of working experience specializing in high end 3D computer
graphics/animation, computational geometry and pattern recognition. From
January 1997 to June 1998, Mr. Wen served as Software Engineering Project
Manager for Sony Pictures Corporation, Special Effects Division. From December
1993 to January 1997, Mr. Wen was a Senior Software Engineer for the McNeal
Schwendler Corporation, a leading CAD/CAM/CAE software provider. Mr. Wen
received his M.S. degree in Computer Science from the California Institute of
Technology and his B.S. degree from University of Science and Technology,
China. Mr. Wen is a two-time winner of the Chinese National Mathematics Award.
Peter Riepenhausen has served as our Chairman, Align Technology, Europe
since September 2000. From March 1998 to September 2000, Mr. Riepenhausen was a
business consultant. From 1994 to 1998, Mr. Riepenhausen was President and
Chief Executive Officer of ReSound Corporation, a hearing aid producer. Since
September 2000, Mr. Riepenhausen has served as a director of GAP A.G. and as a
director of Advanced Polymer Systems, Inc. since 1991. From January 1987 until
September 1989, Mr. Riepenhausen served as Vice Chairman of the board of
directors of the Cooper Companies, Inc., a medical device company serving the
vision and surgical markets. Mr. Riepenhausen has also held executive positions
with Brendax-Werke R. Schneider Gmbh & Co. and PepsiCo Inc. Mr. Riepenhausen
received his Industrie Kaufman degree in Commerce from IHK, Wurtzburg.
Brian Dovey has served as a director since July 1998. Mr. Dovey has been a
Managing Member of Domain Associates, a venture capital firm, since 1988. Since
joining Domain, he has served as Chairman of Athena Neurosciences, Creative
BioMolecules, Inc. (now Curis, Inc.) and Univax Biologics. Mr. Dovey is
currently a director of Connetics Corporation, a biopharmaceutical company and
Cardiac Sciences, a developer of cardiac defibrillator devices, as well as
several private companies. From 1986 to 1988, Mr. Dovey served Rorer Group (now
Aventis) as President. Mr. Dovey has served as both President and Chairman of
the National Venture Capital Association and is on the Board of Trustees for
the Cornell Institute and the University of Pennsylvania School of Nursing. Mr.
Dovey is a former Board Member of the Health Industry Manufacturers Association
and the Non-Prescription Drug Manufacturers Association. Mr. Dovey received his
M.B.A. from Harvard University's Graduate School of Business and his B.A. from
Colgate University.
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Joseph Lacob has served as a director since August 1997 and has been a
Partner of Kleiner Perkins Caufield and Byers, a venture capital firm, since
May 1987. Prior to that, Mr. Lacob was an executive with Cetus Corporation, a
biotechnology company, and FHP International, a health maintenance organization
and the management consulting firm of Booz, Allen & Hamilton. Since joining
Kleiner Perkins Caufield and Byers in 1987, Mr. Lacob has led Kleiner Perkins
Caufield and Byers' investments in over 30 life science companies, including
the start-up or incubation of a dozen ventures. He leads Kleiner Perkins
Caufield and Byers' growing medical technology practice, which includes over 30
therapeutic and diagnostic medical device companies. Mr. Lacob is also active
in Kleiner Perkins Caufield and Byers' new media and e-commerce company
initiatives. Mr. Lacob currently serves on the board of directors of three
public companies including Sportsline, Corixa and HeartPort, as well as several
other privately held companies. Mr. Lacob received his M.B.A. from the Stanford
Graduate School of Business, his M.P.H. in Public Health from University of
California at Los Angeles and his B.S. in Biological Sciences from the
University of California at Irvine.
Mark Logan has served as a director since May 2000. Mr Logan is Chairman of
the Board and Chief Executive Officer of VISX, Inc., a medical equipment
manufacturing company which he joined in November 1994. From 1992 to 1994, Mr.
Logan was Chairman of the Board, President and Chief Executive Officer of
Insmed Pharmaceuticals, Inc., a development stage biopharmaceutical company.
From 1981 to 1985, Mr. Logan was President of Bausch and Lomb's Health Care and
Consumer Group and also served on the board of directors. From 1975 to 1981,
Mr. Logan served as Consumer Group President of Becton, Dickinson & Co.'s
worldwide diabetes syringe business. From 1967 to 1974, Mr. Logan served as
President and General Manager of American Home Products Corporation's Mexican
subsidiary. He serves as a director on the boards of Abgenix, Inc., a
biopharmaceutical company, VIVUS, Inc., a drug development company, and Somnus
Medical Technologies, Inc., a medical device company. Mr. Logan is a graduate
of Hiram College, the Program for Management Development at Harvard University
and was a Woodrow Wilson Fellow at New York University.
H. Kent Bowen has served as a director since May 2000. Mr. Bowen has been
the Bruce Rauner Professor in Business Administration at Harvard University's
Graduate School of Business Administration since 1992. Professor Bowen's
current research and teaching is in the field of operations and technology
management. From 1975 to 1992, Professor Bowen was the Ford Professor of
Engineering at the Massachusetts Institute of Technology, where he was the
founder of Leaders for Manufacturing, a joint research and education program
developed by M.I.T.'s School of Engineering and the Sloan School of Management.
At M.I.T., Professor Bowen's research focused on advanced materials, materials
processing, technology management and manufacturing. Professor Bowen is a
member of the National Academy of Engineering and the American Academy of Arts
and Sciences, a fellow of the American Association for the Advancement of
Science, and a member of several professional societies. He serves as a
director of Ceramics Process Systems, a developer of thermal management
solutions, and for a number of private companies. He received his Ph.D. from
M.I.T in Engineering, and his B.S. from the University of Utah.
Scientific Advisory Board
We employ a scientific advisory board, comprised of leading clinicians and
scientists, to serve as advisors and liaisons to the orthodontic community. The
current members of the scientific advisory board are:
Dr. Robert Boyd is Professor and Chairperson of the Department of
Orthodontics at the University of Pacific School of Dentistry. His practice and
clinical research focuses on the orthodontic-periodontic relationship. In this
area, he has published more than 100 scientific
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articles and given more than 200 continuing education courses and lectures to
dental groups around the world. Dr. Boyd is a Diplomate of the American Board
of Orthodontics, a Fellow of the American College of Dentistry, a member of the
E.H. Angle Society and has received many teaching awards. Dr. Boyd received his
D.D.S. from Temple University, his M.A. in Education from the University of
Florida, his B.S. from Indiana University and his Certificates of Orthodontics
and Periodontics from the University of Pennsylvania.
Dr. Donald Kennedy is President Emeritus of Stanford University and Bing
Professor of Environmental Science. From 1977 to 1979, Dr. Kennedy was
Commissioner of the U.S. Food and Drug Administration. Following his return to
Stanford in 1979, Dr. Kennedy served for 12 years as President of the
University. Dr. Kennedy serves as a member of the Board of Directors of the
Health Effects Institute and Children Now. He is also a member of the National
Academy of Sciences, the American Academy of Arts and Sciences and the American
Philosophical Society. Dr. Kennedy received his Ph.D., M.S. and A.B. degrees in
Biology from Harvard University. In June 2000, Dr. Kennedy began a term as
Editor-in-Chief of Science, the Journal of the American Association for the
Advancement of Science.
Dr. Gregory King is Professor and Chairman of the Department of Orthodontics
at the University of Washington's School of Dentistry. Dr. King received the
Milo Hellman Research Award of the American Association of Orthodontics for his
outstanding contributions to orthodontic research. Prior to joining the
University of Washington, Dr. King was Professor and Chairman of the Department
of Orthodontics at the University of Florida. Dr. King is a Diplomate of the
American Association of Orthodontists. He received his D.M.D. from Tufts
University, his Ph.D. and B.A. from Brown University and his Certificate in
Orthodontics from Harvard University.
Dr. Elizabeth Rekow is Professor and Chairperson of the Department of
Orthodontics at the University of Medicine and Dentistry of New Jersey, a
visiting Professor of the Department of Mechanical Engineering at the
University of Maryland and the Director of the Associated Institutions for
Material Science. She has focused her teaching and research on the interaction
between engineering, advanced materials and dentistry and in these fields has
published numerous articles. Dr. Rekow is a member of the E.H. Angle Society, a
member of the International and American Associations for Dental Research and a
fellow of the Academy of Dental Materials. Dr. Rekow received her D.D.S., her
Ph.D. in Biomedical Engineering and her Orthodontic Certificate from the
University of Minnesota.
Dr. Van P. Thompson is Associate Dean for Research and Professor of
Prosthodontics and Biomaterials at the University of Medicine and Dentistry of
New Jersey. Dr. Thompson has published many articles and made numerous
presentations on dental materials in the U.S. and internationally. Co-developer
of the etched casting resin bonded retainer, Dr. Thompson has published and
presented extensively in this area. He has served on the ADA Council on Dental
Materials Instruments and Equipment and is Chair of the ADA Council on
Scientific Affairs. Dr. Thompson received his D.D.S. from the University of
Maryland, his Ph.D. in Biology and his B.S. in Biology and Biophysics from the
Rensselaer Polytechnic Institute.
Board of Directors
We currently have six directors. Other than expenses in connection with
attendance at meetings and other customary expenses, we have not provided cash
compensation to any non-employee member of the board. Directors who are also
employees do not receive additional compensation for serving as directors. As
of September 30, 2000, the directors have been granted options to purchase an
aggregate of 124,000 shares of our common stock.
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Under the automatic option grant program which will be in effect for the
non-employee board members under the 2001 Stock Incentive Plan, each non-
employee board member will receive an automatic option grant for shares at
each annual stockholders meeting during his or her period of continued service
on the board, with such shares to vest upon completion of one year of board
service measured from the grant date. Each new non-employee board member will
receive, at the time of his or her initial election or appointment to the
board, an automatic option grant for shares which will vest in four
successive equal annual installments over his or her first four years of board
service. For further information concerning the automatic option grant program,
see the "Stock Plans" section below.
Our bylaws provide that the number of members of our board of directors
shall be determined by the board of directors. All members of our board of
directors hold office until the next annual meeting of stockholders or until
their successors are duly elected and qualified.
Committees of the Board of Directors
The audit committee is composed of Joseph Lacob, Mark Logan and Brian Dovey.
It is responsible for reviewing and evaluating our financial control, audit and
reporting functions. In addition, the audit committee makes recommendations to
the board of directors regarding the selection of our independent accountants,
reviews the fees to be paid to our independent accountants and reviews any
independence issues with our independent accountants.
The compensation committee is composed of Mark Logan and Kent Bowen. It
recommends to our board of directors the compensation and benefits of all our
officers and establishes and reviews general policies relating to compensation
and benefits to our employees.
Executive Officers
Each officer is elected by, and serves at the discretion of, the board of
directors. Each of our officers and directors, other than non-employee
directors, devotes full-time to our affairs. Our non-employee directors devote
such time to our affairs as is necessary to discharge their duties. There are
no family relationships among any of our directors, officers or key employees.
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Executive Compensation
The following table sets forth information concerning compensation that we
paid during the fiscal year ended December 31, 1999, to our Chief Executive
Officer and to each of our four other most highly compensated executive
officers for that fiscal year, referred to collectively in this prospectus as
the named executive officers. There were no long-term compensation awards or
other compensation awarded to our named executive officers during 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual
Compensation
----------------
Name and Principal Position Salary Bonus
--------------------------- -------- -------
<S> <C> <C>
Zia Chishti................................................... $130,327 $ --
Chief Executive Officer and Chairman of the Board
Kelsey Wirth.................................................. 130,327 --
President, Secretary and Director
Kenneth Vargha................................................ 133,223 16,560
Vice President, Marketing
Joe Breeland.................................................. 87,012 40,916
Vice President, Sales
Ross Miller, DDS, MS.......................................... 173,767 --
Chief Clinical Officer
</TABLE>
Option Grants in 1999
The following table sets forth information with respect to stock options
granted to each of our named executive officers in 1999, including the
potential realizable value over the term of the options, based on assumed rates
of stock appreciation of 5% and 10%, compounded annually. No stock appreciation
rights were granted during 1999.
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed Annual
Rates of Stock
Price
Percent of Appreciation
Number of Options for Option Term
Securities Granted to at Public
Underlying Employees Exercise Offering Price
Options in Fiscal Price Expiration ---------------
Name Granted Year Per Share Date 5% 10%
---- ---------- ---------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Zia Chishti......... -- --% $ -- -- $ -- $ --
Kelsey Wirth........ -- -- -- -- -- --
Kenneth Vargha...... -- -- -- -- -- --
Joe Breeland........ -- -- -- -- -- --
Ross Miller......... 10,000 2.7 0.30 1/28/09 -- --
</TABLE>
In 1999, we granted options to purchase up to an aggregate of 368,300 shares
to employees, directors and consultants under our 1997 Plan at exercise prices
equal to the fair market value of our common stock on the date of grant, as
determined in good faith by our board of directors.
Options granted are immediately exercisable in full, but any shares
purchased under these options that are not vested are subject to our right to
repurchase the shares at the original option exercise price paid per share. In
general, this repurchase right lapses as to 25% of the shares after one year of
service, and as to the remaining shares, in equal monthly installments over the
subsequent, additional three-year period. As of November 10, 2000, 697,386
shares of common stock were subject to repurchase.
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The potential realizable value is calculated assuming the potential public
offering price appreciates at the indicated rate for the entire term of the
option and that the option is exercised and sold on the last day of its term at
the appreciated price. Stock price appreciation of 5% and 10% is assumed
pursuant to the rules of the Commission. We can give no assurance that the
actual stock price will appreciate over the term of the options at the assumed
5% and 10% levels or at any other defined level. Actual gains, if any, on stock
option exercises will be dependent on the future performance of our common
stock. Unless the market price of the common stock appreciates over the option
term, no value will be realized from the option grants made to the named
executive officers.
Aggregate Option Exercises in 1999 and Year-end Values at December 31, 1999
The following table sets forth information concerning the number and value
of shares of common stock underlying the unexercised options held by the named
executive officers. The options listed in the following table were granted
under our 1997 Plan. See "Management--Stock Plans." No stock appreciation
rights were exercised during 1999 and no stock appreciation rights were
outstanding as of December 31, 1999. The value of unexercised in-the-money
options at December 31, 1999 is calculated on the basis of the fair market
value of our common stock at December 31, 1999, as determined by our board of
directors, less the aggregate exercise price of the options.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
Shares December 31, 1999 December 31, 1999
Acquired on Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Zia Chishti............. -- $ -- -- -- $ -- $ --
Kelsey Wirth............ -- -- -- -- -- --
Kenneth Vargha.......... 20,000 10,000 30,000 -- 15,000 --
Joe Breeland............ 50,000 25,000 -- -- -- --
Ross Miller............. 5,312 2,656 19,688 -- 9,844 --
</TABLE>
Compensation Plans
Amended and Restated 1997 Equity Incentive Plan
At September 30, 2000, a total of 4,854,546 shares of common stock had been
reserved for issuance under our 1997 Plan. On that date, options to purchase an
aggregate of 2,155,998 shares of common stock, with a weighted average exercise
price of $1.59 per share, were outstanding and options to purchase an aggregate
of 1,177,621 shares of common stock were available for future grant.
The 1997 Plan provides for the grant of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, non-
statutory stock options, stock bonuses and restricted stock purchase rights to
our employees, consultants and nonemployee directors. The 1997 Plan is
administered by the board of directors or a committee appointed by the board of
directors, which determines the terms of options granted, including the
exercise price and the number of shares subject to each option. The board of
directors also determines the schedule upon which options become exercisable.
The exercise price of incentive stock options granted under the 1997 Plan must
be at least equal to the fair market value of our common stock on the date of
grant. The exercise price of nonqualified stock options is set by the
administrator of the 1997 Plan and will be no less than 85% of the fair market
value on the date of grant. However, for any person holding more than 10% of
the voting power of all classes of our capital stock, the exercise price,
whether the
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option is an incentive stock option or a nonqualified option, will be no less
than 110% of the fair market value on the date of grant. Any stock option will
be exercisable at such time as determined by the administrator of the 1997
Plan. However, the right to exercise an option must vest at the rate of at
least 20% per year over five years. The maximum term of options granted under
the 1997 Plan is ten years. The 1997 Plan will terminate in 2007, unless
terminated earlier in accordance with its provisions.
The vesting provisions of individual options granted under the 1997 Plan
vary. However, in each case it provides for vesting of at least twenty percent
per year of the total number of shares subject to the option. The 1997 Plan
also provides that options granted may include a right of repurchase by us
whereby, prior to being listed on a securities exchange, we may elect to
repurchase all or any part of the vested shares exercised pursuant to the
option. We may elect the repurchase right only for a period of time following
the termination of the optionee's employment relationship as a director or
consultant. The repurchase price is equal to the fair market value of our
common stock at the time of the optionee's termination.
2001 Stock Incentive Plan
The 2001 Stock Incentive Plan is intended to serve as the successor program
to the 1997 Plan. The 2001 Plan was adopted by the board on August 24, 2000.
The 2001 Plan will become effective upon the closing of this offering. At that
time, all outstanding options under the 1997 Plan will be transferred to the
2001 Plan, and no further option grants will be made under the 1997 Plan. The
transferred options will continue to be governed by their existing terms,
unless our compensation committee decides to extend one or more features of the
2001 Plan to those options. Except as otherwise noted below, the transferred
options have substantially the same terms as will be in effect for grants made
under the discretionary option grant program of the 2001 Plan.
2,700,000 shares of our common stock have been authorized for issuance under
the 2001 Plan. This share reserve is in addition to the number of shares we
expect will be carried over from the 1997 Plan. The share reserve under the
2001 Plan will automatically increase on the first trading day in January each
calendar year, beginning in calendar year 2002, by an amount equal to five
percent of the total number of shares of our common stock outstanding on the
last trading day in December of the immediately preceding calendar year, but in
no event will this annual increase exceed 3,000,000 shares. In addition, no
participant in the 2001 Plan may be granted stock options, separately
exercisable stock appreciation right and direct stock issuances for more than
1,000,000 shares of common stock in any calendar year.
The 2001 Plan has five separate programs:
. The discretionary option grant program, under which eligible individuals
in our employ may be granted options to purchase shares of our common
stock at an exercise price not less than the fair market value of those
shares on the grant date.
. The stock issuance program, under which eligible individuals may be
issued shares of common stock directly, through the purchase of such
shares at a price not less than their fair market value at the time of
issuance or as a bonus tied to the attainment of performance milestones
or the completion of a specified period of service.
. The salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary each year to the
acquisition of special below market stock option grants.
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<PAGE>
. The automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members to purchase shares of common stock at an exercise price
equal to the fair market value of those shares on the grant date.
. The director fee option grant program, under which our non-employee
board members may be given the opportunity to apply a portion of any
retainer fee otherwise payable to them in cash each year to the
acquisition of special below-market option grants.
The individuals eligible to participate in the 2001 Plan include our
officers and other employees, our board members and any consultants we hire.
The discretionary option grant and stock issuance programs will be
administered by the compensation committee. This committee will determine which
eligible individuals are to receive option grants or stock issuances under
those programs, the time or times when the grants or issuances are to be made,
the number of shares subject to each grant or issuance, the status of any
granted option as either an incentive stock option or a non-statutory stock
option under the federal tax laws, the vesting schedule to be in effect for the
option grant or stock issuance and the maximum term for which any granted
option is to remain outstanding. The compensation committee will also have the
exclusive authority to select the executive officers and other highly
compensated employees who may participate in the salary investment option grant
program in the event that program is put into effect for one or more calendar
years.
The 2001 Plan will include the following features:
. The exercise price for any options granted under the plan may be paid in
cash or in shares of our common stock valued at fair market value on the
exercise date. The option may also be exercised through a same-day sale
program without any cash outlay by the optionee. In addition, the plan
administrator may provide financial assistance to one or more
participants in the exercise of their outstanding options or the
purchase of their shares by allowing such individuals to deliver a full-
recourse, interest-bearing promissory note in payment of the exercise or
purchase price of the shares and any associated withholding taxes
incurred in connection with such exercise or purchase.
. The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program, including any
transferred options from the 1997 Plan, in return for the grant of new
options for the same or different number of option shares with an
exercise price per share based upon the fair market value of our common
stock on the new grant date.
. Stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election
to surrender their outstanding options for a payment from us equal to
the fair market value of the shares subject to the surrendered options
less the exercise price payable for those shares. We may make the
payment in cash or in shares of our common stock. None of the options
under the 1997 Plan have any stock appreciation rights.
The 2001 Plan will include the following change in control provisions which
may result in the accelerated vesting of outstanding option grants and stock
issuances:
. In the event that we are acquired by merger or asset sale, each
outstanding option under the discretionary option grant program which is
not to be assumed by the
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successor corporation will immediately become exercisable for all the
option shares, and all outstanding unvested shares will immediately
vest, except to the extent our repurchase rights with respect to those
shares are to be assigned to the successor corporation.
. The compensation committee will have complete discretion to grant one or
more options which will become exercisable for all the option shares in
the event those options are assumed in the acquisition but the
optionee's service with us or the acquiring entity is subsequently
terminated. The vesting of any outstanding shares under the 2001 Plan
may be accelerated upon similar terms and conditions.
. The compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will immediately vest in connection with a successful tender offer for
more than 50% of our outstanding voting stock or a change in the
majority of our board through one or more contested elections. Such
accelerated vesting may occur either at the time of such transaction or
upon the subsequent termination of the individual's service.
. The options outstanding under our 1997 Plan will immediately vest in the
event we are acquired by merger or asset sale, unless those options are
assumed by the acquiring entity or our repurchase rights with respect to
any unvested shares subject to those options are assigned to such
option. In addition, those options will vest in full if the optionee's
employment with us is involuntarily terminated within 12 months
following an acquisition in which the options are assumed.
In the event the compensation committee decides to put the salary
investment option grant program into effect for one or more calendar years,
each of our executive officers and other highly compensated employees selected
for participation may, prior to the start of the calendar year, elect to
reduce his or her base salary for the calendar year by an amount not less than
$10,000 nor more than $50,000. Each selected individual who makes such an
election will automatically be granted, on the first trading day in January of
the calendar year for which his or her salary reduction is to be in effect, an
option to purchase that number of shares of common stock determined by
dividing the salary reduction amount by two-thirds of the fair market value
per share of our common stock on the grant date. The option will have exercise
price per share equal to one-third of the fair market value of the option
shares on the grant date. As a result, the option will be structured so that
the fair market value of the option shares on the grant date less the exercise
price payable for those shares will be equal to the amount by which the
optionee's salary is to be reduced under the program. The option will become
exercisable in a series of 12 equal monthly installments over the calendar
year for which the salary reduction is to be in effect.
Each automatic grant will have an exercise price per share equal to the
fair market value per share of our common stock on the grant date and will
have a term of ten years, subject to earlier termination following the
optionee's cessation of board service. The option will be immediately
exercisable for all of the option shares; however, we may repurchase, at the
exercise price paid per share, any shares purchased under the option which are
not vested at the time of the optionee's cessation of board service. The
shares subject to each initial share automatic option grant will vest
in a series of four successive annual installments upon the optionee's
completion of each year of board service over the four year period measured
from the grant date. The shares subject to each -share annual option
grant will vest upon optionee's completion of one year of board service
measured from the grant date. The shares subject to each option will
immediately vest in full upon certain changes in control or ownership or upon
the optionee's death or disability while a board member.
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<PAGE>
If the director fee option grant program is put into effect in the future,
then each non-employee board member may elect to apply all or a portion of any
cash retainer fee for the year to the acquisition of a below-market option
grant. The option grant will automatically be made on the first trading day in
January in the year for which the retainer fee would otherwise be payable in
cash. The option will have an exercise price per share equal to one-third of
the fair market value of the option shares on the grant date, and the number of
shares subject to the option will be determined by dividing the amount of the
retainer fee applied to the program by two-thirds of the fair market value per
share of our common stock on the grant date. As a result, the option will be
structured so that the fair market value of the option shares on the grant date
less the exercise price payable for those shares will be equal to the portion
of the retainer fee applied to that option. The option will become exercisable
in a series of 12 equal monthly installments over the calendar year for which
the election is in effect. However, the option will become immediately
exercisable for all the option shares upon the death or disability of the
optionee while serving as a board member.
The 2001 Plan will also have the following features:
. Outstanding options under the salary investment option grant program and
the automatic and director fee option grant programs will immediately
vest if we are acquired by a merger or asset sale or if there is a
successful tender offer for more than 50% of our outstanding voting
stock or a change in the majority of our board through one or more
contested elections.
. Limited stock appreciation rights will automatically be included as part
of each grant made under the salary investment option grant program and
the automatic and director fee option grant programs, and these rights
may also be granted to one or more officers as part of their option
grants under the discretionary option grant program. Options with this
feature may be surrendered to us upon the successful completion of a
hostile tender offer for more than 50% of our outstanding voting stock.
In return for the surrendered option, the optionee will be entitled to a
cash distribution from us in an amount per surrendered option share
based upon the highest price per share of our common stock paid in that
tender offer.
. The board may amend or modify the 2001 Plan at any time, subject to any
required stockholder approval. The 2001 Plan will terminate no later
than August 23, 2011.
Employee Stock Purchase Plan
Our Employee Stock Purchase Plan was adopted by the board on August 24,
2000. The Purchase Plan will become effective upon the closing of this
offering. The Purchase Plan is designed to allow our eligible employees and the
eligible employees of our participating subsidiaries to purchase shares of
common stock, at semi-annual intervals, with their accumulated payroll
deductions.
500,000 shares of our common stock will initially be reserved for issuance
under the Purchase Plan. The reserve will automatically increase on the first
trading day in January each calendar year, beginning in calendar year 2002, by
an amount equal to one percent of the total number of outstanding shares of our
common stock on the last trading day in December of the immediately preceding
calendar year. In no event will any such annual increase exceed 1,000,000
shares.
The Purchase Plan will have a series of successive overlapping offering
periods, with a new offering period beginning on the first business day of
February and August each year. Each offering period will continue for a period
of 24 months, unless otherwise determined by
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our compensation committee. However, the initial offering period will start on
the date the underwriting agreement for this offering is signed and will end on
the last business day of January 2003. The next offering period will start on
the first business day of August 2001 and end on the last business day in July
2003.
Individuals scheduled to work more than 20 hours per week for more than five
calendar months per year may join an offering period on the start date of that
period. Employees may participate in only one offering period at any time.
A participant may contribute up to 15% of his or her cash earnings through
payroll deductions, and the accumulated deductions will be applied to the
purchase of shares on each semi-annual purchase date. For the first purchase
interval under the plan, the participant may effect his or her contribution
through a lump sum payment up to 15% of his or her cash earnings for that
period. Semi-annual purchase dates will occur on the last business day of
January and July each year, with the first purchase to occur on the last
business day of July 2001. The purchase price per share on each semi-annual
purchase date will be equal to 85% of the fair market value per share on the
start date of the offering period or, if lower, 85% of the fair market value
per share on the semi-annual purchase date. However, a participant may not
purchase more than 2,500 shares on any purchase date, and not more than
125,000 shares may be purchased in total by all participants on any purchase
date. Our compensation committee will have the authority to change these
limitations for any subsequent offering period.
If the fair market value per share of our common stock on any purchase date
is less than the fair market value per share on the start date of the 24-month
offering period, then the participants in that offering period will, following
the purchase of shares on their behalf on that date, be automatically enrolled
in the next offering period beginning immediately after such purchase date.
Should we be acquired by merger or sale of substantially all of our assets
or more than 50% of our voting securities, then all outstanding purchase rights
will automatically be exercised immediately prior to the effective date of the
acquisition. The purchase price will be equal to 85% of the market value per
share on the start date of the offering period in which the acquisition occurs
or, if lower, 85% of the fair market value per share immediately prior to the
acquisition.
The following provisions will also be in effect under the Purchase Plan:
. The Purchase Plan will terminate no later than the last business day of
January 2011.
. The board may at any time amend, suspend or discontinue the Purchase
Plan. However, certain amendments may require stockholder approval.
Limitations of Liability and Indemnification Matters
Our certificate of incorporation eliminates, to the maximum extent allowed
by the Delaware General Corporation Law, directors' personal liability to our
stockholders for monetary damages or breaches of fiduciary duties. Our
certificate of incorporation does not, however, eliminate or limit the personal
liability of a director for the following:
. any breach of the director's duty of loyalty to us or our stockholders;
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
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. any transaction from which the director derived an improper personal
benefit.
Our bylaws provide that we shall indemnify our directors and executive
officers to the fullest extent permitted under the Delaware General Corporation
Law and may indemnify our other officers, employees and other agents as set
forth in the Delaware General Corporation Law. In addition, we have entered
into an indemnification agreement with each of our directors and executive
officers. The indemnification agreements contain provisions that require us,
among other things, to indemnify our directors and executive officers against
liabilities (other than liabilities arising from intentional or knowing and
culpable violations of law) that may arise by reason of their status or service
as directors or executive officers for us or other entities to which they
provide service at our request and to advance expenses they may incur as a
result of any proceeding against them as to which they could be indemnified. We
believe that these bylaw provisions and indemnification agreements are
necessary to attract and retain qualified directors and officers.
Prior to the consummation of the offering, we will obtain an insurance
policy covering directors and officers for claims they may otherwise be
required to pay or for which we are required to indemnify them.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted, and we are not aware of any threatened litigation or
proceeding that may result in a claim for indemnification.
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CERTAIN TRANSACTIONS
Preferred Stock Sales
On August 29, 1997, we issued a total of 2,175,000 shares of Series A
Preferred Stock at a purchase price of $1.00 per share. Of the 2,175,000 shares
of Series A Preferred Stock sold by us, a total of 1,838,000 shares were sold
to our executive officers, directors and greater than 5% stockholders, and
persons associated with them, listed in the table below for a total purchase
price of $1,838,000.
On July 13, 1998, we issued a total of 3,358,562 shares of Series B
Preferred Stock at a purchase price of $3.00 per share. Of the 3,358,562 shares
of Series B Preferred Stock sold by us, a total of 2,540,207 shares were sold
to our executive officers, directors and greater than 5% stockholders, and
persons associated with them, listed in the table below for a total purchase
price of $7,620,621.
On August 19, 1999, we issued a promissory note in the principal amount of
$750,000 bearing interest at 6% per annum to Kleiner Perkins Caufield and
Byers. Immediately upon the first closing of the Series C Preferred Stock
financing, the principal amount under the notes automatically converted into
shares of Series C Preferred Stock at $8.00 per share.
On September 24, 1999 and October 14, 1999, we issued a total of 2,593,114
shares of Series C Preferred Stock at a purchase price of $8.00 per share. Of
the 2,593,114 shares of Series C Preferred Stock sold by us, a total of
1,963,875 shares were sold to our executive officers, directors and greater
than 5% stockholders, and persons associated with them, listed in the table
below for a total purchase price of $15,711,000.
In May 2000, we issued promissory notes to purchasers in the total principal
amount of $14,000,000 bearing interest at 10% per annum. Of the $14,000,000
principal amount of the notes issued by us, $3,000,000 principal amount of the
notes was issued to entities affiliated with Kleiner Perkins Caufield and
Byers, $2,000,000 principal amount of the notes was issued to Domain Partners
III, L.P., $4,000,000 principal amount of the notes was issued to QuestMark
Partners, L.P. and $5,000,000 principal amount of the notes was issued to
Gordon Gund and trusts held for his immediate family members. Immediately upon
the first closing of the Series D Preferred Stock financing, the principal
amount under the notes and accrued interest thereon automatically converted
into shares of Series D Preferred Stock at $21.25 per share.
On May 25, June 20 and October 5, 2000, we issued a total of 4,767,191
shares of Series D Preferred Stock at a purchase price of $21.25 per share. Of
the 4,767,191 shares of Series D Preferred Stock sold by us, a total of
3,431,091 shares were sold to our executive officers, directors and greater
than 5% stockholders, and persons associated with them, listed in the table
below for a total purchase price of $72,910,684.
Our Series D preferred stock is 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 provides that if, during the period between May
12, 2000 and the earlier of the closing of an initial public offering or
January 31, 2001, we have granted more than an aggregate of 1,665,989 options
to purchase our common stock, then the conversion price of our Series D
preferred stock shall be adjusted downward from its original conversion price
of $21.25 per share. As of November 13, 2000, we had granted an excess of
295,015 options over the 1,665,989 allowed under the conversion price
adjustment feature. As a result, the Series D preferred stock conversion price
52
<PAGE>
was adjusted downward to $20.82. This adjustment causes the 4,767,191 issued
and outstanding shares of Series D preferred stock to be converted into
4,863,827 shares of our common stock, an increase of 96,636 shares of common
stock.
The following table summarizes the description in this section of the shares
of common stock and preferred stock purchased by our executive officers,
directors and 5% stockholders and persons associated with them, since April
1997. As of November 10, each share of preferred stock listed in the table
below was convertible into one share of our common stock, except for shares of
our Series D preferred stock, which were subject to the antidilution conversion
price adjustment feature described above.
<TABLE>
<CAPTION>
Total
Executive Officers, Preferred Stock Shares on an
Directors and Common -------------------------------------- as-Converted Aggregate
5% Stockholders Stock Series A Series B Series C Series D Basis Consideration
------------------- --------- --------- -------- --------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Entities affiliated with
Kleiner Perkins
Caufield and Byers
VIII, L.P. ............ -- 1,725,000 810,328 500,000 141,562 3,179,721 --
Entities affiliated with
Domain Partners III,
L.P. .................. 30,000 -- 993,212 187,500 94,401 1,307,001 --
Entities affiliated with
QuestMark Partners,
L.P. .................. -- -- -- 1,000,000 188,699 1,192,473 --
Entities affiliated with
Carlyle Partners III,
L.P. .................. -- -- -- -- 1,317,647 1,344,000 --
Entities affiliated with
Oak Hill Capital
Partners, L.P. ........ -- -- -- -- 1,411,765 1,440,000 --
Kelsey Wirth............ 1,240,227 23,000 11,250 8,334 -- 1,282,811 --
Zia Chishti............. 1,240,227 15,000 -- -- -- 1,255,227 --
Mark Logan.............. 32,000 -- -- -- -- 32,000 --
Joe Breeland............ 50,000 -- -- 2,000 1,750 53,785 --
Gordon Gund(1).......... -- -- 666,667 212,500 235,939 1,119,825 --
Leonard Hedge........... 137,836 -- -- 625 -- 138,461 --
James Heslin............ 117,214 -- 3,333 1,875 -- 122,422 --
Ross Miller............. 60,000 -- 1,667 1,250 1,000 63,937 --
Ike Udechuku............ -- -- 20,000 7,500 4,705 32,299 --
Kenneth Vargha.......... 61,979 -- -- 625 -- 62,604 --
Charlie Wen............. 45,000 -- -- -- 600 45,612 --
Christian Skieller...... 100,000 -- -- -- -- 100,000 --
Amir Abolfathi.......... 81,866 -- -- -- -- 81,866 --
Wren Wirth.............. -- 25,000 11,250 25,000 -- 61,250 --
Timothy Wirth........... -- 25,000 11,250 8,333 -- 44,583 --
Timothy and Wren Wirth.. -- -- -- -- 25,411 25,919 --
Christopher Wirth....... -- 25,000 11,250 8,333 4,705 49,382 --
Saadia Chishti.......... -- -- -- -- 2,352 2,399 --
George Andrew Lear III.. -- -- -- -- 555 566 --
Artel Services, N.V..... -- -- -- -- 235,294 239,999 --
</TABLE>
--------
(1) Includes 753,493 shares held in trust for immediate family members and
shares held by immediate family members.
Holders of shares of our preferred stock are entitled to registration rights
in respect of the common stock issued or issuable upon conversion thereof. See
"Description of Securities--Registration Rights."
Joseph Lacob, one of our directors, is a principal of the general partner of
one or more of the Kleiner Entities, shares voting and dispositive power with
respect to the shares held by one or more of such entities, and disclaims
beneficial ownership of such shares in which he has no pecuniary interest.
Brian Dovey, one of our directors, is a principal of the general partner of
one or more of the Domain Entities, shares voting and dispositive power with
respect to the shares held by
53
<PAGE>
one or more of such entities, and disclaims beneficial ownership of such shares
in which he has no pecuniary interest.
Agreements with Officers and Directors
As of November 10, 2000 each of Messrs. Hedge, Heslin and Abolfathi
delivered a full-recourse promissory note to us in payment of the exercise
price of outstanding stock options they held under our 1997 Plan. The principal
amount secured under each note is as follows: Hedge--$211,539.97; Heslin--
$249,665.82; and Abolfathi--$174,374.58. Each note has a term of two years and
bears interest at a rate of 9.5% per annum, compounded annually. The notes are
each secured by pledges of the purchased shares to us and pledges of collateral
which, together with the shares, have a value of twice the principal amount of
each note. The shares and collateral underlying the pledges will be released
from the pledges only upon the entire payment or prepayment of the principal
balance of each note, together with payment of all accrued interest on the
principal amount so paid or prepaid. Accrued interest becomes due on each
anniversary of the signing of each note and the principal balance will become
due and payable in one lump sum on the second anniversary of the signing of
each note. However, the entire unpaid balances of the notes will become due and
payable upon termination of employment, failure to pay any installment of
principal or interest when due, the insolvency of the maker of the notes, or in
the event we are acquired and receive cash or freely tradable securities for
our shares in the acquisition. None of the shares serving as security for the
notes may be sold unless the principal portion of the note attributable to
those shares, together with the accrued interest on that principal portion, is
paid to us.
In November 2000, we entered into an agreement with Stephen Bonelli, who
serves as our Chief Financial Officer and Vice President of Finance. The
agreement provides that Mr. Bonelli's employment is at-will and sets his annual
base salary. Mr. Bonelli's agreement also provides that he will be eligible for
an annual bonus and stock options exercisable for shares of our common stock,
plus certain other standard employee benefits. In addition, the agreement
provides that if we terminate Mr. Bonelli without "cause" or if Mr. Bonelli
resigns with "good reason," Mr. Bonelli will be credited with one year of
vesting of his stock options in addition to any other vesting he had earned,
provided he signs a full release of all claims against us at the time his
employment terminates.
We have granted options and issued common stock to our executive officers
and directors. See "Management--Executive Compensation" and "Principal
Stockholders."
Indemnification Agreements
We have entered into indemnification agreements with our officers and
directors containing provisions which may require us, among other things, to
indemnify them against certain liabilities that may arise by reason of their
status or service as officers or directors. See "Management--Limitations of
Liability and Indemnification Matters" for more information regarding
indemnification of our officers and directors.
54
<PAGE>
PRINCIPAL STOCKHOLDERS
The table below sets forth information regarding the beneficial ownership of
our common stock on an as-converted basis as of November 10, 2000, by the
following individuals or groups:
. each person or entity who is known by us to own beneficially more than
5% of our outstanding stock;
. each of the named executive officers;
. each of our directors; and
. all directors and executive officers as a group.
Each stockholder's percentage ownership in the following table is based on
shares of common stock outstanding as of November 10, 2000 which reflects
the automatic conversion into common stock upon completion of this offering of
all series of preferred stock outstanding as of November 10, 2000. For purposes
of calculating each stockholder's percentage ownership, all options and
warrants exercisable within 60 days of November 10, 2000 held by the particular
stockholder and that are included in the first column are treated as
outstanding shares. The numbers shown in the table below assume no exercise by
the underwriters of their over-allotment option.
Unless otherwise indicated, the principal address of each of the
stockholders below is c/o Align Technology, Inc., 851 Martin Ave., Santa Clara,
California 95050. Except as otherwise indicated, and subject to applicable
community property laws, except to the extent authority is shared by both
spouses under applicable law, we believe the persons named in the table have
sole voting and investment power with respect to all shares of common stock
held by them.
<TABLE>
<CAPTION>
Shares Beneficially Owned
---------------------------
Percent Percent
Before After
Beneficial Owner Number Offering Offering
---------------- --------- -------- --------
<S> <C> <C> <C>
Entities affiliated with Kleiner Perkins Caufield
& Byers(1)....................................... 3,179,721 16.8% %
Kelsey Wirth(2)................................... 1,463,945 7.7
Entities affiliated with TC Group III, L.P., d/b/a
The Carlyle Group(3)............................. 1,344,000 7.1
Entities affiliated with Oak Hill Capital(4)...... 1,440,000 7.6
Entities affiliated with Domain Associates,
L.L.C.(5)........................................ 1,307,001 6.9
Zia Chishti(6).................................... 1,258,192 6.7
Entities affiliated with QuestMark Partners,
L.P.(7).......................................... 1,432,472 7.6
Gordon Gund(8).................................... 1,119,825 5.9
Kenneth Vargha(9)................................. 137,375 *
Ross Miller(10)................................... 77,196 *
Joe Breeland(11).................................. 150,302 *
Charlie Wen(12)................................... 88,522 *
Ike Udechuku(13).................................. 159,513 *
Leonard Hedge(14)................................. 161,794 *
Amir Abolfathi(15)................................ 131,866 *
James Heslin(16).................................. 122,422 *
Christian Skieller(17)............................ 117,214 *
Kent Bowen(18).................................... 32,000 *
Joseph Lacob(19).................................. 3,206,890 17.0
Mark Logan(20).................................... 32,000 *
Brian Dovey(21)................................... 1,305,113 6.9
Stephen Bonelli(22)............................... 130,000 *
Peter Riepenhausen(23)............................ 210,000 *
All directors, executive officers and key
employees as a group (17 persons) ............... 8,519,183 45.1
</TABLE>
--------
* Represents beneficial ownership of less than one percent of our common
stock.
55
<PAGE>
(1) Principal address is 2750 Sand Hill Road, Menlo Park, CA 94025. Consists
of 2,883,232 shares held by Kleiner Perkins Caufield & Byers VIII, L.P.,
166,892 shares held by KPCB VIII Founders Fund, L.P. and 126,766 shares
held by KPCB Life Sciences Zaibatsu Fund II, L.P. Joseph Lacob, one of our
directors, is a principal of the general partner of one or more of the
Kleiner Entities, shares voting and dispositive power with respect to the
shares held by one or more of such entities and disclaims beneficial
ownership of such shares in which he has no pecuniary interest.
(2) Includes 61,250 owned by Wren Wirth, 44,583 shares owned by Timothy Wirth,
49,288 shares owned by Christopher Wirth and 25,411 shares owned by
Timothy and Wren Wirth, all of whom are immediate family members of Kelsey
Wirth.
(3) Principal address is 1001 Pennsylvania Avenue, N.W., Suite 220 South,
Washington, D.C. 20004. Consists of 1,284,540 shares held of record by
Carlyle Partners III, L.P. and 33,107 shares held of record by CP III
Coinvestment, L.P. Voting and dispositive power with respect to such
shares may be deemed to be shared by (i) TC Group III, L.P., as the sole
general partner of Carlyle Partners III, L.P. and CP III Co-investment,
(ii) TC Group III, L.L.C., as the sole general partner of TC Group III,
L.P., (iii) TC Group, L.L.C., as the managing member of TC Group II,
L.L.C., (iv) TCG Holdings, L.L.C., as the managing member of TC Group,
L.L.C. and (v) William E. Conway, Jr., David M. Rubenstein and Daniel A.
D'Aniello, as managing member of TCG Holding, L.L.C. Messrs. Conway,
Rubenstein and D'Aniello disclaim such beneficial ownership.
(4) Principal address is 201 Main Street, Suite 2300, Fort Worth, TX 76102.
Consists of 1,284,706 shares held by Oak Hill Capital Partners, L.P. and
127,059 shares held by OHCMP Align, L.P.
(5) Principal address is 1 Palmer Square, Suite 515, Princeton, NJ 08542.
Consists of 1,241,901 shares held by Domain Partners III, L.P., 33,212
shares held by DP III Associates, L.P. and 30,000 shares held by Domain
Associates L.L.C., of which 13,125 shares are subject to repurchase by us.
Brian Dovey, one of our directors, is a general partner of One Palmer
Square Associates II, LLC, the general partner of Domain Partners II, L.P.
and DP III Associates, L.P. and is a managing member of Domain Associates,
L.L.C. Mr. Dovey shares voting and investment power with respect to these
shares and disclaims beneficial ownership of such shares except to the
extent of his proportionate interest therein.
(6) Includes 2,352 shares owned by Saadia Chishti and 555 shares owned by
George Andrew Lear III, both of whom are immediate family members of Zia
Chishti.
(7) Principal address is One South Street, Suite 800, Baltimore, MD 21202.
Includes 1,038,213 shares held by QuestMark Partners, L.P., 150,486 shares
held by QuestMark Partners Side Fund, L.P., and 235,294 shares held by
Artal Services, N.V.
(8) Principal address is Post Office Box 449 Princeton, NJ 08542. Includes
175,833 shares owned by each of Grant Gund and Zachary Gund and 200,914
shares held in trust for each of Grant Gund and Zachary Gund, both of whom
are immediate family members of Gordon Gund.
(9) Includes 15,625 shares held jointly with Shawna Vargha and 625 shares held
by Pearl Vargha, both of whom are immediate family members of Kenneth
Vargha. Includes 35,938 shares subject to repurchase by us at the original
exercise price in the event of termination of Mr. Vargha's employment with
us, which repurchase right lapses over time. Also includes 74,771 shares
of common stock issuable upon exercise of immediately exercisable options
within 60 days of November 10, 2000, which shares are also subject to our
right of repurchase.
(10) Includes 2,658 shares held individually by wife Cheryl A. Miller. Also
includes 625 shares held by Rita and Troy Miller and 625 shares held by
Janice and Jonathan Sykes, all of
56
<PAGE>
whom are immediate family members of Ross Miller. Includes 47,188 shares
subject to repurchase by us at the original exercise price in the event of
termination of Mr. Miller's employment with us, which right lapses over
time. Also includes 13,259 shares of common stock issuable upon exercise
of immediately exercisable options within 60 days of November 10, 2000,
which shares are also subject to our right of repurchase.
(11) Includes 21,875 shares subject to repurchase by us at the original
exercise price in the event of termination of Mr. Breeland's employment
with us, which repurchase right lapses over time. Also includes 96,517
shares of common stock issuable upon exercise of immediately exercisable
options within 60 days of November 10, 2000, which shares are subject to
our right of repurchase.
(12) Includes 20,209 shares subject to repurchase by us at the original
exercise price in the event of termination of Mr. Wen's employment with
us, which repurchase right lapses over time. Also includes 42,910 shares
of common stock issuable upon exercise of immediately exercisable options
within 60 days of November 10, 2000, which shares are also subject to our
right of repurchase.
(13) Includes 127,214 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of November 10, 2000,
which shares, if and when exercised, are subject to repurchase by us upon
termination of Mr. Udechuku's employment with us, which right lapses over
time.
(14) Includes 121,169 shares subject to repurchase by us at the original
exercise price in the event of termination of Mr. Hedge's employment with
us, which right lapses over time. Also includes 23,333 shares of common
stock issuable upon exercise of immediately exercisable options within 60
days of November 10, 2000, some of which shares are also subject to our
right of repurchase.
(15) Includes 81,866 shares subject to repurchase by us at the original
exercise price in the event of termination of Mr. Abolfathi's employment
with us, which right lapses over time. Also includes 50,000 shares of
common stock issuable upon exercise of immediately exercisable options
within 60 days of November 10, 2000, some of which shares are also
subject to our right of repurchase.
(16) Includes 117,214 shares subject to repurchase by us at the original
exercise price in the event of termination of Mr. Heslin's employment
with us, which repurchase right lapses over time.
(17) Includes 100,000 shares subject to repurchase by us at the original
exercise price in the event of termination of Mr. Skieller's employment
with us, which repurchase right lapses over time. Also includes 17,214
shares of common stock issuable upon exercise of immediately exercisable
options within 60 days of November 10, 2000, which shares are subject to
our right of repurchase.
(18) Includes 32,000 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of November 10, 2000,
which shares are subject to repurchase by us.
(19) Includes 3,176,890 shares held by entities affiliated with Kleiner
Perkins Caufield & Byers. Mr. Lacob disclaims beneficial ownership of
these shares except to the extent of his pecuniary interest in these
shares. Also includes 30,000 shares of common stock issuable upon
exercise of immediately exercisable options within 60 days of November
10, 2000, of which 10,000 shares are subject to repurchase by us.
(20) Includes 32,000 shares subject to repurchase by us at the original
exercise price, which repurchase right lapses over time.
(21) Consists of 1,241,901 shares held by Domain Partners III, L.P., 33,212
shares held by DP III Associates, L.P. and 30,000 shares held by Domain
Associates L.L.C., of which
57
<PAGE>
13,125 shares are subject to repurchase by us. Brian Dovey, one of our
directors, is a general partner of One Palmer Square Associates II, LLC,
the general partner of Domain Partners II, L.P. and DP III Associates, L.P.
and is a managing member of Domain Associates, L.L.C. Mr. Dovey shares
voting and investment power with respect to these shares and disclaims
beneficial ownership of such shares except to the extent of his
proportionate interest therein.
(22) Includes 130,000 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of November 10, 2000, which
shares are also subject to our right of repurchase.
(23) Includes 210,000 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of November 10, 2000, which
shares are also subject to our right of repurchase.
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
At the closing of this offering, we will be authorized to issue 60,000,000
shares of common stock, $0.0001 par value, and 5,000,000 shares of undesignated
preferred stock, $0.0001 par value, after giving effect to the amendment of our
certificate of incorporation to delete references to the existing preferred
stock following conversion of that stock. Immediately following the completion
of this offering, and assuming no exercise of the underwriters' over-allotment
option, based on the number of shares outstanding as of September 30, 2000, and
718,355 shares of Series D preferred stock issued in October 2000, a total of
shares of common stock will be issued and outstanding, and no shares of
preferred stock will be issued and outstanding.
The following description of our capital stock and certain provisions of our
certificate of incorporation is a summary and is qualified in its entirety by
the provisions of our certificate of incorporation, where such rights are set
forth in full, and the provisions of applicable laws.
Common Stock
At September 30, 2000, 3,594,196 shares of common stock were outstanding,
options to purchase 2,155,998 shares of common stock were outstanding and
options to purchase an aggregate of 1,177,621 shares of common stock were
available for future grant pursuant to our 1997 Plan. The holders of common
stock are entitled to one vote for each share held of record on all matters
submitted to a vote of the stockholders.
Subject to preferences that may be applicable to any then outstanding shares
of preferred stock, holders of common stock are entitled to receive ratably
such dividends as may be declared by the Board of Directors out of funds
legally available therefore. In the event of our liquidation, dissolution or
winding up, holders of the common stock are entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation preference of
any then outstanding shares of preferred stock. Holders of common stock have no
preemptive rights and no right to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable to
the common stock. All outstanding shares of common stock are fully paid and
nonassessable.
Preferred Stock
Our board of directors is authorized to issue from time to time, without
stockholder authorization, in one or more designated series, authorized but
unissued shares of preferred stock, with any dividend, redemption, conversion
and exchange provisions as may be provided in the particular series. Any series
of preferred stock may possess voting, dividend, liquidation and redemption
rights superior to those of the common stock.
The rights of the holders of our common stock will be subject to, and may be
adversely affected by, the rights of the holders of any preferred stock that
may be issued in the future. Issuance of a new series of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of entrenching our board of
directors and making it more difficult for a third party to acquire, or
discourage a third-party from acquiring, a majority of our outstanding voting
stock. We have no present plans to issue any shares of or designate any series
of preferred stock.
59
<PAGE>
Warrants
At September 30, 2000, there were warrants outstanding to purchase a total
of 322,917 shares of our preferred stock. Following the closing of the
offering, the warrants automatically will become exercisable for the same
number of shares of common stock and will expire five years thereafter if not
exercised. Some of these warrants have net exercise provisions under which the
holder may, in lieu of payment of the exercise price in cash, surrender the
warrants and receive a net amount of shares based on the fair market value of
our common stock at the time of exercise of the warrants after deduction of the
total exercise price.
Registration Rights
Upon completion of the offering, the holders of an aggregate of
approximately shares of common stock as well as warrants to purchase up
to approximately 322,917 shares of our common stock will be entitled to certain
rights with respect to the registration of the shares under the Securities Act.
These rights are provided under the terms of agreements between us and the
holders of these securities. If we propose to register any of our securities
under the Securities Act, either for our own account or for the account of
other security holders exercising registration rights, these holders are
entitled to notice of the registration and are entitled to include shares of
common stock in the registration. The rights are subject to conditions and
limitations, among them the right of the underwriters of an offering subject to
the registration to limit the number of shares included in the registration. At
any time following 180 days after this offering, holders of these rights may
also require us to file up to two registration statements under the Securities
Act at our expense with respect to their shares of common stock, and we are
required to use our best efforts to effect the registration, subject to
conditions and limitations. Furthermore, stockholders with registration rights
may require us to file additional registration statements on Form S-3, subject
to conditions and limitations. Upon registration, these shares will be freely
tradable in the public market without restriction.
Antitakeover Effects of Provisions of the Certificate of Incorporation, Bylaws
and Delaware Law
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a Delaware corporation
from engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder, unless:
. prior to that date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of our voting stock outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by:
(i) persons who are directors and also officers; and
(ii) employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer; or
. on or subsequent to that date, the business combination is approved by
the board of directors of the corporation and authorized at an annual or
special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock
that is not owned by the interested stockholder.
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<PAGE>
Section 203 defines "business combination" to include the following:
. any merger or consolidation involving the corporation and the interested
stockholder;
. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
. subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
. any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series
of the corporation beneficially owned by the interested stockholder; or
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by any of these entities or persons.
Our certificate of incorporation:
. provides that any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting
of stockholders and not by written consent;
. provides that the authorized number of directors may be changed only by
our board of directors; and
. authorizes our board of directors to issue blank check preferred stock
to increase the amount of outstanding shares.
Our bylaws provide that candidates for director may be nominated, and
proposals for business to be considered by the stockholders at an annual
meeting may be made, only by our board of directors or by a stockholder who
gives us written notice no later than 90 days or no earlier than 120 days prior
to the first anniversary of the date of the preceding year's annual meeting,
subject to certain adjustments.
Delaware law and the foregoing provisions of our certificate of
incorporation and bylaws and the issuance of preferred stock in certain
circumstances may have the effect of deterring hostile takeovers or delaying
changes in control of our management, which could depress the market price of
our common stock.
Transfer Agent and Registrar
Our transfer agent and registrar for our common stock is Equiserve L.P.
Listing
We have applied to list our common stock on the Nasdaq National Market under
the trading symbol ALGN.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of common stock
outstanding. Of these shares, the shares sold in this offering will be
freely tradable without restriction under the Securities Act, unless purchased
by our "affiliates," as that term is defined in Rule 144 under the Securities
Act. A significant number of shares of our stock outstanding prior to this
offering is subject to 180-day lock-up agreements, and may not be sold in the
public market prior to the expiration of the lock-up agreements. Deutsche Bank
Securities Inc. may release the shares subject to the lock-up agreements in
whole or in part at any time without prior public notice. However, Deutsche
Bank Securities Inc. has no current plans to effect such a release. Upon the
expiration of the lock-up agreements, approximately additional shares will
be available for sale in the public market, subject in some cases to compliance
with the volume and other limitations of Rule 144.
<TABLE>
<CAPTION>
Days after Date Shares
of this Prospectus Eligible for Sale Comment
------------------ ----------------- -------
<C> <C> <S>
Upon effectiveness........ Freely tradable shares eligible
for sale under Rule 144(k) and
not locked-up
90 days................... Shares not locked-up and saleable
under Rules 144 and 701
180 days.................. Lock-up released, shares saleable
under Rules 144 and 701
Various dates thereafter.. Restricted securities held for
one year or less as of 180 days
following effectiveness
</TABLE>
Rule 144
In general, under Rule 144 a person (or persons whose shares are aggregated)
who has beneficially owned shares for at least one year is entitled to sell
within any three-month period commencing 90 days after the date of this
prospectus a number of shares that does not exceed the greater of
. 1% of the then outstanding shares of our common stock (approximately
shares immediately after this offering) or
. the average weekly trading volume during the four calendar weeks
preceding such sale, subject to the filing of a Form 144 with respect to
the sale.
A person (or persons whose shares are aggregated) who is not deemed to have
been our affiliate at any time during the 90 days immediately preceding the
sale who has beneficially owned his or her shares for at least two years is
entitled to sell these shares pursuant to Rule 144(k) without regard to the
limitations described above. Affiliates must always sell pursuant to Rule 144,
even after the applicable holding periods have been satisfied.
We cannot estimate the number of shares that will be sold under Rule 144, as
this will depend on the market price for our common stock, the personal
circumstances of the sellers and other factors. Prior to this offering, there
has been no public market for our common stock, and there can be no assurance
that a significant public market for our common stock will develop or be
sustained after this offering. Any future sale of substantial amounts of our
common stock in the open market may adversely affect the market price of our
common stock.
62
<PAGE>
Lock-Up Agreements
We and our directors, executive officers and certain of our stockholders
have agreed, pursuant to the underwriting agreement and other agreements, not
to sell any of our common stock without the prior consent of Deutsche Bank
Securities Inc. until 180 days from the date of this prospectus. Transfers or
dispositions can be made sooner only with the prior written consent of Deutsche
Bank Securities Inc.
Stock Options
We intend to file a registration statement on Form S-8 under the Securities
Act to register shares of our common stock that are subject to outstanding
options or reserved for issuance under our 1997 Plan, our 2001 Plan and our
Purchase Plan 90 days following the effectiveness of this registration
statement, which permits the resale of these shares by nonaffiliates in the
public market without restriction under the Securities Act.
Rule 701
Any of our employees or consultants who purchased his or her shares pursuant
to a written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701, which permits nonaffiliates to sell their Rule 701
shares without having to comply with the public information, holding period,
volume limitations or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus.
Registration Rights
After this offering the holders of warrants to purchase 322,917 shares of
our common stock will be entitled to certain rights with respect to
registration of such shares under the Securities Act. Registration of these
shares under the Securities Act would result in these shares becoming freely
tradable without restriction under the Securities Act except for shares
purchased by affiliates. See "Description of Capital Stock--Registration
Rights."
63
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Deutsche Bank
Securities Inc., Bear, Stearns & Co. Inc., J.P. Morgan Securities Inc. and
Robertson Stephens Inc., have severally agreed to purchase from Align the
following respective number of shares of common stock at a public offering
price less the underwriting discounts and commissions set forth on the cover
page of this prospectus:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Deutsche Bank Securities Inc.......................................
Bear, Stearns & Co. Inc............................................
J.P. Morgan Securities Inc.........................................
Robertson Stephens Inc.............................................
----
Total............................................................
====
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock offered hereby are subject
to certain conditions precedent and that the underwriters will purchase all
shares of the common stock offered hereby, other than those covered by the
over-allotment option described below, if any of these shares are purchased.
The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover of this prospectus and to
dealers at a price that represents a concession not in excess of $ per
share under the public offering price. The underwriters may allow, and these
dealers may re-allow, a concession of not more than $ per share to other
dealers. After the initial public offering, representatives of the underwriters
may change the offering price and other selling terms.
We have granted to the underwriters an option, exercisable not later than 30
days after the date of this prospectus, to purchase up to
additional shares of common stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus. The underwriters may exercise this option only to cover over-
allotments made in connection with the sale of the common stock offered hereby.
To the extent that the underwriters exercise this option, each of the
underwriters will become obligated, subject to conditions, to purchase
approximately the same percentage of additional shares of common stock as the
number of shares of common stock to be purchased by it in the above tables
bears to the total number of shares of common stock offered hereby. We will be
obligated, pursuant to the option, to sell these additional shares of common
stock to the underwriters to the extent the option is exercised. If any
additional shares of common stock are purchased, the underwriters will offer
the additional shares on the same terms as those on which the shares are
being offered.
64
<PAGE>
The underwriting fee is equal to the public offering price per share of
common stock less the amount paid by the underwriters to us per share of common
stock. The underwriting fee is currently expected to be approximately 7% of the
initial public offering price. We have agreed to pay the underwriters the
following fees, assuming either no exercise or full exercise by the
underwriters of the underwriters' over-allotment option:
<TABLE>
<CAPTION>
Total Fees
---------------------------------
With Full
Without Exercise Exercise of
of Over- Over-
Fee Per Share Allotment Option Allotment Option
------------- ---------------- ----------------
<S> <C> <C> <C>
Fees paid by Align Technology,
Inc.......................... $ $ $
</TABLE>
In addition, we estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $ .
We have agreed to indemnify the underwriters against some specified types of
liabilities, including liabilities under the Securities Act, and to contribute
to payments the underwriters may be required to make in respect of any of these
liabilities.
Each of our officers and directors, and certain holders of our stock, have
agreed not to offer, sell, contract to sell or otherwise dispose of, or enter
into any transaction that is designed to, or could be expected to, result in
the disposition of any shares of our common stock or other securities
convertible into or exchangeable or exercisable for shares of our common stock
or derivatives of our common stock owned by these persons prior to this
offering or common stock issuable upon exercise of options or warrants held by
these persons for a period of 180 days after the effective date of the
registration statement of which this prospectus is a part without the prior
written consent of Deutsche Bank Securities Inc. This consent may be given at
any time without public notice. We have entered into a similar agreement with
the representatives of the underwriters, except that we may grant options and
issue shares under our 1997 Plan and 2001 Plan and sell shares under our
Purchase Plan. In addition, we can sell up to an aggregate of 1,000,000 shares
to strategic and corporate partners and equipment lessors without such consent.
There are no agreements between the representatives and any of our stockholders
or affiliates releasing them from these lock-up agreements prior to the
expiration of the 180-day period.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of our common stock. Specifically, the underwriters may over-allot
shares of our common stock in connection with this offering, thus creating a
short position in our common stock for their own account. A short position
results when an underwriter sells more shares of common stock than that
underwriter is committed to purchase. Additionally, to cover these over-
allotments or to stabilize the market price of our common stock, the
underwriters may bid for and purchase shares of our common stock in the open
market. Finally, the representatives, on behalf of the underwriters, may also
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
These transactions may be effected on the Nasdaq National Market or otherwise.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
65
<PAGE>
At our request, the underwriters have reserved for sale up to shares, at
the initial public offering price, for our vendors, employees, family members
of employees, customers and other third parties. The number of shares of our
common stock available for sale to the general public will be reduced to the
extent these reserved shares are purchased. Any reserved shares that are not
purchased by these persons will be offered by the underwriters to the general
public on the same basis as the other shares in this offering.
Pricing of This Offering
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock has
been determined by negotiation among us and the representatives of the
underwriters. Among the primary factors considered in determining the public
offering price were:
. prevailing market conditions;
. our results of operations in recent periods;
. the present stage of our development;
. the market capitalization and stage of development of other companies
that we and the representatives of the underwriters believe to be
comparable to our business; and
. estimates of our business potential.
The estimated initial public offering price range set forth on the cover of
this preliminary prospectus is subject to change as a result of market
conditions and other factors.
LEGAL MATTERS
The validity of the common stock offered will be passed upon for us by
Brobeck, Phleger & Harrison LLP, San Francisco, California. Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California, is acting
as counsel for the underwriters in connection with selected legal matters
relating to the shares of common stock offered by this prospectus.
EXPERTS
The consolidated financial statements as of December 31, 1998 and 1999 and
for the period from April 3, 1997 (Date of inception) to December 31, 1997 and
for each of the two years in the period ended December 31, 1999, included in
this prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
66
<PAGE>
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, under the Securities Act a registration statement on Form S-1 relating
to the common stock offered. This prospectus does not contain all of the
information set forth in the registration statement and its exhibits and
schedules. For further information with respect to us and the shares we are
offering pursuant to this prospectus, you should refer to the registration
statement and its exhibits and schedules. Statements contained in this
prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete, and you should refer to the copy of
that contract or other document filed as an exhibit to the registration
statement. You may read or obtain a copy of the registration statement,
including exhibits, at the commission's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Each statement in this prospectus
relating to a contract or document filed as an exhibit is qualified in all
respects by the filed exhibit. You may obtain information on the operation of
the public reference room by calling the commission at 1-800-SEC-0330. The
commission maintains a website that contains reports, proxy information
statements and other information regarding registrants that file electronically
with the commission. The address of this website is http://www.sec.gov.
As a result of the offering, the information and reporting requirements of
the Securities Exchange Act of 1934 will apply to us. We intend to furnish
holders of our common stock with annual reports containing, among other
information, audited financial statements certified by an independent public
accounting firm and quarterly reports containing unaudited condensed financial
information for the first three quarters of each fiscal year. We intend to
furnish other reports as we may determine or as may be required by law.
67
<PAGE>
ALIGN TECHNOLOGY, INC.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Deficit........................... F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Align Technology, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' deficit and of cash
flows present fairly, in all material respects, the financial position of Align
Technology, Inc. at December 31, 1998 and 1999, and the results of their
operations and their cash flows for the period from April 3, 1997 (date of
inception) to December 31, 1997 and for the years ended December 31, 1998 and
1999, in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
San Jose, California
August 18, 2000, except for Note 11 for
which the date is November 13, 2000
F-2
<PAGE>
ALIGN TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
Equity at
December 31, September 30,
----------------- September 30, 2000
1998 1999 2000 (Note 2)
------- -------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 2,471 $ 6,832 $ 33,940
Restricted cash................ -- 340 18,127
Marketable securities.......... 4,452 5,253 3,927
Accounts receivable, net of
allowance for doubtful
accounts of none, $33 and $300
at December 31, 1998 and 1999
and September 30, 2000,
respectively.................. -- 314 2,179
Inventories.................... -- 366 667
Deferred costs................. -- -- 1,380
Other current assets........... 285 669 1,914
------- -------- --------
Total current assets......... 7,208 13,774 62,134
Property and equipment, net.... 770 3,317 11,938
Other assets................... 139 -- 1,495
------- -------- --------
Total assets................. $ 8,117 $ 17,091 $ 75,567
======= ======== ========
LIABILITIES, CONVERTIBLE
PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............... $ 257 $ 1,572 $ 10,762
Accrued liabilities............ 129 2,050 2,033
Deferred revenue............... -- 119 1,145
Current portion of capital
lease obligations............. 7 6 436
------- -------- --------
Total current liabilities.... 393 3,747 14,376
Capital lease obligations, net
of current portion............ 10 3 1,569
------- -------- --------
Total liabilities............ 403 3,750 15,945
------- -------- --------
Commitments and contingencies
(Note 4)
Convertible preferred stock:
$0.0001 par value;
Authorized: 13,605 shares;
Issued and outstanding: 5,534,
8,127 and 12,176 shares at
December 31, 1998, 1999 and
September 30, 2000
(unaudited), respectively,
and none pro forma (aggregate
liquidation preference:
$32,996 at December 31, 1999
and $119,034 at September 30,
2000 (unaudited))............ 12,223 31,713 113,890 $ --
Notes receivable from
stockholders.................. (76) -- -- --
Preferred stock warrants (Note
6)............................ -- 1,042 1,818 --
------- -------- -------- --------
12,147 32,755 115,708 --
------- -------- -------- --------
Stockholders' equity (deficit):
Common stock: $0.0001 par
value
Authorized: 60,000 shares;
Issued and outstanding: 2,678,
2,821 and 3,594 shares at
December 31, 1998, 1999 and
September 30, 2000
(unaudited), respectively,
and 15,807 shares pro forma
(unaudited).................. -- -- -- 2
Additional paid-in capital.... 6 2,220 91,926 207,632
Deferred stock-based
compensation................. -- (1,780) (74,847) (74,847)
Accumulated deficit .......... (4,439) (19,854) (73,165) (73,165)
------- -------- -------- --------
Total stockholders' equity
(deficit)................... (4,433) (19,414) (56,086) $ 59,622
------- -------- -------- ========
Total liabilities,
convertible preferred stock
and warrants, and
stockholders' equity
(deficit)................... $ 8,117 $ 17,091 $ 75,567
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
ALIGN TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period from
April 3, 1997 Year Ended Nine Months
(date of Dec. 31, Ended Sept. 30,
inception) to ----------------- -----------------
Dec. 31, 1997 1998 1999 1999 2000
------------- ------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue--Ancillary
products................. $ -- $ -- $ 313 $ 70 $ 950
Revenue--Invisalign....... -- -- 98 7 2,286
------ ------- -------- ------- --------
Total revenue........... -- -- 411 77 3,236
------ ------- -------- ------- --------
Cost of revenue--Ancillary
products................. -- -- 246 62 912
Cost of revenue and
manufacturing start-up
costs--Invisalign........ -- -- 1,508 295 10,401
------ ------- -------- ------- --------
Total cost of revenue... -- -- 1,754 357 11,313
------ ------- -------- ------- --------
Gross loss................ -- -- (1,343) (280) (8,077)
------ ------- -------- ------- --------
Operating expenses:
Sales and marketing...... 283 133 5,688 2,726 19,664
General and
administrative.......... -- 2,344 3,474 2,000 12,349
Research and
development............. 405 1,474 4,200 3,068 5,904
------ ------- -------- ------- --------
Total operating
expenses............... 688 3,951 13,362 7,794 37,917
------ ------- -------- ------- --------
Loss from operations...... (688) (3,951) (14,705) (8,074) (45,994)
Interest income........... 25 185 362 148 1,514
Interest expense.......... -- -- (986) (639) (8,807)
Other expense............. (1) (9) (86) (8) (24)
------ ------- -------- ------- --------
Net loss.................. (664) (3,775) (15,415) (8,573) (53,311)
Dividend related to
beneficial conversion
feature of preferred
stock.................... -- -- -- -- (44,150)
------ ------- -------- ------- --------
Net loss available to
common stockholders...... $ (664) $(3,775) $(15,415) $(8,573) $(97,461)
====== ======= ======== ======= ========
Net loss per share
available to common
stockholders, basic and
diluted.................. $(0.86) $ (2.66) $ (7.31) $ (4.22) $ (35.87)
====== ======= ======== ======= ========
Shares used in computing
net loss per share
available to common
stockholders, basic and
diluted.................. 771 1,421 2,109 2,030 2,717
====== ======= ======== ======= ========
Pro forma net loss per
share available to common
stockholders, basic and
diluted (unaudited) (Note
2)....................... $ (1.85) $ (4.22)
======== ========
Shares used in computing
pro forma net loss per
share available to common
stockholders, basic and
diluted (unaudited)
(Note 2)................. 8,339 12,635
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ALIGN TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the period from April 3, 1997 (date of inception) to December 31, 1997 and
for the years ended December 31, 1998 and 1999 and for the nine months ended
September 30, 2000 (unaudited)
(in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Deferred
-------------- Paid-In Stock Accumulated
Shares Amount Capital Compensation Deficit Total
------ ------ ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock
for services rendered.. 2,430 $ -- $ 1 $ -- $ -- $ 1
Stock options
exercised.............. 490 -- 2 -- -- 2
Issuance of common
stock.................. 80 -- -- -- -- --
Net loss................ -- -- -- -- (664) (664)
----- ----- -------- -------- -------- --------
Balance at December 31,
1997................... 3,000 -- 3 -- (664) (661)
Repurchase of common
stock.................. (370) -- (2) -- -- (2)
Stock options
exercised.............. 46 -- 5 -- -- 5
Issuance of common
stock.................. 2 -- -- -- -- --
Net loss................ -- -- -- -- (3,775) (3,775)
----- ----- -------- -------- -------- --------
Balance at December 31,
1998................... 2,678 -- 6 -- (4,439) (4,433)
Repurchase of common
stock ................. (21) -- (2) -- -- (2)
Stock options
exercised.............. 164 -- 42 -- -- 42
Deferred stock
compensation, net of
cancellations.......... -- -- 2,174 (2,174) -- --
Amortization of deferred
stock compensation..... -- -- -- 394 -- 394
Net loss................ -- -- -- -- (15,415) (15,415)
----- ----- -------- -------- -------- --------
Balance at December 31,
1999................... 2,821 -- 2,220 (1,780) (19,854) (19,414)
Stock options
exercised.............. 821 -- 680 -- -- 680
Repurchase of common
stock ................. (48) -- (38) -- -- (38)
Deferred stock
compensation, net of
cancellations.......... -- -- 80,970 (80,970) -- --
Amortization of deferred
stock compensation..... -- -- -- 7,903 -- 7,903
Charge for accelerated
vesting of employee
stock options.......... -- -- 405 -- -- 405
Issuance of bridge loan
with beneficial
conversion feature..... -- -- 7,689 -- -- 7,689
Issuance of preferred
stock with beneficial
conversion feature..... -- -- 44,150 -- -- 44,150
Deemed dividend on
preferred stock........ -- -- (44,150) -- -- (44,150)
Net loss................ -- -- -- -- (53,311) (53,311)
----- ----- -------- -------- -------- --------
Balance at September 30,
2000 (unaudited)....... 3,594 $ -- $ 91,926 $(74,847) $(73,165) $(56,086)
===== ===== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ALIGN TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period from
April 3, 1997 Year Ended Nine Months
(date of Dec. 31, Ended Sept. 30,
inception) to ----------------- -----------------
Dec. 31, 1997 1998 1999 1999 2000
------------- ------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss.................. $ (664) $(3,775) $(15,415) $(8,573) $(53,311)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization............. 16 115 559 331 1,465
Amortization of deferred
compensation............. -- -- 394 184 7,903
Amortization of
accelerated vesting of
stock options............ -- -- -- -- 405
Gain on sale of
property................. -- 32 -- -- --
Allowance for doubtful
accounts................. -- -- 33 -- 267
Amortization of
capitalized financing
costs and debt
discount................. -- -- 984 637 776
Non-cash interest expense
on bridge loans.......... -- -- -- -- 7,689
Changes in operating
assets and liabilities:
Accounts receivable...... -- -- (347) (94) (2,132)
Deferred costs........... -- -- -- -- (1,380)
Inventories.............. -- -- (366) (144) (301)
Other assets............. (9) (415) (187) (90) (2,740)
Accounts payable......... 90 167 672 134 9,190
Deferred revenue......... -- -- 119 14 1,026
Accrued liabilities...... 45 84 1,921 826 (17)
------- ------- -------- ------- --------
Net cash used in
operating activities... (522) (3,792) (11,633) (6,775) (31,160)
------- ------- -------- ------- --------
Cash flows from investing
activities:
Purchase of property and
equipment................ (136) (973) (2,463) (1,652) (7,877)
Increase in restricted
cash..................... -- -- (340) (6) (17,787)
Purchase of marketable
securities .............. (1,470) (6,451) (5,906) (1,582) (4,013)
Maturities of marketable
securities .............. -- 2,665 3,365 3,389 1,250
Proceeds from sale of
marketable securities ... -- 804 1,740 1,625 4,089
Proceeds from sale of
property................. -- 198 -- -- --
------- ------- -------- ------- --------
Net cash provided by
(used in) investing
activities............. (1,606) (3,757) (3,604) 1,774 (24,338)
------- ------- -------- ------- --------
Cash flows from financing
activities:
Proceeds from issuance of
common stock............. 3 5 42 -- 680
Proceeds from issuance of
convertible preferred
stock, net of issuance
costs.................... 2,164 9,983 18,740 17,851 68,177
Proceeds from note
receivable for preferred
stock.................... -- -- 76 76 --
Repurchase common stock... -- (2) (2) (2) (38)
Proceeds from convertible
subordinated notes....... -- -- 750 -- 14,000
Proceeds from draw down of
line of credit........... -- -- -- -- 5,000
Repayment of line of
credit................... -- -- -- -- (5,000)
Payments on capital lease
obligations.............. (2) (3) (8) (5) (213)
------- ------- -------- ------- --------
Net cash provided by
financing activities... 2,165 9,983 19,598 17,920 82,606
------- ------- -------- ------- --------
Net increase in cash and
cash equivalents.......... 37 2,434 4,361 12,919 27,108
Cash and cash equivalents,
beginning of period....... -- 37 2,471 2,471 6,832
------- ------- -------- ------- --------
Cash and cash equivalents,
end of period............. $ 37 $ 2,471 $ 6,832 $15,390 $ 33,940
======= ======= ======== ======= ========
Supplemental cash flow
information:
Taxes paid................ $ 1 $ 4 $ 1 $ -- $ 1
======= ======= ======== ======= ========
Interest paid............. $ -- $ -- $ 614 $ -- $ 342
======= ======= ======== ======= ========
Noncash investing and
financing activities:
Note receivable for
preferred stock.......... $ -- $ 76 $ -- $ -- $ --
======= ======= ======== ======= ========
Fixed assets acquired
under capital lease...... $ 8 $ 14 $ -- $ -- $ 2,209
======= ======= ======== ======= ========
Fixed assets acquired with
accounts payable......... $ -- $ -- $ 643 $ -- $ --
======= ======= ======== ======= ========
Transfer of accounts
payable to capital lease
obligation............... $ -- $ -- $ -- $ -- $ 643
======= ======= ======== ======= ========
Issuance of warrants in
conjunction with line of
credit financing......... $ -- $ -- $ 1,042 $ 1,042 $ 776
======= ======= ======== ======= ========
Deferred stock based
compensation............. $ -- $ -- $ 2,174 $ 674 $ 80,970
======= ======= ======== ======= ========
Conversion of convertible
subordinated notes into
convertible preferred
stock.................... $ -- $ -- $ 750 $ -- $ 14,000
======= ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
ALIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Organization:
Formation and business of the Company
Align Technology, Inc., (the "Company") was incorporated in April 1997 and
is engaged in the development, manufacturing and marketing of the Invisalign
System (the "System"), used for treating malocclusion, or the misalignment of
teeth. The System uses a series of clear plastic "Aligners" to move the
patients' teeth in small increments from their original state to a final
treated state. The Company has exited the development stage as of July 2000.
Note 2 Summary of Significant Accounting Policies:
Basis of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All intercompany transactions have been
eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited interim results
The accompanying interim consolidated financial statements for the nine
months ended September 30, 1999 and 2000, together with the related notes, are
unaudited. The unaudited interim financial statements have been prepared on the
same basis as the annual financial statements and, in the opinion of
management, reflect all adjustments, which include only normal recurring
adjustments, necessary to present fairly the Company's results of their
operations and their cash flows for the nine months ended September 30, 1999
and 2000. The results of operations for any interim period are not necessarily
indicative of the results of operations for the full year.
Unaudited pro forma stockholders' equity
If the offering contemplated by this prospectus is consummated, all of the
convertible preferred stock outstanding at September 30, 2000 will
automatically convert into 12,212,175 shares of common stock. Unaudited pro
forma stockholders' equity, as adjusted for the assumed conversion of the
preferred stock, is set forth on the balance sheet.
Fair value of financial instruments
The carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents, short-term investments and accounts
payable approximate fair value due to their short maturities. Based on
borrowing rates currently available to the Company for leases with similar
terms, the carrying value of its lease obligations approximates fair value.
F-7
<PAGE>
ALIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Cash and cash equivalents and restricted cash
Cash equivalents are stated at cost, which approximates market value. The
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents. The Company invests
primarily in money market funds and commercial paper, accordingly, these
investments are subject to minimal credit and market risks.
Restricted cash
Restricted cash as of December 31, 1999 primarily comprises amounts held on
deposit which is required as a collateral for an outstanding Line of Credit
(see Note 5) and for security on customer credit card transactions.
Restricted cash as of September 30, 2000 is primarily comprised of $17.6
million held in escrow for deposits on future advertising (Note 4).
Marketable securities
Marketable securities are classified as available-for-sale in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Securities" and are carried at fair value.
Marketable securities classified as current assets have scheduled maturities of
less than one year. Unrealized holding gains or losses on such securities are
included in accumulated comprehensive income/(loss) in stockholders' deficit.
Realized gains and losses on sales of all such securities are reported in
earnings and computed using the specific identification cost method. There were
no unrealized gains or losses as of December 31, 1998 and 1999.
The cost and fair value of available-for-sale securities at December 31,
1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Cost Fair Value
------- ----------
<S> <C> <C>
Commercial paper........................................ $ 4,452 $4,452
------- ------
$ 4,452 $4,452
======= ======
</TABLE>
The cost and fair value of available-for-sale securities at December 31,
1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Cost Fair Value
------- ----------
<S> <C> <C>
Commercial paper........................................ $ 1,239 $1,239
Corporate notes......................................... 997 997
Medium term notes....................................... 3,017 3,017
------- ------
$ 5,253 $5,253
======= ======
</TABLE>
Certain risks and uncertainties
The Company's operating results depend to a significant extent on the
Company's ability to market and develop its products. The life cycles of the
Company's products are difficult to estimate due in part to the effect of
future product enhancements and competition. The inability of the Company to
successfully develop and market its products as a result of
F-8
<PAGE>
ALIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
competition or other factors would have a material adverse effect on the
Company's business, financial condition and results of operations.
Financial instruments which potentially expose the Company to concentrations
of credit risk consist primarily of cash equivalents and accounts receivable.
The Company invests excess cash primarily in money market funds of major
financial institutions, commercial paper and notes. The Company provides credit
to customers in the normal course of business. Collateral is not required for
accounts receivable, but ongoing credit evaluations of customers' financial
condition are performed. The Company maintains reserves for potential credit
losses and such losses have been within management's expectations.
In the U.S., the FDA regulates the design, manufacture, distribution,
preclinical and clinical study, clearance and approval of medical devices.
Products developed by the Company may require approvals or clearances from the
Food and Drug Administration ("FDA") or other international regulatory agencies
prior to commercialized sales. There can be no assurance that the Company's
products will receive any of the required approvals or clearances. If the
Company was denied approval or clearance or such approval was delayed, it may
have a material adverse impact on the Company.
The Company has manufacturing operations located outside the United States.
The Company currently relies on its manufacturing facilities in Pakistan to
create virtual treatment plans with the assistance of sophisticated software.
In addition, the Company relies on third party manufacturers in Mexico to
fabricate Aligners and to ship the completed product to the Company's
customers. The Company's reliance on international operations exposes it to
related risks and uncertainties, including; difficulties in staffing and
managing international operations; controlling quality of manufacture;
political, social and economic instability; interruptions and limitations in
telecommunication services; product and/or material transportation delays or
disruption; trade restrictions and changes in tariffs; import and export
license requirements and restrictions; fluctuations in currency exchange rates;
and potential adverse tax consequences. If any of these risks materialize, the
Company's international manufacturing operations, as well as its operating
results, may be harmed.
Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
Property and equipment
Property and equipment are stated at historical cost less accumulated
depreciation and amortization. Depreciation and amortization are computed using
the straight-line method over the estimated useful lives of the assets, which
range from three to seven years. Amortization of leasehold improvements is
computed using the straight-line method over the estimated useful lives of the
assets, or the remaining lease term, whichever is shorter. Upon sale or
retirement, the asset's cost and related accumulated depreciation are removed
from the accounts and any related gain or loss is reflected in operations.
Website development costs
The Company accounts for website development and related costs in accordance
with the AICPA Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed
F-9
<PAGE>
ALIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
or Obtained for Internal Use." Website development and related costs consist of
external and internal costs incurred to purchase and implement the website
software and significant enhancements used in the Company's business. Website
development costs of $35,000 had been capitalized as of December 31, 1999 and
are being amortized using the straight-line method over the estimated useful
life of the asset of two years. Amortization of website development costs
commenced in April 2000 upon launch of the website.
Internal and external costs of developing website content are expensed as
incurred and included in the accompanying Statement of Operations.
There was no other software developed or obtained for internal use or
capitalized in the period. No amortization of other software developed or
obtained was made in the period ended December 31, 1999.
Impairment of long-lived assets
The Company identifies and records impairment losses on long-lived assets
used in operations when events and circumstances indicate that the assets are
less than the carrying amounts of those assets. Recoverability is measured by
comparison of the assets carrying amount to future net undiscounted cash flows
the assets are expected to generate. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the projected discounted future net
cash flows arising from the asset. None of these events have occurred with
respect to the Company's long-lived assets, which consist primarily of
computers and equipment, furniture and fixtures and leasehold improvements.
Revenue recognition
Revenue from the Invisalign product and Ancillary product sales are
recognized upon receipt of a purchase order and product shipment provided no
significant obligations remain and collection of the receivables is deemed
probable. Up-front fees received in connection with the Invisalign product are
deferred and recognized over the associated product shipments. The costs of
producing the ClinCheck treatment plan, which are incurred prior to the
production of Aligners, are capitalized and recognized as related revenues are
earned.
The sales recorded by the Company through September 30, 2000 have had
significant losses. The Company estimates its loss on the sale, and records a
provision for the entire amount of estimated loss in the period such losses are
determined.
Research and development
Research and development costs are expensed as incurred.
Advertising costs
The cost of advertising is expensed as incurred. For the period from April
3, 1997 (date of inception) to December 31, 1997 and the years ended December
31, 1998 and December 31, 1999, advertising costs totaled none, $31,000 and
$1,722,000, respectively.
F-10
<PAGE>
ALIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income taxes
Income taxes are recorded under the liability method, under which deferred
tax assets and liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
Accounting for stock-based compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123").
Under APB 25, compensation expense for grants to employees is based on the
difference, if any, on the date of the grant, between the fair value of the
Company's stock and the option's exercise price. SFAS 123 defines a "fair
value" based method of accounting for an employee stock option or similar
equity investment. The pro forma disclosure of the difference between
compensation expense included in net loss and the related cost measured by the
fair value method is presented in Note 8.
The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS 123 and Emerging Issues Task Force Issue
No. 96-18, "Accounting for Equity Instruments that are Issued to Other Than
Employees, or in Conjunction with Selling Goods and Services," and Financial
Accounting Standards Board Interpretation No. 28, "Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award Plan" ("FIN 28").
Segments
The Company operates in one segment, using one measurement of profitability
to manage its business. There were no export sales.
The Company maintains two facilities in Pakistan which generate no revenue
and are comprised of none and $256,000 of identifiable assets as of December
31, 1998 and 1999, respectively.
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended December 31, 1999 and the
nine month period ended September 30, 2000 was computed using the weighted
average number of shares of common stock outstanding, including the pro forma
effect of the automatic conversion of all of the Company's preferred stock into
shares of the Company's common stock effective upon the closing of the
Company's initial public offering as if such conversion occurred on January 1,
1999 or at the date of original issuance, if later. The resulting pro forma
adjustment includes an increase in the weighted average shares used to compute
pro forma basic net loss per share of 6,230,000 shares and 9,918,000 shares for
the year ended December 31, 1999 and the nine month period ended September 30,
2000, respectively. The calculation of pro forma
F-11
<PAGE>
ALIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
diluted net loss per share excludes warrants and stock options as their effect
would be anti-dilutive.
Net loss per share
Basic and diluted net loss per share are computed by dividing the net loss
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 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) and the
denominator (number of shares) used in the basic and diluted EPS calculations
(in thousands, except per share data):
<TABLE>
<CAPTION>
Period from
April 3, 1997 Nine Months
(date of Ended September
inception) to Year Ended Year Ended 30,
December 31, December 31, December 31, -----------------
1997 1998 1999 1999 2000
------------- ------------ ------------ ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Basic and diluted:
Net loss available to
common stockholders... $ (664) $(3,775) $(15,415) $(8,573) $(97,461)
------ ------- -------- ------- --------
Weighted-average common
shares outstanding.... 2,779 2,810 2,667 2,659 3,127
Less: Weighted average
shares subject to
repurchase............ 2,008 1,389 558 629 410
------ ------- -------- ------- --------
Weighted-average shares
used in basic and
diluted net loss per
share................. 771 1,421 2,109 2,030 2,717
====== ======= ======== ======= ========
Net loss per share
available to common
stockholders........... $(0.86) $ (2.66) $ (7.31) $ (4.22) $ (35.87)
====== ======= ======== ======= ========
Proforma basic and diluted:
Net loss.......................................... $(15,415) $(53,311)
======== ========
Adjustments to reflect weighted-average effect of
assumed conversion of preferred stock
(unaudited)...................................... 6,230 9,918
======== ========
Weighted-average shares used in pro forma basic
and diluted net loss per share (unaudited)....... 8,339 12,635
======== ========
Pro forma basic and diluted net loss per share
(unaudited)...................................... $ (1.85) $ (4.22)
======== ========
</TABLE>
F-12
<PAGE>
ALIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth potential shares of common stock that are not
included in the diluted net loss per share because to do so would be anti-
dilutive for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Period from
April 3,
1997 (date
of Nine Months
inception) Year Ended Ended
to December 31, September 30,
December 31, ------------- --------------
1997 1998 1999 1999 2000
------------ ------ ------ --------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Preferred stock...................... 2,175 5,534 8,127 8,127 12,176
Options to purchase common stock..... 97 476 643 770 2,156
Common stock subject to repurchase... 1,930 889 327 392 697
Warrants............................. -- -- 267 267 323
----- ------ ------ ------ -------
4,202 6,899 9,364 9,556 15,352
===== ====== ====== ====== =======
</TABLE>
Recent accounting pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative investments, including certain derivative
instruments embedded in other contracts, and for hedging activities. In July
1999, the FASB issued SFAS No. 137, "Accounting for Derivative and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133." SFAS No.
137 deferred the effective date of SFAS No. 133 until fiscal years beginning
after June 15, 2000. The Company will adopt SFAS No. 133 during fiscal 2001. To
date, the Company has not engaged in derivative or hedging activities.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements," which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. SAB 101 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosures related to revenue
recognition policies. In June 2000, the SEC issued SAB 101B, "Second Amendment:
Revenue Recognition in Financial Statements" ("SAB 101B"). SAB 101B deferred
the implementation date of SAB 101 until no later than the fourth fiscal
quarter of fiscal years beginning after December 15, 1999. The Company has
evaluated SAB 101 and believes that its current revenue recognition is in
compliance with the SAB.
In March 2000, the FASB issued Interpretation No. 44, ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation--an
Interpretation of APB 25." This interpretation clarifies (a) the definition of
employee for purposes of applying Opinion 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. This interpretation is effective July 1,
2000, but certain conclusions in this interpretation cover specific events that
occur after either December 15, 1998, or January 12, 2000. To the extent that
this interpretation covers events occurring during the period after December
15, 1998, or January 12, 2000, but before the effective date of July 1, 2000,
the effects of applying this interpretation are recognized on a prospective
basis from July 1, 2000. The adoption of FIN 44 did not have a material impact
on the Company's financial statements.
F-13
<PAGE>
ALIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3 Balance Sheet Components:
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------ -------------
(unaudited)
<S> <C> <C>
Raw materials.................................. $ 73 $432
Finished goods................................. 293 235
---- ----
$366 $667
==== ====
</TABLE>
As of December 31, 1998, the Company had no inventory.
Property and Equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------
1998 1999
----- ------
<S> <C> <C>
Computer hardware........................................... $ 524 $1,580
Clinical equipment.......................................... 156 1,537
Computer software........................................... 9 302
Furniture and fixtures...................................... 129 313
Leasehold improvements...................................... 83 275
----- ------
901 4,007
Less: Accumulated depreciation and amortization............. (131) (690)
----- ------
$ 770 $3,317
===== ======
</TABLE>
Property and equipment includes $21,400 and $18,957 of assets under capital
leases at December 31, 1998 and 1999, respectively. Accumulated amortization of
assets under capital leases totaled $4,103 and $9,607 at December 31, 1998 and
1999, respectively.
Depreciation expense was $16,000, $115,000 and $559,000 for the period from
April 3, 1997 (date of inception) to December 31, 1997 and the years ended
December 31, 1998 and 1999, respectively.
Accrued and other current liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
December
31,
-----------
1998 1999
---- ------
<S> <C> <C>
Accrued payroll and benefits.................................. $ 33 $ 744
Accrued marketing expenses.................................... -- 385
Accrued loss reserve on product sales......................... -- 351
Other......................................................... 96 570
---- ------
$129 $2,050
==== ======
</TABLE>
Note 4 Commitments and Contingencies:
Operating lease
The Company leases two facilities in Sunnyvale, California expiring in
September and December 2000. One lease was paid in its entirety in advance in
1998, and accordingly is being amortized over the life of the lease. Total rent
expense was $16,000, $147,000 and $295,000 for
F-14
<PAGE>
ALIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the period from April 3, 1997 (date of inception) to December 31, 1997, and for
the years ended December 31, 1998 and 1999, respectively. The future minimum
lease payments under these noncancelable operating leases for the year ending
December 31, 2000 is $622,000.
In June 2000, the Company entered into a noncancelable operating lease to
lease a manufacturing facility in Santa Clara, California. The lease term is
for five years, commencing July 1, 2000. The Company paid $1,175,000 security
deposit upon execution of the lease.
In July 2000, the Company entered into an agreement to sublease additional
manufacturing space in Santa Clara, California. The lease term begins on July
14, 2000 and expires on August 14, 2002. A security deposit of $184,448 was
paid by the Company upon execution of the lease.
The minimum lease payments under these leases as of September 30, 2000 are
$1,450,000, $2,969,000, $2,701,000, $2,264,000, $2,355,000 and $1,177,000 for
the years ended December 31, 2000, 2001, 2002, 2003, 2004 and thereafter,
respectively.
Advertising Commitments
In May 2000, the Company entered into an escrow agreement between TBWA
Chiat/Day, Inc. ("TBWA") and Greater Bay Trust Company ("Escrow Agent"). TBWA
has been employed by the Company to procure non-cancellable television and
radio media time on behalf of the Company. In consideration of the services
provided by TBWA, the Company has agreed to deposit a certain amount with the
Escrow Agent for purposes of repaying TBWA. At September 30, 2000, the Company
had $17,787,000 held in money market funds with the Escrow Agent. This amount
has been classified as restricted cash.
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.
Capitalized lease obligations
The Company is leasing equipment from several leasing companies. Under the
terms of the capital lease obligations, which bear interest at 10.155% at
December 31, 1998 and December 31, 1999 and expire from May 2000 through
October 2001, the Company is responsible for insurance, transportation and
support service costs.
F-15
<PAGE>
ALIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum payments under capital lease obligations are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
<S> <C>
2000................................................................ $ 6
2001................................................................ 4
---
Minimum lease payments.............................................. 10
Less: Amount representing interest.................................. (1)
---
Present value of minimum lease payments............................. 9
Amount due within one year.......................................... (6)
---
Amount due after one year........................................... $ 3
===
</TABLE>
In February 2000, the Company leased a stereolithography apparatus from
Leasing Technologies International, Inc. ("LTI") under a master lease
agreement entered into between the Company and LTI in July 1999. Under the
terms of the lease, the value of the leased equipment is $729,000 at a
borrowing rate of 11.154% per annum. The term of the lease is for 48 months
with a bargain purchase option at the end of the lease to purchase the
equipment at 15% of the purchase price. Accordingly, the Company has
capitalized the leased equipment in accordance with SFAS 13, "Accounting for
Leases."
In May and June 2000, the Company leased two stereolithography machines
from 3D Capital Corporation ("3D") under a Master Lease Agreement entered into
in September 1999 for a total value of $1,479,000 at a borrowing rate of
6.533% per annum for a period of 60 months. The Company has capitalized these
machines in accordance with SFAS 13.
Note 5 Credit Facilities:
The Company had a $450,000 line of credit which expired on March 18, 1999.
This line of credit was not drawn against in either the year ended December
31, 1998 or December 31, 1999.
The Company entered into a line of credit agreement (the "Line") with a
financing institution (the "Lender") on April 12, 1999 to make available up to
an aggregate principal amount of $5,000,000. The Line is available in minimum
advances of $1,000,000 with each advance to be evidenced by a note bearing
interest at 12% per annum. The agreement requires that each note shall be
payable in 36 monthly installments of principal and interest. The assets of
the Company are pledged as collateral for the loan agreement. Under the Line,
the Company is required to maintain certain negative and financial covenants,
which require, among other things, written consent from the Lender prior to
the declaration and payment of dividends and sale of material assets of the
Company. The Company did not borrow money under this agreement in 1999. A
secured promissory note for the entire $5,000,000 was executed on April 12,
2000. In connection with this Line the Company issued 266,667 warrants to
purchase convertible preferred stock (Note 6).
In July 1999, the Company entered into an agreement with a leasing company
for a leasing line of credit of $1,000,000. Amounts borrowed under this
agreement bear interest at a rate of 11.154% and are collateralized by leased
assets. At December 31, 1999, the Company had not borrowed against this line
of credit.
In September 1999, the Company entered into an agreement with a leasing
company for a leasing line of credit of $3,000,000. Amounts borrowed under
this agreement bear interest at a
F-16
<PAGE>
ALIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
rate of 12.00% and are collateralized by leased assets. At December 31, 1999,
the Company had not borrowed against this line of credit.
In January 2000, the Company exercised its right to extend its draw period
relating to the Line entered into with the Lender. in April 1999 from an
original draw expiration date of January 2000 to October 2000. In conjunction
with the draw period extension, the Company issued the Lender a warrant to
purchase 56,250 shares of the Company's Series C preferred stock at a price of
$8.00 per share (Note 6). In April 2000, the Company drew down a total of
$5,000,000 against the line. The note was subsequently repaid in full in July
2000.
Note 6 Convertible Preferred Stock:
Convertible preferred stock
Convertible preferred stock consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------- September 30,
1998 1999 2000
------- ------- -------------
(unaudited)
<S> <C> <C> <C>
Series A: 2,175 shares authorized, issued and
outstanding at December 31, 1998, 1999 and
September 30, 2000 (unaudited) (liquidation
preference at September 30, 2000 (unaudited)
$2,175)........................................ $ 2,164 $ 2,164 $ 2,164
Series B: 3,825 shares authorized; 3,359 shares
issued and outstanding at December 31, 1998,
1999 and September 30, 2000 (unaudited)
(liquidation preference at September 30, 2000
(unaudited) $10,076)........................... 10,059 10,059 10,059
Series C: no shares authorized at December 31,
1998 and 2,656 shares authorized at December
31, 1999 and September 30, 2000 (unaudited); no
shares issued and outstanding at December 31,
1998 and 2,593 shares issued and outstanding at
December 31, 1999 and September 30, 2000
(unaudited) (liquidation preference at
September 30, 2000 (unaudited) $20,745)........ -- 19,490 19,490
Series D: none, none and 4,949 shares authorized
at December 31, 1998, 1999 and September 30,
2000 (unaudited), respectively; none, none and
4,049 shares issued and outstanding at
December 31, 1998, 1999 and September 30, 2000
(unaudited), respectively (liquidation
preference at September 30, 2000 (unaudited)
$86,038)....................................... -- -- 82,177
------- ------- --------
$12,223 $31,713 $113,890
======= ======= ========
</TABLE>
Sale of preferred securities
In May and June 2000, the Company sold 4,048,836 shares of Series D
preferred shares for gross proceeds of $86,000,000. Included in the 4,048,836
total shares issued, the Company issued 660,601 Series D shares upon the
conversion of the Convertible Subordinated Promissory Notes financing (the
"Notes") and associated interest as discussed below. The
F-17
<PAGE>
ALIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
issuance of Series D convertible preferred stock resulted in a beneficial
conversion feature, calculated in accordance with Emerging Issues Task Force
Issue No. 98-5, "Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios." Accordingly,
the Company has recognized $44,150,000 as a charge to additional paid in
capital to account for the deemed dividend on the preferred stock as of the
issuance date in the September 30, 2000 unaudited interim financial statements.
In addition, the Series D preferred shares have certain contingent rights and
preferences which, if perfected, could cause the Company to record an
incremental beneficial conversion feature charge.
The Company has accounted for a beneficial conversion feature embedded in
convertible subordinated notes (the "Notes") entered into on May 15, 2000. The
beneficial conversion feature, amounting to $7,689,000, represents an
additional interest yield on the debt which may be converted at any time at the
option of the holders into immediately convertible preferred stock.
Accordingly, the beneficial conversion feature has been recorded as an
immediate charge to interest expense in May 2000. Under the terms of the loan
agreement, the Notes, and associated accrued interest, were converted into the
Company's convertible Series D preferred stock ("Series D shares") in May 2000.
The Company sold the Notes, in the aggregate face amount of $14,000,000,
bearing a stated interest rate of 10% per annum and a maturity date one month
from the date of issuance.
Convertible subordinated note
During 1999, the Company issued $750,000 in convertible subordinated notes
payable to certain preferred stockholders. The amount subsequently converted
into 93,750 shares of Series C convertible preferred stock at $8 per share.
The rights, preferences and privileges of Series A, Series B, Series C and
Series D preferred stock are as follows:
Voting rights
Holders of Series A, Series B, Series C and Series D preferred stock are
entitled to one vote for each share of common stock into which such shares can
be converted. Certain votes, as defined in the Company's Articles of
Incorporation, require the approval of at least a majority of Series A, Series
B, Series C and Series D preferred stock stockholders. The holders of Series A
and Series B preferred stock, voting as separate classes, are each entitled to
elect one member to the Company's Board of Directors. Beginning January 1,
2001, the holders of the Series D preferred stock are entitled to elect one
member of Align's Board of Directors in the event that the Company has not yet
closed an initial public offering of its common stock at that time. The holders
of common stock and Preferred Stock, voting together as a single class, are
entitled to elect all remaining members of the Board of Directors.
Dividends
The holders of Series A, Series B, Series C and Series D preferred stock are
entitled to noncumulative dividends, when and if declared by the Board of
Directors, in the amount of $0.08, $0.24, $0.64 and $1.70, respectively, per
share per annum, on each outstanding share of Series A, Series B, Series C and
Series D preferred stock, subject to certain adjustments. No dividends have
been declared or paid as of June 30, 2000.
F-18
<PAGE>
ALIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Conversion rights
Shares of Series A, Series B, Series C and Series D preferred stock are
convertible into common stock at the option of the holder or automatically upon
a public offering of at least $75,000,000 of common stock or upon the written
consent of the holders of more than two-thirds of the then outstanding shares
of Series A, Series B, Series C and Series D preferred stock. The conversion
rate is one share of common stock for one share of preferred stock (subject to
certain adjustments). In the event of a sale of common stock below any
preferred stock conversion price, such preferred stock conversion price shall
be adjusted. In addition, in the event that the Company issues more than
1,665,989 additional shares of common stock, as defined, before the earlier of
January 31, 2001, or the effectiveness of a registration statement, the Series
D conversion price will be adjusted as of such date. As of September 30, 2000,
the Company has issued 137,015 stock options above the 1,665,989 shares as
defined above. As a result the Series D stockholders would receive an
additional 36,663 shares of common stock upon conversion of the preferred
stock.
Liquidation
In the event of liquidation or sale of the Company, each class of preferred
stock shall be entitled to be paid out of the assets of the Company an amount
of $1.00, $3.00, $8.00 and $21.25, respectively, for the Series A, Series B,
Series C and Series D, plus all declared but unpaid dividends relating to
preferred stock.
Holders of Series D preferred stock have preference over holders of Series
A, Series B, Series C and common stockholders. Holders of Series C preferred
stock have preference over holders of Series A and Series B preferred stock and
common stockholders. Holders of Series B preferred stock have preference over
holders of Series A preferred stock. Holders of Series A preferred stock have
preference over common stockholders.
The remaining assets of the Company shall be distributed among all
stockholders on an as-if-converted basis until such time as the Series D
preferred stockholders have received $63.75 per share, Series C preferred
stockholders have received $16.00 per share, the Series B preferred
stockholders have received $9.00 per share and the Series A preferred
stockholders have received $4.00 per share. The remaining assets of the Company
shall then be distributed ratably to the common stockholders.
The following events are considered a liquidation: (i) any consolidation,
merger or corporate reorganization in which the stockholders immediately prior
to such transaction own less than 50% of the Company's voting power immediately
after the transaction; or any transaction or series of related transactions in
which in excess of 50% of the Company's voting power is transferred and (ii) a
sale, lease or other disposition of all or substantially all of the Company's
assets.
Warrants
In April 1999, in connection with a financing arrangement, the Company
issued 266,667 warrants to purchase Series B convertible preferred stock at
$3.00 per share. The warrants are exercisable for a period of ten years from
the date of issuance or 5 years from the Company's initial public offering of
common stock, whichever is shorter. The aggregate fair value of these warrants
of $1,042,000 was calculated using the Black-Scholes pricing
F-19
<PAGE>
ALIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
method and has been charged to preferred stock warrants. The related amount is
being amortized as interest expense over the life of the notes. A total of
$984,000 was amortized in 1999.
In conjunction with the draw period extension, the Company issued the Lender
a warrant to purchase 56,250 shares of the Company's Series C preferred stock
at a price of $8.00 per share. The warrants are exercisable for a period of ten
years from the date of issuance. The fair value of the warrants was calculated
using the Black-Scholes pricing method and has been charged to preferred stock
warrants and amortized as interest expense over the life of the note. A total
of $776,000 was amortized during the nine months ended September 30, 2000 over
the total amount discounted from the value of the note of $776,000.
Note 7 Common Stock:
Common stock
The holders of common stock, voting as a separate class, may elect two
members of the Board of Directors. Any additional members of the Board of
Directors shall be elected by the holders of common stock and preferred stock
voting together as a class.
The holders of common stock are also entitled to receive dividends whenever
funds are legally available and when declared by the Board of Directors subject
to the prior rights of holders of all classes of stock having priority rights
as to dividends. No dividends have been declared or paid as of September 30,
2000.
Restricted stock purchase agreement
The Company has sold shares of its common stock to founders and employees of
the Company under agreements which provide for repurchase of the stock by the
Company at the stock's original purchase price upon termination of employment.
The Company's right to repurchase lapses at any time prior to the earlier of:
(i) three years from date of agreement; (ii) the closing of an "Asset Transfer"
or an "Acquisition"; or (iii) the voluntary liquidation, dissolution, or
winding up of the Company. At December 31, 1998 and 1999, 889,466 and 326,771
shares of common stock, respectively, were subject to repurchase, including
52,258 shares of common stock which were subject to a right of repurchase at
the Company's discretion until October 2002.
Note 8 Stock Options:
In April 1997, the Company adopted the 1997 Equity Incentive Plan (the
"Plan") under which the Board of Directors may issue incentive and non-
qualified stock options to employees, directors and consultants. The Company
has reserved 4,854,546 shares of common stock for issuance under the Plan. The
Board of Directors has the authority to determine to whom options will be
granted, the number of shares, the term and exercise price. Options are to be
granted at an exercise price not less than fair market value for incentive
stock options or 85% of fair market value for non-qualified stock options. For
individuals holding more than 10% of the voting rights of all classes of stock,
the exercise price of incentive stock options will not be less than 110% of
fair market value. Options become exercisable and vest on a cumulative basis at
the discretion of the Board of Directors but at a rate not less than 20% per
year over five years from the date of grant and generally
F-20
<PAGE>
ALIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
vest at a rate of 25% on the first anniversary and 1/48th each month
thereafter. The term of the options is no longer than five years for incentive
stock options for which the grantee owns greater than 10% of the voting power
of all classes of stock and no longer than ten years for all other options.
Activity under the Plan is set forth below (in thousands, except per share
data):
<TABLE>
<CAPTION>
Options Outstanding
--------------------------
Weighted
Shares Average
Available Exercise Aggregate
for Grant Shares Price Price
--------- ------ -------- ---------
<S> <C> <C> <C> <C>
Initial shares reserved................. 1,255 -- $ -- $ --
Options granted......................... (587) 587 $0.019 11
Options exercised....................... -- (490) $0.003 (2)
------ ----- ------
Balances at December 31, 1997............ 668 97 $0.100 9
Options granted......................... (505) 505 $0.208 105
Options exercised....................... -- (46) $0.109 (5)
Options cancelled....................... 80 (80) $0.100 (8)
------ ----- ------
Balances at December 31, 1998............ 243 476 $0.214 101
Increase in pool........................ 800 -- -- --
Options granted......................... (368) 368 $0.391 144
Options exercised....................... -- (164) $0.262 (42)
Options cancelled....................... 37 (37) $0.270 (10)
------ ----- ------
Balances at December 31, 1999............ 712 643 $0.300 193
Increase in pool........................ 2,800 -- -- --
Options granted......................... (2,406) 2,406 $ 1.64 3,945
Options exercised....................... -- (821) $ 0.83 (680)
Options cancelled....................... 72 (72) $ 0.56 (40)
------ ----- ------
Balances at September 30, 2000
(unaudited)............................. 1,178 2,156 $ 1.59 $3,418
====== ===== ======
</TABLE>
The options outstanding and currently exercisable by exercise price at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
-------------------------------------------------------------------------------
Weighted
Average
Number Remaining
Outstanding Contractual
Exercise and Life
Price Exercisable (Years)
-------- ----------- -----------
<S> <C> <C>
$0.10 162 8.38
0.30 404 9.20
0.60 44 9.65
0.80 33 9.81
---
643
===
</TABLE>
F-21
<PAGE>
ALIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The options outstanding and currently exercisable by exercise price at
September 30, 2000 are as follows (unaudited) (in thousands, except per share
data):
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
-------------------------------------------------------------------------------
Weighted
Average
Number Remaining
Outstanding Contractual
Exercise and Life
Price Exercisable (Years)
-------- ----------- -----------
<S> <C> <C>
$0.10 58 7.72
0.30 180 8.59
0.60 31 8.91
0.80 542 9.54
2.13 1,345 9.96
-----
2,156
=====
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-
Based Compensation." Had compensation cost for the Incentive Stock Plan been
determined based on the fair value at the grant date for awards during 1997,
1998 and 1999, consistent with the provisions of SFAS No. 123, the Company's
pro forma net loss and pro forma net loss per share would have been as follows
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
Period from
April 3, 1997
(date of Years Ended
inception) to December 31,
December 31, -----------------
1997 1998 1999
------------- ------- --------
<S> <C> <C> <C>
Net loss, as reported..................... $ (664) $(3,775) $(15,415)
Net loss, pro forma....................... $ (664) $(3,777) $(15,519)
Net loss per share, as reported, basic and
diluted.................................. $(0.86) $ (2.66) $ (7.31)
Net loss per share, pro forma, basic and
diluted.................................. $(0.86) $ (2.66) $ (7.36)
</TABLE>
Such pro forma disclosure may not be representative of future compensation
cost because options vest over several years and additional grants are
anticipated to be made each year.
The value of each option grant is estimated on the date of grant using the
minimum value method with the following weighted assumptions:
<TABLE>
<CAPTION>
Period from
April 3, 1997
(date of Years Ended
inception) to December 31,
December 31, ------------------------
1997 1998 1999
------------- ----------- -----------
<S> <C> <C> <C>
Risk-free interest rate.............. 6.11% 4.22 - 5.63% 4.91 - 6.03%
Expected life........................ 5 years 5 years 5 years
Expected dividends................... 0% 0% 0%
</TABLE>
Volatility was not included in the calculation of the fair value of options
grants as the Company's equity securities are not publicly traded.
F-22
<PAGE>
ALIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The weighted average per share fair values of options granted during the
period from April 3, 1997 (date of inception) to December 31, 1997, and the
years ended December 31, 1998 and 1999 were $0.06, $0.12 and $6.57,
respectively.
Stock-based compensation
During the years ended December 31, 1998 and 1999, the Company recorded
unearned stock-based compensation for the excess of the deemed fair market
value over the exercise price at the date of grant of none and $1,772,000,
respectively, related to options granted to employees. The Company has recorded
additional unearned stock-based compensation of $73,602,000 related to options
issued to employees to purchase common stock issued through September 30, 2000.
The compensation expense is being recognized over the option vesting period of
four years using the straight-line method. For the period from April 3, 1997
(date of inception) to December 31, 1997 and the years ended December 31, 1998
and 1999, the Company recorded amortization of stock-based compensation of
none, none and $267,000, respectively, in connection with options granted to
employees.
During the years ended December 31, 1998 and 1999, the Company recorded
unearned stock-based compensation of none and $402,000, respectively, related
to options granted to consultants. For options granted to consultants, the
Company determined the fair value of the options using the Black-Scholes
pricing model. The Company has recorded additional unearned stock-based
compensation of $7,368,000 related to options issued to consultants to purchase
common stock issued through September 30, 2000. The compensation expense is
being recognized over the option vesting period of four years, using the method
presented by FIN 28. For the period from April 3, 1997 (date of inception) to
December 31, 1997 and the years ended December 31, 1998 and 1999, the Company
recorded amortization of stock-based compensation of none, none and $127,000,
respectively, in connection with options granted to consultants.
Amortization of deferred stock compensation has been allocated to cost of
revenue, sales and marketing, general and administrative and research and
development expenses as follows (in thousands):
<TABLE>
<CAPTION>
Period from
April 3,
1997 (date Years Nine Months
of Ended Ended
inception) December September
to 31, 30,
December 31, ---------- -----------
1997 1998 1999 1999 2000
------------ ----- ---- ---- ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cost of revenue......................... $ -- $ -- $ 80 $ 21 $1,339
Sales and marketing..................... -- -- 111 50 1,461
General and administrative.............. -- -- 106 46 3,374
Research and development................ -- -- 97 70 1,729
----- ----- ---- ---- ------
$ -- $ -- $394 $187 $7,903
===== ===== ==== ==== ======
</TABLE>
F-23
<PAGE>
ALIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 9 Income Taxes:
Deferred tax assets and liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Start-up costs........................................... $ 1,014 $ 2,514
Net operating loss carryforwards......................... 695 3,968
Research and development credit.......................... 219 606
Other.................................................... (4) 181
------- -------
Deferred tax assets.................................... 1,924 7,269
Less: Valuation allowance.............................. (1,924) (7,269)
------- -------
Net deferred tax asset............................... $ -- $ --
======= =======
</TABLE>
Due to the uncertainty surrounding the realization of favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against all of its net deferred tax assets. At such time as it is determined
that it is more likely than not that the deferred tax assets are realizable,
the valuation allowance will be reduced.
At December 31, 1998 and 1999, the Company had federal and state net
operating loss carryforwards of approximately $10,500,000 and $1,700,000,
respectively, available to offset future regular and alternative minimum
taxable income. The Company's federal and state net operating loss
carryforwards will begin to expire in 2017 for federal purposes and 2005 for
state purposes if not utilized.
At December 31, 1998 and 1999, the Company had federal and state research
and experimentation tax credit carryforwards of approximately $219,000 and
$606,000, respectively, available to offset future income tax liabilities. The
Company's federal research and experimentation credit will begin to expire in
2017.
The Tax Reform Act of 1986 limits the use of net operating loss and tax
credit carryforwards in certain situations where changes occur in the stock
ownership of a Company. If the Company should have an ownership change, as
defined by the tax law, utilization of the carryforwards could be restricted.
Note 10 Employee Benefit Plan:
In January 1999, the Company adopted a defined contribution retirement plan
under Section 401(k) of the Internal Revenue Code. This plan covers
substantially all employees who meet minimum age and service requirements and
allows participants to defer a portion of their annual compensation on a pre-
tax basis. Company contributions to the plan may be made at the discretion of
the Board of Directors. There have been no contributions by the Company since
the inception of the plan.
F-24
<PAGE>
ALIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 11 Subsequent Events:
Initial Public Offering
In September 2000, the Board of Directors authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock to the
public. If the initial public offering is closed under the terms presently
anticipated, all of the convertible preferred stock outstanding will
automatically convert into shares of common stock on a one-for-one basis.
Unaudited pro forma stockholders' equity, as adjusted for the assumed
conversion of the preferred stock, is set forth on the balance sheet.
Loan to Officer
In September 2000, the Company issued a loan in the amount of $95,000 at a
rate of 6% per annum to the Company's Vice President of Corporate Strategy. The
loan is due on demand, but in no event later than September 19, 2001.
Employee Notes Receivable
In November 2000, the Company loaned $1,162,082 to certain employees and
officers for the exercise of incentive stock options. All of the full recourse
notes accrue interest at 9.5% and are due on the second anniversary of the
issuance date. The notes are secured by the shares of common stock held by the
employees and their personal guarantee.
Sale of Preferred Securities
In October 2000, the Company sold 718,355 additional shares of Series D
preferred stock for gross proceeds of $15.3 million. The issuance of Series D
convertible preferred stock resulted in a beneficial conversion feature of
$13.5 million, calculated in accordance with Emerging Issues Task Force Issue
No. 98-5, "Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios." Accordingly, the
Company will recognize a charge to additional paid in capital to account for
the deemed dividend on the preferred stock as of the issuance date in its third
fiscal quarter of 2000. In addition, the Series D preferred shares have certain
contingent rights and preferences which, if perfected, could cause the Company
to record an incremental beneficial conversion feature charge.
Conversion Rights
In accordance with the Company's certificate of incorporation, as amended in
connection with the Series D preferred stock sale, as of November 13, 2000,
because the Company has issued 295,015 shares of common stock in excess of the
1,665,979 shares of common stock permitted, as defined in the certificate of
incorporation, the Company will be required to issue an additional total number
of 96,636 shares of common stock upon the conversion of the preferred stock.
In addition, the additional shares issued as per above will result in a
beneficial conversion feature, calculated in accordance with EITF No. 98-5.
Accordingly, the Company will recognize a deemed dividend on this additional
common stock based on the fair value of the common stock at the conversion
date.
F-25
<PAGE>
ALIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2001 Stock Incentive Plan
In August 2000, the Board of Directors adopted the 2001 Stock Incentive Plan
(the "2001 Plan"). The 2001 Plan, which will terminate no later than 2011,
provides for the granting of incentive stock options, nonstatutory stock
options and restricted stock purchase rights and stock bonuses to employees,
and consultants.
A total of 2,700,000 shares of common stock have been authorized for
issuance under the 2001 Plan. At the date of the stockholders' meeting in 2001,
and annually thereafter, the authorized shares will automatically be increased
by a number of shares equal to the least of:
. 3% of the then outstanding shares of common stock on a fully-diluted
basis;
. 3,000,000 shares; or
. a lesser number of shares determined by the Board of Directors.
Employee Stock Purchase Plan
In August 2000, the Board of Directors adopted the Employee Stock Purchase
Plan (the "Purchase Plan"), authorizing the issuance of 500,000 shares of
common stock pursuant to purchase rights granted to in the United States
employees.
At the date of the stockholders' meeting in 2001, and annually thereafter,
for a period of 20 years, the share reserve will automatically be increased by
a number of shares equal to the least of:
. 1.0% of the then outstanding shares of common stock on a fully diluted
basis;
. 5000,000 shares; or
. a lesser number of shares determined by the Board of Directors.
The Purchase Plan is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Internal Revenue Code of 1986, as
amended. As of the date hereof, no shares of common stock have been purchased
under the Purchase Plan.
The Purchase Plan permits eligible employees to purchase common stock at a
discount through payroll deductions during defined offering periods. The price
at which stock is purchased under the purchase plan is equal to 85% of the fair
market value of the common stock on the first day of the offering period of 85%
of the fair market value on the subsequent designated purchase dates, whichever
is lower. The initial offering period will commence on the effective date of
the offering.
F-26
<PAGE>
Inside back page:
Middle top of page: Caption: "Which of these people is wearing Invisalign?"
Graphic: Top of page is a series of four pictures of people smiling.
Center of page: Caption: "They all are."
Center third of page: Graphic: three pictures of woman placing an Aligner on
her teeth.
Bottom right corner: Align mark; Invisalign mark
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide information different from that contained in
this prospectus. We are offering to sell, and seeking offers to buy, shares of
common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or of
any sale of our common stock.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 6
Special Note Regarding Forward-Looking Statements and Industry Data...... 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Consolidated Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 25
Management............................................................... 38
Certain Transactions..................................................... 52
Principal Stockholders................................................... 55
Description of Capital Stock............................................. 59
Shares Eligible for Future Sale.......................................... 62
Underwriting............................................................. 64
Legal Matters............................................................ 66
Experts.................................................................. 66
Where You Can Find Additional Information................................ 67
Index to Financial Statements............................................ F-1
</TABLE>
Until , 2000 (25 days after the date of this Prospectus), all dealers
that buy, sell or trade in these securities, whether or not participating in
this offering, may be required to deliver a prospectus. Dealers are also
obligated to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
--------------------------------------------------------------------------------
Align Technology, Inc.
Shares
Common Stock
Deutsche Banc Alex. Brown
Bear, Stearns & Co. Inc.
J.P. Morgan & Co.
Robertson Stephens
Prospectus
, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than the
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fees and the Nasdaq National Market listing
fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 52,800
NASD Filing Fee.................................................... $ 20,500
Nasdaq National Market Listing Fee................................. *
Printing and Engraving Expenses.................................... $350,000
Legal Fees and Expenses............................................ *
Accounting Fees and Expenses....................................... *
Blue Sky Fees and Expenses......................................... $ 3,000
Transfer Agent Fees................................................ $ 10,000
Miscellaneous...................................................... *
--------
Total............................................................. *
========
</TABLE>
--------
* To be provided by amendment
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit the
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article XI, Section 43 of our bylaws
provides for mandatory indemnification of our directors and officers and
permissible indemnification of employees and other agents to the maximum extent
permitted by the Delaware General Corporation Law. Our certificate of
incorporation provides that, subject to Delaware law, our directors will not be
personally liable for monetary damages for breach of the directors' fiduciary
duty as directors to Align Technology, Inc. and its stockholders. This
provision in the certificate of incorporation does not eliminate the directors'
fiduciary duty, and in appropriate circumstances, equitable remedies such as
injunctive or other forms of non-monetary relief will remain available under
Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the company or our
stockholders for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental
laws. We have entered into indemnification agreements with our officers and
directors, which provide our officers and directors with further
indemnification to the maximum extent permitted by the Delaware General
Corporation Law. Reference is also made to the underwriting agreement contained
in Exhibit 1.1 hereto, indemnifying our officers and directors against certain
liabilities, and our Amended and Restated Investors' Rights Agreement contained
in Exhibit 10.1 hereto, indemnifying the parties thereto, including controlling
stockholders, against liabilities.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
Set forth below is information regarding shares of common stock and
Preferred Stock issued, and options and warrants granted, by the registrant
within the past three years.
(1) On August 29, 1997, the registrant sold 2,175,000 shares of Series A
Preferred Stock, convertible into 2,175,000 shares of common stock, to a group
of investors for an aggregate cash consideration of $2,175,000.00;
(2) On July 13, 1998, the registrant sold 3,373,968 shares of Series B
Preferred Stock, convertible into 3,373,968 shares of common stock, to a group
of investors for an aggregate cash consideration of $10,121,904.00;
(3) On September 24, 1999, the registrant sold 2,574,364 shares of Series C
Preferred Stock, convertible into 2,574,364 shares of common stock, to a group
of investors for an aggregate cash consideration of $20,594,912.00;
(4) On May 25, June 20 and October 5, 2000, the registrant sold 4,767,191
shares of Series D Preferred Stock, convertible into 4,767,191 shares of common
stock, to a group of investors for an aggregate cash consideration of
101,266,995.52.
(5) As of September 30, 2000, options to purchase 1,206,957 shares of
common stock had been exercised for an aggregate consideration of $324,337 and
options to purchase 987,810 shares of common stock, at a weighted average
exercise price of $0.656 per share, were outstanding under the 1997 Plan;
(6) As of September 30, 2000, no options under the 2001 Plan have been
granted.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and we believe that each
transaction was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule
701 pursuant to compensatory benefit plans and contracts relating to
compensation as provided under Rule 701. The recipients in each transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates and instruments
issued in these transactions. All recipients had adequate access, through their
relationships with us, to information about us.
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- ----------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of registrant, to be
effective upon consummation of this offering.
3.2* Amended and Restated Bylaws of registrant, to be effective upon
consummation of this offering.
4.1* Form of Specimen Common Stock Certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP regarding the legality of
the common stock being registered.
10.1* Amended and Restated Investors' Rights Agreement, among registrant and
certain of its stockholders, dated September 16, 2000.
10.2* Employment Agreement between registrant and Stephen Bonelli, dated
November 6, 2000.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- ----------------------------------------------------------------------
<C> <S>
10.3 Lease and License Agreement by and between Pakistan Services Ltd. and
registrant for its manufacturing space in Pakistan located at Pearl
Continental, Pavilion 44, Lahore, Pakistan, dated March 4, 1999.
10.4 Lease Agreement by and between James Lindsay and registrant, dated
June 20, 2000, for office space located at 881 Martin Avenue, Santa
Clara, CA.
10.5* Sublease Agreement by and between GW Com, Inc. and registrant, dated
July 2000, for office space located at 851 Martin Avenue, Santa Clara,
CA.
10.6 Lease Agreement by and between registrant and Saadia Kahwar Khan
Chishti for manufacturing space in Pakistan located at the Bhallah
House, Bhalla Stop, Multan Road, Lahore, Pakistan dated September 1,
2000.
10.7 Shelter Services Agreement between registrant and Elamex, S.A. de C.V.
dated February 16, 2000.
10.8 Joint Development Agreement by and between registrant and 3D Systems
dated September 9, 1999.
10.9* Loan and Security Agreement by and between Comdisco Inc. and
registrant, dated April 12, 1999.
10.10* Secured Promissory Note Agreement by and between Comdisco Inc. and
registrant, dated April 14, 2000.
10.11 Warrant Agreement, dated April 12, 1999, by and between Comdisco and
registrant.
10.12* Warrant Agreement, dated January 7, 2000, by and between Comdisco and
registrant.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion
filed as Exhibit 5.1).
24.1 Power of Attorney (see Page II-5).
27.1 Financial Data Schedule.
</TABLE>
--------
* To be filed by amendment.
Item 17. Undertakings
We hereby undertake to provide to the underwriters at the closing specified
in the underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the Delaware General Corporation Law, our certificate of incorporation or our
bylaws, indemnification agreements entered into between the registrant and our
officers and directors, the underwriting agreement, or otherwise, we have been
advised that in the opinion of the commission such indemnification is against
public policy as expressed in the Securities Act, and is, therefore,
unenforceable. If a claim for indemnification against such liabilities (other
than the payment by us of expenses incurred or paid by any of our directors,
officers or controlling persons in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question of whether such
indemnification by us is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement as of
the time it was declared effective;
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Santa
Clara, State of California, on November 14, 2000.
ALIGN TECHNOLOGY, INC.
/s/ Zia Chishti
By: _________________________________
Zia Chishti,
Chief Executive Officer and
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints, jointly and severally, Zia Chishti and Stephen
Bonelli, and each one of them, his true and lawful attorneys-in-fact and
agents, each with full power of substitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to sign any
Registration Statement for the same offering covered by this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933, as amended, and all post-
effective amendments thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming that each of said attorneys-in-fact and agents or any of them, or
his or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Zia Chishti Chief Executive Officer and Chairman November 14, 2000
_________________________________ of the Board (Principal Executive
Zia Chishti Officer)
/s/ Stephen Bonelli Chief Financial Officer and Vice November 14, 2000
_________________________________ President, Finance (Principal
Stephen Bonelli Accounting Officer)
/s/ Kelsey Wirth President November 14, 2000
_________________________________
Kelsey Wirth
/s/ Brian Dovey Director November 14, 2000
_________________________________
Brian Dovey
/s/ Joseph Lacob Director November 14, 2000
_________________________________
Joseph Lacob
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Mark Logan Director November 14, 2000
_________________________________
Mark Logan
/s/ H. Kent Bowen Director November 14, 2000
_________________________________
H. Kent Bowen
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- ----------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of registrant, to be
effective upon consummation of this offering.
3.2* Amended and Restated Bylaws of registrant, to be effective upon
consummation of this offering.
4.1* Form of Specimen Common Stock Certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP regarding the legality of
the common stock being registered.
10.1* Amended and Restated Investors' Rights Agreement, among registrant and
certain of its stockholders, dated September 16, 2000.
10.2* Employment Agreement between registrant and Stephen Bonelli, dated
November 6, 2000.
10.3 Lease and License Agreement by and between Pakistan Services Ltd. and
registrant for its manufacturing space in Pakistan located at Pearl
Continental, Pavilion 44, Lahore, Pakistan, dated March 4, 1999.
10.4 Lease Agreement by and between James Lindsay and registrant, dated
June 20, 2000, for office space located at 881 Martin Avenue, Santa
Clara, CA.
10.5* Sublease Agreement by and between GW Com, Inc. and registrant, dated
July 2000, for office space located at 851 Martin Avenue, Santa Clara,
CA.
10.6 Lease Agreement by and between registrant and Saadia Kahwar Khan
Chishti for manufacturing space in Pakistan located at the Bhallah
House, Bhalla Stop, Multan Road, Lahore, Pakistan dated September 1,
2000.
10.7 Shelter Services Agreement between registrant and Elamex, S.A. de C.V.
dated February 16, 2000.
10.8 Joint Development Agreement by and between registrant and 3D Systems
dated September 9, 1999.
10.9* Loan and Security Agreement by and between Comdisco Inc. and
registrant, dated April 12, 1999.
10.10* Secured Promissory Note Agreement by and between Comdisco Inc. and
registrant, dated April 14, 2000.
10.11 Warrant Agreement, dated April 12, 1999, by and between Comdisco and
registrant.
10.12* Warrant Agreement, dated January 7, 2000, by and between Comdisco and
registrant.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion
filed as Exhibit 5.1).
24.1 Power of Attorney (see Page II-5).
27.1 Financial Data Schedule.
</TABLE>
--------
* To be filed by amendment.
