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2023 ReportPeers and competitors of Align Technology:
Cardiovascular SystemsUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________________
________________________________________________________________________
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐
For the fiscal year ended December 31, 2022
For the transition period from to
Commission file number: 000-32259
________________________________________________________________________
ALIGN TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
________________________________________________________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
94-3267295
(I.R.S. Employer
Identification Number)
410 North Scottsdale Road, Suite 1300
Tempe, Arizona 85288
(Address of principal executive offices, including zip code)
(602) 742-2000
(Registrant’s telephone number, including area code)
________________________________________________________________________
Title of each class
Common Stock, $0.0001 par value
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)
ALGN
Name of each exchange on which registered
The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Securities Act. ☐
Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect
the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of
the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $13.3 billion as of June 30, 2022 based on the
closing sale price of the registrant’s common stock on the NASDAQ Global Market on such date. Shares held by persons who may be deemed affiliates have been
excluded. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
On February 20, 2023, 76,610,319 shares of the registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement relating to its 2023 Annual Stockholders’ Meeting to be filed pursuant to Regulation 14A within 120 days after
the registrant’s fiscal year end of December 31, 2022 are incorporated by reference into Part III of this Annual Report on Form 10-K.
1
ALIGN TECHNOLOGY, INC.
FORM 10-K
For the Year Ended December 31, 2022
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Signatures
Business
Information about our Executive Officers
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Page
3
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40
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90
90
91
91
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91
91
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93
93
95
96
Invisalign, Align, the Invisalign logo, ClinCheck, Invisalign Assist, Invisalign Teen, Invisalign Go, Vivera, SmartForce, SmartTrack, SmartStage,
SmileView, iTero, iTero Element, Orthocad, iCast, iRecord and exocad, among others, are trademarks and/or service marks of Align Technology, Inc. or one
of its subsidiaries or affiliated companies and may be registered in the United States and/or other countries.
2
In addition to historical information, this annual report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include, among other things, our expectations and
intentions regarding our strategic objectives and the means to achieve them, our beliefs and expectations regarding macroeconomic conditions, including
inflation, fluctuations in currency exchange rates, rising interest rates, market volatility, weakness in general economic conditions and recessions and the
impact of efforts by central banks and federal, state and local governments to combat inflation and recession, our expectations and beliefs regarding
customer and consumer purchasing behavior and changes in consumer spending habits, our expectations regarding the impact of the military conflict in
Ukraine generally and specifically regarding our operations and assets in Russia, including the impact on our workforce located in Russia, our
expectations regarding the near and long-term implications of the COVID-19 pandemic on the global and regional economies, our marketing and efforts to
build our brand awareness, our estimates regarding the size and opportunities of the markets we are targeting along with our expectations for growth in
those markets, our beliefs regarding the impact of technological innovation in general, and in our solutions and products in particular, on target markets
and patient care, our beliefs regarding digital dentistry and its potential to impact our business, our intentions regarding expanding our business, including
its impact on our operational flexibility and responsiveness to customer demand, our beliefs regarding the potential for clinical solutions and their
utilization to increase sales of our Invisalign system as well as the complementary products and solutions themselves, our beliefs regarding doctor training
and its impact on Invisalign system utilization, our beliefs regarding the importance of our manufacturing operations on our success, our beliefs regarding
the need for and benefits of our technological development on Invisalign treatment, the areas of development in which we focus our efforts, and the
advantages of our intellectual property portfolio, our beliefs regarding our business strategy and growth drivers, our expectations regarding product mix
and product adoption, our expectations regarding the utilization rates for our products, including the impact of marketing on those rates and causes for
periodic fluctuations of the rates, our expectations regarding the existence and impact of seasonality, our expectations regarding the sales growth of our
intraoral scanner sales in international markets, our expectations regarding the productivity impact additional sales representatives will have on our sales
and the impact of specialization of those representatives in sales channels, our expectations regarding the continued expansion of our international markets
and their growth, our expectations regarding competition and our ability to compete in our target markets, our expectations regarding staying in
compliance with laws and regulations currently applicable to, or which may become applicable to, our business both in the United States and
internationally, our beliefs regarding our culture and commitment and its impact on our financial and operational performance and its importance to our
future success, our expectations for future investments in and benefits from consumer demand sales and marketing activities, our preparedness and our
customers’ preparedness to react to changing circumstances and demand, our expectations for our expenses and capital obligations and expenditures in
particular, our intentions to control spending and for investments, our intentions regarding the investment of our international earnings from operations,
our belief regarding the sufficiency of our cash and investment balances and borrowing capacity, our judgments regarding the estimates used in our
revenue recognition and assessment of goodwill and intangible assets, our expectations regarding our tax positions and the judgements we make related to
our tax obligations, our predicted level of operating expenses and gross margins and other factors beyond our control, as well as other statements
regarding our future operations, financial condition and prospects and business strategies. These statements may contain words such as “expects,”
“anticipates,” “intends,” “plans,” “believes,” “estimates,” or other words indicating future results. These forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to, those discussed in Part II, Item 7 “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” and in particular, the risks discussed below in Part I, Item 1A “Risk Factors.” We undertake no
obligation to revise or update these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on
such forward-looking statements.
Business.
Our Company
PART I
®
Align Technology, Inc. (“We”, “Our”, “Align”) is a global medical device company primarily engaged in the design, manufacture and marketing of
Invisalign® clear aligners for the treatment of malocclusions, or the misalignment of teeth, by orthodontists and general dental practitioners (“GPs”),
Vivera retainers for retention, iTero® intraoral scanners and services for dentistry, and exocad® computer-aided design and computer-aided
manufacturing (“CAD/CAM”) software for dental laboratories and dental practitioners. Our vision and strategy is to revolutionize orthodontic and
restorative dentistry through digital treatment planning and implementation using our Align Digital Platform , an integrated suite of proprietary
technologies and services designed to deliver a seamless, end-to-end solution for patients and consumers, orthodontists and GPs and lab partners. We strive
to achieve our vision and strategy through key objectives made possible with the proprietary technologies and services of the Align Digital Platform to
establish: clear aligners as the principal solution for the treatment of malocclusions with the Invisalign System as the treatment solution of choice by
orthodontists, GPs and patients globally, our
TM
3
intraoral scanners as the preferred scanning technology for digital dental scans, and our exocad CAD/CAM software as the dental restorative solution of
choice for dental labs.
Align’s corporate headquarters are located at 410 North Scottsdale Road, Suite 1300, Tempe, Arizona 85288. Our telephone number is 602-742-2000.
Our internet address is www.aligntech.com. Our Americas regional headquarters is located in Raleigh, North Carolina, U.S.A.; our European, Middle East
and Africa (“EMEA”) regional headquarters is located in Rotkreuz, Switzerland; and our Asia Pacific (“APAC”) regional headquarters is located in
Singapore.
We have two operating segments: (1) Clear Aligner and (2) Imaging Systems and CAD/CAM Services (“Systems and Services”). For the year ended
December 31, 2022, Clear Aligner net revenues represented approximately 82% of worldwide net revenues, while Systems and Services net revenues
represented the remaining 18%. We sell the majority of our products directly through a dedicated and specialized sales force to our customers:
orthodontists, GPs, including prosthodontists, periodontists, and oral surgeons, and dental laboratories. We also sell through sales agents and distributors in
certain countries. In addition, we sell directly to Dental Support Organizations (“DSOs”) who contract with dental practices to provide critical business
management and support including non-clinical operations, and we sell products used by dental laboratories who manufacture or customize a variety of
products used by licensed dentists to provide oral health care. We also market and sell doctor and consumer accessory products that are complementary to
our doctor-prescribed principal products under the Invisalign® and other brands, including retainers, dental supplies, aligner cases (clamshells), teeth
whitening products and cleaning solutions (collectively “Invisalign Accessory Products”). Depending on the product, our Invisalign Accessory Products are
sold through a variety of channels, including online through large e-commerce websites, our doctor portal and in-store through large retailers and pharmacy
stores.
Our clear aligners are sold under the Invisalign® brand name. Our Invisalign System is intended mainly for the treatment of malocclusions and is
designed to help dental professionals achieve the clinical outcomes that they expect and the results patients desire. To date, over 14 million people
worldwide have been treated with our Invisalign System. In order to provide Invisalign treatment to their patients, orthodontists and GPs must initially
complete an Invisalign training course. Our iTero intraoral scanner is used by dental professionals and/or labs and service providers for restorative and
orthodontic digital procedures as well as Invisalign case submissions. Our exocad CAD/CAM software products provide restorative dentistry,
implantology, guided surgery, and smile design to dental labs and dental practices through fully integrated workflows, paving the way for new, cross-
disciplinary dentistry in labs and at chairside.
Our Products, Services and Technologies
Align Digital Platform
4
We strive to be at the forefront of innovation in digital orthodontics and dentistry, helping doctors transform their practices using digital tools and
technology to deliver great treatment experiences and outcomes to people worldwide. The Align Digital Platform is the foundation of our goal to
revolutionize the practice of dentistry, delivering interconnected, interdisciplinary workflows and treatment solutions that move all aspects of treatment
forward, from first consultations to final smiles with our doctor-centered treatment model. It is an end-to-end digital platform that combines software,
systems and services to seamlessly integrate and connect those critical to successful treatment outcomes – doctors, labs, patients, and consumers. At the
center of the Align Digital Platform are Invisalign clear aligners, iTero intraoral scanners, and exocad CAD/CAM software.
The Align Digital Platform utilizes the Align Digital Workflow to enable an end-to-end treatment experience with the following key components:
•
• Connect: The initial stage of the platform drives consumer demand and connects potential patients to our websites and Invisalign providers. Some
of our tools that support this stage are Invisalign.com, the Invisalign SmileView tool, My Invisalign app, Doctor Locator, Invisalign Practice App,
Invisalign Doctor Estimate and Invisalign Virtual Appointment.
Scan: During this stage, patient data is captured through intraoral scanning. Tools support a patient’s diagnosis of oral conditions and health and
support the identification of an appropriate treatment pathway. Visualization of their potential smile helps patients understand the benefits of
treatment and increase patient conversion. The tools that support this stage, include, iTero scanners and imaging systems, Invisalign Outcome
Simulator Pro, Invisalign Photo Uploader, iTero NIRI technology (Near Infra-Red Imaging), iTero TimeLapse technology, iTero Element 5D auto
upload feature and iTero Scan Report.
Plan: Doctors digitally visualize and plan orthodontic and restorative treatments. Orthodontists and GPs can use our products to design, build and
share their vision for treatment planning and agree on a customized plan with their patients to reach the desired outcomes. Orthodontists and GPs
can use our products to design, build and share their vision for treatment planning and agree on a customized plan with their patients to reach the
desired outcomes. Some of our tools that support this stage are ClinCheck Pro® 6.0, ClinCheck In-Face Visualization, ClinCheck Live Update,
Invisalign Practice App, Invisalign Personalized Plan and CBCT integration for ClinCheck software.
Treat: During this stage, doctors treat their patients with our Invisalign® clear aligners.
•
• Monitor: Doctors are able to remotely track their patient’s treatment between visits, and orthodontists and GPs can more easily communicate
treatment progress and tracking to their patients. Some of our tools that support this stage include Invisalign Virtual Care app, My Invisalign app,
Invisalign Doctor Site, Invisalign Practice App, Invisalign Progress Assessment and iTero scanners.
•
• Retain: Patients retain the final position of their treatment results through our Vivera® retainers.
As we further evolve the treatment planning experience for doctors leveraging 25 years in technological research and development innovations, we
expect to introduce new technologies, features and functionality that improve personalization of treatment planning, predictability, clinical preferences, and
2D/3D imaging, including digital tools for faster and more accurate final tooth positions. In 2022, we launched significant new products and technologies
that further enhance the Align Digital Platform, including the ClinCheck® Live Update software, Invisalign® Practice App, Invisalign® Personalized Plan,
Invisalign Smile Architect™, Invisalign® Outcome Simulator Pro with in-face visualization, Cone Beam Computed Tomography integration with
ClinCheck software, Invisalign® Virtual Care AI software, and the iTero-exocad Connector.
Clear Aligner Segment
Malocclusion and Traditional Orthodontic Treatment
Malocclusion is one of the most prevalent clinical dental conditions in the world, affecting approximately 60% to 75% of the global population. We
estimate that there are approximately 500 million people globally with malocclusion who could benefit from straightening their teeth. However, most
people afflicted by malocclusion do not seek orthodontic treatment due to a number of reasons, including negative perceptions of metal braces, affordability
of treatment, and accessibility to doctors in
5
certain markets and geographies. Annually, only approximately 21 million people globally elect treatment by orthodontists. Today, most orthodontic
patients continue to have their malocclusions treated with the use of traditional corrective methods such as metal arch wires and brackets, referred to as
braces, augmented with elastics, metal expanders, headgear or functional appliances, and other ancillary devices as needed. Upon completion of a patient’s
treatment, their dental professional may recommend the patient use a retainer appliance to preserve the benefits of their treatments. Of the 21 million cases
started, we estimate that approximately 90% (19 million) can be treated using our Invisalign System, yet our share of the 21 million case starts through
orthodontists is approximately 10% globally. This represents a significant growth opportunity for us to increase our share of the existing market of
orthodontic case starts, especially among teens, and expand the market for digital orthodontics, especially among adults. By training more doctors,
including GPs as well as orthodontists, educating more consumers about the benefits of straighter teeth using the Invisalign System and connecting
consumers with an Invisalign-trained doctor of their choice, we are helping drive adoption of digital orthodontics and restorative dentistry globally.
The Invisalign System
The Invisalign System is a proprietary method for treating malocclusion based on a proprietary computer-simulated virtual treatment plan and a series
of doctor-prescribed, custom manufactured, clear polymer removable aligners. We received 510(k) clearance from the United States (“U.S.”) Food and
Drug Administration (“FDA”) to market the Invisalign System in 1998. The Invisalign System offers a range of treatment options, specialized services, and
access to proprietary software for treatment visualization and is comprised of the following phases:
Diagnosis and transmission of treatment data. An Invisalign trained dental professional prepares an online prescription form on our Invisalign Doctor
Site and securely submits the patient's records, which include a digital intraoral scan or a polyvinyl-siloxane (“PVS”) impression of the relevant dental
arches, photographs of the patient and, at the dental professional’s election, x-rays of the patient’s dentition. Intraoral digital scans may be submitted
through Align’s iTero scanner or certain third-party scanners capable of accurately interfacing with our systems and processes. Globally, more than 89% of
Invisalign System prescription orders are now submitted via digital scan, increasing the accuracy of treatments, reducing the time from prescription
submission to patient receipt, and decreasing the carbon footprint resulting from the shipment of the materials used to form PVS impressions to the doctors
and shipping those PVS impressions back to us. Additionally, it is during this stage that exocad’s CAD/CAM software platform can be used to identify,
assess and assist doctors and dental labs to collaborate on any needed ortho-restorative treatment options through comprehensive interdisciplinary
workflows.
Computer-simulated treatment plan. Using the digital scans or PVS impressions, certain doctor preferences and digital data provided, we generate a
proposed custom, three-dimensional treatment plan, called a ClinCheck® treatment plan, using proprietary software developed through significant, ongoing
research and development investments spanning more than two decades. A patient’s ClinCheck treatment plan simulates desired tooth movement in stages
and details the timing and placement of any features or attachments to be used during treatment. Attachments are tooth-colored “buttons” that are
sometimes used to increase the biomechanical force on a specific tooth or teeth in order to affect the desired movement(s).
Review and approval of the treatment plan by an Invisalign trained doctor. The patient’s ClinCheck treatment plan is then made available to the
prescribing dental professional via Align’s Invisalign Doctor Site, enabling the dental professional to evaluate projected tooth movement from initial to
final position and compare multiple treatment plan options. By reviewing, modifying as needed and approving the treatment plan, the dental professional
retains control of the patient’s treatment.
Manufacture of custom aligners. Following the dental professional’s approval of a ClinCheck treatment plan, we use the data underlying the
simulation as input for the next stage of the Align Digital Workflow in which we use stereolithography technology (a form of 3D printing technology) to
construct a series of molds depicting the future position of the patient’s teeth. Each mold is a replica of the patient’s teeth at each stage of the simulated
course of treatment. From these molds, aligners are fabricated by pressure-forming polymeric sheets over each mold. Aligners are thin, clear polymer,
removable dental appliances that are custom manufactured in a series designed to correspond to each stage of the patient's ClinCheck treatment plan.
Shipment to the dental professional and patient aligner wear. Once manufactured, all the aligners for a patient's doctor-approved treatment plan are
typically shipped directly to the dental professional, who then dispenses them to the patient at regular check-up intervals. Aligners are generally worn for a
short period of time corresponding to the stages of the patient’s approved ClinCheck treatment plan and their doctor’s discretion. The patient replaces the
aligners with the next pair in the series when prescribed, advancing tooth movement through each stage. At various points in each patient’s treatment, their
doctor may place attachments or use other auxiliaries to achieve desired tooth movements, per the doctor’s original prescription and the approved
ClinCheck treatment plan. Additionally, for patients treated using many of our Invisalign System products, doctors have the option to adjust treatment plans
to achieve desired results by ordering additional clear aligners in accordance with pre-defined terms.
6
Clear Aligner Products
We offer our Invisalign System in a variety of treatment packages designed to correspond with the case-by-case treatment needs of our doctors and
their patients. The table below provides a general description of the categories of Invisalign System products offered in various regions as they typically
correspond to the severity of malocclusion and length of anticipated treatment.
Malocclusion
Very Mild
Moderate
Severe
Product
Invisalign® Express
Package
Invisalign® Lite Package
Invisalign Go™ Limited
Movement (GP)
Treatment Stages*
7
14
20
Clinical Scope
Relapse and minor
movement, anterior esthetic
alignment
Class I, mild
crowding/spacing, non-
extraction, pre-restorative
* The number of stages can vary by product and region.
Class I, no anterior /
posterior correction, mild to
moderate crowding,
spacing, non-extraction,
pre-restorative Tooth
movement from 2nd
premolar to 2nd premolar
(5x5)
Invisalign® Moderate
Packages (& Invisalign
Go™ Plus)
20-26
Class I, mild Class II, mild
to moderate
crowding/spacing, mild
anterior / posterior and
vertical discrepancies, pre-
restorative, (Go Plus tooth
movement from 1st molar to
1st molar (6X6))
Invisalign® Comprehensive
Packages
As many as required
Class I, II, III, moderate to
severe crowding/spacing,
anterior / posterior and
vertical discrepancies,
extractions, complex pre-
restorative
Most of our Invisalign System products described above provide dental professionals with the option to order additional aligners if the patient's
treatment deviates from the original treatment plan. The number and timing of additional aligner orders are subject to certain requirements noted in our
terms and conditions.
Comprehensive Products - Invisalign Treatment Options:
Invisalign Comprehensive Packages. The Invisalign Comprehensive Package is used to treat adults and teens over a wide spectrum of mild to severe
malocclusion and contains a broad variety of features to address the desired treatment goals. It also addresses the frequently complex orthodontic needs of
teenage or younger patients with advanced features such as mandibular advancement, compliance indicators and compensation for tooth eruption. These
packages include Invisalign Comprehensive, Invisalign First Phase 1 and Invisalign First Comprehensive Phase 2.
Invisalign First Phase 1 and Invisalign First Comprehensive Phase 2 Packages. Invisalign First Phase 1 Package is designed specifically for younger
patients generally between the ages of six and ten years, who frequently have a mixture of primary/baby and permanent teeth. Invisalign First Phase 1
treatment provides early interceptive orthodontic treatment, traditionally done through arch expansion, or partial metal braces, before all permanent teeth
have erupted. Invisalign First Phase 1 clear aligners are designed specifically to address a wide range of younger patients' malocclusions, including shorter
clinical crowns, management of erupting dentition and predictable dental arch expansion. Our Invisalign First Comprehensive Phase 2 Package
complements Invisalign First Phase 1 and is generally consistent with our Invisalign Comprehensive Package. After a patient completes Invisalign First
Phase 1, doctors have the option to purchase a Comprehensive Phase 2 Package for that same patient.
Non-Comprehensive Products - Invisalign Treatment Options:
Invisalign Non-comprehensive Packages. We offer a variety of lower priced treatment packages for less complex orthodontic cases, non-
comprehensive relapse cases, or teeth straightening prior to restorative or cosmetic treatments, such as veneers. These treatment packages include
Invisalign Express, Invisalign Lite, Invisalign Go, Invisalign Go Express and Invisalign Moderate. These packages may be offered in select countries
and/or may differ from region to region.
Invisalign Go Packages. In various markets we also offer Invisalign Go and Invisalign Go Plus, streamlined Non-Comprehensive packages designed
for GPs to more easily identify and treat patients with mild malocclusion. The Invisalign Go and Invisalign Go Plus packages include case assessment
support, simplified ClinCheck treatment plans and a progress assessment feature for case monitoring.
7
Feature Enhancement / New Products
Invisalign Mandibular Advancement. Invisalign System with mandibular advancement is designed for tweens and teens. It is targeted for patients with
permanent teeth or stable baby teeth who have bite issues in which the lower jaw is further back and can benefit from being brought forward for a better
bite relationship. The Invisalign System with mandibular advancement addresses Class II bite correction with simultaneous alignment of the teeth. In 2022,
we enhanced the original design with new enhanced precision wings that provide increased durability and comfort, as well as greater overlap to help the
aligners remain properly engaged to keep the patient’s lower jaw forward during treatment.
Non-Case Products:
Clear Aligner non-case products include retention products, Invisalign training, adjusting tools used by dental professionals during the course of
treatment, ancillary Invisalign Accessory Products and other oral health products available in certain e-commerce and retail channels in the U.S.
Retention. We offer up to four sets of custom clear aligners called Vivera retainers made with proprietary material strong enough to maintain tooth
position and correct minor relapse, if necessary, as well as Invisalign retainers. Retainers are generally available for doctors to offer to any of their patients,
whether they use the Invisalign System or other products, including wires and brackets. In select markets, we also offer single set retainers. Additionally,
we offer a professional whitening system using Ultradent’s Opalescence PF whitening system with Vivera retainers.
We also offer in the U.S., a Doctor Subscription Program which is a monthly subscription program based on the doctor’s monthly need for retention
or limited treatment. The program allows doctors the flexibility to order both “touch-up” or retention aligners within their subscribed tier and is designed
for a segment of experienced Invisalign trained doctors who are currently not regularly using our retainers or low-stage aligners.
Smart Technology: SmartTrack, SmartForce and SmartStage
Smart technology is applied in the development of Invisalign treatments and leads to a more precise control of individual and multiple tooth
movements. We use a force driven system in our Invisalign treatments such that the next aligner is shaped so that when inserted, the aligner stretches and
applies the desired forces to the surface of the tooth, resulting in the desired tooth movement. Smart technology allows us to find the right thickness, the
right elasticity, and the right force application over a period of time. Smart technology includes the use of SmartTrack, SmartForce and SmartStage
Technology.
SmartTrack. SmartTrack clear aligner material is a patented, custom-engineered Invisalign clear aligner material that delivers gentle, more constant
force considered ideal for orthodontic tooth movements. Conventional aligner materials relax and lose a substantial percentage of the force applied in the
initial days of wear. SmartTrack material maintains more constant force over time. The flexible SmartTrack material also more precisely conforms to tooth
morphology, attachments and interproximal spaces to improve control of tooth movement throughout treatment.
SmartForce. SmartForce attachments are small tooth-colored shapes that are attached to teeth before or during Invisalign treatment. Invisalign clear
aligners fit smoothly and tightly around the attachments and give the aligners something to gently push on. SmartForce attachments make complex tooth
movements possible without braces by helping clear aligners apply the right amount of force in the right direction.
SmartStage Technology. SmartStage is an advanced algorithm that determines the optimal path of tooth movement and the shape of the aligner at
every stage of an Invisalign treatment. The programming determines tooth movement in a certain sequence, at the right time to achieve optimal outcomes
with greater predictability and fewer undesirable interferences.
Systems and Services Segment
Intraoral scanning is a rapidly evolving technology that is having a substantial impact on the practice of dentistry. By enabling the dental practitioner
to create a 3D image of a patient's teeth (digital scan) using a handheld intraoral scanner, digital scanning is faster, more efficient, precise and comfortable
for patients. Beginning patient care with the early usage of our iTero intraoral scanners and combining the results with digital workflows designed to assist
doctors and patients visualize and evaluate various treatment options with detailed imagery and CAD/CAM solutions is helping patients decide to undergo
treatment and improve treatment outcomes and satisfaction. The accuracy of digitally scanned models substantially reduces the rate of restoration
"remakes," meaning patients are recalled less often and the appointment time for the restoration is shorter because of fewer adjustments, increasing overall
patient satisfaction. Digital models also reduce the carbon footprint associated with the shipping of the materials used to create PVS impressions, the
shipping of those impressions and their disposal.
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Moreover, the digital model file can be used for various procedures and services including fabrication of physical dental models for use by labs to create
restorative units such as veneers, inlays, onlays, crowns, bridges and implant abutments; digital records storage; aid to caries detection; orthodontic
diagnosis; orthodontic retainers and appliances; and Invisalign digital impression submission.
iTero Scanner. The iTero Element™ portfolio of intraoral scanners includes the iTero Element™ 2, the iTero Element™ Flex, iTero Element™ 5D
Imaging System and iTero Element™ Plus Series which are each available in select regions and countries. These products build on the existing high
precision, full-color imaging and fast scan times of the iTero Element portfolio and are available with software options for orthodontic and restorative
procedures. The iTero scanner is interoperable with our Invisalign System such that a full arch or full mouth digital scan can be submitted as part of the
Invisalign System prescription order submission process.
Our iTero Element 5D Imaging System is the first integrated dental imaging system that simultaneously records 3D, intraoral color camera images,
near infrared imaging (“NIRI”) technology and enables comparison over time using the iTero™ TimeLapse technology. NIRI technology, included in our
iTero Element 5D and 5D Plus Imaging Systems, aids in detection and monitoring of interproximal caries lesions above the gingiva without using harmful
radiation. The iTero Element 5D Imaging System is available in the U.S., Canada, China, and the majority of EMEA and select APAC and LATAM
countries and is pending regulatory approval in others. We received 510(k) clearance in the U.S. for the caries detection feature of the iTero Element 5D in
2020. The iTero Element Plus Series of intraoral scanners and imaging systems offers restorative and orthodontic digital workflows that include enhanced
visualization for optimized patient experience, including a fully integrated 3D intraoral camera in certain models, seamless scanning with reduced
processing time, artificial intelligence-based features, and, in certain models, NIRI technology.
Our iTero Element scanners are offered in a number of software configurations such as Ortho Comprehensive, Restorative Comprehensive and
Restorative Foundation. These software packages are included in the price of the scanner and have a service period of 1 to 5 years. They enable various
orthodontic and restorative workflows as well as provide other applications, including Invisalign Outcome Simulator, Invisalign Case Assessment tool,
Invisalign Progress Assessment tool, and iTero TimeLapse technology. Our iTero software is designed for orthodontists for digital records storage,
orthodontic diagnosis, and for the fabrication of printed models and retainers. Our Restorative software is designed for GPs, prosthodontists, periodontists
and oral surgeons and includes restorative workflows providing the ability to send digital impressions to the lab of their choice and communicate
seamlessly with external treatment planning, custom implant abutment, chairside milling and laboratory CAD/CAM systems such as through our exocad
Connector.
Invisalign® Outcome Simulator. The Invisalign Outcome Simulator is an exclusive chair-side and cloud-based application for the iTero scanner that
allows doctors to help patients visualize how their teeth may look at the end of Invisalign treatment. This is achieved through a dual view layout that shows
a prospective patient an image of their own current dentition next to a simulated final position after Invisalign treatment.
Invisalign® Progress Assessment Tool. The Invisalign Progress Assessment tool provides the ability to compare a patient’s new scan with a specific
stage of their ClinCheck® treatment plan, allowing doctors to visually assess and communicate Invisalign treatment progress with an easy-to-read, color-
coded, tooth movement report.
iTero® TimeLapse Technology. Our iTero® TimeLapse technology allows doctors or practitioners to compare a patient’s historic 3D scans to a
present-day scan, enabling clinicians to identify and measure orthodontic movement, tooth wear, and gingival recession. This highlights areas of diagnostic
interest to dental professionals and helps foster a proactive conversation with the patient regarding potential restorative or orthodontic solutions.
CAD/CAM Services. Our exocad CAD/CAM software platform addresses restorative needs in an end-to-end digital platform workflow to facilitate
ortho-restorative and comprehensive dentistry. The platform provides doctors and dental labs with digital clinical solutions that aid GPs and dental labs in
planning and delivering restorative dental treatments, adding restorative functionality to our comprehensive digital platform to deliver digital ortho-
restorative workflows and interdisciplinary dentistry. Our exocad software is licensed and sold separately.
Other proprietary software mentioned in this Annual Report on Form 10-K, such as software embedded in our iTero scanners, ClinCheck and
ClinCheck Pro software, the Invisalign Doctor Site, and feature enhancements included as part of the Invisalign System are not sold separately, nor do they
contribute as individual items to revenues.
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Business Strategy
Our technology and innovations are designed to meet the demands of today’s patients with convenient, comfortable, and affordable treatment options,
while improving overall oral health. We strive to help doctors and lab technicians move their businesses forward by connecting them with new patients,
providing digital solutions that increase operational speed and efficiency and provide solutions that allow them to deliver exceptional treatment outcomes
and experiences to millions of people around the world. We achieve this by focusing on and executing to our strategic growth drivers:
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International Expansion. We continue increasing our presence globally by making our products available in more countries to more customers. We
continue expansion of our sales and marketing by reaching into new countries and regions, including new areas within Africa and Latin America.
By the end of 2022, we were selling directly or through authorized distributors in more than 100 countries. As our business continues to grow in
both number of new Invisalign trained doctors and customer utilization, we support that growth through targeted investments such as clinical
support, product improvements, technological innovations, clinical education and advertising. In addition, we are scaling and expanding our
operations and facilities to better support the growing numbers of global customers. In 2022, with the opening of our third clear aligner fabrication
facility Wroclaw, Poland, we now have a manufacturing facility in each of our regions: Americas (Mexico), APAC (China), and EMEA (Poland).
Each of these three facilities represents a “hub” and together these three hubs form the foundation of our “Regional Hub Model”, which will
continue to evolve as we consider additional locations to improve coverage and service for any potential future markets. We also perform digital
treatment planning and interpretation for restorative cases worldwide, including in Costa Rica, China, Germany, Spain, Poland, and Japan, among
others. By establishing and expanding our key operational activities in locations closer to our customers, we are creating an infrastructure that
allows us to be responsive to local and regional needs, while providing global operational flexibility and scale needed for variations in global and
regional demand. We expect to continue expanding our business in 2023 by investing in resources, infrastructure and initiatives that help drive
Invisalign treatment growth, our intraoral scanners as the preferred scanning technology for digital dental scans, and our exocad CAD/CAM
software as the solution of choice for dental labs in existing and new international markets.
• GP Adoption. We want to enable GPs, who have the potential to treat the general population, to more easily identify potential cases they can treat
with the Invisalign System, monitor patient progress or, if needed, help refer cases to an orthodontist while providing high-quality restorative,
orthodontic and dental hygiene care. We believe success with GPs can be achieved through doctor training and clinical education, by offering
digital tools such as the iTero scanner and products like Invisalign Go™ treatment that address the distinctive needs of GP patients, all delivered
by sales and marketing personnel specifically focused on the unique needs of this customer category. We encourage GPs to scan every patient with
intraoral scanners that are without harmful radiation as a means to diagnose and treat patients over time and as an opportunity to drive future
demand for their services and the Invisalign System. In October 2021, the findings of a clinical study we sponsored were published in the peer-
reviewed Journal of Dentistry were validated and demonstrated that the NIRI technology of the iTero Element 5D imaging system was 66% more
sensitive than bitewing x-ray radiography for detection of interproximal lesions, without the use of harmful radiation, which supports our belief in
the benefits of using iTero scanners.
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Patient Demand & Conversion. Our goal is to make the Invisalign brand a highly recognized name brand worldwide by creating awareness for
Invisalign treatment among consumers and motivating the potential 500 million patients who can benefit from treatment of malocclusion to seek
treatment using the Invisalign System. We accomplish this through an integrated consumer marketing strategy that includes television, media,
social networking and event marketing and strategic alliances with professional sports teams, as well as educating patients on treatment options
and directing them to high volume Invisalign trained doctors. To further drive consumer awareness, in 2022, we continued to offer additional
dental-related Invisalign Accessory Products under the Invisalign brand name available in certain e-commerce channels in the U.S.
• Orthodontist Utilization. We continue to innovate and increase product applicability and predictability to address a wide range of cases, from
simple to complex, thereby enabling doctors to confidently diagnose and treat children and adults with the Invisalign System. This is especially
important to treating teenage patients who make up the largest portion of the 21 million annual orthodontic case starts each year. We also continue
to make improvements to our Invisalign treatment software, ClinCheck Pro software, designed to deliver an exceptional user experience and
increase treatment control to help doctors achieve their treatment goals. In combination with the new Invisalign System innovations that are part of
the Align digital platform, we are enhancing the digital treatment planning experience for orthodontics by providing doctors with greater
flexibility, consistency of treatment preferences and real-time treatment plan access and modification capabilities.
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Manufacturing and Suppliers
We have three manufacturing facilities for clear aligners, which are located in Juarez, Mexico, where we conduct our aligner fabrication, distribution,
and certain services for the Americas market, Ziyang, China, where we fabricate aligners for China and other APAC markets and Wroclaw Poland, where
we fabricate aligners for EMEA markets. We have designed this Regional Hub Model to primarily cater to our respective market areas, enable us to better
serve our global customer base by being closer to our doctor customers and drive efficiencies in the business. We produce our handheld intraoral scanner
wand, perform final scanner assembly and repair our scanners at our facilities in Ziyang, China and Petah Tikva, Israel and service and repair certain
scanners in Juarez, Mexico.
We also perform digital treatment planning and interpretation for restorative cases based on digital scans generated by our iTero intraoral scanners.
Our digital treatment planning facilities are located worldwide, including in Costa Rica, China, Germany, Spain, Poland and Japan, among other
international locations.
Our quality system is required to be in compliance with the Quality System regulations enforced by the FDA, and similar regulations enforced by
other worldwide regulatory authorities. We are certified to ISO 13485:2016, an internationally recognized standard for medical device quality. We are
routinely audited by third party certification bodies as well as global health authorities for our compliance to this quality standard as well as international
regulations. We have a formal, documented quality system by which quality objectives are defined, understood and achieved. Systems, processes and
procedures are implemented to ensure high levels of product and service quality. We monitor the effectiveness of the quality system based on internal data
and direct customer feedback and strive to continually improve our systems and processes, taking corrective action, as needed.
Since the mass-customized treatment planning and manufacturing processes of our products requires substantial and varied technical expertise, we
believe that our manufacturing capacity and capabilities are important to our success. In order to produce our highly-customized, highly-precise, medical
quality products in volume, we have developed a number of proprietary processes and technologies. These technologies include complex software
algorithms and solutions, including artificial intelligence and machine-learning based CAD/CAM software, Vision systems, CT scanning, stereolithography
and automated custom aligner fabrication equipment. To increase the efficiency and yield of our manufacturing processes, we continue to focus our efforts
on software development, equipment development and the improvement of rate-limiting processes or bottlenecks. We continuously upgrade our
proprietary, three-dimensional treatment planning software to enhance computer analysis of treatment data and to reduce time spent on manual and
judgmental tasks for each case, thereby increasing the efficiency of our technicians. In addition, to improve efficiency and increase the scale of our
operations, we continue to invest in the development of automated systems for the fabrication and packaging of aligners.
In addition, predictable and consistent production is essential to our commitment to timely deliver products to our customers efficiently and
profitably. Our production can be disrupted by such things as supply chain issues, production manufacturing software system issues and production
equipment downtime. Accordingly, as we have grown our operations, we have included flexibility and resiliency in our overall manufacturing design to
mitigate the risks of production downtime. Our manufacturing facilities include backup generators and systems and each facility has an emergency
response plan that is part of ongoing employee training and testing through recurring cross functional scenario-based simulation exercises. Likewise, the
Regional Hub Model provides us with greater flexibility and capacity to redirect production to one or more of our production facilities as needed.
As part of our manufacturing resiliency design efforts, we have also considered climate change, climate-related risks - higher average global
temperatures, rising sea levels and more frequent and severe wildfires, hurricanes, floods, winter storms, heat waves and other events and natural disasters
(collectively, “climate-related risks”). We view climate-related risks to be one of many operational challenges we face, and factor them into our business
continuity planning and strategic risk mitigation efforts.
For instance, our manufacturing plants and operations may be impacted by extreme temperatures and weather, subjecting us to potential brownouts
and blackouts, increased energy costs and capital investments needed to maintain ideal operating temperatures. Our manufacturing facility in Juarez,
Mexico is located in an area classified as high-water stress and our operations could be impacted by water shortages, rationing and droughts. Our
California, Costa Rica, Mexico and North Carolina operations are located in areas that have historically been impacted by extreme weather events such as
hurricanes, tornados, wildfires or flooding.
In part to help mitigate risks to our manufacturing operations, we have strategically located our clear aligner production facilities in three facilities on
different continents. This allows us to both respond more quickly to customer demand while also
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offering redundancy in the event natural disasters or climate-related events affect operations at one or more facilities. Moreover, each of our three key clear
aligner manufacturing facilities are located at elevations less likely to be impacted by rising sea levels and at least two hundred miles inland.
Moreover, we are highly dependent on manufacturers of specialized scanning equipment, rapid prototyping machines, resin and other advanced
materials for our aligners, as well as the optics, electronic and other mechanical components of our intraoral scanners. We maintain single supplier
relationships for many of these machines and materials technologies. In particular, our CT scanning and stereolithography equipment used in our aligner
manufacturing and many of the critical components for the optics of our intraoral scanners are provided by single or sole source suppliers. We also
currently purchase our resin and polymer, the primary raw materials used in our manufacturing process for clear aligners, from a single source. A
discussion of the risks of our supply and manufacturing operations, including foreign operations, may be found in Item 1A of this Annual Report on Form
10-K under the heading "Risk Factors."
Sales and Marketing
Our sales and marketing efforts are focused on increasing adoption and utilization of the Invisalign System and Vivera retainers by orthodontists and
GPs worldwide and integrating the iTero scanner and services and exocad CAD/CAM products into dental labs and practices. The iTero scanner is an
important component to the customer experience and is central to a digital approach as well as overall customer utilization of Invisalign clear aligners. In
each region, we have direct sales, marketing and support organizations, which include quota carrying sales representatives, sales management and sales
administration. We also have distribution partners in certain markets. Our sales and marketing personnel are organized primarily to support orthodontists
and GPs separately, allowing highly trained and specialized personnel to serve each customer channel, thereby increasing our focus and effectiveness on
both. We continue to expand in existing markets through targeted investments in sales resources, professional marketing and education programs.
Additionally, our consumer marketing programs are designed to create awareness and educate consumers on the benefits of Invisalign treatment and Vivera
retainers, including where they can find a trained doctor to provide treatment.
We provide training, marketing and clinical support to orthodontists and GPs. As of December 31, 2022, we had approximately 124,500 active
Invisalign trained doctors. We define doctors as active if they have submitted at least one Invisalign case in the prior 12-month period.
Research and Development
We are committed to investing in world-class digital technology development, which we believe is critical to achieving our goal of establishing the
Invisalign System as the standard method for treating malocclusion, our intraoral scanners as the preferred scanning technology for digital dental scans, and
our exocad CAD/CAM software as the solution of choice for dental labs.
Our research and development activities are directed toward developing digital technology innovations that we believe will deliver our next
generation of products and solutions to enable the Align Digital Platform. These activities range from accelerating product and clinical innovation to
developing manufacturing process improvements to researching future technologies, products and software.
In an effort to demonstrate the broad treatment capabilities of the Invisalign System, various clinical case studies and articles have been published that
highlight the clinical applicability of Invisalign treatment to malocclusion cases, including those of severe complexity. Similarly, various studies have also
been published demonstrating the capabilities of our scanners, including advanced features such as our NIRI technology. We undertake pre-
commercialization trials and testing of our technological improvements to our products and manufacturing process. We furthermore fund research in the
field of orthodontics and dentistry through initiatives such as our Annual Research Award Program, which was in its 13th year in 2022, our donations to the
American Association of Orthodontists Foundation and our partnership with MedTech Innovator Asia Pacific, a nonprofit startup accelerator for the
medical technology industry that connects healthcare industry leaders with innovative medical technology startups for mentorship and support.
Intellectual Property
We believe our intellectual property portfolio represents a substantial business advantage. As of December 31, 2022, we had 739 active U.S. patents,
831 active foreign patents, and 813 pending global patent applications. Our active U.S. patents expire between 2023 and 2041. When patents expire, we
lose the protection and competitive advantages they provided, which could negatively impact our operating results; however, as we continue to pursue new
innovations, we seek intellectual property protection for new inventions and know-how through U.S. and foreign patent applications and non-disclosure
agreements. We
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also seek to protect our software, documentation and other written materials under trade secret and copyright laws. We furthermore have a broad and
diverse trademark portfolio that we use to highlight and protect our universally recognized brands. Information regarding risks associated with our
proprietary technology and our intellectual property rights may be found in Item 1A of this Annual Report on Form 10-K under the heading “Risk
Factors.”
Seasonal Fluctuations
General economic conditions impact our business and financial results, and we have historically experienced seasonal trends within our two operating
segments, customer channels and the geographic locations that we serve. Sales of the Invisalign system are often weaker in Europe, especially southern
European countries during the summer months due to our customers and their patients being on holiday and seasonally higher in China during the third
quarter. Similarly, other international holidays like Lunar New Year can impact our sales in APAC. In North America, summer is typically the busiest
season for orthodontists with practices that have a high percentage of adolescent and teenage patients as many parents want to get their teenagers started in
treatment before the start of the school year; however, many GPs are on vacation during this time and therefore tend to start fewer cases. For our Systems
and Services segment, capital equipment sales are often stronger in the fourth calendar quarter. Consequently, these seasonal trends have caused and may
continue to cause fluctuations in our quarterly results, including fluctuations in sequential revenue growth rates. However, our typical seasonal patterns
have been impacted by macroeconomic uncertainty including significant changes in foreign exchange rates, the effects of COVID-19 , the military conflict
between Russia and Ukraine and other macroeconomic challenges, and it remains unclear when or if they will return to historical norms.
Competition
Our clear aligner products compete directly against traditional orthodontic treatments that use metal brackets and wires and increasingly against clear
aligner products manufactured and distributed by various companies, both within and outside the U.S. Although the number of competitors varies by
segment, product, geography and customer, they include new and well-established regional competitors in certain foreign markets, as well as larger
companies, divisions of larger companies or well-capitalized new entrants with substantial sales, marketing, research and financial capabilities.
Competition in the clear aligner market continues to increase. In addition, corresponding foreign patents began expiring in 2018 which has increased
competition outside the U.S. These competitors include existing larger companies in certain markets who have the ability to leverage their existing
channels in the dental market to compete directly with us, direct-to-consumer (“DTC”) companies that provide clear aligners requiring little or no in-office
care from trained and licensed doctors themselves who can manufacture retainers and custom aligners for treatment of very simple malocclusion in their
offices using modern 3D printing technology. Unlike our DTC competitors, we are committed to doctors being at the core of our business strategy, and
Invisalign treatment requires a doctor's prescription and an in-person physical examination of the patient’s dentition before treatment can begin.
Additionally, we face competition in the emerging and rapidly evolving markets for intraoral scanners and software solutions, including CAD/CAM.
The global intraoral scanner market is very dynamic with participants spanning from traditional dental conglomerates to companies dedicated primarily to
scanner development and sales with new entrants from South Korea and China playing larger roles. The iTero intraoral scanner competes with PVS
impressions that doctors use for clear aligner therapy or other dental procedures, as well as other intraoral scanners. It also competes with traditional bite
wing 2D dental x-rays for detecting interproximal caries. Information regarding risks associated with increased competition may be found in Item 1A of this
Annual Report on Form 10-K under the heading “Risk Factors.”
We believe we are well positioned to compete in the markets we target. We have a dedicated, highly skilled sales force of over 4,000 employees who
are focused on key demographics in our target markets that allow us to uniquely address customer needs and thereby enhance the customer experience. Our
significant historical and ongoing investments in research and development and design around the movement of teeth, SmartTrack aligner materials and
design, intraoral scanning, 3D manufacturing, global scale of manufacturing and treatment planning, strong brand name recognition, and an in depth
understanding of the drivers and motivations within the orthodontic and GP dental markets are among a few of our key competitive factors that compare
favorably with our competitors’ products and services.
Government Regulation
Many countries throughout the world have established regulatory frameworks for commercialization of medical devices. As a designer, manufacturer,
and marketer of medical devices, we are obligated to comply with the respective frameworks of these countries to obtain and maintain access to these
global markets. The frameworks often define requirements for marketing authorizations which vary by country. Failure to obtain appropriate marketing
authorization and to meet all local requirements, including specific quality and safety standards in any country in which we currently market our products,
could cause commercial disruption and/or subject us to sanctions and fines. Delays in receipt of, or a failure to receive, such marketing
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authorizations, or the loss of any previously received authorizations, could have a material adverse effect on our business, financial condition and results of
operations.
With regards to premarket authorization in the U.S., many of our products are classified as medical devices under the U.S. Food, Drug, and Cosmetic
Act (“FD&C Act”). The FD&C Act requires these products, when sold in the U.S., to be safe and effective for their intended use and to comply with
medical device regulations defined by the FDA. The regulatory framework depends on a set of written processes for ensuring consistent quality called a
Quality Management System (“QMS”) coupled with a product marketing authorization which depends on the risk classification of the product. This
regulatory framework is comparable to the framework established in the European Union (“EU”). Within the EU, our products are subject to the
requirements defined by the Medical Device Regulation EU 2017/745 which replaced the Medical Device Directive 93/42/EEC with a final transition date
of May 26, 2021. Similar market access regulations exist in Brazil, China, Japan and other countries. Our QMS is routinely audited by certification bodies
as well as country regulators for compliance with applicable regulations. We believe we are in compliance with all state, federal, and international
regulatory requirements applicable to our products.
We are also subject to various laws around the world that govern interactions with our customers as healthcare professionals or government officials.
The laws govern different interactions and may include: prohibiting improper influence of or payments to healthcare professionals and government
officials; setting out rules for when and how to engage healthcare professionals as our vendors; requiring price reporting regulations; requiring marketing of
our products within the regulatory approval (e.g., on label) promotion, sale and marketing of our products and services; the importing and exporting of our
products; the operation of our facilities and distribution of our products; and disclosure of payments to healthcare professionals and entities. As we expand
our operations footprint, countries to which we sell and invest in new business models, compliance with applicable laws becomes more complex and the
general trend is toward increasingly stringent oversight and enforcement.
Initiatives sponsored by government agencies, legislative bodies, and the private sector to limit the growth of healthcare expenses generally are
ongoing in markets where we do business. It is not possible to predict at this time the long-term impact of such cost containment measures on our future
business.
Our customers are healthcare providers that may be reimbursed by state or federal funded programs such as Medicaid, a foreign national healthcare
program, or private pay insurance, each of which may offer some degree of oversight. As we expand our customer base and product offering, it is
increasingly possible that there will be new opportunities to seek reimbursement from public and private payors for services that include our products, and
additional laws or regulatory enforcement requirements may apply now or in the future. Also, as a medical device manufacturer and seller, we are subject
to transparency reporting laws (also known as sunshine laws) that in certain countries and U.S. States require us to report transfers of value to healthcare
professionals that perform services or receive other items from us (e.g., meals, travel, branded promotional or educational items, or other benefits of value).
Many government agencies, both domestic and foreign, have increased their mining of this data and have used this data to drive enforcement activities with
respect to healthcare providers and companies in recent years. Enforcement actions and associated efforts to respond or defend against such actions can be
expensive, and any resulting findings carry the risk of significant civil and criminal penalties.
In addition, we must comply with numerous data protection and data governance laws that now do or soon will regulate or restrict cross border data
transfers, such as in the EU, Switzerland, U.S. Federal and States, Brazil, China, Japan, Korea, and other countries. In the U.S., we may be required to
comply with final regulations implementing amendments to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and the associated
HIPAA Security Rule, and are in the same position as other companies working to ensure compliance with new State Privacy laws coming into effect in
2023, such as California, Virginia, Colorado and Connecticut. In the EU, we must comply with the General Data Protection Regulation, which serves as a
harmonization of European data-privacy law and the Swiss Federal Act on Data Protection, where we have our EMEA headquarters. In LATAM markets,
we must comply with Brazil's Lei Geral de Proteção de Dados.
We also have cybersecurity policies to protect confidential personal information and confidential company information. We have internal monitoring
and detection systems to safeguard against cyber attacks. We have implemented a security awareness and phishing program to educate our users about the
importance of cybersecurity. We evaluate products to ensure compliance with cybersecurity regulations. We have established a business resiliency program
and perform regular backups of our critical IT systems to protect against business interruption. In addition, we periodically scan our external environment
for vulnerabilities, perform annual external penetration tests and engage an independent third party to assess effectiveness of our security practices for
critical IT systems. We also have cybersecurity and other forms of insurance coverage related to a breach event covering expenses for notification, credit
monitoring, investigation, crisis management, public relations and legal advice.
Information regarding risks associated with data security and privacy may be found in Item 1A of this Annual Report on Form 10-K under the heading
“Risk Factors.”
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Human Capital
We believe our culture and commitment to employees provide unique value that benefits Align, its stockholders and the communities and other
stakeholders we serve. Every employee, and every job, is important to our success and helps us achieve our purpose of transforming smiles and changing
lives. Align is committed to building a workforce of diverse cultural backgrounds and life experiences. Fostering a culture of dignity, integrity, open
dialogue, open-mindedness, compassion, fairness, recognition, and shared goals allows us to attract and retain the best talent, which has ultimately led to
the growth and success of our company.
As of December 31, 2022, we had approximately 23,165 employees, an increase of approximately 3% and 28% over December 31, 2021, and
December 31, 2020, respectively. The number of employees for each of the last five years and our employees’ roles as of December 31, 2022 are as
follows:
We are a global organization with the majority of our employees in direct-labor roles in our manufacturing and clinical treatment planning facilities.
Set forth in the following paragraphs are some of the most important elements of our culture and commitment to our employees.
Governance. Our commitment to improving the lives of our employees and the communities in which we live and work, including conducting our
business ethically, responsibly and transparently through open and clear disclosures that allow us and others to hold us accountable, begins with our Board
of Directors (“Board”) and management team. They set the tone for our organization by establishing and clearly communicating our core values of Agility,
Customer and Accountability that inform our culture. Our Global Code of Conduct (“Code”) and quality policies are designed to enable us to operate with
integrity and deliver superior treatment outcomes and experiences to patients. We seek to create an environment that values the health, safety and well-
being of our teams, and we work to equip them with the knowledge and skills to serve our business and develop in their careers. We believe that by
effectively managing our business with these values as the foundation, we will drive long-term value for our stockholders and all stakeholders.
As part of our Board’s commitment to our environmental, social and governance (“ESG”) efforts, the Board previously delegated ESG oversight
responsibility to our Nominating and Governance Committee. The evolution of our ESG programs was furthered in 2022 when our Board amended the
charter of our Compensation Committee to specifically include oversight responsibilities of all human capital management strategies, programs and
policies in addition to its oversight of diversity, equity and inclusion initiatives. In doing so, the Board deemed it important to rename the committee to the
Compensation and Human Capital Committee in recognition of its additional human capital management oversight responsibilities.
The Compensation and Human Capital Committee regularly reviews and discusses key performance indicators regarding employee and human capital
that allow it to more fully monitor trends involving issues such as our total headcount, recruiting, attrition, career development, diversity, compensation,
benefits, and other measures of employee engagement and interest to management and the committee.
Diversity. Fostering diversity and encouraging inclusion and belonging in the workplace makes Align a more welcoming and enjoyable place to work.
Our products and services are used broadly across age groups, gender identities, races, ethnicities, and cultures, so we aim to build a workforce that
optimally reflects this diversity. We believe our success continues to be driven by our focus on integrating and welcoming employees of all different
backgrounds, orientations, beliefs, perspectives and capabilities into our workforce. Our approximately 23,165 employees bring a positive mix of ethnic
and culturally diverse backgrounds to the more than 40 different countries in which we operate.
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Our management team is comprised of diverse individuals from varying countries and nationalities and who are committed to promoting and
encouraging the health and well-being of our employees at work, at home and in society in general. We were selected by Untapped, a diversity recruiting
platform, for having one of the Top Internship Programs of 2022. Untapped created a list of 75 top programs at companies that provide quality internship
experiences, career advancement opportunities, an inclusive and diverse work environment, and significant growth potential. We were recognized for focus
and dedication to diversity, equality, inclusion, and belonging.
Our work culture is designed to create financial, health, career and personal benefits for our employees and organization. We sponsor diverse and
cultural recognition events to increase awareness of inclusion and diversity, including its importance in creating an environment where every employee can
thrive.
We also sponsor employee resource groups based on shared characteristics or life experiences which are open to all employees, including those who
do not directly identify with other members but are passionate in supporting the group's members in creating an educated, supportive and inclusive culture.
Talent Recruitment and Engagement. We employ a variety of career development, employee benefits, compensation and other policies and programs
designed to attract, develop, and retain employees. We focus on building a talent pipeline that nurtures those early in their careers, encourages continuous
learning and growth, and incentivizes employees to stay and contribute to our success over the long term. Our programs include early recruitment at high
schools and universities, initiatives such as internships, co-ops, apprenticeships, and training programs, quarterly performance management check-ins
focused on individual goals and commitment to values and conducting regular employee surveys to build trust and strengthen relationships.
Our efforts have resulted in numerous awards for our positive work environment and culture. In 2022 alone, we were recognized by:
• Great Places to Work and Best Places to Work based on our employee-validated great workplaces in the following countries - Brazil, Costa Rica,
•
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Germany, India, Italy, Poland, Singapore, Taiwan, Thailand, Vietnam - as well as in Raleigh, North Carolina
100 Best Companies to Work for in Israel by CofaceBdi
Computerworld Best Place to Work in IT, based on its survey of organizations across the U.S. to identify those that provide the best benefits and
amenities for IT professionals
• AmCham Cares Distinction Award Recipient in Singapore based on our volunteer and fundraising campaigns
We believe it is imperative to provide a vibrant employee experience and we value our employees’ collective voices. Accordingly, we conduct
employee surveys to collect employee feedback critical to improving our culture. The process serves as a wellness check for us as the surveys cover a broad
variety of topics including engagement, inclusion, development, leadership, compliance, alignment and enablement. Our response rates to our annual
surveys are consistently high, reflecting strong engagement by our global employees. In 2022, our global employee participation was 89% of eligible
employees. We have used information learned from our surveys to improve the way our employees experience us. Examples of the improvements we have
made as a result of employee feedback include the design of our hybrid return to office approach, increased career development training opportunities, and
a pilot program that allows CAD designers to learn new skills that provide potential pathways to software and operations engineering, cybersecurity and
quality/regulatory engineering.
Training and Professional Development. Training is an integral part of developing and retaining our employees and creating a culture of leadership
within the Company.
16
Training at Align begins with our Code and our strong commitment to ethical business practices in all aspects of our operations. Every employee and
contractor is required to review the Code and confirm they understand it. We routinely reference the Code in presentations and as part of everyday
operations.
As a further part of our standard onboarding program, we train employees on important environmental health and safety topics to protect them and
our environment as we operate our business. As a general practice, employees are trained to perform their jobs in accordance with any and all applicable
statutory and regulatory requirements and that training is routinely re-administered, updated and refreshed.
At Align, we believe employees learn best when skills development is driven by the changing and immediate needs of our employees and where all
employees are empowered to take action and ownership of their careers. We also believe learning should be relevant and actionable as well as rooted in our
purpose and values. Align University Online enables our global employee population to access a diverse portfolio of approximately one thousand self-
directed courses in up to 80 languages. We also offer a full suite of custom leadership development programs, beginning with aspiring leaders, continuing
with managers and directors, and culminating with executive development opportunities. In 2022, we introduced Voyage, Align’s approach to career
development encouraging employees to think differently about career growth by challenging them to be intentional in planning their development, learning
from others, practicing reflection, and embracing a growth mindset. At the end of 2022, 65% of Align employees had completed at least one professional
development opportunity.
Compensation and Benefits. Our commitment to our employees starts with benefit and compensation programs that reflect the value and the
contributions our employees make. In addition to competitive base pay, we offer an assortment of benefits that vary by country, including performance-base
variable compensation programs, health and welfare benefit plans, retirement planning services and benefits, holiday and leave policies, equity
participation programs such as our Incentive Plan and Employee Stock Purchase Plan, and charitable and community service opportunities. Besides these,
we also offer discounts to our employees and their dependents when they undergo Invisalign treatment.
We are furthermore committed to pay equity practices. We exceed minimum pay requirements for our manufacturing personnel and we regularly
review our pay equity practices globally and locally so that we can appropriately address discrepancies.
Health, Wellness and Safety. Our employees are essential to us as a business and their health and well-being is critical to our success and their
continuing achievements. Our objective is to prevent injuries and occupational diseases by focusing first and foremost on creating and maintaining
environments that are safe. We therefore offer a wide variety of robust programs and initiatives designed to promote the overall health and welfare of all
our employees and their families. It is our responsibility to support the health and well-being of our employees. Every year, we have a month dedicated to
well-being, called Month of Wellness, which is a worldwide movement fostering employee health. Throughout the Month of Wellness, employees
participate in a variety of activities such as informational sessions and health fairs and receive useful resources aligned to our wellness pillars - mental
resilience, physical well-being and healthy living, social/family connections, and financial wellness. This provides employees with a variety of meaningful
ways to embrace wellness and well-being through mindfulness, meditation, nutrition and mental wellness activities, exercise, hikes, yoga, volunteer
activities, financial education sessions, social events and stress management.
We have environmental, health, safety and sustainability personnel who are responsible for ensuring health and safety programs and processes are
maintained and effective at each of our locations. Major worksites, such as our aligner fabrication sites, and large offices have dedicated Environmental
Health and Safety (“EHS”) departments that ensure health and safety programs are maintained while contributing Best Management Practices (“BMP”) and
general input to corporate-wide programs. Each EHS department is responsible for ensuring all employees at their location are properly trained on various
EHS topics and at the appropriate frequencies. A training suite is determined for each employee depending on their responsibilities and function modeled
off of ISO 45001.
Community. We actively encourage employees to support local charitable organizations by providing opportunities for volunteerism, team building,
and donation and matching programs. In 2022, our employees continued to make us proud through their generosity and dedication, especially during our
annual Month of Smiles initiative in October where we encourage our employees to make a difference individually and as teams through volunteer
activities, charitable donations, fundraising, and intentional acts of goodness. In addition, through our Align Foundation, we support organizations whose
visions closely align with our mission to improve smiles, supporting and educating teens, and empowering our customers through partnerships with
learning institutions and foundations. Below are some of our key community initiatives in 2022:
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•
•
•
In honor of our 25th anniversary, we donated $250,000 to Junior Achievement Worldwide, an organization that delivers hands on, immersive
learning in work readiness, financial health, entrepreneurship, sustainability, STEM, economics, and more. In addition, we held several volunteer
activities with Junior Achievement.
Since 2013 we have been a proud supporter of Operation Smile, a global medical nonprofit providing hundreds of thousands of free surgeries for
people born with cleft lips and cleft palates in low- and middle-income countries. As of December 31, 2022, we had donated more than $2.5
million to Operation Smile.
For 15 years we have supported America’s ToothFairy, an organization with a mission to ensure underserved children in the United States have
access to dental care and learn about oral health by supporting nonprofit clinics and community partners. As of December 31, 2022, we have
provided almost $2 million for the foundation’s operational expenses and children’s oral health programs.
We also provide product donations to the dental community to help patients in need of healthy, beautiful smiles. For more information on our
located at
the Corporate Social Responsibility portion of our corporate website
charitable and community efforts, please refer
https://www.aligntech.com/about/corporate_social_responsibility.
to
Available Information
Our corporate website is www.aligntech.com, and our investor relations website is http://investor.aligntech.com. The information on or accessible
through our websites is not part of this Annual Report on Form 10-K. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K, our proxy statement on Schedule 14A for our annual stockholders’ meeting and amendments to such reports are available, free of charge, on
our investor relations website as soon as reasonably practicable after we electronically file or furnish such material with the SEC. Further, the SEC
maintains an internet site that contains reports, proxy and information statements and other information regarding our filings at http://www.sec.gov.
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Information about our Executive Officers
The following table sets forth certain information regarding our executive officers as of February 27, 2023:
Name
Joseph M. Hogan
Age
65
President and Chief Executive Officer of Align
• Chief Executive Officer of ABB
• Chief Executive Officer of GE Healthcare
Position
John F. Morici
56
Chief Financial Officer and Executive Vice President, Global Finance of Align
• Chief Financial Officer and Senior Vice President, Global Finance of Align
• Chief Financial Officer of Align
• Executive Vice President and Managing Director of NBC Universal
• Chief Financial Officer/Chief Operating Officer of NBC Universal
• Senior Vice President and Chief Financial Officer of NBC Universal
Julie Coletti
55
Executive Vice President, Chief Legal and Regulatory Officer of Align
• Senior Vice President, Chief Legal and Regulatory Officer of Align
• Vice President, Associate General Counsel, Strategic Commercial Affairs of Align
• Vice President, Global General Counsel and Chief Compliance Officer of Danaher
• Vice President, Chief Legal Officer and Corporate Secretary of Bayer HealthCare's MEDRAD/Radiology and
Interventional Division
Stuart Hockridge
51
Executive Vice President, Global Human Resources of Align
• Senior Vice Present, Global Human Resources of Align
• Vice President, Global Human Resources of Align
• Vice President of Talent of Visa
Emory M. Wright
53
Executive Vice President, Global Operations of Align
• Senior Vice President, Global Operations of Align
• Vice President, Operations of Align
• Various roles at Align including Vice President, Manufacturing
Period
2015-Present
2008-2013
2000-2008
2022-Present
2018-2022
2016-2018
2014-2016
2011-2014
2007-2011
2022-Present
2019-2022
2018-2019
2013-2017
2007-2013
2022-Present
2018-2022
2016-2018
2013-2016
2022-Present
2018-2022
2007-2018
2000-2007
Item 1A. Risk Factors.
The following discusses some of the risks that may affect our business, results of operations and financial condition. You should carefully review this
section, as well as our consolidated financial statements and notes thereto and other information appearing in this Annual Report on Form 10-K, for
important information regarding these and other risks that may affect us. The order we have chosen to list the risks below or the sections in which we have
identified them should not be interpreted to mean we deem any risks to be more or less important or likely to occur or, if any do occur, that their impact
may be any less significant than others. These risk factors should be considered in connection with evaluating the forward-looking statements contained in
this report because they could cause our actual results and conditions to differ materially from those statements. Before you invest in Align, you should
know that investing involves risks, including those described below. The risks below are not the only ones we face. If any of the risks actually occur, our
business, financial condition and results of operations could be negatively affected, the trading price of our common stock could decline, and you may lose
all or part of your investment.
Summary of Risk Factors
Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our
business, financial condition, results of operations, cash flows, and prospects. These risks are discussed more fully below and include, but are not limited
to:
Macroeconomic and External Risks
• Global and regional economic conditions
• Major health crises
•
• Natural disasters
Political events, international disputes, war and terrorism
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Business and Industry Risks
Changes in demand for our products
Increased competition
Failure of our new products, or changes to our existing products, to attract or retain consumers or generate revenue
•
•
•
• Our ability to successfully integrate our acquisitions
Operational Risks
Business disruptions
•
•
Predicting demand
• Availability of supplies
•
•
•
Shipping delays
Personnel development and retention
Effectiveness of marketing and our ability to attract consumers
Legal, Regulatory and Compliance Risks
• Government investigations, enforcement actions, and settlements
• Our ability to comply with laws and regulatory and legislative mandates or guidance
•
•
Privacy, cybersecurity and data protection
Litigation, including class action lawsuits
Intellectual Property Risks
• Our ability to obtain, maintain, protect, and enforce our intellectual property rights
Financial, Tax and Accounting Risks
Impairment of our goodwill
Compliance with accounting, financial reporting, and tax laws
•
•
• Management of our stock plans
• Volatility of our stock
Macroeconomic and External Risks
Our operations and financial performance depend on global and regional economic conditions. Inflation, fluctuations in currency exchange rates,
changes in consumer confidence and demand, and weakness in general economic conditions and threats, or actual recessions, have and could in the
future materially affect our business, results of operations, and financial condition.
Macroeconomic conditions impact consumer confidence and discretionary spending, which can adversely affect demand for our products. Consumer
spending habits are affected by, among other things, inflation, fluctuations in currency exchange rates, weakness in general economic conditions, threats or
actual recessions, pandemics, wars and military actions, levels of employment, wages, debt obligations, discretionary income, interest rates, volatility in
capital, and consumer confidence and perceptions of current and future economic conditions. Changes and uncertainty can, among other things, reduce or
shift spending away from elective treatments and procedures, drive patients to purchase orthodontic treatments that may cost less than our Invisalign
treatment options, result in a decrease in the number of overall orthodontic and dental case starts, reduce patient traffic in dentists’ offices or reduce
demand for dental services generally. Further, decreased demand for dental services can cause dentists and labs to postpone investments in capital
equipment, such as intraoral scanners and CAD/CAM equipment and software. The recent declines in, or uncertain economic outlooks for, the U.S.,
Chinese, European and certain other international economies has and may continue to adversely affect consumer and dental practice spending. The increase
in the cost of fuel and energy, food and other essential items along with climbing interest rates could reduce consumers' disposable income, resulting in less
discretionary spending for products like ours. Decreases in disposable income and discretionary spending or change in consumer confidence and spending
habits has and may continue to adversely affect our revenues and operating results.
Inflation continues to adversely impact spending and trade activities and we are unable to predict the impacts of higher inflation on global and
regional economies. Higher inflation has also increased domestic and international shipping costs, raw material prices, and labor rates, which could
adversely impact the costs of producing, procuring and shipping our products. Our ability to recover these cost increases through price increases may
continue to lag, resulting in downward pressure on our operating results. Attempts to offset cost increases with price increases may reduce sales, increase
customer dissatisfaction or otherwise harm our reputation. Further, we are unable to predict the impact of efforts by central banks and federal, state and
local governments to combat elevated levels of inflation. If their efforts to reduce inflation are too aggressive, they may lead to a recession. Alternatively, if
they are insufficient or are not sustained long enough to lower inflation to more acceptable levels, consumer spending may be adversely impacted for a
prolonged period of time. Any of these events could materially affect our business and operating results.
We have international operations and sales outside the U.S. We earn a large portion of our total revenues from international sales generated
through our foreign direct and indirect operations and we expect to increase our sales and presence outside the U.S., particularly in markets we believe have
high-growth potential. Moreover, we perform most of our key
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production steps in locations outside of the U.S. For instance, we perform our digital treatment planning and aligner fabrication in multiple international
locations, including large-scale operations in Mexico, Costa Rica, Poland, Japan and China. Additionally, we maintain significant global sales and
marketing operations in Switzerland, Singapore and China, along with research and development operations globally, including in the U.S., Spain, Israel,
Armenia and Germany. Our reliance on international operations and sales exposes us to fluctuations in foreign currencies that may adversely impact our
business or results of operations. Although the U.S. dollar is our reporting currency, a growing portion of our net revenues and net income are generated in
foreign currencies. While we utilize forward contracts to reduce the adverse earnings impact from the effect of exchange rate fluctuations on certain assets
and liabilities, our hedging strategies may not be successful, and currency exchange rate fluctuations have and could continue to have a material adverse
effect on our operating results and cash flows. In addition, our foreign currency exposure on assets, liabilities and cash flows that we do not hedge have and
could continue to have a material impact on our financial results in periods when the U.S. dollar significantly fluctuates in relation to foreign currencies.
Our business could be impacted by major public health issues, including pandemics, and our business has been and continues to be materially
affected by the global and regional spread of COVID-19.
Major public health issues, including pandemics such as the spread of COVID-19, have adversely affected, and could in the future materially affect,
our business due to their impact on the global economy and regional economies, demand for consumer products, the imposition or removal of public safety
measures. Public health concerns may also limit the movement of products between regions, disrupt or delay supply chains and sales and distribution
channels, resulting in interruptions of the supply of products. While we maintain insurance coverage for certain types of losses, such insurance coverage
may be insufficient to cover all losses that may arise.
COVID-19 has created significant, widespread and unprecedented volatility, uncertainty, and economic instability, disrupting broad aspects of global
and regional economies, our operations and the businesses of our customers and suppliers. Many of these effects continue to varying degree as variants of
COVID-19 and outbreaks globally or regionally continue to harm recovering consumer confidence. Therefore, comparing our financial results for the
reporting periods of 2022 to the same reporting periods of 2021 or earlier may not be a useful means by which to evaluate the health of our business and
our results of operations.
As a result of outbreaks of COVID-19 and its variants, customer demand and doctor availability has been inconsistent and difficult to predict.
Although the practices of the doctors, dental service organizations and labs that are our principal customers have largely reopened following the initial
outbreak of COVID-19 in 2020, many continue to operate at less than pre-pandemic capacities. For example, in China the impact of widespread population
lockdowns under the country’s zero tolerance policies was more pronounced in 2022, leading to the complete closure of dental offices in major
metropolitan and other areas for extended periods of time. Conversely, the reversal of China’s zero tolerance policies has resulted in a significant increase
in infections that may impact consumer and doctor demand in 2023. These fluctuations are currently and have previously adversely impacted our results of
operations and are expected to continue to impact our results, particularly in the near term.
The effects of the pandemic continue to linger and evolve and we cannot predict future direct and ancillary impacts on our business or results of
operations, although they may be material to our business as well as the businesses of our customers, suppliers and economic activity generally.
The COVID-19 pandemic has impacted virtually all aspects of our business and society. It has exacerbated many pre-existing risks to our business by
making them more likely to occur or more impactful when they do occur. Accordingly, you should consider the risks described in this risk factor in addition
to, and not in lieu of, the risks described elsewhere throughout these risk factors.
Our business could be impacted by political events, trade and other international disputes, war, and terrorism, including the military conflict
between Russia and Ukraine.
Political events, trade and other international disputes, war, and terrorism could harm or disrupt international commerce and the global economy and
could have a material effect on our business as well as our customers, suppliers, contract manufacturers, distributors, and other business partners.
Political events, trade and other international disputes, wars, and terrorism can lead to unexpected tariffs or trade restrictions, which could adversely
impact our business. Tariffs increase the cost of our products and the components and raw materials to make them. These increased costs could adversely
impact our gross margin and make our products less competitive or reduce demand. Countries could also adopt other measures, such as controls on imports
or exports of goods, technology or data, that could adversely impact our operations and supply chain and limit our ability to offer products and services.
These measures could require us to take various actions, including changing suppliers or restructuring business relationships. Complying with new or
changed trade restrictions is expensive, time-consuming and disruptive to our operations. Such restrictions can be announced with little or no advance
notice and we may be unable to effectively mitigate the adverse impacts
21
of such measures. If disputes and conflicts escalate in the future, actions by governments in response could be significantly more severe and restrictive and
could materially affect our business.
Political unrest, threats, tensions, actions and responses to any social, economic, business, geopolitical, military, terrorism, or acts of war involving key
commercial, development or manufacturing markets such as China, Mexico, Israel, Europe, or other countries could materially impact our international
operation. For example, our employees in Israel could be obligated to perform annual reserve duty in the Israeli military and be called for additional active
duty under emergency circumstances. If any of these events or conditions occur, the impact to us, our employees and customers is uncertain, particularly if
emergency circumstances, armed conflicts or an escalation in political instability or violence disrupts our product development, data or information
exchange, payroll or banking operations, product or materials shipping by us or our suppliers and other unanticipated business disruptions, interruptions
and limitations in telecommunication services or critical systems or applications reliant on a stable and uninterrupted communications infrastructure.
The military conflict between Russia and Ukraine has materially adversely impacted global economies, and has materially impacted our global and
regional operations. Governments including the U.S., United Kingdom, and those of the European Union have imposed export controls on certain products
and financial and economic sanctions on certain industry sectors and parties in Russia which has triggered retaliatory sanctions by the Russian government
and its allies. Our commercial operations have been impacted by the conflict and if we fail to support existing customers, we may frustrate those customers,
harm our reputation, and be subject to regulatory action in Russia. Additionally, a majority of our research and development personnel in Russia relocated
to locations outside of Russia in 2022. Whether they remain in their new locations over the long-term remains unknown. If we are unable to retain key
skilled personnel from where they have relocated, or we are unable to quickly replace such personnel with individuals of equivalent technical expertise and
qualifications, our business and financial condition could be materially effected.
The outcome and future impacts of the Russia and Ukraine conflict remain highly uncertain, continue to evolve and may grow more severe the longer
the military action and sanctions remain in effect. Moreover, this conflict and existing and future sanctions may have broad and pervasive impacts to the
global and regional economies and our operations, heightening and affecting many of the other risks described elsewhere throughout these risk factors, any
of which could materially and adversely affect our business and results of operations. Such risks include adverse effects on general economic and political
conditions such as inflation, supply chain and trade disruptions, and reduced consumer spending; disruptions to our IT systems, including through network
failures, malicious or disruptive software, or cyberattacks; energy shortages or rationing that may adversely impact our manufacturing facilities; rising fuel
and/or rising costs of producing, procuring and shipping our products; our exposure to foreign currency exchange rate fluctuations; and constraints,
volatility or disruption in the financial markets. We may not be successful in our efforts to mitigate the negative impacts of the conflict, particularly the
longer sanctions and retaliatory sanctions remain in effect. How we respond to the conflict may also subject us to risk. The resumption of sales in Russia or
our decision to continue supporting our personnel and existing customers in Russia may result in reputational harm or boycotts of our products that could
impact our sales and operations inside and outside of Russia or subject us to litigation for which we may be found liable in courts or other tribunals in
Russia or elsewhere. Moreover, production could be impaired should hostilities spread to other countries such as Poland, where our newest aligner
fabrication facility is located.
We have no way to predict the progress or outcome of the conflict in Ukraine or the reactions by governments, businesses or consumers. A prolonged
conflict, intensified military activities or more extensive sanctions impacting the region and the resulting economic impact could have a material effect on
our business, results of operations, financial condition, liquidity, growth prospects and business outlook.
Our operations may be impacted by natural disasters, which may become more frequent or severe as a result of climate change, and may adversely
impact our business and operating results as well as those of our customers and suppliers.
Natural disasters can impact us and our customers, as well as suppliers critical to our operations. Natural disasters include earthquakes, tsunamis,
floods, droughts, hurricanes, wildfires, and other extreme weather conditions that can cause deaths, injuries, and critical health crises, power outages,
restrictions and shortages of food, water, shelter, and medical supplies, telecommunications failures, materials scarcity, price volatility and other
ramifications. Climate change is likely to increase both the frequency and severity of natural disasters and, consequently, risks to our business and
operations. Our digital dental modeling and certain of our customer facing operations are primarily processed in our facilities located in Costa Rica. Our
aligner molds and finished aligners are fabricated in China, Mexico and Poland. Our locations in Costa Rica and Mexico as well as others are in earthquake
and hurricane zones and may be subject to other natural disasters. Moreover, a significant portion of our research and development activities are located in
California, which suffers from earthquakes, periodic droughts, heat waves, flooding, power shortages and wildfires. If there is a natural disaster in a region
where one of these facilities is located, our employees could be impacted, our research could be lost, and our ability to create ClinCheck treatment plans,
respond to customer inquiries or manufacture and ship our aligners or intraoral scanners could be compromised which could result in our customers
experiencing significant product and services delays.
22
The effects of climate change on regional and global economies could change the supply, demand or availability of sources of energy or other
resources material to our products and operations and affect the availability or cost of natural resources and goods and services on which we and our
suppliers rely.
Business and Industry Risks
Demand for our products may not increase or may decrease due to resistance to non-traditional treatment methods, which could have a material
impact on our business and operating results.
Invisalign treatment represents a significant change from traditional metal wires and brackets orthodontic treatment, and customers and consumers
may not find it cost-effective or preferable to traditional treatment. For instance, a number of dental professionals continue to believe the Invisalign
treatment is appropriate for only a limited percentage of patients. Increased market acceptance of our products depends in part upon the recommendations
of dental professionals, as well as other factors including efficacy, safety, ease of use, reliability, aesthetics, and price compared to competing products and
treatment methods. If demand for our products fails to increase, including due to resistance to nontraditional treatment methods, this could materially affect
our business and operating results.
Our net revenues depend primarily on our Invisalign system and iTero scanners and any decline in sales or average selling price of these products
may adversely affect net revenues, gross margin and net income.
Our net revenues remain largely dependent on sales of our Invisalign system of clear aligners and iTero intraoral scanners. Of the two, we expect net
revenues from the sale of the Invisalign system, primarily our comprehensive products, will continue to account for the majority of our net revenues,
making the continued and widespread acceptance of the Invisalign system by orthodontists, GPs and consumers critical to our future success. Our iTero
business also contributes a material percentage of our overall net revenues. Our CAD/CAM software solutions are important to the continuing evolution of
our Align Digital Platform and our business overall. Our operating results could be harmed if:
•
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orthodontists and GPs experience a reduction in consumer demand for orthodontic services;
consumers are unwilling to adopt Invisalign system treatment as rapidly or in the volumes we anticipate and at the prices offered;
orthodontists or GPs choose to continue using wires and brackets or competitive products rather than the Invisalign system or the rates at which
they utilize the Invisalign system fail to increase or increase as rapidly as anticipated;
sales of our iTero scanners decline or fail to grow sufficiently or as anticipated;
the growth of CAD/CAM solutions does not produce the results anticipated; or
if the average selling price of our products declines.
The average selling prices of our products, particularly our Invisalign system, are influenced by numerous factors, including the type and timing of
products sold (particularly the timing of orders for additional clear aligners for certain Invisalign products) and foreign exchange rates. In addition, we sell
a number of products at different list prices which may differ based on country. Our average selling prices for our Invisalign system and iTero scanners
have been impacted in the past and may be adversely affected again in the future if:
• we introduce new or change existing promotions, general or volume-based discount programs, product or services bundles, or consumer rebate
programs;
participation in any promotions or programs unexpectedly increases or decreases or drives demand in unexpected and material ways;
our geographic, channel, or product mix shifts to lower priced products or to products that have a higher percentage of deferred revenue;
•
•
• we decrease prices on one or more products or services in response to increasing competitive pricing pressures;
• we introduce new or change existing products or services, or modify how we market or sell any of our new or existing products or services;
•
•
governments impose pricing regulations such as the volume-based procurement regulations in China; or
estimates used in the calculation of deferred revenue differ from actual average selling prices.
If our average selling prices decline, our net revenues, gross margin and net income may be adversely affected.
Competition in the markets for our products is increasing and we expect aggressive competition from existing competitors, other companies that
may introduce new technologies or products in the future and customers who alone or with others create orthodontic appliances and solutions or other
products or services that compete with us.
The dental industry is in a period of immense and rapid digital transformation involving products, technologies, distribution channels and business
models. While solutions such as our Invisalign system, iTero scanners and CAD/CAM
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software facilitate this transition, whether our technologies will achieve market acceptance and, if adopted, whether and when they may become obsolete,
remains unclear.
Currently, the Invisalign system competes primarily against traditional metal wires and brackets and increasingly against clear aligners manufactured
and distributed by new market entrants and manufacturers of traditional wires and brackets, both within and outside the U.S., and from traditional medical
device companies, laboratories, startups and, in some cases, doctors and DSOs themselves. The number and types of competitors are diverse and growing
rapidly. They vary by segment, geography, and size, and include new and well-established regional competitors in dental markets, as well as larger
companies or divisions of larger companies with substantial sales, marketing, research and financial capabilities. Our competitors also include direct-to-
consumer (“DTC”) companies that provide clear aligners using a remote business model requiring little or no in-office care from trained and licensed
doctors, and doctors and DSOs who can manufacture custom aligners in their offices using 3D printing technology. Large consumer product companies
may also start supplying orthodontic products.
The manipulation and movement of teeth and bone is a complex and delicate process with potentially painful and debilitating results if improperly
performed or monitored. Accordingly, we deliver our Invisalign system solutions primarily through trained and skilled doctors. The Invisalign system
requires a doctor's prescription and an in-person physical examination of the patient’s dentition before beginning treatment; however, with the advent of
DTC providers, there has been a shift away from traditional dental practices that may impact our primary selling channels. Doctors and DSOs are sampling
alternative products and taking advantage of competitive promotions and sale opportunities. In addition, we face competition from companies that
introduce new technologies and we may be unable to compete with these competitors or they may render our technology obsolete or economically
unattractive. If we are unable to compete effectively with existing products or respond effectively to any new technologies, our business could be harmed.
Our iTero intraoral scanner can be used to start clear aligner therapy, as well as other dental procedures, including restorative, implant planning and
dentures, and also functions as a diagnostic tool. The iTero intraoral scanner competes with polyvinyl siloxane (“PVS”) impressions that doctors use for
clear aligner therapy or other dental procedures, as well as other intraoral scanners. It also competes with traditional bite wing 2D dental x-rays for
detecting interproximal caries. If we are unable to compete effectively with these existing products or respond effectively to new technologies, our Systems
and Services segment could be harmed.
To stimulate product and services demand, we have a history of offering volume discounts, price reductions and other promotions to targeted
customers and consumers. Whether or not successful, these promotional campaigns have had and may in the future have unexpected and unintended
consequences, including reduced gross margins, profitability and average selling prices, net revenues, volume growth, and net income.
We cannot assure that we will be able to compete successfully against our current or future competitors or that competitive pressures will not have a
material effect on our business, results of operations and financial condition.
Our success depends on our ability to successfully develop, introduce, achieve market acceptance of, and manage new products and services.
Our success depends on our ability to profitably and quickly develop, manufacture, market, obtain and maintain regulatory approval or clearance of
new products and services along with improvements to existing products and services. There is no assurance we can successfully develop, sell and achieve
market acceptance of our new or improved products and services. The extent of, and rate at which, new products or services may achieve market
acceptance and penetration is a function of many variables, including our ability to:
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•
•
•
•
successfully predict and timely innovate and develop new technologies and applications with the features and functionality customers desire or
expect;
successfully and timely obtain regulatory approval or clearance of new and improved products or services from government agencies such as the
FDA and analogous agencies in other countries;
cost-effectively and efficiently develop, manufacture, quality test, dispose of, and sell new or improved products and services offerings;
properly forecast the amount and timing of new or improved product and services demand;
allocate our research and development funding to products and services with higher growth prospects;
ensure compatibility of our technology, services and systems with those of our customers;
anticipate and rapidly innovate in response to new competitive products and services offerings and technologies;
differentiate our products and product offerings from our competitors as well as other products in our own portfolio and successfully articulate the
benefits to our customers;
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cost effectively manage any increased expense of developing, testing, manufacturing and marketing localized versions of our products
internationally;
• manage the impact of nationalism or initiatives to encourage the purchase or support of domestic vendors, which can influence customers not to
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purchase products from, or collaborate to promote interoperability of products with foreign companies;
qualify for third-party reimbursement for procedures involving our products; and
encourage customers to adopt new technologies and provide the needed technical, sales and marketing support to make new product and services
launches successful.
If we fail to accurately predict customer needs and preferences or fail to produce viable technologies, we may invest heavily in research and
development that does not lead to significant revenues. Even if we successfully innovate and develop new products and product improvements, we may
incur substantial costs doing so and our profitability may suffer. It may be difficult to gain market share and acceptance for new or improved products.
Introduction and acceptance of any products and services may take significant time and effort, particularly if they require doctor education and training to
understand their benefits or doctors choose to withhold judgment on a product until patients complete their treatments. For instance, it can take up to 24
months or longer to complete treatment using our Invisalign system.
In addition, we periodically introduce new business and sales initiatives to meet customers’ needs and demands. In general, our internal resources
support these initiatives without clear indications they will prove successful or be without short-term execution challenges. Should these initiatives be
unsuccessful, our business, results of operations and financial condition could be materially impacted.
We have in the past and may again in the future invest in or acquire other businesses, products or technologies which may require significant
management attention, disrupt our business, dilute stockholder value and adversely affect our results of operations.
Periodically, we may acquire, or make investments in, companies, products or technologies. Alternatively, we may be unable to find suitable
investment or acquisition targets and we may be unable to complete investments or acquisitions on favorable terms, if at all. If we make investments or
complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals or desired synergies, and investments or acquisitions
we complete could be viewed negatively by our customers, securities analysts and investors. Moreover, to the extent we make strategic investments, the
companies in which we invest may fail or we may ultimately own less than a majority of the outstanding shares of the company and be outvoted on critical
issues that could harm us or the value of our investment.
Additionally, as an organization we do not have a history of significant acquisitions or integrating their operations and cultures with our own. As
such, we are subject to various risks when making a strategic investment or acquisition which could materially impact our business or results of operations,
including that we may:
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fail to perform proper due diligence and inherit unexpected material issues or assets, including IP or other litigation or ongoing investigations,
accounting irregularities or improprieties, bribery, corruption or other compliance liabilities;
fail to comply with regulations, governmental orders or decrees;
experience IT security and privacy compliance issues;
invest in companies that generate net losses or the markets for their products, services or technologies may be slow or fail to develop;
not realize a positive return on investment or determine that our investments have declined in value, such that it may be necessary to record
impairments such as future impairments of intangible assets and goodwill;
have to pay cash, incur debt or issue equity securities to pay for an acquisition, adversely affecting our liquidity, financial condition or the value of
our common stock. The sale of equity or issuance of debt to finance any acquisition could result in dilution to our stockholders. The occurrence of
indebtedness would result in increased fixed obligations and could also include covenants or other restrictions that would impede our ability to
manage our operations;
find it difficult to implement and harmonize company-wide financial reporting, forecasting and budgeting, accounting, billing, IT and other
systems due to inconsistencies in standards, internal controls, procedures and policies;
require significant time and resources to effectuate the integration;
fail to retain key personnel or harm our existing culture or the culture of an acquired entity;
not realize any or all or material portions of the expected synergies and benefits of the acquisition; or
unsuccessfully evaluate or utilize the acquired technology or acquired company’s know-how or fail to successfully integrate the technologies
acquired.
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Moreover, opposition to one or more acquisitions could lead to negative ratings by analysts or investors, give rise to objections by one or more
stockholders or result in stockholder activism, any of which could harm our stock price.
Operational Risks
Business disruptions could seriously harm our financial condition.
Our global operations have been disrupted in the past and will likely be disrupted and harmed again in the future. The occurrence of any material or
prolonged business disruptions, whether internal or at key suppliers, could harm our business and results of operations, result in material losses, seriously
harm our revenues, profitability and financial condition, adversely affect our competitive position, increase our costs and expenses, and require substantial
expenditures and recovery time in order to fully resume operations.
When business disruptions occur, they may, individually or in the aggregate, affect our ability to provide products, services and solutions to our
customers, and could cause production delays or limitations, create adverse effects on distributors, disrupt supply chains, result in shipping and distribution
disruptions and reduce the availability of or access to one or more facilities. We have policies and procedures which are intended to mitigate the impact of
the business disruptions and crises that we believe could be most significant, and we train employees and work with suppliers to prepare for potential
disruptions. However, the design or implementation of these policies and practices may fail to adequately address particular disruptions, which could
materially and adversely affect our business, financial condition and results of operations.
Our operating results have and will continue to fluctuate in the future, which makes predicting the timing and amount of customer demand, our
revenues, costs and expenditures difficult.
Our quarterly and annual operating results have and will continue to fluctuate for a variety of reasons, including as a result of changing doctor and
consumer product demand. In addition to the factors otherwise described herein, some of the other factors that have historically and could cause our
operating results to fluctuate in the future include:
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higher manufacturing, delivery and inventory costs;
the creditworthiness, liquidity and solvency of our customers and their ability to timely make payments when due;
changes in the timing of revenue recognition and changes in our average selling prices, including as a result of the timing of receipt of product
orders and shipments, product and services mix, geographic mix, product and services deferrals, the introduction of new products and software
releases, product pricing, bundling and promotions, pricing for fees or expenses, modifications to our terms and conditions such as payment terms,
or as a result of new accounting pronouncements or changes to critical accounting estimates including, without limitation, estimates based on
matters such as our predicted usage of additional aligners;
seasonal fluctuations, including those related to patient demographics or seasonality as well as the availability of doctors to take appointments;
longer customer payment cycles and greater difficulty in accounts receivable collection for our international sales;
costs and expenditures, including connection with the establishment of new treatment planning and fabrication facilities, the hiring and
deployment of personnel, litigation, and the success of or changes to our marketing programs from quarter to quarter; and
timing and fluctuation of spending around marketing and brand awareness campaigns and industry trade shows.
Failing to accurately predict customer demand may cause us to have inadequate staffing, materials or storage required to manufacture our products to
meet demand. If we underestimate demand, it may exceed our manufacturing capacity or that of one or more of our suppliers, we may be understaffed and
we may not have sufficient materials needed for production. Specifically, our manufacturing process relies on sophisticated computer software and requires
new technicians to undergo a relatively long training process, often 120 days or longer. As a result, if we are unable to accurately predict demand, we may
have an insufficient number of trained technicians to ensure products are timely manufactured and delivered to meet customers’ expectations, which could
damage our relationships with our existing customers or harm our ability to attract new customers. Specifically, production levels for our intraoral scanner
are generally forecasted based on forecasts and historic product demand and we often place orders with suppliers for materials, components and sub-
assemblies (“materials and components”) as well as finished products weeks or more in advance of projected customer orders.
Conversely, if we overestimate customer demand, we may lose opportunities to increase revenues and profits, we may have excessive staffing,
materials, components and finished products, or capacity. If we hire and train too many technicians in anticipation of demand that does not materialize or
materializes slower than anticipated, our costs and expenditures may outpace our revenues or revenue growth, harming our gross margin and financial
results. Additionally, in order to secure supplies for production of products, we sometimes enter into non-cancelable minimum purchase commitments with
vendors, which could impact our ability to adjust our inventory to reflect declining market demands. If product demand decreases or increases more than
forecast, we may be required to purchase or lease additional or larger facilities and additional equipment, or we may be unable to fulfill customer demand
in the time frames and with the quantities required, any of which may take time to
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accomplish, lower our gross margin, inhibit sales or harm our reputation. Production of our Invisalign clear aligners and iTero intraoral scanners are also
limited by capacity constraints due to a variety of factors, including labor shortages, shipping delays, our dependency on third-party vendors for key
materials, parts, components and equipment, and limited production yields. Any or all of these problems could result in the loss of customers, provide an
opportunity for competing products to gain market acceptance and otherwise harm our business and financial results and those of our business partners.
Improvements to or changes in our products may affect the demand and make demand less predictable. We routinely review inventory for usage
potential, including fulfillment of customer warranty obligations and spare part requirements, and we write down to the lower of cost or net realized value
the excess and obsolete inventory, which may materially affect our results of operations. For instance, periodically we announce new products, capabilities,
or technologies that replace or shorten the life cycles of legacy products or cause customers to defer or stop purchasing legacy products until new products
become available. These risks increase the difficulty of accurately forecasting demand for discontinued and new products as well as the likelihood of
inventory obsolescence, loss of revenue and associated gross profit.
We may make business decisions that adversely affect our operating results such as modifications to our pricing policies and payment terms,
promotions, development efforts, product releases, business structure or operations. Most of our expenses, such as employee compensation and lease
obligations, are relatively fixed in the short term. Moreover, our expense levels are based, in part, on our expectations for future revenues. As a result, if our
net revenues for a particular period are below expectations, we may be unable to timely or effectively reduce spending to offset any net revenues shortfall.
We are subject to operating risks, including excess or constrained capacity and operational inefficiencies, which could adversely affect our results
of operations.
We are subject to operating risks, including excess or constrained capacity and pressure on our internal systems, personnel and suppliers. In order to
manage current and anticipated future operations effectively, we must continually implement and improve our operational, financial and management
information systems, hire, train, motivate, manage and retain employees, and ensure our suppliers remain diverse and capable of meeting growing demand
for the systems, raw materials, parts and components essential to the manufacture and delivery of our products. We may be unable to balance near-term
efforts to meet existing demand with future customer demand, including adding personnel, creating scalable, secure and robust systems and operations, and
automating processes needed for long term efficiencies. Any such failure could have a material impact on our business, operations and prospects.
Additionally, we have established treatment planning and manufacturing facilities closer to our international customers to provide them with better
experiences, improve their confidence using our products to treat patients, create efficiencies, and provide redundancy should other facilities be temporarily
or permanently unavailable. Our ability to obtain and maintain regulatory clearance and certifications and equip facilities is subject to significant risk and
uncertainty. If a facility is temporarily or permanently, partially or fully shut down, or if demand for our products outpaces our ability to hire qualified
personnel and effectively implement systems and infrastructure, we may be unable to fulfill orders timely, or at all, which may negatively impact our
financial results, reputation and overall business.
Our products and information technology systems are critical to our business. Issues with product development or enhancements, IT system
integration, implementation, updates and upgrades have previously and could again in the future disrupt our operations and have a material impact on
our business and operating results.
We rely on the efficient, uninterrupted and secure operation of our own complex IT systems and are dependent on key third party software embedded
in our products and IT systems as well as third-party hosted IT systems to support our operations. All software and IT systems are vulnerable to damage,
cyber attacks or interruption from a variety of sources. To effectively manage and improve our operations, our IT systems and applications require an
ongoing commitment of significant expenditures and resources to maintain, protect, upgrade, enhance and restore existing systems and develop new
systems to keep pace with continuing changes in information processing technology, evolving industry and regulatory standards, increasingly sophisticated
cyber threats, and changing customer preferences. Expanded remote working and increased usage of online and hosted technology platforms by us, our
customers and suppliers, including teledentistry and new or expanded use of online service platforms, products and solutions such as video conferencing
applications, doctor, consumer and patient apps have increased the demands on and risks to our IT systems and personnel. Moreover, we continue to
transform certain business processes, extend established processes to new subsidiaries and/or implement additional functionality in our enterprise resource
planning, product development, manufacturing, and other software and IT systems which entails certain risks, including disruption of our operations, such
as our ability to develop and update products that are safe and secure, track orders and timely ship products, manage our supply chain and aggregate
financial and operational data. Failure to adequately protect and maintain the integrity of our products and IT systems may result in a material effect on our
financial position, results of operations and cash flows.
We have a complex, global iTero intraoral scanner installed base of older and newer models. These models are continually updated to add, expand or
improve on existing or new features with hardware improvements, improvements to third party
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components, or part repair or replacement. We have experienced hardware issues in the past and may in the future, including issues relating to
manufacturing, design, quality, or safety, of which we become aware only after products or changes have been introduced into the market. We also have not
been and may not be able to ensure that third party components or any changes to the foregoing will not be incompatible with, or have a negative impact on
the functionality of our iTero intraoral scanners. As a result, there have been and may be widespread failures of our iTero intraoral scanners or we may
experience epidemic failures of our iTero intraoral scanner to perform as anticipated. Previously, we have not been and in the future may not be prepared
for, or have the infrastructure to, timely and adequately remediate or implement corrective measures for such failures, including due to our dependency on
third party providers or suppliers. As a consequence, remediation has been and may be in the future time-consuming and difficult to achieve, which may
materially impact our customers and our business partners, damage our reputation and result in lost business and revenue opportunities, and could be
materially costly.
Additionally, we continuously upgrade and issue new releases of our products and customer facing software applications, upon which customer
facing, manufacturing and treatment planning operations depend. Software applications and products containing software frequently contain errors or
defects, especially when first introduced or when new versions are released. Additionally, the third-party software integrated into or interoperable with our
products and services will routinely reach end of life, and as a consequence, certain models of our iTero intraoral scanners may be exposed to additional
vulnerabilities, including increased security risks, errors and malfunctions that may be irreparable or difficult to repair. The discovery of a defect, error or
security vulnerability in our products, software applications or IT systems, incompatibility with customers’ computer operating systems and hardware
configurations with a new release or upgraded version or the failure of our products or primary IT systems may cause adverse consequences, including:
delay or loss of revenues, significant remediation costs, delay in market acceptance, loss of data, disclosure of financial, health or other personal
information of our customers or their patients, product recalls, damage to our reputation, loss of market share or increased service costs, any of which could
have a material effect on our business, financial condition or results of our operations and the operations of our customers or our business partners.
A significant portion of our clear aligner production is dependent on digital scans from our globally dispersed and decentralized installed base of
iTero and third-party intraoral scanners. Failures of all or any portion of ours or third-party software or other components or systems to interoperate with
iTero or third-party scanners, termination of interoperability with third-party scanners, malware or ransomware attacks, product or system vulnerabilities or
defects, interference or disruptions for us, our customers, labs or other business partners in the use of our products or the transmission or processing of data
needed for the use or ordering of our products, or a system outage for any reason have harmed our operations previously and in the future could affect
materially and adversely our ability to accept scans, manufacture clear aligners or restorative procedures or treatments and services or otherwise service our
customers which may, amongst other things, harm our sales, damage our reputation, adversely impact our strategic partners or result in litigation.
We are highly dependent on third-party suppliers, some of whom are sole source suppliers, for certain key machines, components and materials,
and our business and operating results could be harmed if supply is restricted or ends, or if the price of raw materials used in our manufacturing
process increases.
We are highly dependent on our supply chain, particularly manufacturers of specialized scanning equipment, rapid prototyping machines, resin and
other advanced materials, as well as the optics, electronic and other mechanical components of our intraoral scanners. We maintain single supply
relationships for many of these machines and materials. In particular, our CT scanning and stereolithography equipment used in our aligner manufacturing
and many of the critical components for the optics of our scanners are provided by single suppliers. We rely on a single third-party manufacturer to supply
key sub-assemblies for our iTero Element scanner. We purchase the vast majority of our resin and polymer, the primary raw materials used in our
manufacturing process for clear aligners, from a single source. By using single suppliers for materials and manufacturing in a limited number of locations,
we risk multiple supply chain vulnerabilities. For example, damage to or destruction of a facility can materially disrupt our ability to timely deliver key
parts, components and materials or products or a supplier could encounter financial, operating or other difficulties, be unable to hire or maintain personnel,
fail to timely obtain supplies, fail to maintain manufacturing standards or controls. To the extent any of our suppliers or others' suppliers in our supply chain
are dependent on raw materials, components or other parts from Russia or Ukraine, the foregoing risks may be more likely to occur as a result of the
military conflict in Ukraine. Any one of these occurrences would adversely impact our supply chain.
Because of our dependence on our suppliers, changes in our relationships with any of them can result in disruptions to the supply chain, which can
materially impact our business. For instance, we may be unable to quickly establish or qualify replacement suppliers creating production interruptions,
delays and inefficiencies. Finding substitute manufacturers may be expensive, time-consuming or impossible and could result in a significant interruption
in the supply of one or more products causing us to lose revenues and suffer damage to our customer relationships. Technology changes by our service
providers, vendors, and other third parties could disrupt access to required manufacturing capacity or require expensive, time-consuming development
efforts to adapt and integrate new equipment or processes. In the event of technology changes, delivery delays, labor stoppages or shortages, or shortages
of, or increases in price for these items, sales may decrease and our business and prospects may be harmed.
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We use distributors for a portion of the importation, marketing and sales efforts related to our products and services, which exposes us to risks to
our sales and operations, including the risk that these distributors do not comply with applicable laws or our internal procedures.
In addition to our direct sales force, we have and expect to continue to use distributors to import, market, sell, service and support our products. Our
agreements with these distributors are generally non-exclusive and terminable by either party with little notice. If alternative distributors must be quickly
found and trained in the use, marketing, sales and support of our products and services, our revenues and ability to sell or service our products in markets
key to our business could be adversely affected. These distributors may also choose to sell alternative or competing products or services. In addition, we
may be held responsible for the actions of these distributors and their employees and agents for compliance with laws and regulations, including fair
competition, bribery and corruption, trade compliance, safety, data privacy and marketing and sales activities. A distributor may also affect our ability to
effectively market our products in certain foreign countries or regulatory jurisdictions if it holds the regulatory authorization in such countries or within
such regions and causes, by action or inaction, the suspension of such marketing authorization or sanctions for non-compliance or prevents us from taking
control of any such authorization. It may be difficult, expensive, and time-consuming for us to re-establish market access or regulatory compliance.
A disruption in the operations of a primary freight carrier, higher shipping costs or shipping delays could disrupt our supply chain and impact our
revenues or gross margin.
We are dependent on commercial freight carriers, primarily UPS, to deliver our products. If the operations of carriers are disrupted, we may be unable
to timely deliver our products to our customers who may choose alternative products which could cause our net revenues and gross margin to materially
decline. For example, after Russia's military attacks in Ukraine in 2022, UPS ceased shipments to Russia and we suspended new product sales there.
Moreover, when fuel costs increase, our freight costs generally do so as well. In 2022, due to increased fuel costs, we experienced a material increase in
freight costs. In addition, we earn an increasingly larger portion of our total revenues from international sales, which carry higher shipping costs that could
negatively impact our gross margin and results of operations. If freight costs materially increase and we are unable to successfully pass all or significant
portions of the increases along to our customers, or we cannot otherwise offset such increases in our cost of net revenues, our gross margin and financial
results could be materially affected.
Our success depends largely on the talents and efforts of our personnel, and if we are unable to attract, motivate, train or retain our personnel, it
may be more difficult to grow effectively and pursue our strategic priorities, and could materially effect on our results of operations.
We are highly dependent on the talent and effort of our personnel, including highly skilled personnel like orthodontists and production technicians in
our treatment planning facilities, and employees on our clinical engineering, technology development and sales teams. As a result, we strive to retain our
personnel, by providing competitive compensation and benefits, development opportunities and training, flexible work options, and an inclusive corporate
culture. However, there is substantial competition in our industry for highly-skilled personnel, in particular significantly higher demand for technical and
digital talent. Furthermore, our compensation and benefit arrangements, such as our equity award programs, may not always be successful in attracting new
employees and retaining and motivating existing employees. In addition, other internal and external factors can impact our ability to hire and retain talent,
including insufficient advancement or career opportunities and restrictive immigration policies. The loss of any of our key personnel, particularly executive
management, key research and development personnel or key sales team personnel, could harm our business and prospects and could impede the
achievement of our research and development, operational or strategic objectives.
We provide significant training to our personnel and our business will be impacted if our training fails to properly prepare our personnel to perform
the work required, we are unable to successfully instill technical expertise in new and existing personnel or if our techniques prove unsuccessful or not
cost-effective. Moreover, for certain roles, this training and experience can make key personnel, such as our sales personnel, highly desirable to competitors
and lead to increased attrition. The loss of the services and knowledge from our highly-skilled employees may significantly delay or prevent the
achievement of our development and business objectives and could harm our business. For example, it can take up to twelve months or more to train sales
representatives to successfully market and sell our products and for them to establish strong customer relationships.
Additionally, facilitating seamless leadership transitions for key positions is a critical factor in sustaining the culture and maintaining the success of
our organization. If our succession planning efforts are not effective, it could adversely impact our business. We continue to assess the key personnel that
we believe are essential to our long-term success, as future organizational changes could also cause our employee attrition rate to increase. If we fail to
effectively manage any organizational or strategic changes, our financial condition, results of operations, and reputation, as well as our ability to
successfully attract, motivate and retain key employees, could be harmed.
In 2022, we gradually reopened many of our offices that had been substantially closed to employees during the COVID-19 pandemic. Where our
offices have reopened, we have adopted a hybrid work schedule that allows many of our employees the opportunity to collaborate and connect with others
in our offices for some days of the week while having the
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option to work remotely other days. This hybrid work approach that we have adopted may materially increase our costs or create unforeseen challenges or
complications, including:
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difficulties maintaining our corporate culture, disruption of morale or decreased loyalty;
difficulties with hiring and retention, particularly if we must compete against other companies that offer generous or broad remote working
policies;
negative impacts to collaboration, performance and productivity;
increased stress, fatigue or “burn out” by employees unable to disengage their work life from home life;
increased operational, governance, compliance, and tax risks;
increased attrition or limits to our ability to attract employees who prefer to continue working remotely full time, or in offices or geographies
different from where they were hired or are expected to work;
problems managing office space requirements;
concerns regarding favoritism or discrimination;
strains to our business continuity plans and difficulties achieving our strategic objectives; and
increased labor and employment claims and litigation.
Also, we believe a key factor in our success has been the culture we have created that emphasizes a shared vision and values focusing on agility,
customer success and accountability. We believe this culture fosters an environment of integrity, innovation, creativity, and teamwork. We have experienced
and may continue to experience in the future, difficulties attracting and retaining employees that meet the qualifications, experience, compliance mindset
and values we expect. If we are unable to attract and retain personnel that meet our selection criteria or relax our standards in order to meet the demands of
our growth or if our growth is not managed effectively, our corporate culture, ability to achieve our strategic objectives, and our compliance with
obligations under our internal controls and other requirements may be harmed. This could have a material adverse effect on our results of operations and
our ability to maintain market share.
We are dependent on our marketing activities to deepen our market penetration and raise awareness of our brand and products, which may not
prove successful or may become less effective or more costly to maintain in the long term.
Our marketing efforts and costs are significant and include national and regional campaigns in multiple countries involving television, print and social
media and, more recently, alliances with professional sports teams, social media influencers and other strategic partners. We attempt to structure our
advertising campaigns to increase brand awareness, adoption and goodwill; however, there is no assurance our campaigns will achieve the returns on
advertising spend desired, increase brand or product awareness sufficiently or generate goodwill and positive reputational goals. Moreover, should any
entity or individual endorsing us or our products take actions, make or publish statements in support of, or lend support to events or causes which may be
perceived by a portion of society negatively, our sponsorships or support of these entities or individuals may be questioned, boycotts of our products
announced, and our reputation may be harmed, any of which could have a material effect on our gross margin and business overall.
In addition, various countries prohibit certain types of marketing activities. For example, some countries restrict direct to consumer advertising of
medical devices. We could run afoul of restrictions and be ordered to stop certain marketing activities. Moreover, competitors do not always follow these
restrictions, creating an unfair advantage and making it more difficult and costly for us to compete.
Additionally, we rely heavily on data generated from our campaigns to target specific audiences and evaluate their effectiveness, particularly data
generated from internet activities on mobile devices. To obtain this data, we are dependent on third parties and popular mobile operating systems, networks,
technologies, products, and standards that we do not control, such as the Android and iOS operating systems and mobile browsers. Any changes in such
systems that degrade, reduce or eliminate our ability to target or measure the results of ads or increase costs to target audiences could adversely affect the
effectiveness of our campaigns. For example, Apple has released mobile operating systems that include significant data privacy changes that may limit our
ability to interpret, target and measure ads effectively.
Legal, Regulatory and Compliance Risks
We are subject to antitrust and competition regulatory activity, litigation and enforcement actions that may result in fines, penalties, restrictions on
our business practices, and product or operational changes which could materially impact our business.
We are and may be in the future subject to antitrust or competition related investigations, enforcement actions, and settlements, by governmental
agencies, competitors, consumers, customers, and others which could cause us to incur substantial costs or require us to change our business practices in a
manner materially adverse to our business. Governments, enforcement
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authorities and other legislative bodies are actively developing new competition laws and regulations aimed at the technology sector, artificial intelligence
and digital platforms, coordinating globally, and enforcing competition laws and regulations, and this includes scrutiny in potentially large markets such as
the EU, U.S., and China. Government regulatory actions and court decisions may result in fines or hinder our ability to provide certain benefits to our
consumers, reducing the attractiveness of our products and the revenue that comes from them. Other companies and government agencies have in the past
and may in the future allege that our actions violate the antitrust or competition laws or otherwise constitute unfair competition. Such claims and
investigations, even if without foundation, may be very expensive to defend, involve negative publicity and substantial diversion of management time and
effort and could result in significant judgments against us or require us to change our business practices, any of which may materially impact our results of
operations.
Obtaining approvals and complying with governmental regulations, particularly those related to personal healthcare information, financial
information, quality systems, anti-corruption and anti-bribery are expensive and time-consuming. Any failure to obtain or maintain approvals or
comply with regulations regarding our products or services or the products and services of our suppliers or customers could materially harm our sales,
result in substantial penalties and fines and cause harm to our reputation.
We and many of our healthcare provider customers, suppliers and distributors are subject to extensive and frequently changing regulations under
numerous federal, state, local and foreign laws, including those regulating:
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the 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 or to induce
the order, purchase or recommendation of our products; and
the design, manufacture marketing and advertising of our products.
The healthcare and technology markets are also highly regulated and subject to changing political, economic and regulatory influences. Global
regulators are expanding and changing the regulations and guidance for products, which can limit the potential benefits of products and result in protracted
review timelines for new product introductions. We are also incorporating artificial intelligence into our software to make it more effective for us, our
customers, suppliers and consumers; however, this subjects us to risks of compliance with the expanding and changing regulations regarding the use
artificial intelligence. Our critical vendors and service providers are similarly subject to various regulations. Our failure or the failure of our suppliers,
customers, advertisers and influencers to strictly adhere to clearances or approvals in the labeling, marketing and sales of our products and services could
subject us to claims or litigation, including actions alleging false or misleading advertising or other violations of laws or regulations, which may result in
costly investigations, fines, penalties, as well as material judgments, settlements or decrees. We are also subject to complex and changing environmental
and health and safety regulations. Additionally, a large portion of our revenues are derived from international sales and we are dependent on our
international operations, which exposes us to additional foreign regulations not otherwise described herein, including without limitation, pricing regulations
imposed by governments like the volume-based procurement regulations in China. There can be no assurance that we will adequately address the business
risks associated with the implementation and compliance with such laws and our internal processes and procedures to comply with such laws or that we
will be able to take advantage of any resulting business opportunities.
Furthermore, in general before we can sell a new medical device or market a new use of or claim for an existing product, we must obtain clearance or
approval before marketing the product unless an exemption applies. For instance, in the U.S., FDA regulations are wide ranging and govern, among other
things, product design, development, manufacturing and testing; product labeling and product storage. It takes significant time, effort and expense to obtain
and maintain clearances or approvals of products and services from governmental regulators such as the FDA, and there is no guarantee we will
successfully or timely obtain or maintain approvals in all or any of the countries in which we do business. In other countries, the requirements, time, effort
and expense to obtain and maintain similar marketing authorizations may differ materially from those of the FDA. Moreover, these laws may change,
resulting in additional time and expense or loss of market access. If approvals to market our products or services are delayed, we may be unable to offer
them in markets we deem important to our business. Additionally, failure to comply with applicable regulatory requirements could result in enforcement
actions with sanctions including, among other things, fines, civil penalties and criminal prosecution. Failure or delays to obtain or maintain regulatory
approvals or to comply with regulatory requirements may materially harm our domestic or international operations, and adversely impact our business.
We and certain of our vendors must also comply with facility registration and product listing requirements of regulators and adhere to applicable
Quality System regulations. The FDA enforces its Quality System regulations through periodic unannounced inspections. Failure to satisfactorily correct an
adverse inspection finding or to comply with applicable manufacturing regulations can result in enforcement actions, we may be required to find alternative
manufacturers, which could be a long and costly process and may cause reputational harm. Enforcement actions by regulators could have a material effect
on our business.
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We are also subject to anti-corruption and anti-bribery (“ABAC”) laws such as the Foreign Corrupt Practices Act ("FCPA") and the U.K. Bribery Act
of 2010, which generally prohibit corrupt payments to foreign officials for the purpose of obtaining or keeping business, securing an advantage and
directing business to another. To comply with ABAC laws, regulators require the maintenance of accurate books and records and a system of internal
accounting controls. Under the FCPA, we may be held liable for any corrupt actions taken by directors, officers, employees, agents, or other strategic or
local partners or representatives.
In addition, while we have policies requiring our personnel to comply with applicable laws and regulations and we provide significant training to
foster compliance, they may not properly adhere to our policies or applicable laws or regulations, including such as our policies on the use of certain
electronic communications and maintaining accurate books and records. If our personnel or the personnel of our agents or suppliers fail to comply with any
laws, regulations, policies or procedures, or we fail to audit and enforce compliance, it could subject us to harm to our reputation, loss of customers, loss or
revenues, or regulatory investigations, actions and fines.
Security breaches, data breaches, cyber attacks, other cybersecurity incidents or the failure to comply with privacy, security and data protection
laws could materially impact our operations, patient care could suffer, we could be liable for damages, and our business, operations and reputation
could be harmed.
We retain confidential customer personal and financial, patient health information and our own proprietary information and data essential to our
business operations. We rely upon the effective operation of our IT systems, and those of our service providers, vendors, and other third parties to safeguard
the information and data. Additionally, our success may be dependent on the success of healthcare providers, many of whom are comprised of individual or
small operations with limited IT experience and inadequate or untested security protocols, in managing data privacy and data security requirements. It is
critical that the facilities, infrastructure and IT systems on which we depend to run our business and the products we develop remain secure and be
perceived by the marketplace and our customers to be secure. Despite the implementation of security features in our products and security measures in our
IT systems, we and our service providers, vendors, and other third parties continue to be targeted by or subject to physical break-ins, computer viruses or
other malicious code, unauthorized or fraudulent access, programming errors or other technical malfunctions, hacking or phishing attacks, malware,
ransomware, employee error or malfeasance, cyber attacks, and other breaches of IT systems or similar disruptive actions, including by organized groups
and nation-state actors. For example, we have experienced, and may again experience in the future, cybersecurity incidents and unauthorized internal
employee exfiltration of company information.
Further, the frequency of third-party cyber-attacks has increased over the last several years. The military conflict in Ukraine may cause nation-state
actors or hackers sympathetic to either side of the conflict to carry out cyber-attacks to achieve their goals, which may include espionage, information
gathering operations, monetary gain, ransomware, disruption, and destruction. To respond to potential increases in cyber-attacks, in 2022, we increased
efforts to identify and respond to any attacks, including placing our cybersecurity operations team on high alert. Significant service disruptions, breaches in
our infrastructure and IT systems or other cybersecurity incidents could expose us to litigation or regulatory investigations, impair our reputation and
competitive position, be distracting to our management, and require significant time and resources to address. Affected parties or regulatory agencies could
initiate legal or regulatory action against us, which could prevent us from resolving the issues quickly or force us to resolve them in unanticipated ways,
cause us to incur significant expense and liability, or result in judicial or governmental orders forcing us to cease operations or modify our business
practices in ways that could materially limit or restrict the products and services we provide. Concerns over our privacy practices could adversely affect
others’ perception of us and deter customers, patients and partners from using our products. In addition, patient care could suffer, and we could be liable if
our products or IT systems fail to deliver accurate and complete information in a timely manner. We have internal monitoring and detection systems as well
as cybersecurity and other forms of insurance coverage related to a breach event covering expenses for notification, credit monitoring, investigation, crisis
management, public relations and legal advice. However, damages and claims arising from such incidents may not be covered or may exceed the amount of
any coverage and do not cover the time and effort we may incur investigating and responding to any incidents, which may be material. The costs to
eliminate, mitigate or recover from security problems and cyber attacks and incidents could be material and depending on the nature and extent of the
problem and the networks or products impacted, may result in network or systems interruptions, decreased product sales, or data loss that may have a
material impact on our operations, net revenues and operating results.
Additionally, our globally-dispersed installed base of iTero intraoral scanners at customer, strategic business partner or other locations may be
independently or collectively the target of a cybersecurity incident or attack or subject to the intrusion of a virus, bug, or other similar negative intruder.
Due to the large and growing number of these decentralized locations, we may not be able to, or not have the capacity, knowledge, or infrastructure to,
respond to or remedy a cybersecurity issue in a timely manner, which may cause loss or damage to us or our customers or strategic business partners or
may cause further malfunctions in, or damage to, our servers, databases, systems or products and services, loss or damage of our data, interruption or
temporary cessation of our operations, or an overall negative impact to our business or reputation.
32
We are also subject to federal, state and foreign laws and regulations, including regulations affecting the security and privacy of patient healthcare
information applicable to healthcare providers and their business associates, such as HIPAA, ones relating to privacy, data security and protection, content
regulation, and consumer protection, among others. We are subject to various national and regional data localization or data residency laws such as the
General Data Protection Regulation in the EU and analogous laws in China which generally require that certain types of data collected within a country be
stored and processed only within that country or approved countries and other countries are considering enacting similar data localization or data residency
laws. We have and likely will again in the future be required to implement new or expand existing data storage protocols, build new storage facilities,
and/or devote additional resources to comply with such laws, any of which could be costly. We are also subject to data export restrictions and international
transfer laws which prohibit or impose conditions upon the transfer of such data from one country to another. These laws and regulations are constantly
evolving and may be interpreted, applied, created or amended in a manner that could adversely affect our business.
Our business exposes us to potential liability for the quality and safety of our products and services, how we advertise and market those products
and services and how and to whom we sell them, and we may incur substantial expenses or be found liable for substantial damages or penalties if we
are subject to claims or litigation.
Our products and services involve an inherent risk of claims concerning their design, manufacture, safety and performance, how they are marketed
and advertised in a complex framework of highly regulated domestic and international laws and regulations, how we package, bundle or sell them to
customers who may be private individuals or companies or public entities such as hospitals and clinics and how we train and support doctors, their staffs
and patients who administer or use our products. Moreover, consumer products and services are routinely subject to claims of false, deceptive or misleading
advertising, consumer fraud and unfair business practices. Additionally, we may be held liable if any product we develop or manufacture or services we
offer or perform causes injury or is otherwise found unhealthy. If our products are safe but they are promoted for use or used in unintended or unexpected
ways or for which we have not obtained clearance or approvals (“off-label” usage), we may be investigated, fined or have our products or services enjoined
or approvals rescinded or we may be required to defend ourselves in litigation. Although we maintain insurance for product liability, business practices and
other types of activities we make or offer, coverage may not be available on acceptable terms, if at all, and may be insufficient for actual liabilities. Any
claim for product liability, sales, advertising and business practices, regardless of its merit or eventual outcome, could result in material legal defense costs
and damage our reputation, increase our expenses and divert management’s attention.
Increased focus on current and anticipated environmental, social and governance (“ESG”) laws and increased scrutiny of our ESG policies and
practices may materially increase our costs, expose us to potential liability, adversely impact our reputation, employee retention, willingness of
customers and suppliers to do business with us and willingness of investors to invest in us.
Our operations are subject to a variety of existing local, regional and global ESG laws and regulations, and we will likely be required to comply with
new, broader, more complex and more costly laws and regulations that focus on ESG matters. Our compliance obligations will likely span all aspects of our
business and operations, including product design and development, materials sourcing and other procurement activities, product packaging, product safety,
energy and natural resources usage, facilities design and utilization, recycling and collection, transportation, disposal activities and workers’ rights.
Environmental regulations related to greenhouse gases are expected to have an increasingly larger impact on our or our suppliers’ energy sources.
Many U.S. and foreign regulators have enacted or are considering enacting new or additional disclosure requirements or limits on the emissions of
greenhouse gases, including, but not limited to, carbon dioxide and methane, from power generation units using fossil fuels. The effects of greenhouse gas
emission limits on power generation are subject to significant uncertainties, including the timing of any new requirements, levels of emissions reductions
and the scope and types of emissions regulated. These limits may have the effect of increasing our costs and those of our suppliers and could result in
manufacturing, transportation and supply chain disruptions and delays if clean energy alternatives are not readily available in adequate amounts when
required. Moreover, alternative energy sources, coupled with reduced investments in traditional energy sources and infrastructure, may fail to provide the
predictable, reliable, and consistent energy that we, our suppliers and other businesses need for operations.
Regulations related to sourcing of certain metals may have an impact on our business. For instance, the sourcing and availability of metals that may
be used in the manufacture of, or contained in, our products may be affected by laws and regulations regarding the use of minerals obtained from certain
regions of the world like the Democratic Republic of Congo and adjoining countries. Although we do not believe that we or our suppliers source minerals
from this region, these laws and regulations may decrease the number of suppliers capable of supplying our needs for certain metals, thereby negatively
affecting our ability to manufacture products in sufficient quantities or at competitive prices, leading customers to potentially choose competitive goods and
services.
33
Meeting our obligations under existing ESG laws, rules, or regulations is already costly to us and our suppliers, and we expect those costs to increase
as new laws are enacted, possibly materially. Additionally, we expect regulators to perform investigations, inspections and periodically audit our
compliance with these laws and regulations, and we cannot provide assurance that our efforts or operations will be compliant. If we fail to comply with any
requirements, we could be subject to significant penalties or liabilities and we may be required to implement new and materially more costly processes and
procedures to come into compliance. Further these laws are subject to unpredictable changes. Even if we successfully comply with these laws and
regulations, our suppliers may fail to comply. We may also suffer financial and reputational harm if customers require, and we are unable to deliver,
certification that our products are conflict free. In all of these situations, customers may stop purchasing products from us, and may take legal action against
us, which could harm our reputation, revenues and results of operations.
Investor advocacy groups, institutional investors, investment funds, proxy advisory services, stockholders, and customers are also increasingly
focused on corporate ESG practices. Additionally, public interest and legislative pressure related to public companies’ ESG practices continues to grow. If
our ESG practices fail to meet investor or other industry stakeholders' evolving expectations and standards, including environmental stewardship, support
for local communities, board of director and employee diversity, human capital management, employee health and safety practices, product quality, supply
chain management, corporate governance and transparency and employing ESG strategies in our operations, our brand, reputation and employee retention
may be negatively impacted, customers and suppliers may be unwilling to do business with us and investors may be unwilling to invest in us. In addition,
as we work to align our ESG practices with industry standards, we have expanded and will likely continue to expand our disclosures in these areas. We also
expect to incur additional costs and require additional resources to monitor, report, and comply with our various ESG practices. If we fail to adopt ESG
standards or practices as quickly as stakeholders desire, report on our ESG efforts or practices accurately, or satisfy the disclosure and other expectations of
stakeholders, our reputation, business, financial performance, growth, and stock price may be adversely impacted.
Intellectual Property Risks
Our success depends in part on our proprietary technology, and if we fail to successfully obtain or enforce our intellectual property (“IP”) rights,
our competitive position may be harmed.
Our success depends in part on our ability to maintain existing IP rights and obtain and maintain further IP protection for our products. Our inability
to do so could harm our competitive position.
We rely on our portfolio of issued and pending patent applications in the U.S. and other countries to protect a large part of our IP and our competitive
position; however, these patents may be insufficient to protect our IP rights because our patents may be challenged, invalidated, held unenforceable,
circumvented, or may not be sufficiently broad to prevent third parties from producing competing products similar in design to our products and foreign
patents protections may be more limited than those provided under U.S. patents and IP laws. Additionally, international IP rights laws are typically less
protective than the protections afforded under the laws of the U.S.
Additionally, we may fail to timely file a patent application, or any of our patent applications may not result in an issued patent or the scope of the
patent ultimately issued may be narrower than we initially sought. We may not be afforded the protection of a patent if our currently pending or future
patent filings do not result in the issuance of patents or we fail to apply for patent protection. We may fail to apply for a patent if our personnel fail to
disclose or recognize new patentable ideas or innovations. Remote working can decrease the opportunities for our personnel to collaborate, thereby
reducing the opportunities for effective invention disclosures and patent application filings. We may choose not to file a foreign patent application if the
limited protections provided by a foreign patent do not outweigh the costs to obtain it.
We also protect our IP through copyrights, trademarks, trade secrets, and confidentiality obligations. We generally enter into confidentiality
agreements with our employees, consultants and collaborative partners upon commencement of a relationship with us. However, despite the existence of
these protections, we have experienced incidents in which our proprietary information has been misappropriated and believe it could be misappropriated
again in the future. If these agreements do not provide meaningful protection against the unauthorized use or disclosure of our trade secrets or other
confidential information, adequate remedies may not exist to prevent unauthorized uses or disclosures.
Our inability to maintain the proprietary nature of our technology through patents, copyrights or trade secrets would impair our competitive
advantages and could have a material effect on our operating results, financial condition and future growth prospects. In particular, a failure to protect our
IP rights might allow competitors to copy our technology or create counterfeit or pirated versions of our products, which could adversely affect our
reputation, pricing and market share.
Litigation regarding our IP rights, rights claimed by third parties, or IP litigation by any vendors on whose products or services we rely for our
products and services may impact our ability to grow our business, adversely impact our results of operations and adversely impact our reputation.
34
Extensive litigation over patents and other IP rights is common in medical device, optical scanner, 3D printing and other technologies and industries
on which our products and services are based. Litigation, interferences, oppositions, re-exams, inter partes reviews, post grant reviews or other proceedings
have been necessary and will likely be needed in the future to determine the validity and scope of certain of our IP rights and the IP rights claimed by third
parties. These proceedings are used to determine the validity, scope or non-infringement of certain patent rights pertinent to the manufacture, use or sale of
our products and the products of competitors. We have been sued for infringement of third parties’ patents in the past and we are currently defending patent
infringement lawsuits and other legal claims. In addition, we periodically receive letters from third parties drawing our attention to their IP rights and there
may be other third-party IP rights of which we are presently unaware. Asserting or defending these types of proceedings can be unpredictable, protracted,
time-consuming, expensive and distracting to management and technical personnel. Their outcomes could adversely affect the validity and scope of our
patent or other IP rights, hinder our ability to manufacture and market our products, require us to seek a license for infringing products or technologies or
result in the assessment of significant monetary damages. An unfavorable ruling could include monetary damages, an injunction prohibiting us from selling
our products, or an exclusion order preventing us from importing our products in one or more countries. Moreover, independent actions by competitors,
customers or others have been brought alleging that our efforts to enforce our patent or other IP rights constitute unfair competition or violations of antitrust
laws in the U.S. and other jurisdictions and investigations and additional litigation based on the same or similar claims may be brought in the future. The
potential effects on our business operations resulting from litigation, whether or not ultimately determined in our favor or settled by us, are costly and could
materially affect our results of operations and reputation.
Financial, Tax and Accounting Risks
If our goodwill or long-lived assets become impaired, we may be required to record a material charge to earnings.
Under U.S. Generally Accepted Accounting Practices (“GAAP”), we review our goodwill and long-lived asset group for impairment when events or
changes in circumstances indicate the carrying value may not be recoverable. Additionally, goodwill must be tested for impairment at least annually. The
qualitative and quantitative analysis used to test goodwill are dependent upon various assumptions and reflect management’s best estimates. Changes in
certain assumptions, including revenue growth rates, discount rates, earnings multiples and future cash flows may cause a change in circumstances
indicating that the carrying value of goodwill or the asset group may be impaired and assessing these assumptions and predicting and forecasting future
events can be difficult. Goodwill and purchased assets require periodic fair value assessments to determine if they have become impaired. Consequently,
we may be required to record a material charge to earnings in the financial statements during the period in which any impairment of goodwill or long-lived
asset group is determined.
Changes in, or interpretations of, accounting rules and regulations, could result in unfavorable accounting charges.
We prepare our consolidated financial statements in conformity with GAAP. These principles are subject to interpretation by the SEC and various
bodies formed to interpret and create appropriate accounting policies. A change in these policies or in the way these policies are interpreted by us or
regulators could have a material effect on our reported results and may even retroactively affect previously reported financial statements.
We are required to annually assess our internal control over financial reporting and any adverse results from such assessment may result in a loss
of investor confidence in our financial reports and adversely effect our stock price.
We are required to furnish in our Form 10-K a report by our management regarding the effectiveness of our internal control over financial reporting
that includes, among other things, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year,
including a statement as to whether our internal control over financial reporting is effective. Our internal controls may become inadequate because of
changes in personnel, updates and upgrades to existing software, failure to maintain accurate books and records, changes in accounting standards or
interpretations of existing standards, and, as a result, the degree of compliance of our internal control over financial reporting with the existing policies or
procedures may become ineffective. Establishing, testing and maintaining an effective system of internal control over financial reporting requires
significant resources and time commitments on the part of our management and our finance staff, may require additional staffing and infrastructure
investments and increases our costs of doing business. If we are unable to assert that our internal control over financial reporting is effective in any future
period (or if our auditors are unable to express an opinion on the effectiveness of our internal controls or conclude that our internal controls are ineffective),
the timely filing of our financial reports could be delayed or we could be required to restate past reports, and cause us to lose investor confidence in the
accuracy and completeness of our financial reports in the future, which could have an adverse effect on our stock price.
If we fail to manage our exposure to global financial and securities market risks successfully, our operating results and financial statements could
be materially impacted.
A majority of our marketable investments are investment grade, liquid, fixed-income securities and money market instruments denominated in U.S.
dollars. If the carrying value of an investment exceeds the fair value, and the decline in fair value is deemed to be other-than-temporary, we are required to
write down the value of the investment, which could materially harm our results of operations and financial condition. Moreover, the performance of
certain securities in our investment
35
portfolio correlates with the credit condition of the U.S. financial sector. In an unstable credit or economic environment, it is necessary to assess the value
of our investments more frequently and we might incur material realized, unrealized or impairment losses associated with these investments.
Our effective tax rate may vary significantly from period to period.
Align operates globally and is subject to taxes in the U.S. and foreign countries. Various internal and external factors may affect our future effective
tax rate. These factors include changes in the global economic environment, changes in our legal entity structure or activities performed within our entities,
changes in our business operations, changes in tax laws, regulations and/or rates, new or changes to accounting pronouncements, changing interpretations
of existing tax laws or regulations, changes in relative proportions of revenues and income before taxes in the various jurisdictions in which we operate that
have differing statutory tax rates, changes in overall levels of pretax earnings, the future levels of tax benefits of stock-based compensation, settlement of
income tax audits and non-deductible goodwill impairments.
Our effective tax rate is also dependent in part on forecasts of full year results which can vary materially. Furthermore, we may continue to experience
significant variation in our effective tax rate related to excess tax benefits on stock-based compensation, particularly in the first quarter of each year when
the majority of our equity awards vest.
New tax laws and practices, changes to existing tax laws and practices, or disputes regarding the positions we take regarding tax laws, could
negatively affect our provision for income taxes as well as our ongoing operations.
We are subject to tax laws both within and outside of the U.S. requiring significant judgment in determining our worldwide provision for income
taxes. Changes in tax laws or changes to how those laws are applied to our business in practice, could affect the amount of tax to which we are subject and
the manner in which we operate. Additionally, the Organization for Economic Cooperation and Development’s (“OECD”) Base Erosion and Profit Shifting
(“BEPS”) project has resulted in considerable new reporting obligations worldwide as OECD member countries have implemented its guidance. The
OECD continues to publish guidance pursuant to the BEPS and other projects which, if adopted by member countries, may affect our tax positions in many
of the countries in which we do business.
Moreover, the application of indirect taxes (such as sales and use tax (“SUT”), value-added tax (“VAT”), goods and services tax (“GST”), and other
indirect taxes) to our operations is complex and evolving. U.S. states, local and foreign taxing jurisdictions have differing rules and regulations governing
differing types of taxes, and these rules and regulations are subject to varying interpretations and exemptions that may change over time. We collect and
remit SUT, VAT, GST and other taxes in many jurisdictions and we are routinely subject to audits. We are also routinely subject to audits regarding our tax
reporting and remissions by local and national government, and we may also be subject to audits in U.S. states, local and foreign jurisdictions for which we
have not accrued tax liabilities. The positions we take regarding taxes as well as the amounts we collect or remit may be challenged and we may be liable
for failing to collect or remit all or any portion of taxes deemed owed or the taxes could exceed our estimates. One or more U.S. states or countries may
seek to impose incremental or new sales, use, or other tax collection obligations on us or may determine that such taxes should have but have not been paid
by us. If we dispute rulings or positions taken by tax authorities, we may incur expenses and expend significant time and effort to defend our positions,
which may be costly.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted. It contains numerous new U.S. federal tax law provisions, including a
corporate alternative minimum tax on adjusted financial statement income and an excise tax on corporate stock repurchases, both effective after December
31, 2022. We continue to evaluate the IRA’s impact to our business, which may be material.
The application of existing, new, or future tax laws, and results of audits, whether in the U.S. or internationally, could harm our business.
Furthermore, there have been and will continue to be substantial ongoing costs associated with complying with the various tax requirements and defending
our positions in the numerous markets in which we conduct or will conduct business.
Historically, the market price for our common stock has been volatile.
The market price of our common stock is subject to rapid and large price fluctuations attributable to various factors, many of which are beyond our
control. The factors include:
•
•
•
•
quarterly variations in our results of operations and liquidity or changes in our forecasts and guidance;
our ability to regain or sustain our historical growth rates;
changes in recommendations by the investment community or speculation in the press or investment community regarding estimates of our net
revenues, operating results or other performance indicators;
announcements by us or our competitors or new market entrants, including strategic actions, management changes, and material transactions or
acquisitions;
36
•
•
•
•
•
technical factors in the public trading markets for our stock that may produce price movements that may or may not comport with macro, industry
or company-specific fundamentals, including, without limitation, the sentiment of retail investors (including as it may be expressed on financial
trading and other social media sites), the amount and status of short interest in our securities, access to margin debt, trading in options and other
derivatives on our common stock, fractional share trading, and other technical trading factors or strategies;
announcements regarding stock repurchases, sales or purchases of our common stock by us, our officers or directors, credit agreements and debt
issuances;
announcements of technological innovations, new, additional or revised programs, business models, products or product offerings by us, our
customers or competitors;
key decisions in pending litigation, new litigation, settlements, judgments or decrees; and
general economic market conditions, including rising interest rates, inflationary pressures, recessions, consumer sentiment and demand, global
political conflict and industry factors unrelated to our actual performance.
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 often unrelated to or disproportionate to corporate operating performance. These broad market and industry factors may include
market expectations of, or actual changes in, monetary policies that have the goal of easing or tightening interest rates such as the U.S. federal funds rate
and austerity measures of governments intended to control budget deficits. Historically, securities litigation, including securities class action lawsuits and
securities derivative lawsuits, is often brought against an issuer following periods of volatility in the market price of its securities and we have not been
exempt from such litigation.
We cannot guarantee that we will continue to repurchase our common stock in the future, and any repurchases that we may make may not achieve
our desired objectives.
We have a history of recurring stock repurchase programs intended to return capital to our investors. Future stock repurchase programs are contingent
on a variety of factors, including our financial condition, results of operations, business requirements, and our Board of Directors' continuing determination
that stock repurchases are in the best interests of our stockholders and in compliance with all applicable laws and agreements. There is no assurance that we
will continue repurchasing our common stock in the future, consistent with historical levels or at all, or that our stock repurchase programs will have a
beneficial impact on our stock price. Additionally, the IRA, among other things, imposes a 1% excise tax on any domestic corporation that repurchases its
stock after December 31, 2022, which will increase our cost to make repurchases and may impact if and how much stock we choose to repurchase in the
future.
Future sales of significant amounts of our common stock may depress our stock price.
A significant percentage of our outstanding common stock is currently owned by a small number of stockholders. These stockholders have sold in the
past, and may sell in the future, large amounts of our stock over relatively short periods of time. Sales of substantial amounts of our stock by existing
stockholders may adversely affect the market price of our stock by creating the perception of difficulties or problems with our business that may depress
our stock price.
Item 1B. Unresolved Staff Comments.
None.
37
Item 2. Properties.
We occupy several leased and owned facilities. As of December 31, 2022, the significant facilities occupied were as follows:
Location
Tempe, Arizona, U.S.A.
San Jose, California, U.S.A.
Raleigh, North Carolina, U.S.A.
San Jose, Costa Rica
Wroclaw, Poland
Petah Tikva, Israel
Rotkreuz, Switzerland
Juarez, Mexico
Ziyang, China
Lease/Own
Lease
Own
Own
Lease and Own
Lease and Own
Lease and Own
Lease
Own
Own
Primary Use
Office for corporate headquarters
Office for research & development and administrative personnel
Office for Americas regional headquarters
Office for administrative personnel, treatment personnel, and customer care
Manufacturing and office for treatment and administrative personnel
Manufacturing and office for research & development and administrative personnel
Office for EMEA regional headquarters
Manufacturing and office for administrative personnel
Manufacturing and office for administrative personnel
We believe our existing facilities are in good operating condition and are suitable for the conduct of our business. The facilities noted above are used
mostly by all our reportable segments.
Item 3. Legal Proceedings.
For a discussion of legal proceedings, refer to Note 7 "Legal Proceedings" of the Notes to Consolidated Financial Statements in Part II, Item 8 of this
Form 10-K.
Item 4. Mine Safety Disclosures.
Not applicable.
38
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
PART II
Our common stock is traded on the NASDAQ Global Market under the symbol ALGN. As of February 20, 2023, there were approximately 53
holders of record of our common stock. Because the majority of our shares of outstanding common stock are held by brokers and other institutions on
behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
Performance Graph
Notwithstanding any statement to the contrary in any of our previous or future filings with the SEC, the following information relating to the price
performance of our common stock shall not be deemed “filed” with the SEC or “Soliciting Material” under the Securities Exchange Act of 1934, as
amended, or subject to Regulation 14A or 14C, or to liabilities of Section 18 of the Exchange Act except to the extent we specifically request that such
information be treated as soliciting material or to the extent we specifically incorporate this information by reference.
The graph below matches our cumulative 5-year total stockholder return on common stock with the cumulative total returns of the NASDAQ
Composite index, the S&P 500 index and the S&P 1500 Composite Health Care Equipment & Supplies index. The graph tracks the performance of a $100
investment in our common stock and each index (with the reinvestment of all dividends) from December 31, 2017 to December 31, 2022.
39
Unregistered Sales of Equity Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table summarizes the stock repurchase activity for the three months ended December 31, 2022:
Period
October 1, 2022 through October 31, 2022
November 1, 2022 through November 30, 2022
December 1, 2022 through December 31, 2022
Total
Total Number of
Shares Purchased
Average Price
Paid per Share
Total Number of Shares
Purchased as Part of Publicly
Announced Programs
Approximate Dollar Value of
Shares that May Yet Be
Purchased Under the Programs
(1)
848,266 $
— $
— $
848,266
188.62
—
—
848,266 $
— $
— $
848,266
249,926,094
249,926,094
249,926,094
1
May 2021 Repurchase Program. On May 13, 2021, we announced that our Board of Directors had authorized a plan to repurchase up to $1.0 billion of our
common stock. See Note 10 “Common Stock Repurchase Programs” of the Notes to Consolidated Financial Statements for details on the May 2021
Repurchase Program.
Item 6. [Reserved]
Item 7. 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 our consolidated financial
statements and related notes included elsewhere in this Annual Report on Form 10-K.
A discussion regarding our financial condition and results of operations for fiscal 2022 compared to fiscal 2021 is presented under Results of
Operations of this Form 10-K. Discussions regarding our financial condition and results of operations for fiscal 2021 compared to 2020 have been omitted
from this Annual Report on Form 10-K, but can be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 25, 2022, which is available
without charge on the SEC's website at www.sec.gov and on our investor relations website at investor.aligntech.com.
Executive Overview of Results
Trends and Uncertainties
Our business strategic priorities remain focused on four principal pillars for growth: (i) international expansion; (ii) GP adoption; (iii) patient demand
and conversion; and (iv) orthodontic utilization. Our growth strategy depends on our ability to facilitate the digital transformation of dentistry happening
around the world, our continuous focus on innovation, and expansion to meet and exceed evolving customer expectations as the array of products and
services available to them increases.
We strive to deliver on each of our strategic growth drivers through a variety of interrelated enterprise-wide efforts including:
•
•
Continuing penetration and adoption of Invisalign products, intraoral scanners and CAD/CAM solutions in international markets by investing in
manufacturing operations, research and development, clinical treatment planning, sales and marketing and building our quality and regulatory
capabilities in existing and emerging markets globally. For instance, in 2022, we opened a new aligner fabrication facility in Wroclaw, Poland as a
part of our strategy to bring operational facilities closer to customers to serve them more quickly and respond to their needs more effectively as
well as new treatment planning operations in targeted regional geographies. We also diversified our research and development activities
throughout Europe in 2022, which has created a longer term, more stable environment for consistent hiring, retention and innovation in a variety
of high technology sectors.
Targeting growth opportunities with international orthodontists and GP customers, particularly with adopters of digital dentistry platforms by
tailoring our sales and marketing strategies, manufacturing operations and resources around the
40
•
•
•
•
•
unique needs of each customer channel. As we continue growing, we intend to opportunistically expand our research, development,
manufacturing, treatment planning, and sales and marketing operations to meet local and regional demand thoughtfully and deliberately. Over the
longer-term, we expect international revenues to grow faster than Americas' revenues as a result of growing international demand, our continued
investment in international market expansion, the size of the market opportunities and our relatively low market penetration in these regions.
Building confidence within the GP and orthodontic communities through training and education efforts to increase their adoption and utilization of
digital dental practice transformation and clear aligner treatment. Accordingly, we continue to expand our Invisalign customer base by educating
new doctors on the benefits of digital dentistry through the Invisalign system and demonstrating to GPs and orthodontists how the iTero portfolio
of intraoral scanners and CAD/CAM restorative services and workflows can increase revenues and profitability for their dental practices by
enhancing patient experiences and creating operation practice efficiencies.
Investing in research and development that allows us to innovate, develop and bring to market products and solutions that deliver the ever-
increasing clinical precision and predictability that doctors expect with the speed and convenience their patients require.
Creating demand and enabling patient conversion through targeted investments in advertising and public relations through social media,
influencers and other forms of digital communications to encourage treatment by Invisalign trained doctors. We believe that well-designed,
targeted sales and marketing promotions that build on our strong brand awareness allow us to differentiate our products and solutions from
traditional and emerging competitors. In 2022, we continued to build on the success of the “Invis-is” consumer advertising campaign with creative
content and influencers focused on teens and young adults. We expect to make further investments to create additional demand for Invisalign
system treatment driving more consumers to dental professionals for those treatments.
Pursuing new product lines that complement our doctor-prescribed principal products currently available in certain e-commerce and retail
channels in the U.S. Similarly, in 2023 we expect to continue to focus on our doctor subscription plan and grow our underpenetrated share of the
retainer business through strategic marketing campaigns focused on driving adoption and increasing market share in the U.S.
Increasing global orthodontic utilization rates as doctors’ clinical confidence in the efficacy and predictability of the Invisalign system increases
with advancements in products and technology and as patients and doctors demand treatments that emphasize convenience and safety through
fewer visits and less invasive and quicker treatments. In addition, the teenage and younger market makes up 75% of the approximately 21 million
total annual global orthodontic case starts each year. As we continue to emphasize the benefits of the Invisalign system for teenage and younger
patient treatments through education, training and sales and marketing programs, we expect utilization rates to rise. However, our utilization rates
will fluctuate from period to period due to a variety of factors, which may include seasonal trends in our business, consumer demand due to
macroeconomic factors, office closures or slowdowns related to COVID-19-and adoption rates for new products and features.
Macroeconomic Challenges and Military Conflict in Ukraine
Our revenues are susceptible to fluctuations in macroeconomic conditions, in line with inflation, rising interest rates, threats of or actual recessions,
fluctuations in currency exchange rates, supply chain challenges, market volatility, wars and military actions, and other factors, each of which impact
customer confidence, consumer sentiment and demand. Many of these same factors are also impacting our costs through higher raw material prices,
transportation costs, labor costs, supply and distribution operations and the operations of our suppliers. Additionally, many of our international operations
are denominated in currencies other than the U.S. dollar and in 2022 were impacted, and may continue to be impacted, by macroeconomic slowing or
contraction causing weakening against the U.S. dollar, which is negatively impacting our financial condition and results of operations. While we expect
moderation of the strength of the dollar, we also expect the dollar to remain historically strong against many of these currencies. The nature and extent of
the impact of these factors varies by time and region and remains uncertain and unpredictable.
The military conflict between Russia and Ukraine increased the unpredictability of the already uncertain macroeconomic conditions during 2022 and
may continue to impact this unpredictability. While we continue to employ research and development personnel in Russia as well as certain sales,
marketing and administrative personnel, the total number of employees in Russia was significantly reduced in 2022, complementing programs previously
underway aimed at maintaining and growing our research and development operations and diversifying the facilities at which our personnel are located.
41
Although immaterial to our consolidated financial statements, our commercial business operations in Russia were significantly impacted by the
conflict in 2022. Although we remain committed to providing continuity of care consistent with our values and ethical responsibility to patients who are in
Invisalign treatment in Russia, we deemed it prudent to align the size of our commercial operations with the ongoing resources needed to perform those
functions. Accordingly, in the fourth quarter of 2022, we initiated a restructuring plan to increase efficiencies across the organization and lower our overall
cost structure, which reduced the number of employees and our commercial business operations in Russia. Refer to Note 16 “Restructuring and Other
Charges” of the Notes to Consolidated Financial Statements for further details.
Our Board of Directors and its applicable committees receive regular updates from management regarding the military conflict between Russia and
Ukraine and continue to provide oversight of the risks to our personnel, operations and other areas of strategic importance. Our management continues to
closely monitor the situation and evaluate additional ways in which we can support our employees and operations.
COVID-19 Pandemic Update
Although there remains significant uncertainty surrounding the COVID-19 pandemic for regional economies, its global impact has gradually
declined. During 2022, we experienced the impacts of the COVID-19 pandemic primarily in the Asia Pacific region, particularly in China, where
lockdowns decreased economic activity throughout most of the year. With the easing of the restrictions in China in 2023 and the increased rate of
infections, the impacts of the COVID-19 pandemic are likely to persist into 2023 and remain unpredictable, but we expect it to be at a lesser extent than in
2022. Nevertheless, comparing our financial results for the reporting periods of 2023 to the same reporting periods of 2022 or earlier may not be a useful
means by which to evaluate our business and results of operations due to volatility in regional business environments caused by the pandemic.
Changing Product Preferences
As the markets for clear aligners and digital processes and workflows used to transform the practice of dentistry continue to mature, we anticipate
customer and patient expectations and demands will evolve. We expect to meet customer demands with innovative treatment options that include more
choices to address a wider scope of treatment goals and budgets based on our existing and new products. This may result in larger and unpredictable
variations in geographic and product mix and selling prices with uncertain implications on our financial statements and business operations.
We strive to manage the challenges from the macroeconomic conditions, the conflict in Ukraine, COVID-19 and the evolution of our target markets
by focusing on improving our operations, building flexibility and efficiencies in our processes, adjusting our business models to changing circumstances
and offering products that meet market demand. Specifically, we are managing cost impacts through pricing actions, implementing cost saving measures
and slowing hiring. We also continue to innovate and introduce new and enhanced products that augment our doctor customer and patient experiences.
Further discussion of the impact of these challenges on our business may be found in Part I, Item 1A of this Annual Report on Form 10-K under
the heading “Risk Factors.”
Key Financial and Operating Metrics
We measure our performance against these strategic priorities by the achievement of key financial and operating metrics. For the year ended
December 31, 2022, our business operations reflect the following:
◦
◦
Revenues of $3,734.6 million, a decrease of 5.5% year-over-year;
Clear Aligner revenues of $3,072.6 million, a decrease of 5.4% year-over-year;
▪ Americas Clear Aligner revenues of $1,458.8 million, a decrease of 5.6% year-over-year;
▪
▪
International Clear Aligner revenues of $1,349.0 million, a decrease of 10.0% year-over-year;
Clear Aligner volume decrease of 7.4% year-over-year and Clear Aligner volume decrease for teenage patients of 0.2% year-
over-year;
Imaging Systems and CAD/CAM Services revenues of $662.1 million, a decrease of 6.2% year-over-year;
Income from operations of $642.6 million and operating margin of 17.2%;
Effective tax rate of 39.6%;
◦
◦
◦
◦ Net income of $361.6 million with diluted net income per share of $4.61;
◦
◦ Operating cash flow of $568.7 million;
◦
Cash, cash equivalents and marketable securities of $1,041.6 million as of December 31, 2022;
Capital expenditures of $291.9 million, predominantly related to increases in our manufacturing capacity and facilities; and
42
◦ Number of employees was 23,165 as of December 31, 2022, an increase of 2.8% year-over-year.
Other Statistical Data and Trends
• As of December 31, 2022, over 14 million people worldwide have been treated with our Invisalign system. Management measures these results by
comparing to the millions of people who can benefit from straighter teeth and uses this data to target opportunities to expand the market for
orthodontics by educating consumers about the benefits of straighter teeth using the Invisalign system.
•
•
For the fourth quarter of 2022, total Invisalign cases submitted with a digital scanner in the Americas increased to 92.5%, up from 89.1% in the
fourth quarter of 2021 and international scans increased to 86.8%, up from 80.8% in the fourth quarter of 2021. For the fourth quarter of 2022,
97.4% of Invisalign cases submitted by North American orthodontists were submitted digitally.
The total utilization rate in 2022 was 18.9 cases per doctor compared to 20.8 cases per doctor in 2021 and 16.1 cases per doctor in 2020. Our
utilization rates have declined in 2022 due to the macroeconomic conditions, COVID-19 impacts, and other factors as described in the Trends and
Uncertainties section above. In general, we expect utilization rates to rise over time although they are likely to fluctuate from period to period.
• North America: The utilization rate among our North American orthodontist customers was 89.2 cases per doctor in 2022 compared to
98.1 cases per doctor in 2021 and 67.3 cases per doctor in 2020 and the utilization rate among our North American GP customers was
13.9 cases per doctor in 2022 compared to 14.3 cases per doctor in 2021 and 9.6 cases per doctor in 2020.
•
International: International doctor utilization rate was 16.2 cases per doctor in 2022 compared to 17.5 cases per doctor in 2021 and 14.5
cases per doctor in 2020.
*
Invisalign utilization rates are calculated by the number of cases shipped divided by the number of doctors to whom cases were shipped. Our International region includes Europe,
Middle East and Africa (“EMEA”) and Asia Pacific (“APAC”). Latin America (“LATAM”) is excluded from the International region based on its immateriality to the year; however
is included in the Total utilization.
Results of Operations
43
Net Revenues by Reportable Segment
We group our operations into two reportable segments: Clear Aligner segment and Systems and Services segment.
• Our Clear Aligner segment consists of Comprehensive Products, Non-Comprehensive Products and Non-Case revenues as defined below:
• Comprehensive Products include, but are not limited to, Invisalign Comprehensive and Invisalign First.
• Non-Comprehensive Products include, but are not limited to, Invisalign Moderate, Lite and Express packages and Invisalign Go and
Invisalign Go Plus.
• Non-Case products include, but are not limited to, retention products, Invisalign training, adjusting tools used by dental professionals
during the course of treatment and Invisalign Accessory Products that are complementary to our doctor-prescribed principal products
such as aligner cases (clamshells), teeth whitening products, cleaning solutions (crystals, foam and other material) and other oral health
products available in certain e-commerce channels in select markets. We also offer in the U.S. and Canada, a Doctor Subscription
Program which is a monthly subscription program based on the doctor’s monthly need for retention or limited treatment. The program
allows doctors the flexibility to order both “touch-up” or retention aligners within their subscribed tier and is designed for a segment of
experienced Invisalign trained doctors who are currently not regularly using our retainers or low-stage aligners.
• Our Systems and Services segment consists of our iTero intraoral scanning systems, which includes a single hardware platform and restorative or
orthodontic software options. Our services include subscription software, disposables, rentals, leases, pay per scan services, as well as exocad’s
CAD/CAM software solutions that integrate workflows to dental labs and dental practices.
Net revenues for our Clear Aligner and Systems and Services segments by region for the year ended December 31, 2022, 2021 and 2020 are as
follows (in millions):
Net Revenues
Clear Aligner revenues:
Americas
International
Non-case
Total Clear Aligner net
revenues
Systems and Services net
revenues
Total net revenues
$
$
$
Year Ended December 31,
2022
2021
Change
Year Ended December 31,
2021
2020
Change
1,458.8 $
1,349.0
264.8
1,544.8 $
1,498.7
203.7
(85.9)
(149.7)
61.1
(5.6)% $
(10.0)%
30.0 %
1,544.8 $
1,498.7
203.7
1,010.2 $
965.4
125.8
534.5
533.2
77.8
52.9 %
55.2 %
61.9 %
3,072.6 $
3,247.1 $ (174.5)
(5.4)% $
3,247.1 $
2,101.5 $ 1,145.6
54.5 %
662.1
3,734.6 $
705.5
(43.5)
3,952.6 $ (217.9)
(6.2)%
(5.5)% $
705.5
3,952.6 $
370.5
335.0
2,471.9 $ 1,480.6
90.4 %
59.9 %
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Clear Aligner Case Volume
Case volume data which represents Clear Aligner case shipments for the year ended December 31, 2022, 2021 and 2020 is as follows (in thousands):
Year Ended December 31,
2022
2021
Change
Year Ended December 31,
2021
2020
Change
Total case volume
2,358.7
2,547.7
(189.0)
(7.4)%
2,547.7
1,645.3
902.4
54.8 %
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Total net revenues decreased by $217.9 million in 2022 as compared to 2021, primarily due to unfavorable foreign exchange rates, a decrease in both
Clear Aligner case volumes and scanner volumes, partially offset by increases in Clear Aligner non-case revenues, service revenues and an increase in
Clear Aligner average selling price (“ASP”).
44
Clear Aligner - Americas
Americas net revenues decreased by $85.9 million in 2022 as compared to 2021, primarily due to a decrease in case volumes of 9.4% which reduced
net revenues by $145.3 million, partially offset by an increase in ASP which increased net revenues by $59.4 million. Higher ASP was mainly due to
processing fees charged on most shipments and price increases in certain markets which increased net revenues by $54.2 million along with lower net
deferrals which increased net revenues by $34.5 million. The increases in ASP were partially offset by unfavorable promotional discounts and sales credits
which reduced net revenues by $25.1 million.
Clear Aligner - International
International net revenues decreased by $149.7 million in 2022 as compared to 2021 due to a 5.0% decrease in case volumes, which decreased net
revenues by $75.1 million, and lower ASP, which decreased net revenues by $74.6 million. Lower ASP was largely due to unfavorable foreign exchange
rates which resulted in lower net revenues of $150.6 million, a product mix shift to lower priced products which decreased net revenues by $60.5 million,
and unfavorable promotional discounts which decreased net revenues $39.4 million. The decrease in ASP was partially offset by processing fees charged
on most shipments which increased net revenues by $94.1 million and lower net deferrals which increased net revenues by $81.4 million.
Clear Aligner - Non-Case
Non-case net revenues increased by $61.1 million in 2022 compared to 2021 mainly due to increased volume for retention products across most
regions primarily driven by Vivera retainers.
Systems and Services
Systems and Services net revenues decreased by $43.5 million in 2022 as compared to 2021 primarily due to a lower number of scanners sold which
decreased net revenues by $97.1 million and lower scanner ASP which decreased net revenues by $9.0 million. The decreases were partially offset by
higher service and other revenues which increased net revenues by $62.6 million mostly due to a larger scanner install base.
Cost of net revenues and gross profit (in millions):
Clear Aligner
Cost of net revenues
% of net segment revenues
Gross profit
Gross margin %
Systems and Services
Cost of net revenues
% of net segment revenues
Gross profit
Gross margin %
Total cost of net revenues
% of net revenues
Gross profit
Gross margin %
Year Ended December 31,
Year Ended December 31,
2022
2021
Change
2021
2020
Change
$
$
$
$
$
$
844.4
27.5 %
2,228.2
72.5 %
256.4
38.7 %
405.6
61.3 %
1,100.9
29.5 %
2,633.8
70.5 %
$
$
$
$
$
$
772.7
23.8 %
2,474.4
76.2 %
244.5
34.7 %
461.0
65.3 %
1,017.2
25.7 %
2,935.4
74.3 %
$
$
$
$
$
$
71.7 $
772.7
23.8 %
(246.2) $
2,474.4
11.9 $
(55.4) $
76.2 %
244.5
34.7 %
461.0
65.3 %
83.6 $
1,017.2
25.7 %
(301.6) $
2,935.4
74.3 %
$
$
$
$
$
$
569.3
27.1 %
1,532.1
72.9 %
139.4
37.6 %
231.1
62.4 %
708.7
28.7 %
1,763.2
71.3 %
$
$
$
$
$
$
203.4
942.2
105.1
229.9
308.5
1,172.1
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Cost of net revenues includes personnel-related costs including payroll and stock-based compensation for staff involved in the production process, the
cost of materials, packaging, freight and shipping related costs, depreciation on capital equipment and facilities used in the production process, amortization
of acquired intangible assets and training costs.
Clear Aligner
45
The gross margin percentage decreased in 2022 as compared to 2021 primarily due to a higher mix of additional aligners, higher freight costs and
increased manufacturing spend as we continue to ramp our new manufacturing facility in Poland.
Systems and Services
The gross margin percentage decreased in 2022 as compared to 2021 primarily due to manufacturing inefficiencies from lower production volumes
and lower ASP. These factors were partially offset by higher service revenues.
Selling, general and administrative (in millions):
Selling, general and administrative
% of net revenues
$
Year Ended December 31,
2022
1,674.5
$
44.8 %
2021
1,708.6
43.2 %
Change
$
(34.2) $
Year Ended December 31,
2021
1,708.6
$
43.2 %
2020
1,200.8
48.6 %
Change
$
507.9
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Selling, general and administrative expense generally includes personnel-related costs, including payroll, stock-based compensation and commissions
for our sales force, marketing and advertising expenses including media, market research, marketing materials, clinical education, trade shows and industry
events, legal and outside service costs, equipment, software and maintenance costs, depreciation and amortization expense and allocations of corporate
overhead expenses including facilities and Information Technology (“IT”).
Selling, general and administrative expense decreased in 2022 compared to 2021 primarily due to lower incentive compensation, lower advertising
and marketing costs and lower allocations of corporate overhead expenses. These decreases were offset by higher salaries expenses, fringe benefits and
stock-based compensation from increased headcount as well as higher equipment, software and maintenance costs.
Research and development (in millions):
Research and development
% of net revenues
$
305.3
$
250.3
$
54.9 $
250.3
$
175.3
$
75.0
8.2 %
6.3 %
6.3 %
7.1 %
Year Ended December 31,
Year Ended December 31,
2022
2021
Change
2021
2020
Change
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Research and development expense generally includes personnel-related costs, including payroll and stock-based compensation, outside service costs
associated with the research and development of new products and enhancements to existing products, software, equipment, material and maintenance
costs, depreciation and amortization expense and allocations of corporate overhead expenses including facilities and IT.
Research and development expense increased in 2022 compared to 2021 primarily due to higher salaries expense, fringe benefits and stock-based
compensation as we continue to focus our investments in innovation and research in addition to higher allocations of corporate overhead expenses, outside
services costs and equipment and materials costs. These increases were partially offset by lower incentive compensation.
Restructuring and other charges (in millions):
Restructuring and other charges
% of net revenues
$
$
11.5
0.3 %
$
—
— %
11.5 $
$
—
— %
$
—
— %
—
Year Ended December 31,
Year Ended December 31,
2022
2021
Change
2021
2020
Change
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Restructuring and other charges includes $7.3 million of severance and related costs, in addition to lease termination charges and asset impairments.
46
Income from operations (in millions):
Clear Aligner
Income from operations
Operating margin %
Systems and Services
Income from operations
Operating margin %
1
Total income from operations
Operating margin %
Year Ended December 31,
Year Ended December 31,
2022
2021
Change
2021
2020
Change
$
$
$
1,134.4
36.9 %
179.8
27.2 %
642.6
17.2 %
$
$
$
1,325.9
40.8 %
259.1
36.7 %
976.4
24.7 %
$
$
$
(191.4) $
1,325.9
(79.4) $
(333.8) $
40.8 %
259.1
36.7 %
976.4
24.7 %
$
$
$
768.0
36.5 %
96.1
25.9 %
387.2
15.7 %
$
$
$
557.8
163.1
589.2
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
1
Refer to Note 15 “Segments and Geographical Information” of the Notes to Consolidated Financial Statements for details on unallocated corporate expenses and
the reconciliation to Consolidated Income from Operations.
Clear Aligner
Operating margin percentage decreased in 2022 compared to 2021 primarily due to lower gross margin.
Systems and Services
Operating margin percentage decreased in 2022 compared to 2021 primarily due to higher operating expenses as a percentage of net revenues as well
as lower gross margin.
Interest income (in millions):
Interest income
% of net revenues
Year Ended December 31,
Year Ended December 31,
2022
2021
Change
2021
2020
Change
$
$
5.4
0.1 %
$
3.1
0.1 %
2.3 $
$
3.1
0.1 %
$
3.1
0.1 %
—
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Interest income generally includes interest earned on cash, cash equivalents and investment balances.
Interest income increased in 2022 compared to 2021 primarily due to higher interest rates during 2022, which was partially offset by the interest
earned from the arbitration award related to our investment in SmileDirectClub in the first quarter of 2021.
Other income (expense), net (in millions):
Other income (expense), net
% of net revenues
$
(48.9)
(1.3)%
$
32.9
$
0.8 %
(81.8) $
32.9
$
0.8 %
(11.3)
(0.5)%
$
44.3
Year Ended December 31,
Year Ended December 31,
2022
2021
Change
2021
2020
Change
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Other income (expense), net, generally includes foreign exchange gains and losses, gains and losses on foreign currency forward contracts, interest
expense, gains and losses on equity investments and other miscellaneous charges.
Other income (expense), net decreased in 2022 compared to 2021 primarily due to a $43.4 million gain associated to the arbitration award related to
our investment in SmileDirectClub recognized in the first quarter of 2021 as well as $30.5 million of higher net foreign exchange losses from the
weakening of international currencies against the U.S. dollar in 2022 as compared to 2021.
47
Provision for (benefit from) income taxes (in millions):
Provision for (benefit from) income taxes
Effective tax rates
$
237.5
39.6 %
$
240.4
23.7 %
$
(2.9) $
240.4
23.7 %
$
2022
2021
Change
2021
2020
(1,396.9)
(368.6)%
Change
$
1,637.3
Year Ended December 31,
Year Ended December 31,
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
The increase in our effective tax rate for the year ended December 31, 2022 compared to the same period in 2021 is primarily attributable to
decreased earnings in low tax jurisdictions and an increase in the amount of foreign earnings subject to US tax in 2022. Additionally, a change in U.S. tax
laws effective January 1, 2022 which requires capitalization and amortization of research and development expenses incurred after December 31, 2021
increased our effective tax rate for the year ended December 31, 2022.
During 2020, we completed an intra-entity transfer of certain intellectual property rights and fixed assets to our Swiss subsidiary, where our EMEA
regional headquarters is located beginning January 1, 2020. The transfer of intellectual property rights did not result in a taxable gain; however, it did result
in a step-up of the Swiss tax deductible basis in the transferred assets, and accordingly, created a temporary difference between the book basis and the tax
basis of such intellectual property rights. Consequently, this transaction resulted in the recognition of a deferred tax asset and related one-time tax benefit of
approximately $1,493.5 million during the year ended December 31, 2020, which is the net impact of the deferred tax asset recognized as a result of the
additional Swiss tax deductible basis in the transferred assets and certain costs related to the transfer of fixed assets and inventory. The amortization of this
deferred tax asset depends on the profitability of our Swiss headquarters and the recognition of this tax benefit is allowed for a maximum recovery period
of 15 years.
The U.S. Inflation Reduction Act of 2022 (“IRA”) was enacted in the United States on August 16, 2022. The IRA imposes a 15% alternative
minimum tax on the financial statement income of certain corporations which is effective for tax years beginning after December 31, 2022, as well as a 1%
excise tax on the net fair market value of stock repurchases made after December 31, 2022. Based upon our analysis of the IRA, we have determined there
is no impact to our tax provision for the year ended December 31, 2022. We will continue to evaluate the impact of these tax law changes on future periods.
Liquidity and Capital Resources
Liquidity and Trends
As of December 31, 2022 and 2021, we had the following cash and cash equivalents and short-term and long-term marketable securities (in
thousands):
Cash and cash equivalents
Marketable securities, short-term
Marketable securities, long-term
Total
December 31,
2022
2021
$
$
942,050 $
57,534
41,978
1,041,562 $
1,099,370
71,972
125,320
1,296,662
As of December 31, 2022 and 2021, approximately $653.7 million and $713.8 million, respectively, of cash, cash equivalents and marketable
securities were held by our foreign subsidiaries. We intend to continue reinvesting our foreign subsidiary earnings indefinitely and expect the additional
costs upon repatriation of these foreign earnings not to be significant. We generate sufficient domestic operating cash flow and have access to external
funding under our $300.0 million revolving line of credit. We believe that our current cash balances and the borrowing capacity under our credit facility, if
necessary, will be sufficient to fund our business for at least the next 12 months.
The sanctions against Russian banks or international bank messaging systems due to the military conflict between Ukraine and Russia could impact
our ability to access our cash in Russia but would not materially impact our liquidity position. As of December 31, 2022, cash and cash equivalents
domiciled in Russia, which is required to fund their current operating requirements, represent approximately 2.6% of our total cash, cash equivalents and
marketable securities.
Our material cash requirements as of December 31, 2022 are as below:
48
• Our purchase commitments for goods and services, excluding capital expenditures, totaled $1,151.7 million, of which $860.8 million will be
payable within the next 12 months. These commitments primarily relate to agreements with contract manufacturers and suppliers, sales and
marketing services, research and development services and technological services.
• We expect our investments in capital expenditures to exceed $200.0 million for the next 12 months. Capital expenditures primarily relate to
building construction and improvements as well as additional manufacturing capacity due to international expansion. Despite the challenging
market conditions, we intend to expand our investments in research and development, manufacturing, treatment planning, sales and marketing
operations to meet actual and anticipated local and regional demands.
• We have future operating lease payments of $158.3 million, which includes $14.3 million for leases that have not yet commenced as of
December 31, 2022. Refer to Note 4 “Leases” of the Notes to Consolidated Financial Statements for details on the lease payments.
• We have $249.9 million available for repurchase under the stock repurchase program authorized by our Board of Directors in May 2021 (“May
2021 Repurchase Program”). Our stock repurchase program is subject to periodic evaluations to determine when and if repurchases are in the best
interests of our stockholders, taking into account prevailing market conditions. Refer to Note 10 “Common Stock Repurchase Programs” of the
Notes to Consolidated Financial Statements for details on our stock repurchase programs. Subsequent to the fourth quarter, in January 2023, our
Board of Directors authorized a new plan to repurchase up to $1.0 billion of our common stock. Additionally, in February 2023, we entered into an
ASR to repurchase $250.0 million of our common stock, completing our 2021 Repurchase Program. Under the Inflation Reduction Act of 2022,
effective January 1, 2023, excise tax of 1% is applicable to stock repurchases. We are currently evaluating the impact of this provision, if any, on
our results of operations and cash flows.
Sources and Use of Cash
The following table summarizes our Consolidated Statements of Cash Flows for the year ended December 31, 2022, 2021 and 2020 (in thousands):
Year Ended December 31,
2022
2021
2020
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effects of foreign exchange rate changes on cash, cash equivalents, and
restricted cash
$
Net (decrease) increase in cash, cash equivalents, and restricted cash $
568,732 $
(213,316)
(501,686)
(11,514)
(157,784) $
1,172,544 $
(563,430)
(458,332)
(12,117)
138,665 $
662,174
(231,506)
(30,808)
10,480
410,340
Operating Activities
For the year ended December 31, 2022, cash flows from operations of $568.7 million resulted primarily from our net income of approximately $361.6
million as well as the following:
Significant adjustments to net income
• Stock-based compensation of $133.4 million related to equity awards granted to employees and directors; and
• Depreciation and amortization of $125.8 million related to our investments in property, plant and equipment and intangible assets.
Significant changes in working capital
•
•
Increase of $241.9 million in deferred revenues due to the deferral of revenue on shipments over the period as well as timing of revenue
recognition;
Increase of $130.1 million in inventories primarily due to lower shipment volumes over the period in addition to our efforts to manage stock at
appropriate levels as required; and
49
• Decrease of $121.9 million in accrued and other long-term liabilities primarily due to the payment of our 2021 corporate bonus as well as timing
payment of other activities.
For the year ended December 31, 2021, cash flows from operations of $1,172.5 million resulted primarily from our net income of approximately
$772.0 million as well as the following:
Significant adjustments to net income
• Stock-based compensation of $114.3 million related to equity awards granted to employees and directors;
• Depreciation and amortization of $108.7 million related to our investments in property, plant and equipment and intangible assets; and
• Gain related to our SDC arbitration award of $43.4 million.
Significant changes in working capital
•
•
•
•
Increase of $462.6 million in deferred revenues primarily related to increased case volumes in our Clear Aligner segment, increased scanner
volumes in our Systems and Services segment and timing of revenue recognition;
Increase of $262.1 million in accounts receivable which is primarily a result of the increase in our sales;
Increase of $158.5 million in accrued and other long-term liabilities and an increase of $124.6 million in prepaid expenses and other assets due to
the timing of prepayment and activities; and
Increase of $112.5 million in inventories to support our demand, including safety stock, due to shipping delays during the COVID-19 pandemic as
well as long lead times with our suppliers.
Investing Activities
Net cash used in investing activities was $213.3 million for the year ended December 31, 2022 which primarily consisted of purchases of property,
plant and equipment of $291.9 million, purchases of marketable securities of $28.0 million and $12.3 million cash paid relating to a business acquisition.
These outflows were partially offset by sales and maturities of marketable securities of $121.1 million.
Net cash used in investing activities was $563.4 million for the year ended December 31, 2021 and primarily consisted of purchases of property, plant
and equipment of $401.1 million and purchases of marketable securities of $200.9 million, which were partially offset by $43.4 million of proceeds from
our SDC arbitration award.
Financing Activities
Net cash used in financing activities was $501.7 million for the year ended December 31, 2022 which consisted of payments related to our common
stock repurchases of $475.0 million and payroll taxes paid for equity awards through share withholdings of $52.8 million, which were partially offset by
$26.1 million of proceeds from the issuance of common stock under our employee stock purchase plan.
Net cash used in financing activities was $458.3 million for the year ended December 31, 2021 which consisted of payments related to our accelerated
stock repurchase arrangements of $375.0 million and payroll taxes paid for equity awards through share withholdings of $108.9 million which were
partially offset by $25.6 million of proceeds from the issuance of common stock.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements
requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and disclosures at
the date of the financial statements. We evaluate our estimates on an on-going basis and use authoritative pronouncements, historical experience and other
assumptions as the basis for making the estimates. Actual results could differ from those estimates.
We believe the following critical accounting policies and estimates affect our more significant judgments used in the preparation of our consolidated
financial statements. For further information on all of our significant accounting policies, see Note 1 “Summary of Significant Accounting Policies” of the
Notes to Consolidated Financial Statements under Item 8.
50
Revenue Recognition
Our revenues are derived primarily from the sale of aligners, scanners, and services from our Clear Aligner and Systems and Services segments. We
enter into sales contracts that may consist of multiple distinct performance obligations where certain performance obligations of the sales contract are not
delivered in one reporting period. We measure and allocate revenues according to ASC 606-10, “Revenues from Contracts with Customers.”
Determining the standalone selling price (“SSP”) in order to allocate consideration from the contract to the individual performance obligations is the
result of various factors, such as changing trends and market conditions, historical prices, costs, and gross margins. While changes in the allocation of the
SSP between performance obligations will not affect the amount of total revenues recognized for a particular contract, any material changes could impact
the timing of revenue recognition, which would have a material effect on our financial position and result of operations. This is because the contract
consideration is allocated to each performance obligation, delivered or undelivered, at the inception of the contract based on the SSP of each distinct
performance obligation.
We allocate revenues for each clear aligner treatment plan based on each unit’s SSP. Management considers a variety of factors such as same or
similar product historical sales, costs, and gross margin, which may vary over time depending upon the unique facts and circumstances related to each
performance obligation in making these estimates. In addition to historical data, we take into consideration changing trends and market conditions. For
treatment plans with multiple options, we also consider usage rates, which is the number of times a customer is expected to order more aligners after the
initial shipment. Our process for estimating usage rates requires significant judgment and evaluation of inputs, including historical usage data by region,
country and channel.
We estimate the SSP of each element in a scanner system and services sale taking into consideration same or similar product historical prices as well
as our discounting strategies.
Unfulfilled Performance Obligations for Clear Aligners and Scanners
The estimated revenues expected to be recognized in the future related to our unfulfilled performance obligations, including deferred revenues and
backlog, as of December 31, 2022 is $1,515.4 million. This estimate includes both product and service unfulfilled performance obligations and the time
range reflects our best estimate of when we will transfer control to the customer and may change based on customer usage patterns, timing of shipments,
readiness of customers' facilities for installation, and manufacturing availability some of which involve significant judgement. Generally, our deferred
revenue will be recognized over a period of one to five years.
Goodwill and Finite-Lived Acquired Intangible Assets
Goodwill and acquired intangible assets with finite lives are subject to impairment testing and are reviewed for impairment when events or
circumstances indicate that the carrying value of an asset is not recoverable and the carrying amount exceeds its fair value. We evaluate the recoverability
of the carrying value of these identifiable intangible assets based on estimated undiscounted cash flows to be generated from such assets. If the cash flow
estimates or the significant operating assumptions upon which they are based change in the future, we may be required to record impairment charges.
Assumptions and estimates about future values and remaining useful lives of our acquired intangible assets are complex and subjective. They can be
affected by external factors such as industry and economic trends and internal factors such as changes in our business strategy and internal forecasts. Our
ongoing consideration of all these factors could result in impairment charges in the future.
If we were to have impairments to goodwill or finite-lived acquired intangible assets, it could adversely affect our operating results. During the fiscal
year 2022 and 2021, we did not have any impairment charges related to our goodwill or acquired intangible assets.
Accounting for Income Taxes
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. The evaluation of our uncertain tax positions involves significant
judgment in the interpretation and application of U.S. GAAP and complex domestic and international tax laws related to the allocation of international
taxation rights between countries. We are also required to evaluate the realizability of our deferred tax assets on an ongoing basis in accordance with U.S.
GAAP, which requires the assessment of both of our historical and future performance as well as other relevant factors. Realization of our deferred tax
assets is dependent on our ability to generate future taxable income which is determined based on assumptions such as
51
estimated growth rates in revenues, gross margins, future cash flows and discount rates. The accuracy of these estimates could be affected by unforeseen
events or actual results, and the sustainability of our future tax benefits is dependent upon the acceptance of these valuation estimates and assumptions by
the taxing authorities.
Accounting for Legal Proceedings and Litigation
Estimates of probable losses resulting from litigation are inherently difficult to make, particularly when the matters are in early procedural stages with
incomplete facts and information. The final outcome of legal proceedings is dependent on many variables difficult to predict and, therefore, the ultimate
cost to entirely resolve such matters may be materially different than the amount of current estimates. Consequently, new information or changes in
judgments and estimates could have a material adverse effect on our business, financial condition, and results of operations or cash flows.
Recent Accounting Pronouncements
See Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in Item 8 for a discussion of recent
accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition, which is
incorporated herein.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
In the normal course of business, we are exposed to interest rate, foreign currency exchange and inflation risks that could impact our financial
position and results of operations. In addition, we are subject to the broad market risk that is created by the global market disruptions and uncertainties
resulting from macroeconomic challenges, the military conflict between Russia and Ukraine and the COVID-19 pandemic. Further discussion on these
risks may be found in Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors”.
Interest Rate Risk
Changes in interest rates could impact our anticipated interest income on our cash equivalents and investments in marketable securities. Our
investments are fixed-rate short-term and long-term securities. Fixed-rate securities may have their fair market value adversely impacted due to a rise in
interest rates, and, as a result, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in
principal if forced to sell securities which have declined in market value due to changes in interest rates. As of December 31, 2022, we had approximately
$99.5 million invested in available-for-sale marketable securities. An immediate 10% change in interest rates would not have a material adverse impact on
our future operating results and cash flows.
We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest
rate risk exposure. As of December 31, 2022, we are not subject to risks from immediate interest rate increases on our unsecured revolving line of credit
facility.
Currency Rate Risk
As a result of our international business activities, our financial results have been affected by factors such as changes in foreign currency exchange
rates as well as economic conditions in foreign markets, and there is no assurance that exchange rate fluctuations will not harm our business in the future.
We generally sell our products in the local currency of the respective countries. This provides some natural hedging because most of the subsidiaries’
operating expenses are generally denominated in their local currencies.
We enter into foreign currency forward contracts for currencies where we have exposures, primarily the Euro, Chinese Yuan, Polish Zloty and
Canadian Dollar, to minimize the short-term impact of foreign currency exchange rate fluctuations on cash and certain trade and intercompany receivables
and payables. These forward contracts are not designated as hedging instruments and are generally one month in original maturity and are marked to
market through earnings every period. The gains and losses on these forward contracts are intended to offset the gains and losses in the underlying foreign
currency denominated monetary assets and liabilities being economically hedged. We do not enter into foreign currency forward contracts for trading or
speculative purposes. As our international operations grow, we will continue to reassess our approach to managing the risks relating to fluctuations in
currency rates. It is difficult to predict the impact forward contracts could have on our results of operations.
52
Although we will continue to monitor our exposure to currency fluctuations, and, where appropriate, may use forward contracts to minimize the effect
of these fluctuations, the impact of an aggregate change of 10% in foreign currency exchange rates relative to the U.S. dollar on our results of operations
and financial position could be material.
Military Conflict between Russia and Ukraine
Beginning 2022, the military conflict between Russia and Ukraine has continued to escalate and create challenges to already uncertain
macroeconomic conditions. As of December 31, 2022, we do not expect these events to have any material impact on our operations. Our Russia net
revenues as a percentage of our consolidated net revenues and our assets domiciled in Russia, including cash and cash equivalents, as a percentage of our
total assets, are immaterial.
Inflation Risk
The economy has been impacted by certain macroeconomic challenges which have contributed to a rising inflationary trend that have impacted both
our revenues and costs globally, and which we expect will continue into the foreseeable future. If our costs become subject to significant inflationary
pressures, we may not be able to fully offset such higher costs through price increases. There can be no assurance that our results of operations and
financial condition will not be materially impacted by inflation in the future.
53
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Management on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
Consolidated Statements of Operations for the year ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income for the year ended December 31, 2022, 2021 and 2020
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Stockholders’ Equity for the year ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the year ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
54
Page
55
56
58
59
60
61
62
63
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Align is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed by, or under supervision of, our CEO
and CFO, and effected by the board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control
over financial reporting includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Align;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of Align are being made only in accordance with authorizations of management
and directors of Align; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Align’s assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree
of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment,
management used the criteria set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission ("COSO").
Based on our assessment, management has concluded that, as of December 31, 2022, our internal control over financial reporting was effective based
on criteria in Internal Control - Integrated Framework (2013) issued by the COSO.
The effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report which is included herein.
/S/ JOSEPH M. HOGAN
Joseph M. Hogan
President and Chief Executive Officer
February 27, 2023
/S/ JOHN F. MORICI
John F. Morici
Chief Financial Officer and Executive Vice President, Global Finance
February 27, 2023
55
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Align Technology, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Align Technology, Inc. and its subsidiaries (the “Company”) as of December 31, 2022
and 2021, and the related consolidated statements of operations, of comprehensive income, of stockholders’ equity and of cash flows for each of the three
years in the period ended December 31, 2022, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2)
(collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of
December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of
December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal
Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's
internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective
internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
56
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated
financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – Determination of Standalone Selling Price of Distinct Performance Obligations in Clear Aligner Contracts
As described in Notes 1 and 15 to the consolidated financial statements, the Company recognized net revenues of $3.1 billion from its Clear Aligner
segment for the year ended December 31, 2022. The Company enters into contracts (“treatment plans”) that involve multiple future performance
obligations. Management identifies a performance obligation as distinct if both of the following criteria are met: the customer can benefit from the good or
service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to
the customer is separately identifiable from other promises in the contract. Management allocates revenues for each treatment plan based on each unit’s
standalone selling price. Management considers a variety of factors such as same or similar product historical sales, costs, and gross margin, which may
vary over time depending upon the unique facts and circumstances related to each performance obligation in making these estimates. In addition to
historical data, they take into consideration changing trends and market conditions. Management also considers usage rates, which is the number of times a
customer is expected to order additional aligners. Management’s process for estimating usage rates requires significant judgment and evaluation of inputs,
including historical usage data by region, country and channel.
The principal considerations for our determination that performing procedures related to revenue recognition and the determination of standalone selling
price of distinct performance obligations in Clear Aligner contracts is a critical audit matter are the significant judgment by management in determining the
estimate of standalone selling price, which includes significant assumptions related to usage rates for each distinct performance obligation. This in turn led
to significant auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s determination of the estimates of standalone
selling price and usage rates for each distinct performance obligation.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included testing the effectiveness of controls relating to revenue recognition, including controls over the
determination of standalone selling price for each distinct performance obligation in the Company’s Clear Aligner contracts. These procedures also
included, among others, (i) testing management’s process for determining the estimate of standalone selling price, which included testing the completeness
and accuracy of inputs used and evaluating the reasonableness of factors considered by management related to same or similar product historical sales and
usage rates, and (ii) testing management’s process for estimating usage rates, which included evaluating the reasonableness of inputs evaluated by
management related to historical usage data by region, country and channel.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 27, 2023
We have served as the Company’s auditor since 1997.
57
ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
2022
2021
2020
Year Ended December 31,
Net revenues
Cost of net revenues
Gross profit
Operating expenses:
Selling, general and administrative
Research and development
Restructuring and other charges
Total operating expenses
Income from operations
Interest income and other income (expense), net:
Interest income
Other income (expense), net
Total interest income and other income (expense), net
Net income before provision for (benefit from) income taxes
Provision for (benefit from) income taxes
Net income
Net income per share:
Basic
Diluted
Shares used in computing net income per share:
Basic
Diluted
$
$
$
$
3,734,635 $
1,100,860
2,633,775
1,674,469
305,258
11,453
1,991,180
642,595
5,367
(48,905)
(43,538)
599,057
237,484
361,573 $
4.62 $
4.61 $
78,190
78,420
3,952,584 $
1,017,229
2,935,355
1,708,640
250,315
—
1,958,955
976,400
3,103
32,920
36,023
1,012,423
240,403
772,020 $
9.78 $
9.69 $
78,917
79,670
2,471,941
708,706
1,763,235
1,200,757
175,307
—
1,376,064
387,171
3,125
(11,347)
(8,222)
378,949
(1,396,939)
1,775,888
22.55
22.41
78,760
79,230
The accompanying notes are an integral part of these consolidated financial statements.
58
ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Other comprehensive income (loss):
Change in foreign currency translation adjustment, net of tax
Change in unrealized gains (losses) on investments, net of tax
Other comprehensive income (loss)
Comprehensive income
Year Ended December 31,
2022
2021
2020
361,573 $
772,020 $
1,775,888
(11,480)
(3,130)
(14,610)
346,963 $
(38,680)
(495)
(39,175)
732,845 $
44,383
(194)
44,189
1,820,077
$
$
The accompanying notes are an integral part of these consolidated financial statements.
59
ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents
Marketable securities, short-term
Accounts receivable, net of allowance for doubtful accounts of $10,343 and $9,245, respectively
Inventories
Prepaid expenses and other current assets
Total current assets
Marketable securities, long-term
Property, plant and equipment, net
Operating lease right-of-use assets, net
Goodwill
Intangible assets, net
Deferred tax assets
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued liabilities
Deferred revenues
Total current liabilities
Income tax payable
Operating lease liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies (Notes 7 and 8)
Stockholders’ equity:
Preferred stock, $0.0001 par value (5,000 shares authorized; none issued)
Common stock, $0.0001 par value (200,000 shares authorized; 77,267 and 78,710 issued and
outstanding, respectively)
Additional paid-in capital
Accumulated other comprehensive income (loss), net
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2022
2021
942,050 $
57,534
859,685
338,752
226,370
2,424,391
41,978
1,231,855
118,880
407,551
95,720
1,571,746
55,826
5,947,947 $
127,870 $
454,374
1,343,643
1,925,887
124,393
100,334
195,975
2,346,589
1,099,370
71,972
897,198
230,230
195,305
2,494,075
125,320
1,081,926
121,257
418,547
109,709
1,533,767
57,509
5,942,110
163,886
607,315
1,152,870
1,924,071
118,072
102,656
174,597
2,319,396
—
—
8
1,044,946
(10,284)
2,566,688
3,601,358
5,947,947 $
8
999,006
4,326
2,619,374
3,622,714
5,942,110
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
60
ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Balance as of December 31, 2019
Net income
Net change in unrealized gains (losses) from
investments
Net change in foreign currency translation adjustment
Issuance of common stock relating to employee equity
compensation plans
Tax withholdings related to net share settlements of
equity awards
Stock-based compensation
Balance as of December 31, 2020
Net income
Net change in unrealized gains (losses) from
investments
Net change in foreign currency translation adjustment
Issuance of common stock relating to employee equity
compensation plans
Tax withholdings related to net share settlements of
equity awards
Common stock repurchased and retired
Stock-based compensation
Balance as of December 31, 2021
Net income
Net change in unrealized gains (losses) from
investments
Net change in foreign currency translation adjustment
Issuance of common stock relating to employee equity
compensation plans
Tax withholdings related to net share settlements of
equity awards
Common stock repurchased and retired
Equity forward contract related to accelerated stock
repurchase
Stock-based compensation
Balance as of December 31, 2022
Common Stock
Shares
78,433 $
—
—
—
427
—
—
78,860
—
—
—
442
—
(592)
—
78,710
—
—
—
305
—
(1,748)
—
—
77,267 $
Amount
8 $
—
—
—
—
—
—
8
—
—
—
—
—
—
—
8
—
—
—
—
—
—
—
—
8 $
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss), Net
Retained
Earnings
906,937 $
—
(688) $
—
439,912 $
1,775,888
—
—
20,314
(51,122)
98,427
974,556
—
—
—
25,623
(108,917)
(6,592)
114,336
999,006
—
—
—
26,149
(52,799)
(20,777)
(194)
44,383
—
—
—
43,501
—
(495)
(38,680)
—
—
—
—
4,326
—
(3,130)
(11,480)
—
—
—
(40,000)
133,367
1,044,946 $
—
—
(10,284) $
—
—
—
—
—
2,215,800
772,020
—
—
—
—
(368,446)
—
2,619,374
361,573
—
—
—
—
(414,259)
—
—
2,566,688 $
Total
1,346,169
1,775,888
(194)
44,383
20,314
(51,122)
98,427
3,233,865
772,020
(495)
(38,680)
25,623
(108,917)
(375,038)
114,336
3,622,714
361,573
(3,130)
(11,480)
26,149
(52,799)
(435,036)
(40,000)
133,367
3,601,358
The accompanying notes are an integral part of these consolidated financial statements.
61
ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes
Depreciation and amortization
Stock-based compensation
Non-cash operating lease cost
Arbitration award gain
Other non-cash operating activities
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued and other long-term liabilities
Long-term income tax payable
Deferred revenues
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired
Purchase of property, plant and equipment
Purchase of marketable securities
Proceeds from maturities of marketable securities
Proceeds from sales of marketable securities
Repayment on unsecured promissory note
Proceeds from arbitration award
Other investing activities
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock
Common stock repurchases
Payment for equity forward contract related to accelerated stock repurchase agreement
Payroll taxes paid upon the vesting of equity awards
Net cash used in financing activities
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash
Net (decrease) increase in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of year
Cash, cash equivalents, and restricted cash at end of year
Year Ended December 31,
2022
2021
2020
$
361,573 $
772,020 $
1,775,888
(39,495)
125,793
133,367
30,520
—
41,288
21,549
(130,097)
(65,514)
(36,523)
(121,942)
6,327
241,886
568,732
(12,304)
(291,900)
(28,002)
23,785
97,316
—
—
(2,211)
(213,316)
26,149
(435,036)
(40,000)
(52,799)
(501,686)
(11,514)
(157,784)
1,100,139
$
942,355 $
15,455
108,729
114,336
26,807
(43,403)
24,363
(262,066)
(112,450)
(124,626)
19,747
158,543
12,449
462,640
1,172,544
(8,002)
(401,098)
(200,928)
498
3,114
4,594
43,403
(5,011)
(563,430)
25,623
(375,038)
—
(108,917)
(458,332)
(12,117)
138,665
961,474
1,100,139 $
(1,491,577)
93,538
98,427
22,467
—
33,743
(139,777)
(29,110)
(21,130)
52,206
42,168
(2,802)
228,133
662,174
(420,788)
(154,916)
(5,341)
42,641
278,817
26,925
—
1,156
(231,506)
20,314
—
—
(51,122)
(30,808)
10,480
410,340
551,134
961,474
The accompanying notes are an integral part of these consolidated financial statements.
62
ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Business Description
®
Align Technology, Inc. (“We”, “Our”, “Align”) is a global medical device company primarily engaged in the design, manufacture and marketing of
Invisalign® clear aligners for the treatment of malocclusions, or the misalignment of teeth, by orthodontists and general dental practitioners (“GPs”),
Vivera retainers for retention, iTero® intraoral scanners and services for dentistry, and exocad® computer-aided design and computer-aided
manufacturing (“CAD/CAM”) software for dental laboratories and dental practitioners. Our vision and strategy is to revolutionize orthodontic and
restorative dentistry through digital treatment planning and implementation using our Align Digital Platform , an integrated suite of proprietary
technologies and services designed to deliver a seamless, end-to-end solution for patients and consumers, orthodontists and GPs and lab partners. We strive
to achieve our vision and strategy through key objectives made possible with the proprietary technologies and services of the Align Digital Platform to
establish: clear aligners as the principal solution for the treatment of malocclusions with the Invisalign System as the treatment solution of choice by
orthodontists, GPs and patients globally, our intraoral scanners as the preferred scanning technology for digital dental scans, and our exocad CAD/CAM
software as the dental restorative solution of choice for dental labs. Our corporate headquarters is located in Tempe, Arizona and we have offices
worldwide. Our Americas regional headquarters is located in Raleigh, North Carolina; our European, Middle East and Africa (“EMEA”) regional
headquarters is located in Rotkreuz, Switzerland; and our Asia Pacific (“APAC”) regional headquarters is located in Singapore. We have two operating
segments: (1) Clear Aligner, known as the Invisalign system, and (2) Imaging Systems and CAD/CAM services (“Systems and Services”), known as the
iTero intraoral scanner and CAD/CAM services.
TM
Basis of Presentation and Preparation
The consolidated financial statements include the accounts of Align and our wholly-owned subsidiaries after elimination of intercompany transactions
and balances.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States of America
(“U.S.”) requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, we evaluate our estimates, including those related to
revenue recognition, useful lives of intangible assets and property and equipment, long-lived assets and goodwill, income taxes, contingent liabilities, the
fair values of financial instruments, stock-based compensation and the valuation of investments in privately held companies among others. We base our
estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making
judgments about the carrying values of assets and liabilities.
Fair Value of Financial Instruments
Fair value is an exit price, representing the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. We use the GAAP fair value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value. This hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. The three levels of inputs that may be used to measure fair value:
Level 1 - Quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets,
quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the asset or liability. We obtain fair values for our Level 2 investments. Our custody bank and asset
managers independently use professional pricing services to gather pricing data which may include quoted market prices for identical or comparable
financial instruments, or inputs other than quoted prices that are observable either directly or indirectly, and we are ultimately responsible for these
underlying estimates.
63
Level 3 - Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the
measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value measurements are determined using
pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.
Cash and Cash Equivalents
We consider currency on hand, demand deposits, time deposits, and all highly liquid investments with an original maturity of three months or less at
the date of purchase to be cash and cash equivalents. Cash and cash equivalents are held in various financial institutions in the U.S. and internationally.
Restricted Cash
The restricted cash primarily consists of funds reserved for legal requirements. Restricted cash balances are primarily included in other assets within
our Consolidated Balance Sheets.
Marketable Securities
Our marketable securities consist of marketable debt securities which are classified as available-for-sale and are carried at fair value. Our fixed-
income securities investment portfolio allows for investments with a maximum effective maturity of up to 40 months on any individual security.
Marketable securities classified as current assets have maturities within one year from the balance sheet date. Unrealized gains or losses on such securities
are included in accumulated other comprehensive income (loss), net (“AOCI”) in stockholders’ equity. Realized gains and losses from sales and maturities
of all such securities are reported in earnings and computed using the specific identification cost method.
All of our marketable securities are subject to a periodic impairment review. We evaluate if an allowance for credit loss is necessary by considering
available information relevant to the collectibility of the security and information about credit rating changes, past events, current conditions, and
reasonable and supportable forecasts. Any allowance for credit loss is recorded as a charge to other income (expense), net, in our Consolidated Statement of
Operations. If we have an intent to sell, or if it is more likely than not that we will be required to sell the security in an unrealized loss position before
recovery of its amortized cost basis, we will write down the security to its fair value and record the corresponding charge as a component of other income
(expense), net in our Consolidated Statement of Operations.
Variable Interest Entities
We evaluate whether an entity in which we have made an investment is considered a variable interest entity (“VIE”). If we determine we are the
primary beneficiary of a VIE, we would consolidate the VIE into our financial statements. In determining if we are the primary beneficiary, we evaluate
whether we have the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the
right to receive benefits of the VIE that could potentially be significant to the VIE. Our evaluation includes identification of significant activities and an
assessment of our ability to direct those activities based on governance provisions and arrangements to provide or receive product and process technology,
product supply, operations services, equity funding, financing, and other applicable agreements and circumstances. Our assessments of whether we are the
primary beneficiary of a VIE require significant assumptions and judgments. We have concluded that we are not the primary beneficiary of our VIE
investments; therefore, we do not consolidate their results into our consolidated financial statements.
Investments in Privately Held Companies
Our investments in privately held companies in which we cannot exercise significant influence and do not own a majority equity interest or otherwise
control are accounted for under the measurement alternative. Under the measurement alternative, the carrying value of our equity investment is adjusted to
fair value for observable transactions for identical or similar investments of the same issuer. Investments in equity securities are reported on our
Consolidated Balance Sheet as other assets, and we periodically evaluate them for impairment. We record any change in carrying value of our equity
securities, in other income (expense), net in our Consolidated Statement of Operations. The carrying value of our equity investments in privately held
companies without readily determinable fair values were not material as of December 31, 2022 or 2021 and the associated adjustments to the carrying
values of the investments were not material during the year ended December 31, 2022, 2021 and 2020.
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Derivative Financial Instruments
We enter into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations associated with
certain assets and liabilities. These forward contracts are not designated as hedging instruments. The gains and losses on these forward contracts are
intended to offset the gains and losses in the underlying foreign currency denominated monetary assets and liabilities being economically hedged. We do
not enter into foreign currency forward contracts for trading or speculative purposes. The net gain or loss from the settlement of these foreign currency
forward contracts is recorded in other income (expense), net in the Consolidated Statement of Operations.
Foreign Currency
For our international subsidiaries, we analyze on an annual basis or more often if necessary, if a significant change in facts and circumstances indicate
that the functional currency has changed. For international subsidiaries where the local currency is the functional currency, adjustments from translating
financial statements from the local currency to the U.S. dollar reporting currency are recorded as a separate component of AOCI in the stockholders’ equity
section of the Consolidated Balance Sheet. This foreign currency translation adjustment reflects the translation of the balance sheet at period end exchange
rates, and the income statement at the transaction date or average exchange rate in effect during the period. The foreign currency revaluation that are
derived from monetary assets and liabilities stated in a currency other than functional currency are included in other income (expense), net. For the year
ended December 31, 2022, 2021 and 2020, we had foreign currency net gains (losses) of $(43.8) million, $(13.3) million and $6.8 million, respectively.
Certain Risks and Uncertainties
We are subject to risks including, but not limited to, global and regional economic market conditions, inflation, fluctuations in foreign currency
exchange rates, changes in consumer confidence and demand, increased competition, dependence on key personnel, protection and litigation of proprietary
technology, shifts in taxable income between tax jurisdictions and compliance with regulations of the U.S. Food and Drug Administration (“FDA”) and
similar international agencies. Further, our operations globally have been impacted by the COVID-19 pandemic. Although its impact has been gradually
declining, we continue to be exposed to risks and uncertainties posed by it which varies by geographic regions at different levels. The extent to which our
business could be impacted in the future by the pandemic is highly uncertain and difficult to predict.
Our cash and investments are held primarily by five financial institutions. Financial instruments which potentially expose us to concentrations of
credit risk consist primarily of cash equivalents and marketable securities. We invest excess cash primarily in money market funds, corporate bonds, asset-
backed securities, municipal bonds and U.S. government agency bonds and treasury bonds and periodically evaluate them for credit losses. Such credit
losses have not been material to our financial statements.
We purchase certain inventory from sole suppliers. Additionally, we rely on a limited number of hardware manufacturers. The inability of any
supplier or manufacturer to fulfill our supply requirements could materially and adversely impact our future operating results.
Accounts Receivable, net
Trade accounts receivable are recorded at the invoiced amount. Accounts receivable, net includes allowances for doubtful accounts for any potentially
uncollectible amounts. We periodically assess the adequacy of the allowance for doubtful accounts by reviewing the accounts receivable on a collective
basis by considering factors such as aging of the receivables and customers’ expected ability to pay, and on an individual basis for specific customers with
known disputes or collectability issues. In determining the amount of the allowance for doubtful accounts, we also evaluate the creditworthiness of
customers, current market conditions and forecasts of future economic conditions to make any adjustments. Actual write-offs have not materially differed
from the estimated allowances. No individual customer accounted for 10% or more of our accounts receivable at December 31, 2022 or 2021 or net
revenues for the year ended December 31, 2022, 2021 or 2020.
In 2022, we entered into factoring transactions on a non-recourse basis with financial institutions to sell certain of our non-U.S. accounts receivable.
We account for these transactions as sales of accounts receivables and include the cash proceeds as a part of our cash flows from operations in the
Consolidated Statements of Cash Flows. Total accounts receivable sold under the factoring arrangements was $37.0 million during the year ended
December 31, 2022. Factoring fees on the sales of receivables were recorded in other income (expense), net in our Consolidated Statement of Operations
and were not material.
65
Inventories
Inventories are valued at the lower of cost or net realizable value, with cost computed using standard cost which approximates actual cost on a first-
in-first-out basis. Excess and obsolete inventories are determined primarily based on future demand forecasts, and write-downs of excess and obsolete
inventories are recorded as a component of cost of net revenues.
Property, Plant and Equipment, net
Property, plant and equipment, net 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. Construction in progress is related to the construction or development
of property (including land) and equipment that have not yet been placed in service for their intended use. Upon sale or retirement, the asset’s cost and
related accumulated depreciation are removed from the balance sheet and any related gains or losses are reflected in income from operations. Maintenance
and repairs are expensed as incurred. Refer to Note 3 “Balance Sheet Components" of the Notes of Consolidated Financial Statements for details on
estimated useful lives.
Leases - Lessee
We determine if an arrangement is a lease at inception. Leases with a term of 12 months or less are not recorded on the balance sheet. Right-of-use
(“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising
from the lease. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We use
our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments as the rate
implicit in our leases is not readily determinable. We determine lease terms as the noncancellable period of the lease and may include options to extend or
terminate the lease when it is reasonably certain that we will exercise that option. We have lease agreements with lease and non-lease components which
are accounted for as a single lease component. Payments under our lease arrangements are primarily fixed; however, certain lease agreements contain
variable payments which are expensed as incurred and not included in the operating lease ROU assets and liabilities.
Business Combinations
We allocate the fair value of the purchase consideration to the assets acquired and liabilities assumed based on their estimated fair values at the
acquisition date. When determining the fair value of assets acquired and liabilities assumed, management is required to make certain estimates and
assumptions, especially with respect to intangible assets. The estimates and assumptions used in valuing intangible assets include, but are not limited to, the
amount and timing of projected future cash flows including forecasted revenues, the discount rate used to determine the present value of these cash flows,
and the determination of the assets’ life cycle. Amounts recorded in a business combination may change during the measurement period, which is a period
not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.
Goodwill and Finite-Lived Acquired Intangible Assets
Goodwill represents the excess of the purchase price paid over the fair value of tangible and identifiable intangible net assets acquired in business
combinations and is allocated to the respective reporting units based on relative synergies generated.
Our intangible assets primarily consist of intangible assets acquired as part of our acquisitions. These assets are amortized using the straight-line
method over their estimated useful lives ranging from two to fifteen years reflecting the period in which the economic benefits of the assets are expected to
be realized.
Impairment of Goodwill and Long-Lived Assets
Goodwill
We evaluate goodwill for impairment at least annually on November 30th or more frequently if indicators are present, an event occurs or changes in
circumstances suggest an impairment may exist and that it would more likely than not reduce the fair value of a reporting unit below its carrying
amount. The allocation of goodwill to the respective reporting unit is based on relative synergies generated as a result of an acquisition.
We perform an initial assessment of qualitative factors to determine whether the existence of events and circumstances leads to a determination that it
is more likely than not that the fair value of a reporting unit is less than its carrying amount. In
66
performing the qualitative assessment, we identify and consider the significance of relevant key factors, events, and circumstances that affect the fair value
of our reporting units. These factors include external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors,
such as our actual and planned financial performance. We also give consideration to the difference between the reporting unit fair value and carrying value
as of the most recent date a fair value measurement was performed. If, after assessing the totality of relevant events and circumstances, we determine that it
is more likely than not that the fair value of the reporting unit exceeds its carrying value and there is no indication of impairment, no further testing is
performed; however, if we conclude otherwise, then we will perform the quantitative impairment test which compares the estimated fair value of the
reporting unit to its carrying value, including goodwill. If the carrying amount of the reporting unit is in excess of its fair value, an impairment loss would
be recorded in the Consolidated Statement of Operations.
Long-Lived Assets
We evaluate long-lived assets (including finite-lived intangible assets) for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset group may not be recoverable. An asset or asset group is considered impaired if its carrying amount exceeds the future
undiscounted net cash flows that the asset or asset group is expected to generate. Factors we consider important which could trigger an impairment review
include significant negative industry or economic trends, significant loss of customers and changes in the competitive environment. If an asset or asset
group is considered to be impaired, the impairment to be recognized is calculated as the amount by which the carrying amount of the asset or asset group
exceeds its fair market value. Our estimates of future cash flows attributable to our long-lived assets require significant judgment based on our historical
and anticipated results and are subject to many assumptions. The estimation of fair value utilizing a discounted cash flow approach includes numerous
uncertainties which require our significant judgment when making assumptions of expected growth rates and the selection of discount rates, as well as
assumptions regarding general economic and business conditions, and the structure that would yield the highest economic value, among other factors. Refer
to Note 5 “Goodwill and Intangible Assets” of Notes to Consolidated Financial Statements for details on intangible long-lived assets.
Development Costs for Internal Use Software
Internally developed software includes enterprise-level business software that we customize to meet our specific operational needs. Such capitalized
costs include external direct costs utilized in developing or obtaining the applications and payroll and payroll-related costs for employees, who are directly
associated with the development of the applications. There were no significant internally developed software costs capitalized in 2022 or 2021.
Development Costs for Software to be Marketed
The costs to develop software that is marketed externally have not been capitalized as we believe our current software development process is
essentially completed concurrent with the establishment of technological feasibility. As such, all related software development costs are expensed as
incurred and included in research and development expense in our Consolidated Statement of Operations.
Product Warranty
We offer assurance warranties on our products which provide the customer assurance that the product will function as the parties intended because it
complies with agreed-upon specifications; therefore, warranties are not treated as a separate revenue performance obligation and are accounted for as
guarantees under GAAP.
Clear Aligner
We warrant our Invisalign products against material defects until the treatment plan is complete except in the case of retainers, which are warranted
up to three months from expected first use. We accrue for warranty costs, which are primarily based on historical experience as to product failures as well
as current information on replacement costs.
Systems and Services
We warrant our intraoral scanners for a period of one year, which includes materials and labor. We accrue for these warranty costs based on average
historical repair costs. An extended warranty may be purchased for additional fees. We warrant our CAD/CAM software for a one year period to perform in
accordance with agreed product specifications. As we have not historically incurred any material warranty costs, we do not accrue for these software
warranties.
67
Warranty costs are recorded in cost of net revenues upon shipment of products. We regularly review our warranty liability and update these balances
based on historical warranty cost trends. Actual warranty costs incurred have not materially differed from those accrued; however future actual warranty
costs could differ from the estimated amounts.
Revenue Recognition
Our revenues are derived primarily from the sale of aligners, scanners, and services from our Clear Aligner and Systems and Services segments. We
enter into sales contracts that may consist of multiple distinct performance obligations where certain performance obligations of the sales contract are not
delivered in one reporting period. We measure and allocate revenues according to ASC 606-10, “Revenues from Contracts with Customers.”
We identify a performance obligation as distinct if both of the following criteria are met: the customer can benefit from the good or service either on
its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is
separately identifiable from other promises in the contract. Determining the standalone selling price (“SSP”) in order to allocate consideration from the
contract to the individual performance obligations is the result of various factors, such as changing trends and market conditions, historical prices, costs,
and gross margins. While changes in the allocation of the SSP between performance obligations will not affect the amount of total revenues recognized for
a particular contract, any material changes could impact the timing of revenue recognition, which would have a material effect on our financial position and
result of operations. This is because the contract consideration is allocated to each performance obligation, delivered or undelivered, at the inception of the
contract based on the SSP of each distinct performance obligation.
Clear Aligner
We enter into contracts (“treatment plan(s)”) that involve multiple future performance obligations. Invisalign Comprehensive, Invisalign First,
Invisalign Moderate, Invisalign Go, Invisalign Go Plus, and Lite and Express Packages include optional additional aligners at no charge for a certain period
of time ranging from six months to five years after initial shipment.
Our treatment plans comprise the following performance obligations that also represent distinct deliverables: initial aligners, the option of additional
aligners, case refinement, and replacement aligners. We take the practical expedient to consider shipping and handling costs as activities to fulfill the
performance obligation. Where processing fees are charged, the consideration received from the fees are included in the total consideration. We allocate
revenues for each treatment plan based on each unit’s standalone selling price. Management considers a variety of factors such as same or similar product
historical sales, costs, and gross margin, which may vary over time depending upon the unique facts and circumstances related to each performance
obligation in making these estimates. In addition to historical data, we take into consideration changing trends and market conditions. For treatment plans
with multiple future options, we also consider usage rates, which is the number of times a customer is expected to order additional aligners. Our process for
estimating usage rates requires significant judgment and evaluation of inputs, including historical usage data by region, country and channel. We recognize
the revenues upon shipment, as the customers obtain physical possession and we have enforceable rights to payment. As we collect most consideration
upfront, we consider whether a significant financing component exists; however, as the delivery of the performance obligations are at the customer’s
discretion, we conclude that no significant financing component exists.
Systems and Services
We sell intraoral scanners and CAD/CAM services through both our direct sales force and distribution partners. The intraoral scanner sales price
includes one year of warranty and unlimited scanning services. The customer may also select, for additional fees, extended warranty and unlimited
scanning services for periods beyond the initial year. When intraoral scanners are sold with an unlimited scanning service agreement and/or extended
warranty, we allocate revenues based on the respective SSP of the scanner and the subscription service. We estimate the SSP of each element, taking into
account factors such as same or similar historical prices and discounting strategies. Revenues are then recognized over time as the monthly services are
rendered and upon shipment of the scanner, as that is when we deem the customer to have obtained control. We also have a rental program, where scanners
are leased to customers. The contracts for the program are treated as operating leases, and the revenue is recognized ratably over the lease term.
CAD/CAM services, where sold separately, include the initial software license and maintenance and support. We allocate revenues based upon the
respective SSPs of the software license and the maintenance and support. We estimate the SSP of each element using data such as historical prices.
Revenues related to the software license are recognized upfront and revenues related to the maintenance and support are recognized over time. For both
scanner and service sales, most consideration is
68
collected upfront and in cases where there are payment plans, consideration is collected within one year and, therefore, there are no significant financing
components.
Volume Discounts
In certain situations, we offer promotions in which the discount will increase depending upon the volume purchased over time. We concluded that in
these situations, the promotions can represent either variable consideration or options, depending upon the specifics of the promotion. In the event the
promotion contains an option, the option is considered a material right and, therefore, included in the accounting for the initial arrangement. We estimate
the average anticipated discount over the lifetime of the promotion or contract, and apply that discount to each unit as it is sold. On a quarterly basis, we
review our estimates and, if needed, updates are made and changes are applied prospectively.
Accrued Sales Return Reserve
We provide a reserve for sales returns based on historical sales returns as a percentage of revenues.
Costs to Obtain a Contract
We offer a variety of commission plans to our salesforce; each plan has multiple components. To match the costs to obtain a contract to the associated
revenues, we evaluate the individual components and capitalize the eligible components, recognizing the costs over the treatment period. The costs to
obtain contracts were $27.4 million and $31.1 million as of December 31, 2022 and 2021, respectively, and are included in other assets in our Consolidated
Balance Sheets. We recognized amortization on our costs to obtain a contract of $20.8 million, $17.0 million, and $10.1 million during the year ended
December 31, 2022, 2021, and 2020, respectively, which is included in selling, general and administrative expenses in our Consolidated Statements of
Operations.
Unfulfilled Performance Obligations for Clear Aligners and Scanners
Our unfulfilled performance obligations, including deferred revenues and backlog, as of December 31, 2022 and the estimated revenues expected to
be recognized in the future related to these performance obligations are $1,515.4 million. This includes performance obligations from the Clear Aligner
segment, primarily the shipment of additional aligners, which are fulfilled over six months to five years. This also includes the performance obligations
from the Systems and Services segment, primarily services and support, which are fulfilled over one to five years, and contracted deliveries of additional
scanners. The estimate includes both product and service unfulfilled performance obligations and the time range reflects our best estimate of when we will
transfer control to the customer and may change based on customer usage patterns, timing of shipments, readiness of customers' facilities for installation,
and manufacturing availability.
Contract Balances
The timing of revenue recognition results in deferred revenues being recognized on our Consolidated Balance Sheet. For both aligners and scanners,
we usually collect the total consideration owed prior to all performance obligations being performed with payment terms generally varying from net 30 to
net 180 days. Contract liabilities are recorded as deferred revenue balances, which are generated based upon timing of invoices and recognition patterns,
not payments. If the revenue recognition exceeds the billing, the exceeded amount is considered unbilled receivable and a contract asset. Conversely, if the
billing occurs prior to the revenue recognition, the amount is considered deferred revenue and a contract liability.
Shipping and Handling Costs
Shipping and handling charges to customers as well as processing fees are included in net revenues, and the associated costs incurred are recorded in
cost of net revenues.
Legal Proceedings and Litigations
We are involved in legal proceedings on an ongoing basis. If we believe that a loss arising from such matters is probable and can be reasonably
estimated, we accrue the estimated loss in our consolidated financial statements. If only a range of estimated losses can be determined, we accrue an
amount within the range that, in our judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other
amount, we accrue the low end of the range.
69
Research and Development
Research and development costs are expensed as incurred and includes the costs associated with the research and development of new products and
enhancements to existing products. These costs primarily include personnel-related costs, including payroll and stock-based compensation, equipment,
material and maintenance costs, outside consulting expenses, depreciation and amortization expense and allocations of corporate overhead expenses
including facilities and information technology (“IT”).
Advertising Costs
The cost of advertising and media is expensed as incurred. For the year ended December 31, 2022, 2021 and 2020, we incurred advertising costs of
$222.0 million, $325.6 million and $161.0 million, respectively.
Stock-Based Compensation
We recognize stock-based compensation cost for shares expected to vest on a straight-line basis over the requisite service period of the award, net of
estimated forfeitures. We use the Black-Scholes option pricing model to determine the fair value of employee stock purchase plan shares. We use a Monte
Carlo simulation model to estimate the fair value of market-performance based restricted stock units which requires the input of assumptions, including
expected term, stock price volatility and the risk-free rate of return. For restricted stock units which vest based on performance conditions, we use the stock
price on the grant date to estimate the fair value and stock-based compensation cost is recorded based on expected attainment of performance targets.
Forfeitures are estimated based on historical experience at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from
those estimates.
Income Taxes
We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur
in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenues and expenses for tax and
financial statement purposes.
As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in
which we operate. This process involves us estimating our current tax exposure under the applicable tax laws and assessing temporary differences resulting
from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities which are included in our
Consolidated Balance Sheets.
We account for uncertainty in income taxes pursuant to authoritative guidance based on a two-step approach to recognize and measure uncertain tax
positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than
not that the tax position will be sustained on audit based on its technical merits, including resolution of any related appeals or litigation processes. The
second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. We adjust reserves for
our uncertain tax positions due to changing facts and circumstances, such as the closing of a tax audit or refinement of estimates due to new information. To
the extent that the final outcome of these matters is different than the amounts recorded, such differences will impact our tax provision in our Consolidated
Statement of Operations in the period in which such determination is made.
We assess the likelihood that we will be able to realize our deferred tax assets. Should there be a change in our ability to realize our deferred tax
assets, our tax provision would increase in the period in which we determine that it is more likely than not that we cannot realize our deferred tax assets.
We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of
future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If it is more likely than not
that we will not realize our deferred tax assets, we will increase our provision for taxes by recording a valuation allowance against the deferred tax assets
that we estimate will not ultimately be realizable.
During fiscal 2020, we completed an intra-entity transfer of certain intellectual property rights and fixed assets to our Swiss subsidiary, which resulted
in the recognition of deferred tax assets and related tax benefits. Refer to Note 12 “Income Taxes” of Notes to Consolidated Financial Statements for more
information. The establishment of deferred tax assets from the intra-entity transfer of intangible assets required us to make significant estimates and
assumptions to determine the fair value of intellectual property rights transferred which include, but are not limited to, our expectations of growth rates in
revenue, margins, future cash flows, and discount rates. The accuracy of these estimates could be affected by unforeseen events or actual
70
results, and the sustainability of our future tax benefits is dependent upon the acceptance of these valuation estimates and assumptions by the taxing
authorities.
The U.S. Tax Cuts and Jobs Act includes provisions for certain foreign-sourced earnings referred to as Global Intangible Low-Taxed Income
(“GILTI”) which imposes a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. We have made the election to
record GILTI tax using the period cost method.
Common Stock Repurchase
We repurchase our own common stock from time to time under stock repurchase programs approved by our Board of Directors. We account for these
repurchases under the accounting guidance for equity where we allocate the total repurchase value that is in excess over par value between additional paid-
in capital and retained earnings. All shares repurchased are retired.
Recent Accounting Pronouncements
(i) New Accounting Updates Recently Adopted
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2021-08, “Business Combinations (Topic
805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities
acquired in a business combination to be recognized and measured in accordance with ASC 606, Revenue from Contracts with Customers as if the acquirer
had originated the contracts. The updated guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2022
on a prospective basis and early adoption is permitted. We early adopted this standard during 2022 which did not have a material impact on our
consolidated financial statements and related disclosures.
(ii) Recent Accounting Pronouncements Not Yet Effective
We continue to monitor new accounting pronouncements issued by the FASB and do not believe any of the recently issued accounting
pronouncements will have a material impact on our consolidated financial statements or related disclosures.
Note 2. Financial Instruments
Cash, Cash Equivalents and Marketable Securities
The following tables summarize our cash and cash equivalents, and marketable securities on our Consolidated Balance Sheet as of December 31,
2022 and 2021 (in thousands):
December 31, 2022
Cash
Money market funds
Corporate bonds
U.S. government treasury bonds
Asset-backed securities
Municipal bonds
U.S. government agency bonds
Total
Amortized
Cost
712,921 $
229,129
69,390
20,559
4,514
3,447
5,231
1,045,191 $
$
$
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Cash and Cash
Equivalents
Reported as:
Marketable
securities, short-
term
Marketable
securities, long-
term
— $
—
—
—
1
—
1
2 $
— $
—
(2,915)
(549)
(37)
(61)
(69)
(3,631) $
712,921 $
229,129
66,475
20,010
4,478
3,386
5,163
1,041,562 $
712,921 $
229,129
—
—
—
—
—
942,050 $
— $
—
36,510
15,404
2,909
2,711
—
57,534 $
—
—
29,965
4,606
1,569
675
5,163
41,978
71
December 31, 2021
Cash
Money market funds
Corporate bonds
U.S. government treasury bonds
Asset-backed securities
Municipal bonds
U.S. government agency bonds
Total
Amortized
Cost
754,802 $
343,012
115,507
42,976
32,031
7,628
1,201
1,297,157 $
$
$
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Cash and Cash
Equivalents
Reported as:
Marketable
securities, short-
term
Marketable
securities, long-
term
— $
—
9
—
—
—
—
9 $
— $
(2)
(398)
(48)
(40)
(15)
(1)
(504) $
754,802 $
343,010
115,118
42,928
31,991
7,613
1,200
1,296,662 $
754,802 $
343,010
1,042
—
—
516
—
1,099,370 $
— $
—
35,065
22,251
10,999
3,657
—
71,972 $
—
—
79,011
20,677
20,992
3,440
1,200
125,320
The following table summarizes the fair value of our available-for-sale marketable securities classified by contractual maturity as of December 31,
2022 and 2021 (in thousands):
Due in 1 year or less
Due in 1 year through 5 years
Total
December 31,
2022
2021
$
$
51,037 $
48,475
99,512 $
59,737
139,113
198,850
The securities that we invest in are generally deemed to be low risk based on their credit ratings from the major rating agencies. The longer the
duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As interest rates increase, those securities
purchased at a lower yield show a mark-to-market unrealized loss. Our unrealized losses as of December 31, 2022 and 2021 are primarily due to changes in
interest rates and credit spreads.
The following table summarizes the gross unrealized losses as of December 31, 2022, aggregated by investment category and length of time that
individual securities have been in a continuous loss position (in thousands):
Less than 12 months
As of December 31, 2022
12 Months of Greater
Total
December 31, 2022
Corporate bonds
U.S. government treasury bonds
Asset-backed securities
Municipal bonds
U.S. government agency bonds
Total
Fair Value
Unrealized Loss
Fair Value
Unrealized Loss
Fair Value
Unrealized Loss
$
$
10,639 $
5,262
2,636
—
3,017
21,554 $
(440) $
(177)
(17)
—
(5)
(639) $
54,634 $
14,748
1,275
2,412
1,136
74,205 $
(2,475)
(372)
(20)
(61)
(64)
(2,992)
$
$
65,273 $
20,010
3,911
2,412
4,153
95,759 $
(2,915)
(549)
(37)
(61)
(69)
(3,631)
As of December 31, 2021, all gross unrealized losses had been in an unrealized loss position for less than 12 months.
Investment in SmileDirectClub, LLC (“SDC”)
After tendering of our SDC equity interest in 2019, on July 3, 2019, we filed a demand for arbitration regarding SDC’s calculation of the “capital
account” balance. On March 12, 2021, the arbitrator ruled in our favor and against SDC and issued an award of $43.4 million along with interest. The gain
of $43.4 million was recognized as a part of our other income (expense), net in our Consolidated Statement of Operation during the year ended December
31, 2021.
72
Fair Value Measurements
The following tables summarize our financial assets measured at fair value as of December 31, 2022 and 2021 (in thousands):
Description
Cash equivalents:
Money market funds
Short-term investments:
U.S. government treasury bonds
Corporate bonds
Municipal bonds
Asset-backed securities
Long-term investments:
U.S. government treasury bonds
Corporate bonds
Municipal bonds
U.S. government agency bonds
Asset-backed securities
Description
Cash equivalents:
Money market funds
Corporate bonds
Municipal bonds
Short-term investments:
U.S. government treasury bonds
Corporate bonds
Municipal bonds
Asset-backed securities
Long-term investments:
U.S. government treasury bonds
Corporate bonds
Municipal bonds
U.S. government agency bonds
Asset-backed securities
Prepaid expenses and other current assets:
Israeli funds
Derivatives Not Designated as Hedging Instruments
Recurring foreign currency forward contracts
Balance as of December
31, 2022
Level 1
Level 2
$
229,129 $
229,129 $
15,404
36,510
2,711
2,909
4,606
29,965
675
5,163
1,569
328,641 $
15,404
—
—
—
4,606
—
—
—
—
249,139 $
$
Balance as of December
31, 2021
Level 1
Level 2
343,010 $
1,042
516
343,010 $
—
—
22,251
35,065
3,657
10,999
20,677
79,011
3,440
1,200
20,992
22,251
—
—
—
20,677
—
—
—
—
$
$
3,841
545,701 $
—
385,938 $
3,841
159,763
—
—
36,510
2,711
2,909
—
29,965
675
5,163
1,569
79,502
—
1,042
516
—
35,065
3,657
10,999
—
79,011
3,440
1,200
20,992
We enter into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on certain trade
and intercompany receivables and payables. These forward contracts are classified within Level 2 of the fair value hierarchy. As a result of the settlement
of foreign currency forward contracts, the net gain recognized during the year ended December 31, 2022 was not material and we recognized a net gain of
$18.8 million and a net loss of $22.1 million, during the year ended December 31, 2021 and 2020, respectively. As of December 31, 2022 and 2021, the fair
value of foreign exchange forward contracts outstanding was not material.
73
The following tables presents the gross notional value of all our foreign exchange forward contracts outstanding as of December 31, 2022 and 2021
(in thousands):
Euro
Polish Zloty
Canadian Dollar
Chinese Yuan
British Pound
Japanese Yen
Israeli Shekel
Swiss Franc
Brazilian Real
Mexican Peso
New Zealand Dollar
Australian Dollar
Czech Koruna
New Taiwan Dollar
Euro
Canadian Dollar
Chinese Yuan
Polish Zloty
Brazilian Real
Japanese Yen
British Pound
Israeli Shekel
Mexican Peso
Swiss Franc
Australian Dollar
December 31, 2022
Local Currency
Amount
Notional Contract
Amount (USD)
€186,900 $
PLN365,988
C$109,000
¥471,000
£41,200
¥6,200,000
ILS110,030
CHF25,000
R$141,200
M$230,000
NZ$6,000
A$4,000
Kč56,000
NT$60,000
$
200,010
83,307
80,514
68,223
49,677
47,196
31,383
27,165
26,839
11,746
3,806
2,721
2,469
1,959
637,015
December 31, 2021
Local Currency
Amount
Notional Contract
Amount (USD)
€165,110 $
C$99,800
¥494,500
PLN219,800
R$286,500
¥5,548,700
£34,740
ILS54,110
M$311,500
CHF9,950
A$6,900
$
186,358
78,018
77,358
54,014
50,894
48,206
46,881
17,416
15,133
10,883
5,009
590,170
Other foreign currency forward contract
Prior to the closing of the exocad acquisition on April 1, 2020, we entered into a Euro foreign currency forward contract with a notional contract
amount of €376.0 million. Relating to this forward contract, in 2020, we recognized a loss of $10.2 million within other income (expense), net in our
Consolidated Statement of Operations.
74
Note 3. Balance Sheet Components
Inventories consist of the following (in thousands):
Raw materials
Work in progress
Finished goods
Total inventories
Prepaid expenses and other current assets consist of the following (in thousands):
Value added tax receivables
Prepaid expenses
Other current assets
Total prepaid expenses and other current assets
Property, plant and equipment consist of the following (in thousands):
Clinical and manufacturing equipment
Building
Leasehold improvements
Computer software and hardware
Land
Furniture, fixtures and other
Construction in progress
Total
Less: Accumulated depreciation and impairment charges
Total property, plant and equipment, net
$
$
$
$
Generally Used Estimated
Useful Life
Up to 10 years
20 years
1
Lease term
3 years
—
2-5 years
—
December 31,
2022
2021
172,758 $
96,558
69,436
338,752 $
December 31,
2022
2021
140,484 $
69,124
16,762
226,370 $
123,234
51,706
55,290
230,230
93,610
70,218
31,477
195,305
December 31,
2022
2021
$
$
583,776 $
466,003
64,238
120,544
58,885
102,933
285,202
1,681,581
(449,726)
1,231,855 $
452,876
310,344
61,289
117,986
58,869
71,977
367,686
1,441,027
(359,101)
1,081,926
Shorter of the remaining lease term or the estimated useful lives of the assets
1
Depreciation was $109.8 million, $92.1 million and $80.1 million for the year ended December 31, 2022, 2021 and 2020, respectively.
Accrued liabilities consist of the following (in thousands):
Accrued payroll and benefits
Accrued income taxes
Accrued expenses
Accrued sales and marketing expenses
Current operating lease liabilities
Accrued property, plant and equipment
Other accrued liabilities
Total accrued liabilities
75
December 31,
2022
2021
$
$
149,508 $
74,323
64,341
36,407
26,574
19,922
83,299
454,374 $
288,355
33,838
67,169
41,387
22,719
46,561
107,286
607,315
Accrued warranty as of December 31, 2022 and 2021, which is included in the “Other accrued liabilities” category of the accrued liabilities table
above, consists of the following activity (in thousands):
Accrued warranty as of December 31, 2020
Charged to cost of net revenues
Actual warranty expenditures
Accrued warranty as of December 31, 2021
Charged to cost of net revenues
Actual warranty expenditures
Accrued warranty as of December 31, 2022
Deferred revenues consist of the following (in thousands):
Deferred revenues - current
1
Deferred revenues - long-term
Included in Other long-term liabilities within our Consolidated Balance Sheet
1
$
$
12,615
18,213
(14,659)
16,169
16,429
(14,725)
17,873
December 31,
2022
2021
$
1,343,643 $
160,662
1,152,870
136,684
During the year ended December 31, 2022 and 2021, we recognized $3,734.6 million and $3,952.6 million of net revenues, respectively, of which
$635.3 million and $481.1 million was included in the deferred revenues balance at December 31, 2021 and December 31, 2020, respectively.
Note 4. Leases
Lessee Information
We have operating leases for our digital treatment planning and office facilities, retail spaces, vehicles and office equipment. The components of lease
expenses consist of following (in thousands):
Lease Cost
1
Operating lease cost
2
Variable lease cost
Total lease cost
Year Ended December 31,
2022
2021
2020
$
$
37,919 $
22,084
60,003 $
33,241 $
11,134
44,375 $
27,825
1,429
29,254
Includes expense associated with short term leases of less than 12 months which is not material
1
Includes payments related to agreements with embedded leases that are not otherwise reflected on the balance sheet. These costs are primarily associated with our
2
manufacturing supply arrangements and fluctuate based on factory output and material price changes.
The following table provides a summary of our operating lease terms and discount rates:
Remaining Lease Term and Discount Rate
Weighted average remaining lease term (in years)
Weighted average discount rate
December 31,
2022
2021
7.2
3.5 %
7.8
3.2 %
76
As of December 31, 2022, the future payments related to our operating lease liabilities are as follows (in thousands):
Fiscal Year Ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less: Imputed interest
Total lease liabilities
Operating Leases
30,596
24,606
19,480
16,511
13,363
39,449
144,005
(17,097)
126,908
$
$
As of December 31, 2022, we had additional leases that have not yet commenced with future lease payments of $14.3 million. These leases will
commence during 2023 with non-cancelable lease terms of three to six years.
Lessor Information
We lease iTero intraoral scanners to customers which are classified as operating leases. Our portfolio of leased iTero scanners included in Property,
plant and equipment, net are as follows:
Scanners under operating leases, gross
Less: accumulated depreciation
Scanners under operating leases, net
As of December 31, 2022, the future lease payments due to us are as follows (in thousands):
Fiscal Year Ending December 31,
2023
2024
2025
Total lease payments
December 31,
2022
2021
$
$
22,914 $
(3,919)
18,995 $
10,927
(785)
10,142
Operating Leases
15,714
13,967
6,202
35,883
$
$
For the year ended December 31, 2022, operating lease income was $12.3 million and for the years ended December 31, 2021 and 2020, operating
lease income was not material.
77
Note 5. Goodwill and Intangible Assets
During the year ended December 31, 2022, we completed an immaterial business combination which increased goodwill and existing technology
intangible assets.
Goodwill
The change in the carrying value of goodwill for the year ended December 31, 2022 and 2021, categorized by reportable segments, is as follows (in
thousands):
Balance as of December 31, 2020
Additions from acquisition
Foreign currency translation adjustments
Balance as of December 31, 2021
Additions from acquisition
Foreign currency translation adjustments
Balance as of December 31, 2022
Clear Aligner
Systems and Services
Total
$
$
112,691 $
3,646
(4,129)
112,208
—
(2,728)
109,480 $
332,126 $
—
(25,787)
306,339
8,729
(16,997)
298,071 $
444,817
3,646
(29,916)
418,547
8,729
(19,725)
407,551
We completed our annual goodwill impairment assessments in 2022 and 2021 and determined there were no impairments.
Intangible Long-Lived Assets
Acquired intangible long-lived assets were as follows, excluding intangibles that were fully amortized (in thousands):
Existing technology
Customer relationships
Trademarks and tradenames
Patents
Foreign currency translation adjustments
1
Total intangible assets, net
Weighted Average
Amortization Period
(in years)
10
10
10
8
Gross Carrying Amount
as of
December 31, 2022
Accumulated
Amortization
Accumulated
Impairment Loss
Net Carrying
Value as of
December 31, 2022
$
$
112,051 $
21,500
17,200
6,511
157,262 $
(33,537) $
(5,913)
(6,442)
(5,288)
(51,180) $
(4,328) $
—
(4,122)
—
(8,450)
$
74,186
15,587
6,636
1,223
97,632
(1,912)
95,720
1
Also includes $33.5 million of fully amortized intangible assets related to customer relationships.
Existing technology
Customer relationships
Trademarks and tradenames
Patents
Foreign currency translation adjustments
Total intangible assets, net
Weighted Average
Amortization Period
(in years)
10
11
10
8
$
$
Gross Carrying
Amount as of
December 31, 2021
Accumulated
Amortization
Accumulated
Impairment Loss
Net Carrying
Value as of
December 31, 2021
104,531 $
55,000
17,200
6,511
183,242 $
(22,495) $
(25,891)
(4,547)
(4,495)
(57,428) $
(4,328) $
(10,751)
(4,179)
—
(19,258)
$
77,708
18,358
8,474
2,016
106,556
3,153
109,709
There were no triggering events in 2022 or 2021 that would cause impairments of our intangible long-lived assets.
78
The total estimated annual future amortization expense for these acquired intangible assets as of December 31, 2022 is as follows (in thousands):
Amortization
$
$
16,501
15,335
14,959
14,353
11,992
24,492
97,632
Fiscal Year
2023
2024
2025
2026
2027
Thereafter
Total
Amortization expense was $16.0 million, $16.6 million and $13.4 million for the year ended December 31, 2022, 2021 and 2020, respectively.
Note 6. Credit Facility
We have a credit facility that provides for a $300.0 million unsecured revolving line of credit, along with a $50.0 million letter of credit. On
December 23, 2022, we amended certain provisions in our credit facility which included extending the maturity date on the facility to December 23, 2027
and replacing the interest rate from the existing LIBOR with SOFR (“2022 Credit Facility”). The 2022 Credit Facility requires us to comply with specific
financial conditions and performance requirements. Loans under the 2022 Credit Facility bear interest, at our option, at either a rate based on the SOFR for
the applicable interest period or a base rate, in each case plus a margin. As of December 31, 2022, we had no outstanding borrowings under the 2022 Credit
Facility and were in compliance with the conditions and performance requirements in all material respects.
Note 7. Legal Proceedings
2019 Shareholder Derivative Lawsuit
In January 2019, three derivative lawsuits were filed in the U.S. District Court for the Northern District of California which were later consolidated,
purportedly on our behalf, naming as defendants the then current members of our Board of Directors along with certain of our executive officers. The
complaints assert various state law causes of action, including for breaches of fiduciary duty, insider trading, and unjust enrichment. The complaints seek
unspecified monetary damages on our behalf, which is named solely as a nominal defendant against whom no recovery is sought, as well as disgorgement
and the costs and expenses associated with the litigation, including attorneys’ fees. The consolidated action is currently stayed. Defendants have not yet
responded to the complaints.
On April 12, 2019, a derivative lawsuit was also filed in California Superior Court for Santa Clara County, purportedly on our behalf, naming as
defendants the members of our Board of Directors along with certain of our executive officers. The allegations in the complaint are similar to those in the
derivative suits described above. The matter is currently stayed. Defendants have not yet responded to the complaint.
We believe these claims are without merit. We are currently unable to predict the outcome of these lawsuits and therefore cannot determine the
likelihood of loss nor estimate a range of possible loss.
2020 Securities Class Action Lawsuit
On March 2, 2020, a class action lawsuit against us and two of our executive officers was filed in the U.S. District Court for the Southern District of
New York (later transferred to the U.S. District Court for the Northern District of California) on behalf of a purported class of purchasers of our common
stock. The complaint alleged claims under the federal securities laws and sought monetary damages in an unspecified amount and costs and expenses
incurred in the litigation. The lead plaintiff filed an amended complaint on August 4, 2020 against us and three of our executive officers alleging similar
claims as in the initial complaint on behalf of a purported class of purchasers of our common stock from April 25, 2019 to July 24, 2019. On March 29,
2021, defendants’ motion to dismiss the amended complaint was granted with leave for the lead plaintiff to file a further amended complaint. On April 22,
2021, lead plaintiff filed a notice stating it would not file a further amended complaint. On April 23, 2021, the Court dismissed the action with prejudice
and judgment was entered. Lead plaintiff filed a notice of appeal on April 28, 2021 and filed its opening appeal brief with the United States Court of
Appeals for the Ninth
79
Circuit on September 1, 2021. The defendants-appellees filed their answering brief on November 22, 2021. The lead plaintiff-appellant’s reply brief was
filed on January 12, 2022. Oral argument was held on March 10, 2022. On July 8, 2022, a panel of the Ninth Circuit affirmed the district court order
dismissing the complaint. On July 21, 2022, plaintiff-appellant filed a petition for rehearing or hearing en banc, which the court denied on August 15, 2022.
On November 14, 2022, the deadline for plaintiff-appellant to file a petition for writ of certiorari to the United States Supreme Court passed without
plaintiff-appellant filing a petition, finally resolving this matter in our favor.
Antitrust Class Actions
On June 5, 2020, a dental practice named Simon and Simon, PC doing business as City Smiles brought an antitrust action in the U.S. District Court
for the Northern District of California on behalf of itself and a putative class of similarly situated practices seeking monetary damages and injunctive relief
relating to our alleged market activities in alleged clear aligner and intraoral scanner markets. Plaintiff filed an amended complaint and added VIP Dental
Spas as a plaintiff on August 14, 2020. A jury trial is scheduled to begin in this matter on June 29, 2024. We believe the plaintiffs’ claims are without merit
and we intend to vigorously defend ourselves.
On May 3, 2021, an individual named Misty Snow brought an antitrust action in the U.S. District Court for the Northern District of California on
behalf of herself and a putative class of similarly situated individuals seeking monetary damages and injunctive relief relating to our alleged market
activities in alleged clear aligner and intraoral scanner markets. Plaintiff filed an amended complaint on July 30, 2021 adding new plaintiffs and various
state law claims. Plaintiffs filed a second amended complaint on October 21, 2021. On March 2, 2022, Plaintiffs filed a third amended complaint. On
October 3, 2022, Plaintiffs filed a fourth amended complaint. A jury trial is scheduled to begin in this matter on June 29, 2024 for issues related to Section
2 allegations. A jury trial is scheduled to begin in this matter on September 30, 2024 for issues related to Section 1 allegations. We believe the plaintiffs’
claims are without merit and we intend to vigorously defend ourselves.
We are currently unable to predict the outcome of these lawsuits and therefore we cannot determine the likelihood of loss, if any, nor estimate a range
of possible loss.
SDC Dispute
On August 27, 2020, we initiated a confidential arbitration proceeding against SmileDirectClub LLC (“SDC”) before the American Arbitration
Association in San Jose, California. This arbitration relates to the Strategic Supply Agreement (“Supply Agreement”) entered into between the parties in
2016. The complaint alleges that SDC breached the Supply Agreement’s terms, causing damages to us in an amount to be determined. On January 19,
2021, SDC filed a counterclaim alleging that we breached the Supply Agreement. On May 3, 2022, SDC filed an additional counterclaim alleging that we
breached the Supply Agreement. We deny SDC's allegations in the counterclaims and we intend to vigorously defend ourselves against them. The
arbitration hearing on our claims and SDC’s first counterclaim was held on July 18-27, 2022 in Chicago, Illinois.
On October 27, 2022, the arbitrator issued an interim award on our claims and SDC’s first counterclaim finding that SDC breached the Supply
Agreement, we did not breach the Supply Agreement, and SDC caused harm to us. Based on these findings, the arbitrator awarded us an interim award
that, when confirmed, may be material to our results in the quarter reported.
On December 2, 2022, SDC filed a motion to re-open the arbitrator’s interim award in Align’s favor. We anticipate recognizing the amount ultimately
realizable following confirmation of the final award.
The arbitration hearing on SDC’s second counterclaim was held on February 21-23, 2023 in Chicago, Illinois. We are currently unable to predict the
outcome of SDC’s second counterclaim and therefore cannot determine the likelihood of loss or success nor estimate a range of possible loss or success, if
any.
In addition to the above, in the ordinary course of our operations, we are involved in a variety of claims, suits, investigations, and proceedings,
including actions with respect to intellectual property claims, patent infringement claims, government investigations, labor and employment claims, breach
of contract claims, tax, and other matters. Regardless of the outcome, these proceedings can have an adverse impact on us because of defense costs,
diversion of management resources, and other factors. Although the results of complex legal proceedings are difficult to predict and our view of these
matters may change in the future as litigation and events related thereto unfold; we currently do not believe that these matters, individually or in the
aggregate, will materially affect our financial position, results of operations or cash flows.
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Note 8. Commitments and Contingencies
Unconditional Purchase Obligations
On October 30, 2020, we entered into a subscription agreement with a software company to renew our license for a total consideration of
$95.2 million. As of December 31, 2022, we had a remaining commitment of $23.8 million which is expected to be paid through 2024.
On December 6, 2020, we entered into a supply agreement for certain components used for our manufacturing operations. As of December 31, 2022,
we had purchase commitments of $85.8 million which is expected to be paid through 2025.
On June 24, 2021, we entered into an amended purchase agreement with an existing single source supplier which requires us to purchase aligner
material for a minimum amount of approximately $348.0 million from 2023 through 2026.
On March 11, 2022, we entered into an amended promotional rights agreement with a third-party which includes advertising and media coverage. As
of December 31, 2022, we had a remaining commitment of $60.0 million which is expected to be paid through 2026.
On December 9, 2022, we entered into a cloud services agreement to support our production operations and research and development efforts for
clinical applications which requires us to make minimum purchases totaling $145.0 million from 2023 through 2027.
Off-Balance Sheet Arrangements
As of December 31, 2022, we had no material off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material
effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources other than certain items disclosed in
the Unconditional Purchase Obligations section above.
Indemnification Provisions
In the normal course of business to facilitate transactions in our services and products, we indemnify certain parties: customers, vendors, lessors, and
other parties with respect to certain matters, including, but not limited to, services to be provided by us and intellectual property infringement claims made
by third parties. In addition, we have entered into indemnification agreements with our directors and our executive officers that will require us, among other
things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. Several of these agreements
limit the time within which an indemnification claim can be made and the amount of the claim.
It is not possible to make a reasonable estimate of the maximum potential amount under these indemnification agreements due to the unique facts and
circumstances involved in each particular agreement. Additionally, we have a limited history of prior indemnification claims and the payments we have
made under such agreements have not had a material adverse effect on our results of operations, cash flows or financial position. However, to the extent
that valid indemnification claims arise in the future, future payments by us could be significant and could have a material adverse effect on our results of
operations or cash flows in a particular period. As of December 31, 2022, we did not have any material indemnification claims that were probable or
reasonably possible.
Note 9. Stockholders’ Equity
Common Stock
The holders of common stock are entitled to receive dividends whenever funds are legally available and when and if declared by the Board of
Directors. We have never declared or paid dividends on our common stock.
Stock-Based Compensation Plans
Our 2005 Incentive Plan, as amended, provides for the granting of incentive stock options, non-statutory stock options, restricted stock, stock
appreciation rights, performance units and performance shares to employees, non-employee directors and consultants. Shares granted on or after May 16,
2013 as an award of restricted stock, restricted stock units, performance shares or performance units (“full value awards”) are counted against the
authorized share reserve as one and nine-tenths (1 9/10) shares for every one (1) share subject to the award, and any shares canceled that were counted as
one and nine-tenths against the plan reserve will be returned at the same ratio.
81
As of December 31, 2022, the 2005 Incentive Plan, as amended, has a total reserve of 27,783,379 shares for issuance of which 3,760,672 shares are
available for issuance. We issue new shares from our pool of authorized but unissued shares to satisfy the exercise and vesting obligations of our stock-
based compensation plans.
Summary of Stock-Based Compensation Expense
The stock-based compensation related to our stock-based awards and employee stock purchase plan for the year ended December 31, 2022, 2021 and
2020 is as follows (in thousands):
Cost of net revenues
Selling, general and administrative
Research and development
Total stock-based compensation
Year Ended December 31,
2022
2021
2020
$
$
6,438 $
103,134
23,795
133,367 $
5,633 $
90,659
18,044
114,336 $
4,719
78,500
15,208
98,427
The income tax benefit related to stock-based compensation was $14.9 million, $13.8 million and $11.9 million for the year ended December 31,
2022, 2021 and 2020, respectively.
Restricted Stock Units (“RSUs”)
The fair value of RSUs is based on our closing stock price on the date of grant. RSUs granted generally vest over a period of four years. A summary
for the year ended December 31, 2022 is as follows:
Unvested as of December 31, 2021
Granted
Vested and released
Forfeited
Unvested as of December 31, 2022
Weighted Average
Remaining
Contractual Term
(in years)
Aggregate
Intrinsic Value
(in thousands)
Number of Shares
Underlying RSUs
(in thousands)
Weighted Average
Grant Date Fair Value
369.17
469.12
333.76
437.05
492 $
248
(200)
(51)
489 $
427.23
1.2 $
103,138
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (calculated by multiplying our closing stock price on the
last trading day of 2022 by the number of unvested RSUs) that would have been received by the unit holders had all RSUs been vested and released as of
the last trading day of 2022. This amount will fluctuate based on the fair market value of our stock. During 2022, of the 199,832 shares vested and released,
59,115 shares were withheld for employee statutory tax obligations, resulting in a net issuance of 140,717 shares.
The total fair value of RSUs vested as of their respective vesting dates during 2022, 2021 and 2020 was $93.7 million, $158.8 million and $89.6
million, respectively. The weighted average grant date fair value of RSUs granted during 2022, 2021 and 2020 was $469.12, $600.10 and $267.24,
respectively. As of December 31, 2022, we expect to recognize $133.4 million of total unamortized compensation costs, net of estimated forfeitures, related
to RSUs over a weighted average period of 2.2 years.
Market-Performance Based Restricted Stock Units (“MSUs”)
We grant MSUs to members of senior management. Each MSU represents the right to one share of our common stock. The actual number of MSUs
which will be eligible to vest will be based on the performance of our stock price relative to the performance of a stock market index over the vesting
period. MSUs vest over a period of three years and the maximum number eligible to vest in the future is 250% of the MSUs initially granted.
82
The following table summarizes the MSU performance activity for the year ended December 31, 2022:
Unvested as of December 31, 2021
1
Granted
Vested and released
Forfeited
Unvested as of December 31, 2022
Weighted Average
Remaining
Contractual Term
(in years)
Aggregate
Intrinsic Value
(in thousands)
Number of Shares
Underlying MSUs
(in thousands)
Weighted Average
Grant Date Fair Value
551.57
607.96
396.10
744.39
174 $
101
(128)
(3)
144 $
725.73
1.0 $
30,384
1
Includes MSUs vested during the period above 100% of the grant as actual shares released is based on our stock performance over the vesting period
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (calculated by multiplying our closing stock price on the
last trading day of 2022 by the number of unvested MSUs) that would have been received by the unit holders had all MSUs been vested and released as of
the last trading day of 2022. This amount will fluctuate based on the fair market value of our stock. During 2022, of the 128,259 shares vested and released,
49,524 shares were withheld for employee statutory tax obligations, resulting in a net issuance of 78,735 shares.
The total fair value of MSUs vested as of their respective vesting dates during 2022, 2021 and 2020 was $64.0 million, $135.6 million and $47.1
million, respectively. As of December 31, 2022, we expect to recognize $40.1 million of total unamortized compensation costs, net of estimated forfeitures,
related to MSUs over a weighted average period of 1.0 year.
The fair value of MSUs is estimated at the grant date using a Monte Carlo simulation that includes factors for market conditions. The weighted
average assumptions used in the Monte Carlo simulation were as follows:
Expected term (in years)
Expected volatility
Risk-free interest rate
Expected dividends
Weighted average fair value per share at grant date
Restricted Stock Units with Performance Conditions (“PSUs”)
Year Ended December 31,
2022
2021
2020
3.0
53.8 %
1.7 %
—
915.22
$
3.0
56.3 %
0.2 %
—
1,102.09
$
3.0
44.4 %
1.4 %
—
392.67
$
In the fourth quarter of 2022, we granted PSUs to certain employees which are eligible to vest based on the achievement of project-based milestones
over a term of 2.2 years. Total PSUs granted were 4,728 and the weighted average grant date fair value for the PSUs was $201.63.
Employee Stock Purchase Plan (“ESPP”)
In May 2010, our stockholders approved the 2010 Employee Stock Purchase Plan (the “2010 Purchase Plan”) which consists of consecutive
overlapping twenty-four month offering periods with four six-month purchase periods in each offering period. Employees purchase shares at 85% of the
lower of the fair market value of the common stock at either the beginning of the offering period or the end of the purchase period. The 2010 Purchase Plan
will continue until terminated by either the Board of Directors or its administrator. The 2010 Purchase Plan also allows for purchase rights to employees
outside the U.S. and Canada with six-month offering periods and purchase periods. In May 2021, the 2010 Purchase Plan was amended and restated to
increase the maximum number of shares available for purchase to 4,400,000 shares.
The following table summarizes the ESPP shares issued:
Number of shares issued (in thousands)
Weighted average price
Year Ended December 31,
2022
2021
2020
$
86
305.24 $
131
195.44 $
116
175.69
As of December 31, 2022, 2,108,898 shares remain available for future issuance.
83
The fair value of the option component of the 2010 Purchase Plan shares was estimated at the grant date using the Black-Scholes option pricing
model with the following weighted average assumptions:
Expected term (in years)
Expected volatility
Risk-free interest rate
Expected dividends
Weighted average fair value at grant date
Year Ended December 31,
2022
2021
2020
1.5
50.2 %
1.8 %
—
159.44
$
1.1
52.7 %
0.1 %
—
246.84
$
$
1.0
55.0 %
0.9 %
—
96.94
We recognized stock-based compensation related to our employee stock purchase plan of $23.5 million, $12.2 million and $10.5 million for the year
ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, we expect to recognize $14.8 million of total unamortized
compensation costs related to future employee stock purchases over a weighted average period of 0.9 year.
Note 10. Common Stock Repurchase Programs
In May 2018, our Board of Directors authorized a plan to repurchase up to $600.0 million of our common stock (“May 2018 Repurchase Program”).
As of December 31, 2021, the authorization under the May 2018 Repurchase Program was completed. In May 2021, our Board of Directors authorized a
plan to repurchase up to $1.0 billion of our common stock (“May 2021 Repurchase Program”). As of December 31, 2022, we have $249.9 million available
for repurchases under the May 2021 Repurchase Program.
Subsequent to the fourth quarter, in January 2023, our Board of Directors authorized a plan to repurchase up to $1.0 billion of our common stock.
Accelerated Share Repurchase Agreements (“ASRs”)
We entered into ASRs providing for the repurchase of our common stock based on the volume-weighted average price during the term of the
agreement, less an agreed upon discount. Under the terms of the ASRs, the financial institution may be required to deliver additional shares of common
stock at final settlement or, under certain circumstances, we may be required at our election, to either deliver shares or make a cash payment to the financial
institution. The ASRs limit the number of shares we would be required to deliver.
The following table summarizes the information regarding repurchases of our common stock under ASRs:
Agreement
Date
Q2 2021
Q2 2021
Q3 2021
Q4 2021
Q2 2022
Q4 2022
Repurchase
Program
May 2018
May 2021
May 2021
May 2021
May 2021
May 2021
$
$
$
$
$
$
Amount Paid
(in millions)
100.0
100.0
75.0
100.0
200.0
200.0
Completion
Date
Q3 2021
Q3 2021
Q3 2021
Q4 2021
Q2 2022
1
N/A
Total Shares
Received
Average Price per
Share
171,322 $
161,707 $
109,239 $
150,031 $
756,502 $
848,266 $
583.70
618.40
686.91
666.53
264.37
188.62
1
As of December 31, 2022, the contract was open and we recorded the remaining equity forward contract at a fair value of $40.0 million which was included within
“Additional paid-in capital” in stockholders' equity in our Consolidated Balance Sheet. Subsequent to the fourth quarter, the ASR was completed and 0.1 million additional
shares were received at an average price per share of $293.15.
Subsequent to the fourth quarter, on February 3, 2023, we entered into an ASR to repurchase $250.0 million of our common stock, completing our
2021 Repurchase Program. We paid $250.0 million and received an initial delivery of approximately 0.6 million shares based on current market prices. The
final number of shares to be repurchased will be based on our volume-weighted average stock price under the terms of the ASR, less an agreed upon
discount.
84
Open Market Common Stock Repurchases
During the year ended December 31, 2022, we repurchased on the open market approximately 0.1 million shares of our common stock at an average
price of $522.61 per share, including commissions and fees, for an aggregate purchase price of $75.0 million.
Note 11. Employee Benefit Plans
We have defined contribution retirement plan under Section 401(k) of the Internal Revenue Code for our U.S. employees which covers substantially
all U.S. employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax
basis. We match 50% of our employee’s salary deferral contributions up to 6% of the employee’s eligible compensation. We contributed approximately
$10.0 million, $8.5 million and $6.9 million to the 401(k) plan during the year ended December 31, 2022, 2021 and 2020, respectively. We also have
defined contribution retirement plans outside of the U.S. to which we contributed $54.5 million, $42.3 million and $28.9 million during the year ended
December 31, 2022, 2021 and 2020, respectively.
Note 12. Income Taxes
Net income before provision for (benefit from) income taxes consists of the following (in thousands):
Domestic
Foreign
Net income before provision for (benefit from) income taxes
Year Ended December 31,
2022
2021
2020
$
$
268,097 $
330,960
599,057 $
378,478 $
633,945
1,012,423 $
173,099
205,850
378,949
The provision for (benefit from) income taxes consists of the following (in thousands):
Federal
Current
Deferred
State
Current
Deferred
Foreign
Current
Deferred
Provision for (benefit from) income taxes
85
Year Ended December 31,
2022
2021
2020
$
$
188,050 $
(55,579)
132,471
34,621
(12,265)
22,356
56,537
26,120
82,657
237,484 $
157,383 $
(25,598)
131,785
28,365
(5,860)
22,505
42,681
43,432
86,113
240,403 $
55,291
(11,749)
43,542
8,862
(2,121)
6,741
29,399
(1,476,621)
(1,447,222)
(1,396,939)
The differences between income taxes using the federal statutory income tax rate for 2022, 2021 and 2020 and our effective tax rates are as follows:
U.S. federal statutory income tax rate
State income taxes, net of federal tax benefit
U.S. tax on foreign earnings
Impact of differences in foreign tax rates
Stock-based compensation
Impact of intra-entity intellectual property rights transfer
Settlement on audits
Change in valuation allowance
Other items not individually material
Effective tax rate
Year Ended December 31,
2022
2021
2020
21.0 %
3.7
5.6
3.3
2.1
—
1.9
1.7
0.3
39.6 %
21.0 %
2.2
2.5
(2.0)
(0.3)
—
—
1.1
(0.8)
23.7 %
21.0 %
1.5
(1.2)
5.6
1.1
(395.6)
(1.4)
0.1
0.3
(368.6)%
We intend to continue reinvesting our foreign subsidiary earnings indefinitely and do not expect any additional costs that we may incur upon
repatriation of these foreign earnings to be significant.
During the year ended December 31, 2020, we completed an intra-entity transfer of certain intellectual property rights and fixed assets to our new
Swiss subsidiary, where our EMEA regional headquarters is located beginning January 1, 2020. The transfer of intellectual property rights did not result in
a taxable gain; however, it did result in a step-up of the Swiss tax deductible basis in the transferred assets, and accordingly, created a temporary difference
between the book basis and the tax basis of such intellectual property rights. Consequently, this transaction resulted in the recognition of a deferred tax
asset and related one-time tax benefit of approximately $1,493.5 million during the year ended December 31, 2020, which is the net impact of the deferred
tax asset recognized as a result of the additional Swiss tax deductible basis in the transferred assets and certain costs related to the transfer of fixed assets
and inventory.
As of December 31, 2022 and 2021, the significant components of our deferred tax assets and liabilities are (in thousands):
Deferred tax assets:
Net operating loss and capital loss carryforwards
Reserves and accruals
Stock-based compensation
Deferred revenue
Capitalized research & development
Amortizable tax basis in intangibles
Other
Deferred tax assets before valuation allowance
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Depreciation and amortization
Acquisition-related intangibles
Other
Total deferred tax liabilities
Net deferred tax assets
$
December 31,
2022
2021
15,380 $
32,759
19,469
117,039
54,293
1,350,434
16,645
1,606,019
(23,286)
1,582,733
11,407
26,008
3,438
40,853
1,541,880
11,069
47,641
13,576
83,514
413
1,392,471
15,645
1,564,329
(12,938)
1,551,391
12,328
28,989
6,931
48,248
1,503,143
The available positive evidence at December 31, 2022 included historical operating profits and a projection of future income sufficient to realize most
of our remaining deferred tax assets. As of December 31, 2022, it was considered more likely
86
than not that our deferred tax assets would be realized with the exception of certain net operating loss, capital loss carryovers and unrealized translation
losses as we are unable to forecast sufficient future profits to realize the deferred tax assets. The total valuation allowance as of December 31, 2022 was
$23.3 million. During the year ended December 31, 2022, the valuation allowance increased by $10.3 million primarily due to deferred tax assets related to
unrealized translation losses and net operating loss from one of our German subsidiaries and the deferred tax assets from our Russian commercial entity are
not more likely than not to be realized.
As of December 31, 2022, we have foreign net operating loss carryforwards of approximately $48.2 million, attributed mainly to losses in China,
Italy and Germany. The losses in Italy and Germany can be carried forward indefinitely. The operating loss carryforwards in China, if not utilized, will
expire beginning 2026.
The changes in the balance of gross unrecognized tax benefits, which exclude interest and penalties, for the year ended December 31, 2022, 2021 and
2020, are as follows (in thousands):
Gross unrecognized tax benefits at January 1,
Increases related to tax positions taken during the current year
Increases related to tax positions taken during a prior year
Decreases related to tax positions taken during a prior year
Decreases related to expiration of statute of limitations
Decreases related to settlement with tax authorities
Gross unrecognized tax benefits at December 31,
Year Ended December 31,
2022
2021
2020
$
$
63,295 $
84,249
15,411
(2,647)
(4,582)
(14,166)
141,560 $
46,320 $
27,710
5,471
(5,804)
(8,986)
(1,416)
63,295 $
46,650
20,592
10,201
(29,977)
—
(1,146)
46,320
The total amount of gross unrecognized tax benefits as of December 31, 2022 was $141.6 million, of which $134.3 million would impact our
effective tax rate if recognized.
We file U.S. federal, U.S. state, and non-U.S. income tax returns. Our major tax jurisdictions include U.S. federal, the State of California and
Switzerland. For U.S. federal and state tax returns, we are no longer subject to tax examinations for years before 2017 and 2015, respectively. Our Israeli
subsidiary was under tax audit for years 2016 through 2019. During the fourth quarter of 2022, we settled the audit with the Israel Tax Authority in
connection with a 2016 transaction to which our Israeli subsidiary was a party. As a result, we are no longer subject to tax examinations for years through
2021 in Israel. With few exceptions, we are no longer subject to examination by other foreign tax authorities for years before 2015.
We have elected to recognize interest and penalties related to unrecognized tax benefits as a component of income taxes. Interest and penalties
included in tax expense for the year ended December 31, 2022, 2021 and 2020 as well as accrued as of December 31, 2022 and 2021 were not material.
While we defend income tax audits in various jurisdictions and the results of such audits may differ materially from the amounts accrued for each year, we
cannot currently ascertain the bases on which any given audit will be ultimately resolved. Accordingly, we are unable to estimate the range of possible
adjustments to our balance of gross unrecognized tax benefits in the next 12 months.
Note 13. Net Income per Share
Basic net income per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net
income per share is computed using the weighted average number of shares of common stock, adjusted for any dilutive effect of potential common
stock. Potential common stock, computed using the treasury stock method, includes RSUs, MSUs, PSUs and our ESPP.
87
The following table sets forth the computation of basic and diluted net income per share attributable to common stock (in thousands, except per share
amounts):
Numerator:
Net income
Denominator:
Weighted average common shares outstanding, basic
Dilutive effect of potential common stock
Total shares, diluted
Net income per share, basic
Net income per share, diluted
Anti-dilutive potential common shares
1
$
$
$
Year Ended December 31,
2022
2021
2020
361,573 $
772,020 $
1,775,888
78,190
230
78,420
4.62 $
4.61 $
320
78,917
753
79,670
9.78 $
9.69 $
1
78,760
470
79,230
22.55
22.41
280
1
Represents stock-based awards not included in the calculation of diluted net income per share as the effect would have been anti-dilutive.
Note 14. Supplemental Cash Flow Information
The supplemental cash flow information consists of the following (in thousands):
Taxes paid
Non-cash investing and financing activities:
Acquisition of property, plant and equipment in accounts payable and
accrued liabilities
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
$
$
$
$
Note 15. Segments and Geographical Information
Segment Information
Year Ended December 31,
2022
2021
2020
231,884 $
203,309 $
76,332
35,767 $
64,135 $
31,015 $
29,769 $
34,144 $
68,463 $
37,267
26,022
47,981
We report segment information based on the management approach. The management approach designates the internal reporting used by our Chief
Operating Decision Maker for decision making and performance assessment as the basis for determining our reportable segments. The performance
measures of our reportable segments include net revenues, gross profit and income from operations. Income from operations for each segment includes all
geographic revenues, related cost of net revenues and operating expenses directly attributable to the segment. Certain operating expenses are attributable to
operating segments and each allocation is measured differently based on the specific facts and circumstances of the costs being allocated. Costs not
specifically allocated to segment income from operations generally include various corporate expenses such as stock-based compensation and costs related
to IT, facilities, human resources, accounting and finance, legal and regulatory, other separately managed general and administrative costs outside the
operating segments and restructuring costs. We group our operations into two reportable segments: Clear Aligner segment and Imaging Systems and
CAD/CAM services (“Systems and Services”) segment.
88
Summarized financial information by segment is as follows (in thousands):
Year Ended December 31,
2022
2021
2020
Net revenues
Clear Aligner
Systems and Services
Total net revenues
Gross profit
Clear Aligner
Systems and Services
Total gross profit
Income from operations
Clear Aligner
Systems and Services
Unallocated corporate expenses
Total income from operations
Stock-based compensation
Clear Aligner
Systems and Services
Unallocated corporate expenses
Total stock-based compensation
Depreciation and amortization
Clear Aligner
Systems and Services
Unallocated corporate expenses
Total depreciation and amortization
$
$
$
$
$
$
$
$
$
$
3,072,585 $
662,050
3,734,635 $
2,228,170 $
405,605
2,633,775 $
1,134,420 $
179,765
(671,590)
642,595 $
14,816 $
994
117,557
133,367 $
57,888 $
28,300
39,605
125,793 $
3,247,080 $
705,504
3,952,584 $
2,474,373 $
460,982
2,935,355 $
1,325,866 $
259,127
(608,593)
976,400 $
10,648 $
705
102,983
114,336 $
50,723 $
21,581
36,425
108,729 $
2,101,459
370,482
2,471,941
1,532,130
231,105
1,763,235
768,045
96,052
(476,926)
387,171
8,975
734
88,718
98,427
41,371
16,798
35,369
93,538
The following table reconciles total segment income from operations in the table above to net income before provision for (benefit from) income
taxes (in thousands):
Total segment income from operations
Unallocated corporate expenses
Total income from operations
Interest income
Other income (expense), net
Net income before provision for (benefit from) income taxes
Geographical Information
Net revenues are presented below by geographic area (in thousands):
1
Net revenues :
U.S.
Switzerland
Other International
Total net revenues
Year Ended December 31,
2022
2021
2020
1,314,185 $
(671,590)
642,595
5,367
(48,905)
599,057 $
1,584,993 $
(608,593)
976,400
3,103
32,920
1,012,423 $
864,097
(476,926)
387,171
3,125
(11,347)
378,949
Year Ended December 31,
2022
2021
2020
1,660,045 $
1,216,094
858,496
3,734,635 $
1,724,296 $
1,353,229
875,059
3,952,584 $
1,099,564
809,080
563,297
2,471,941
$
$
$
$
Net revenues are attributed to countries based on the location of where revenues are recognized by our legal entities.
1
89
Tangible long-lived assets, which includes Property, plant and equipment, net, and Operating lease right-of-use assets, net, are presented below by
geographic area (in thousands):
1
Long-lived assets :
Switzerland
U.S.
China
Other International
Total long-lived assets
December 31,
2022
2021
$
$
532,921 $
214,804
118,669
484,341
1,350,735 $
444,205
210,582
125,346
423,050
1,203,183
1
Long-lived assets are attributed to countries based on the location of our entity that owns or leases the assets.
Note 16. Restructuring and Other Charges
Restructuring Activities
During the fourth quarter of 2022, we initiated a restructuring plan to increase efficiencies across the organization which is expected to be completed
in the first half of 2023. We incurred approximately $10.2 million in restructuring expenses, of which $2.9 million was recorded in Cost of net revenues
and $7.3 million was recorded in Restructuring and other charges.
Activity related to the restructuring liabilities associated with our restructuring initiatives consist of the following (in thousands):
Restructuring charges
Cash payments
Non-cash charges
1
Balance as of December 31, 2022
1
Included in “Accrued liabilities” within our Consolidated Balance Sheet.
Other Charges
Severance and related costs
$
8,723 $
(4,807)
—
3,916 $
Impairment Charges
Total
1,453 $
—
(1,453)
— $
10,176
(4,807)
(1,453)
3,916
$
In addition to the restructuring charges, during the fourth quarter of 2022, we also incurred certain lease termination costs of $2.3 million and asset
impairments of $1.8 million which were also recorded in Restructuring and other charges.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we have
evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and
procedures are effective as of December 31, 2022 to provide reasonable assurance that information required to be disclosed by us in the reports that we file
or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission rules and forms.
Management's annual report on internal control over financial reporting.
See “Report of Management on Internal Control over Financial Reporting” of this Annual Report on Form 10-K.
90
Changes in internal control over financial reporting.
There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2022 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
PART III
Certain information required by Part III is omitted from this Form 10-K because we intend to file a definitive Proxy Statement for our 2023 Annual
Meeting of Stockholders (the “Proxy Statement”) not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and
certain information to be included therein is incorporated herein by reference.
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by Item 401 of Regulation S-K concerning our directors is incorporated by reference to the Proxy Statement under the
section captioned “Directors.” The information required by Item 401 of Regulation S-K concerning our executive officers is set forth in Item 1—
“Business” of this Annual Report on Form 10-K. The information required by Item 405 of Regulation S-K is incorporated by reference to the section
entitled “Delinquent Section 16(a) Reports” contained in the Proxy Statement. The information required by Item 407(c)(3), 407(d)(4) and 407(d)(5) of
Regulation S-K is incorporated by reference to the Proxy Statement under the section entitled “Corporate Governance”.
Code of Ethics
We have a code of ethics (which we call our Global Code of Conduct) that applies to all of our employees, including our principal executive officer,
principal financial officer and controller. Our Global Code of Conduct is posted on the investor relations portion of our website at
http://investor.aligntech.com within the section captioned “Corporate Governance”.
We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of this code of
ethics by posting such information on our website, at the address and location specified above, or as otherwise required by the NASDAQ Global Select
Market.
Item 11. Executive Compensation.
The information required by Item 402 of Regulation S-K is incorporated by reference to the Proxy Statement under the section captioned “Executive
Compensation - Compensation Discussion and Analysis.” The information required by Items 407(e)(4) and (e)(5) is incorporated by reference to the Proxy
Statement under the section captioned “Corporate Governance - Committee Oversight - Compensation Committee Interlocks and Insider Participation” and
“Compensation Committee of the Board Report,” respectively.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by Item 403 and Item 201(d) of Regulation S-K is incorporated by reference to the Proxy Statement under the sections
captioned “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information,” respectively.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by Item 404 and Item 407 of Regulation S-K is incorporated by reference to the Proxy Statement under the sections
captioned “Certain Relationships and Related Party Transactions” and “Corporate Governance—Board and Committee Independence and Qualifications,”
respectively.
91
Item 14. Principal Accountant Fees and Services.
The information required by Item 9(e) of Schedule 14A of the Securities Act of 1934, as amended, is incorporated by reference to the Proxy
Statement under the section captioned “Ratification of Appointment of Independent Registered Public Accountants.”
92
Item 15. Exhibit and Financial Statement Schedules.
(a)
Financial Statements
1.
Consolidated financial statements
PART IV
The following documents are filed as part of this Annual Report on Form 10-K:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the year ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income for the year ended December 31, 2022, 2021 and 2020
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Stockholders’ Equity for the year ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the year ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
56
58
59
60
61
62
63
2.
The following financial statement schedule is filed as part of this Annual Report on Form 10-K:
Schedule II—Valuation and Qualifying Accounts and Reserves for the year ended December 31, 2022, 2021 and 2020
All other schedules have been omitted as they are not required, not applicable, or the required information is otherwise included.
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Balance at
Beginning
of Period
Additions
(Reductions)
to Costs and
Expenses
Write
Offs
Balance at
End of Period
Allowance for doubtful accounts:
Year Ended December 31, 2020
Year Ended December 31, 2021
Year Ended December 31, 2022
Valuation allowance for deferred tax assets:
Year Ended December 31, 2020
Year Ended December 31, 2021
Year Ended December 31, 2022
$
$
$
$
$
$
(in thousands)
12,073 $
2,814 $
4,102 $
239 $
11,613 $
10,348 $
(8,590) $
(3,808) $
(3,004) $
— $
— $
— $
10,239
9,245
10,343
1,325
12,938
23,286
6,756 $
10,239 $
9,245 $
1,086 $
1,325 $
12,938 $
93
(b)
The following Exhibits are included in this Annual Report on Form 10-K:
Exhibit
Number
Description
3.1
Amended and Restated Certificate of Incorporation of registrant
3.1A
3.2
3.2A
4.1
4.2
10.1A†
10.2†
10.3†
10.3A†
10.4†
10.5†
10.6†
10.7†
10.8†
10.8A†
10.9†
10.9A†
10.10†
10.11†
10.12†
10.13†
10.14†
10.15†
10.16
Certificate of Amendment to the Amended and Restated Certificate of
Incorporation
Amended and Restated Bylaws of registrant
Amendment to Amended and Restated Bylaws of registrant
Form of Specimen Common Stock Certificate
Description of the Capital Stock of registrant
Registrant’s 2010 Employee Stock Purchase Plan (as amended and restated as
of May 19, 2021)
Registrant's 2005 Incentive Plan (as amended May 2016)
Form of RSU agreement under Registrant's 2005 Incentive Plan (Officer Form
for officers appointed after September 2016)
Form of RSU agreement under Registrant's 2005 Incentive Plan (Officer Form
for officers appointed prior to September 2016)
Form of RSU agreement (CEO)
Form of RSU agreement under Registrant's 2005 Incentive Plan (Non-employee
Director Form)
Align 2019 Global RSU Agreement
Form of option award agreement under registrant’s 2005 Incentive Plan
Form of Market Stock Unit Agreement under Registrant's 2005 Incentive Plan
(Officer Form for MSU awards granted in 2019, 2020 and 2022 to officers
appointed after September 2016)
Form of Market Stock Unit Agreement under Registrant's 2005 Incentive Plan
(Officer Form for MSU awards granted in 2019, 2020 and 2022 to officers
appointed prior to September 2016)
Form of Market Stock Unit Agreement under Registrant's 2005 Incentive Plan
(Officer Form for MSU awards granted in 2021 to officers appointed after
September 2016)
Form of Market Stock Unit Agreement under Registrant's 2005 Incentive Plan
(Officer Form for MSU awards granted in 2021 to officers appointed prior to
September 2016)
Form of Market Stock Unit Agreement for CEO (Focal grants)
Form of Employment Agreement entered into by and between registrant and
each executive officer (other than CEO for executives appointed prior to
September 2016)
Form of Employment Agreement entered into by and between registrant and
each executive officer (other than CEO for executives appointed after
September 2016)
Amended and Restated Chief Executive Officer Employment Agreement
between Align Technology, Inc. and Joseph Hogan
Employment Agreement between registrant and John F. Morici (Chief Financial
Officer)
Form of Indemnification Agreement by and between registrant and its Board of
Directors and its executive officers
Sale and Purchase Agreement between CETP III Ivory S.a.r.l., and Align
Technology, Inc. and its indirect wholly owned German subsidiary, mertus
602.GmbH, dated March 3, 2020
94
Form
S-1, as amended (File
No. 333-49932)
8-K
8-K
Def 14A
S-1, as amended (File
No. 333-49932)
10-K
8-K
10-K
10-K
10-K
10-K
10-K
10-K
10-Q
10-K
10-K
10-K
10-K
10-K
10-Q
10-K
10-Q
10-Q
S-1 as amended (File
No. 333-49932)
10-Q
Exhibit
Number
Incorporated
by Reference
herein
3.1
Filed
herewith
3.01
3.2
1.0
4.1
4.2
10.1
10.2
10.3
Date
12/28/2000
5/20/2016
2/29/2012
4/7/2021
1/17/2001
2/28/2020
5/20/2021
2/26/2021
2/28/2020
2/28/2020
10.3A
2/28/2020
2/28/2020
2/28/2019
8/4/2005
2/28/2020
10.4
10.5
10.6
10.4
10.8
2/28/2020
10.8A
2/26/2021
10.9
2/26/2021
10.9A
2/28/2020
5/8/2008
2/28/2017
5/1/2015
11/8/2016
1/17/2001
5/5/2020
10.9
10.3
10.8
10.30
10.2
10.15
10.1
Exhibit
Number
10.17
10.18
10.19
10.20
21.1
23.1
31.1
31.2
32t
101.INS
Description
Credit Agreement between Align Technology, Inc. and the lenders party thereto
from time to time and Citibank, N.A., as administrative agent, dated July 21,
2020
First Amendment, dated April 21, 2022, to Credit Agreement between Align
Technology, Inc. and the lenders party thereto from time to time and Citibank,
N.A., as administrative agent, dated July 21, 2020
Second Amendment, dated December 23, 2022, to Credit Agreement between
Align Technology, Inc. and the lenders party thereto from time to time and
Citibank, N.A., as administrative agent, dated July 21, 2020
Fixed Dollar Accelerated Share Repurchase Transaction between Goldman
Sachs & Co. LLC and Align Technology, Inc. dated October 28, 2022
Subsidiaries of Align Technology, Inc.
Consent of PricewaterhouseCoopers LLP, Independent Registered Public
Accounting Firm
Certifications of Chief Executive Officer pursuant to Exchange Act Rules 13a-
14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2003
Certifications of Chief Financial Officer pursuant to Exchange Act Rules 13a-
14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2003
Certification of Chief Executive Officer and Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2003
Inline XBRL Instance Document (the instance document does not appear in the
Interactive Data File because its XBRL tags are embedded within the Inline
XBRL document).
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL
101.DEF
101.LAB
101.PRE
104
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Definition Linkbase Document
Inline XBRL Taxonomy Extension Label Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (formatted as inline XBRL and contained in
Exhibit 101)
Form
10-Q
Date
10/30/2020
Exhibit
Number
Incorporated
by Reference
herein
10.1
Filed
herewith
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
__________________________________
†
t
Management contract or compensatory plan or arrangement filed as an Exhibit to this form pursuant to Items 14(a) and 14(c) of Form 10-K.
Furnished herewith
Item 16. Form 10-K Summary.
Not applicable.
95
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
ALIGN TECHNOLOGY, INC.
By:
Date:
/S/ JOSEPH M. HOGAN
Joseph M. Hogan
President and Chief Executive Officer
February 27, 2023
Each person whose signature appears below constitutes and appoints Joseph M. Hogan or John F. Morici, his or her attorney-in-fact, with the power
of substitution, for him or her in any and all capacities, to sign any amendments to this Report on Form 10-K and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature
Title
/S/ JOSEPH M. HOGAN
Joseph M. Hogan
/S/ JOHN F. MORICI
John F. Morici
/S/ KEVIN J. DALLAS
Kevin J. Dallas
/S/ JOSEPH LACOB
Joseph Lacob
/S/ C. RAYMOND LARKIN, JR.
C. Raymond Larkin, Jr.
/S/ GEORGE J. MORROW
George J. Morrow
/S/ ANNE M. MYONG
Anne M. Myong
/S/ ANDREA L. SAIA
Andrea L. Saia
/S/ GREG J. SANTORA
Greg J. Santora
/S/ SUSAN E. SIEGEL
Susan E. Siegel
/S/ WARREN S. THALER
Warren S. Thaler
President, Chief Executive Officer and Director (Principal
Executive Officer)
Chief Financial Officer and Executive Vice President, Global
Finance (Principal Financial Officer and Principal
Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
96
Date
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
Exhibit 10.18
FIRST AMENDMENT TO CREDIT AGREEMENT
FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of April 21, 2022 (this “First Amendment”), by and among
ALIGN TECHNOLOGY, INC., a Delaware corporation (the “Borrower”), certain Lenders (as defined below) party to the Credit Agreement
referred to below and Citibank, N.A., as administrative agent for the Lenders (the “Administrative Agent”).
W I T N E S S E T H:
WHEREAS, the Borrower, each Loan Party from time to time party thereto, the lenders from time to time party thereto (the
“Lenders”) and the Administrative Agent have entered into that certain Credit Agreement, dated as of July 21, 2020 (as amended, restated,
amended and restated, supplemented and/or otherwise modified from time to time through the date hereof, the “Credit Agreement”;
capitalized terms not otherwise defined in this First Amendment having the same meanings assigned thereto in the Credit Agreement);
WHEREAS, pursuant to Section 9.02 of the Credit Agreement, the Borrower has requested that the Credit Agreement be
amended as more fully described herein and each Lender party hereto is so willing to amend the Credit Agreement on the terms and subject
to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and
sufficiency of all of which is hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1.
Amendments to Credit Agreement.
(a)
Section 1.01 of the Credit Agreement is hereby amended by deleting the defined term “Projections” contained
therein.
(b)
Section 5.01(d) of the Credit Agreement is amended and restated in its entirety to read as follows:
“(d) [Reserved].”.
SECTION 2.
Representations and Warranties. The Borrower hereby represents and warrants on the First Amendment
Effective Date that:
(a)
The execution, delivery and performance by the Borrower of the First Amendment is within the Borrower’s
corporate power and has been duly authorized by all necessary corporate and, if required, stockholder action on the part of the Borrower.
(b)
The First Amendment has been duly executed and delivered by the Borrower and constitutes a legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity,
regardless of whether considered in a proceeding in equity or at law.
(c)
The execution, delivery and performance by the Borrower of the First Amendment (i) does not, on the part of the
Borrower or any of its Subsidiaries, require any consent or approval of, registration or filing with, or any other action by, any Governmental
Authority, except such
1
as have been obtained or made and are in full force and effect, (ii) will not violate any Requirement of Law applicable to the Borrower or any
of its Subsidiaries any order of any Governmental Authority applicable to the Borrower or any of its Subsidiaries, (iii) will not violate or
result in a default under, or give rise to a right to require any payment to be made by the Borrower or any of its Subsidiaries under, (A) any
indenture or loan agreement, in each case, evidencing Indebtedness in excess of $50 million, (B) any Swap Agreement with a Swap
Termination Value in excess of $50 million or (C) any other material agreement, in each case which is binding upon the Borrower or any of
its Subsidiaries or its assets, and (iv) will not result in the creation or imposition of any Lien on any asset of the Borrower or any of its
Subsidiaries, in each case of clauses (i), (ii) or (iii)(C), except as would not reasonably be expected to result in a Material Adverse Effect.
(d)
At the time of and immediately after the First Amendment Effective Date, no Default or Event of Default has
occurred and is continuing.
(e)
Immediately after giving effect to this First Amendment the representations and warranties of the Borrower set forth
in the Credit Agreement and in each other Loan Document are true and correct in all material respects with the same effect as though made
on and as of such date, except that (i) to the extent that such representations and warranties specifically refer to an earlier date, such
representations and warranties are true and correct in all material respects as of such earlier date and (ii) any representation and warranty that
is qualified as to “materiality” or “Material Adverse Effect” is true and correct in all respects.
SECTION 3.
Conditions of Effectiveness of the First Amendment. This First Amendment shall become effective as of
the date on which the following conditions shall have been satisfied (or waived) (the “First Amendment Effective Date”):
(a)
the Administrative Agent (or its legal counsel) shall have received counterparts to this First Amendment, duly
executed by (i) the Borrower and (ii) Lenders constituting the Required Lenders;
(b)
at the time of and immediately after the First Amendment Effective Date, no Default or Event of Default shall have
occurred or be continuing;
(c)
immediately after giving effect to this First Amendment, the representations and warranties of the Borrower set forth
in this First Amendment, the Credit Agreement and in each other Loan Document shall be true and correct in all material respects on and as
of the First Amendment Effective Date with the same effect as though made on and as of such date, except that (i) to the extent that such
representations and warranties specifically refer to an earlier date, such representations and warranties shall be true and correct in all material
respects as of such earlier date and (ii) any representation and warranty that is qualified as to “materiality” or “Material Adverse Effect” shall
be true and correct in all respects;
(d)
the Administrative Agent’s receipt of a certificate, in form and substance reasonably satisfactory to the
Administrative Agent and its legal counsel, dated as of the First Amendment Effective Date, signed by the chief financial officer of the
Borrower, certifying as to compliance with the conditions precedent set forth in clauses (b) and (c) of this Section 3; and
(e)
the Borrower shall pay or cause to be paid, without duplication, (i) the reasonable and documented fees and expenses
of Weil, Gotshal & Manges LLP, as counsel to the Administrative Agent and the Lenders, to the extent invoiced prior to the First Amendment
Effective Date and (ii)
2
reasonable out-of-pocket expenses required to be paid by Section 6 below to the extent invoiced prior to the First Amendment Effective Date.
SECTION 4.
Reference to and Effect on the Credit Agreement and the other Loan Documents.
(a)
On and after the First Amendment Effective Date, each reference in the Credit Agreement to “this Agreement,”
“hereunder,” “hereof” or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement, as
amended by this First Amendment.
(b)
The Credit Agreement and each of the other Loan Documents, as specifically amended by this First Amendment, are
and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed.
(c)
The execution, delivery and effectiveness of this First Amendment shall not, except as expressly provided herein,
operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Loan Documents, nor
constitute a waiver of any provision of any of the Loan Documents. On and after the First Amendment Effective Date, this First Amendment
shall for all purposes constitute a Loan Document.
(d)
This First Amendment shall not extinguish the Loans or any other Obligations outstanding under the Credit
Agreement. Nothing contained herein shall be construed as a substitution or novation of the Loans or any other Obligations outstanding
under the Credit Agreement, which shall remain outstanding after the First Amendment Effective Date as modified hereby.
(e)
The Borrower expressly acknowledges and agrees that (i) there has not been, and this First Amendment does not
constitute or establish, a novation with respect to the Credit Agreement or any other Loan Document, or a mutual departure from the strict
terms, provisions, and conditions thereof and (ii) nothing in this First Amendment shall affect or limit the Administrative Agent’s or Lenders’
right to demand payment of liabilities owing from Borrower to Administrative Agent or the Lenders under, or to demand strict performance
of the terms, provisions and conditions of, the Credit Agreement and the other Loan Documents, to exercise any and all rights, powers, and
remedies under the Credit Agreement or the other Loan Documents or at law or in equity, or to do any and all of the foregoing, immediately
at any time after the occurrence and continuance of an Event of Default under the Credit Agreement or the other Loan Documents.
(f)
This First Amendment is a Loan Document executed pursuant to the Credit Agreement and shall be construed,
administered and applied in accordance with the terms and provisions thereof.
SECTION 5.
Reaffirmation. The Borrower hereby reaffirms its obligations under the Credit Agreement and each other
Loan Document, in each case as amended by this First Amendment.
SECTION 6.
Costs and Expenses. The Borrower hereby agrees to pay or reimburse the Administrative Agent for its
reasonable and documented out-of-pocket costs and expenses incurred in connection with this First Amendment in accordance with, and to
the extent required by, the terms and conditions of Section 9.03 of the Credit Agreement.
3
SECTION 7.
Execution in Counterparts. This First Amendment may be executed in counterparts (and by different
parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a
single contract. Delivery of an executed counterpart of a signature page of this First Amendment by telecopy, emailed .pdf or any other
electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed
counterpart of this First Amendment. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to any
document to be signed in connection with this First Amendment and the transactions contemplated hereby or thereby shall be deemed to
include Electronic Signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity
or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case
may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National
Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic
Transactions Act.
SECTION 8.
Governing Law.
(a)
This First Amendment shall be governed by and construed in accordance with the laws of the State of New York
(b)
The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive
jurisdiction of any U.S. Federal or New York State court sitting in New York, New York in any action or proceeding arising out of or relating
to this First Amendment or the transactions contemplated hereby, or for recognition or enforcement of any judgment, and each of the parties
hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined
in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this First Amendment shall affect any right that the Administrative Agent or any Lender may otherwise have to
bring any action or proceeding relating to this First Amendment or the transactions contemplated hereby against the Borrower or its
properties in the courts of any jurisdiction.
(c)
The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this
First Amendment and the transactions contemplated hereby in any court referred to in clause (b) of this Section 8. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
SECTION 9.
Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS FIRST AMENDMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO
(A) CERTIFIES THAT NO REPRESENTATIVE, OTHER AGENT (INCLUDING ANY ATTORNEY) OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION,
SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO
HAVE BEEN INDUCED TO ENTER INTO THIS
4
FIRST AMENDMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.
SECTION 10. Headings. Section headings herein are included for convenience of reference only and shall not affect the
interpretation of this First Amendment.
SECTION 11. Required Lender Direction. The Lenders party hereto, who constitute all Lenders, hereby direct the
Administrative Agent to execute and deliver this First Amendment.
[Signature Pages Follow]
5
thereunto duly authorized, as of the date first above written.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be executed by their respective officers
ALIGN TECHNOLOGY, INC.,
as the Borrower
By: /s/ John Morici
Name: John Morici
Title: Chief Financial Officer and EVP, Global Finance
[Signature Page to First Amendment to Credit Agreement (Align Technologies)]15
CITIBANK, N.A.,
as a Lender and as Administrative Agent
By: /s/ Michael Chen
Name: Michael Chen
Title: Authorized Signer
[Signature Page to First Amendment to Credit Agreement (Align Technologies)]15
Bank of America, N.A.,
as a Lender
By: /s/ Sebastian Lurie
Name: Sebastian Lurie
Title: SVP
[Signature Page to First Amendment to Credit Agreement (Align Technologies)]15
HSBC Bank USA, N.A.,
as a Lender
By: /s/ Radmila Stolle
Name: Radmila Stolle
Title: Senior Vice President
[Signature Page to First Amendment to Credit Agreement (Align Technologies)]15
Exhibit 10.19
SECOND AMENDMENT TO CREDIT AGREEMENT
SECOND AMENDMENT TO CREDIT AGREEMENT, dated as of December 23, 2022
(this “Second Amendment”), by and among ALIGN TECHNOLOGY, INC., a Delaware corporation (the “Borrower”), the Lenders (as
defined below) party to the Existing Credit Agreement referred to below and Citibank, N.A., as administrative agent for the Lenders (in
such capacity, the “Administrative Agent”).
W I T N E S S E T H:
WHEREAS, the Borrower, each Loan Party from time to time party thereto, the lenders from time to time party thereto
(the “Lenders”) and the Administrative Agent have entered into that certain Credit Agreement, dated as of July 21, 2020 (as amended by
that certain First Amendment to Credit Agreement, dated as of April 21, 2022, and as further amended, restated, amended and restated,
supplemented and/or otherwise modified from time to time and in effect immediately prior to the Second Amendment Effective Date (as
defined below), the “Existing Credit Agreement”; capitalized terms used in this Second Amendment and not otherwise defined in this
Second Amendment have the same meanings assigned thereto in the Amended Credit Agreement (as defined below));
WHEREAS, pursuant to Section 9.02 of the Existing Credit Agreement, the Borrower has requested that the Existing
Credit Agreement be amended to, among other things, (i) extend the Revolving Credit Termination Date from July 21, 2023 to a date that
is five (5) years from the Second Amendment Effective Date (as defined below), (ii) replace the existing LIBO Rate based benchmark
interest rate with a Term SOFR based benchmark interest rate, (iii) reduce (x) the Applicable Rate which corresponds to certain Total
Leverage Ratio levels and (y) the benchmark interest rate floor and (iv) modify the existing financial covenants;
WHEREAS, the Borrower, each Lender party hereto (who collectively constitute all Lenders as of the date hereof) and the
Administrative Agent have agreed, subject to the terms and conditions herein, to amend the Existing Credit Agreement as hereinafter set
forth (the Existing Credit Agreement as amended by this Second Amendment, the “Amended Credit Agreement”) in accordance with
Section 9.02 of the Existing Credit Agreement; and
sufficiency of all of which is hereby acknowledged, the parties hereto hereby agree as follows:
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and
SECTION 1. Amendments to Existing Credit Agreement.
(a)
Effective as of, and subject to the occurrence of, the Second Amendment Effective Date (as defined below), the
Existing Credit Agreement is hereby amended to delete the stricken text (indicated textually in the same manner as the following example:
stricken text) and to add the double- underlined text (indicated textually in the same manner as the following example: double-underlined
text) as set forth in the form of Amended Credit Agreement attached as Exhibit A hereto.
Effective as of, and subject to the occurrence of, the Second Amendment Effective Date (as defined below), Exhibit
F to the Existing Credit Agreement (Form of Borrowing Notice) is hereby amended and restated in its entirety in the form attached hereto
as Exhibit B.
(b)
Effective as of, and subject to the occurrence of, the Second Amendment Effective Date (as defined below), Exhibit
G to the Existing Credit Agreement (Form of Notice Of Continuation/Conversion) is hereby amended and restated in its entirety in the
form attached hereto as Exhibit C.
(c)
1
Effective Date that:
SECTION 2. Representations and Warranties. The Borrower hereby represents and warrants on the Second Amendment
corporate power and has been duly authorized by all necessary corporate and, if required, stockholder action on the part of the Borrower.
(a)
The execution, delivery and performance by the Borrower of the Second Amendment is within the Borrower’s
(b)
The Second Amendment has been duly executed and delivered by the Borrower and constitutes a legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity,
regardless of whether considered in a proceeding in equity or at law.
(c)
The execution, delivery and performance by the Borrower of the Second Amendment (i) does not, on the part of the
Borrower or any of its Subsidiaries, require any consent or approval of, registration or filing with, or any other action by, any
Governmental Authority, except such as have been obtained or made and are in full force and effect, (ii) will not violate any Requirement
of Law applicable to the Borrower or any of its Subsidiaries any order of any Governmental Authority applicable to the Borrower or any
of its Subsidiaries, (iii) will not violate or result in a default under, or give rise to a right to require any payment to be made by the
Borrower or any of its Subsidiaries under, (A) any indenture or loan agreement, in each case, evidencing Indebtedness in excess of $100
million, (B) any Swap Agreement with a Swap Termination Value in excess of $100 million or (C) any other material agreement, in each
case which is binding upon the Borrower or any of its Subsidiaries or its assets, and (iv) will not result in the creation or imposition of any
Lien on any asset of the Borrower or any of its Subsidiaries, in each case of clauses (i), (ii) or (iii)(C), except as would not reasonably be
expected to result in a Material Adverse Effect.
occurred and is continuing.
(d)
At the time of and immediately after the Second Amendment Effective Date, no Default or Event of Default has
(e)
Immediately after giving effect to this Second Amendment the representations and warranties of the Borrower set
forth in the Amended Credit Agreement and in each other Loan Document are true and correct in all material respects with the same effect
as though made on and as of such date, except that (i) to the extent that such representations and warranties specifically refer to an earlier
date, such representations and warranties are true and correct in all material respects as of such earlier date and (ii) any representation and
warranty that is qualified as to “materiality” or “Material Adverse Effect” is true and correct in all respects.
SECTION 3. Conditions of Effectiveness of the Second Amendment. This Second Amendment shall become effective as
of the date on which the following conditions shall have been satisfied (or waived by the Lenders party hereto and the Administrative
Agent) (the “Second Amendment Effective Date”):
executed by (i) the Borrower and (ii) all Lenders as of the date hereof;
(a)
the Administrative Agent (or its legal counsel) shall have received counterparts to this Second Amendment, duly
have occurred or be continuing;
(b)
at the time of and immediately after the Second Amendment Effective Date, no Default or Event of Default shall
immediately after giving effect to this Second Amendment, the representations and warranties of the Borrower set
forth in this Second Amendment, the Amended Credit Agreement and in each other Loan Document shall be true and correct in all
material respects on and as of the Second
(c)
2
Amendment Effective Date with the same effect as though made on and as of such date except that (i) to the extent that such
representations and warranties specifically refer to an earlier date, such representations and warranties shall be true and correct in all
material respects as of such earlier date and (ii) any representation and warranty that is qualified as to “materiality” or “Material Adverse
Effect” shall be true and correct in all respects;
(d)
the Administrative Agent shall have received (i) a certificate (in form and substance satisfactory to the
Administrative Agent) of each Loan Party, dated the Second Amendment Effective Date and executed by its Secretary or Assistant
Secretary, which shall (A) certify the resolutions of its board of directors, members or other body authorizing the execution, delivery and
performance of this Second Amendment, (B) identify by name and title and bear the signatures of the Financial Officers and any other
officers of such Loan Party authorized to sign the Loan Documents to which it is a party and
(C) contain appropriate attachments, including the certificate or articles of incorporation or organization of such Loan Party and a true and
correct copy of its by-laws or operating, management or partnership agreement of such Loan Party, and (ii) a good standing certificate
dated as of the Effective Date for each Loan Party from its jurisdiction of organization;
the Administrative Agent shall have received the results of recent customary lien searches (including with respect
to intellectual property), and such searches shall reveal no liens on any of the assets of the Loan Parties except for liens permitted by
Section 6.02 of the Existing Credit Agreement;
(e)
the Administrative Agent shall have received a solvency certificate from a Financial Officer of the Borrower
substantially in the form of Exhibit D to the Existing Credit Agreement attesting to the solvency of the Loan Parties (taken as a whole) on
the Second Amendment Effective Date after giving effect to the transactions contemplated hereby;
(f)
the Administrative Agent shall have received a customary legal opinion of Wilson Sonsini Goodrich & Rosati, P.C.
in respect of this Second Amendment, in its capacity as counsel to the Loan Parties, which legal opinion shall be addressed to the
Administrative Agent and the Lenders; and
(g)
(h)
at least three (3) Business Days prior to the Second Amendment Effective Date, the Borrower and each of the other
Loan Parties shall have provided to the Administrative Agent or the Lenders the documentation and other information theretofore
requested in writing by the Administrative Agent or the Lenders at least five (5) Business Days prior to the Second Amendment Effective
Date that is required by regulatory authorities under the applicable “know your customer” and anti-money laundering rules and
regulations, including the USA PATRIOT ACT;
and payable on the Second Amendment Effective Date; and
(i)
the Borrower shall have paid all fees set forth in the Second Amendment Engagement and Fee Letter that are due
(j)
the Borrower shall pay or cause to be paid, without duplication, (i) the reasonable and documented fees and
expenses of Weil, Gotshal & Manges LLP, as counsel to the Administrative Agent and the Lenders, to the extent invoiced prior to the
Second Amendment Effective Date and (ii) reasonable out-of-pocket expenses required to be paid by Section 6 below to the extent
invoiced prior to the Second Amendment Effective Date.
SECTION 4. Reference to and Effect on the Existing Credit Agreement and the other Loan Documents.
Agreement,” “hereunder,” “hereof” or words of like import referring
(a)
On and after the Second Amendment Effective Date, each reference in the Amended Credit Agreement to “this
3
to the Amended Credit Agreement shall mean and be a reference to the Existing Credit Agreement, as amended by this Second
Amendment.
Amendment, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed.
(b)
The Existing Credit Agreement and each of the other Loan Documents, as specifically amended by this Second
(c)
The execution, delivery and effectiveness of this Second Amendment shall not, except as expressly provided
herein, operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Loan Documents,
nor constitute a waiver of any provision of any of the Loan Documents. On and after the Second Amendment Effective Date, this Second
Amendment shall for all purposes constitute a Loan Document.
(d)
This Second Amendment shall not extinguish the Loans or any other Obligations outstanding under the Existing
Credit Agreement. Nothing contained herein shall be construed as a substitution or novation of the Loans or any other Obligations
outstanding under the Existing Credit Agreement, which shall remain outstanding after the Second Amendment Effective Date as modified
hereby.
(e)
The Borrower expressly acknowledges and agrees that (i) there has not been, and this Second Amendment does not
constitute or establish, a novation with respect to the Existing Credit Agreement or any other Loan Document, or a mutual departure from
the strict terms, provisions, and conditions thereof and (ii) nothing in this Second Amendment shall affect or limit the Administrative
Agent’s or Lenders’ right to demand payment of liabilities owing from Borrower to Administrative Agent or the Lenders under, or to
demand strict performance of the terms, provisions and conditions of, the Amended Credit Agreement and the other Loan Documents, to
exercise any and all rights, powers, and remedies under the Amended Credit Agreement or the other Loan Documents or at law or in
equity, or to do any and all of the foregoing, immediately at any time after the occurrence and continuance of an Event of Default under
the Amended Credit Agreement or the other Loan Documents.
construed, administered and applied in accordance with the terms and provisions thereof.
(f)
This Second Amendment is a Loan Document executed pursuant to the Existing Credit Agreement and shall be
other Loan Document, in each case as amended by this Second Amendment.
SECTION 5. Reaffirmation. The Borrower hereby reaffirms its obligations under the Existing Credit Agreement and each
SECTION 6. Costs and Expenses. The Borrower hereby agrees to pay or reimburse the Administrative Agent for its
reasonable and documented out-of-pocket costs and expenses incurred in connection with this Second Amendment in accordance with,
and to the extent required by, the terms and conditions of Section 9.03 of the Amended Credit Agreement and/or the Second Amendment
Engagement and Fee Letter.
SECTION 7. Execution in Counterparts. This Second Amendment may be executed in counterparts (and by different
parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a
single contract. Delivery of an executed counterpart of a signature page of this Second Amendment by telecopy, emailed .pdf or any other
electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed
counterpart of this Second Amendment. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating
to any document to be signed in connection with this Second Amendment and the transactions contemplated hereby or thereby shall be
deemed to include
4
Electronic Signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or
enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case
may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National
Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform
Electronic Transactions Act.
SECTION 8. Governing Law.
York
(a)
This Second Amendment shall be governed by and construed in accordance with the laws of the State of New
(b)
The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive
jurisdiction of any U.S. Federal or New York State court sitting in New York, New York in any action or proceeding arising out of or
relating to this Second Amendment or the transactions contemplated hereby, or for recognition or enforcement of any judgment, and each
of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be
heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees
that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Second Amendment shall affect any right that the Administrative Agent
or any Lender may otherwise have to bring any action or proceeding relating to this Second Amendment or the transactions contemplated
hereby against the Borrower or its properties in the courts of any jurisdiction.
(c)
The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to
this Second Amendment and the transactions contemplated hereby in any court referred to in clause (b) of this Section 8. Each of the
parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.
SECTION 9. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS SECOND AMENDMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO
(A) CERTIFIES THAT NO REPRESENTATIVE, OTHER AGENT (INCLUDING ANY ATTORNEY) OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION,
SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO
HAVE BEEN INDUCED TO ENTER INTO THIS SECOND AMENDMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.
interpretation of this Second Amendment.
SECTION 10. Headings. Section headings herein are included for convenience of reference only and shall not affect the
Agent to execute and deliver this Second Amendment.
SECTION 11. Lender Direction. The Lenders party hereto, who constitute all Lenders, hereby direct the Administrative
[Signature Pages Follow]
5
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be executed by their respective
officers thereunto duly authorized, as of the date first above written.
ALIGN TECHNOLOGY, INC.,
as the Borrower
By: /s/ John Morici
Name: John Morici
Title: Chief Financial Officer and
Executive Vice President, Global Finance
[Signature Page to Second Amendment to Credit Agreement (Align Technology, Inc.)]
CITIBANK, N.A.,
as a Lender and as Administrative Agent
By: /s/ Michael Chen
Name: Michael Chen
Title: Authorized Signer
[Signature Page to Second Amendment to Credit Agreement (Align Technology, Inc.)]
BANK OF AMERICA, N.A.,
as a Lender
By: /s/Kenneth Wong
Name: Kenneth Wong
Title: Senior Vice President
[Signature Page to Second Amendment to Credit Agreement (Align Technology, Inc.)]
HSBC BANK USA, N.A., individually as a Lender
By: /s/ Radmila Stolle
Name: Radmila Stolle
Title: SVP, Global Relationship Manager
[Signature Page to Second Amendment to Credit Agreement (Align Technology, Inc.)]
Exhibit A
(See attached.)
Conformed for First Amendment to Credit Agreement
EXECUTION VERSION
Annex A
CREDIT AGREEMENT
dated as of July 21, 2020
(as amended by that certain First Amendment to Credit Agreement, dated as of April 21, 2022) and
that certain Second Amendment to Credit Agreement, dated as of December 23, 2022)
among
ALIGN TECHNOLOGY, INC.,
The other Loan Parties Party Hereto, The Lenders Party
Hereto,
and
CITIBANK, N.A.,
as Administrative Agent
CITIBANK, N.A.,
as Sole Lead Arranger and Sole Bookrunner
BANK OF AMERICA, N.A.
and
HSBC BANK USA, N.A.,
as Co-Syndication Agents
ARTICLE I
Section 1.01
Section 1.02
Section 1.03
Section 1.04
Section 1.05
Section 1.06
Section 1.07
Section 1.08
Section 1.09
Section 1.10
ARTICLE II
Section 2.01
Section 2.02
Section 2.03
Section 2.04
Section 2.05
Section 2.06
Section 2.07
Section 2.08
Section 2.09
Section 2.10
Section 2.11
Section 2.12
Section 2.13
Section 2.14
Section 2.15
Section 2.16
Section 2.17
Section 2.18
Section 2.19
Section 2.20
Section 2.21
Section 2.22
Section 2.23
Section 2.24
Section 2.25
Article III
Section 3.01
Section 3.02
TABLE OF CONTENTS
DEFINITIONS
Defined Terms
Classification of Loans and Borrowings
Terms Generally
Accounting Terms; GAAP
Status of Obligations
Financial Ratios
Limited Liability Companies
Calculations
Rates
Limited Liability Companies
THE CREDITS
Commitments
Loans and Borrowings
Requests for Borrowings
Swingline Loans
[Section intentionally omitted]
[Reserved]
Letter of Credit
Funding of Borrowings
Interest Elections
Termination and Reduction of Commitments
Repayment of Loans; Evidence of Debt
Prepayment of Loans
Fees
Interest
Alternate Rate of Interest; Illegality
Increased Costs
Break Funding Payments
Withholding of Taxes; Gross-Up
Payments Generally; Allocation of Proceeds; Sharing of Setoffs
Mitigation Obligations; Replacement of Lenders
Defaulting Lenders
Returned Payments
Increase of Commitments
[Reserved]
[Reserved]
Effect of a Benchmark Transition Event
REPRESENTATIONS AND WARRANTIES
Organization; Powers
Authorization; Enforceability
ii
Page
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31
32
32
32
32
33
33
33
33
34
34
36
36
41
41
42
43
44
44
45
46
47
48
48
52
54
55
56
57
58
58
58
59
59
59
1
1
32
32
33
33
34
34
34
34
35
35
35
35
36
37
38
38
43
43
45
45
46
47
48
49
50
51
51
55
57
58
59
60
61
61
61
62
62
62
Section 3.03
Section 3.04
Section 3.05
Section 3.06
Section 3.07
Section 3.08
Section 3.09
Section 3.10
Section 3.11
Section 3.12
Section 3.13
Section 3.14
Section 3.15
Section 3.16
Section 3.17
Section 3.18
Section 3.19
Section 3.20
ARTICLE IV
Section 4.01
Section 4.02
ARTICLE V
Section 5.01
Section 5.02
Section 5.03
Section 5.04
Section 5.05
Section 5.06
Section 5.07
Section 5.08
Section 5.09
Section 5.10
Section 5.11
Section 5.12
Section 5.13
Section 5.14
Section 5.15
ARTICLE VI
Section 6.01
Section 6.02
Section 6.03
Section 6.04
Section 6.05
Governmental Approvals; No Conflicts
Financial Condition; No Material Adverse Change
Properties
Litigation and Environmental Matters
Compliance with Laws and Agreements; No Default
Investment Company Status
Taxes
ERISA
Disclosure
Capitalization and Subsidiaries
[Reserved]
Federal Reserve Regulations
Anti-Corruption Laws and Sanctions; USA Patriot Act
Not an Affected Financial Institution
Solvency
FDA and Other Regulatory Matters
Health Care Matters
Employee Relations
CONDITIONS
Conditions to Initial Loans
Each Credit Event
AFFIRMATIVE COVENANTS
Financial Statements and Other Information
Notices of Material Events
Existence; Conduct of Business
Payment of Taxes
Maintenance of Properties; Insurance; Casualty and Condemnation
Books and Records; Inspection Rights
Compliance with Laws
Use of Proceeds
Further Assurances
Anti-Corruption Laws and Sanctions
Compliance with Environmental Laws
Intellectual Property
ERISA
Compliance with Health Care Laws
Compliance with Public Health Laws
NEGATIVE COVENANTS
Indebtedness
Liens
Fundamental Changes
Investments, Loans, Advances, Guarantees and Acquisitions
Asset Dispositions; Sale and Leaseback Transactions
iii
59
60
60
60
60
61
61
61
61
62
62
62
62
63
63
63
65
66
66
66
68
69
69
70
71
71
71
71
72
72
72
73
73
73
73
73
74
74
74
77
79
79
81
63
63
63
63
64
64
64
64
65
65
65
65
65
66
66
66
68
69
70
70
71
72
72
73
74
74
74
75
75
75
76
76
76
76
76
77
77
77
77
80
82
82
84
Section 6.06
Section 6.07
Section 6.08
Section 6.09
Section 6.10
Section 6.11
Section 6.12
Swap Agreements
Restricted Payments; Prepayments of Indebtedness
Transactions with Affiliates
Restrictive Agreements
Amendment of Material Documents
Financial Covenants
ERISA
ARTICLE VII
EVENTS OF DEFAULT
ARTICLE VIII
Section 8.01
Section 8.02
Section 8.03
Section 8.04
Section 8.05
Section 8.06
Section 8.07
Section 8.08
Section 8.09
Section 8.10
Section 8.11
ARTICLE IX
Section 9.01
Section 9.02
Section 9.03
Section 9.04
Section 9.05
Section 9.06
Section 9.07
Section 9.08
Section 9.09
Section 9.10
Section 9.11
Section 9.12
Section 9.13
Section 9.14
Section 9.15
Section 9.16
Section 9.17
Section 9.18
Section 9.19
ARTICLE X
Section 10.01
THE ADMINISTRATIVE AGENT
Appointment
Rights as a Lender
Duties and Obligations
Reliance
Actions through Sub-Agents
Resignation
Non-Reliance
Not Partners or Co-Venturers
Lenders Not Subject to ERISA
Syndication Agents
Erroneous Payments
MISCELLANEOUS
Notices
Waivers; Amendments
Expenses; Indemnity; Damage Waiver
Successors and Assigns
Survival
Counterparts; Integration; Effectiveness; Electronic Execution
Severability
Right of Setoff
Governing Law; Jurisdiction; Consent to Service of Process
WAIVER OF JURY TRIAL
Headings
Confidentiality
Several Obligations; Nonreliance; Violation of Law
USA PATRIOT Act
Disclosure
[Reserved]
Interest Rate Limitation
No Advisory or Fiduciary Responsibility
Acknowledgement and Consent to Bail-In of Affected Financial Institutions
LOAN GUARANTY
Guaranty
iv
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82
84
84
85
85
85
85
85
87
87
88
88
89
86
89
88
88
89
89
89
90
90
90
91
91
92
92
92
94
96
98
101
101
101
102
102
102
103
103
104
104
104
104
104
105
105
106
106
91
91
92
92
92
93
93
93
94
94
95
95
98
98
100
101
103
106
107
107
107
108
108
108
108
110
110
110
110
110
110
111
111
111
Section 10.02
Section 10.03
Section 10.04
Section 10.05
Section 10.06
Section 10.07
Section 10.08
Section 10.09
Section 10.10
Section 10.11
Section 10.12
Guaranty of Payment
No Discharge or Diminishment of Loan Guaranty
Defense Waived
Rights of Subrogation
Reinstatement; Stay of Acceleration
Information
[Reserved]
[Reserved]
Maximum Liability
Contribution
Liability Cumulative
106
106
107
107
107
107
108
108
108
108
109
112
112
112
113
113
113
113
113
113
113
114
v
SCHEDULES:
Commitment Schedule EXHIBITS:
Exhibit A — Form of Assignment and Assumption
Exhibit B — Form of Compliance Certificate
Exhibit C — Joinder Agreement
Exhibit D — Form of Solvency Certificate
Exhibit E - 1 — U.S. Tax Certificate (For Foreign Lenders that are not Partnerships for U.S. Federal Income Tax
Purposes)
Exhibit E - 2 — U.S. Tax Certificate (For Foreign Participants that are not Partnerships for U.S. Federal Income Tax
Purposes)
Exhibit E - 3 — U.S. Tax Certificate (For Foreign Participants that are Partnerships for U.S. Federal Income Tax
Purposes)
Exhibit E - 4 — U.S. Tax Certificate (For Foreign Lenders that are Partnerships for U.S. Federal Income Tax Purposes)
Exhibit F — Form of Borrowing Request
Exhibit G — Form of Notice of Continuation/Conversion
Exhibit H — Form of Swingline Request
Exhibit I — Form of Promissory Note
vi
THIS CREDIT AGREEMENT, dated as of July 21, 2020 (as it may be amended, restated, amended and restated,
supplemented, and/or otherwise modified from time to time, this “Agreement”), among ALIGN TECHNOLOGY, INC., as the
Borrower, the other Loan Parties party hereto from time to time, the Lenders party hereto from time to time, the Issuing Banks
party hereto from time to time, and CITIBANK, N.A., as the Administrative Agent.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Defined Terms. As used in this Agreement, the following terms have the meanings specified below:
“ABR”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such
Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.
“Accounting Firm” means PricewaterhouseCoopers LLP, or any other independent registered public accounting firm of
nationally recognized standing.
“Acquisition” means any transaction or series of related transactions by which the Borrower or any of its Subsidiaries,
directly or indirectly, (a) acquires all or substantially all of the assets of a Person, or of any line of business or division of a
Person, (b) acquires in excess of 50% of the Equity Interests of any Person, or otherwise causes any Person to become a
Subsidiary, or (c) effects a merger, amalgamation or consolidation or any other combination with another Person (other than a
Person that is a Subsidiary); provided, that the Borrower or the applicable Subsidiary of the Borrower, or a Person that becomes
a Subsidiary, is the surviving entity.
“Additional Lender” has the meaning assigned to such term in Section 2.22(a)(ii).
“Adjusted LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period or for any ABR
Borrowing, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a)(i) the
LIBO Rate for such Interest Period multiplied by (ii) the Statutory Reserve Rate and (b) 1% per annum.
“Adjusted Term SOFR” means, for purposes of any calculation, the rate per annum equal to (a) Term SOFR for such
calculation plus (b) the Term SOFR Adjustment; provided, that if Adjusted Term SOFR as so determined shall ever be less than
the Floor, then Adjusted Term SOFR shall be deemed to be the Floor.
“Administrative Agent” means Citibank, N.A., in its capacity as administrative agent for the Lenders hereunder.
“Administrative Questionnaire” means an administrative questionnaire in a form supplied by the Administrative Agent.
“Affected Financial Institution” means (a) any EEA Financial Institution or (b) any UK Financial Institution.
“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with the specified Person.
“Agent Parties” has the meaning assigned to such term in Section 9.01(d)(ii).
“Aggregate Credit Exposure” means, at any time, the aggregate Credit Exposure of all the Lenders at such time.
“Agreement” has the meaning assigned to such term in the introductory paragraph.
“Alternate Base Rate” means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such
day, (b) the Federal Funds Effective Rate in effect on such day plus ½ of 1% and
(c) the Adjusted LIBO RateTerm SOFR for a one month Interest Periodtenor in effect on such day (or if such day is not a
Business Day, the immediately preceding Business Day) plus 1%; provided, that, for the avoidance of doubt, the Adjusted LIBO
Rate for any day shall be based on the rate appearing on the Reuters Screen LIBOR01 Page (or on any successor or substitute
page) at approximately 11:00 a.m. London time on such day (without any rounding). Any change in the Alternate Base Rate due
to a change in the Prime Rate, the Federal Funds Effective Rate or the Adjusted LIBO RateTerm SOFR shall be effective from
and including the effective date of such change in the Prime Rate, the Federal Funds Effective Rate or the Adjusted LIBO
RateTerm SOFR, respectively. If the Alternate Base Rate is being used as an alternate rate of interest pursuant to Section 2.14
hereof, then the Alternate Base Rate shall be the greater of clause (a) and (b) above and shall be determined without reference to
clause (c) above. In the event that that the Alternate Base Rate is less than zero, it shall be deemed to be zero for purposes of this
Agreement.
“Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower or its
Subsidiaries from time to time concerning or relating to (a) bribery and/or corruption and (b) terrorism financing and/or money
laundering, including the UK Bribery Act and the United States Foreign Corrupt Practices Act of 1977, as amended, and the
rules and regulations thereunder.
“Applicable Percentage” means, with respect to any Lender, (a) with respect to Loans and LC Exposure, a percentage
equal to a fraction the numerator of which is such Lender’s Commitment and the denominator of which is the aggregate
Commitment of all Lenders (if the Commitments have terminated or expired, the Applicable Percentages shall be determined
based upon such Lender’s share of the Aggregate Credit Exposure at that time); provided, that in the case of Section 2.20 when
a Defaulting Lender shall exist, any such Defaulting Lender’s Commitment shall be disregarded in the calculation, and
(b) with respect to the Aggregate Credit Exposure, a percentage based upon its share of the Aggregate Credit Exposure and the
unused Commitments; provided, that in the case of Section 2.20 when a Defaulting Lender shall exist, any such Defaulting
Lender’s Commitment shall be disregarded in the calculation.
“Applicable Rate” means, for any day, with respect to any ABR Loan or EurodollarTerm SOFR Loan, or with respect to
the commitment fees or letter of credit fees payable hereunder, as the case may be, the applicable rate per annum set forth below
under the caption “Applicable Rate for EurodollarTerm SOFR Loans”, “Applicable Rate for ABR Loans” or “Commitment Fee
Rate”, as the case may be, based upon the Borrower’s Total Leverage Ratio as of the most recent determination date; provided,
that until the delivery to the Administrative Agent, pursuant to Section 5.01, of the Borrower’s consolidated financial
information for the Borrower’s fiscal quarter ended on December 31, 2020, the “Applicable Rate” shall be the applicable rate
per annum set forth below in Level I::
2
Level
Level I
Level II
Level III
Level IIIIV
Total Leverage
Ratio
< 1.00 to 1.00
≥ 1.00 to 1.00 but
< 2.001.50 to 1.00
≥ 1.50 to 1.00 but
< 2.00 to 1.00
≥ 2.00 to 1.00 but
< 3.00 to 1.00
Applicable Rate for
EurodollarTerm
SOFR
Loans
Applicable Rate for
ABR Loans
1.500.875%
1.751.000%
0.500.000%
0.750.000%
Commitment Fee
Rate
0.250.075%
0.300.100%
1.125%
0.125%
0.150%
2.001.250%
1.000.250%
0.350.200%
Level IVV
≥ 3.00 to 1.00
2.251.375%
1.250.375%
0.400.250%
For purposes of the foregoing, (a) the Applicable Rate shall be determined as of the end of each fiscal quarter of the
Borrower based upon the Borrower’s annual or quarterly consolidated financial statements delivered pursuant to Section 5.01
and (b) each change in the Applicable Rate resulting from a change in the Total Leverage Ratio shall be effective three (3)
Business Days after the date of delivery to the Administrative Agent of such consolidated financial statements indicating such
change and ending on the date immediately preceding the effective date of the next such change; provided, that the Total
Leverage Ratio shall be deemed to be in Level IVV for the period commencing three (3) Business Days after the Borrower fails
to deliver the annual or quarterly consolidated financial statements required to be delivered by it pursuant to Section 5.01, and
ending on the date which is three (3) Business Days after such statements or certificates are actually delivered.
In the event that any financial statement delivered pursuant to Section 5.01(a) or (b) or any compliance certificate
delivered pursuant to Section 5.01(c), as applicable, is inaccurate, and such inaccuracy, if corrected, would have led to the
imposition of a higher Applicable Rate for any period than the Applicable Rate applied for that period, then (i) Borrower shall
immediately deliver to Administrative Agent a corrected financial statement and a corrected compliance certificate for that
period (the “Corrected Financials Date”), (ii) the Applicable Rate shall be determined based on the corrected Compliance
Certificate for that period, and (iii) Borrower shall immediately pay to Administrative Agent (for the account of the Lenders that
hold the Commitments and Loans at the time such payment is received, regardless of whether those Lenders held the
Commitments and Loans during the relevant period) the accrued additional interest owing as a result of such increased
Applicable Rate for that period; provided, for the avoidance of doubt, such deficiency shall be due and payable as at such
Corrected Financials Date and no Default or Event of Default under clause (b) of Article VII shall be deemed to have occurred
with respect to such deficiency prior to such date (but if not so paid on such date, shall constitute an Event of Default
immediately thereafter). This paragraph shall not limit the rights of Administrative Agent or the Lenders with respect to Section
2.13(cd) and Article VII hereof, and shall survive the termination of this Agreement until the payment in full in cash of the
aggregate outstanding principal balance of the Loans and the termination of all of the Commitments.
“Approved Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or
investing in bank loans and similar extensions of credit in the ordinary course of
3
its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an
entity that administers or manages a Lender.
“Approved Investment Policy” means a written investment policy of the Borrower that has been approved by the
Borrower’s board of directors (or applicable empowered committee thereof) as in effect from time to time, a copy of which will
be provided to the Administrative Agent upon request.
“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an assignee (with the
consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of
Exhibit A or any other form approved by the Administrative Agent.
“Available Commitment” means, at any time, the aggregate Commitments of all Lenders then in effect minus the
Aggregate Credit Exposure at such time.
“Availability Period” means the period from and including the Effective Date to but excluding the earlier of the
Maturity Date and the date of termination of the Commitments.
“Available Tenor” means, as of any date of determination and with respect to the then-current Benchmark, as applicable,
(x) if such Benchmark is a term rate, any tenor for such Benchmark (or component thereof) that is or may be used for
determining the length of an Interest Period pursuant to this Agreement or (y) otherwise, any payment period for interest
calculated with reference to such Benchmark (or component thereof) that is or may be used for determining any frequency of
making payments of interest calculated with reference to such Benchmark pursuant to this Agreement, in each case, as of such
date and not including, for the avoidance of doubt, any tenor for such Benchmark that is then-removed from the definition of
“Interest Period” pursuant to Section 2.25(d).
“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable Resolution Authority
in respect of any liability of an Affected Financial Institution.
“Bail-In Legislation” means, (a) with respect to any EEA Member Country implementing Article 55 of Directive
2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law, regulation, rule or
requirement for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule and
(b) with respect to the United Kingdom, Part I of the United Kingdom Banking Act 2009 (as amended from time to time) and
any other law, regulation or rule applicable in the United Kingdom relating to the resolution of unsound or failing banks,
investment firms or other financial institutions or their affiliates (other than through liquidation, administration or other
insolvency proceedings).
“Bank of America” means BANK OF AMERICABank of America, N.A.
“Bankruptcy Event” means, with respect to any Person, such Person becomes the subject of a bankruptcy or insolvency
proceeding, or has had a receiver, conservator, trustee, administrator, custodian, assignee for the benefit of creditors or similar
Person charged with the reorganization or liquidation of its business appointed for it, or, in the good faith determination of the
Administrative Agent, has taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any
such proceeding or appointment; provided, that a Bankruptcy Event shall not result solely by virtue of any ownership interest, or
the acquisition of any ownership interest, in such Person by a Governmental Authority or instrumentality thereof; provided,
further, that such ownership interest does not result in or provide such Person with immunity from the jurisdiction of courts
within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Person (or
such Governmental Authority or
4
instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such Person.
“Benchmark” means, initially, the Term SOFR Reference Rate; provided, that if a Benchmark Transition Event has
occurred with respect to the Term SOFR Reference Rate or the then-current Benchmark, then “Benchmark” means the
applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate
pursuant to Section 2.25(a).
“Benchmark Replacement” means, with respect to any Benchmark Transition Event, the sum of:
(a) the alternate benchmark rate (which may include Term SOFR) that has been selected by the Administrative Agent and the
Borrower giving due consideration to (i) any selection or recommendation of a replacement benchmark rate or the mechanism
for determining such a rate by the Relevant Governmental Body or (ii) any evolving or then-prevailing market convention for
determining a benchmark rate of interest as a replacement to the LIBO Rate for U.S.then-current Benchmark for dDollar-
denominated syndicated credit facilities at such time and (b) the related Benchmark Replacement Adjustment; provided, that, if
thesuch Benchmark Replacement as so determined would be less than zero, the Floor, such Benchmark Replacement will be
deemed to be zerothe Floor for the purposes of this Agreement and the other Loan Documents.
“Benchmark Replacement Adjustment” means, with respect to any replacement of LIBO Ratethe then-current
Benchmark with an Unadjusted Benchmark Replacement for each applicable Interest Period, the spread adjustment, or method
for calculating or determining such spread adjustment, (which may be a positive or negative value or zero), that has been
selected by the Administrative Agent and the Borrower giving due consideration to (ia) any selection or recommendation of a
spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of the LIBO Ratesuch
Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body or (iib) any evolving
or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread
adjustment, for the replacement of the LIBO Ratesuch Benchmark with the applicable Unadjusted Benchmark Replacement for
U.S. dDollar-denominated syndicated credit facilities at such time.
“Benchmark Replacement Conforming Changes” means, with respect to any Benchmark Replacement, any technical,
administrative or operational changes (including changes to the definition of “ABR,” the definition of “Interest Period,” timing
and frequency of determining rates and making payments of interest and other administrative matters) that the Administrative
Agent decides may be appropriate to reflect the adoption and implementation of such Benchmark Replacement and to permit the
administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or, if the
Administrative Agent decides that adoption of any portion of such market practice is not administratively feasible or if the
Administrative Agent determines that no market practice for the administration of the Benchmark Replacement exists, in such
other manner of administration as the Administrative Agent decides is reasonably necessary in connection with the
administration of this Agreement).
“Benchmark Replacement Date” means the earlierst to occur of the following events with respect to the LIBO Rateany
then-current Benchmark:
(a)
(a) in the case of clause (a) or (b) of the definition of “Benchmark Transition Event,” the later of (i) the date of the
public statement or publication of information referenced therein and (ii) the date on which the administrator of the LIBO
Screen Ratesuch Benchmark (or the published component
5
used in the calculation thereof) permanently or indefinitely ceases to provide the LIBO Screen Rateall Available Tenors of
such Benchmark (or such component thereof); or
(b)
(b) in the case of clause (c) of the definition of “Benchmark Transition Event,” the first date of the public on which
such Benchmark (or the published component used in the calculation thereof) has been determined and announced by the
regulatory supervisor for the administrator of such Benchmark (or such component thereof) to be non-representative; provided,
that such non- representativeness will be determined by reference to the most recent statement or publication of information
referenced in such clause (c) and even if any Available Tenor of such Benchmark (or such component thereinof) continues to be
provided on such date.
For the avoidance of doubt, the “Benchmark Replacement Date” will be deemed to have occurred in the case of clause
(a) or (b) with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with respect to
all then-current Available Tenors of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Transition Event” means the occurrence of one or more of the following events with respect to the LIBO
Rateany then-current Benchmark:
(a)
(a) a public statement or publication of information by or on behalf of the administrator of the LIBO Screen
Ratesuch Benchmark (or the published component used in the calculation thereof) announcing that such administrator has
ceased or will cease to provide the LIBO Screen Rateall Available Tenors of such Benchmark (or such component thereof),
permanently or indefinitely,; provided that, at the time of such statement or publication, there is no successor administrator that
will continue to provide the LIBO Screen Rateany Available Tenor of such Benchmark (or such component thereof);
(b)
(b) a public statement or publication of information by the regulatory supervisor for the administrator of the LIBO
Screen Rate, the U.S.such Benchmark (or the published component used in the calculation thereof), the Federal Reserve
SystemBoard, the Federal Reserve Bank of New York, an insolvency official with jurisdiction over the administrator for the
LIBO Screen Ratesuch Benchmark (or such component), a resolution authority with jurisdiction over the administrator for the
LIBO Screen Ratesuch Benchmark (or such component) or a court or an entity with similar insolvency or resolution authority
with jurisdiction over the administrator for the LIBO Screen Ratesuch Benchmark (or such component), which states that the
administrator of the LIBO Screen Ratesuch Benchmark (or such component) has ceased or will cease to provide the LIBO
Screen Rateall Available Tenors of such Benchmark (or such component thereof) permanently or indefinitely,; provided that, at
the time of such statement or publication, there is no successor administrator that will continue to provide the LIBO Screen
Rateany Available Tenor of such Benchmark (or such component thereof); or
(c)
(c) a public statement or publication of information by the regulatory supervisor for the administrator of the LIBO
Screen Rate announcing that LIBO Screen Rate is no longersuch Benchmark (or the published component used in the
calculation thereof) announcing that all Available Tenors of such Benchmark (or such component thereof) are not, or as of a
specified future date will not be, representative.
For the avoidance of doubt, “Benchmark Transition Event” will be deemed to have occurred with respect to any
Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current
Available Tenor of such Benchmark (or the published component used in the calculation thereof).
6
“Benchmark Transition Start Date” means (a), in the case of a Benchmark Transition Event, the earlier of (ia) the
applicable Benchmark Replacement Date and (iib) if such Benchmark Transition Event is a public statement or publication of
information of a prospective event, the 90th day prior to the expected date of such event as of such public statement or
publication of information (or if the expected date of such prospective event is fewer than 90 days after such statement or
publication, the date of such statement or publication) and (b) in the case of an Early Opt-in Election, the date specified by the
Administrative Agent or the Required Lenders, as applicable, by notice to the Borrower, the Administrative Agent (in the case
of such notice by the Required Lenders) and the Lenders..
“Benchmark Unavailability Period” means, if a Benchmark Transition Event and its related Benchmark Replacement
Date have occurred with respect to the LIBO Rate and solely to the extent that the LIBO Rate has not been replaced with a
Benchmark Replacement, the periodthe period (if any) (a) beginning at the time that sucha Benchmark Replacement Date has
occurred if, at such time, no Benchmark Replacement has replaced the LIBO Ratethen-current Benchmark for all purposes
hereunder and under any Loan Document in accordance with Section 2.25 and (b) ending at the time that a Benchmark
Replacement has replaced the LIBO Ratethen-current Benchmark for all purposes hereunder pursuant toand under any Loan
Document in accordance with Section 2.25.
“Beneficial Owner” means, with respect to any U.S. Federal withholding Tax, the beneficial owner, for U.S. Federal
income tax purposes, to whom such Tax relates.
“Benefit Plan” means any of (a) an “employee benefit plan” (as defined in ERISA) that is subject to Title I of ERISA,
(b) a “plan” as defined in Section 4975 of the Code or (c) any Person whose assets include (for purposes of ERISA Section
3(42) or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan”
or “plan”.
“BHC Act Affiliate” has the meansing an “affiliate” (asassigned to such term is defined under, and interpreted in
accordance with 12 U.S.C. 1841(k)) of a partyin Section 9.20.
“Billing Statements” has the meaning assigned to such term in Section 2.18(g).
“Board” means the Board of Governors of the Federal Reserve System of the United States of America.
“Borrower” means Align Technology, Inc., a Delaware corporation.
“Borrowing” means (a) Loans of the same Type, made, converted or continued on the same date and, in the case of
EurodollarTerm SOFR Loans, as to which a single Interest Period is in effect or (b) a Swingline Loan.
“Borrowing Request” means a request by the Borrower for a Borrowing in accordance with Section 2.03.
“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in New York
City are authorized or required by law to remain closed; provided, that, when used in connection with a EurodollarTerm SOFR
Loan, the term “Business Day” shall also exclude any day on which banks are not open for dealings in Dollar deposits in the
London interbank marketwhich is not a
U.S. Government Securities Day.
“Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under any
lease of (or other arrangement conveying the right to use) real or personal
7
property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a
balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
“Cash Equivalents” means:
(a)
direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the
United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the
United States of America), in each case maturing within one year from the date of acquisition thereof;
(b)
investments in commercial paper maturing within one (1) year from the date of acquisition thereof and having, at
such date of acquisition, the highest credit rating obtainable from S&P or from Moody’s;
(c)
investments in certificates of deposit, bankers’ acceptances and time deposits maturing within one (1) year from
the date of acquisition thereof issued or guaranteed by or placed with, and demand deposit accounts and money market deposit
accounts issued or offered by any domestic office of any commercial bank organized under the laws of the United States of
America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500.0 million;
(d)
fully collateralized repurchase agreements with a term of not more than thirty (30) days for securities described in
clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above (any such
repurchase agreement, a “Repurchase Agreement”);
(e) money market funds that (i) comply with the criteria set forth in SEC Rule 2a-7 under the Investment Company
Act of 1940, (ii) are rated AAA by S&P and Aaa by Moody’s and (iii) have portfolio assets of at least $5.0 billion;
(f) marketable direct obligations issued by any state of the United States or any political subdivision of any such state
or any public instrumentality thereof maturing within one (1) year from the date of acquisition thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from either S&P or Moody’s; and
(g)
investments made in accordance with the Approved Investment Policy as in effect at the time such investment is
made.
“CFC” means a “controlled foreign corporation” as defined in Section 957 of the Code. “CHAMPVA” means,
collectively, the Civilian Health and Medical Program of the Department
of Veterans Affairs, and all laws, rules, regulations, manuals, orders, guidelines or requirements (whether or not having the force
of law) pertaining to such program, in each case as the same may be amended, supplemented or otherwise modified from time
to time.
“Change in Control” means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any
Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the SEC thereunder as in effect on
the date hereof) of Equity Interests representing more than 35% of the aggregate ordinary voting power represented by the
issued and outstanding Equity Interests of the Borrower, (b) the occupation of a majority of the seats (other than vacant seats) on
the board of directors of the Borrower by Persons who were neither (i) nominated or approved (either by a specific vote or by
approval of a proxy statement issued by the Borrower on behalf of its board of directors (as
8
constituted at the time of such proxy statement) in which such individual is named as a nominee for director) by the board of
directors of the Borrower nor (ii) appointed by directors so nominated or (c) the occurrence of any “change of control” or
similar event with respect to any Material Indebtedness.
“Change in Law” means the occurrence after the date of this Agreement (or, with respect to any Lender, such later date
on which such Lender becomes a party to this Agreement) of any of the following:
(a) the adoption or taking effect of any law, rule, regulation or treaty; (b) any change in any law, rule, regulation or treaty or in
the administration, interpretation or application thereof by any Governmental Authority; or (c) compliance by any Lender or any
Issuing Bank (or, for purposes of Section 2.15(b), by any lending office of such Lender or by such Lender’s or such Issuing
Bank’s holding company, if any) with any request, guideline, requirement or directive (whether or not having the force of law) of
any Governmental Authority made or issued after the date of this Agreement; provided, that, notwithstanding anything herein to
the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines,
requirements or directives thereunder or issued in connection therewith or in the implementation thereof, and (y) all requests,
rules, guidelines, requirements or directives promulgated by the Bank for International Settlements, the Basel Committee on
Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case
pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted, issued or
implemented.
“Charges” has the meaning assigned to such term in Section 9.17.
“Citi” means Citibank, N.A., a national banking association, in its individual capacity, and its successors.
“CMS” means The Centers for Medicare and Medicaid Services of the United States Department of Health and Human
Services, and any Governmental Authority successor thereto.
“Code” means the Internal Revenue Code of 1986, as amended from time to time.
“Commitment” means, with respect to each Lender, the commitment, if any, of such Lender to make Loans and to
acquire participations in Letters of Credit and Swingline Loans hereunder, expressed as an amount representing the maximum
possible aggregate amount of such Lender’s Credit Exposure hereunder, as such commitment may be reduced or increased from
time to time pursuant to (a) Section
2.09 or 2.22 and (b) assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender’s
Commitment is set forth on the Commitment Schedule, or in the Assignment and Assumption pursuant to which such Lender
shall have assumed its Commitment, as applicable. The initial aggregate amount of the Lenders’ Commitments as of the
Effective Date is $300.0 million.
“Commitment Date” has the meaning assigned to such term in Section 2.22(a)(i). “Commitment Increase” has the
meaning assigned to such term in Section 2.22(a). “Commitment Schedule” means the Schedule attached hereto
identified as such.
“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time,
and any successor statute.
“Communications” has the meaning assigned to such term in Section 9.01(d).
9
“Conforming Changes” means with respect to either the use or administration of Term SOFR or the use, administration,
adoption or implementation of any Benchmark Replacement, any technical, administrative or operational changes (including
changes to the definition of “ABR,”, the definition of “Adjusted Term SOFR”, the definition of “Alternate Base Rate”, the
definition of “Business Day,” the definition of “U.S. Government Securities Business Day,” the definition of “Interest Period” or
“Interest Payment Date”, the definition of “Term SOFR” or any similar or analogous definition (or the addition of a concept of
“interest period”), timing and frequency of determining rates and making payments of interest, timing of borrowing requests or
prepayment, conversion or continuation notices, the applicability and length of lookback periods, the applicability of Section
2.16 and other technical, administrative or operational matters) that the Administrative Agent decides may be appropriate to
reflect the adoption and implementation of any such rate or to permit the use and administration thereof by the Administrative
Agent in a manner substantially consistent with market practice (or, if the Administrative Agent decides that adoption of any
portion of such market practice is not administratively feasible or if the Administrative Agent determines that no market practice
for the administration of any such rate exists, in such other manner of administration as the Administrative Agent decides is
reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).
“Consolidated Total Assets” means the consolidated total assets of the Borrower and its Subsidiaries, determined in
accordance with GAAP, as of the date of the financial statements most recently delivered pursuant to Section 5.01(a) or Section
5.01(b), as applicable.
“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management
or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and
“Controlled” have meanings correlative thereto.
“Convertible Debt Security” means any debt security or note the terms of which provide for the conversion thereof into
Equity Interests (or other securities (to the extent not secured by a Lien) or property following a merger event, reclassification or
other change of the Equity Interests), cash or a combination of Equity Interests and cash.
“Covered Entity” means any of the following: (i) a “covered entity” as that term is defined in, and interpreted in
accordance with, 12 C.F.R. § 252.82(b), (ii) a “covered bank” as that term is defined in, and interpreted in accordance with 12
C.F.R. § 47.3(b), or (iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).has
the meaning assigned to such term in Section 9.20.
“Covered Liabilities” has the meaning assigned to such term in Section 9.19.
“Credit Exposure” means, with respect to any Lender at any time, the sum of the outstanding principal amount of such
Lender’s Loans (including any Swingline Loans) and its LC Exposure at such time.
“Credit Party” means the Administrative Agent, any Issuing Bank, any Swingline Lender or any
Lender.
“Default” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or
both would, unless cured or waived, become an Event of Default.
“Default Right” has the meaning assigned to such term in Section 9.20.
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“Defaulting Lender” means any Lender that (a) has failed, within two (2) Business Days of the date required to be
funded or paid, to (i) fund any portion of its Loans, (ii) fund any portion of its participations in Letters of Credit or Swingline
Loans or (iii) pay over to any Credit Party any other amount required to be paid by it hereunder, unless, in the case of clause (i)
above, such Lender notifies the Administrative Agent in writing that such failure is the result of such Lender’s good faith
determination that a condition precedent to funding (specifically identified and including the particular Default, if any) has not
been satisfied, (b) has notified the Borrower or any Credit Party in writing, or has made a public statement to the effect, that it
does not intend or expect to comply with any of its funding obligations under this Agreement (unless such writing or public
statement indicates that such position is based on such Lender’s good faith determination that a condition precedent (specifically
identified and including the particular Default, if any) to funding a Loan under this Agreement cannot be satisfied) or generally
under other agreements in which it commits to extend credit, (c) has failed, within three (3) Business Days after request by a
Credit Party, acting in good faith, to provide a certification in writing from an authorized officer of such Lender that it will
comply with its obligations (and is financially able to meet such obligations) to fund prospective Loans and participations in then
outstanding Letters of Credit and Swingline Loans under this Agreement; provided, that such Lender shall cease to be a
Defaulting Lender pursuant to this clause (c) upon such Credit Party’s receipt of such certification in form and substance
satisfactory to it and the Administrative Agent, (d) has become the subject of a Bankruptcy Event, or (e) has become (or whose
direct or indirect parent company has become) subject to a Bail-In Action.
“Deferred Acquisition Consideration” means any purchase price adjustments, earn-out, milestone payments, contingent
or other deferred payments of a similar nature (including any non-compete payments and consulting payments) made in
connection with any Permitted Acquisition or other Acquisition permitted under this Agreement.
“Disclosure Letter” has the meaning assigned to such term in Section 4.01(a)(iii).
“Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition of any property by any Person (or
the granting of any option or other right to do any of the foregoing), including any sale, assignment, transfer or other disposal,
with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith. For the avoidance of
doubt, the performance by the Borrower of and/or any Subsidiary thereof of the Borrower’s or such Subsidiary’s obligations
under any unsecured Convertible Debt Securities or any Permitted Call Spread Agreement (that was entered into in connection
with the issuance of an unsecured Convertible Debt Security) shall not constitute a “Disposition”.
“Dollars” or “$” refers to lawful money of the United States of America.
“Domestic Subsidiary” means any Subsidiary of the Borrower organized under the laws of any state of the United States
of America or the District of Columbia.
“Early Opt-in Election” means the occurrence of:
(a)
(i) a determination by the Administrative Agent, or (ii) a notification by the Required Lenders to the
Administrative Agent (with a copy to the Borrower) that the Required Lenders have determined that U.S. dollar-denominated
syndicated credit facilities being executed at such time, or that include language similar to that contained in Section 2.25, are
being executed or amended, as applicable, to incorporate or adopt a new benchmark interest rate to replace the LIBO Rate, and
11
(b)
(i) the election by the Administrative Agent or (ii) the election by the Required Lenders to declare that an Early
Opt-in Election has occurred and the provision, as applicable, by the Administrative Agent of written notice of such election to
the Borrower and the Lenders or by the Required Lenders of written notice of such election to the Administrative Agent.
“EBITDA” means, for any period, the sum of:
(a)
Net Income for such period; plus
(b) without duplication and to the extent deducted in determining Net Income for such period, the sum of:
(i)
Interest Expense for such period;
(ii) Taxes based on income, profits or capital of the Borrower or its Subsidiaries, including without limitation,
federal, state, franchise, excise and similar Taxes and foreign withholding Taxes paid or accrued during such period,
including penalties and interest related to such Taxes or arising from any Tax examinations;
(iii)
all amounts attributable to depreciation and amortization expense for such period;
(iv)
amortization of intangibles (including, but not limited to, goodwill) for such
period;
(v)
stock based compensation expenses with respect to employees, officers, directors or contractors;
(vi) costs and expenses incurred with respect to the Transactions consummated on the Effective Date or in
connection with the Second Amendment;
(vii) expenses, charges and losses incurred in such period and which are reimbursed in cash during such period
by Persons (other than the Borrower and its Subsidiaries) so long as such payments were not added in determining Net
Income for such period;
(viii) non-recurring fees, costs and expenses directly incurred during such period in connection with any of the
following which are attempted, whether or not consummated: (A) any Permitted Acquisition and any related debt or
equity offering undertaken in connection therewith (in respect of which all or substantially all of the proceeds are
intended to be used to pay the cash consideration for such Permitted Acquisition), (B) the issuance of any Equity
Interests, (C) the incurrence of any Indebtedness not prohibited under this Agreement, (D) any Disposition of assets not
prohibited under this Agreement or (E) the extension, amendment or refinancing of any Indebtedness; provided, that the
aggregate amount of advisory (or similar) fees that may be added back to EBITDA pursuant to this clause (viii) shall not
exceed $40.0 million for such period;
(ix)
non-cash purchase accounting adjustments made during such period;
(x)
all proceeds of business interruption insurance received during such period;
(xi) unrealized losses on financial derivatives recognized in such period in accordance with SFAS No. 133;
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(xii) any write-off or amortization made in such period of deferred financing costs or any write-down of assets
or asset value carried on the balance sheet of the Borrower or any of its Subsidiaries;
(xiii) any extraordinary (as defined under GAAP prior to FASB Update No. 2015-01) non-cash charges or
expenses for such period;
(xiv) any one-time restructuring charges incurred during such period (determined in accordance with GAAP);
provided, that the aggregate amount of such charges that may be added back to EBITDA pursuant to this clause (xiv)
shall not exceed $40.0 million for such period;
(xv) any other non-cash charges, expenses or losses (but excluding any non-cash charge in respect of an item
that was included in Net Income in a prior period); and
(xvi)
any other addback consented to in writing by the Required Lenders; minus
(c) without duplication and to the extent included in Net Income, (i) any cash payments made during such period in
respect of non-cash charges described in clause (b)(xv) taken in a prior period, (ii) unrealized gains on financial derivatives
recognized in such period in accordance with SFAS No. 133 and (iii) any extraordinary gains and any non-cash items of income
for such period;
all calculated for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP. For the purposes of
calculating EBITDA for any period of four consecutive fiscal quarters (each, a “Reference Period”), (i) if at any time during
such Reference Period the Borrower or any Subsidiary shall have made any sale, transfer, or disposition of property having gross
sale proceeds in excess of $50.0 million, EBITDA for such Reference Period shall be reduced by an amount equal to the
EBITDA (if positive) attributable to the property that is the subject of such sale, transfer, or disposition, as applicable, for such
Reference Period or increased by an amount equal to the EBITDA (if negative) attributable thereto for such Reference Period, in
each case, as if such sale, transfer or disposition occurred on the first day of such Reference Period and (ii) if during such
Reference Period the Borrower or any of its Subsidiaries shall have made a Permitted Acquisition with Permitted Acquisition
Consideration in excess of $50.0 million, EBITDA for such Reference Period shall be calculated after giving effect thereto on a
pro forma basis as if such Permitted Acquisition occurred on the first day of such Reference Period.
“ECP” means an “eligible contract participant” as defined in Section 1(a)(18) of the Commodity Exchange Act or any
regulations promulgated thereunder and the applicable rules issued by the Commodity Futures Trading Commission and/or the
SEC.
“EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member
Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member
Country which is a parent of an institution described in clause (a) of this definition and is subject to the supervision of an EEA
Resolution Authority, or (c) any financial institution established in an EEA Member Country which is a Subsidiary of an
institution described in clause (a) or (b) of this definition and is subject to consolidated supervision of an EEA Resolution
Authority with its parent.
“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein and Norway.
13
“EEA Resolution Authority” means any public administrative authority or any person entrusted with public
administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any
EEA Financial Institution.
“Effective Date” means July 21, 2020.
“Electronic Signature” means an electronic sound, symbol, or process attached to, or associated with, a contract or other
record and adopted by a Person with the intent to sign, authenticate or accept such contract or record.
“Electronic System” means any electronic system, including e-mail, e-fax, Intralinks , ClearPar , Debt Domain,
Syndtrak and any other Internet or extranet-based site, whether such electronic system is owned, operated or hosted by the
Administrative Agent and the Issuing Banks and any of its respective Related Parties or any other Person, providing for access
to data protected by passcodes or other security system.
®
®
“Environmental Laws” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions,
notices or binding agreements issued, promulgated, or entered into by any Governmental Authority, relating in any way to the
environment, the preservation or reclamation of natural resources, the management, Release or threatened Release of any
Hazardous Material or relating to employee health and safety matters.
“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of
environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting
from or based upon (a) any violation of any Environmental Law, (b) the generation, use, handling, transportation, storage,
treatment or disposal of any Hazardous Materials, (c) any exposure to any Hazardous Materials, (d) the Release or threatened
Release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the foregoing.
“Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability
company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights
entitling the holder thereof to purchase or acquire any of the foregoing, but excluding any Convertible Debt Securities and any
Permitted Call Spread Agreement.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time
to time.
“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with the Borrower, is treated
as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of
the Code, is treated as a single employer under Section 414 of the Code.
“ERISA Event” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued
thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the failure to make any
“minimum required contribution” (as defined in Section 430(a) of the Code) with respect to any Plan, at the time and in the
amount provided for in Section 430 of the Code; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of
ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the
Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e)
the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan
14
administrator of any notice relating to an intention to terminate any Plan or Plans in a distress termination described in Section
4041(c) of ERISA or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA
Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the
receipt by the Borrower or any ERISA Affiliate of any notice concerning the imposition of Withdrawal Liability or a
determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV
of ERISA.
“Erroneous Payment” has the meaning assigned to it in Section 8.11(a).
“Erroneous Payment Deficiency Assignment” has the meaning assigned to it in Section 8.11(d)(i).
“Erroneous Payment Impacted Class” has the meaning assigned to it in Section 8.11(d)(i).
“Erroneous Payment Return Deficiency” has the meaning assigned to it in Section 8.11(d)(i).
“Erroneous Payment Subrogation Rights” has the meaning assigned to it in Section 8.11(e).
“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market
Association (or any successor person), as in effect from time to time.
“Eurodollar”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising
such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate.
“Event of Default” has the meaning assigned to such term in Article VII.
“Excluded Subsidiary” means Domestic Subsidiaries that are (i) directly or indirectly owned by a Foreign Subsidiary
that is a CFC, or (ii) Foreign Subsidiary Holding Companies.
“Excluded Taxes” means any of the following Taxes imposed on or with respect to a Recipient or required to be
withheld or deducted from a payment to a Recipient: (a) Taxes imposed on or measured by net income (however denominated),
franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being a resident of, being
organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in,
the jurisdiction imposing such Taxes (or any political subdivision thereof) or (ii) that are Other Connection Taxes; (b) in the case
of a Lender, U.S. withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an
applicable interest in a Loan, Note, Letter of Credit, Commitment or other Loan Document pursuant to a law in effect on the
date on which (i) such Lender acquires such interest in the Loan, Note, Letter of Credit, Commitment or other Loan Document
(other than pursuant to an assignment request by the Borrower under Section 2.19(b)) or (ii) such Lender changes its lending
office, except in each case to the extent that, pursuant to Section 2.17, amounts with respect to such Taxes were payable either to
such Lender’s assignor immediately before such Lender acquired the applicable interest in a Loan, Note, Letter of Credit,
Commitment or other Loan Document or to such Lender immediately before it changed its lending office; (c) Taxes attributable
to such Recipient’s failure to comply with Section 2.17(f); and (d) any withholding Taxes imposed under FATCA.
“Existing Credit Agreement” means that certain Credit Agreement, dated as of February 27, 2018 (as amended, restated,
amended and restated, supplemented and/or otherwise modified from time to time
15
prior to the Effective Date), by and between the Borrower, as borrower, and Wells Fargo Bank, National Association, as the lender
thereunder.
“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or
successor version that is substantively comparable and not materially more onerous to comply with), any current or future
regulations or official interpretations thereof and any agreement entered into pursuant to Section 1471(b)(1) of the Code, any
intergovernmental agreements entered into in connection with the implementation of such sections of the Code and any fiscal or
regulatory legislation, rules or practices adopted pursuant to such intergovernmental agreement.
“FDA” means the United States Food and Drug Administration and any successor thereto.
“Federal Funds Effective Rate” means, for any day, the weighted average (rounded upwards, if necessary, to the next
1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System, as published on
the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that
is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.
“Fee Letter” means that certain Fee Letter, dated as of June 30, 2020, by and between the Borrower and Citi as Lead
Arranger and the Administrative Agent, as the same may be amended, restated, amended and restated, supplemented or
otherwise modified from time to time.
“Financial Covenants” means the covenants set forth in Section 6.11.
“Financial Officer” means the chief financial officer, president, principal accounting officer, treasurer, controller or
officer of equivalent duties of the Borrower.
“Floor” means a rate of interest equal to 0.00% per annum.
“Foreign Lender” means any Lender that is not a “United States person” as defined in Section 7701(a)(30) of the Code.
“Foreign Pension Plan” means any plan, fund (including any superannuation fund) or other similar program established
or maintained outside the United States by the Borrower or any one or more of its Subsidiaries primarily for the benefit of
employees of the Borrower or such Subsidiaries residing outside the United States, which plan, fund or other similar program
provides, or results in, retirement income, a deferral of income in contemplation of retirement or payments to be made upon
termination of employment, and which plan is not subject to ERISA or the Code.
“Foreign Subsidiary” means any Subsidiary of the Borrower that is not a Domestic Subsidiary.
“Foreign Subsidiary Holding Company” means any Domestic Subsidiary substantially all of the assets of which
(whether held directly through one or more entities disregarded for U.S. federal income tax purposes) consist of capital stock (or
capital stock and debt) (including any debt instrument treated as equity for U.S. federal income tax purposes) of one or more
Foreign Subsidiaries that are CFCs and that engages in no material activities other than the ownership of such capital stock and
debt and maintenance of its corporate existence.
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“Forward Agreement” means any agreement (including, but not limited to, any accelerated share repurchase agreement,
forward agreement, derivative or other share repurchase agreement in the form of an equity option or forward or other
derivative) pursuant to which, among other things, the counterparty is required to deliver to the Borrower shares of common
stock of the Borrower, cash in lieu of delivering shares of common stock or cash representing the termination value of such
forward or option or a combination thereof from time to time upon settlement, exercise or early termination of such forward or
option or other derivative.
“Funded Indebtedness” means, with respect to any Person and without duplication, the principal amount of, and any
overdue amount that does not constitute principal (including, interest, fees, penalties and premiums) in respect of, (i) all
Indebtedness of such Person of the types referred to in clauses (a) (including any Convertible Debt Securities), (b), (d) (solely
with respect to Deferred Acquisition Consideration) and (g) of the definition of “Indebtedness” in this Section 1.01, (ii) all
Indebtedness of others of the type referred to in clause (i) of this definition secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by) a Lien on, or payable out of the proceeds of
production from, any property or asset of such Person, whether or not the obligations secured thereby have been assumed by
such Person and (iii) all Guarantees of such Person with respect to Indebtedness of others of the type referred to in clause (i) of
this definition. The Funded Indebtedness of any Person shall include the Funded Indebtedness of any other entity (including any
partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s
ownership interest in such entity, except to the extent the terms of such Funded Indebtedness provide that such Person is not
liable therefor.
“GAAP” means generally accepted accounting principles in the United States of America.
“Government Reimbursement Program” means (a) Medicare, (b) Medicaid, (c) the Federal Employees Health Benefit
Program under 5 U.S.C. §§ 8902 et seq., (d) TRICARE, (e) CHAMPVA, or (f) if applicable within the context of this
Agreement, any agent, administrator, administrative contractor, intermediary or carrier for any of the foregoing.
“Governmental Authority” means the government of the United States of America, any other nation or any political
subdivision of any of the foregoing, whether state or local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of
or pertaining to government. The Term “Governmental Authority” shall further include any institutional review board, ethics
committee, data monitoring committee, or other committee or entity with defined authority to oversee Regulatory Matters,
including CMS and any Medicare or Medicaid administrative contractors, intermediaries or carriers.
“Guarantee” of or by any Person (the “guarantor”) means any obligation, contingent or otherwise, of the guarantor
guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the
“primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to
purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease
property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment
thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary
obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of
any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term Guarantee
shall not include endorsements for collection or deposit in the ordinary course of business, warranty obligations in
17
the ordinary course of business or customary indemnification obligations in connection with transactions not prohibited by any
of the Loan Documents.
“Guaranteed Obligations” has the meaning assigned to such term in Section 10.01.
“Hazardous Materials” means: (a) any substance, material, or waste that is included within the definitions of “hazardous
substances,” “hazardous materials,” “hazardous waste,” “toxic substances,” “toxic materials,” “toxic waste,” or words of similar
import in any Environmental Law; (b) those substances listed as hazardous substances by the United States Department of
Transportation (or any successor agency) (49 C.F.R. 172.101 and amendments thereto) or by the Environmental Protection
Agency (or any successor agency) (40 C.F.R. Part 302 and amendments thereto); and (c) any substance, material, or waste that is
petroleum, petroleum-related, or a petroleum by-product, asbestos or asbestos- containing material, polychlorinated biphenyls,
flammable, explosive, radioactive, freon gas, radon, or a pesticide, herbicide, or any other agricultural chemical.
“Health Care Laws” means, collectively, any and all applicable laws relating to any of the following: (a) fraud and
abuse (including the following statutes, as amended, modified or supplemented from time to time and any successor statutes
thereto and regulations promulgated from time to time thereunder: the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)),
the Stark Law (42 U.S.C.
§ 1395nn and § 1395(q)), the civil False Claims Act (31 U.S.C. § 3729 et seq.), the federal health care program exclusion
provisions (42 U.S.C. § 1320a-7), the Civil Monetary Penalties Act (42 U.S.C.
§ 1320a-7a), and the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. No. 108-173)); (b)
any Government Reimbursement Program; (c) HIPAA and Other Privacy Laws; and
(d) any other applicable law regulating the health care industry.
“Health Care Permits” means any and all permits, licenses, authorizations, certificates, certificates of need,
accreditations and plans of third-party accreditation agencies (such as The Joint Commission) that are (a) necessary to enable
any Loan Party to continue to conduct its business as it is conducted on the Effective Date, or (b) required under any Health Care
Law.
“HIPAA” means the Health Insurance Portability and Accountability Act of 1996, Pub. L. No. 104-191, Title II Subtitle
F, as the same may be amended, modified or supplemented from time to time, and any and all rules or regulations promulgated
from time to time thereunder.
“HIPAA and Other Privacy Laws” means (a) HIPAA; (b) the Health Information Technology for Economic and Clinical
Health Act (Title XIII of the American Recovery and Reinvestment Act of 2009), as the same may be amended, modified or
supplemented from time to time; (c) any successor statute thereto; and (d) any applicable state and local laws regulating the
privacy and/or security of patient protected health or personally identifiable information, in each case as the same may be
amended, modified or supplemented from time to time, any successor statutes thereto, and any and all rules or regulations
promulgated from time to time thereunder.
“Holdback” means any portion of the purchase price for a Permitted Acquisition not paid at the closing therefor but held
by the Borrower or any Subsidiary for satisfaction of indemnification obligations or purchase price adjustments.
“HSBC” means HSBC BANKBank USA, N.A.
“Immaterial Subsidiary” means, as of any date of determination, any Subsidiary of the Borrower that does not have (a)
assets with a value in excess of 5.00% of Consolidated Total Assets or (b) revenues (for the most recently completed Reference
Period) representing in excess of 5.00% of total revenues, in
18
each case, of the Borrower and its Subsidiaries on a consolidated basis (after eliminating intercompany obligations) as of the last
day of the most recently completed Reference Period for which financial statements have been delivered pursuant to Sections
4.01(b), 5.01(a) or 5.01(b); provided, that, no Subsidiary shall constitute an “Immaterial Subsidiary” if its inclusion thereof
would result in either (i) the aggregate value of the assets of all Immaterial Subsidiaries (other than Excluded Subsidiaries and
Foreign Subsidiaries) that have not become Loan Guarantors exceeding 10.00% of Consolidated Total Assets or
(ii) the aggregate revenues of all Immaterial Subsidiaries (other than Excluded Subsidiaries and Foreign Subsidiaries) that have
not become Loan Guarantors exceeding 10.00% of the total revenues, in each case, of the Borrower and its Subsidiaries on a
consolidated basis (after eliminating intercompany obligations) as of the last day of the most recently completed Reference
Period for which financial statements have been delivered pursuant to Sections 4.01(b), 5.01(a) or 5.01(b).
“Increasing Lender” has the meaning assigned to such term in Section 2.22(a)(i).
“Indebtedness” of any Person means, without duplication, (a) all obligations of such Person for borrowed money, (b) all
obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under
conditional sale or other title retention agreements relating to property acquired by such Person, (d) all obligations of such
Person in respect of Deferred Acquisition Consideration to the extent constituting a liability on a balance sheet prepared under
GAAP and any other deferred purchase price of property or services (excluding (i) accounts payable incurred in the ordinary
course of business and not more than one hundred eighty (180) days past due or that are being contested in good faith by
appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided for on the books of
such Person, (ii) deferred compensation and (iii) intercompany liabilities in respect of cost-plus or transfer pricing arrangements
for the purchase of products or services or the licensing of intellectual property), (e) all Indebtedness of others secured by (or for
which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property
owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (f) all Guarantees by
such Person of Indebtedness of others, (g) all Capital Lease Obligations of such Person, (h) all obligations, contingent or
otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, (i) all obligations, contingent
or otherwise, of such Person in respect of bankers’ acceptances, (j) any other Off-Balance Sheet Liability and (k) the net
obligations of such Person with respect to any Swap Agreements. The Indebtedness of any Person shall include the Indebtedness
of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable
therefor as a result of such Person’s ownership interest in such entity, except to the extent the terms of such Indebtedness provide
that such Person is not liable therefor. In respect of Indebtedness of another Person secured by a Lien on the assets of the
specified Person, the amount of such Indebtedness as of any date of determination will be the lesser of (x) the fair market value
of such assets as of such date and (y) the amount of such Indebtedness as of such date. The amount of any net obligation under
any Swap Agreements on any date shall be deemed to be the Swap Termination Value thereof as of such date. For purposes
hereof, the amount of any Convertible Debt Securities shall be the aggregate stated principal amount thereof without giving
effect to any obligation to pay cash or deliver shares with value in excess of such principal amount, and without giving effect to
any integration thereof with any Permitted Call Spread Agreement pursuant to U.S. Treasury Regulation § 1.1275-6.
“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by,
or on account of any obligation of any Loan Party under any Loan Document and
(b) to the extent not otherwise described in clause (a) above, Other Taxes. “Indemnitee” has the meaning
assigned to such term in Section 9.03(b).
19
“Ineligible Institution” means a (a) natural person, (b) a Defaulting Lender, (c) holding company, investment vehicle or
trust for, or owned and operated for the primary benefit of, a natural person or relative(s) thereof; provided, that, such holding
company, investment vehicle or trust shall not constitute an Ineligible Institution if it (x) has not been established for the primary
purpose of acquiring any Loans or Commitments, (y) is managed by a professional advisor, who is not such natural person or a
relative thereof, having significant experience in the business of making or purchasing commercial loans, and (z) has assets
greater than $25.0 million and a significant part of its activities consist of making or purchasing commercial loans and similar
extensions of credit in the ordinary course of its business or (d) a Loan Party or a Subsidiary or other Affiliate of a Loan Party.
“Information” has the meaning assigned to such term in Section 9.12.
“Interest Coverage Ratio” means, at any date, the ratio of (a) EBITDA to (b) Interest Expense, all calculated for the
Reference Period ended on such date (or, if such date is not the last day of a fiscal quarter, ended on the last day of the fiscal
quarter most recently ended prior to such date).
“Interest Election Request” means a request by the Borrower to convert or continue a Borrowing in accordance with
Section 2.08.
“Interest Expense” means, with reference to any period, total interest expense of the Borrower and its Subsidiaries for
such period (including all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’
acceptance financing and net costs under Swap Agreements in respect of interest rates to the extent such net costs are allocable
to such period in accordance with GAAP), calculated on a consolidated basis for the Borrower and its Subsidiaries for such
period in accordance with GAAP (and including for the avoidance of doubt, interest expense attributable to Capital Lease
Obligations whether or not included in interest expense determined in accordance with GAAP).
“Interest Payment Date” means (a) with respect to any ABR Loan (including any Swingline Loan), the first Business
Day of each January, April, July and October and the Maturity Date and (b) with respect to any EurodollarTerm SOFR Loan, the
last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a EurodollarTerm
SOFR Borrowing with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest
Period that occurs at intervals of three months’ duration after the first day of such Interest Period and the Maturity Date.
“Interest Period” means with respect to any EurodollarTerm SOFR Borrowing, the period commencing on the date of
such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months
thereafter, as the Borrower may elect; provided, that
(i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless, in the case of a EurodollarTerm SOFR Borrowing only, such next succeeding Business Day
would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, (ii) any
Interest Period pertaining to a EurodollarTerm SOFR Borrowing that commences on the last Business Day of a calendar month
(or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on
the last Business Day of the last calendar month of such Interest Period and, (iii) no Interest Period may extend beyond the
Maturity Date and (iv) no tenor that has been removed from this definition pursuant to Section 2.25(a) shall be available for
specification in any Borrowing Request or Interest Election Request. For purposes hereof, the date of a Borrowing initially shall
be the date on
20
which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such
Borrowing.
“Investment” has the meaning assigned to such term in Section 6.04. “IRS” means the
United States Internal Revenue Service.
“Issuing Banks” means, individually and collectively as the context may require, (a) Citi, in its capacity as an issuer of
Letters of Credit hereunder, and any successors in such capacity, and (b) and any other Lender from time to time designated by
the Borrower as an Issuing Bank, with the consent of such Lender and the Administrative Agent and such Lender’s successors
in such capacity. Any Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of
such Issuing Bank, in which case the term “Issuing Bank” shall include any such Affiliate with respect to Letters of Credit
issued by such Affiliate. At any time there is more than one Issuing Bank, all singular references to the Issuing Bank shall mean
any Issuing Bank, either Issuing Bank, each Issuing Bank, the Issuing Bank that has issued the applicable Letter of Credit, or
both (or all) Issuing Banks, as the context may require.
“Joinder Agreement” has the meaning assigned to such term in Section 5.09(a). “LC Collateral Account”
has the meaning assigned to such term in Section 2.06(j).
“LC Disbursement” means a payment made by any Issuing Bank pursuant to a Letter of Credit.
“LC Exposure” means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at
such time, plus (b) the aggregate amount of all LC Disbursements relating to Letters of Credit that have not yet been reimbursed
by or on behalf of the Borrower at such time. The LC Exposure of any Lender at any time shall be its Applicable Percentage of
the total LC Exposure at such time.
“Lead Arranger” means Citibank, N.A.
“Lenders” means the Persons listed on the Commitment Schedule and any other Person that shall have become a party
hereto pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party hereto pursuant to an
Assignment and Assumption. Unless the context otherwise requires, the term “Lenders” includes the Issuing Banks and the
Swingline Lenders.
“Letter of Credit” means the letters of credit issued pursuant to this Agreement, and the term “Letter of Credit” means
any one of them or each of them singularly, as the context may require.
“LIBO Rate” means, with respect to any Eurodollar Borrowing for any applicable Interest Period or for any ABR
Borrowing,
(a)
the rate per annum equal to the offered rate that appears on the Reuters Screen LIBOR01 (or any
successor thereto) for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to
such Interest Period (the “LIBO Screen Rate”), determined as of approximately 11:00 a.m. (London time) two (2)
Business Days prior to the first day of such Interest Period;
(b)
if the rate referenced in the preceding clause (a) does not appear on such page or service or such page or
service shall not be available, the rate per annum equal to the rate
21
reasonably determined by the Administrative Agent to be the offered rate on such other page or other service that
displays an average ICE Benchmark Administration London Interbank Offered Rate for deposits in Dollars offered in
the London interbank market (for delivery on the first day of such Interest Period) with a term equivalent to such
Interest Period, determined as of approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of
such Interest Period; or
(c)
if the rates referenced in the preceding clauses (a) and (b) are not available, then the LIBO Rate for any
Eurodollar Rate Loan denominated in Dollars for such Interest Period shall be (x) a comparable successor or alternative
interbank rate for deposits in Dollars that is, at such time, broadly accepted by the syndicated loan market in lieu of the
“LIBO Rate” and is reasonably acceptable to the Borrower and the Administrative Agent or (y) solely if no such
broadly accepted comparable successor interbank rate exists at such time, a successor or alternative index rate as the
Administrative Agent and the Borrower may determine with the consent of the Required Lenders.
Notwithstanding the above, to the extent that “LIBO Rate” or “Adjusted LIBO Rate” is used in connection with an ABR
Borrowing, such rate shall be determined as modified by the definition of “Alternate Base Rate”.
“LIBO Screen Rate” has the meaning assigned to such term in the definition of “LIBO Rate”.
“LIBOR Successor Rate” has the meaning assigned to such term in Section 2.14(a).
“LIBOR Successor Rate Conforming Changes” means, with respect to any proposed LIBOR Successor Rate, any
conforming changes to the definition of Applicable Rate, Interest Period, timing and frequency of determining rates and making
payments of interest and other administrative matters as may be appropriate, in the discretion of the Administrative Agent, to
reflect the adoption of such LIBOR Successor Rate and to permit the administration thereof by the Administrative Agent in a
manner substantially consistent with market practice (or, if the Administrative Agent determines that adoption of any portion of
such market practice is not administratively feasible or that no market practice for the administration of such LIBOR Successor
Rate exists, in such other manner of administration as the Administrative Agent determines in consultation with the Borrower).
“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance,
charge or security interest in, on or of such asset, and (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as
any of the foregoing) relating to such asset.
“Loan Documents” means, collectively, this Agreement, the Notes, any Letter of Credit applications, the Loan
Guaranty, the Fee Letter, the Second Amendment Engagement and Fee Letter and all other agreements, instruments, documents
and certificates identified in Section 4.01 executed and delivered by a Loan Party to, or in favor of, the Administrative Agent or
any Lenders and including all other pledges, powers of attorney, consents, assignments, contracts, notices, letter of credit
agreements and all other written matter whether heretofore, now or hereafter executed by or on behalf of any Loan Party, or any
employee of any Loan Party, and delivered to the Administrative Agent or any Lender in connection with this Agreement or the
transactions contemplated hereby. Any reference in this Agreement or any other Loan Document to a Loan Document shall
include all appendices, exhibits or schedules thereto, and all amendments, restatements, supplements or other modifications
thereto, and
22
shall refer to the Agreement or such Loan Document as the same may be in effect at any and all times such reference becomes
operative.
“Loan Guarantor” means (a) each of the Borrower’s wholly owned Material Domestic Subsidiaries other than any
Excluded Subsidiary; and (b) with respect to Obligations owed by any other Loan Party or other Subsidiary, the Borrower;
provided, that subject to any administrative requirements of the Administrative Agent, the Borrower may elect to add additional
dDomestic Subsidiaries as Loan Guarantors so long as each such added Loan Guarantor complies with Section 5.09 of this
Agreement as if it were a newly acquired wholly-owned Material Domestic Subsidiary at the time of such designation.
“Loan Guaranty” means Article X of this Agreement.
“Loan Parties” means, collectively, the Borrower, each Loan Guarantor and any other Person who becomes a party to
this Agreement pursuant to a Joinder Agreement and each of their successors and assigns, and the term “Loan Party” means any
one of them or all of them individually, as the context may require.
“Loans” means the loans and advances made by the Lenders pursuant to this Agreement, including Revolving Credit
Loans and Swingline Loans.
“Material Adverse Effect” means a material adverse effect on (a) the business, assets, operations, or financial condition
of the Borrower and its Subsidiaries taken as a whole, (b) the ability of the Loan Parties to perform any of their material
obligations under the Loan Documents, or (c) the rights of or benefits available to the Administrative Agent, the Issuing Banks
or the Lenders under the Loan Documents.
“Material Contract” means and includes any contractual obligation of any Loan Party the failure to comply with which,
or the termination (without contemporaneous replacement) of which, could reasonably be expected to have a Material Adverse
Effect.
“Material Domestic Subsidiary” means any Domestic Subsidiary of the Borrower (other than a Domestic Subsidiary
directly or indirectly owned by a Foreign Subsidiary that is a CFC) that is not (a) an Immaterial Subsidiary or (b) a Foreign
Subsidiary Holding Company.
“Material Foreign Subsidiary” means any Foreign Subsidiary of the Borrower that is not an Immaterial Subsidiary.
“Material Indebtedness” means any Indebtedness (other than the Loans, Letters of Credit and Intercompany Loans
among the Loan Parties and their Subsidiaries), or any obligations under Swap Agreements, of any one or more of the Borrower
and its Subsidiaries in an aggregate principal amount exceeding $50100 million. For purposes of determining Material
Indebtedness, the aggregate principal amount of “obligations” of the Borrower or any Subsidiary in respect of any Swap
Agreement at any time shall be the Swap Termination Value.
“Maturity Date” means the earliest to occur of (a) the Revolving Credit Termination Date, (b) any earlier date on which
the Commitments are reduced to zero or otherwise terminated pursuant to the terms hereof and (c) the date that the Loans, if any,
are declared due and payable pursuant to Article VII hereof.
“Medicaid” means, collectively, the healthcare assistance program established by Title XIX of the Social Security Act
(42 U.S.C. §§ 1396 et seq.) and any statutes succeeding thereto, and all laws, rules and regulations having the force of law and
pertaining to such program, including all state statutes and
23
plans for medical assistance enacted in connection with such program, in each case as the same may be amended, supplemented
or otherwise modified from time to time.
“Medicare” means, collectively, the health insurance program for the aged and disabled established by Title XVIII of
the Social Security Act (42 U.S.C. §§ 1395 seq.) and any statutes succeeding thereto, and all laws, rules and regulations having
the force of law and pertaining to such program, in each case as the same may be amended, supplemented or otherwise modified
from time to time.
“Moody’s” means Moody’s Investors Service, Inc.
“Multiemployer Plan” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.
“Net Income” means, for any period, the consolidated net income (or loss) of the Borrower and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP; provided, that there shall be excluded from such net income (to the extent otherwise
included therein), without duplication: (a) the income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary
or is merged into or consolidated with the Borrower or any of its Subsidiaries, (b) the income (or deficit) of any Person (other than
a Subsidiary) in which the Borrower or any of its Subsidiaries has an ownership interest, except to the extent that any such income
is actually received by the Borrower or such Subsidiary in the form of dividends or similar distributions and (c) the undistributed
earnings of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is
not at the time permitted by the terms of any contractual obligation (other than under any Loan Document) or Requirement of Law
applicable to such Subsidiary.
“Non-Consenting Lender” has the meaning assigned to such term in Section 9.02(d). “Note” and “Notes” have
the meanings assigned to such terms in Section 2.10(e). “Notice of Increase” has the meaning assigned to such
term in Section 2.22(a)(i). “Obligated Party” has the meaning assigned to such term in Section 10.02.
“Obligations” means all unpaid principal of and accrued and unpaid interest on the Loans, all LC Exposure, all accrued
and unpaid fees, all obligations of the Loan Parties to pay, discharge and satisfy the Erroneous Payment Subrogation Rights and
all expenses, reimbursements, indemnities and other obligations, indebtedness (including interest and fees accruing during the
pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in
such proceeding), obligations and liabilities of any of the Borrower and its Subsidiaries to any of the Lenders, the
Administrative Agent, any Issuing Bank or any indemnified party, individually or collectively, existing on the Effective Date or
arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated,
secured or unsecured, arising by contract, operation of law or otherwise, in each case arising or incurred under this Agreement
or any of the other Loan Documents or in respect of any of the Loans made or reimbursement or other obligations incurred or
any of the Letters of Credit or other instruments at any time evidencing any thereof. For the avoidance of doubt, the
“Obligations” of any Guarantor shall include the Guaranteed Obligations.
“OFAC” means the Office of Foreign Assets Control of the United States Department of the Treasury.
24
“Off-Balance Sheet Liability” of a Person means (a) any repurchase obligation or liability of such Person with respect to
accounts or notes receivable sold by such Person (other than any customary repurchase obligations resulting from a breach of
representations and warranties, covenants, servicing obligations and indemnities under a securitizationReceivables fFacility), or
(b) any Indebtedness, liability or obligation under any so-called “synthetic lease” transaction entered into by such Person.
“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present or former
connection between such Recipient and the jurisdiction imposing such Taxes (other than a connection solely arising from such
Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or
perfected a security interest under, engaged in any other transaction pursuant to, or enforced, any Loan Document, or sold or
assigned an interest in any Loan, Letter of Credit or any Loan Document).
“Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes
that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the
receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that
are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section
2.19(b)).
“Parent” means, with respect to any Lender, any Person as to which such Lender is, directly or indirectly, a subsidiary.
“Participant” has the meaning assigned to such term in Section 9.04(c). “Participant Register” has the
meaning assigned to such term in Section 9.04(c).
“Payment in Full” means as of any date of determination, that: (a) the entire amount of principal of and interest due on
the Loans, and all other amounts of fees, payments and other obligations due under this Agreement, the other Loan Documents
and the Notes are paid in full in cash (other than contingent indemnification obligations and reimbursement obligations in
respect of which no claim for payment has yet been asserted by the Person entitled thereto); (b) the commitments to lend under
this Agreement have been terminated; (c) there are no outstanding Letters of Credit (other than Letters of Credit that have been
cash collateralized in accordance with the requirements of this Agreement or other arrangements acceptable to the Issuing
Bank); and (d) all Obligations (other than contingent indemnification obligations and reimbursement obligations in respect of
which no claim for payment has yet been asserted by the Person entitled thereto) have been paid in full in cash.
“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity
performing similar functions.
“Periodic Term SOFR Determination Day” has the meaning assigned to such term in the definition “Term SOFR” set
forth in this Section 1.01.
“Permits” means, with respect to any Person, any permit, approval, clearance, authorization, license, registration,
certificate, concession, grant, franchise, variance or permission from, and any other contractual obligations with, any
Governmental Authority, in each case whether or not having the force of law and applicable to or binding upon such Person or
any of its property or Products or to which such Person or any of its property or Products is subject, including all Registrations.
25
“Permitted Acquisition” means any Acquisition in which each of the following conditions is satisfied:
(a)
the Person or business or assets which is the subject of such Acquisition is in a line of business permitted under
Section 6.03(b);
(b)
all governmental, corporate and material third-party approvals and consents necessary in connection with such
Acquisition shall have been obtained and be in full force and effect;
(c)
if acquiring a Person, unless such Person is contemporaneously merged with and into the Borrower or a
Subsidiary of the Borrower, such Person becomes a wholly owned direct or indirect Subsidiary of the Borrower;
(d)
such Acquisition shall be consummated in accordance in all material respects with the terms of the purchase or
acquisition agreement executed in connection therewith and with all other material agreements, instruments and documents
implementing such Acquisition and in compliance in all material respects with applicable law and regulatory approvals;
(e)
such Acquisition shall, prior to the date of such Acquisition, have been approved by the board of directors (or
similar governing body) of such Person to be acquired (and such approval shall not have been rescinded);
(f)
no Default or Event of Default shall have occurred and be continuing or would result therefrom;
(g)
after giving effect to such Acquisition (including the incurrence, assumption or acquisition of any Indebtedness in
connection therewith) the (x) Total Leverage Ratio for the most recently ended Reference Period for which financial statements
have been (or were required to be) delivered to the Administrative Agent is not more than 3.00 to 1.00 and (y) the Interest
Coverage Ratio for the most recently ended Reference Period for which financial statements have been (or were required to be)
delivered to the Administrative Agent is not less than 23.50 to 1.00;
(h)
[Reserved];
(i)
if the Permitted Acquisition Consideration for any such Acquisition exceeds $75.0150.0 million, the Borrower
shall have delivered to the Administrative Agent a certificate of a Financial Officer, on the date of the consummation of such
Acquisition, certifying as to the accuracy and completeness of, and setting forth the calculations demonstrating compliance with,
clause (g) of this definition; and
(j)
no less than ten (10) Business Days prior to the proposed closing date of such Acquisition (or such shorter period
as may be agreed to by the Administrative Agent), the Borrower shall have delivered written notice of such Acquisition to the
Administrative Agent, which notice shall include the proposed closing date of such Acquisition; provided that no such notice
shall be required for any Acquisition so long as the Permitted Acquisition Consideration for any such Acquisition does not
exceed
$5100.0 million.
“Permitted Acquisition Consideration” means the aggregate amount of the purchase price, including, but not limited to,
any assumed debt, earn-outs and Holdbacks (valued at the maximum amount payable thereunder), deferred payments, or Equity
Interests of the Borrower, to be paid on a singular basis in connection with any applicable Permitted Acquisition as set forth in
any applicable agreements for the
26
Permitted Acquisition executed by the Borrower or any of its Subsidiaries in order to consummate the applicable Permitted
Acquisition.
“Permitted Call Spread Agreement” means (a) an agreement (including, but not limited to, any convertible bond hedge
or capped call transaction (or substantively equivalent derivative transaction)) pursuant to which the Borrower acquires an option
requiring the counterparty thereto to deliver to the Borrower shares of common stock of the Borrower (or other securities (to the
extent not secured by a Lien) or property following a merger event, reclassification or other change of the common stock of the
Borrower), the cash value thereof in lieu of delivering such shares of common stock (or such other securities or property) or the
cash value, a combination thereof , or cash representing the termination value of such option or a combination thereof, in each
case, from time to time upon settlement, exercise or early termination of such option (each a “Bond Hedge Transaction”) and (b)
an agreement pursuant to which the Borrower issues to the counterparty thereto warrants to acquire shares of common stock (or
other securities (to the extent not secured by a Lien) or property following a merger event, reclassification or other change of the
common stock) of the Borrower, the cash value thereof in lieu of delivering such shares of common stock (or such other
securities or property), a combination thereof, or cash representing the termination value of such warrants or a combination
thereof, in each case, from time to time upon settlement, exercise or early termination of such warrants, in each case, entered into
by the Borrower in connection with the issuance of any Convertible Debt Securities (including the exercise of any over-
allotment or underwriter’s optionoption to purchase additional Convertible Debt Securities granted to an underwriter or initial
purchaser) (each a “Warrant Transaction”); provided that such agreement shall only constitute a “Permitted Call Spread
Agreement” if the purchase price for such Bond Hedge Transaction, less the proceeds received by the Borrower from the sale of
any related Warrant Transaction, does not exceed the net proceeds received by the Borrower from the issuance of the related
Convertible Debt Securities.
“Permitted Encumbrances” means:
(a) Liens imposed by law for tTaxes that are not yet due or as to which the period of grace (not to exceed thirty (30)
days), if any, related thereto has not expired, or are being contested in compliance with Section 5.04;
(b)
carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens imposed by law, arising in
the ordinary course of business and securing obligations that are not overdue by more than sixty (60) days or are being contested
in compliance with Section 5.04;
(c)
pledges and deposits made in the ordinary course of business in compliance with workers’ compensation,
unemployment insurance and other social security laws or regulations;
(d)
deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case in the ordinary course of business;
(e)
judgment liens in respect of judgments that do not constitute an Event of Default under clause (k) of Article VII;
(f)
easements, covenants, conditions, zoning restrictions, rights-of-way, minor defects or other irregularities in title
and/or similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure
any monetary obligations and do not materially detract
27
from the value of the affected property or materially interfere with the ordinary conduct of business of the Borrower or any
Subsidiary; and
(g) Liens representing any interest or title of a licensor, lessor or sublicensor or sublessor, or a licensee, lessee or
sublicensee or sublessee, in the property subject to any lease, license or sublicense or concession agreement, in each case to the
extent permitted by this Agreement;
provided, that the term “Permitted Encumbrances” shall not include any Lien securing Indebtedness. “Permitted Liens”
means all Liens permitted under Section 6.02.
“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company,
partnership, Governmental Authority or other entity.
“Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV
of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is
(or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section
3(5) of ERISA.
“Prime Rate” means the rate of interest per annum publicly announced from time to time by Citibank, N.A. as its prime
rate in effect at its principal offices in New York City. Each change in the Prime Rate shall be effective from and including the
date such change is publicly announced as being effective.
“Products” means any item or any service that is designed, created, tested, manufactured, distributed, or otherwise
offered by or on behalf of the Loan Parties or any of their Subsidiaries.
“Prohibited Transaction” means the occurrence of a “prohibited transaction” within the meaning of Section 4975(c) of
the Code or Section 406 of ERISA for which there was no exemption under Section 4975(d).
“PTE” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption
may be amended from time to time.
“Public Health Laws” means all applicable laws relating to the procurement, development, clinical and non-clinical
testing, approval or clearance, manufacture, production, distribution, importation, exportation, handling, quality, sale,
advertising or promotion of any medical device (including any component of the foregoing products) subject to regulation under
the Federal Food, Drug, and Cosmetic Act (21 U.S.C. # 301 et seq.), its implementing regulations, and similar laws in each
jurisdiction where the Products are tested, distributed or sold, and all applicable state laws or consumer product safety laws.
“QFC” has the meaning assigned to such term in Section 9.20.
“Receivables Facility” means any customary receivables factoring facility entered into by a Foreign Subsidiary, that is
non-recourse to the Borrower and/or any Subsidiary (other than, in the case of the applicable Foreign Subsidiary, with respect to
customary representations, warranties, repurchase covenants and indemnities for such type of transaction), pursuant to which
such Foreign Subsidiary sells (for cash) Receivables Assets to a Person that is not the Borrower or a Subsidiary of the Borrower
for fair market value.
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“Receivables Assets” means (x) accounts receivable and (y) contractual rights, rights to payment and cash proceeds, in
each case, related to accounts receivable, in all cases, that are customarily sold in connection with customary receivables
factoring facilities.
“Recipient” means, as applicable, (a) the Administrative Agent, (b) any Lender and (c) any Issuing Bank, or any
combination thereof (as the context requires).
“Reference Period” has the meaning assigned to such term in the definition of “EBITDA”. “Refinancing” has the
meaning assigned to such term in Section 4.01(k).
“Register” has the meaning assigned to such term in Section 9.04(b)(iv).
“Registrations” means all applicable Permits and exemptions issued or allowed by any Governmental Authority
(including but not limited to device pre-market approval applications, device pre-market notifications, investigational device
exemptions, product recertifications, manufacturing approvals and authorizations, CE Marks, pricing and reimbursement
approvals, labeling approvals or their foreign equivalent, and wholesale distributor permits) held by, or applied by contract to,
any Loan Party or any of its Subsidiaries, that are required for the research, development, manufacture, distribution, marketing,
storage, transportation, use and sale of the Products of any Loan Party or any of its Subsidiaries.
“Regulatory Matters” means, collectively, activities and Products that are subject to Public Health
Laws.
“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors,
officers, employees, agents, partners and advisors of such Person and such Person’s Affiliates.
“Release” means any releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, migrating, disposing or dumping of any substance into the environment.
“Relevant Governmental Body” means the Federal Reserve Board and/or the Federal Reserve Bank of New York, or a
committee officially endorsed or convened by the Federal Reserve Board and/or the Federal Reserve Bank of New York or any
successor thereto.
“Requested Increase Date” has the meaning assigned to such term in Section 2.22(a)(i).
“Required Lenders” means, at any time, Lenders (other than Defaulting Lenders) having Credit Exposure and unused
Commitments representing more than 50% of the sum of the total Credit Exposure and unused Commitments at such time;
provided, that if at any time of determination there are two (but not more than two) Lenders party hereto that are not Affiliates
or Approved Funds of one another, Required Lenders shall include such two Lenders who are not Affiliates or Approved Funds
of one another.
“Requirement of Law” means, with respect to any Person, (a) the charter, articles or certificate of organization or
incorporation and bylaws or operating, management or partnership agreement, or other organizational or governing documents
of such Person and (b) any statute, law (including common law), treaty, rule, regulation, code, ordinance, order, decree, writ,
judgment, injunction or determination of any arbitrator or court or other Governmental Authority (including Environmental
Laws), in each case
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applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.
“Resolution Authority” means an EEA Resolution Authority or, with respect to any UK Financial Institution, a UK
Resolution Authority.
“Responsible Officer” means any Financial Officer, the chief executive officer, any executive vice president, any senior
vice president, any vice president or the chief operating officer of the Borrower and any other individual or similar official
thereof responsible for the administration of the obligations of the Borrower in respect of this Agreement.
“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with
respect to any Equity Interests in the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property),
including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or
termination of any such Equity Interests in the Borrower or any option, warrant or other right to acquire any such Equity
Interests in the Borrower. Notwithstanding the foregoing, and for the avoidance of doubt, the conversion of (including any cash
payment upon conversion), or payment of any principal or premium on, or payment of any interest with respect to, or any
purchase, redemption, retirement or other acquisition of, any unsecured Convertible Debt Securities shall not constitute a
Restricted Payment; provided, that to the extent the aggregate amount of cash payable upon conversion or payment of any
unsecured Convertible Debt Securities Indebtedness exceeds the aggregate principal amount thereof (plus accrued and unpaid
interest thereon not charged in contemplation of the conversion), the payment of such excess cash shall constitute a Restricted
Payment.
“Revolving Credit Loan” means a Loan made pursuant to Section 2.02.
“Revolving Credit Termination Date” means the thirdfifth anniversary of the Second Amendment Effective Date.
“S&P” means Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business.
“Sanctioned Country” means, at any time, a country or territory which is the subject or target of any comprehensive
Sanctions (which, as of the Second Amendment Effective dDate of this Agreement, includes the so - called Donetsk People’s
Republic, the so - called Luhansk People’s Republic, Crimea and the Crimea Region, Cuba, Iran, North Korea, Sudan, Syria and
Venezuela).
“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons
maintained by the OFAC, the U.S. Department of State or by the United Nations Security Council, the European Union or any
EU member state, His Majesty’s Treasury of the United Kingdom, the Hong Kong Monetary Authority or any other relevant
sanctions authority (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person majority-owned or
controlled by any such Person or Persons described in the foregoing clause (a) or (b).
“Sanctions” means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to
time by (a) the U.S. government, including those administered by OFAC or the
U.S. Department of State, or (b) the United Nations Security Council, the European Union or HerHis Majesty’s Treasury of the
United Kingdom or (c) the Hong Kong Monetary Authority.
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“SEC” means the Securities and Exchange Commission or any Governmental Authority succeeding to any or all of the
functions of the Securities and Exchange Commission.
“Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and the
denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal,
special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative
Agent is subject with respect to the Adjusted LIBO Rate, for eurodollar funding (currently referred to as “Eurodollar Liabilities”
in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D of the
Board. Eurodollar Loans shall be deemed to constitute eurodollar funding and to be subject to such reserve requirements without
benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such
Regulation D of the Board or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as
of the effective date of any change in any reserve percentage.
“Second Amendment” means that certain Second Amendment to Credit Agreement, dated as of December 23, 2022, by
and among the Borrower, the Lenders party thereto and the Administrative Agent.
“Second Amendment Effective Date has the meaning assigned to such term in the Second Amendment (it being
understood and agreed that the Second Amendment Effective Date occurred on December 23, 2022).
“Second Amendment Engagement and Fee Letter” means that certain Second Amendment Fee Letter, dated as of
December 23, 2022, by and between the Borrower and Citibank, N.A., as arranger, as the same may be amended, restated,
amended and restated, supplemented or otherwise modified from time to time.
“SOFR” means a rate equal to the secured overnight financing rate as administered by the SOFR Administrator.
“SOFR Administrator” means the Federal Reserve Bank of New York (or a successor
administrator of the secured overnight financing rate).
“Subordinated Indebtedness” of a Person means any Indebtedness of such Person the payment of which by its terms is
at all times subordinated to payment of the Obligations on terms reasonably satisfactory to the Administrative Agent.
“subsidiary” means, with respect to any Person (the “parent”) at any date, any corporation, limited liability company,
partnership, association or other entity of which securities or other ownership interests representing more than 50% of the equity
or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership
interests are, as of such date, owned, controlled or held by the parent.
“Subsidiary” means any direct or indirect subsidiary of the Borrower or a Loan Party, as applicable.
“Swap Agreement” means any agreement with respect to any swap, forward, spot, future, credit default or derivative
transaction or option or similar agreement involving, or settled by reference to, one or more rates, currencies, commodities,
equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing
risk or value or any similar transaction or any combination of these transactions; provided, that the term “Swap Agreement”
shall not include (i)
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any phantom stock or similar plan providing for payments only on account of services provided by current or former directors,
officers, employees or consultants of the Borrower or the Subsidiaries, (ii) any forward, option, warrant agreement or Forward
Agreement for the purchase or sale of Equity Interests of the Borrower, (iii) contracts for the purchase of securities of the
Borrower, (iv) any Permitted Call Spread Agreement and (ivv) any items described in this definition to the extent that it
constitutes a derivative security embedded in Convertible Debt Securities issued by the Borrower.
“Swap Termination Value” means, in respect of any one or more Swap Agreements, after taking into account the effect
of any legally enforceable netting agreement relating to such Swap Agreements,
(a) for any date on or after the date such Swap Agreements have been closed out and termination value(s) determined in
accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s)
determined as the mark-to-market value(s) for such Swap Agreements, as determined based upon one or more mid-market or
other readily available quotations provided by any recognized dealer in such Swap Agreements (which may include the Lenders
or any Affiliates of the Lenders).
“Swingline Commitment” with respect to Citi, $20.0 million or such lesser amount as agreed upon by the Borrower and
Citi, and with respect to any other Lender that becomes a Swingline Lender, an amount to be agreed upon by the Borrower and
such Lender, with the consent of the Administrative Agent; provided, that an aggregate amount of all such Swingline
Commitments shall not exceed $20.0 million.
“Swingline Exposure” means, at any time, the aggregate principal amount of all Swingline Loans outstanding at such
time. The Swingline Exposure of any Swingline Lender at any time shall be the sum of (a) its Applicable Percentage of the total
Swingline Exposure at such time other than with respect to any Swingline Loans made by such Swingline Lender in its capacity
as the Swingline Lender and (b) the principal amount of all Swingline Loans made by such Swingline Lender in its capacity as
the Swingline Lender outstanding at such time (less the amount of participations funded by the other Lenders in such Swingline
Loans).
“Swingline Lenders” individually and collectively as the context may require, (a) Citi in its capacity as a lender of
Swingline Loans hereunder and (b) and any other Lender from time to time designated by the Borrower as a Swingline Lender,
with the consent of such Lender and the Administrative Agent and such Lender’s successors in such capacity.
“Swingline Loan” means a Loan made pursuant to Section 2.04.
“Swingline Request” has the meaning assigned to such term in Section 2.04(b). “Syndication Agents”
means Bank of America and HSBC.
“Taxes” means any and all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup
withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to
tax or penalties applicable thereto.
“Term SOFR” means:
(a)
for any calculation with respect to a Term SOFR Loan, the Term SOFR Reference Rate for a tenor comparable to
the applicable Interest Period on the day (such day, the “Periodic Term SOFR Determination Day”) that is two (2) U.S.
Government Securities Business Days prior to the first day of such Interest Period, as such rate is published by the Term SOFR
Administrator; provided, however, that
32
if as of 5:00 p.m. (New York City time) on any Periodic Term SOFR Determination Day the Term SOFR Reference Rate for the
applicable tenor has not been published by the Term SOFR Administrator and a Benchmark Replacement Date with respect to
the Term SOFR Reference Rate has not occurred, then Term SOFR will be the Term SOFR Reference Rate for such tenor as
published by the Term SOFR Administrator on the first preceding U.S. Government Securities Business Day for which such
Term SOFR Reference Rate for such tenor was published by the Term SOFR Administrator so long as such first preceding U.S.
Government Securities Business Day is not more than three (3) U.S. Government Securities Business Days prior to such
Periodic Term SOFR Determination Day, and
(b)
for any calculation with respect to an ABR Loan on any day, the Term SOFR Reference Rate for a tenor of one
month on the day (such day, the “ABR Term SOFR Determination Day”) that is two (2) U.S. Government Securities Business
Days prior to such day, as such rate is published by the Term SOFR Administrator; provided, however, that if as of 5:00 p.m.
(New York City time) on any ABR Term SOFR Determination Day the Term SOFR Reference Rate for the applicable tenor has
not been published by the Term SOFR Administrator and a Benchmark Replacement Date with respect to the Term SOFR
Reference Rate has not occurred, then Term SOFR will be the Term SOFR Reference Rate for such tenor as published by the
Term SOFR Administrator on the first preceding U.S. Government Securities Business Day for which such Term SOFR
Reference Rate for such tenor was published by the Term SOFR Administrator so long as such first preceding U.S. Government
Securities Business Day is not more than three (3) U.S. Government Securities Business Days prior to such ABR SOFR
Determination Day.
“Term SOFR Adjustment” means, for any calculation with respect to an ABR Loan or a Term SOFR Loan, a
percentage per annum equal to 0.10%.
“Term SOFR Administrator” means CME Group Benchmark Administration Limited (CBA) (or a successor
administrator of the Term SOFR Reference Rate selected by the Administrative Agent in its reasonable discretion).
“Term SOFR Borrowing” means, as to any Borrowing, the Term SOFR Loans compromising such Borrowing.
“Term SOFR Loan” means a Loan that bears interest at a rate based on the Adjusted Term SOFR other than pursuant to
clause (c) of the definition of “Alternate Base Rate”.
“Term SOFR Reference Rate” means the forward-looking term rate based on SOFR that has been selected or
recommended by the Relevant Governmental Body.
“Total Funded Indebtedness” means, at any date, the aggregate principal amount of all Funded Indebtedness of the
Borrower and its Subsidiaries at such date, determined on a consolidated basis in accordance with GAAP.
“Total Leverage Ratio” means, as of any date, the ratio of (a) Total Funded Indebtedness on such date to (b) EBITDA
for the Reference Period ended on such date (or, if such date is not the last day of a fiscal quarter, ended on the last day of the
fiscal quarter most recently ended prior to such date).
“Transactions” means the execution, delivery and performance by the Borrower of this Agreement, the borrowing of
Loans and other credit extensions, the use of the proceeds thereof, the issuance of Letters of Credit hereunder and the
Refinancing.
33
“TRICARE” means, collectively, the program of medical benefits covering former and active members of the
uniformed services and certain of their dependents, financed and administered by the United States Department of Defense,
Health and Human Services and Transportation, and all laws, rules and regulations having the force of law and pertaining to
such program, in each case as the same may be amended, supplemented or otherwise modified from time to time.
“Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the
Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO RateTerm SOFR or the Alternate Base
Rate.
“UCC” means the Uniform Commercial Code as in effect from time to time in the State of New York or any other state
the laws of which are required to be applied in connection with the issue of perfection of security interests.
“UK Financial Institution” means any BRRD Undertaking (as such term is defined under the PRA Rulebook (as
amended form time to time) promulgated by the United Kingdom Prudential Regulation Authority) or any person falling within
IFPRU 11.6 of the FCA Handbook (as amended from time to time) promulgated by the United Kingdom Financial Conduct
Authority, which includes certain credit institutions and investment firms, and certain affiliates of such credit institutions or
investment firms.
“UK Resolution Authority” means the Bank of England or any other public administrative authority having
responsibility for the resolution of any UK Financial Institution.
“Unadjusted Benchmark Replacement” means the applicable Benchmark Replacement excluding the Benchmark
Replacement Adjustment.
“United States” means the United States of America.
“Unliquidated Obligations” means, at any time, any Obligations (or portion thereof) that are contingent in nature or
unliquidated at such time, including any Obligation that is: (i) an obligation to reimburse a bank for drawings not yet made
under a letter of credit issued by it; (ii) any other obligation (including any guarantee) that is contingent in nature at such time;
or (iii) an obligation to provide collateral to secure any of the foregoing types of obligations.
“U.S. Government Securities Business Day” means any day except for (a) a Saturday, (b) a Sunday or (c) a day on
which the Securities Industry and Financial Markets Association recommends that the fixed income departments of its members
be closed for the entire day for purposes of trading in United States government securities.
“U.S. Person” means a “United States person” as defined in section 7701(a)(30) of the Code.
“U.S. Tax Compliance Certificate” has the meaning assigned to such term in Section 2.17(f)(ii)(B)
(3).
“USA PATRIOT Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001.
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“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from
such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
“Withholding Agent” means the Borrower, any Loan Party and the Administrative Agent.
“Write-Down and Conversion Powers” means, (a) with respect to any EEA Resolution Authority, the write-down and
conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA
Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule, and (b) with
respect to the United Kingdom, any powers of the applicable Resolution Authority under the Bail-In Legislation to cancel,
reduce, modify or change the form of a liability of any UK Financial Institution or any contract or instrument under which that
liability arises, to convert all or part of that liability into shares, securities or obligations of that person or any other person, to
provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any
obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of
those powers.
SECTION 1.02 Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and
referred to by Type (e.g., a “EurodollarTerm SOFR Loan”).
SECTION 1.03 Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of
the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without
limitation”. The word “law” shall be construed as referring to all statutes, rules, regulations, codes and other laws (including
official rulings and interpretations thereunder having the force of law or with which affected Persons customarily comply) and
all judgments, orders and decrees of all Governmental Authorities. The word “will” shall be construed to have the same
meaning and effect as the word “shall”. Unless the context requires otherwise
(a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such
agreement, instrument or other document as from time to time amended, restated, amended and restated, supplemented,
refinanced, replaced, or otherwise modified (subject to any restrictions on such amendments, restatements, amendment and
restatement, supplements, refinancings, replacements, or modifications set forth herein), (b) any definition of or reference to any
statute, rule or regulation shall be construed as referring thereto as from time to time amended, supplemented or otherwise
modified (including by succession of comparable successor laws), (c) any reference herein to any Person shall be construed to
include such Person’s successors and assigns (subject to any restrictions on assignments set forth herein) and, in the case of any
Governmental Authority, any other Governmental Authority that shall have succeeded to any or all functions thereof, (d) the
words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its
entirety and not to any particular provision hereof, (e) all references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement, (f) any reference in any definition
to the phrase “at any time” or “for any period” shall refer to the same time or period for all calculations or determinations within
such definition, and (g) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to
any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.
SECTION 1.04 Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or
financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided, that, if after the Effective
Date there occurs any change in GAAP or in the application thereof on the operation of any provision hereof and the Borrower
notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of
such
35
change in GAAP or in the application thereof (or if the Administrative Agent notifies the Borrower that the Required Lenders
request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after
such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect
and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such
provision amended in accordance herewith. Notwithstanding any other provision contained herein, other than for purposes of
Sections 3.04, 5.01(a) and 5.01(b), all terms of an accounting or financial nature used herein shall be construed, and all
computations of amounts and ratios referred to herein shall be made without giving effect to any change in accounting for leases
resulting from the implementation of Financial Accounting Standards Board ASU No. 2016-02, Leases (Topic 842), to the
extent any lease (or similar arrangement conveying the right to use) would be required to be treated as a capital lease where such
lease (or similar arrangement) would not have been required to be so treated under GAAP as in effect on December 31, 2016.
SECTION 1.05 Status of Obligations. In the event that the Borrower or any other Loan Party shall at any time issue or
have outstanding any Subordinated Indebtedness, the Borrower shall take or cause such other Loan Party to take all such actions
as shall be necessary to cause the Obligations to constitute senior indebtedness (however denominated) in respect of such
Subordinated Indebtedness and to enable the Administrative Agent and the Lenders to have and exercise any payment blockage
or other remedies available or potentially available to holders of senior indebtedness under the terms of such Subordinated
Indebtedness. Without limiting the foregoing, the Obligations are hereby designated as “senior indebtedness” and as “designated
senior indebtedness” and words of similar import under and in respect of any indenture or other agreement or instrument under
which such Subordinated Indebtedness is outstanding and are further given all such other designations as shall be required under
the terms of any such Subordinated Indebtedness in order that the Lenders may have and exercise any payment blockage or
other remedies available or potentially available to holders of senior indebtedness under the terms of such Subordinated
Indebtedness.
SECTION 1.06 Financial Ratios. Any financial ratios required to be maintained by any Loan Party pursuant to this
Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place
more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest
number (with a rounding-up if there is no nearest number).
SECTION 1.07 Limited Liability Companies. Any reference in any Loan Document to a merger, consolidation,
amalgamation, assignment, sale, disposition or transfer, or similar term, shall be deemed to include or apply to (as applicable) a
division or plan of division of or by a limited liability company, limited partnership or trust, or an allocation of assets to a series
of a limited liability company, limited partnership or trust (or the unwinding of such a division or allocation), as if it were a
merger, amalgamation, consolidation, assignment, sale or transfer, or similar term, as applicable, to, of or with a separate Person.
Any Person that exists or that comes into existence after giving effect to a division of a limited liability company, limited
partnership or trust shall constitute a separate Person for all purposes under the Loan Documents (including any Loan Party,
Subsidiary, joint venture or any other like Person).
SECTION 1.08 Calculations.
(a) For purposes of determining the amount of any Investment outstanding for purposes of Section 6.04, such amount
shall be deemed to be the amount of such Investment when made, purchased or acquired (without adjustment for subsequent
increases or decreases in the value of such Investment) less
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any actual cash amount realized by the applicable Loan Party or Subsidiary in respect of such Investment upon the sale,
collection or return of capital (not to exceed the original amount invested).
(b) Notwithstanding anything to the contrary herein, for purposes of determining whether the incurrence of any
Indebtedness is in compliance with any applicable leverage ratio based test (including a Total Leverage Ratio), or other financial
test, set forth in this Agreement, such test shall be calculated (i) on a pro forma basis for the incurrence of such Indebtedness and
(ii) in the case of any such Indebtedness constituting revolving Indebtedness or delayed draw Indebtedness, assuming that such
Indebtedness is fully drawn.
SECTION 1.09 Rates. The Administrative Agent does not warrant or accept responsibility for, and shall not have any
liability with respect to (a) the continuation of, administration of, submission of, calculation of or any other matter related to the
Alternate Base Rate, Adjusted Term SOFR, SOFR, Term SOFR or Term SOFR Reference Rate, or any component definition
thereof or rates referred to in the definition thereof, or any alternative, successor or replacement rate thereto (including any
Benchmark Replacement), including whether the composition or characteristics of any such alternative, successor or
replacement rate (including any Benchmark Replacement) will be similar to, or produce the same value or economic equivalence
of, or have the same volume or liquidity as, Alternate Base Rate, Adjusted Term SOFR, Term SOFR or Term SOFR Reference
Rate or any other Benchmark prior to its discontinuance or unavailability, or (b) the effect, implementation or composition of
any Conforming Changes. The Administrative Agent and its affiliates or other related entities may engage in transactions that
affect the calculation of Alternate Base Rate, Adjusted Term SOFR, SOFR, Term SOFR or Term SOFR Reference Rate, any
alternative, successor or replacement rate (including any Benchmark Replacement) or any relevant adjustments thereto, in each
case, in a manner adverse to the Borrower. The Administrative Agent may select information sources or services in its
reasonable discretion to ascertain Alternate Base Rate, Adjusted Term SOFR, SOFR, Term SOFR, Term SOFR Reference Rate
or any other Benchmark, in each case pursuant to the terms of this Agreement, and shall have no liability to the Borrower, any
Lender or any other person or entity for damages of any kind, including direct or indirect, special, punitive, incidental or
consequential damages, costs, losses or expenses (whether in tort, contract or otherwise and whether at law or in equity), for any
error or calculation of any such rate (or component thereof) provided by any such information source or service.
ARTICLE II
THE CREDITS
SECTION 2.01 Commitments. Subject to the terms and conditions set forth herein, each Lender severally agrees to
make Loans to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not
result in such Lender’s Credit Exposure exceeding such Lender’s Commitment. Within the foregoing limits and subject to the
terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Loans.
SECTION 2.02 Loans and Borrowings.
(a) Each Loan (other than a Swingline Loan) shall be made as part of a Borrowing consisting of Loans of the same
Type made by the Lenders ratably in accordance with their respective Commitments. The failure of any Lender to make any
Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided, that the Commitments
of the Lenders are several and no Lender shall be responsible for any other Lender’s failure to make Loans as required. Any
Swingline Loan shall be made in accordance with the procedures set forth in Section 2.04 below.
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(b) Subject to Section 2.14, each Borrowing shall be comprised entirely of ABR Loans or EurodollarTerm SOFR
Loans as the Borrower may request in accordance herewith. Each Swingline Loan shall be an ABR Loan. Each Lender at its
option may make any EurodollarTerm SOFR Loan by causing any domestic or foreign branch or Affiliate of such Lender to
make such Loan (and in the case of an Affiliate, the provisions of Sections 2.14, 2.15, 2.16 and 2.17) shall apply to such Affiliate
to the same extent as to such Lender); provided, that any exercise of such option shall not affect the obligation of the Borrower
to repay such Loan in accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for any EurodollarTerm SOFR Borrowing, such Borrowing shall be
in an aggregate amount that is an integral multiple of $500,000 and not less than
$1.0 million. At the time that each ABR Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral
multiple of $100,000 and not less than $1.0 million; provided, that an ABR Borrowing may be in an aggregate amount that is
equal to the entire unused balance of the total Commitments or that is required to finance the reimbursement of an LC
Disbursement as contemplated by Section 2.06(e). Each Swingline Loan shall be in an amount that is an integral multiple of
$100,000 and not less than $1.0 million. Borrowings of more than one Type may be outstanding at the same time; provided, that
there shall not at any time be more than a total of eight (8) EurodollarTerm SOFR Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to
convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date.
SECTION 2.03 Requests for Borrowings. To request a Borrowing, the Borrower shall notify the Administrative Agent
of such request either in writing (delivered by hand, e-mail or fax) in substantially the form of Exhibit F and signed by the
Borrower or by telephone (such request a “Borrowing Request”) (a) in the case of a EurodollarTerm SOFR Borrowing, not later
than 12:00 p.m. (noon), New York City time, three (3) Business Days before the date of the proposed Borrowing or (b) in the
case of an ABR Borrowing, not later than 12:00 p.m. (noon), New York City time, on the date of the proposed Borrowing. Each
such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery, fax or e-mail to the
Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the
Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with
Section 2.01:
(i)
Borrowing;
the aggregate amount of the requested Borrowing and a breakdown of the separate wires comprising such
(ii)
the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a EurodollarTerm SOFR Borrowing; and
(iv)
in the case of a EurodollarTerm SOFR Borrowing, the initial Interest Period to be applicable thereto,
which shall be a period contemplated by the definition of the term “Interest Period.”.
If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no
Interest Period is specified with respect to any requested EurodollarTerm SOFR Borrowing, then the Borrower shall be deemed
to have selected an Interest Period of one month’s duration. Promptly following receipt of a Borrowing Request in accordance
with this Section 2.03, the
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Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Loan to be made as
part of the requested Borrowing.
SECTION 2.04 Swingline Loans.
(a) Subject to the terms and conditions set forth herein, from time to time during the Availability Period, each
Swingline Lender may, but shall have no obligation to, make Swingline Loans to the Borrower in an aggregate principal amount
at any time outstanding that will not result in (i) the aggregate principal amount of outstanding Swingline Loans made by such
Swingline Lender exceeding such Swingline Lender’s Swingline Commitment or (ii) such Swingline Lender’s Credit Exposure
exceeding its Commitment; provided, that a Swingline Lender shall not be required to make a Swingline Loan to refinance an
outstanding Swingline Loan. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower
may borrow, prepay and reborrow Swingline Loans.
(b) To request a Swingline Loan, the Borrower shall notify the Administrative Agent of such request either in writing
(delivered by hand, e-mail or fax) in substantially the form of Exhibit H and signed by the Borrower or by telephone (such
request a “Swingline Request”), not later than 12:00 p.m. (noon), New York City time, on the day of a proposed Swingline Loan.
Each such notice shall be irrevocable and shall specify the requested date (which shall be a Business Day) and amount of the
requested Swingline Loan. The Administrative Agent will promptly advise each Swingline Lender of any such notice received
from the Borrower. Each Swingline Lender shall make its ratable portion of the requested Swingline Loan (such ratable portion
to be calculated based upon such Swingline Lender’s Commitment to the total Commitments of all of the Swingline Lenders)
available to the Borrower by means of a credit to an account of the Borrower with the Administrative Agent designated for such
purpose (or, in the case of a Swingline Loan made to finance the reimbursement of an LC Disbursement as provided in Section
2.06(e), by remittance to the Issuing Bank) by 3:00 p.m., New York City time, on the requested date of such Swingline Loan.
(c) The failure of any Swingline Lender to make its ratable portion of a Swingline Loan shall not relieve any other
Swingline Lender of its obligation hereunder to make its ratable portion of such Swingline Loan on the date of such Swingline
Loan, but no Swingline Lender shall be responsible for the failure of any other Swingline Lender to make the ratable portion of a
Swingline Loan to be made by such other Swingline Lender on the date of any Swingline Loan.
(d) Any Swingline Lender may by written notice given to the Administrative Agent require the Lenders to acquire
participations in all or a portion of its Swingline Loans outstanding. Such notice shall specify the aggregate amount of Swingline
Loans in which Lenders will participate. Promptly upon receipt of such notice, the Administrative Agent will give notice thereof
to each Lender, specifying in such notice such Lender’s applicable percentage of such Swingline Loans. Each Lender hereby
absolutely and unconditionally agrees, promptly upon receipt of such notice from the Administrative Agent (and in any event, if
such notice is received by 12:00 p.m. (noon), New York City time, on a Business Day no later than 4:00 p.m. New York City
time on such Business Day and if received after 12:00 p.m. (noon), New York City time, on a Business Day shall mean no later
than 12:00 p.m. (noon)New York City time on the immediately succeeding Business Day), to pay to the Administrative Agent,
for the account of such Swingline Lenders, such Lender’s applicable percentage of such Swingline Loans. Each Lender
acknowledges and agrees that its obligation to acquire participations in Swingline Loans pursuant to this paragraph is absolute
and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a
Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset,
abatement, withholding or reduction whatsoever. Each Lender shall comply with its obligation under this paragraph by wire
transfer of immediately available funds, in the same manner as provided in Section
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2.07 with respect to Loans made by such Lender (and Section 2.07 shall apply, mutatis mutandis, to the payment obligations of
the Lenders), and the Administrative Agent shall promptly pay to such Swingline Lenders the amounts so received by it from
the Lenders. The Administrative Agent shall notify the Borrower of any participations in any Swingline Loan acquired pursuant
to this paragraph, and thereafter payments in respect of such Swingline Loan shall be made to the Administrative Agent and not
to such Swingline Lenders. Any amounts received by a Swingline Lender from the Borrower (or other party on behalf of the
Borrower) in respect of a Swingline Loan after receipt by such Swingline Lender of the proceeds of a sale of participations
therein shall be promptly remitted to the Administrative Agent; any such amounts received by the Administrative Agent shall be
promptly remitted by the Administrative Agent to the Lenders that shall have made their payments pursuant to this paragraph
and to such Swingline Lenders, as their interests may appear; provided, that any such payment so remitted shall be repaid to
such Swingline Lender or to the Administrative Agent, as applicable, if and to the extent such payment is required to be
refunded to the Borrower for any reason. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not
relieve the Borrower of any default in the payment thereof.
(e) Any Swingline Lender may be replaced at any time by written agreement among the Borrower, the Administrative
Agent, the replaced Swingline Lender and the successor Swingline Lender. The Administrative Agent shall notify the Lenders of
any such replacement of a Swingline Lender. At the time any such replacement shall become effective, the Borrower shall pay
all unpaid interest accrued for the account of the replaced Swingline Lender pursuant to Section 2.13(a). From and after the
effective date of any such replacement, (x) the successor Swingline Lender shall have all the rights and obligations of the
replaced Swingline Lender under this Agreement with respect to Swingline Loans made thereafter and (y) references herein to
the term “Swingline Lender” shall be deemed to refer to such successor or to any previous Swingline Lender, or to such
successor and all previous Swingline Lenders, as the context shall require. After the replacement of a Swingline Lender
hereunder, the replaced Swingline Lender shall remain a party hereto and shall continue to have all the rights and obligations of
a Swingline Lender under this Agreement with respect to Swingline Loans made by it prior to its replacement, but shall not be
required to make additional Swingline Loans.
(f)
Subject to the appointment and acceptance of a successor Swingline Lender, any Swingline Lender may resign as
a Swingline Lender at any time upon thirty (30) days’ prior written notice to the Administrative Agent, the Borrower and the
Lenders, in which case, such Swingline Lender shall be replaced in accordance with Section 2.04(e) above.
SECTION 2.05 [Reserved]. SECTION 2.06 Letters of
Credit.
(a) General. Subject to the terms and conditions set forth herein, the Borrower may request the issuance of (and the
Issuing Bank shall issue) Letters of Credit denominated in Dollars as the applicant thereof for the support of its or its
Subsidiaries’ obligations in a form reasonably acceptable to the applicable Issuing Bank, at any time and from time to time
during the Availability Period. In the event of any inconsistency between the terms and conditions of this Agreement and the
terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into
by the Borrower with, any Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall
control. The Borrower unconditionally and irrevocably agrees that, in connection with any Letter of Credit issued for the
support of any Subsidiary’s obligations as provided in the first sentence of this clause (a), the Borrower will be fully responsible
for the reimbursement of LC Disbursements in accordance with the terms hereof, the payment of interest thereon and the
payment of fees due under Section 2.12(b) to the same extent as if it were the sole account party in respect of such
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Letter of Credit (the Borrower hereby irrevocably waiving any defenses that might otherwise be available to it as a guarantor or
surety of the obligations of such Subsidiary that is an account party in respect of any such Letter of Credit). Notwithstanding
anything herein to the contrary, the Issuing Bank shall have no obligation hereunder to issue, and shall not issue, any Letter of
Credit (i) the proceeds of which would be made available to any Person (A) to fund any activity or business of or with any
Sanctioned Person, or in any country or territory that, at the time of such funding, is the subject of any Sanctions, in either such
case, in violation of any such Sanctions or (B) in any manner that would result in a violation of any Sanctions by any party to
this Agreement, (ii) if any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to
enjoin or restrain the Issuing Bank from issuing such Letter of Credit, or any Requirement of Law relating to the Issuing Bank or
any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the
Issuing Bank shall prohibit, or request that the Issuing Bank refrain from, the issuance of letters of credit generally or such Letter
of Credit in particular or shall impose upon the Issuing Bank with respect to such Letter of Credit any restriction, reserve or
capital requirement (for which the Issuing Bank is not otherwise compensated hereunder) not in effect on the Effective Date, or
shall impose upon the Issuing Bank any unreimbursed loss, cost or expense which was not applicable on the Effective Date and
which the Issuing Bank in good faith deems material to it, or (iii) if the issuance of such Letter of Credit would violate one or
more policies of the Issuing Bank applicable to letters of credit generally; provided, that, notwithstanding anything herein to the
contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines, requirements
or directives thereunder or issued in connection therewith or in the implementation thereof, and (y) all requests, rules, guidelines,
requirements or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision
(or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III,
shall in each case be deemed not to be in effect on the Effective Date for purposes of clause (ii) above, regardless of the date
enacted, adopted, issued or implemented
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. To request the issuance of a Letter of
Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or fax (or
transmit by electronic communication, if arrangements for doing so have been approved by the applicable Issuing Bank) to the
applicable Issuing Bank and the Administrative Agent (reasonably in advance of, but in any event no less than three (3) Business
Days prior to the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of
Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment,
renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply
with clause (c) of this Section 2.06) and whether such Letter of Credit shall contain automatic extension or renewal provisions,
the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be
necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the applicable Issuing Bank, the Borrower
also shall submit a letter of credit application on such Issuing Bank’s standard form in connection with any request for a Letter of
Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or
extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such
issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed $50.0 million and (ii) the Aggregate Credit
Exposure shall not exceed the aggregate Commitments of all Lenders.
(c) Expiration Date. Each Letter of Credit shall expire (or be subject to termination or non- renewal by notice from the
applicable Issuing Bank to the beneficiary thereof) at or prior to the close of business on the earlier of (i) the date one year after
the date of the issuance of such Letter of Credit (or, in the case of any one-time renewal or extension thereof, including any
automatic renewal provision, one year after such renewal or extension) and (ii) the date that is five (5) Business Days prior to the
Maturity Date; provided, that, upon the Borrower’s request, any such Letter of Credit which is issued in the final
41
year prior the Maturity Date may have an expiry date which is up to one year after the Maturity Date if, at least five (5) Business
Days prior to the Maturity Date, the Borrower (A) deposits with the Administrative Agent cash collateral in an amount equal to
105% of the amount of the LC Exposure as of such date plus accrued and unpaid interest thereon or (B) provides a backup
standby letter of credit, in each case, reasonably satisfactory to the relevant Issuing Bank. Each Letter of Credit with automatic
extension or renewal provisions shall, subject to the right of the respective Issuing Bank to terminate such automatic renewal in
accordance with the terms of such Letter of Credit upon the occurrence of an Event of Default, be automatically renewed for a
successive one-year period on each anniversary of the date of the issuance of such Letter of Credit, until cancelled by the
Borrower by notice to the applicable Issuing Bank in accordance with the terms of such Letter of Credit agreed upon at the time
such Letter of Credit is issued; provided, that such Letter of Credit shall expire at or prior to the close of business on the date
that is five
(5) Business Days prior to the Maturity Date if not earlier cancelled, unless otherwise agreed with the relevant Issuing Bank and
subject to satisfactory arrangements with respect thereto as contemplated above.
(d) Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount
thereof) and without any further action on the part of the applicable Issuing Bank or the Lenders, such Issuing Bank hereby
grants to each Lender, and each Lender hereby acquires from such Issuing Bank, a participation in such Letter of Credit equal to
such Lender’s Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In
consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the
Administrative Agent, for the account of such Issuing Bank, such Lender’s Applicable Percentage of each LC Disbursement
made by such Issuing Bank and not reimbursed by the Borrower on the date due as provided in clause (e) of this Section 2.06, or
of any reimbursement payment required to be refunded to the Borrower for any reason. Each Lender acknowledges and agrees
that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional
and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of
Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such
payment shall be made without any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If an Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Borrower
shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement not
later than 12:00 p.m. (noon), New York City time, on the Business Day immediately following the day that the Borrower
receives such notice; provided, that, if such LC Disbursement is not less than $500,000, the Borrower may, subject to the
conditions to borrowing set forth herein, request in accordance with Section 2.03 or 2.04 that such payment be financed with an
ABR Borrowing or Swingline Loan in an equivalent amount and, to the extent so financed, the Borrower’s obligation to make
such payment shall be discharged and replaced by the resulting ABR Borrowing or Swingline Loan. If the Borrower fails to
make such payment when due, the Administrative Agent shall notify each Lender of the applicable LC Disbursement, the
payment then due from the Borrower in respect thereof and such Lender’s Applicable Percentage thereof. Promptly following
receipt of such notice, each Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due
from the Borrower, in the same manner as provided in Section 2.07 with respect to Loans made by such Lender (and Section
2.07 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay
to the applicable Issuing Bank the amounts so received by it from the Lenders. Promptly following receipt by the Administrative
Agent of any payment from the Borrower pursuant to this paragraph, the Administrative Agent shall distribute such payment to
the applicable Issuing Bank or, to the extent that Lenders have made payments pursuant to this paragraph to reimburse such
Issuing Bank, then to such Lenders and such Issuing Bank as their interests may appear. Any payment made by a Lender
pursuant to this paragraph to reimburse any
42
Issuing Bank for any LC Disbursement (other than the funding of ABR Loans or a Swingline Loan as contemplated above) shall
not constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such LC Disbursement.
(f) Obligations Absolute. The Borrower’s obligation to reimburse LC Disbursements as provided in clause (e) of this
Section 2.06 shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this
Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter
of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit
proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii)
payment by an Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with
the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the
foregoing, that might, but for the provisions of this Section 2.06, constitute a legal or equitable discharge of, or provide a right of
setoff against, the Borrower’s obligations hereunder. Neither the Administrative Agent, the Lenders nor any Issuing Bank, nor
any of their Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer
of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances
referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft,
notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing
thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of any
Issuing Bank; provided, that the foregoing shall not be construed to excuse any Issuing Bank from liability to the Borrower to
the extent of any direct damages (as opposed to special, indirect, consequential or punitive damages, claims in respect of which
are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by such
Issuing Bank’s failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit
comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct
on the part of an Issuing Bank (as finally determined by a court of competent jurisdiction), such Issuing Bank shall be deemed to
have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the
parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms
of a Letter of Credit, an Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without
responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make
payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.
(g) Disbursement Procedures. The applicable Issuing Bank shall, promptly following its receipt thereof, examine all
documents purporting to represent a demand for payment under a Letter of Credit. Such Issuing Bank shall promptly notify the
Administrative Agent and the Borrower in writing of such demand for payment and whether such Issuing Bank has made or will
make an LC Disbursement thereunder; provided, that any failure to give or delay in giving such notice shall not relieve the
Borrower of its obligation to reimburse such Issuing Bank and the Lenders with respect to any such LC Disbursement.
(h)
Interim Interest. If an Issuing Bank shall make any LC Disbursement, then, unless the Borrower shall reimburse
such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each
day from and including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC
Disbursement, at the rate per annum then applicable to ABR Loans and such interest shall be payable on the date when such
reimbursement is due; provided, that, if the Borrower fails to reimburse such LC Disbursement when due pursuant to clause (e)
of this Section 2.06, then Section 2.13(cd) shall apply. Interest accrued pursuant to
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this paragraph shall be for the account of the applicable Issuing Bank, except that interest accrued on and after the date of
payment by any Lender pursuant to clause (e) of this Section 2.06 to reimburse such Issuing Bank shall be for the account of
such Lender to the extent of such payment.
(i) Replacement of an Issuing Bank. An Issuing Bank may be replaced at any time by written agreement among the
Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank. The Administrative Agent shall
notify the Lenders of any such replacement of an Issuing Bank. At the time any such replacement shall become effective, the
Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.12(b). From and
after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of an
Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term
“Issuing Bank” shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous
Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall
remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with
respect to Letters of Credit then outstanding and issued by it prior to such replacement, but shall not be required to issue
additional Letters of Credit.
(j) Cash Collateralization. If any Event of Default shall occur and be continuing, on the Business Day that the
Borrower receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been
accelerated, Lenders with LC Exposure representing greater than 50% of the aggregate LC Exposure) demanding the deposit of
cash collateral pursuant to this paragraph, the Borrower shall deposit in an account with the Administrative Agent, in the name
of the Administrative Agent and for the benefit of the Lenders (the “LC Collateral Account”), an amount in cash equal to 105%
of the amount of the LC Exposure as of such date plus accrued and unpaid interest thereon; provided, that the obligation to
deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable,
without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described
in clause (h) or (i) of Article VII. Such deposit shall be held by the Administrative Agent as collateral for the payment and
performance of the Obligations. The Administrative Agent shall have exclusive dominion and control, including the exclusive
right of withdrawal, over the LC Collateral Account and the Borrower hereby grants the Administrative Agent a security interest
in the LC Collateral Account to secure the Obligations. Other than any interest earned on the investment of such deposits, which
investments shall be made at the option and sole discretion of the Administrative Agent and at the Borrower’s risk and expense,
such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in the LC Collateral
Account. Moneys in the LC Collateral Account shall be applied by the Administrative Agent to reimburse the Issuing Banks for
LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the
reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been
accelerated (but subject to the consent of Lenders with LC Exposure representing greater than 50% of the aggregate LC
Exposure), be applied to satisfy other Obligations. If the Borrower is required to provide an amount of cash collateral hereunder
as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the
Borrower within three (3) Business Days after all such Defaults have been cured or waived.
(k)
Issuing Bank Reports to the Administrative Agent. Unless otherwise agreed by the Administrative Agent, each
Issuing Bank shall, in addition to its notification obligations set forth elsewhere in this Section 2.06, report in writing to the
Administrative Agent (i) periodic activity (for such period or recurrent periods as shall be requested by the Administrative
Agent) in respect of Letters of Credit issued by such Issuing Bank, including all issuances, extensions, amendments and
renewals, all expirations and cancelations and all disbursements and reimbursements, (ii) reasonably prior to the time
44
that such Issuing Bank issues, amends, renews or extends any Letter of Credit, the date of such issuance, amendment, renewal
or extension, and the stated amount of the Letters of Credit issued, amended, renewed or extended by it and outstanding after
giving effect to such issuance, amendment, renewal or extension (and whether the amounts thereof shall have changed), (iii) on
each Business Day on which such Issuing Bank makes any LC Disbursement, the date and amount of such LC Disbursement,
(iv) on any Business Day on which the Borrower fails to reimburse an LC Disbursement required to be reimbursed to such
Issuing Bank on such day, the date of such failure and the amount of such LC Disbursement, and (v) on any other Business Day,
such other information as the Administrative Agent shall reasonably request as to the Letters of Credit issued by such Issuing
Bank.
(l)
LC Exposure Determination. For all purposes of this Agreement, the amount of a Letter of Credit that, by its terms
or the terms of any document related thereto, provides for one or more automatic increases in the stated amount thereof shall be
deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such
maximum stated amount is in effect at the time of determination.
SECTION 2.07 Funding of Borrowings.
(a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds by 12:00 p.m. (noon), New York City time, to the account of the Administrative Agent most
recently designated by it for such purpose by notice to the Lenders in an amount equal to such Lender’s Applicable Percentage;
provided, that Swingline Loans shall be made as provided in Section 2.04. The Administrative Agent will make such Loans
available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower maintained
with the Administrative Agent and designated by the Borrower in the applicable Borrowing Request; provided, that ABR Loans
made to finance the reimbursement of an LC Disbursement as provided in Section 2.06(e) shall be remitted by the
Administrative Agent to the Issuing Banks.
(b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any
Borrowing that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the
Administrative Agent may assume that such Lender has made such share available on such date in accordance with clause (a) of
this Section 2.07 and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such
event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding
amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but
excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank
compensation or (ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If such Lender pays such amount to
the Administrative Agent, then such amount shall constitute such Lender’s Loan included in such Borrowing.
SECTION 2.08 Interest Elections.
(a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a
EurodollarTerm SOFR Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the
Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a
EurodollarTerm SOFR Borrowing, may elect Interest Periods therefor, all as provided in this Section 2.08. The Borrower may
elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall
45
be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such
portion shall be considered a separate Borrowing. This section shall not apply to Swingline Borrowings, which may not be
converted or continued.
(b) To make an election pursuant to this Section 2.08, the Borrower shall notify the Administrative Agent of such
election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were
requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such
telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery, fax or e-mail to the
Administrative Agent of a written Interest Election Request in substantially the form of Exhibit G and signed by the Borrower.
(c) Each telephonic and written Interest Election Request shall specify the following information in compliance with
Section 2.02:
(i)
the Borrowing to which such Interest Election Request applies and, if different options are being
elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in
which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting
Borrowing);
(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a
Business Day;
Borrowing; and
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a EurodollarTerm SOFR
(iv) if the resulting Borrowing is a EurodollarTerm SOFR Borrowing, the Interest Period to be
applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term
“Interest Period”.
If any such Interest Election Request requests a EurodollarTerm SOFR Borrowing but does not specify an Interest
Period, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration.
(d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of
the details thereof and of such Lender’s portion of each resulting Borrowing.
(e)
If the Borrower fails to deliver a timely Interest Election Request with respect to a EurodollarTerm SOFR
Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at
the end of such Interest Period, such Borrowing shall be converted to an ABR Borrowing. Notwithstanding anyanything to the
contrary provision hereofin, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request
of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding
Borrowing may be converted to or continued as a EurodollarTerm SOFR Borrowing and (ii) unless repaid, each EurodollarTerm
SOFR Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto.
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SECTION 2.09 Termination and Reduction of Commitments.
(a) Unless previously terminated or extended pursuant to the terms and conditions hereof, all Commitments shall
terminate on the Maturity Date.
(b) The Borrower may at any time, without (subject to Section 2.16) premium or penalty, terminate the Commitments
upon (i) the payment in full of all outstanding Loans (including any Swingline Loans), together with accrued and unpaid interest
thereon and on any Letters of Credit, (ii) the cancellation and return of all outstanding Letters of Credit (or alternatively, with
respect to each such Letter of Credit, the furnishing to the Administrative Agent of a cash deposit (together with a security
interest therein) (or at the discretion of the Administrative Agent a backup standby letter of credit satisfactory to the
Administrative Agent and the applicable Issuing Bank) in an amount equal to 105% of the LC Exposure as of such date), (iii)
the payment in full of the accrued and unpaid fees, and (iv) the payment in full of all reimbursable expenses and other
Obligations together with accrued and unpaid interest thereon (other than Unliquidated Obligations).
(c) The Borrower may from time to time, without (subject to Section 2.16) premium or penalty, reduce the
Commitments; provided, that (i) each reduction of the Commitments shall be in an amount that is an integral multiple of $1.0
million and not less than $5.0 million (or if less, the aggregate amount of the outstanding Commitments), and (ii) the Borrower
shall not reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section
2.11, the Aggregate Credit Exposure would exceed the aggregate Commitments of all Lenders.
(d) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments
under clause (b) or (c) of this Section 2.09 at least three (3) Business Days prior to the effective date of such termination or
reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative
Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section 2.09 shall
be irrevocable; provided, that a notice of termination of the Commitments delivered by the Borrower may state that such notice
is conditioned upon the effectiveness of other credit facilities or events, in which case such notice may be revoked by the
Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied.
Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made
ratably among the Lenders in accordance with their respective Commitments.
SECTION 2.10 Repayment of Loans; Evidence of Debt.
(a) The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each
Lender the then unpaid principal amount of each Loan on the Maturity Date and (ii) to the Administrative Agent for the account
of the Swingline Lenders the then unpaid principal amount of each Swingline Loan on the earlier of the Maturity Date and the
date that is five (5) Business Days after such Swingline Loan is made; provided, that on each date that a Borrowing is made, the
Borrower shall repay all Swingline Loans then outstanding and the proceeds of any such Borrowing shall be applied by the
Administrative Agent to repay any Swingline Loans than outstanding.
(b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the
indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal
and interest payable and paid to such Lender from time to time hereunder.
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(c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made
hereunder, the Type thereof and the Interest Period applicable thereto, if any, (ii) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.
(d)
The entries made in the accounts maintained pursuant to clause (b) or (c) of this Section
2.10 shall be prima facie evidence of the existence and amounts of the obligations recorded therein absent manifest error;
provided, that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in
any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement; provided,
further, that in the event of a conflict between the entries made in the accounts maintained pursuant to clause (b) or (c) of this
Section 2.10 and the Register, the Register shall govern.
(e) Any Lender may request that Loans made by it be evidenced by a promissory note in substantially the form of
Exhibit I completed as appropriate (each a “Note” and, collectively, the “Notes”). In such event, the Borrower shall prepare,
execute and deliver to such Lender a Note payable to such Lender and its registered assigns and in a form approved by the
Administrative Agent. Thereafter, the Loans evidenced by such Note and interest thereon shall at all times (including after
assignment pursuant to Section 9.04) be represented by one or more Notes in such form payable to such payee and its registered
assigns.
SECTION 2.11 Prepayment of Loans.
(a) The Borrower shall have the right at any time and from time to time, without (subject to Section 2.16) premium or
penalty, to prepay any Borrowing in whole or in part, subject to prior notice in accordance with clause (c) of this Section 2.11.
(b)
In the event and on such occasion that the Aggregate Credit Exposure exceeds the aggregate Commitments of all
Lenders, the Borrower shall prepay the Loans (including any Swingline Loans) and/or cash collateralize the LC Exposure (in
accordance with Section 2.06(j)) in an aggregate amount equal to such excess.
(c) The Borrower shall notify the Administrative Agent (and, in the case of prepayment of Swingline Loans, the
Swingline Lenders) in writing of any prepayment hereunder (i) in the case of prepayment of a EurodollarTerm SOFR
Borrowing, not later than 12:00 p.m. (noon), New York City time, three (3) Business Days before the date of prepayment, (ii) in
the case of prepayment of an ABR Borrowing, not later than 12:00 p.m. (noon), New York City time, one (1) Business Day
before the date of prepayment or (iii) in the case of prepayment of a Swingline Loan, not later than 12:00 p.m. (noon), New
York City time, on the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the
principal amount of each Borrowing or portion thereof to be prepaid; provided, that, if a notice of prepayment is given in
connection with a conditional notice of termination of the Commitments as contemplated by Section 2.09, then such notice of
prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.09. Promptly following
receipt of any such notice relating to a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof.
Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a
Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Borrowing shall be applied ratably to the Loans
included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section
2.13.
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SECTION 2.12 Fees.
(a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender (other than a Defaulting
Lender, subject to Section 2.20) a commitment fee, which shall accrue at the Commitment Fee Rate set forth in the definition of
Applicable Rate on the average daily amount of the Available Commitment of such Lender during the period from and
including the Effective Date to but excluding the date on which the Commitments terminate; provided, however, that for
purposes of this clause (a) any Swingline Loan shall not be considered when calculating the amount of the Available
Commitment. Accrued commitment fees shall be payable in arrears on the first Business Day of each January, April, July and
October and on the date on which the Commitments terminate, commencing on the first such date to occur after the date hereof.
All commitment fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days
elapsed.
(b) The Borrower agrees to pay (i) to the Administrative Agent for the account of each Lender (other than a
Defaulting Lender, subject to Section 2.20) a participation fee with respect to its participations in Letters of Credit, which shall
accrue at the same Applicable Rate used to determine the interest rate applicable to Eurodollarthe Term SOFR Loans , on the
average daily amount of such Lender’s LC Exposure (excluding any portion thereof attributable to unreimbursed LC
Disbursements) during the period from and including the Effective Date to but excluding the later of the date on which such
Lender’s Commitment terminates and the date on which such Lender ceases to have any LC Exposure, and (ii) to the applicable
Issuing Bank a fronting fee, which shall accrue at the rate of 0.25% per annum on the average daily amount of each applicable
Letter of Credit (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and
including the Effective Date to but excluding the later of the date of termination of the Commitments and the date on which
there ceases to be any LC Exposure, as well as the applicable Issuing Bank’s standard fees with respect to the issuance,
amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Participation fees and fronting
fees accrued through and including the last day of each calendar quarter shall be payable on the first Business Day of each of
each January, April, July and October following such last day, commencing on the first such date to occur after the Effective
Date; provided, that all such fees shall be payable on the date on which the Commitments terminate and any such fees accruing
after the date on which the Commitments terminate shall be payable on demand. Any other fees payable to any Issuing Bank
pursuant to this paragraph shall be payable within ten (10) days after demand. All participation fees and fronting fees shall be
computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed.
(c) The Borrower agrees to pay to the Administrative Agent, for its own account, and to any Lender, fees payable in
the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent or such Lender.
(d) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative
Agent (or to an Issuing Bank, in the case of fees payable to it) for distribution, in the case of commitment fees and participation
fees, to the Lenders. Fees paid shall not be refundable under any circumstances.
SECTION 2.13 Interest.
(a) The Loans comprising each ABR Borrowing (including each Swingline Loan) shall bear interest at the Alternate
Base Rate plus the Applicable Rate.
(b)
[Reserved]
49
(c)
b) The Loans comprising each EurodollarTerm SOFR Borrowing shall bear interest at the Adjusted LIBO
RateTerm SOFR for the Interest Period in effect for such Borrowing plus the Applicable Rate.
(d)
(c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable
by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue
amount shall automatically bear interest, after, as well as before, judgment, at a rate per annum equal to (i) in the case of
overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of
this Section 2.13 or
(ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided in clause (a) of this Section 2.13.
(e)
(d) Accrued interest on each Loan (for ABR Loans, accrued through the last day of the prior calendar quarter)
shall be payable in arrears on each Interest Payment Date for such Loan and upon termination of the Commitments; provided,
that (i) interest accrued pursuant to clause (cd) of this Section
2.13 shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an
ABR Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be
payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any EurodollarTerm SOFR
Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date
of such conversion.
(f)
(e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by
reference to the Alternate Base Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in
each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The
applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate or Term SOFR shall be determined by the Administrative
Agent, and such determination shall be conclusive absent manifest error.
(g)
In connection with the use or administration of Adjusted Term SOFR, the Administrative Agent will have the right
to make Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan
Document, any amendments implementing such Conforming Changes will become effective without any further action or
consent of any other party to this Agreement or any other Loan Document. The Administrative Agent will promptly notify the
Borrower and the Lenders of the effectiveness of any Conforming Changes in connection with the use or administration of
Adjusted Term SOFR.
SECTION 2.14 Alternate Rate of Interest; Illegality.
(a)
Subject to Section 2.25, if, on or prior to the first day of any Interest Period for any Term SOFR Loan:
(i)
(a) If prior to the commencement of any Interest Period for a Eurodollar Borrowing the Administrative
Agent determines (which determination shall be conclusive absent manifest error), or the Required Lenders notify the
Administrative Agent (with a copy to the Borrower) that the Required Lenders have determined that: that adequate and
reasonable means do not exist for ascertaining Adjusted Term SOFR, Term SOFR or SOFR pursuant to the definition
thereof; or
(i)
adequate and reasonable means do not exist for ascertaining the LIBO Rate or Adjusted LIBO Rate, as
applicable, for any requested Interest Period, including because the LIBO
50
Rate is not available or published on a current basis and such circumstances are unlikely to be temporary;
(ii)
the supervisor for the administrator of the LIBO Rate or a Governmental Authority having jurisdiction
over the Administrative Agent has made a public statement identifying a specific date after which the LIBO Rate shall
no longer be made available, or used for determining the interest rate of loans; or
(iii) a rate other than the LIBO Rate has been broadly accepted by the syndicated loan market in the United
States in lieu of the LIBO Rate,
then, after such determination by the Administrative Agent or receipt by the Administrative Agent of such notice, as applicable,
the Administrative Agent and the Borrower may amend this Agreement to replace the LIBO Rate with an alternate benchmark
rate (including any mathematical or other adjustments to the benchmark (if any) incorporated therein) that has been broadly
accepted by the syndicated loan market in the United States in lieu of the LIBO Rate (any such proposed rate, a “LIBOR
Successor Rate”), together with any proposed LIBOR Successor Rate Conforming Changes and adjustments to account for (x)
the effects of the transition from the LIBOR Rate to the replacement index and (y) yield- or risk-based differences between the
LIBOR Rate and the replacement index and, notwithstanding anything to the contrary in Section 9.02, any such amendment
shall become effective at 5:00 p.m. (New York time) on the fifth Business Day after the Administrative Agent shall have posted
such proposed amendment to all Lenders and the Borrower unless, prior to such time, Lenders comprising the Required Lenders
have delivered to the Administrative Agent notice that such Required Lenders do not accept such amendment. Notwithstanding
anything to the contrary in the foregoing, without the consent from each Lender (other than Defaulting Lenders), no such
amendment shall be effective to the extent such amendment would have the effect of reducing the Applicable Rate applicable to
any Loan.
(ii)
the Required Lenders determine that for any reason in connection with any request for a Term SOFR Loan
or a conversion thereto or a continuation thereof that Adjusted Term SOFR for any requested Interest Period with
respect to a proposed Term SOFR Loan does not adequately and fairly reflect the cost to such Lenders of making and
maintaining such Loan, and the Required Lenders have provided notice of such determination to the Administrative
Agent;
the Administrative Agent will promptly so notify the Borrower and the Lenders.
If no LIBOR Successor Rate has been determined and the circumstances under clause (i) above exist, theUpon notice
thereof by the Administrative Agent to the Borrower, any obligation of the Lenders to make or maintain Eurodollar LoansTerm
SOFR Loans, and any right of the Borrower to continue Term SOFR Loans or to convert ABR Loans to Term SOFR Loans,
shall be suspended, (to the extent of the affected EurodollarTerm SOFR Loans or affected Interest Periods) until the
Administrative Agent (with respect to clause (a)(ii), at the instruction of the Required Lenders) revokes such notice. Upon
receipt of such notice, (i) the Borrower may revoke any pending request for a Eurodollar Borrowing of, conversion to or
continuation of EurodollarTerm SOFR Loans (to the extent of the affected EurodollarTerm SOFR Loans or affected Interest
Periods) or, failing that, the Borrower will be deemed to have converted any such request into a request for an ABRa Borrowing
of or conversion to ABR Loans in the amount specified therein. and (ii) any outstanding affected Term SOFR Loans will be
deemed to have been converted into ABR Loans at the end of the applicable Interest Period. Upon any such conversion, the
Borrower shall also pay accrued interest on the amount so converted, together with any additional amounts required pursuant to
Section 2.16. Subject to Section 2.25, if the Administrative Agent determines (which determination shall be conclusive and
binding absent manifest error) that “Adjusted
51
Term SOFR” cannot be determined pursuant to the definition thereof on any given day, the interest rate on ABR Loans shall be
determined by the Administrative Agent without reference to clause (c) of the definition of “Alternate Base Rate” until the
Administrative Agent revokes such determination.
(b)
If after the date hereof, the adoption of any applicable law, or any change in any applicable law (whether adopted
before or after the Effective Date), or any change in interpretation or administration thereof byany Lender determines that any
Law has made it unlawful, or that any Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender with any directive (whether or not having the force of law)
of any such authority, central bank or comparable agency, shall make it unlawful or impossible has asserted that it is unlawful,
for any Lender or its applicable lending office to make, maintain or fund its portion of Eurodollar Loans,Loans whose interest is
determined by reference to SOFR, the Term SOFR Reference Rate, Adjusted Term SOFR or Term SOFR, or to determine or
charge interest rates based upon SOFR, the Term SOFR Reference Rate, Adjusted Term SOFR or Term SOFR, then, upon notice
thereof by such Lender shall so notifyto the Borrower (through the Administrative Agent, and) (an “Illegality Notice”), (i) any
obligation of the Lenders to make Term SOFR Loans, and any right of the Borrower to continue Term SOFR Loans or to
convert ABR Loans to Term SOFR Loans, shall be suspended, and (ii) the interest rate on which ABR Loans shall, if necessary
to avoid such illegality, be determined by the Administrative Agent shall forthwith give notice thereof to the other Lenders and
the Borrower. Before giving any notice towithout reference to clause (c) of the definition of “Alternate Base Rate”, in each case
until each affected Lender notifies the Administrative Agent pursuant to this Section 2.14(b), such Lender shall designate a
different lending office if such designation will avoid the need for giving such notice and will not, in the sole reasonable
judgment of such Lender, be otherwise materially disadvantageous to such Lender. Upon receipt of such notice, notwithstanding
anything contained in Article II, the Borrower shall repay in full the then outstanding principal amount of such Lender’s portion
of each affected Eurodollar Loan, together with accrued interest thereon, on either (i) and the Borrower that the circumstances
giving rise to such determination no longer exist. Upon receipt of an Illegality Notice, the Borrower shall, if necessary to avoid
such illegality, upon demand from any Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all
Term SOFR Loans to ABR Loans (the interest rate on which ABR Loans shall, if necessary to avoid such illegality, be
determined by the Administrative Agent without reference to clause (c) of the definition of “Alternate Base Rate”), on the last
day of the then current Interest Period applicable to suchtherefor, if all affected Eurodollar Loans if such Lenders may lawfully
continue to maintain and fund its portion of such EurodollarTerm SOFR Loans to such day, or (ii) immediately , if suchany
Lender may not lawfully continue to fund and maintain its portion of such affected Eurodollarsuch Term SOFR Loans to such
day. Concurrently with repaying such portion of each affected Eurodollar Loan, the Borrower may borrow an ABR Loan from
such Lender, whether or not it would have been entitled to effect such borrowing and such Lender shall make such Loan, if so
requested, in an amount such that the outstanding principal amount of the affected Loan made by such Lender shall equal the
outstanding principal amount of such Loan immediately prior to such repayment. The obligation of such Lender to make
Eurodollar Loans is suspended only until such time as it is once more possible and legal for such Lender to fund and maintain
Eurodollar Loans., in each case until the Administrative Agent is advised in writing by each affected Lender that it is no longer
illegal for such Lender to determine or charge interest rates based upon SOFR, the Term SOFR Reference Rate, Adjusted Term
SOFR or Term SOFR. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so
prepaid or converted, together with any additional amounts required pursuant to Section 2.16.
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SECTION 2.15 Increased Costs.
(a)
If any Change in Law shall:
(i)
impose, modify or deem applicable any reserve, special deposit, liquidity or similar requirement
(including any compulsory loan requirement, insurance charge or other assessment) against assets of, deposits with or
for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted
LIBO Rate) or any Issuing Bank;
(ii)
impose on any Lender or any Issuing Bank or the Londonapplicable interbank market any other condition,
cost or expense affecting this Agreement or EurodollarTerm SOFR Loans made by such Lender or any Letter of Credit
or participation therein; or
(iii) subject any Recipient to any Taxes (other than (A) Indemnified Taxes and (B) Excluded Taxes) on its
loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or
capital attributable thereto;
and the result of any of the foregoing shall be to increase the cost to such Lender or such other Recipient of making, continuing,
converting into or maintaining any EurodollarTerm SOFR Loan (or of maintaining its obligation to make any such Loan) or to
increase the cost to such Lender or such Issuing Bank of participating in, issuing or maintaining any Letter of Credit or to reduce
the amount of any sum received or receivable by such Lender or such Issuing Bank hereunder (whether of principal, interest or
otherwise), then the Borrower will pay to such Lender or such Issuing Bank, as the case may be, such additional amount or
amounts as will compensate such Lender or such Issuing Bank, as the case may be, for such additional costs incurred or
reduction suffered.
(b)
If any Lender or any Issuing Bank determines that any Change in Law regarding capital or liquidity requirements
has or would have the effect of reducing the rate of return on such Lender’s or such Issuing Bank’s capital or on the capital of
such Lender’s or such Issuing Bank’s holding company, if any, as a consequence of this Agreement or the Loans made by, or
participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by such Issuing Bank, to a level below
that which such Lender or such Issuing Bank or such Lender’s or such Issuing Bank’s holding company could have achieved but
for such Change in Law (taking into consideration such Lender’s or such Issuing Bank’s policies and the policies of such
Lender’s or such Issuing Bank’s holding company with respect to capital adequacy or liquidity), then from time to time the
Borrower will pay to such Lender or such Issuing Bank, as the case may be, such additional amount or amounts as will
compensate such Lender or such Issuing Bank or such Lender’s or such Issuing Bank’s holding company for any such reduction
suffered.
(c) A certificate of a Lender or the applicable Issuing Bank setting forth in reasonable detail the amount or amounts
necessary to compensate such Lender or such Issuing Bank or its holding company, as the case may be, as specified in clause (a)
or (b) of this Section 2.15 shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall
pay such Lender or such Issuing Bank, as the case may be, the amount shown as due on any such certificate within ten (10) days
after receipt thereof.
(d) Failure or delay on the part of any Lender or any Issuing Bank to demand compensation pursuant to clauses (a),
(b) and (c) of this Section 2.15 shall not constitute a waiver of such Lender’s or such Issuing Bank’s right to demand such
compensation; provided, that the Borrower shall not be required to compensate a Lender or an Issuing Bank pursuant to this
Section 2.15 for any increased costs or reductions incurred more than 180 days prior to the date that such Lender or such Issuing
Bank, as the
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case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s
or such Issuing Bank’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such
increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of
retroactive effect thereof.
SECTION 2.16 Break Funding Payments. In the event of (a) the payment of any principal of any EurodollarTerm SOFR
Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the
conversion of any EurodollarTerm SOFR Loan other than on the last day of the Interest Period applicable thereto, (c) the failure
to borrow, convert, continue or prepay any EurodollarTerm SOFR Loan on the date specified in any notice delivered pursuant
hereto (regardless of whether such notice may be revoked under Section 2.09(d) or Section 2.11(c) and is revoked in accordance
therewith), or (d) the assignment of any EurodollarTerm SOFR Loan other than on the last day of the Interest Period applicable
thereto as a result of a request by the Borrower pursuant to Section 2.19, then, in any such event, the Borrower shall compensate
each Lender for the loss, cost and expense attributable to such event (which shall not include any loss of margin or Applicable
Rate). In the case of a EurodollarTerm SOFR Loan, such loss, cost or expense to any Lender shall include an amount determined
by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such
Loan had such event not occurred, at the Adjusted LIBO RateTerm SOFR that would have been applicable to such Loan, for the
period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to
borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of
interest (as reasonably determined by such Lender) which accrued on such principal amount for such period at the interest rate
which such Lender bid, at the commencement of such period, for Dollar deposits of a comparable amount and period from other
banks in the eurodollarapplicable market. A certificate of any Lender setting forth, in reasonable detail, any amount or amounts
that such Lender is entitled to receive pursuant to this Section 2.16 shall be delivered to the Borrower and shall be conclusive
absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within ten (10) days
after receipt thereof.
SECTION 2.17 Withholding of Taxes; Gross-Up.
(a) Payments Free of Taxes. Any and all payments by or on account of any obligation of any Loan Party under any
Loan Document shall be made free and clear without deduction or withholding for any Taxes, except as required by applicable
law. If any applicable law (as determined in the good faith discretion of an applicable Withholding Agent) requires the deduction
or withholding of any Tax from any such payment by a Withholding Agent, then the applicable Withholding Agent shall be
entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant
Governmental Authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable by such
Loan Party shall be increased as necessary so that after such deduction or withholding has been made (including such deductions
and withholdings applicable to additional sums payable under this Section 2.17) the applicable Recipient receives an amount
equal to the sum it would have received had no such deduction or withholding been made.
(b) Payment of Other Taxes by the Loan Parties. The Loan Parties shall timely pay to the relevant Governmental
Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for, Other Taxes.
(c) Evidence of Payment. As soon as practicable after any payment of Taxes by any Loan Party to a Governmental
Authority pursuant to this Section 2.17, such Loan Party shall deliver to the Administrative Agent the original or a certified
copy of a receipt issued by such Governmental Authority
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evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(d)
Indemnification by the Loan Parties. The Loan Parties shall jointly and severally indemnify each Recipient, within
ten (10) days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or
asserted on or attributable to amounts payable under this Section 2.17) payable or paid by such Recipient or required to be
withheld or deducted from a payment to such Recipient and any reasonable expenses arising therefrom or with respect thereto,
whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A
certificate as to the amount of such payment or liability delivered to any Loan Party by a Lender (with a copy to the
Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent
manifest error.
(e)
Indemnification by the Lenders. Each Lender shall severally indemnify the Administrative Agent, within ten (10)
days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that any Loan Party
has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the
Loan Parties to do so), (ii) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 9.04(c)
relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Lender, in each case, that
are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising
therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant
Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the
Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set
off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the
Administrative Agent to such Lender from any other source against any amount due to the Administrative Agent under this
clause (e).
(f)
Status of Lenders.
(i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments
made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times
prescribed by applicable law and at the time or times reasonably requested by the Borrower or the Administrative Agent,
such properly completed and executed documentation prescribed by applicable law or as reasonably requested by the
Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate
of withholding. In addition, any Lender, if reasonably requested by the Borrower or the Administrative Agent, shall
deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the
Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender
is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the
preceding two sentences, the completion, execution and submission of such documentation (other than such
documentation set forth in Section 2.17(f)(ii)(A), (ii)(B) and (ii)(D) below) shall not be required if in the Lender’s
reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed
cost or expense or would materially prejudice the legal or commercial position of such Lender.
(ii) Without limiting the generality of the foregoing, in the event that the Borrower is a U.S. Person,
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(A) any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or
prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time
thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed originals of IRS
Form W-9 certifying that such Lender is exempt from U.S. Federal backup withholding tax;
(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and
the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the
date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter
upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is
applicable:
(1)
in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the
United States is a party (x) with respect to payments of interest under any Loan Document, executed
originals of IRS Form W-8BEN or W-8BEN-E, as applicable, establishing an exemption from, or
reduction of, U.S. Federal withholding Tax pursuant to the “interest” article of such tax treaty and (y)
with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN or W-
8BEN-E, as applicable, establishing an exemption from, or reduction of, U.S. Federal withholding Tax
pursuant to the “business profits” or “other income” article of such tax treaty;
(2)
in the case of a Foreign Lender claiming that its extension of credit will generate U.S.
effectively connected income, executed originals of IRS Form W-8ECI;
(3)
in the case of a Foreign Lender claiming the benefits of the exemption for portfolio
interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit E-1 to the
effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code,
a “10 percent shareholder” of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, or
a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code (a “U.S. Tax
Compliance Certificate”) and (y) executed originals of IRS Form W-8BEN or W-8BEN-E, as
applicable; or
(4)
to the extent a Foreign Lender is not the Beneficial Owner, executed originals of IRS
Form W-8IMY, accompanied by IRS Form W-8ECI, W-8BEN or W-8BEN-E, as applicable, a U.S. Tax
Compliance Certificate substantially in the form of Exhibit E-2 or Exhibit E-3, IRS Form W-9, and/or
other certification documents from each Beneficial Owner, as applicable; provided, that if the Foreign
Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming
the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate
substantially in the form of Exhibit E-4 on behalf of each such direct and indirect partner;
(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and
the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the
date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter
upon the
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reasonable request of the Borrower or the Administrative Agent), executed originals of any other form
prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. Federal withholding
Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law
to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be
made;
(D)
if a payment made to a Recipient under any Loan Document would be subject to U.S. Federal
withholding Tax imposed by FATCA if such Recipient were to fail to comply with the applicable reporting
requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable),
such Recipient shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law
and at such time or times reasonably requested by the Borrower or the Administrative Agent such
documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code)
and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may
be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and
to determine that such Recipient has complied with such Recipient’s obligations under FATCA or to determine
the amount to deduct and withhold from such payment. Solely for purposes of this clause (D), “FATCA” shall
include any amendments made to FATCA after the date of this Agreement; and
(E)
to the extent legally permissible, at the time or times reasonably requested by Borrower, any
replacement Administrative Agent (but not the Administrative Agent, as of the date hereof) shall (1) if the
Administrative Agent is a U.S. Person, deliver an IRS Form W-9 to Borrower, or (2) if the Administrative
Agent is not a U.S. Person, deliver the applicable IRS Form W-8 certifying Administrative Agent’s exemption
from, or reduction of, U.S. withholding Taxes with respect to amounts payable hereunder.
Each Recipient agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate
in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in
writing of its legal inability to do so.
(g) Treatment of Certain Refunds. If any party determines, in its sole discretion exercised in good faith, that it has
received a refund of any Taxes as to which it has been indemnified pursuant to this Section 2.17 (including by the payment of
additional amounts pursuant to this Section 2.17), it shall pay to the indemnifying party an amount equal to such refund (but
only to the extent of indemnity payments made under this Section 2.17 with respect to the Taxes giving rise to such refund), net
of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by
the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such
indemnified party, shall repay to such indemnified party the amount paid over pursuant to this clause (g) (plus any penalties,
interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to
repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this clause (g), in no event will
the indemnified party be required to pay any amount to an indemnifying party pursuant to this clause (g) the payment of which
would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the
Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the
indemnification payments or additional amounts giving rise to such Tax had never been paid. This clause (g) shall not be
construed to require any indemnified
57
party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party
or any other Person.
(h) Survival. Each party’s obligations under this Section 2.17 shall survive the resignation or replacement of the
Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and
the repayment, satisfaction or discharge of all obligations under any Loan Document.
(i) Defined Terms. For purposes of this Section 2.17, the term “Lender” includes any Issuing Bank and the term
“applicable law” includes FATCA.
SECTION 2.18 Payments Generally; Allocation of Proceeds; Sharing of Setoffs.
(a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or
reimbursement of LC Disbursements, or of amounts payable under Section 2.15, 2.16 or 2.17, or otherwise) prior to 1:00 p.m.,
New York City time, on the date when due, in immediately available funds, without setoff or counterclaim. Any amounts
received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the
next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the
Administrative Agent to one or more accounts as it may designate to the Borrower in writing from time to time, except payments
to be made directly to an Issuing Bank or Swingline Lender as expressly provided herein and except that payments pursuant to
Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall
distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following
receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be
extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be
payable for the period of such extension. All payments hereunder shall be made in Dollars.
(b) Any payments, proceeds or recoveries with respect to the Obligations (including the Guaranteed Obligations)
received by the Administrative Agent (i) not constituting a specific payment of principal, interest, fees or other sum payable
under the Loan Documents (which shall be applied as specified by the Borrower), or (ii) after an Event of Default has occurred
and is continuing, shall be applied ratably first, to pay any fees, indemnities, or expense reimbursements including amounts then
due to the Administrative Agent and the Issuing Banks from the Borrower, second, to pay any fees, indemnities or expense
reimbursements then due to the Lenders from the Borrower, third, to pay interest then due and payable on the Loans ratably,
fourth, to prepay principal on the Loans and unreimbursed LC Disbursements, fifth, to pay an amount to the Administrative
Agent equal to one hundred five percent (105%) of the aggregate undrawn face amount of all outstanding Letters of Credit, to be
held as cash collateral for such Obligations, and sixth, to the payment of any other Obligation due to the Administrative Agent or
any Lender by the Borrower. Notwithstanding anything to the contrary contained in this Agreement, unless so directed by the
Borrower, or unless a Default is in existence, neither the Administrative Agent nor any Lender shall apply any payment which it
receives to any EurodollarTerm SOFR Loan, except (a) on the expiration date of the Interest Period applicable to any such
EurodollarTerm SOFR Loan or (b) in the event, and only to the extent, that there are no outstanding ABR Loans and, in any such
event, the Borrower shall pay the break funding payment required in accordance with Section 2.16. The Administrative Agent
and the Lenders shall have the continuing and exclusive right to apply and reverse and reapply any and all such proceeds and
payments to any portion of the Obligations.
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(c) At the election of the Borrower but subject to the conditions set forth in Section 4.02, all payments of principal,
interest, LC Disbursements, fees, premiums, reimbursable expenses (including all reimbursement for fees, costs and expenses
pursuant to Section 9.03), and other sums payable under the Loan Documents, may be paid from the proceeds of Borrowings
made hereunder whether made following a request by the Borrower pursuant to Section 2.03 or a deemed request as provided in
this Section 2.18 or may be deducted from any deposit account of the Borrower maintained with the Administrative Agent.
(d)
If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of
any principal of or interest on any of its Loans or participations in LC Disbursements or Swingline Loans resulting in such
Lender receiving payment of a greater proportion of the aggregate amount of its Loans and participations in LC Disbursements
and Swingline Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving
such greater proportion shall purchase (for cash at face value) participations in the Loans and participations in LC
Disbursements and Swingline Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be
shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective
Loans and participations in LC Disbursements and Swingline Loans; provided, that (i) if any such participations are purchased
and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase
price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to
apply to (x) any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or (y)
any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or
participations in LC Disbursements to any assignee or participant, other than to the Borrower or any Subsidiary (as to which the
provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do
so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against
the Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor
of the Borrower in the amount of such participation.
(e) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any
payment is due to the Administrative Agent for the account of the Lenders or any Issuing Bank hereunder that the Borrower will
not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in
accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Banks, as the case may
be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the Issuing
Banks, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed
to such Lender or such Issuing Bank with interest thereon, for each day from and including the date such amount is distributed
to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a
rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
(f)
If any Lender shall fail to make any payment required to be made by it hereunder, then the Administrative Agent
may, in its discretion (notwithstanding any contrary provision hereof), (i) apply any amounts thereafter received by the
Administrative Agent for the account of such Lender to satisfy such Lender’s obligations hereunder until all such unsatisfied
obligations are fully paid and/or (ii) hold any such amounts in a segregated account as cash collateral for, and apply any such
amounts to, any future funding obligations of such Lender hereunder; application of amounts pursuant to (i) and (ii) above shall
be made in such order as may be determined by the Administrative Agent in its discretion.
(g) The Administrative Agent may from time to time provide the Borrower with billing statements or invoices with
respect to any of the Obligations (the “Billing Statements”). The
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Administrative Agent is under no duty or obligation to provide Billing Statements, which, if provided, will be solely for the
Borrower’s convenience. The Billing Statements may contain estimates of the amounts owed during the relevant billing period,
whether of principal, interest, fees or other Obligations. If the Borrower pays the full amount indicated on a Billing Statement
on or before the due date indicated on such Billing Statement, the Borrower shall not be in default; provided, that acceptance by
the Administrative Agent, on behalf of the Lenders, of any payment that is less than the payment due at that time shall not
constitute a waiver of the Administrative Agent’s or the Lenders’ right to receive payment in full at another time.
SECTION 2.19 Mitigation Obligations; Replacement of Lenders.
(a)
If any Lender requests compensation under Section 2.15, or if the Borrower or the Loan Guarantors are required to
pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender
pursuant to Section 2.17, then such Lender shall use reasonable efforts to designate a different lending office for funding or
booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in
the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section
2.15 or 2.17, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and
would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable and documented out-
of-pocket costs and expenses incurred by any Lender in connection with any such designation or assignment.
(b)
If (i) any Lender requests compensation under Section 2.15, (ii) any Lender fails to consent to a requested
amendment, waiver or modification to any Loan Document in which Required Lenders have already consented to such
amendment, waiver or modification but the consent of each Lender (or each Lender directly affected thereby, as applicable) is
required with respect thereto, (iii) the Borrower or the Loan Guarantors are required to pay any Indemnified Taxes or additional
amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, or (iv) any
Lender becomes a Defaulting Lender, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the
restrictions contained in Section 9.04), all its interests, rights (other than its existing rights to payments pursuant to Section 2.15
or 2.17) and obligations under this Agreement and other Loan Documents to an assignee that shall assume such obligations
(which assignee may be another Lender, if a Lender accepts such assignment); provided, that (A) the Borrower shall have
received the prior written consent of the Administrative Agent (and if a Commitment is being assigned, the Issuing Banks and
Swingline Lenders), which consent shall not unreasonably be withheld, conditioned or delayed, (B) such Lender shall have
received payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements and
Swingline Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the
extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (C) in
the case of any such assignment resulting from a claim for compensation under Section 2.15 or payments required to be made
pursuant to Sections 2.17, such assignment will result in a reduction in such compensation or payments. A Lender shall not be
required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the
circumstances entitling the Borrower to require such assignment and delegation cease to apply. Notwithstanding anything herein
to the contrary, each party hereto agrees that any assignment pursuant to the terms of this Section 2.19 may be effected pursuant
to an Assignment and Assumption executed by the Borrower, the Administrative Agent and the assignee and that the Lender
making such assignment need not be a party thereto.
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SECTION 2.20 Defaulting Lenders. Notwithstanding any provision of this Agreement to the contrary, if any Lender
becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender:
(a)
fees shall cease to accrue on the unfunded portion of the Commitment of such Defaulting Lender pursuant to
Section 2.12(a);
(b)
such Defaulting Lender shall not have the right to vote on any issue on which voting is required (other than to the
extent expressly provided in Section 9.02(b)) and the Commitment and Credit Exposure of such Defaulting Lender shall not be
included in determining whether all Lenders or the Required Lenders have taken or may take any action hereunder (including
any consent to any amendment, waiver or other modification pursuant to Section 9.02) or under any other Loan Document;
provided, that, except as otherwise provided in Section 9.02, this clause (b) shall not apply to the vote of a Defaulting Lender in
the case of an amendment, waiver or other modification requiring the consent of such Lender or each Lender directly affected
thereby;
(c)
if any Swingline Exposure or LC Exposure exists at the time such Lender becomes a Defaulting Lender then:
(i)
all or any part of such Swingline Exposure and/or such LC Exposure of such Defaulting Lender (other than
the portion of such Swingline Exposure referred to in clause (b) of the definition of such term) shall be reallocated
among the non-Defaulting Lenders in accordance with their respective Applicable Percentages but only to the extent that
the sum of all non- Defaulting Lenders’ Credit Exposures plus such Defaulting Lender’s Swingline Exposure and/or LC
Exposure does not exceed the total of all non-Defaulting Lenders’ Commitments; and
(ii)
if the reallocation described in clause (i) above cannot, or can only partially, be effected, the Borrower
shall within one (1) Business Day following notice by the Administrative Agent (x) first, prepay such Swingline
Exposure and (y) second, cash collateralize for the benefit of the Issuing Banks only the Borrower’s obligations
corresponding to such Defaulting Lender’s LC Exposure (after giving effect to any partial reallocation pursuant to
clause (i) above) in accordance with the procedures set forth in Section 2.06(j) for so long as such LC Exposure is
outstanding;
(iii)
if the Borrower cash collateralizes any portion of such Defaulting Lender’s LC Exposure pursuant to this
Section 2.20(c), the Borrower shall not be required to pay any fees to such Defaulting Lender pursuant to Section
2.12(b) with respect to such Defaulting Lender’s LC Exposure during the period such Defaulting Lender’s LC Exposure
is cash collateralized;
(iv)
if the LC Exposure of the non-Defaulting Lenders is reallocated pursuant to Section 2.20(c), then the fees
payable to the Lenders pursuant to Section 2.12(a) and Section 2.12(b) shall be adjusted in accordance with such non-
Defaulting Lenders’ Applicable Percentages; or
(v)
if all or any portion of such Defaulting Lender’s LC Exposure is neither cash collateralized nor reallocated
pursuant to Section 2.20(c), then, without prejudice to any rights or remedies of any Issuing Bank or any other Lender
hereunder, all facility fees that otherwise would have been payable to such Defaulting Lender (solely with respect to the
portion of such Defaulting Lender’s Commitment that was utilized by such LC Exposure) and letter of credit fees
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payable under Section 2.12(b) with respect to such Defaulting Lender’s LC Exposure shall be payable to the Issuing
Banks until such LC Exposure is cash collateralized and/or reallocated;
(d)
so long as such Lender is a Defaulting Lender, no Swingline Lender shall be required to fund any Swingline Loan
and no Issuing Bank shall be required to issue or increase any Letter of Credit, unless it is reasonably satisfied that the related
exposure and the Defaulting Lender’s then outstanding LC Exposure will be 100% covered by the Commitments of the non-
Defaulting Lenders and/or cash collateral will be provided by the Borrower in accordance with Section 2.20(c), and Swingline
Exposure related to any such newly made Swingline Loan or LC Exposure related to any such newly issued or increased Letter
of Credit shall be allocated among non-Defaulting Lenders in a manner consistent with Section 2.20(c)(i) (and such Defaulting
Lender shall not participate therein);
(e)
if (i) a Bankruptcy Event with respect to a Parent of any Lender shall occur following the date hereof and for so
long as such event shall continue or (ii) any Swingline Lender or Issuing Bank has a good faith belief that any Lender has
defaulted in fulfilling its obligations under one or more other agreements in which such Lender commits to extend credit, no
Swingline Lender shall be required to fund any Swingline Loan and no such Issuing Bank shall be required to issue or increase
any Letter of Credit unless such Swingline Lender or Issuing Bank shall have entered into arrangements with the Borrower or
such Lender, reasonably satisfactory to such Swingline Lender or Issuing Bank, as the case may be, to defease any risk to it in
respect of such Lender hereunder; and
(f)
in the event and on the date that each of the Administrative Agent, the Borrower, each Swingline Lender and each
Issuing Bank agrees that a Defaulting Lender has adequately remedied all matters that caused such Lender to be a Defaulting
Lender, then the LC Exposure of the other Lenders shall be readjusted to reflect the inclusion of such Lender’s Commitment and
on such date such Lender shall purchase at par such of the Loans of the other Lenders (other than Swingline Loans) as the
Administrative Agent shall determine may be necessary in order for such Lender to hold such Loans in accordance with its
Applicable Percentage.
Nothing contained herein shall be deemed to be a release of any claims of the Administrative Agent or the Borrower against any
Defaulting Lender for its breach of any of its obligations under this Agreement.
SECTION 2.21 Returned Payments. If after receipt of any payment which is applied to the payment of all or any part of
the Obligations (including a payment effected through exercise of a right of setoff), the Administrative Agent or any Lender is
for any reason compelled to surrender such payment or proceeds to any Person because such payment or application of proceeds
is invalidated, declared fraudulent, set aside, determined to be void or voidable as a preference, impermissible setoff, or a
diversion of trust funds, or for any other reason (including pursuant to any settlement entered into by the Administrative Agent
or such Lender in its discretion), then the Obligations or part thereof intended to be satisfied shall be revived and continued and
this Agreement shall continue in full force as if such payment or proceeds had not been received by the Administrative Agent or
such Lender. The provisions of this Section 2.21 shall be and remain effective notwithstanding any contrary action which may
have been taken by the Administrative Agent or any Lender in reliance upon such payment or application of proceeds. The
provisions of this Section 2.21 shall survive the termination of this Agreement.
SECTION 2.22 Increase of Commitments.
(a) The Borrower shall have the right at any time after the Effective Date to request that the aggregate Commitments
hereunder be increased (a “Commitment Increase”) in accordance with the following provisions and subject to the following
conditions:
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(i)
The Borrower shall give the Administrative Agent, which shall promptly deliver a copy thereof to each of
the Lenders, at least ten Business Days’ prior written notice (a “Notice of Increase”) of any such requested increase
specifying the aggregate amount by which the Commitments are to be increased, which shall be at least $5.0 million,
the requested date of increase (the “Requested Increase Date”) and the date by which the Lenders wishing to participate
in the Commitment Increase must commit to an increase in the amount of their respective Credit Commitments (the
“Commitment Date”). Each Lender that is willing in its sole discretion to participate in such requested Commitment
Increase (each an “Increasing Lender”) shall give written notice to the Administrative Agent on or prior to the
Commitment Date of the amount by which it is willing to increase its Commitment.
(ii) Promptly following each Commitment Date, the Administrative Agent shall notify the Borrower as to the
amount, if any, by which the Lenders are willing to participate in the requested Commitment Increase. In addition, the
Borrower may extend offers to one or more Eligible Assignees, each of which must be reasonably satisfactory to the
Administrative Agent, (such consent not to be unreasonably withheld, delayed or conditioned) to participate in any
portion of the requested Commitment Increase; provided, however, that the Commitment of each such Eligible
Assignee shall be in an amount of not less than $1.0 million or an integral multiple of $1.0 million in excess thereof.
Any such Eligible Assignee that agrees to acquire a Commitment pursuant hereto is herein called an “Additional
Lender”.
(iii) Effective on the Requested Increase Date, subject to the terms and conditions hereof, (x) the Commitment
Schedule shall be deemed to be amended to reflect the increases contemplated hereby, (y) the Commitment of each
Increasing Lender shall be increased by an amount determined by the Administrative Agent and the Borrower (but in no
event greater than the amount by which such Lender is willing to increase its Commitment), and (z) each Additional
Lender shall enter into an agreement in form and substance reasonably satisfactory to the Borrower and the
Administrative Agent pursuant to which it shall undertake, as of such Requested Increase Date, a new Commitment in
an amount determined by the Administrative Agent and the Borrower (but in no event greater than the amount by which
such Lender is willing to participate in the requested Commitment Increase), and such Additional Lender shall
thereupon be deemed to be a Lender for all purposes of this Agreement.
(iv)
If on the Requested Increase Date there are any Loans outstanding hereunder, the Borrower shall borrow
from all or certain of the Lenders and/or prepay Loans of all or certain of the Lenders such that, after giving effect
thereto, the Loans (including the Types and Interest Periods thereof) and such participations shall be held by the Lenders
(including for such purposes the Increasing Lenders and the Additional Lenders) ratably in accordance with their
respective Commitments. On and after each Increase Date, the ratable share of each Lender’s participation in Letters of
Credit and Loans from draws under Letters of Credit shall be calculated after giving effect to each such Commitment
Increase.
(b) Anything in this Section 2.22 to the contrary notwithstanding, no increase in the aggregate Commitments
hereunder pursuant to this Section 2.22 shall be effective unless:
(i)
as of the date of the relevant Notice of Increase and on the relevant Requested Increase Date and after
giving effect to such increase, (x) no Default or Event of Default shall have occurred and be continuing and (y) the
condition set forth in Section 4.02(a) shall be satisfied;
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(ii)
to the extent reasonably requested by the Administrative Agent, receipt by the Administrative Agent of
(A) customary legal opinions, board resolutions and officers’ certificates consistent with the documentation delivered on
the Effective Date (conformed as appropriate) other than changes to such legal opinions resulting from a change in law,
change in fact or change to counsel’s form of opinion reasonably satisfactory to the Administrative Agent and (B) any
reaffirmation or similar documentation as reasonably requested by the Administrative Agent in order to ensure that such
Increasing Lender or Additional Lender is provided with the benefit of the applicable Loan Documents;
(iii) after giving effect to such Commitment Increases, the aggregate principal amount of all such Commitment
Increases incurred since the Effective Date shall not exceed $150.0 million; and
(iv) after giving effect to any such Commitment Increase, the Borrower shall be in pro forma compliance with
the Financial Covenants for the most recently ended Reference Period for which financial statements have been (or were
required to be) delivered to the Administrative Agent and the Borrower shall have delivered to the Administrative Agent
reasonably detailed calculations demonstrating such compliance.
SECTION 2.23 [Reserved].
SECTION 2.24 [Reserved].
SECTION 2.25 Effect of a Benchmark Transition Event.
(a) Benchmark Replacement. Notwithstanding anything to the contrary herein or in any other Loan Document
(and any Swap Agreement shall be deemed not to be a “Loan Document” for purposes of this Section 2.25(a)), upon the
occurrence of a Benchmark Transition Event or an Early Opt- in Election, as applicable, the Administrative Agent and the
Borrower may amend this Agreement to replace the LIBO Rateapplicable then current Benchmark with a Benchmark
Replacement. Any such amendment with respect to a Benchmark Transition Event will become effective at 5:00 p.m. (New York
City time) on the fifth (5th) Business Day after the Administrative Agent has posted such proposed amendment to all affected
Lenders and the Borrower so long as the Administrative Agent has not received, by such time, written notice of objection to such
amendment from Lenders comprising the Required Lenders. Any such amendment with respect to an Early Opt-in Election will
become effective on the date that Lenders comprising the Required Lenders have delivered to the Administrative Agent written
notice that such Required Lenders accept such amendment. No replacement of the LIBO Ratea Benchmark with a Benchmark
Replacement pursuant to this Section 2.25(a) will occur prior to the applicable Benchmark Transition Start Date.
(b) Benchmark Replacement Conforming Changes. In connection with the use, administration, adoption or
implementation of a Benchmark Replacement, the Administrative Agent will have the right to make Benchmark Replacement
Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document,
any amendments implementing such Benchmark Replacement Conforming Changes will become effective without any further
action or consent of any other party to this Agreement or any other Loan Document.
(c) Notices; Standards for Decisions and Determinations. The Administrative Agent will promptly notify the
Borrower and the Lenders of (i) any occurrence of a Benchmark Transition Event or an Early Opt-in Election, as applicable, and
its related Benchmark Replacement Date and Benchmark Transition Start Date, (ii) the implementation of any Benchmark
Replacement, and (iii) the effectiveness
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of any Benchmark Replacement Conforming Changes in connection with the use, administration, adoption or implementation of
a Benchmark Replacement. The Administrative Agent will notify the Borrower of (x) the removal or reinstatement of any tenor
of a Benchmark pursuant to Section 2.25(d) and (ivy) the commencement or conclusion of any Benchmark Unavailability
Period. Any determination, decision or election that may be made by the Administrative Agent or, if applicable, any Lender (or
group of Lenders-) pursuant to this Section 2.25, including any determination with respect to a tenor, rate or adjustment or of the
occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any
selection, will be conclusive and binding absent manifest error and may be made in its or their sole discretion and without
consent from any other party heretoto this Agreement or any other Loan Document, except, in each case, as expressly required
pursuant to this Section 2.25.
(d) Unavailability of Tenor of Benchmark. Notwithstanding anything to the contrary herein or in any other Loan
Document, at any time (including in connection with the implementation of a Benchmark Replacement), (i) if the applicable
then current Benchmark is a term rate (including the Term SOFR Reference Rate) and either (A) any tenor for such Benchmark
is not displayed on a screen or other information service that publishes such rate from time to time as selected by the
Administrative Agent in its reasonable discretion or (B) the regulatory supervisor for the administrator of such Benchmark has
provided a public statement or publication of information announcing that any tenor for such Benchmark is not or will not be
representative, then the Administrative Agent may modify the definition of “Interest Period” (or any similar or analogous
definition) for any Benchmark settings at or after such time to remove such unavailable or non-representative tenor and (ii) if a
tenor that was removed pursuant to clause (i) above either (A) is subsequently displayed on a screen or information service for a
Benchmark (including a Benchmark Replacement) or (B) is not, or is no longer, subject to an announcement that it is not or will
not be representative for a Benchmark (including a Benchmark Replacement), then the Administrative Agent may modify the
definition of “Interest Period” (or any similar or analogous definition) for all Benchmark settings at or after such time to
reinstate such previously removed tenor.
(e)
(d) Benchmark Unavailability Period. Upon the Borrower’s receipt of notice of the commencement of a
Benchmark Unavailability Period, (i) the Borrower may revoke any pending request for a EurodollarTerm SOFR Borrowing of,
conversion to or continuation of EurodollarTerm SOFR Loans to be made, converted or continued during any Benchmark
Unavailability Period and, failing that, the Borrower will be deemed to have converted any such request into a request for a
Borrowing of or conversion to ABR Loans and (ii) any outstanding affected Term SOFR Loans will be deemed to have been
converted into ABR Loans immediately. During any Benchmark Unavailability Period, the component of ABRAdjusted Base
Rate based upon the LIBO Ratethen current Benchmark will not be used in any determination of ABRAdjusted Base Rate.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Loan Party represents and warrants to the Lenders that:
SECTION 3.01 Organization; Powers. Each of the Loan Parties and each of its Subsidiaries is duly organized, validly
existing and (to the extent applicable in its jurisdiction of organization) in good standing under the laws of the jurisdiction of its
organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do
so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do
business in, and is in good standing in, every jurisdiction where such qualification is required.
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SECTION 3.02 Authorization; Enforceability. The Transactions are within each Loan Party’s corporate or limited
liability company powers, as the case may be, and have been duly authorized by all necessary corporate or limited liability
company and, if required, stockholder or member action. Each Loan Document to which each Loan Party is a party has been
duly executed and delivered by such Loan Party and constitutes a legal, valid and binding obligation of such Loan Party,
enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding
in equity or at law.
SECTION 3.03 Governmental Approvals; No Conflicts. The Transactions (a) do not, on the part of any Loan Party or
any of its Subsidiaries, require any consent or approval of, registration or filing with, or any other action by, any Governmental
Authority, except such as have been obtained or made and are in full force and effect and except for filings necessary to perfect
Liens created pursuant to the Loan Documents, (b) will not violate any Requirement of Law applicable to any Loan Party or any
of its Subsidiaries or any order of any Governmental Authority applicable to any Loan Party, (c) will not violate or result in a
default under, or give rise to a right to require any payment to be made by any Loan Party or any of its Subsidiaries under, (i)
any indenture or loan agreement, in each case, evidencing Indebtedness in excess of $50100 million, (ii) any Swap Agreement
with a Swap Termination Value in excess of $5100.0 million or (iii) any other material agreement, in each case which is binding
upon any Loan Party or any of its Subsidiaries or its assets, and (d) will not result in the creation or imposition of any Lien on
any asset of any Loan Party or any of its Subsidiaries, except Liens on cash collateral created pursuant to the Loan Documents,
except, solely in the case of clauses (a), (b) or (c)(iii) hereof, as could not reasonably be expected to result in a Material Adverse
Effect.
SECTION 3.04 Financial Condition; No Material Adverse Change.
(a) The Borrower has heretofore furnished to the Lenders its consolidated balance sheet and statements of income,
stockholders equity and cash flows (i) as of and for the fiscal year ended December 31, 2019, reported on by the Accounting
Firm and (ii) as of and for the fiscal quarter and the portion of the fiscal year ending March 31, 2020. Such financial statements
present fairly, in all material respects, the financial position and results of operations and cash flows of the Borrower and its
consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments
and the absence of footnotes in the case of the statements referred to in clause (ii) above.
(b) No event, change or condition has occurred that has had, or could reasonably be expected to have, a Material
Adverse Effect, since December 31, 2019.
SECTION 3.05 Properties.
(a) Each of the Loan Parties and its Subsidiaries has good title to, or valid leasehold interests in, or rights to use, all its
real and personal property, subject to Permitted Liens and except for defects in title, interests or rights that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse Effect.
(b) Each of the Loan Parties and its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights,
patents and other intellectual property material to its business, and the use thereof by the Loan Parties and its Subsidiaries does
not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Effect.
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SECTION 3.06 Litigation and Environmental Matters.
(a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against
or, to the knowledge of any Loan Party, threatened in writing against the Loan Parties or any of its Subsidiaries or any of their
respective properties (i) that could reasonably be expected, individually or in the aggregate, to result in a Material Adverse
Effect or (ii) that involve this Agreement or the Transactions.
(b) No Loan Party nor any of its Subsidiaries (i) has failed to comply with any Environmental Law or to obtain,
maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject
to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows
of any basis for any Environmental Liability that, in each case, individually in the aggregate, could reasonably be expected to
result in a Material Adverse Effect.
SECTION 3.07 Compliance with Laws and Agreements; No Default.
(a) Each Loan Party and its Subsidiaries is in compliance with all Requirements of Law applicable to it or its property
and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
(b)
No Default has occurred and is continuing.
SECTION 3.08 Investment Company Status. No Loan Party is an “investment company” as defined in, or subject to
regulation under the Investment Company Act of 1940.
SECTION 3.09 Taxes. Each Loan Party and its Subsidiaries has timely filed or caused to be filed all Tax returns and
reports required to have been filed and has paid or caused to be paid all Taxes, and claims that that were required to have been
paid by it, except (a) Taxes and claims that are being contested in good faith by appropriate proceedings and for which such
Loan Party or such Subsidiary, as applicable, has set aside on its books adequate reserves in accordance with GAAP or (b) to the
extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.10 ERISA.
(a) No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such
ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse
Effect. Except as could not reasonably be expected to result in a Material Adverse Effect, with respect to each Plan, the “funding
target,” as defined in Section 430(d)(1) of the Code, with respect to such Plan, does not exceed the fair market value of all such
Plan’s assets, as determined pursuant to Section 430(g) of the Code, all determined as of the then- most recent valuation date for
such Plan using the actuarial assumptions used to determine the Plan’s “funding target attainment” percentage as defined in
Section 430(d) of the Code.
(b) The Borrower represents and warrants as of the Effective Date that the Borrower is not and will not be using “plan
assets” (within the meaning of 29 CFR § 2510.3-101, as modified by Section 3(42) of ERISA) of one or more Benefit Plans in
connection with the Loans, the Letters of Credit or the Commitments.
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(c) Each Foreign Pension Plan has been maintained in compliance with its terms and with the requirements of any and
all applicable laws, statutes, rules, regulations and orders and has been maintained, where required, in good standing with
applicable regulatory authorities, in each case except where the failure to do so could not reasonably be expected to have a
Material Adverse Effect. All material contributions required to be made with respect to a Foreign Pension Plan have been timely
made. Neither the Borrower nor any of its Subsidiaries has incurred any obligation in connection with the termination of, or
withdrawal from, any Foreign Pension Plan that could reasonably be expected to have a Material Adverse Effect. The present
value of the accrued benefit liabilities (whether or not vested) under each Foreign Pension Plan, determined as of the end of the
Borrowers’ most recently ended fiscal year on the basis of actuarial assumptions, each of which is reasonable, did not exceed the
current value of the assets of such Foreign Pension Plan allocable to such benefit liabilities.
SECTION 3.11 Disclosure. The Borrower has disclosed to the Lenders all agreements, instruments and corporate or
other restrictions to which it or any Subsidiary is subject, and all other matters known to it, that, individually or in the aggregate,
could reasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements, certificates or
other written information (when taken together with the Borrower’s most recently (as of the date hereof) filed and publicly
available 10-K and 10-Q, and 8-Ks filed at any time following such 10-K, in each case with the SEC) (other than any projected
financial information or other forward-looking information or information of a general economic or general industry specific
nature) furnished by or on behalf of any Loan Party to the Administrative Agent or any Lender in connection with the
negotiation of this Agreement or any other Loan Document (as modified or supplemented by other information so furnished)
contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein (taken as a
whole), in the light of the circumstances under which they were made, not materially misleading; provided, that, with respect to
projected financial information or other forward-looking information, the Borrower represents only that such information was
prepared in good faith based upon assumptions believed to be reasonable at the time (it being understood that such projections
and forward-looking information are not to be viewed as facts and any such projections and forward-looking information may
differ from actual results and such differences may be material).
SECTION 3.12 Capitalization and Subsidiaries. Schedule 3.12 to the Disclosure Letter sets forth, as of the date hereof,
(a) a correct and complete list of the name, and identifies the direct equity holders (including the percentage ownership thereof)
of, each and all of the Borrower’s direct and indirect Subsidiaries, (b) the type of entity and jurisdiction of organization of the
Borrower and each of its Subsidiaries, and (c) which of the Borrower’s Subsidiaries are Material Domestic Subsidiaries and
Material Foreign Subsidiaries. All of the issued and outstanding Equity Interests of any Subsidiary owned by any Loan Party
have been (to the extent such concepts are relevant with respect to such ownership interests) duly authorized and issued and is
fully paid and non-assessable.
SECTION 3.13 [Reserved].
SECTION 3.14 Federal Reserve Regulations.
(a) No part of the proceeds of any Loan or Letter of Credit has been used or will be used, whether directly or
indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations T, U and X.
(b) No Loan Party is engaged and will not engage, principally or as one of its important activities, in the business of
purchasing or carrying margin stock (within the meaning of Regulation U), or extending credit for the purpose of purchasing or
carrying margin stock.
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SECTION 3.15 Anti-Corruption Laws and Sanctions; USA Patriot Act.
(a) Each Loan Party has implemented and maintains in effect policies and procedures designed to ensure compliance
by such Loan Party, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws
and applicable Sanctions, and such Loan Party, its Subsidiaries and their respective officers and employees and, to the
knowledge of such Loan Party, its directors and agents, are in compliance with Anti-Corruption Laws and applicable Sanctions
in all material respects. None of (a) any Loan Party, any Subsidiary, any Affiliate or, to the knowledge of any such Loan Party
or, Subsidiary or Affiliate, any of their respective directors, officers or employees, or (b) to the knowledge of any such Loan
Party or, Subsidiary or Affiliate, any agent of such Loan Party or any, Subsidiary that will act in any capacity in connection with
or benefit from the credit facility established hereby,or Affiliate is a Sanctioned Person. No Borrowing or Letter of Credit, use of
proceeds, Transaction or other transaction contemplated by this Agreement or the other Loan Documents will violate Anti-
Corruption Laws or applicable Sanctions.
(b) Each Loan Party is in compliance, in all material respects, with the USA PATRIOT Act and any applicable anti-
money laundering laws and regulations.
SECTION 3.16 Not an Affected Financial Institution. No Loan Party is an Affected Financial Institution.
SECTION 3.17 Solvency. (a) The fair value of the assets of the Loan Parties and their Subsidiaries, taken as a whole, at
a fair valuation, exceeds their debts and liabilities, subordinated, contingent or otherwise; (b) the present fair saleable value of
the property of the Loan Parties and their Subsidiaries, taken as a whole, is greater than the amount that will be required to pay
the probable liability of their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities
become absolute and matured; (c) the Loan Parties will be able to pay their debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured; and (d) the Loan Parties and their Subsidiaries, taken as a
whole, will not have unreasonably small capital with which to conduct the business in which they are engaged as such business
is now conducted and is proposed to be conducted after the Effective Date.
SECTION 3.18 FDA and Other Regulatory Matters.
(a) Each Loan Party and its Subsidiaries has, and it and its Products are in conformance with, all Registrations
applicable to its respective business except where the failure to have such Registrations or be in conformance would not
reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect. No Loan Party nor any of its
Subsidiaries has received written notice that the FDA or any other Governmental Authority intends to suspend or revoke such
Registrations or changing the marketing classification affecting the Products of the Loan Parties or any of their respective
Subsidiaries. To the knowledge of each Loan Party and its Subsidiaries, there is no material false or misleading information or
material omission in any product application or other submission to the FDA or other Governmental Authority administering
Public Health Laws. To the knowledge of each Loan Party and its Subsidiaries, no event has occurred or condition or state of
facts exists which would cause revocation or termination of any such Registration. To the knowledge of each Loan Party and its
Subsidiaries, any third party that is a manufacturer or contractor for the Loan Parties or any of their respective Subsidiaries is in
compliance in all material respects with all Registrations required by the FDA or comparable Governmental Authority and all
Public Health Laws insofar as they reasonably pertain to the Products of the Loan Parties and their respective Subsidiaries.
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(b) Except as set forth on Schedule 3.18 to the Disclosure Letter: (i) each Loan Party and its Subsidiaries and, to their
knowledge, their respective contract manufacturers are, and have been for the past five calendar years, in compliance in all
material respects with, and each Product in current commercial distribution has been designed, developed, investigated,
manufactured, prepared, assembled, packaged, tested, labeled, distributed, marketed, installed, and serviced in compliance in all
material respects with the Public Health Laws or any other applicable Requirement of Law, including those regarding clinical
and non-clinical testing, product approval or clearance, Quality System requirements, labeling, advertising and promotion,
record-keeping, establishment registration and listing, reporting of recalls and adverse event reporting; (ii) each Loan Party and
its Subsidiaries is in compliance in all material respects with the record-keeping and reporting requirements required by the
FDA or any other Governmental Authority pertaining to the reporting or adverse events and recalls involving the Products,
including, as the case may be, Medical Device Reporting set forth in 21 C.F.R. Part 803 and Reports of Corrections and
Removals set forth in 21 C.F.R. Part 806; (iii) all Products are and have been labeled, promoted, and advertised in material
compliance with their regulatory clearance or approval or within the scope of an exemption from obtaining such clearance or
approval; (iv) if applicable, all Products and accompanying labels have been marked with a Unique Device Identifier as
applicable under 21 C.F.R. Parts 801 and 830; and (v) each Loan Party’s and its Subsidiaries’ establishments are registered with
the FDA, as applicable, and each Product is listed with the FDA under the applicable FDA registration and listing regulations
for medical devices set forth in 21 C.F.R. Part 807.
(c) No Loan Party nor its Subsidiaries is subject to any obligation arising under any regulatory action, proceeding,
investigation or inspection by or on behalf of a Governmental Authority, warning letter, notice of violation letter, consent
decree, or other enforcement action by a Governmental Authority with respect to Regulatory Matters, and, to the knowledge of
each Loan Party and its Subsidiaries, no such obligation has been threatened, verbally or in writing in each case that would
reasonably be expected to have a Material Adverse Effect. To the knowledge of each Loan Party and its Subsidiaries, there is no
act, omission or event that would reasonably be expected to give rise to or lead to, any civil, criminal or administrative action,
suit, demand, claim, complaint, hearing, investigation, demand letter, warning letter or enforcement proceeding against any
Loan Party or its Subsidiaries, and, to each Loan Party’s and its Subsidiary’s knowledge, no Loan Party nor its Subsidiaries has
any liability (whether actual or contingent) for failure to comply with any Public Health Laws, in each case that would
reasonably be expected to have a Material Adverse Effect. There has not been any violation of any Public Health Laws by any
Loan Party or its Subsidiaries that could reasonably be expected to require or lead to investigation, enforcement, regulatory or
administrative action by the FDA or any comparable Governmental Authority, in each case that would reasonably be expected,
in the aggregate, to have a Material Adverse Effect. To the knowledge of each Loan Party and each of their respective
Subsidiaries, there are no civil or criminal proceedings relating to any Loan Party or its Subsidiaries or any officer, director or
employee of any Loan Party or Subsidiary of any Loan Party that involve a matter within or related to the FDA’s or any
comparable Governmental Authority’s jurisdiction.
(d) No Loan Party nor its Subsidiaries is currently undergoing any inspection by FDA or any other Governmental
Authority investigation that could reasonably be expected to have a Material Adverse Effect.
(e) No Loan Party nor any Subsidiary of any Loan Party has received any written or verbal notice from any
Governmental Authority alleging material noncompliance with any Requirement of Law. No Product has been seized, recalled,
detained, or subject to a suspension (other than in the ordinary course of business) of research, manufacturing, distribution, or
commercialization activity, and, to the knowledge of Loan Party and each of its Subsidiaries, there are no facts or circumstances
reasonably likely to cause (i) the seizure, denial, recall, detention, public health notification, safety alert or suspension of
manufacturing or other activity relating to any Product except as would not reasonably be
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expected to have a Material Adverse Effect; or (ii) a termination, seizure or suspension of manufacturing, researching,
distributing or marketing of any Product. No proceedings in the United States or any other jurisdiction seeking the withdrawal,
recall, revocation, suspension, import detention, or seizure of any Product are pending or threatened in writing or verbally
against any Loan Party or any of its Subsidiaries.
(f) No Loan Party nor any Subsidiary of any Loan Party nor, to the knowledge of Loan Party or any Subsidiary, any of
their respective officers, directors, employees, agents, or contractors (i) have been excluded or debarred from any Governmental
Reimbursement Program (including Medicare or Medicaid) or any other federal program or (ii) have received written notice
from the FDA or any other Governmental Authority with respect to debarment or disqualification of any Person that would
reasonably be expected to have, in the aggregate, a Material Adverse Effect. No Loan Party nor any Subsidiary of any Loan
Party nor, to the knowledge of Loan Party or any Subsidiary any of their respective officers, directors, employees, agents or
contractors have been convicted of any crime or engaged in any conduct for which (a) debarment is mandated or permitted by 21
U.S.C. § 335a or (y) such Person could be excluded from participating in the federal health care programs under Section 1128 of
the Social Security Act or any similar law. No officer and to the knowledge of each Loan Party and its Subsidiaries, no employee
or agent of any Loan Party or its Subsidiaries, has (A) made any untrue statement of material fact or fraudulent statement to the
FDA or any other Governmental Authority; (B) failed to disclose a material fact required to be disclosed to the FDA or any other
Governmental Authority; or (C) committed an act, made a statement, or failed to make a statement that would reasonably be
expected to provide the basis for the FDA or any other Governmental Authority to invoke its policy respecting “Fraud, Untrue
Statements of Material Facts, Bribery, and Illegal Gratuities,” as set forth in 56 Fed. Reg. 46191 (September 10, 1991).
SECTION 3.19 Health Care Matters.
(a) Compliance with Health Care Laws: Health Care Permits. Each Loan Party and each of their respective
Subsidiaries is in compliance with all Health Care Laws applicable to it and its assets, business or operations, except to the
extent that any noncompliance, individually or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect. Each Loan Party and each of their Subsidiaries holds in full force and effect all Health Care Permits necessary for it to
own, lease, sublease or operate its assets under applicable Health Care Laws or to conduct its business and operations as
presently conducted except where the failure to hold such Health Care Permits would not reasonably be expected to have a
Material Adverse Effect. There exist no restrictions, required plans of correction or other such remedial measures with respect to
(i) any Health Care Permit of any Loan Party or its Subsidiaries that would reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect. No circumstance exists or event has occurred which could reasonably be expected to
result in the suspension, revocation, termination or non-renewal of any material Health Care Permit held by any Loan Party or
any of their Subsidiaries.
(b) Material Statements. No Loan Party nor any of their Subsidiaries, nor to the knowledge of any Loan Party of any
Subsidiary, any officer, affiliate, employee or agent of any Loan Party or any Subsidiary of any Loan Party, has made an untrue
statement of a material fact or fraudulent statement to any Governmental Authority, failed to disclose a material fact that must
be disclosed to any Governmental Authority, or committed an act, made a statement or failed to make a statement that, at the
time such statement, disclosure or failure to disclose occurred, would constitute a violation of any Health Care Law that could
reasonably he expected to have a Material Adverse Effect.
(c) Prohibited Transactions. No Loan Party or any of its Subsidiaries nor, to the knowledge of the Loan Parties, any
officer, affiliate or managing employee of any Loan Party or any Subsidiary of a Loan Party has (i) offered or paid or solicited
or received any remuneration, in cash or in kind, or made
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any financial arrangements, in material violation of any applicable Health Care Law; (ii) given any gift or gratuitous payment of
any kind, nature or description (whether in money, property or services) in material violation of any applicable Health Care Law;
(iii) made any contribution, payment or gift of funds or property to, or for the private use of, any governmental official,
employee or agent where either the contribution, payment or gift or the purpose of such contribution, payment or gift was illegal
in any material respect under the applicable laws of any Governmental Authority having jurisdiction over such payment,
contribution or gift; (iv) established or maintained any unrecorded fund or asset or made any misleading, false or artificial
entries on any of its books or records in material violation of applicable Health Care Laws; or (v) made any payment to any
person with the intention that any part of such payment would be in violation of any applicable Health Care Law. No Person has
filed or has threatened in writing to file against any Loan Party or any of their Subsidiaries an action under any federal or state
whistleblower statute related to alleged noncompliance with applicable Health Care Laws, including under the False Claims Act
of 1863 (31 U.S.C. 6 3729 et seq.).
(d) Exclusion. No Loan Party nor any of their Subsidiaries, nor, to the knowledge of Loan Party or its Subsidiaries,
any owner, officer, director, partner, agent or managing employee or Person with a “direct or indirect ownership interest” (as that
phrase is defined in 42 C.F.R. § 420.201) in any Loan Party or any Subsidiary of any Loan Party or an Affiliate, has (i) had a
civil monetary penalty assessed pursuant to 42 U.S.C. § 1320a-7; (ii) been convicted (as that term is defined in 42 C.F.R.
61001.2) of any of those offenses described in 42 U.S.C. §1320a-7b or 18 U.S.C. 11669, 1035. 1347 or 1518, including any of
the following categories of offenses: (A) criminal offenses relating to the delivery of an item or service under any federal health
care program (as that term is defined in 42 U.S.C. §1320a-7b) or healthcare benefit program (as that term is defined in 18 U.S.C.
124b), (B) criminal offenses under federal or state law relating to patient neglect or abuse in connection with the delivery of a
healthcare item or service, (C) criminal offenses under laws relating to fraud and abuse, theft, embezzlement, false statements to
third parties, money laundering, kickbacks, breach of fiduciary responsibility or other financial misconduct in connection with
the delivery of a healthcare item or service or with respect to any act or omission in a program operated by or financed in whole
or in part by any federal, state or local governmental agency, (D) laws relating to the interference with or obstruction of any
investigations into any criminal offenses described in this clause (d), or (E) criminal offenses under laws relating to the unlawful
manufacturing, distribution, prescription or dispensing of a controlled substance; or (iii) been involved or named in a U.S.
Attorney complaint made or any other action taken pursuant to the False Claims Act under 31 U.S.C. §13729-3731 or qui tam
action brought pursuant to 31 U.S.C. 63729 et seq.
(e) HIPAA Compliance. Each Loan Party and each of their respective Subsidiaries is, and for the past three (3) years
has been, in compliance in all material respects with HIPAA and Other Privacy Laws. Except as otherwise disclosed in Schedule
3.19 to the Disclosure Letter, none of the Loan Parties nor any of their Subsidiaries has, to the knowledge of the Loan Parties,
within the past three (3) years, suffered any breach of Regulated Information requiring any notification to any individual, entity,
the media or any Governmental Authority, received any written notice from the Office for Civil Rights for the U.S. Department
of Health and Human Services or any other Governmental Authority regarding any allegation regarding its failure to comply
with HIPAA and Other Privacy Laws, nor made any notification of such a breach or failure to any individual or entity, the media,
the Secretary of the U.S. Department of Health and Human Services or any other Governmental Authority pursuant to HIPAA
and Other Privacy Laws. Each of the Loan Parties and each of their Subsidiaries has entered into business associate agreements
and other contractual commitments with third parties when required to do so by HIPAA or Other Privacy Laws and is in material
compliance with all such contractual commitments.
(f) Corporate Integrity Agreement. No Loan Party nor any of their Subsidiaries, nor, to the knowledge of Loan Party
or its Subsidiaries, any owner, officer, director, partner, agent or managing employee of any Loan Party or any Subsidiary of any
Loan Party, is a party to or bound by any individual
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integrity agreement, corporate integrity agreement, corporate compliance agreement, deferred prosecution agreement, or other
formal agreement with any Governmental Authority concerning compliance with Health Care Laws, any Government
Reimbursement Programs or the requirements of any Health Care Permit.
SECTION 3.20 Employee Relations. As of the Effective Date, no Loan Party nor any Subsidiary thereof is party to any
collective bargaining agreement, nor has any labor union been recognized as the representative of its employees except as set
forth on Schedule 3.20 to the Disclosure Letter. The Borrower knows of no pending or threatened in writing strikes, work
stoppage or other collective labor disputes involving its employees or those of its Subsidiaries that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
ARTICLE IV
CONDITIONS
SECTION 4.01 Conditions to Initial Loans. The obligations of the Lenders to make Loans and of the Issuing Banks to
issue Letters of Credit hereunder shall not become effective until each of the following conditions is satisfied (or waived in
accordance with Section 9.02):
(a) Credit Agreement and Other Loan Documents. The Administrative Agent (or its counsel) shall have received (i)
from each party hereto either (A) a counterpart of this Agreement signed on behalf of such party or (B) written evidence
satisfactory to the Administrative Agent (which may include fax or other electronic transmission of a signed signature page of
this Agreement) that such party has signed a counterpart of this Agreement, (ii) duly executed copies of any other Loan
Documents to be entered into as of the date hereof and such other certificates, documents, instruments and agreements as the
Administrative Agent shall reasonably request be delivered on the Effective Date in connection with the transactions
contemplated by this Agreement and the other Loan Documents, including any Notes requested by a Lender pursuant to Section
2.10 payable to the order of each such requesting Lender and a written opinion of the Loan Parties’ counsel, addressed to the
Administrative Agent, the Issuing Banks and the Lenders and in form and substance reasonably satisfactory to the
Administrative Agent and (iii) the disclosure letter to this Agreement, dated as of the Effective Date, executed and delivered by
the Borrower to the Administrative Agent and the Lenders in connection with this Agreement and in form and substance
satisfactory to the Administrative Agent (such disclosure letter, the “Disclosure Letter”).
(b) Financial Statements and Projections. The Lenders shall have received (i) audited consolidated financial
statements of the Borrower and its Subsidiaries for the three most recent fiscal years ended prior to the Effective Date, (ii)
unaudited interim consolidated financial statements of the Borrower for each quarterly period ended subsequent to the date of
the latest financial statements delivered pursuant to clause (i) of this paragraph and at least 60 days prior to the Effective Date
and (iii) reasonably satisfactory financial statement projections (which shall include balance sheet, income and cash flow
statement projections) through and including the Borrower’s 2023 fiscal year.
(c) Closing Certificates. The Administrative Agent shall have received (i) a certificate (in form and substance
satisfactory to the Administrative Agent) of each Loan Party, dated the Effective Date and executed by its Secretary or Assistant
Secretary, which shall (A) certify the resolutions of its board of directors, members or other body authorizing the execution,
delivery and performance of the Loan Documents to which it is a party, (B) identify by name and title and bear the signatures of
the Financial Officers and any other officers of such Loan Party authorized to sign the Loan Documents to which it is a party,
and (C) contain appropriate attachments, including the certificate or articles of incorporation or organization of each Loan Party
certified by the relevant authority of the jurisdiction of organization of
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such Loan Party and a true and correct copy of its by-laws or operating, management or partnership agreement, and (ii) a good
standing certificate dated as of the Effective Date for each Loan Party from its jurisdiction of organization.
(d) No Default Certificate. The Administrative Agent shall have received, a certificate (in form and substance
satisfactory to the Administrative Agent), signed by the chief financial officer of the Borrower on the Effective Date (i) stating
that no Default has occurred and is continuing and (ii) stating that the representations and warranties contained in Article III are
true and correct in all material respects as of such date except that (a) to the extent that such representations and warranties
specifically refer to an earlier date, such representations and warranties shall be true and correct in all material respects as of
such earlier date and (b) any representation and warranty that is qualified as to “materiality” or “Material Adverse Effect” shall
be true and correct in all respects.
(e) Fees. The Lenders and the Administrative Agent shall have received all fees required to be paid on or before the
Effective Date, and all expenses (including the reasonable fees and expenses of outside legal counsel) for which invoices have
been presented no later than two (2) Business Days prior to the Effective Date (or a shorter period as reasonably agreed to by the
Borrower).
(f)
Lien Searches. The Administrative Agent shall have received the results of recent customary lien searches
(including with respect to intellectual property), and such searches shall reveal no liens on any of the assets of the Loan Parties
except for liens permitted by Section 6.02 or discharged on or prior to the Effective Date pursuant to a pay-off letter or other
documentation reasonably satisfactory to the Administrative Agent.
(g)
Insurance. The Administrative Agent shall have received evidence of insurance coverage in form, scope, and
substance reasonably satisfactory to the Administrative Agent.
(h) Solvency. The Administrative Agent shall have received a solvency certificate from a Financial Officer of the
Borrower substantially in the form attached hereto as Exhibit D.
(i)
Tax Withholding Forms. The Administrative Agent shall have received a properly completed and signed IRS
Form W-8 or W-9, as applicable, for each Loan Party.
(j) USA PATRIOT Act, Etc. At least three (3) Business Days prior to the Effective Date, the Borrower and each of
the other Loan Parties shall have provided to the Administrative Agent or the Lenders the documentation and other information
theretofore requested in writing by the Administrative Agent or the Lenders at least five (5) Business Days prior to the Effective
Date that is required by regulatory authorities under applicable “know your customer” and anti-money-laundering rules and
regulations, including the USA PATRIOT Act.
(k) Existing Credit Agreement. Prior to or substantially contemporaneously with the Effective Date, all principal,
premium, if any, interest, fees and other amounts due or outstanding under the Existing Credit Agreement, shall have been or
shall be satisfied in full, the commitments thereunder shall have been or shall be terminated and all guarantees and Liens
existing in connection therewith shall have been or shall be discharged and released (the “Refinancing”), and the Administrative
Agent shall have received, in form and substance satisfactory to the Administrative Agent, payoff letters, lien release
documentation (to the extent applicable) and other reasonably satisfactory evidence thereof.
The Administrative Agent shall notify the Borrower, the Lenders and the Issuing Banks of the Effective Date, and such notice
shall be conclusive and binding.
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SECTION 4.02 Each Credit Event. The obligation of each Lender to make any Loan, and of the Issuing Banks to issue
or increase any Letter of Credit, is subject to the satisfaction of the following conditions:
(a) The representations and warranties of the Borrower set forth in this Agreement shall be true and correct in all
material respects on and as of the date of such Loan or the date of issuance or increase of such Letter of Credit, as applicable,
except that (i) to the extent that such representations and warranties specifically refer to an earlier date, such representations and
warranties shall be true and correct in all material respects as of such earlier date, (ii) any representation and warranty that is
qualified as to “materiality” or “Material Adverse Effect” shall be true and correct in all respects.
(b) At the time of and immediately after giving effect to such Loan or the issuance or increase of such Letter of
Credit, as applicable, no Default shall have occurred and be continuing.
(c) The Borrower shall have delivered a completed Borrowing Request or application for a Letter of Credit, as
applicable.
Each Loan and each issuance or increase of a Letter of Credit shall be deemed to constitute a representation and warranty by the
Borrower on the date thereof as to the matters specified in clauses (a) and (b) of this Section 4.02.
ARTICLE V
AFFIRMATIVE COVENANTS
Until Payment in Full has occurred, each Loan Party executing this Agreement covenants and agrees, jointly and
severally with all of the Loan Parties, with the Lenders that:
SECTION 5.01 Financial Statements and Other Information. The Borrower will furnish to the Administrative Agent
(which shall promptly make such information available to the Lenders in accordance with its customary practices):
(a) within ninety (90) days after the end of each fiscal year of the Borrower, its audited consolidated balance sheet and
related statements of operations, stockholders’ equity and cash flows as of the end of and for such year, setting forth in each case
in comparative form the figures for the previous fiscal year, all reported on by the Accounting Firm (without a “going concern”
or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such
consolidated financial statements present fairly in all material respects the financial condition and results of operations of the
Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied;
(b) within forty five (45) days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower,
its consolidated balance sheet and related statements of operations, as of the end of and for such fiscal quarter and the then
elapsed portion of the fiscal year and stockholders’ equity and cash flows for the then elapsed portion of the fiscal year, setting
forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet,
as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects
the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes;
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(c)
concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial
Officer of the Borrower in substantially the form of Exhibit B (i) certifying as to whether a Default or Event of Default has
occurred and, if a Default or Event of Default has occurred, specifying the details thereof and any action taken or proposed to be
taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with the Financial
Covenants and compliance with Sections 6.04(c) and (d), and (iii) stating whether any change in GAAP or in the application
thereof has occurred since the later of December 31, 2019 and the end date of the financial statements most recently delivered
pursuant to Section 5.01(a) and, if any such change has occurred, specifying the effect of such change on the financial statements
accompanying such certificate;
(d)
[Reserved].
(e)
promptly following any request therefor, (i) such other information regarding the operations, business affairs and
financial condition of the Borrower or any Subsidiary, or compliance with the terms of this Agreement, as the Administrative
Agent may reasonably request, on behalf of itself or any Lender hereunder; or (ii) information and documentation reasonably
requested by the Administrative Agent or any Lender for purposes of compliance with applicable “know your customer”
requirements under the USA PATRIOT Act or any applicable anti-money laundering laws;
(f)
promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and
other materials filed by the Borrower or any of its Subsidiaries with the SEC, or any Governmental Authority succeeding to any
or all of the functions of the SEC, or with any national securities exchange, or distributed by the Borrower to its shareholders
generally, as the case may be.
Notwithstanding anything to the contrary in this Section 5.01, any documents required to be delivered pursuant to Sections
5.01(a), (b), and (f) may be delivered electronically and if so delivered, subject to compliance with the proviso at the end of this
paragraph, shall be deemed to have been delivered on the date on which such documents are filed for public availability on the
SEC’s Electronic Data Gathering and Retrieval System or on which the Borrower posts such documents, or provides a link
thereto on the Borrower’s website on the Internet; provided, that, in each case, the Borrower shall concurrently notify (which
may be by facsimile or electronic mail) the Administrative Agent of the filing of any such documents.
SECTION 5.02 Notices of Material Events. The Borrower will furnish to the Administrative Agent (which shall
promptly make such information available to the Lenders in accordance with its customary practices) prompt written notice of
the following (and in no event later than five (5) Business Days after any Responsible Officer’s knowledge of the occurrence
thereof):
(a)
the occurrence of any Default;
(b)
the filing or commencement of any litigation, investigation, action, suit or proceeding by or before any arbitrator
or Governmental Authority against or involving the Borrower, any of its Subsidiaries or any Affiliate thereof or any of their
respective properties, assets or business that could reasonably be expected to result in a Material Adverse Effect;
(c)
the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could
reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $2100.0
million;
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(d)
the occurrence and nature of any Prohibited Transaction or any funding deficiency with respect to any Plan, or a
transaction the IRS or Department of Labor or any other Governmental Authority is reviewing to determine whether a Prohibited
Transaction might have occurred, in each case, that could reasonably be expected to result in a Material Adverse Effect;
(e)
any Loan Party’s intention to terminate or withdraw from any Plan;
(f)
any notice provided to the holders of any Material Indebtedness, along with a copy of such notice;
(g)
any notice of any violation received by any Loan Party or any Subsidiary thereof from any Governmental
Authority including any notice of violation of Environmental Laws which in any such case could reasonably be expected to
have a Material Adverse Effect;
(h)
any labor controversy that has resulted in, or threatens to result in, a strike or other work action against any Loan
Party or any Subsidiary thereof in each case that could reasonably be expected to result in a Material Adverse Effect;
(i)
any written notice that the FDA or any other similar Governmental Authority is (i) suspending or revoking any
Registration, changing the market classification, distribution pathway or parameters of the Products of the Loan Parties or their
respective Subsidiaries; (ii) any Loan Party or any of its Subsidiaries becoming subject to any administrative or regulatory
action, inspection, Form FDA
483 observation, warning letter, notice of violation letter, or other material notice, response or commitment made to or with the
FDA or any comparable Governmental Authority, except as would not be reasonably expected to have a Material Adverse
Effect; (iii) any Product of any Loan Party or any of its Subsidiaries being seized, recalled, detained, or subject to a suspension
of manufacturing, or the commencement of any proceedings in the United States or any other jurisdiction seeking the
withdrawal, recall, suspension, import detention, or seizure of any Product are pending or threatened in writing or verbally
against the Loan Parties or their respective Subsidiaries; (iv) any voluntary recall of any Product by any Loan Party or any of its
Subsidiaries in an amount in excess of $5100.0 million (based on the fair market value of such Product) in the aggregate for all
such recalls, or in an amount which would, in the aggregate, have a Material Adverse Effect; or (v) proposing that any Loan
Party be suspended, debarred or excluded under 21 U.S.C. § 335a, 42 U.S.C. § 1320a-7, or any similar state or foreign law, rule
or regulation; and
(j)
any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect.
Each notice delivered under this Section 5.02 shall be accompanied by a statement of a Financial Officer or other
executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.
SECTION 5.03 Existence; Conduct of Business. Each Loan Party will, and will cause each Subsidiary to, (a) do or
cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and, except as could
not reasonably be expected to result in a Material Adverse Effect, the rights, qualifications, licenses, permits, franchises,
governmental authorizations, intellectual property rights, licenses and permits material to the conduct of its business; provided,
that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.03., and
(b) carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is
presently conducted or in fields which are, in the good faith judgment of the
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Borrower, similar, complimentary, ancillary or substantially related thereto or are reasonable extensions thereof.
SECTION 5.04 Payment of Taxes. Each Loan Party will, and will cause each Subsidiary to pay or discharge all Taxes,
before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good
faith by appropriate proceedings, and such Loan Party or such Subsidiary has set aside on its books adequate reserves with
respect thereto in accordance with GAAP or (b) the failure to make payment pending such contest could not reasonably be
expected to result in a Material Adverse Effect.
SECTION 5.05 Maintenance of Properties; Insurance; Casualty and Condemnation. Each Loan Party will, and will
cause each Subsidiary to, (i) keep and maintain all property material to the conduct of its business in good working order and
condition, ordinary wear and tear excepted, and
(ii) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are
customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations.
SECTION 5.06 Books and Records; Inspection Rights. Each Loan Party will, and will cause each Subsidiary to, (i) keep
proper books of record and account (x) in a manner that permits the preparation of financial statements in accordance with
GAAP and (y) in compliance in all material respects with applicable regulations of any Governmental Authority having
jurisdiction over it or any of its properties and (ii) permit any representatives designated by the Administrative Agent or during
the occurrence and continuance of an Event of Default, any Lender (including employees of the Administrative Agent, such
Lender or any consultants, accountants, lawyers, appraisers and field examiners retained by the Administrative Agent), upon
reasonable prior notice to visit and inspect its properties, to examine and make extracts from its books and records, and to
discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times during
normal business hours and as often as reasonably requested, all at the expense of the Loan Parties; provided, that the Borrower
shall not be required to reimburse the Administrative Agent for the cost of more than one such visit during any single fiscal year,
except during the occurrence and continuation of an Event of Default; provided, further that the Administrative Agent shall make
no more than one such visit during any single fiscal year unless (i) an Event of Default has occurred during such fiscal year or
(ii) there were any Loans or Letters of Credit outstanding during such fiscal year (it being understood and agreed that all but one
such visit by the Administrative Agent during such fiscal year shall occur (or have been scheduled) either (x) during the
continuance of such Event of Default or (y) while any such Loans or Letters of Credit were outstanding). The Loan Parties
acknowledge that the Administrative Agent, after exercising its rights of inspection, may prepare and distribute to the Lenders
certain reports pertaining to the Loan Parties’ assets for internal use by the Administrative Agent and the Lenders.
Notwithstanding anything to the contrary in this Section 5.06, neither the Borrower nor any other Loan Party will be required to
disclose, permit the inspection, examination or making copies or abstracts of, or discussion of, any document, information or
other matter in respect of which disclosure to the Administrative Agent or any Lender (or their respective representatives or
contractors) is prohibited by applicable law or any binding agreement (not entered into in contemplation of any request for
disclosure or otherwise to evade the disclosure requirements contained in this Section 5.06), constitutes non-financial trade
secrets or non- financial proprietary information, or is subject to attorney client privilege or that constitutes attorney work
product (in each case, as determined in good faith by legal counsel to any Loan Party and not in contemplation of any request for
disclosure or otherwise to evade the disclosure requirements contained in this Section 5.06); it being understood that the
Borrower shall use its commercially reasonable efforts to communicate any requested information in a way that would not
violate the applicable law or agreement or waive the applicable privilege.
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SECTION 5.07 Compliance with Laws. Each Loan Party will, and will cause each Subsidiary to, comply with all
Requirements of Law applicable to it or its property, except where the failure to do so, individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.08 Use of Proceeds.
(a) The proceeds of the Loans will be used for working capital and general corporate purposes including Permitted
Acquisitions. No part of the proceeds of any Loan and no Letter of Credit will be used, whether directly or indirectly, for any
purpose that entails a violation of any of the Regulations of the Board, including Regulations T, U and X.
(b) The Borrower will not request any Borrowing or Letter of Credit, and the Borrower shall not use, and shall procure
that its Subsidiaries shall not use, the proceeds of any Borrowing or Letter of Credit (a) in furtherance of an offer, payment,
promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person (including any joint
venture partner) in violation of any Anti-Corruption Laws, (b) for the purpose of funding, financing or facilitating any activities,
business or transaction of or with any Sanctioned Person, or in any Sanctioned Country, (c) in any manner that would result in
the violation of any Sanctions applicable to any party heretoPerson (including any Person participating in the Loans, whether as
Administrative Agent, Lead Arranger, Issuing Bank, Lender, underwriter, advisor, investor or otherwise) or (d) in any manner
that would result in a violation of any anti-money laundering laws or regulations.
SECTION 5.09 Further Assurances.
(a) Subject to applicable law, the Borrower and each other Loan Party shall cause each of its wholly-owned Material
Domestic Subsidiaries formed or acquired on or after the date of this Agreement in accordance with the terms of this Agreement
and each Subsidiary which hereafter becomes a Material Domestic Subsidiary, in each case, to become a Loan Party, within
thirty (30) days (or such later date as the Administrative Agent may agree) after the date of such formation or acquisition (or
after the date on which such Subsidiary becomes a Material Domestic Subsidiary, as applicable), by executing the Joinder
Agreement set forth as Exhibit C hereto (the “Joinder Agreement”). Upon execution and delivery thereof, each such Person shall
automatically become a Loan Guarantor hereunder and thereupon shall have all of the rights, benefits, duties, and obligations in
such capacity under the Loan Documents.
(b) Without limiting the foregoing, each Loan Party will, and will cause each Subsidiary to, execute and deliver, or
cause to be executed and delivered, to the Administrative Agent such documents, agreements, certificates and instruments, and
will take or cause to be taken such further actions (including delivery of organizational documents, incumbencies, resolutions,
good standing certificates, legal opinions and other documents and such other actions or deliveries of the type required by
Section 4.01, as applicable), which may be required by law or which the Administrative Agent may, from time to time,
reasonably request to carry out the terms and conditions of this Agreement and the other Loan Documents, all at the expense of
the Loan Parties.
SECTION 5.10 Anti-Corruption Laws and Sanctions. Each Loan Party shall implement and maintain in effect policies
and procedures designed to ensure compliance by such Loan Party, its Subsidiaries and their respective directors, officers,
employees and agents with Anti-Corruption Laws and applicable Sanctions.
SECTION 5.11 Compliance with Environmental Laws. Each Loan Party shall comply with all Environmental Laws
applicable to its operations and properties; and obtain and renew all material
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authorizations and permits required pursuant to Environmental Laws for its operations and properties, in each case in
accordance with Environmental Laws, except, in each case, to the extent failure to do so could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.
SECTION 5.12 Intellectual Property. Each Loan Party shall maintain adequate licenses, patents, patent applications,
copyrights, service marks, trademarks, trademark applications, tradestyles and trade names to continue its business as heretofore
conducted by it or as hereafter conducted by it unless the failure to maintain any of the foregoing could not reasonably be
expected to have a Material Adverse Effect on such Loan Party.
SECTION 5.13 ERISA. Borrower shall, and shall cause each Subsidiary to, promptly pay and discharge all obligations
and liabilities arising under ERISA of a character, which if unpaid or unperformed could reasonably be expected to result in the
imposition of a lien against any of its property.
SECTION 5.14 Compliance with Health Care Laws.
(a) Each Loan Party and each of their respective Subsidiaries will comply with all applicable Health Care Laws ,
except to the extent that any noncompliance, individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
(b) Each Loan Party and each of their respective Subsidiaries shall (I) obtain, maintain and preserve, and cause each
of its Subsidiaries to obtain, maintain and preserve, and take all necessary action to timely renew, all material Health Care
Permits which are necessary or useful in the proper conduct of its business and (ii) keep and maintain all records required to be
maintained by any Governmental Authority or otherwise under any Health Care Law.
(c) Where mandated by applicable law, each Loan Party and each of their respective Subsidiaries shall maintain, in all
material respects, a corporate and health care regulatory compliance program (“RCP”) which addresses the requirements of
Health Care Laws, including HIPAA and Other Privacy Laws. Upon request, the Administrative Agent, the Lenders and/or any
of their consultants shall be permitted to review such RCPs.
SECTION 5.15 Compliance with Public Health Laws. Each Loan Party and its Subsidiaries shall comply with all
applicable Public Health Laws and their implementation by any applicable Governmental Authority applicable to its Products,
except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. All Products
developed, investigated, tested, manufactured, packaged, labeled, distributed or marketed by or on behalf of any Loan Party or
any of its Subsidiaries that are subject to the jurisdiction of the FDA or other comparable Governmental Authority shall be
developed, investigated, tested, manufactured, packaged, labeled, distributed and marketed in compliance with applicable Public
Health Laws and any other Requirements of Law, including Public Health Laws or any other applicable Requirement of Laws
regarding registration and listing, product approval or premarket notification, good manufacturing practices, labeling,
advertising, promotion, record-keeping, and adverse event reporting, except, in each case, where the failure to so comply could
not reasonably be expected to have a Material Adverse Effect.
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ARTICLE VI
NEGATIVE COVENANTS
Until Payment in Full has occurred, the Loan Parties covenant and agree, jointly and severally, with the Lenders that:
SECTION 6.01 Indebtedness. No Loan Party will, nor will it permit any Subsidiary to, create, incur or suffer to exist
any Indebtedness, except:
(a)
the Obligations;
(b)
Indebtedness existing or available for draw on the date hereof and set forth on Schedule 6.01 to the Disclosure
Letter;
(c)
Indebtedness of the Borrower to any Subsidiary and of any Subsidiary to the Borrower or any other Subsidiary;
provided, that (i) Indebtedness of any Subsidiary that is not a Loan Party to the Borrower or to any Subsidiary that is a Loan
Party shall be subject to Section 6.04 and (ii) Indebtedness of a Loan Party to any Subsidiary that is not a Loan Party shall be
subordinated to the Obligations on terms reasonably satisfactory to the Administrative Agent;
(d) Guarantees by the Borrower of Indebtedness of any Subsidiary and by any Subsidiary of Indebtedness of the
Borrower or any other Subsidiary; provided, that (i) the Indebtedness so Guaranteed is permitted by this Section 6.01, (ii)
Guarantees by the Borrower or any Subsidiary that is a Loan Party of Indebtedness of any Subsidiary that is not a Loan Party
shall be subject to Section 6.04, (iii) Guarantees permitted under this clause (d) shall be subordinated to the Obligations on the
same terms as the Indebtedness so Guaranteed is subordinated to the Obligations and (iv) no Subsidiary of the Borrower that is
not a Loan Party may rely on this clause (d) to Guarantee any Indebtedness of a Loan Party incurred pursuant to clause (u) of
this Section 6.01;
(e)
Indebtedness of the Borrower or any Subsidiary incurred to finance the acquisition, construction or improvement
of any fixed or capital assets (including any accessions, additions, parts, fixtures, improvements and attachments thereto)
(whether or not constituting purchase money Indebtedness), including Capital Lease Obligations and any Indebtedness assumed
in connection with the acquisition (including by way of any Permitted Acquisition) of any such assets or secured by a Lien on
any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness in
accordance with clause (f) hereof; provided, that, (i) such Indebtedness is incurred prior to or within one hundred eighty days
after such acquisition or the completion of such construction or improvement and (ii) the aggregate principal amount of
Indebtedness permitted by this clause (e) (including any refinancing thereof permitted by clause (f)) shall not exceed $5100.0
million at any time outstanding;
(f)
Indebtedness which represents an extension, refinancing, or renewal of any of the Indebtedness described in
clauses (b), (e) or (s) hereof; provided, that, (i) the aggregate principal amount of such Indebtedness does not exceed the
principal amount of such Indebtedness being refinanced plus the amount of any interest, premiums or penalties required to be
paid plus fees and expenses associated therewith, (ii) any Liens securing such Indebtedness are not extended to any additional
property of any Loan Party (or, if no Liens secure such Indebtedness being extended, refinanced or renewed, no Liens secure
such Indebtedness), (iii) no Loan Party that is not originally obligated (or required to become obligated) with respect to
repayment of such Indebtedness is required to become obligated with respect thereto, (iv) such extension, refinancing or renewal
does not result in a shortening of the average
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weighted maturity of the Indebtedness so extended, refinanced or renewed, (v) the terms of any such extension, refinancing, or
renewal are not materially less favorable to the obligor thereunder than the original terms of such Indebtedness, taken as a
whole, and (vi) if the Indebtedness that is refinanced, renewed, or extended was subordinated in right of payment to the
Obligations, then the terms and conditions of the refinancing, renewal, or extension Indebtedness must include subordination
terms and conditions, taken as a whole, that are at least as favorable to the Administrative Agent and the Lenders as those that
were applicable to the refinanced, renewed, or extended Indebtedness;
(g)
Indebtedness owed to any Person providing workers’ compensation, health, disability or other employee benefits
or property, casualty or liability insurance, pursuant to reimbursement or indemnification obligations to such person, in each
case, incurred in the ordinary course of business;
(h)
Indebtedness of the Borrower or any Subsidiary in respect of performance bonds, bid bonds, appeal bonds, surety
bonds and similar obligation, in each case provided in the ordinary course of business;
(i)
under Section 6.06;
Indebtedness or Guarantees of the Borrower or any Subsidiary in connection with any Swap Agreement permitted
(j)
Indebtedness arising from customary agreements providing for indemnification, adjustment of purchase price,
earnout, deferred purchase price or similar obligations in connection with acquisitions or dispositions of any business or assets
by or of the Borrower or any Subsidiary permitted hereunder;
(k)
Judgments entered against the Borrower or any Subsidiary to the extent not constituting an Event of Default;
(l)
Indebtedness or Guarantees incurred in the ordinary course of business in connection with cash pooling, netting
and cash management arrangements consisting of overdrafts or similar arrangements; provided that any such Indebtedness does
not consist of Indebtedness for borrowed money and is owed to the financial institutions providing such arrangements;
(m)
Indebtedness of Foreign Subsidiaries; provided, that the aggregate outstanding principal amount of such
Indebtedness shall not exceed $5120.0 million (or the equivalent thereof) at any time;
(n)
Deferred Acquisition Consideration in connection with Permitted Acquisitions;
(o)
Indebtedness of a Person or Indebtedness attaching to assets of a Person that, in either case, becomes a Subsidiary
or Indebtedness attaching to assets that are acquired by Borrower or any of its Subsidiaries, in each case as the result of a
Permitted Acquisition or other acquisition permitted under this Agreement; provided, that (i) such Indebtedness existed at the
time such Person became a Subsidiary or at the time such assets were acquired and, in each case, was not created in anticipation
thereof and (ii) (x) such Indebtedness incurred in connection with any single Permitted Acquisition shall not exceed $240.0
million and (y) the aggregate amount of such Indebtedness permitted to be incurred shall under this clause
(o) not exceed $5100.0 million;
(p)
Indebtedness of the Borrower or any Subsidiary in connection with any Guarantees given by them, or any letters
of credit or bank guarantees issued by any bank or financial institution, in favor of any Governmental Authority to secure the
payment of Taxes owed by the Borrower or any Subsidiary to such Governmental Authorities;
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(q)
Indebtedness incurred with corporate credit cards in the ordinary course of business;
(r)
Indebtedness with respect to letters of credit, bank guarantees, banker’s acceptances and similar instruments, so
long as the aggregate face amount of all such letters of credit, bank guarantees, banker’s acceptances and similar instruments
does not exceed $240.0 million at any time;
(s)
Indebtedness consisting of promissory notes issued to current or former officers, directors and employees (or their
respective family members, estates or trusts or other entities for the benefit of any of the foregoing) of the Borrower or its
Subsidiaries to purchase or redeem Equity Interests or options of the Borrower permitted pursuant to Section 6.07(a)(vii);
provided that the aggregate principal amount of all such Indebtedness shall not exceed $5.0 million at any time outstanding;
(t)
Indebtedness consisting of obligations under Repurchase Agreements;
(u)
unsecured Indebtedness of any Loan Party not otherwise permitted pursuant to this Section 6.01; provided that (i)
the Total Leverage Ratio of the Borrower recomputed on a pro forma basis for the incurrence of such Indebtedness, and based on
the most recently ended Reference Period for which financial statements have been (or were required to be), in each case in
accordance with this Agreement, delivered to the Administrative Agent, shall not exceed 2.503.00 to 1.00, (ii) the final maturity
of such Indebtedness shall not be prior to the date that is ninety (90) days after the Maturity Date, (iii) such Indebtedness will not
have mandatory prepayment or mandatory amortization, redemption, sinking fund or similar prepayments (other than asset sale,
casualty, condemnation or extraordinary receipts events, change of control, fundamental change, make-whole fundamental
change or similar event risk provisions providing for mandatory offers to repurchase customary for debt securities, and, for the
avoidance of doubt, any net share settlement provisions) prior to the date that is ninety (90) days after the Maturity Date at the
time of issuance of such Indebtedness, (iv) such Indebtedness is not guaranteed by any Subsidiary that is not a Guarantor, (v) to
the extent such Indebtedness is subordinated in right of payment to the Obligations, any guaranty thereof by the Loan Parties
shall be expressly subordinated to the Obligations on terms materially not less favorable to the Lenders than the subordination
terms of such Indebtedness, (vi) the terms of such Indebtedness, taken as a whole, are not materially more restrictive on the
Borrower and its Subsidiaries than the terms of the Loan Documents, taken as a whole (as determined in good faith by the
Borrower, it being understood that (1) customary repurchase obligations described in the parenthetical in clause (iii) above and
(2) customary additional interest provisions for failure to file required reports or additional interest in lieu of customary events of
default, in each case shall not be materially more restrictive), and (viii) no Default or Event of Default shall have occurred and
be continuing or result from the incurrence of such Indebtedness; and
(v)
other Indebtedness in an aggregate principal amount not exceeding $5100.0 million at any time outstanding;
provided, that no Subsidiary of the Borrower that is not a Loan Party may rely on this clause (v) to Guarantee any Indebtedness
of a Loan Party incurred pursuant to clause (u) of this Section 6.01.; and
(w)
to the extent constituting Indebtedness, obligations in respect of customary representations, warranties, repurchase
covenants and indemnities entered into by a Foreign Subsidiary with respect to a Receivables Facility; provided, that the
aggregate outstanding principal amount of such Receivables Facilities shall not exceed $75.0 million (or the equivalent thereof)
at any time.
SECTION 6.02 Liens. No Loan Party will, nor will it permit any Subsidiary to, create, incur, assume or permit to exist
any Lien on any property or asset now owned or hereafter acquired by it, or
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assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except:
(a)
(b)
Liens on cash collateral created pursuant to any Loan Document;
Permitted Encumbrances;
(c)
any Lien on any property or asset of the Borrower or any Subsidiary existing on the date hereof and set forth in
Schedule 6.02 to the Disclosure Letter; provided, that (i) such Lien shall not apply to any other property or asset of the Borrower
or such Subsidiary, except for proceeds of the foregoing and (ii) such Lien shall secure only those obligations which it secures on
the date hereof and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof
except by the amount of any interest, premiums or penalties required to be paid plus fees and expenses associated therewith;
(d)
any Lien existing on any property or asset prior to the acquisition thereof (including by way of any Permitted
Acquisition) by the Borrower or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary
after the Effective Date prior to the time such Person becomes a Subsidiary; provided, that (i) such Lien is not created in
contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such
Lien shall not apply to any other property or assets of the Borrower or any Subsidiary and (iii) such Lien shall secure only those
obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be
and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof except by the
amount of any interest, premiums or penalties required to be paid plus fees and expenses associated therewith;
(e) Liens on fixed or capital assets (including any accessions, additions, parts, fixtures, improvements and attachments
thereto and the proceeds thereof) acquired, constructed or improved by the Borrower or any Subsidiary; provided, that (i) such
security interests secure Indebtedness permitted by clause (e) of Section 6.01, (ii) such security interests and the Indebtedness
secured thereby are incurred prior to or within one hundred eighty (180) days after such acquisition or the completion of such
construction or improvement, (iii) the Indebtedness secured thereby does not exceed 110% of the cost of acquiring, constructing
or improving such fixed or capital assets and (iv) such security interests shall not apply to any other property or assets of the
Borrower or Subsidiary;
(f)
Liens of a collecting bank arising in the ordinary course of business under Section 4-208 of the Uniform
Commercial Code in effect in the relevant jurisdiction covering only the items being collected upon;
(g) Liens granted by a Subsidiary that is not a Loan Party in favor of the Borrower or another Loan Party in respect of
Indebtedness owed by such Subsidiary;
(h) Liens arising by operation of law under Article 2 of the Uniform Commercial Code in favor of a reclaiming seller
of goods or buyer of goods;
(i)
broker’s Liens, bankers’ Liens, rights of setoff and other similar Liens existing solely with respect to cash and
Cash Equivalents on deposit in one or more accounts maintained by the Borrower or any Subsidiary, in each case, granted in the
ordinary course of business in favor of the bank or banks with which such accounts are maintained, including any such Liens or
rights of setoff securing amounts owing in the ordinary course of business to such bank with respect to cash management and
operating account arrangements, including those involving pooled accounts and netting arrangements;
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provided, that the aggregate amount of cash collateral under this clause (i) shall not exceed $5.010.0 million in the aggregate at
any one time;
(j)
leases, licenses, sub-leases, sub-licenses and other similar encumbrances incurred in the ordinary course of
business that do not materially detract from the value of the property subject thereto or materially interfere with the ordinary
conduct of the business of the Borrower or any Subsidiary;
(k) Liens on assets of Foreign Subsidiaries to secure Indebtedness of such Foreign Subsidiaries permitted under
Section 6.01(m);
(l)
Liens in the nature of the right of setoff in favor of counterparties to contractual agreements not otherwise
prohibited hereunder with the Borrower or any other Subsidiary in the ordinary course of business;
(m) Liens on cash collateral to secure obligations of Borrower or any Subsidiary under any Swap Agreement permitted
under Section 6.06, so long as the aggregate amount of such cash collateral does not, as of any date of determination, exceed
$240.0 million;
(n) Liens on cash collateral securing letters of credit, bank guarantees, banker’s acceptances and similar instruments
permitted under Section 6.01(r);
(o) Liens on any cash earnest money deposits made by the Borrower or any of its Subsidiaries in connection with any
letter of intent or purchase agreement with respect to a Permitted Acquisition;
(p) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods;
(q) Liens arising out of conditional sale, title retention, consignment or similar arrangements for sale of goods by the
Borrower or any of its Subsidiaries in the ordinary course of business;
(r)
customary encumbrances or restrictions (including put and call arrangements) with respect to the Equity Interests
of any joint venture or minority investment in favor of the other parties to such joint venture or other investors;
(s) Liens on cash collateral and/or Cash Equivalents securing Indebtedness permitted under Section 6.01(t); and
(t)
other Liens securing Indebtedness or other obligations in an aggregate amount not exceeding $5100.0 million at
any time outstanding; provided, that this clause (t) may not be utilized to secure any Indebtedness permitted under Section
6.01(u).; and
(u) Liens on Receivables Assets of Foreign Subsidiaries in favor of any applicable counterparty in a Receivables
Facility; provided, that the aggregate outstanding principal amount of Indebtedness which such Liens secure shall not exceed
$75.0 million (or the equivalent thereof) at any time.
SECTION 6.03 Fundamental Changes.
(a) No Loan Party will, nor will it permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, sell, transfer, lease or
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otherwise dispose of (in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or
hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no
Event of Default shall have occurred and be continuing (i) any Subsidiary of the Borrower may merge into the Borrower in a
transaction in which the Borrower is the surviving corporation, (ii) any Subsidiary may merge into any Loan Party in a
transaction in which the surviving entity is a Loan Party, (iii) any Person may merge or consolidate with or into any Loan Party
or any of its Subsidiaries in connection with a Permitted Acquisition or any Investment permitted under Section 6.04 so long as,
in the case of a merger involving any Loan Party, such Loan Party is the surviving entity (or the surviving entity becomes a
Loan Party in accordance with this Agreement), (iv) any Subsidiary may sell, transfer, lease or otherwise dispose of its assets to
the Borrower or to another Subsidiary, (v) any Subsidiary that is not a Loan Party may merge or consolidate with or into any
other Subsidiary that is not a Loan Party and (vi) any Subsidiary may liquidate or dissolve if the Borrower reasonably
determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and its Subsidiaries, and is
not materially disadvantageous to the Lenders; provided, that any such merger involving a Person that is not a wholly owned
Subsidiary immediately prior to such merger shall not be permitted unless also permitted by Section 6.04.
(b) No Loan Party will, nor will it permit any of its Subsidiaries to, engage to any material extent in any business
other than businesses of the type conducted by the Borrower and its Subsidiaries on the date of execution of this Agreement and
businesses which are, in the good faith judgment of the Borrower, similar, complementary or substantially related or ancillary
thereto or are reasonable extensions thereof.
(c) The Borrower will not change its fiscal year which currently ends on December 31 of each year.
SECTION 6.04 Investments, Loans, Advances, Guarantees and Acquisitions. No Loan Party will, nor will it permit any
Subsidiary to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a Loan Party and a
wholly owned Subsidiary prior to such merger) any capital stock, evidences of indebtedness or other securities (including any
option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee
any obligations of, or make or permit to exist any investment in, any other Person, or purchase or otherwise acquire (in one
transaction or a series of transactions) any assets of any other Person constituting a business unit (each such action, an
“Investment”), except:
(a)
investments in cash and Cash Equivalents;
(b)
investments in existence on the date of this Agreement and described in Schedule 6.04 to the Disclosure Letter;
(c)
investments by the Borrower and its Subsidiaries in the capital stock of their respective Subsidiaries; provided,
that the aggregate amount of investments (together with the aggregate amount of loans and advances described in Section
6.04(d)), as of any date of determination, made by the Borrower or the other Loan Parties after the date of this Agreement in the
capital stock of their respective Subsidiaries who are not Loan Parties does not at any time exceed an amount equal to
$100.0175.0 million;
(d)
loans or advances made by the Borrower or any of its Subsidiaries to the Borrower or any other Subsidiary;
provided, that the aggregate amount of loans and advances (together with the aggregate amount of investments described in
Section 6.04(c)) made by the Borrower or the other Loan Parties to
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Subsidiaries who are not Loan Parties that are at any time outstanding does not, as of any date of determination, exceed an amount equal to
$100.0175.0 million;
(e)
(i) Guarantees constitutingof Indebtedness permitted by Section 6.01 (other than, in the case of any Subsidiary of
the Borrower that is not a Loan Party, Indebtedness permitted pursuant to Section 6.01(u)) and (ii) Guarantees of obligations
(owed by the Borrower or any of its Subsidiaries or any suppliers providing essential products to the Borrower or any of its
Subsidiaries) not prohibited by this Agreement that do not constitute Indebtedness;
(f)
Permitted Acquisitions, including the formation of a Subsidiary in connection therewith;
(g)
loans and advances to officers, directors and employees of the Borrower or any Subsidiaries in the ordinary course
of business in an aggregate amount for the Borrower and its Subsidiaries not to exceed $5.0 million at any time outstanding;
(h)
investments received in connection with the bankruptcy, liquidation or reorganization of any Person or in
settlement of obligations of, or disputes with, any Person arising in the ordinary course of business;
(i)
Swap Agreements permitted by Section 6.06;
(j)
investments consisting of extensions of trade credit in the ordinary course of business, intercompany receivables
and intercompany charges of expenses arising in the ordinary course of business, and any prepayments and other credits to
suppliers or vendors made in the ordinary course of business;
(k)
to the extent constituting Investments, performance guarantees of obligations of the Borrower’s Subsidiaries in the
ordinary course of business;
(l)
Investments in joint ventures; provided, that the aggregate amount of all such Investments shall not at any time
exceed $50.0 million;
(m) deposits made in the ordinary course of business to secure the performance of leases or other obligations to the
extent the Lien thereon is permitted by Section 6.02;
(n)
Investments received in connection with the Disposition of any asset permitted by Section 6.05 (so long as the
receipt of such Investment (in the form so received) does not result in the Disposition no longer being permitted under Section
6.05);
(o)
endorsements of negotiable instruments deposited or to be deposited for collection in the ordinary course of
business;
(p)
Investments of any Person that becomes a Subsidiary after the Effective Date pursuant to a Permitted Acquisition,
provided that (i) such Investments exist at the time that such Person becomes a Subsidiary and (ii) such Investments were not
made in anticipation of such Person becoming a Subsidiary;
(q)
Investments consisting of earnest money deposits required in connection with a Permitted Acquisition or
consisting of earnest money deposits required in connection with an acquisition of property permitted hereunder;
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(r)
any Forward Agreement to the extent constituting an Investment that is permitted to be entered into by Borrower
pursuant to Section 6.07;
(s)
Permitted Call Spread Agreements; provided, that such Permitted Call Spread Agreement was entered into in
connection with the issuance of an unsecured Convertible Debt Security; and
(t)
Investments not otherwise permitted pursuant to this Section 6.04 not exceeding $175.0 million in the aggregate in
any fiscal year of the Borrower and in an aggregate amount not to exceed
$1350.0 million at any time outstanding; provided that, immediately before and immediately after giving pro forma effect to any
such Investments (and any Indebtedness incurred in connection therewith), no Default or Event of Default shall have occurred
and be continuing.
SECTION 6.05 Asset Dispositions; Sale and Leaseback Transactions.
(a)
No Loan Party will, nor will it permit any Subsidiary to, make any Disposition except:
(i) Dispositions of obsolete, surplus or worn out property, whether now owned or hereafter acquired, in the
ordinary course of business;
(ii)
Dispositions of inventory in the ordinary course of business;
(iii)
[Reserved];
(iv) Dispositions of equipment or real property to the extent that (A) such property is exchanged for credit
against the purchase price of similar replacement property or (B) the proceeds of such Disposition are reasonably
promptly applied to the purchase price of such replacement property;
(v) Dispositions of property by Borrower to any Subsidiary and by any Subsidiary to Borrower or any other
Subsidiary;
(vi) Dispositions permitted by Sections 6.02 (to the extent the granting of a Lien constitutes a Disposition),
6.03, 6.04, 6.05(b), 6.07 and 6.08;
(vii) Dispositions of overdue accounts receivable solely in connection with the collection or compromise
thereof;
(viii) Dispositions pursuant to operating leases (not in connection with any sale and leaseback transactions or
other Capital Lease Obligations) entered into in the ordinary course of business;
(ix)
Dispositions of property and assets subject to condemnation and casualty events;
(x)
Dispositions of cash and Cash Equivalents;
(xi) Dispositions by Borrower and any Subsidiary not otherwise permitted under this Section 6.05(a);
provided, that (A) at the time of such Disposition, no Default or Event of Default shall exist or would result from such
Disposition and (B) such Disposition is made for fair market value and the consideration received shall be no less than
75% in cash and (C) the aggregate fair market value of all property Disposed of in reliance on this subclause (xi) in any
fiscal year (or in
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the case of any Disposition for which the fair market value cannot reasonably be determined, the aggregate purchase
price therefor) shall not exceed 10% of Consolidated Total Assets;
(xii) the Disposition or unwinding of any (x) Permitted Call Spread Agreement that was entered into in
connection with the issuance of an unsecured Convertible Debt Security or (y) any Swap Agreement;
(xiii) the lapse or abandonment of registered intellectual property (or applications therefor) of the Borrower or
its Subsidiaries to the extent not necessary or desirable in the conduct of their business; and
(xiv) other Dispositions not otherwise permitted pursuant to this Section 6.05(a), the aggregate fair market
value of which (or in the case of any Disposition for which the fair market value cannot reasonably be determined, the
aggregate purchase price therefor) shall not exceed
$375.0 million in any fiscal year of the Borrower.; and
(xv) Dispositions by Foreign Subsidiaries of Receivables Assets in connection with any Receivables Facility;
provided, that the aggregate fair market value of Receivables Assets Disposed in reliance on this clause (xv) in any
fiscal quarter shall not exceed $50.0 million.
(b) No Loan Party will, nor will it permit any Subsidiary to, enter into any arrangement, directly or indirectly,
whereby it shall sell or transfer any owned property, real or personal, used or useful in its business, whether now owned or
hereafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same
purpose or purposes as the property sold or transferred, except for any such sale of any newly acquired fixed or capital assets by
the Borrower or any Subsidiary that is made for cash consideration in an amount not less than the purchase price of such fixed
or capital asset and is consummated within one hundred eighty (180) days after the completion of the acquisition or construction
of such fixed or capital asset.
SECTION 6.06 Swap Agreements. No Loan Party will, nor will it permit any Subsidiary to, enter into any Swap
Agreement, except (a) Swap Agreements entered into to hedge or mitigate risks (including foreign currency exchange risks) to
which the Borrower or any Subsidiary has actual or reasonably anticipated exposure (other than those in respect of Equity
Interests of the Borrower or any of its Subsidiaries), and (b) Swap Agreements entered into in order to effectively cap, collar or
exchange interest rates (from fixed to floating rates, from one floating rate to another floating rate or otherwise) with respect to
any interest-bearing liability or investment of the Borrower or any Subsidiary.
SECTION 6.07 Restricted Payments; Prepayments of Indebtedness.
(a) No Loan Party will, nor will it permit any Subsidiary to, declare or make, or agree to pay or make, directly or
indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, except:
(i)
(A) the Borrower may declare and pay dividends with respect to its common stock payable solely in
additional shares of its common stock, and, with respect to its preferred stock, payable solely in additional shares of
such preferred stock or in shares of its common stock, and (B) Subsidiaries may declare and pay dividends or make
distributions ratably with respect to their Equity Interests;
(ii) Restricted Payments paid in cash, so long as (A) no Event of Default has occurred and is continuing or
would result therefrom and (B) after giving effect thereto on a pro
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forma basis, (1) the Total Leverage Ratio for the most recently ended Reference Period for which financial statements
have been (or were required to be) delivered to the Administrative Agent is not more than 3.00 to 1.00 and (2) the
Interest Coverage Ratio for the most recently ended Reference Period for which financial statements have been (or were
required to be) delivered to the Administrative Agent is not less than 23.50 to 1.00 (it being agreed that with respect to
the payment of cash dividends by the Borrower, such determinations under clauses (A) and (B) shall be made at the
time of the declaration of such dividend);
(iii)
issuances of Equity Interests to sellers of Permitted Acquisitions in satisfaction of obligations of the type
described in Section 6.01(j);
(iv)
the Borrower may deliver shares of Borrower’s common stock, in connection with the settlement at
maturity or early termination of any Forward Agreement if, at the time of entering into such Forward Agreement, the
Borrower would have been permitted under this Agreement to pay the initial premium or prepayment amount due under
such Forward Agreement on the initial prepayment date under such Forward Agreement;
(v)
(A) any Subsidiary of the Borrower may pay cash dividends or make distributions to the Borrower or any
other Loan Party and (B) any non-Loan Party may pay cash dividends or make distributions to any other non-Loan
Party;
(vi) cash payment, in lieu of issuance of fractional shares arising out of stock dividends, splits or combinations
or business combinations, or in connection with the exercise of warrants, options or other securities convertible into or
exchangeable for the Equity Interests of the Borrower or a Subsidiary;
(vii) the Borrower may make Restricted Payments pursuant to and in accordance with stock plans and other
benefit plans for management, employees or other eligible service providers of the Borrower and its Subsidiaries,
including in connection with the payment of withholding taxes in connection with such plans;
(viii) the Borrower may repurchase, redeem, retire or otherwise acquire for value Equity Interests (including
any stock appreciation rights in respect thereof) of the Borrower from current or former employees, officers or directors;
provided, that the aggregate annual cash payments in respect of such repurchases, redemptions, retirements and
acquisitions shall not exceed $240.0 million in any fiscal year;
(ix)
repurchases or other acquisitions of Equity Interests deemed to occur upon the exercise of warrants or
other rights to purchase Equity Interests or convertible securities if such Equity Interests represent a portion of the
exercise price thereof or conversion price thereof;
(x)
the Borrower or any Subsidiary may receive or accept the return to the Borrower or any Subsidiary of the
Equity Interests of the Borrower or any Subsidiary from the sellers constituting a portion of the purchase price
consideration in settlement of indemnification claims or as a result of purchase price adjustments (including earn-outs
and similar obligations) in connection with Permitted Acquisitions; and
(xi)
to the extent constituting Restricted Payments, the Borrower may pay the premium in respect of, make any
payments (of cash or deliveries in shares of the Borrower’s Equity Interests (or other securities or property (to the extent
not secured by a Lien) following a merger event, reclassification or other change of the Equity Interests), or any
combination thereof
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and cash in lieu of fractional shares)) required by, and otherwise perform its obligations under, any Permitted Call
Spread Agreement, including in connection with any settlement, unwind or termination thereof.
(b) No Loan Party will, nor will it permit any Subsidiary to, make or agree to pay or make, directly or indirectly, any
payment or other distribution (whether in cash, securities or other property) of or in respect of principal of or interest on any
Subordinated Indebtedness, or any payment or other distribution (whether in cash, securities or other property), including any
sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of
any Subordinated Indebtedness, except:
(i)
payment of regularly scheduled interest and principal payments as and when due in respect of any
Subordinated Indebtedness permitted under Section 6.01 and any other payments permitted by the subordination terms
applicable thereto; and
(ii)
purchases, redemptions and other payments of any Subordinated Indebtedness, so long as (A) no Event of
Default has occurred and is continuing or would result therefrom and (B) after giving effect thereto on a pro forma basis,
(1) the Total Leverage Ratio for the most recently ended Reference Period for which financial statements have been (or
were required to be) delivered to the Administrative Agent is not more than 3.00 to 1.00 and (2) the Interest Coverage
Ratio for the most recently ended Reference Period for which financial statements have been (or were required to be)
delivered to the Administrative Agent is not less than 23.50 to 1.00.
SECTION 6.08 Transactions with Affiliates. No Loan Party will, nor will it permit any Subsidiary to, sell, lease or
otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise
engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions
not less favorable to such Loan Party or such Subsidiary than could be obtained on an arm’s-length basis from unrelated third
parties, (b) transactions between or among the Borrower and any Subsidiary not involving any other Affiliate, (c) any Restricted
Payment permitted by Section 6.07, (d) reasonable and customary director, officer and employee compensation (including
bonuses) and other benefits (including retirement, health, stock option and other benefit plans), indemnification arrangements
and severance arrangements and (e) transactions described in Schedule 6.08 to the Disclosure Letter.
SECTION 6.09 Restrictive Agreements. No Loan Party will, nor will it permit any Subsidiary to, directly or indirectly,
enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a)
the ability of such Loan Party or any of its Subsidiaries to create, incur or permit to exist any Lien in favor of Administrative
Agent upon any of its property or assets, (b) the ability of any Subsidiary to pay dividends or other distributions with respect to
any shares of its capital stock or to make or repay loans or advances to the Borrower or any other Subsidiary or to Guarantee
Indebtedness of the Borrower or any other Subsidiary or (c) the ability of the Borrower or any other Subsidiary to make any
Disposition to the Borrower or any Subsidiary; except for: (i) such encumbrances or restrictions existing under or by reason of
applicable law or any Loan Document; (ii) restrictions and conditions existing on the date hereof identified on Schedule 6.09 to
the Disclosure Letter (including any extension or renewal thereof, or any amendment or modification thereof, in each case so
long as such extension, renewal, amendment or modification does not expand the scope of any such restriction or condition in
any material respect); (iii) customary restrictions and conditions contained in asset sale agreements, purchase agreements,
acquisition agreements (including by way of merger, acquisition or consolidation) entered into by the Borrower or any
Subsidiary in accordance with this Agreement, provided such restrictions and conditions are only in effect pending
consummation of such transaction and apply only to the entity or other property that is to be sold; (iv)
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restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such
restrictions or conditions apply only to the property or assets securing such Indebtedness; (v) customary provisions in leases and
other contracts restricting the assignment thereof;
(vi) customary restrictions contained in any software licenses; (vii) without affecting the Loan Parties’ obligations under Section
5.09, customary provisions in the organizational documents of a Person or asset sale or stock sale agreements or similar
agreements which restrict the transfer of ownership in such Person; (viii) in the case of any joint venture permitted hereunder
with a Person that is not a Loan Party, restrictions in such Person’s organizational documents or pursuant to any joint venture
agreement or stockholders agreement solely to the extent of the Equity Interests of or property held in the subject joint venture;
(ix) restrictions imposed by any holder of a Lien permitted by Section 6.02 restricting the transfer of the property subject
thereto; (x) without affecting the Loan Parties’ obligations under Section 5.09, any agreement in effect at the time a Person
becomes a Subsidiary of the Borrower (including any amendments thereto that are otherwise permitted by the Loan Documents
and that are no more materially restrictive with respect to such encumbrances and restrictions than those prior to such
amendment or refinancing), so long as such agreement was not entered into in connection with or in contemplation of such
person becoming a Subsidiary of Borrower and imposes restrictions only on such Person and its assets; (xi) restrictions on cash
or other deposits required by suppliers or landlords or paid by customers under contracts entered into in the ordinary course of
business; (xii) without affecting the Loan Parties’ obligations under Section 5.09, restrictions imposed solely on Foreign
Subsidiaries pursuant to any Swap Agreement entered into by the Borrower or any Subsidiary and permitted pursuant to Section
6.06; and
(xiii) customary net worth provisions contained in real property leases or licenses of intellectual property entered into by the
Borrower or any of its Subsidiaries; and (xiv) in the case of clauses (a) and (c), customary restrictions or conditions imposed by
any agreement related to any Receivables Facility that is on market terms and permitted under this Agreement.
SECTION 6.10 Amendment of Material Documents. No Loan Party will, nor will it permit any Subsidiary:
(a)
(i) to, amend, modify or waive any of its rights under its certificate of incorporation, by- laws, operating,
management or partnership agreement or other organizational documents or (ii) to, amend, modify or waive any provisions of
any Subordinated Indebtedness, in each case, to the extent any such amendment, modification or waiver would be materially
adverse to the Administrative Agent or the Lenders; or
(b)
to make any material change in its accounting treatment and reporting practices except as required or permitted by
GAAP.
SECTION 6.11 Financial Covenants.
(a) Total Leverage Ratio. The Loan Parties will not permit the Total Leverage Ratio, determined for the Reference
Period ending on the last day of each fiscal quarter, to be more than (x) in the case of any fiscal quarter ending prior to the
Second Amendment Effective Date, 3.00 to 1.00, and (y) in the case of any fiscal quarter ending on or after the Second
Amendment Effective Date, 3.50 to 1.00.
(b)
Interest Coverage Ratio. The Loan Parties will not permit the Interest Coverage Ratio, determined for the
Reference Period ending on the last day of each fiscal quarter ending prior to the Second Amendment Effective Date, to be less
than 2.50 to 1.00.
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SECTION 6.12 ERISA.
(a) With respect to any Plan, the Borrower shall not (i) engage, or permit any ERISA Affiliate to engage, in any
transaction described in Section 4069 of ERISA, (ii) engage, or permit any ERISA Affiliate to engage, in any prohibited
transaction described in Section 406 of ERISA or 4975 of the Code for which a statutory or class exemption is not available or a
private exemption has not previously been obtained from the U.S. Department of Labor, (iii) adopt or permit any ERISA
Affiliate to adopt any employee welfare benefit plan within the meaning of Section 3(1) of ERISA which provides benefits to
employees after termination of employment other than as required by Section 601 of ERISA or applicable law, (iv) fail to make
any contribution or payment to any Multiemployer Plan which it or any ERISA Affiliate may be required to make under any
agreement relating to such Multiemployer Plan, or any law pertaining thereto, or (v) fail, or permit any ERISA Affiliate to fail,
to pay any required installment or any other payment required under Section 412 of the Code on or before the due date for such
installment or other payment.
(b) The Borrower shall not establish, maintain, contribute to or become obligated to contribute to any Plan, except
where such establishment, maintenance, contribution, or obligation could not reasonably be expected to have a Material
Adverse Effect.
ARTICLE VII
EVENTS OF DEFAULT
If any of the following events (each an “Event of Default”) shall occur and be continuing:
(a)
the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC
Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for
prepayment thereof or otherwise;
(b)
the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount
referred to in clause (a) of this Article VII) payable under this Agreement, when and as the same shall become due and payable,
and such failure shall continue unremedied for a period of three (3) Business Days;
(c)
any representation or warranty made or deemed made by or on behalf of any Loan Party or any Subsidiary in or in
connection with this Agreement or any Loan Document or any amendment or modification thereof or waiver thereunder, or in
any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any
Loan Document or any amendment or modification thereof or waiver thereunder, shall prove to have been materially incorrect
when made or deemed made;
(d)
any Loan Party shall fail to observe or perform any covenant, condition or agreement contained in Section 5.02(a),
5.03 (with respect to maintaining a Loan Party’s existence), 5.08, 5.09(a) or 5.09(b) or in Article VI;
(e)
any Loan Party shall fail to observe or perform any covenant, condition or agreement contained in this Agreement
(other than those which constitute a default under another Section of this Article VII) or any other Loan Document, and such
failure shall continue unremedied for a period of thirty (30) days after the earlier of any Loan Party’s knowledge of such breach
or notice thereof from the Administrative Agent (which notice will be given at the request of any Lender);
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(f)
any Loan Party or any Subsidiary shall fail to make any payment (whether of principal or interest and regardless
of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable beyond any applicable
grace period;
(g)
any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled
maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any
Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to
require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided, that this clause
(g) shall not apply to (i) secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or
assets securing such Indebtedness, (ii) any redemption, repurchase, conversion or settlement with respect to any unsecured
Convertible Debt Security pursuant to its terms unless such redemption, repurchase, conversion or settlement results from a
default thereunder or (iii) any exercise, early payment requirement or unwinding or termination with respect to any Permitted
Call Spread Agreement (that was entered into in connection with the issuance of an unsecured Convertible Debt Security), any
Swap Agreement or any Forward Agreement in each case, pursuant to its terms unless such exercise, early payment, unwinding
or termination results from a default thereunder;
(h)
an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of a Loan Party or any Material Foreign Subsidiary or its debts, or of a substantial part of
its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii)
the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Loan Party or any Material
Foreign Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue
undismissed for sixty (60) days or an order or decree approving or ordering any of the foregoing shall be entered;
(i)
any Loan Party or any Material Foreign Subsidiary shall (i) voluntarily commence any proceeding or file any
petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or petition described in clause (h) of this Article VII, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for such Loan Party or Material
Foreign Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the
purpose of effecting any of the foregoing;
(j)
any Loan Party or any Subsidiary of any Loan Party shall become unable, admit in writing its inability or fail
generally to pay its debts as they become due;
(k)
one or more judgments, orders or decrees for the payment of money in an aggregate amount in excess of $5100.0
million (not paid or fully covered by insurance company as to which the relevant insurance company has acknowledged
coverage) shall be rendered against any Loan Party, any Subsidiary of any Loan Party or any combination thereof and the same
shall not have been paid, vacated or discharged or effectively stayed or bonded pending appeal within thirty (30) days after the
entry thereof or enforcement proceedings shall have been commenced by any creditor upon such judgment, order or decree, and
such enforcement proceedings have not been effectively stayed, vacated or bonded within thirty (30) days;
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(l)
an ERISA Event shall have occurred that, when taken together with all other ERISA Events that have occurred,
could reasonably be expected to, individually or in the aggregate, result in liability of the Borrower and its Subsidiaries in
excess of $5100.0 million;
(m)
a Change in Control shall occur;
(n)
other than in accordance with the express terms thereof, the Loan Guaranty shall fail to remain in full force or
effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of the Loan Guaranty or any Loan
Guarantor shall deny that it has any further liability under the Loan Guaranty to which it is a party, or shall give notice to such
effect;
(o)
any material provision of any Loan Document for any reason ceases to be valid, binding and enforceable in
accordance with its terms (or any Loan Party shall challenge the enforceability of any Loan Document or shall assert in writing,
or engage in any action or inaction based on any such assertion, that any provision of any of the Loan Documents has ceased to
be or otherwise is not valid, binding and enforceable in accordance with its terms) other than in accordance with the express
terms hereof or thereof;
(p)
any Loan Party is suspended, debarred or excluded in accordance with 21 U.S.C. § 335a, 42 U.S.C. § 1320a-7, or
similar provision of Law; or
(q)
other than in accordance with the express terms of the applicable subordination agreement, the Obligations shall
cease or any Loan Party has asserted in writing that the Obligations cease to constitute senior indebtedness under the
subordination provisions of any document or instrument evidencing Subordinated Indebtedness in excess of $5.010.0 million or
any such subordination provision ceases, for any reason, to be a valid, binding and enforceable obligation of the parties hereto.
then, and in every such event (other than an event with respect to the Borrower described in clause (h) or
(i) of this Article VII), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or
different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare
the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and
payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and
payable, together with accrued and unpaid interest thereon and all fees and other obligations of the Borrower accrued hereunder,
shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (h) or (i) of this
Article VII, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with
accrued and unpaid interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically
become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower. Upon the occurrence and the continuance of an Event of Default, the Administrative Agent may, and at the request
of the Required Lenders shall, exercise any rights and remedies provided to the Administrative Agent under the Loan
Documents or at law or equity, including all remedies provided under the UCC.
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ARTICLE VIII
THE ADMINISTRATIVE AGENT
SECTION 8.01 Appointment. Each of the Lenders, on behalf of itself and any of its Affiliates that hold Obligations, and
the Issuing Banks hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to
take such actions on its behalf, including execution of the other Loan Documents, and to exercise such powers as are delegated
to the Administrative Agent by the terms of the Loan Documents, together with such actions and powers as are reasonably
incidental thereto. The provisions of this Article VIII are solely for the benefit of the Administrative Agent and the Lenders
(including the Issuing Bank), and the Loan Parties shall not have rights as a third party beneficiary of any of such provisions. It
is understood and agreed that the use of the term “agent” as used herein or in any other Loan Documents (or any similar term)
with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations
arising under agency doctrine of any applicable law. Instead, such term is used as a matter of market custom, and is intended to
create or reflect only an administrative relationship between independent contracting parties.
SECTION 8.02 Rights as a Lender. The bank serving as the Administrative Agent hereunder shall have the same rights
and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative
Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business
with the Loan Parties or any Subsidiary of a Loan Party or other Affiliate thereof as if it were not the Administrative Agent
hereunder.
SECTION 8.03 Duties and Obligations. The Administrative Agent shall not have any duties or obligations except those
expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (a) the Administrative Agent shall
not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the
Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated by the Loan Documents that the Administrative Agent is required to
exercise in writing as directed by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary
under the circumstances as provided in Section 9.02), and (c) except as expressly set forth in the Loan Documents, the
Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information
relating to any Loan Party or any of its Subsidiaries that is communicated to or obtained by the bank serving as Administrative
Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it
with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be
necessary under the circumstances as provided in Section 9.02) or in the absence of its own gross negligence or willful
misconduct as determined by a final nonappealable judgment of a court of competent jurisdiction. The Administrative Agent
shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative
Agent by the Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or
inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of
any certificate, report or other document delivered hereunder or in connection with any Loan Document, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document, (iv) the validity,
enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, or
(v) the satisfaction of any condition set forth in Article IV or elsewhere in any Loan Document, other than to confirm receipt of
items expressly required to be delivered to the Administrative Agent. None of the Lenders or other Persons identified on the
facing page or signature pages of this Agreement as a “syndication agent,” “documentation agent,” “lead arranger,”
“bookrunner” or other similar term shall
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have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders
as such. Without limiting the foregoing, none of the Lenders or other Persons so identified shall have or be deemed to have any
fiduciary relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on any of the Lenders
or other Persons so identified in deciding to enter into this Agreement or in taking or not taking action hereunder.
SECTION 8.04 Reliance. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for
relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be
genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement
made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying
thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent
accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the
advice of any such counsel, accountants or experts.
SECTION 8.05 Actions through Sub-Agents. The Administrative Agent may perform any and all of its duties and
exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The
Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers through
their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and
to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in
connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.
SECTION 8.06 Resignation. Subject to the appointment and acceptance of a successor Administrative Agent as
provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders, the Issuing Banks and the
Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a
successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment
within thirty (30) days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative
Agent may, on behalf of the Lenders and the Issuing Banks, appoint a successor Administrative Agent which shall be a
commercial bank or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder
by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations
hereunder and under the other Loan Documents. The fees payable by the Borrower to a successor Administrative Agent shall be
the same as those payable to its predecessor, unless otherwise agreed by the Borrower and such successor. Notwithstanding the
foregoing, in the event no successor Administrative Agent shall have been so appointed and shall have accepted such
appointment within thirty (30) days after the retiring Administrative Agent gives notice of its intent to resign, the retiring
Administrative Agent may give notice of the effectiveness of its resignation to the Lenders, the Issuing Banks and the Borrower,
whereupon, on the date of effectiveness of such resignation stated in such notice, (a) the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder and under the other Loan Documents and (b) the Required Lenders shall
succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent; provided,
that (i) all payments required to be made hereunder or under any other Loan Document to the Administrative Agent for the
account of any Person other than the Administrative Agent shall be made directly to such Person and (ii) all notices and other
communications required or contemplated to be given or made to the Administrative Agent shall also directly be given or made
to each Lender and each Issuing Bank. Following the effectiveness of the Administrative Agent’s resignation from its capacity
as such, the provisions of this Article VIII, Section 2.17(d) and Section 9.03, as well as any exculpatory,
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reimbursement and indemnification provisions set forth in any other Loan Document, shall continue in effect for the benefit of
such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted
to be taken by any of them while it was acting as Administrative Agent and in respect of the matters referred to in the proviso
under clause (a) above.
SECTION 8.07 Non-Reliance. Each Lender acknowledges and agrees that the extensions of credit made hereunder are
commercial loans and letters of credit and not investments in a business enterprise or securities. Each Lender further represents
that it is engaged in making, acquiring or holding commercial loans in the ordinary course of its business and has, independently
and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into this Agreement as a Lender, and to make, acquire or
hold Loans hereunder. Each Lender shall, independently and without reliance upon the Administrative Agent or any other
Lender and based on such documents and information (which may contain material, non-public information within the meaning
of the United States securities laws concerning the Borrower and its Affiliates) as it shall from time to time deem appropriate,
continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan
Document, any related agreement or any document furnished hereunder or thereunder and in deciding whether or to the extent to
which it will continue as a Lender or assign or otherwise transfer its rights, interests and obligations hereunder.
SECTION 8.08 Not Partners or Co-Venturers. The Lenders are not partners or co-venturers, and no Lender shall be
liable for the acts or omissions of, or (except as otherwise set forth herein in case of the Administrative Agent) authorized to act
for, any other Lender. The Administrative Agent shall have the exclusive right on behalf of the Lenders to enforce the payment
of the principal of and interest on any Loan after the date such principal or interest has become due and payable pursuant to the
terms of this Agreement.
SECTION 8.09 Lenders Not Subject to ERISA.
(a) Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y)
covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto,
for the benefit of, the Administrative Agent and not, for the avoidance of doubt, to or for the benefit of the Borrower or any
other Loan Party, that at least one of the following is and will be true:
(i)
(i) such Lender is not using "plan assets" (within the meaning of Section 3(42) of ERISA or otherwise) of
one or more Benefit Plans with respect to such Lender's entrance into, participation in, administration of and
performance of the Loans, the Letters of Credit, the Commitments or this Agreement,
(ii)
(ii) the transaction exemption set forth in one or more PTEs, such as PTE 84-14 (a class exemption for
certain transactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption
for certain transactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain
transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain
transactions involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions
determined by in-house asset managers), is applicable with respect to such Lender's entrance into, participation in,
administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement,
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(iii)
(iii) (A) such Lender is an investment fund managed by a "Qualified Professional Asset Manager" (within
the meaning of Part VI of PTE 84-14), (B) such Qualified Professional Asset Manager made the investment decision on
behalf of such Lender to enter into, participate in, administer and perform the Loans, the Letters of Credit, the
Commitments and this Agreement, (C) the entrance into, participation in, administration of and performance of the
Loans, the Letters of Credit, the Commitments and this Agreement satisfies the requirements of sub-sections (b)
through (g) of Part I of PTE 8414 and (D) to the best knowledge of such Lender, the requirements of subsection (a) of
Part I of PTE 84-14 are satisfied with respect to such Lender's entrance into, participation in, administration of and
performance of the Loans, the Letters of Credit, the Commitments and this Agreement, or
(iv)
(iv) such other representation, warranty and covenant as may be agreed in writing between the
Administrative Agent, in its sole discretion, and such Lender.
(b)
In addition, unless either (1) sub-clause (i) in the immediately preceding clause (a) is true with respect to a Lender
or (2) a Lender has provided another representation, warranty and covenant in accordance with sub-clause (iv) in the
immediately preceding clause (a), such Lender further (x) represents and warrants, as of the date such Person became a Lender
party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being
a Lender party hereto, for the benefit of, the Administrative Agent and not, for the avoidance of doubt, to or for the benefit of
the Borrower or any other Loan Party, that the Administrative Agent is not a fiduciary with respect to the assets of such Lender
involved in such Lender's entrance into, participation in, administration of and performance of the Loans, the Letters of Credit,
the Commitments and this Agreement (including in connection with the reservation or exercise of any rights by the
Administrative Agent under this Agreement, any Loan Document or any documents related hereto or thereto).
SECTION 8.10 Syndication Agents. Each Lender and Loan Party party hereto hereby designates Bank of America and
HSBC as Syndication Agents and agrees that the Syndication Agents, solely in such capacity, shall have no duties or obligations
under any Loan Documents to any Lender or any Loan Party.
SECTION 8.11 Erroneous Payments.
(a)
If the Administrative Agent (x) notifies a Lender, Issuing Bank or any indemnified party hereunder, or any Person
who has received funds on behalf of a Lender, Issuing Bank or any indemnified party hereunder (any such Lender, Issuing
Bank, indemnified party or other recipient (and each of their respective successors and assigns), a “Payment Recipient”) that the
Administrative Agent has determined in its sole discretion (whether or not after receipt of any notice under immediately
succeeding clause (b)) that any funds (as set forth in such notice from the Administrative Agent) received by such Payment
Recipient from the Administrative Agent or any of its Affiliates were erroneously or mistakenly transmitted to, or otherwise
erroneously or mistakenly received by, such Payment Recipient (whether or not known to such Lender, Issuing Bank,
indemnified party or other Payment Recipient on its behalf) (any such funds, whether transmitted or received as a payment,
prepayment or repayment of principal, interest, fees, distribution or otherwise, individually and collectively, an “Erroneous
Payment”) and (y) demands in writing the return of such Erroneous Payment (or a portion thereof), such Erroneous Payment
shall at all times remain the property of the Administrative Agent pending its return or repayment as contemplated below in this
Section 8.11 and held in trust for the benefit of the Administrative Agent, and such Lender, Issuing Bank or indemnified party
shall (or, with respect to any Payment Recipient who received such funds on its behalf, shall cause such Payment Recipient to)
promptly, but in no event later than two Business Days thereafter (or such later date as the Administrative Agent may, in its sole
discretion, specify in writing), return to the Administrative Agent the amount of any such Erroneous
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Payment (or portion thereof) as to which such a demand was made, in same day funds (in the currency so received), together
with interest thereon (except to the extent waived in writing by the Administrative Agent) in respect of each day from and
including the date such Erroneous Payment (or portion thereof) was received by such Payment Recipient to the date such
amount is repaid to the Administrative Agent in same day funds at the greater of the Federal Funds Rate and a rate determined
by the Administrative Agent in accordance with banking industry rules on interbank compensation from time to time in effect.
A notice of the Administrative Agent to any Payment Recipient under this clause (a) shall be conclusive, absent manifest error.
(b) Without limiting immediately preceding clause (a), each Lender, Issuing Bank, indemnified party hereunder or any
Person who has received funds on behalf of a Lender, Issuing Bank or indemnified party hereunder (and each of their respective
successors and assigns), agrees that if it receives a payment, prepayment or repayment (whether received as a payment,
prepayment or repayment of principal, interest, fees, distribution or otherwise) from the Administrative Agent (or any of its
Affiliates) (x) that is in a different amount than, or on a different date from, that specified in this Agreement or in a notice of
payment, prepayment or repayment sent by the Administrative Agent (or any of its Affiliates) with respect to such payment,
prepayment or repayment, (y) that was not preceded or accompanied by a notice of payment, prepayment or repayment sent by
the Administrative Agent (or any of its Affiliates), or (z) that such Lender, Issuing Bank or indemnified party, or other such
recipient, otherwise becomes aware was transmitted, or received, in error or by mistake (in whole or in part), then in each such
case:
(i)
it acknowledges and agrees that (A) in the case of immediately preceding clauses
(x) or (y), an error and mistake shall be presumed to have been made (absent written confirmation from the
Administrative Agent to the contrary) or (B) an error and mistake has been made (in the case of immediately preceding
clause (z)), in each case, with respect to such payment, prepayment or repayment; and
(ii)
such Lender, Issuing Bank or indemnified party shall use commercially reasonable efforts to (and shall
use commercially reasonable efforts to cause any other recipient that receives funds on its respective behalf to)
promptly (and, in all events, within one Business Day of its knowledge of the occurrence of any of the circumstances
described in immediately preceding clauses (x), (y) and (z)) notify the Administrative Agent of its receipt of such
payment, prepayment or repayment, the details thereof (in reasonable detail) and that it is so notifying the
Administrative Agent pursuant to this Section 8.11(b).
For the avoidance of doubt, the failure to deliver a notice to the Administrative Agent pursuant to this Section 8.11(b) shall not
have any effect on a Payment Recipient’s obligations pursuant to Section 8.11(a) or on whether or not an Erroneous Payment has
been made.
(c) Each Lender, Issuing Bank or indemnified party hereunder hereby authorizes the Administrative Agent to set off,
net and apply any and all amounts at any time owing to such Lender, Issuing Bank or indemnified party under any Loan
Document, or otherwise payable or distributable by the Administrative Agent to such Lender, Issuing Bank or indemnified party
under any Loan Document with respect to any payment of principal, interest, fees or other amounts, against any amount that the
Administrative Agent has demanded to be returned under immediately preceding clause (a).
(d)
(i) In the event that an Erroneous Payment (or portion thereof) is not recovered by the Administrative Agent for
any reason, after demand therefor in accordance with immediately preceding clause (a), from any Lender that has received such
Erroneous Payment (or portion thereof) (and/or from any Payment Recipient who received such Erroneous Payment (or portion
thereof) on its respective
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behalf)(such unrecovered amount, an “Erroneous Payment Return Deficiency”), upon the Administrative Agent’s notice to such
Lender at any time, then effective immediately (with the consideration therefor being acknowledged by the parties hereto), (A)
such Lender shall be deemed to have assigned its Loans (but not its Commitments) with respect to which such Erroneous
Payment was made (the “Erroneous Payment Impacted Class”) in an amount equal to the Erroneous Payment Return Deficiency
(or such lesser amount as the Administrative Agent may specify) (such assignment of the Loans (but not Commitments) of the
Erroneous Payment Impacted Class, the “Erroneous Payment Deficiency Assignment”) (on a cashless basis and such amount
calculated at par plus any accrued and unpaid interest (with the assignment fee to be waived by the Administrative Agent in such
instance)), and is hereby (together with the Borrower) deemed to execute and deliver an Assignment and Assumption (or, to the
extent applicable, an agreement incorporating an Assignment and Assumption by reference pursuant to an Electronic System as
to which the Administrative Agent and such parties are participants) with respect to such Erroneous Payment Deficiency
Assignment, and such Lender shall deliver any Notes evidencing such Loans to the Borrower or the Administrative Agent (but
the failure of such Person to deliver any such Notes shall not affect the effectiveness of the foregoing assignment), (B) the
Administrative Agent as the assignee Lender shall be deemed to have acquired the Erroneous Payment Deficiency Assignment,
(C) upon such deemed acquisition, the Administrative Agent as the assignee Lender shall become a Lender, as applicable,
hereunder with respect to such Erroneous Payment Deficiency Assignment and the assigning Lender shall cease to be a Lender,
as applicable, hereunder with respect to such Erroneous Payment Deficiency Assignment, excluding, for the avoidance of doubt,
its obligations under the indemnification provisions of this Agreement and its applicable Commitments which shall survive as to
such assigning Lender, (D) the Administrative Agent and the Borrower shall each be deemed to have waived any consents
required under this Agreement to any such Erroneous Payment Deficiency Assignment, and (E) the Administrative Agent will
reflect in the Register its ownership interest in the Loans subject to the Erroneous Payment Deficiency Assignment. For the
avoidance of doubt, no Erroneous Payment Deficiency Assignment will reduce the Commitments of any Lender and such
Commitments shall remain available in accordance with the terms of this Agreement.
(ii) The Administrative Agent may, in its discretion, sell any Loans acquired pursuant to an Erroneous Payment
Deficiency Assignment and upon receipt of the proceeds of such sale, the Erroneous Payment Return Deficiency owing
by the applicable Lender shall be reduced by the net proceeds of the sale of such Loan (or portion thereof), and the
Administrative Agent shall retain all other rights, remedies and claims against such Lender (and/or against any recipient
that receives funds on its respective behalf). In addition, an Erroneous Payment Return Deficiency owing by the
applicable Lender (x) shall be reduced by the proceeds of prepayments or repayments of principal and interest, or other
distribution in respect of principal and interest, received by the Administrative Agent on or with respect to any such
Loans acquired from such Lender pursuant to an Erroneous Payment Deficiency Assignment (to the extent that any
such Loans are then owned by the Administrative Agent) and (y) may, in the sole discretion of the Administrative
Agent, be reduced by any amount specified by the Administrative Agent in writing to the applicable Lender from time
to time.
(e) The parties hereto agree that (x) irrespective of whether the Administrative Agent may be equitably subrogated, in
the event that an Erroneous Payment (or portion thereof) is not recovered from any Payment Recipient that has received such
Erroneous Payment (or portion thereof) for any reason, the Administrative Agent shall be subrogated to all the rights and
interests of such Payment Recipient (and, in the case of any Payment Recipient who has received funds on behalf of a Lender,
Issuing Bank or any indemnified party hereunder, to the rights and interests of such Lender, Issuing Bank or indemnified party,
as the case may be) under the Loan Documents with respect to such amount (the “Erroneous Payment Subrogation Rights”)
(provided that the Loan Parties’ Obligations under the Loan Documents in respect of the Erroneous Payment Subrogation Rights
shall not be duplicative of such Obligations in
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respect of Loans that have been assigned to the Administrative Agent under an Erroneous Payment Deficiency Assignment) and
(y) an Erroneous Payment shall not pay, prepay, repay, discharge or otherwise satisfy any Obligations owed by the Borrower or
any other Loan Party; provided that this Section 8.11(e) shall not be interpreted to increase (or accelerate the due date for), or
have the effect of increasing (or accelerating the due date for), the Obligations of the Borrower relative to the amount (and/or
timing for payment) of the Obligations that would have been payable had such Erroneous Payment not been made by the
Administrative Agent; provided, further, that for the avoidance of doubt, immediately preceding clauses (x) and (y) shall not
apply to the extent any such Erroneous Payment is, and solely with respect to the amount of such Erroneous Payment that is,
comprised of funds received by the Administrative Agent from the Borrower for the purpose of making such Erroneous
Payment.
(f)
To the extent permitted by applicable law, no Payment Recipient shall assert any right or claim to an Erroneous
Payment, and hereby waives, and is deemed to waive, any claim, counterclaim, defense or right of set-off or recoupment with
respect to any demand, claim or counterclaim by the Administrative Agent for the return of any Erroneous Payment received,
including, without limitation, any defense based on “discharge for value” or any similar doctrine.
(g) Each party’s obligations, agreements and waivers under this Section 8.11 shall survive the resignation or
replacement of the Administrative Agent, any transfer of rights or obligations by, or the replacement of, a Lender or Issuing
Bank, the termination of the Commitments and/or the repayment, satisfaction or discharge of all Obligations (or any portion
thereof) under any Loan Document.
SECTION 9.01 Notices.
ARTICLE IX
MISCELLANEOUS
(a) Except in the case of notices and other communications expressly permitted to be given by telephone or Electronic
Systems (and subject in each case to clause (b) below), all notices and other communications provided for herein shall be in
writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by fax, as
follows:
(i)
if to any Loan Party, to the Borrower at:
Align Technology, Inc.
2820 Orchard Parkway
San Jose, California 95134
Attention:
E-mail Address:
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road
Palo Alto, CA 94304
Attention:
E-mail Address:
Fax Number:
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(ii)
if to the Administrative Agent or to Citi, in its capacity as Issuing Bank or Swingline Lender, to Citibank,
N.A. at:
Citibank, N.A.
388 Greenwich Street
New York, NY 10013
Attention:
E-mail Address:
with a copy to:
Weil, Gotshal & Manges LLP 767 Fifth Avenue
New York, New York 10036 Attention:
E-mail Address:
Fax Number:
(iii)
if to any other Lender, to it at its address, e-mail address or fax number set forth in its Administrative
Questionnaire.
All such notices and other communications (i) sent by hand or overnight courier service, or mailed by certified or registered
mail, shall be deemed to have been given when received, (ii) sent by fax shall be deemed to have been given when sent;
provided, that if not given during normal business hours of the recipient, such notice or communication shall be deemed to have
been given at the opening of business on the next Business Day for the recipient or (iii) delivered through Electronic Systems to
the extent provided in clause (b) below shall be effective as provided in such clause (b).
(b) Notices and other communications to the Lenders hereunder may be delivered or furnished by Electronic Systems
pursuant to procedures approved by the Administrative Agent; provided, that the foregoing shall not apply to notices pursuant to
Article II or to compliance and no Event of Default certificates delivered pursuant to Section 5.01(dc) unless otherwise agreed
by the Administrative Agent and the applicable Lender. Each of the Administrative Agent and the Borrower (on behalf of the
Loan Parties) may, in its discretion, agree to accept notices and other communications to it hereunder by Electronic Systems
pursuant to procedures approved by it; provided, that approval of such procedures may be limited to particular notices or
communications. Unless the Administrative Agent otherwise proscribes, such notices and other communications (i) sent to an e-
mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by
the “return receipt requested” function, as available, return e-mail or other written acknowledgement); provided, that if not given
during the normal business hours of the recipient, such notice or communication shall be deemed to have been given at the
opening of business on the next Business Day for the recipient, and (ii) posted to an Internet or intranet website shall be deemed
received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (b)(i) of
notification that such notice or communication is available and identifying the website address therefor; provided, that, for both
clauses (i) and (ii) above, if such notice, e-mail or other communication is not sent during the normal business hours of the
recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day
of the recipient.
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(c) Any party hereto may change its address, fax number or e-mail address for notices and other communications
hereunder by notice to the other parties hereto.
(d)
Electronic Systems.
(i)
Each Loan Party agrees that the Administrative Agent may, but shall not be obligated to, make
Communications (as defined below) available to the Issuing Bank and the other Lenders by posting the
Communications on Debt Domain, Intralinks, Syndtrak, ClearPar or a substantially similar Electronic System.
(ii) Any Electronic System used by the Administrative Agent is provided “as is” and “as available.” The
Agent Parties (as defined below) do not warrant the adequacy of such Electronic Systems and expressly disclaim
liability for errors or omissions in the Communications. No warranty of any kind, express, implied or statutory,
including any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or
freedom from viruses or other code defects, is made by any Agent Party in connection with the Communications or any
Electronic System. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “Agent
Parties”) have any liability to the Borrower or the other Loan Parties, any Lender, the Issuing Bank or any other Person
or entity for damages of any kind, including direct or indirect, special, incidental or consequential damages, losses or
expenses (whether in tort, contract or otherwise) arising out of the Borrower’s, any Loan Party’s, or the Administrative
Agent’s transmission of communications through an Electronic System. “Communications” means, collectively, any
notice, demand, communication, information, document or other material provided by or on behalf of any Loan Party
pursuant to any Loan Document or the transactions contemplated therein which is distributed by the Administrative
Agent, any Lender or the Issuing Bank by means of electronic communications pursuant to this Section 9.01, including
through an Electronic System.
SECTION 9.02 Waivers; Amendments.
(a) No failure or delay by the Administrative Agent, any Swingline Lender, any Issuing Bank or any Lender in
exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the
Administrative Agent, any Swingline Lender, the Issuing Banks and the Lenders hereunder and under any other Loan Document
are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of
any Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same
shall be permitted by clause (b) of this Section 9.02, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan (including
any Swingline Loan) or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether
the Administrative Agent, any Lender or any Issuing Bank may have had notice or knowledge of such Default at the time.
(b) Except as provided in Section 2.14, 2.22 (with respect to any commitment increase) or 2.25, neither this
Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended or modified except (i) in
the case of this Agreement, pursuant to an agreement or agreements in writing entered into by the Borrower and the Required
Lenders or, (ii) in the case of any other Loan Document, pursuant to an agreement or agreements in writing entered into by the
Administrative Agent and the Loan Party or Loan Parties that are parties thereto, with the consent of the
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Required Lenders; provided, that no such agreement shall (i) increase the Commitment of any Lender without the written
consent of such Lender (including any such Lender that is a Defaulting Lender), (ii) reduce or forgive the principal amount of
any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce or forgive any interest or fees payable hereunder,
without the written consent of each Lender (including any such Lender that is a Defaulting Lender) directly affected thereby
(other than as a result of any change in the definition, or in any components thereof, of the term “Total Leverage Ratio”, the
implementation of Section 2.14 or Section 2.25 or any waiver of any default interest applicable pursuant to Section 2.13(cd)),
(iii) postpone any scheduled date of payment of the principal amount of any Loan or LC Disbursement, or any date for the
payment of any interest, fees or other Obligations payable hereunder, or reduce the amount of, waive or excuse any such
payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender
(including any such Lender that is a Defaulting Lender) directly affected thereby, (iv) change Section 2.18(b) or (d) in a manner
that would alter the manner in which payments are shared, without the written consent of each Lender (other than any Defaulting
Lender), (v) change any of the provisions of this Section 9.02 or the definition of “Required Lenders” or any other provision of
any Loan Document specifying the number or percentage of Lenders required to waive, amend or modify any rights thereunder
or make any determination or grant any consent thereunder, without the written consent of each Lender (other than any
Defaulting Lender), (vi) change Section 2.20, without the consent of each Lender (other than any Defaulting Lender) or (vii)
release any Loan Guarantor from its obligation under its Loan Guaranty (except as otherwise expressly permitted herein or in the
other Loan Documents), without the written consent of each Lender (other than any Defaulting Lender); provided further that no
such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, Swingline Lenders or
the Issuing Banks hereunder without the prior written consent of the Administrative Agent, Swingline Lenders or the Issuing
Banks, as the case may be (it being understood that any change to Section 2.20 shall require the consent of the Administrative
Agent and the Issuing Banks). The Administrative Agent may also amend the Commitment Schedule to reflect assignments
entered into pursuant to Section 9.04.
(c) Subject to Section 9.02(b)(vii), the Lenders hereby irrevocably authorize the Administrative Agent, at its option
and in its sole discretion, to release any Loan Guaranty provided by a Subsidiary of a Borrower to the extent 100% of the Equity
Interests of such Subsidiary are sold or assigned, in accordance with Section 6.05, to a Person that is not a Loan Party or a
Subsidiary of any Loan Party; provided, that to the extent requested by the Administrative Agent the Borrower shall deliver a
certificate of a Financial Officer certifying, in form and substance reasonably satisfactory to the Administrative Agent, as to the
details of such sale or assignment and that such sale or assignment was in accordance with Section 6.05 (it being agreed that the
Administrative Agent may rely conclusively on such certificate). The Administrative Agent shall execute such customary
documents as the Borrower may reasonably request in connection with any such release. Any execution and delivery by the
Administrative Agent of documents in connection with any such release shall be without recourse to or warranty by the
Administrative Agent.
(d)
If, in connection with any proposed amendment, waiver or consent requiring the consent of “each Lender” or
“each Lender affected thereby,” the consent of the Required Lenders is obtained, but the consent of other necessary Lenders is
not obtained (any such Lender whose consent is necessary but has not been obtained being referred to herein as a “Non-
Consenting Lender”), then the Borrower may elect to replace a Non-Consenting Lender as a Lender party to this Agreement;
provided, that, concurrently with such replacement, (i) another bank or other entity which is reasonably satisfactory to the
Borrower, the Administrative Agent and the Issuing Bank shall agree, as of such date, to purchase for cash the Loans and other
Obligations due to the Non-Consenting Lender pursuant to an Assignment and Assumption and to become a Lender for all
purposes under this Agreement and to assume all obligations of the Non-Consenting Lender to be terminated as of such date and
to comply with the requirements of clause (b) of Section 9.04, and (ii) the Borrower shall pay to such Non-Consenting Lender in
same day
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funds on the day of such replacement (1) all interest, fees and other amounts then accrued but unpaid to such Non-Consenting
Lender by the Borrower hereunder to and including the date of termination, including payments due to such Non-Consenting
Lender under Sections 2.15 and 2.17, and (2) an amount, if any, equal to the payment which would have been due to such
Lender on the day of such replacement under Section 2.16 had the Loans of such Non-Consenting Lender been prepaid on such
date rather than sold to the replacement Lender. Notwithstanding anything herein to the contrary, each party hereto agrees that
any assignment pursuant to the terms of this Section 9.20(d) may be effected pursuant to an Assignment and Assumption
executed by the Borrower, the Administrative Agent and the assignee and that the Non-Consenting Lender making such
assignment need not be a party thereto.
(e) Notwithstanding anything to the contrary herein the Administrative Agent may, with the consent of the Borrower
only, amend, modify or supplement this Agreement or any of the other Loan Documents to cure any ambiguity, omission,
mistake, defect or inconsistency. A copy of any such amendment, modification or supplement shall be promptly delivered by the
Administrative Agent to each Lender.
SECTION 9.03 Expenses; Indemnity; Damage Waiver.
(a) The Borrower shall pay (i) all reasonable and documented out-of-pocket expenses incurred by the Administrative
Agent, the Lead Arranger and their respective Affiliates, including the reasonable and documented fees, charges and
disbursements of one outside counsel and one local counsel in each relevant jurisdiction for the Administrative Agent and Lead
Arranger (and, solely in the case of an actual or perceived conflict of interest, one additional counsel (and, if reasonably
necessary, (x) one firm of local counsel in each relevant jurisdiction and (y) any special or regulatory counsel) and any other
counsel retained with the Borrower’s consent, such consent not to be unreasonably withheld or delayed), in connection with the
syndication and distribution (including via the internet or through an Electronic System) of the credit facilities provided for
herein, the preparation and administration of the Loan Documents or any amendments, modifications or waivers of the
provisions of the Loan Documents (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii)
all reasonable and documented out-of-pocket expenses incurred by any Issuing Bank in connection with the issuance,
amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all documented out-of-
pocket expenses incurred by the Administrative Agent, Swingline Lenders, any Issuing Bank or any Lender, including the fees,
charges and disbursements of any outside counsel for the Administrative Agent, Swingline Lenders, any Issuing Bank or any
Lender, in connection with the enforcement, collection or protection of its rights in connection with the Loan Documents,
including its rights under this Section 9.03, or in connection with the Loans made or Letters of Credit issued hereunder,
including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or
Letters of Credit. Expenses being reimbursed by the Borrower under this Section 9.03 include, without limiting the generality of
the foregoing, costs and expenses incurred in connection with:
(i)
taxes, fees and other charges for (A) lien searches and (B) filing financing statements and continuations,
and other actions to perfect, protect, and continue the Administrative Agent’s Liens;
(ii)
sums paid or incurred to take any action required of any Loan Party under the Loan Documents that such
Loan Party fails to pay or take; and
(iii)
forwarding loan proceeds, collecting checks and other items of payment, and costs and expenses of
preserving and protection the cash collateral.
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All of the foregoing costs and expenses may be charged to the Borrower as Loans or to another deposit account, all as
described in Section 2.18(c).
(b) The Borrower shall indemnify the Administrative Agent, Swingline Lenders, each Issuing Bank and each Lender,
and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each
Indemnitee harmless from, any and all losses, claims, damages, penalties, liabilities and related expenses (except for Taxes,
which shall be covered by Section 2.17), including the reasonable fees, charges and disbursements of one counsel for all
Indemnitees (and, if reasonably necessary, a single local counsel for all Indemnitees taken as a whole in each relevant
jurisdiction and, solely in the case of an actual or perceived conflict of interest, one additional counsel (and, if reasonably
necessary, (x) one firm of local counsel in each relevant jurisdiction and (y) any special regulatory counsel) to each group of
affected Indemnitees similarly situated taken as a whole and any other counsel retained with the Borrower’s consent, such
consent not to be unreasonably withheld or delayed), incurred by or asserted against any Indemnitee arising out of, in connection
with, or as a result of (i) the execution or delivery of the Loan Documents or any agreement or instrument contemplated thereby,
the performance by the parties hereto of their respective obligations thereunder or the consummation of the Transactions or any
other transactions contemplated hereby, (ii) any Loan (including any Swingline Loan) or Letter of Credit or the use of the
proceeds therefrom (including any refusal by any Issuing Bank to honor a demand for payment under a Letter of Credit if the
documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit),
(i)
any actual or alleged presence or Release of Hazardous Materials on or from any property owned or operated by the
Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its
Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided, that
such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, penalties, liabilities
or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted
from the gross negligence or willful misconduct of such Indemnitee or (y) result from any dispute solely among Indemnitees
and does not involve any act or omission by any Loan Party or any of their Subsidiaries (other than claims against the
Administrative Agent, Swingline Lenders and Issuing Banks in their respective capacities as such).
(c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent or
any Issuing Bank under clause (a) or (b) of this Section 9.03, each Lender severally agrees to pay to the Administrative Agent or
such Issuing Bank, as the case may be, such Lender’s Applicable Percentage (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided, that the unreimbursed expense or
indemnified loss, claim, damage, penalty, liability or related expense, as the case may be, was incurred by or asserted against the
Administrative Agent or such Issuing Bank in its capacity as such.
(d) To the extent permitted by applicable law, no Loan Party shall assert, and each hereby waives, any claim against
any Indemnitee for any damages arising from the use by unintended recipients of information or other materials obtained
through telecommunications, electronic or other information transmission systems (including the Internet), except as determined
by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful
misconduct of such Indemnitee.
(e) No Indemnitee nor any Loan Party shall be liable on any theory of liability, for special, indirect, consequential or
punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement,
any other Loan Document, or any agreement or instrument contemplated hereby or thereby, the Transactions, any Loan
(including any Swingline Loan)
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or Letter of Credit or the use of the proceeds thereof; provided, that nothing in this clause (e) shall relieve any Loan Party of any
obligation it may have to indemnify an Indemnitee against special, indirect, consequential or punitive damages asserted against
such Indemnitee by a third party.
(f) All amounts due under this Section 9.03 shall be payable promptly after written demand therefor.
SECTION 9.04 Successors and Assigns.
(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted hereby (including any Affiliate of an Issuing Bank that issues any Letter of Credit),
except that (i) the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior
written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null
and void) and
(ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section 9.04 or
as may be required pursuant to Section 2.19 or Section 9.02(d). Nothing in this Agreement, expressed or implied, shall be
construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby
(including any Affiliate of an Issuing Bank that issues any Letter of Credit), Participants (to the extent provided in clause (c) of
this Section
9.04) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, Swingline
Lenders, the Issuing Banks and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b)
(i) Subject to the conditions set forth in clause (b)(ii) below, any Lender may assign to one or more Persons (other
than an Ineligible Institution) all or a portion of its rights and obligations under this Agreement (including all or a portion of its
Commitment and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably
withheld, conditioned or delayed) of:
(A)
the Borrower; provided, that the Borrower shall be deemed to have consented to any such
assignment unless it shall object thereto by written notice to the Administrative Agent within five (5) Business
Days after having received notice thereof, and provided further that no consent of the Borrower shall be
required for an assignment to a Lender, an Affiliate of a Lender, an Approved Fund or, if an Event of Default
has occurred and is continuing, any other assignee;
(B)
the Administrative Agent; provided, that no consent of the Administrative Agent shall be required
for an assignment to a Lender, an Affiliate of a Lender or an Approved Fund;
(C)
the Swingline Lenders; provided, that no consent of the Swingline Lenders shall be required for
an assignment to a Lender, an Affiliate of a Lender or an Approved Fund; and
(D)
the Issuing Banks; provided, that no consent of the Issuing Banks shall be required for an
assignment to a Lender, an Affiliate of a Lender or an Approved Fund.
(ii)
Assignments shall be subject to the following additional conditions:
(A) except in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund
or an assignment of the entire remaining amount of the assigning Lender’s Commitment or Loans (including
any Swingline Loans), the amount
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of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date
the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall
not be less than $5.0 million unless each of the Borrower and the Administrative Agent otherwise consent;
provided, that no such consent of the Borrower shall be required if an Event of Default has occurred and is
continuing;
(B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning
Lender’s rights and obligations under this Agreement;
(C)
the parties to each assignment shall execute and deliver to the Administrative Agent an
Assignment and Assumption, together with a processing and recordation fee of $3,500 and the tax forms
required by Section 2.17(f); and
(D)
the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an
Administrative Questionnaire in which the assignee designates one or more credit contacts to whom all
syndicate-level information (which may contain material non-public information about the Borrower, the Loan
Parties and their Related Parties or their respective securities) will be made available and who may receive such
information in accordance with the assignee’s compliance procedures and applicable laws, including Federal
and state securities laws.
(iii) Subject to acceptance and recording thereof pursuant to clause (b)(iv) of this Section 9.04, from and after
the effective date specified in each Assignment and Assumption (A) the assignee thereunder shall be a party hereto and,
to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender
under this Agreement and (B) the assigning Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment
and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall
cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 9.03). Any
assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section
9.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and
obligations in accordance with clause (c) of this Section 9.04.
(iv) The Administrative Agent, acting for this purpose as a non-fiduciary agent of the Borrower, shall maintain
at one of its offices located in the United States a copy of each Assignment and Assumption delivered to it and a register
for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amounts (and
stated interest) of the Loans, LC Disbursements and other Obligations owing to, each Lender pursuant to the terms
hereof from time to time (the “Register”). The entries in the Register shall be conclusive, absent manifest error, and the
Borrower, the Administrative Agent, the Issuing Banks and the Lenders may treat each Person whose name is recorded
in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding
notice to the contrary. The Register shall be available for inspection by the Borrower, the Issuing Banks and any Lender,
at any reasonable time and from time to time upon reasonable prior notice.
(v) Upon its receipt of (x) a duly completed Assignment and Assumption executed by an assigning Lender
(unless the execution thereof is not required pursuant to Section 2.19 or Section 9.02(d)) and an assignee or (y) to the
extent applicable, an agreement incorporating an
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Assignment and Assumption by reference pursuant to any applicable electronic platform as to which the Administrative
Agent and the parties to the Assignment and Assumption are participants, the assignee’s completed Administrative
Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee and tax
forms referred to in clause (b) of this Section 9.04 and any written consent to such assignment required by clause (b) of
this Section 9.04, the Administrative Agent shall accept such Assignment and Assumption and record the information
contained therein in the Register; provided, that if either the assigning Lender or the assignee shall have failed to make
any payment required to be made by it pursuant to Section 2.05, 2.06(d) or (e), 2.07(b), 2.18(d) or 9.03(c), the
Administrative Agent shall have no obligation to accept such Assignment and Assumption and record the information
therein in the Register unless and until such payment shall have been made in full, together with all accrued interest
thereon. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as
provided in this paragraph.
(c) Any Lender may, without the consent of the Borrower, the Administrative Agent, any Issuing Bank of the
Swingline Lenders, sell participations to one or more banks or other entities (a “Participant”) other than an Ineligible Institution
in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitment
and the Loans (including any Swingline Loans) owing to it); provided, that (A) such Lender’s obligations under this Agreement
shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such
obligations (C) the Borrower, the Administrative Agent, the Swingline Lenders, the Issuing Banks and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this
Agreement and (D) such Lender shall have provided the Borrower with prior written notice of any such participation. Any
agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole
right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement;
provided, that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree
to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. The
Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 (subject to the requirements
and limitations therein, including the requirements under Section 2.17(f) (it being understood that the documentation required
under Section 2.17(f) shall be delivered to the participating Lender) to the same extent as if it were a Lender and had acquired its
interest by assignment pursuant to clause (b) of this Section 9.04. To the extent permitted by law, each Participant also shall be
entitled to the benefits of Section 9.08 as though it were a Lender, provided such Participant (1) agrees to be subject to the
provisions of Sections 2.18 and 2.19 as if it were an assignee under clause (b) of this Section 9.04; and (2) shall not be entitled to
receive any greater payment under Section 2.15 or 2.17, with respect to any participation, than its participating Lender would
have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law
that occurs after the Participant acquired the applicable participation.
Each Lender that sells a participation agrees, at the Borrower’s request and expense, to use reasonable efforts to
cooperate with the Borrower to effectuate the provisions of Section 2.19(b) with respect to any Participant. To the extent
permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Lender, provided such
Participant agrees to be subject to Section 2.18(d) as though it were a Lender. Each Lender that sells a participation shall, acting
solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of
each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations
under this Agreement or any other Loan Document (the “Participant Register”); provided, that no Lender shall have any
obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information
relating to a Participant’s
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interest in any Commitments, Loans, Letters of Credit or its other obligations under any Loan Document) to any Person (other
than the Borrower to the extent required in clause (D) of the proviso to clause (c) above) except to the extent that such
disclosure is necessary to establish that such Commitment, Loan, Letter of Credit or other obligation is in registered form under
Section 5f.103-1(c) or proposed Section 1.163-5(b) of the United States Treasury Regulations. The entries in the Participant
Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the
Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the
contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no
responsibility for maintaining a Participant Register.
(d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this
Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve
Bank, and this Section 9.04 shall not apply to any such pledge or assignment of a security interest; provided, that no such pledge
or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or
assignee for such Lender as a party hereto.
SECTION 9.05 Survival. All covenants, agreements, representations and warranties made by the Loan Parties in the
Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any
other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution
and delivery of the Loan Documents and the making of any Loans and issuance of any Letters of Credit, regardless of any
investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, any Issuing Bank
or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is
extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or
any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and
so long as the Commitments have not expired or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.03 and Article
VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby,
the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this
Agreement or any other Loan Document or any provision hereof or thereof.
SECTION 9.06 Counterparts; Integration; Effectiveness; Electronic Execution.
(a) This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the
other Loan Documents and any separate letter agreements with respect to fees payable to the Administrative Agent constitute
the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall
become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have
received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter
shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.
(b) Delivery of an executed counterpart of a signature page of this Agreement by telecopy, emailed .pdf or any other
electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually
executed counterpart of this Agreement. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in
or relating to any document to be signed in connection with this Agreement and the transactions contemplated hereby or thereby
shall be
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deemed to include Electronic Signatures, deliveries or the keeping of records in electronic form, each of which shall be of the
same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-
based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal
Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any
other similar state laws based on the Uniform Electronic Transactions Act.
SECTION 9.07 Severability. Any provision of any Loan Document held to be invalid, illegal or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without
affecting the validity, legality and enforceability of the remaining provisions thereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
SECTION 9.08 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of
its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time
owing by such Lender or Affiliate to or for the credit or the account of the Borrower or such Loan Guarantor against any of and
all the Obligations held by such Lender, irrespective of whether or not such Lender shall have made any demand under the Loan
Documents and although such obligations may be unmatured. The applicable Lender shall notify the Borrower and the
Administrative Agent of such setoff or application; provided, that any failure to give or any delay in giving such notice shall not
affect the validity of any such setoff or application under this Section 9.08. The rights of each Lender under this Section 9.08 are
in addition to other rights and remedies (including other rights of setoff) which such Lender may have.
SECTION 9.09 Governing Law; Jurisdiction; Consent to Service of Process.
(a) The Loan Documents (other than those containing a contrary express choice of law provision) shall be governed
by and construed in accordance with the laws of the State of New York.
(b) Each Loan Party hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive
jurisdiction of any U.S. Federal or New York State court sitting in New York, New York in any action or proceeding arising out
of or relating to any Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined
in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right
that the Administrative Agent, any Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to
this Agreement or any other Loan Document against any Loan Party or its properties in the courts of any jurisdiction.
(c) Each Loan Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively
do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement or any other Loan Document in any court referred to in clause (b) of this Section 9.09. Each of the
parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
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(d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in
Section 9.01. Nothing in this Agreement or any other Loan Document will affect the right of any party to this Agreement to
serve process in any other manner permitted by law.
SECTION 9.10 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL
PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE,
OTHER AGENT (INCLUDING ANY ATTORNEY) OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 9.10.
SECTION 9.11 Headings. Article and Section headings and the Table of Contents used herein are for convenience of
reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in
interpreting, this Agreement.
SECTION 9.12 Confidentiality. Each of the Administrative Agent, the Issuing Banks and the Lenders agrees to
maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its
Affiliates’ respective officers, directors, employees, legal counsel, independent auditors and other experts or agents who need to
know such information in connection with the transactions contemplated hereby and are informed of the confidential nature of
such information and instructed to keep such information confidential on substantially similar terms as set forth in this Section
9.12, (b) upon the request or demand of any regulatory authority having jurisdiction over it or any of its Affiliates (in which case
(except with respect to any audit or examination conducted by bank accountants or any bank or other regulatory authority
exercising examination or regulatory authority) it, to the extent practicable and permitted by law, rule or regulation, agrees to
inform the Borrower promptly thereof), (c) pursuant to the order of any court or administrative agency, in any pending legal,
judicial or administrative proceeding or as otherwise required by applicable law or regulation or as requested by a governmental
authority (in which case (except with respect to any audit or examination conducted by bank accountants or any bank or other
regulatory authority exercising examination or regulatory authority) it, to the extent practicable and permitted by law, rule or
regulation, agrees to inform the Borrower promptly thereof), (d) to any other party to this Agreement, (e) to the extent necessary
or advisable in connection with the exercise of any remedies under this Agreement or any other Loan Document or any suit,
action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or
thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section 9.12 or otherwise
reasonably acceptable to the Borrower, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in,
any of its rights or obligations under this Agreement (and any of their respective advisors) or (ii) any actual or prospective
counterparty (or its advisors) to any swap or derivative transaction relating to the Loan Parties and their obligations, (g) with the
consent of the Borrower, (h) to the extent that such information is independently developed by it or its Affiliates, in each case, so
long as not based on information obtained in a manner that would otherwise violate this Section 9.12, (i) for purposes of
establishing a “due diligence” defense, (j) deal terms and other customary information to ratings agencies or (k) to the extent
such Information (i) becomes publicly available other than as a result of a breach of this Section 9.12, or (ii) becomes available
to the Administrative Agent, any Issuing Bank or any Lender on a non-confidential basis from a source other than the Borrower.
For the purposes of this Section 9.12, “Information” means all
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information received from the Borrower relating to the Borrower or their business, other than any such information that is
available to the Administrative Agent, any Issuing Bank or any Lender on a non- confidential basis prior to disclosure by the
Borrower; provided, that, in the case of information received from the Borrower after the date hereof, such information is clearly
identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided
in this Section 9.12 shall be considered to have complied with its obligation to do so if such Person has exercised the same
degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential
information.
EACH LENDER ACKNOWLEDGES THAT INFORMATION AS DEFINED IN SECTION 9.12 FURNISHED
TO IT PURSUANT TO THIS AGREEMENT MAY INCLUDE MATERIAL NON-PUBLIC INFORMATION
CONCERNING THE BORROWER AND ITS AFFILIATES AND THEIR RELATED PARTIES OR THEIR
RESPECTIVE SECURITIES, AND CONFIRMS THAT IT HAS DEVELOPED COMPLIANCE PROCEDURES
REGARDING THE USE OF MATERIAL NON-PUBLIC INFORMATION AND THAT IT WILL HANDLE SUCH
MATERIAL NON-PUBLIC
IN ACCORDANCE WITH THOSE PROCEDURES AND
INFORMATION
APPLICABLE LAW, INCLUDING FEDERAL AND STATE SECURITIES LAWS.
THIS
ALL INFORMATION, INCLUDING REQUESTS FOR WAIVERS AND AMENDMENTS, FURNISHED BY
THE BORROWER OR THE ADMINISTRATIVE AGENT PURSUANT TO, OR IN THE COURSE OF
ADMINISTERING,
SYNDICATE-
LEVEL INFORMATION, WHICH MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION
ABOUT THE BORROWER, THE LOAN PARTIES AND THEIR RELATED PARTIES OR THEIR RESPECTIVE
SECURITIES. ACCORDINGLY, EACH LENDER REPRESENTS TO THE BORROWER AND THE
ADMINISTRATIVE AGENT THAT IT HAS IDENTIFIED IN ITS ADMINISTRATIVE QUESTIONNAIRE A
CREDIT CONTACT WHO MAY RECEIVE INFORMATION THAT MAY CONTAIN MATERIAL NON-
PUBLIC INFORMATION IN ACCORDANCE WITH ITS COMPLIANCE PROCEDURES AND APPLICABLE
LAW, INCLUDING FEDERAL AND STATE SECURITIES LAWS.
AGREEMENT
WILL
BE
SECTION 9.13 Several Obligations; Nonreliance; Violation of Law. The respective obligations of the Lenders
hereunder are several and not joint and the failure of any Lender to make any Loan or perform any of its obligations hereunder
shall not relieve any other Lender from any of its obligations hereunder. Each Lender hereby represents that it is not relying on
or looking to any margin stock (as defined in Regulation U of the Board) for the repayment of the Borrowings provided for
herein. Anything contained in this Agreement to the contrary notwithstanding, no Issuing Bank nor any Lender shall be
obligated to extend credit to the Borrower in violation of any Requirement of Law.
SECTION 9.14 USA PATRIOT Act. Each Lender that is subject to the requirements of the USA PATRIOT Act hereby
notifies each Loan Party that pursuant to the requirements of the USA PATRIOT Act, it is required to obtain, verify and record
information that identifies such Loan Party, which information includes the name and address of such Loan Party and other
information that will allow such Lender to identify such Loan Party in accordance with the USA PATRIOT Act.
SECTION 9.15 Disclosure. Each Loan Party, each Lender and the Issuing Bank hereby acknowledges and agrees that
the Administrative Agent and/or its Affiliates from time to time may hold investments in, make other loans to or have other
relationships with any of the Loan Parties and their respective Affiliates.
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SECTION 9.16 [Reserved].
SECTION 9.17 Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate
applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under
applicable law (collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) which may be
contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate
of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but
were not payable as a result of the operation of this Section 9.17 shall be cumulated and the interest and Charges payable to such
Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated
amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by
such Lender.
SECTION 9.18 No Advisory or Fiduciary Responsibility. In connection with all aspects of each transaction
contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan
Document), the Borrower acknowledges and agrees that: (i) (A) the arranging and other services regarding this Agreement
provided by the Lenders are arm’s-length commercial transactions between the Borrower and its Affiliates, on the one hand, and
the Lenders and their Affiliates, on the other hand, (B) the Borrower has consulted its own legal, accounting, regulatory and tax
advisors to the extent it has deemed appropriate, and (C) the Borrower is capable of evaluating, and understands and accepts, the
terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (ii) (A) each of the
Lenders and their Affiliates is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant
parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for the Borrower or any of its Affiliates, or
any other Person and (B) no Lender or any of its Affiliates has any obligation to the Borrower or any of its Affiliates with
respect to the transactions contemplated hereby except, in the case of a Lender, those obligations expressly set forth herein and in
the other Loan Documents; and (iii) each of the Lenders and their respective Affiliates may be engaged in a broad range of
transactions that involve interests that differ from those of the Borrower and its Affiliates, and no Lender or any of its Affiliates
has any obligation to disclose any of such interests to the Borrower or its Affiliates. To the fullest extent permitted by law, the
Borrower hereby waives and releases any claims that it may have against each of the Lenders and their Affiliates with respect to
any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.
SECTION 9.19 Acknowledgement and Consent to Bail-In of Affected Financial Institutions. Notwithstanding anything
to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each
party hereto acknowledges that any liability of any Lender that is an Affected Financial Institution arising under any Loan
Document, to the extent such liability is unsecured (all such liabilities, the “Covered Liabilities”), may be subject to the Write-
Down and Conversion Powers of the applicable Resolution Authority and agrees and consents to, and acknowledges and agrees
to be bound by:
(a)
the application of any Write-Down and Conversion Powers by the applicable Resolution Authority to any such
Covered Liability arising hereunder which may be payable to it by any Lender that is an Affected Financial Institution; and
(b)
the effects of any Bail-In Action on any such Covered Liability, including, if applicable:
115
(i)
A reduction in full or in part or cancellation of any such Covered Liability;
(ii) A conversion of all, or a portion of, such Covered Liability into shares or other instruments of ownership
in such Affected Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise
conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with
respect to any such Covered Liability under this Agreement or any other Loan Document; or
(iii) The variation of the terms of such Covered Liability in connection with the exercise of the Write-Down
and Conversion Powers of the applicable Resolution Authority.
SECTION 9.20 Acknowledgement Regarding Any Supported QFCs. To the extent that the Loan Documents provide
support, through a guarantee or otherwise, for Swap Agreements or any other agreement or instrument that is a QFC (such
support, “QFC Credit Support” and each such QFC a “Supported QFC”), the parties acknowledge and agree as follows with
respect to the resolution power of the Federal Deposit Insurance Corporation under the Federal Deposit Insurance Act and Title
II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (together with the regulations promulgated thereunder,
the “U.S. Special Resolution Regimes”) in respect of such Supported QFC and QFC Credit Support (with the provisions below
applicable notwithstanding that the Loan Documents and any Supported QFC may in fact be stated to be governed by the laws
of the State of New York and/or of the United States or any other state of the United States):
(a)
In the event a Covered Entity that is party to a Supported QFC (each, a “Covered Party”) becomes subject to a
proceeding under a U.S. Special Resolution Regime, the transfer of such Supported QFC and the benefit of such QFC
Credit Support (and any interest and obligation in or under such Supported QFC and such QFC Credit Support, and any
rights in property securing such Supported QFC or such QFC Credit Support) from such Covered Party will be effective
to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if the Supported QFC
and such QFC Credit Support (and any such interest, obligation and rights in property) were governed by the laws of the
United States or a state of the United States. In the event a Covered Party or a BHC Act Affiliate of a Covered Party
becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under the Loan Documents
that might otherwise apply to such Supported QFC or any QFC Credit Support that may be exercised against such
Covered Party are permitted to be exercised to no greater extent than such Default Rights could be exercised under the
U.S. Special Resolution Regime if the Supported QFC and the Loan Documents were governed by the laws of the
United States or a state of the United States. Without limitation of the foregoing, it is understood and agreed that rights
and remedies of the parties with respect to a Defaulting Lender shall in no event affect the rights of any Covered Party
with respect to a Supported QFC or any QFC Credit Support.
(b) As used in this Section 9.20, the following terms have the following meanings:
“BHC Act Affiliate” of a party means an “affiliate” (as such term is defined under, and interpreted in accordance with,
12 U.S.C. 1841(k)) of such party.
“Covered Entity” means any of the following: (i) a “covered entity” as that term is defined in, and interpreted in
accordance with, 12 C.F.R. § 252.82(b); (ii) a “covered bank” as that term is defined in, and interpreted in accordance
with, 12 C.F.R. § 47.3(b); or (iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12
C.F.R. § 382.2(b).
116
“Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§
252.81, 47.2 or 382.1, as applicable.
“QFC” has the meaning assigned to the term “qualified financial contract” in, and shall be interpreted in accordance
with, 12 U.S.C. 5390(c)(8)(D).
ARTICLE X
LOAN GUARANTY
SECTION 10.01 Guaranty. Each Loan Guarantor (other than those that have delivered a separate Guaranty) hereby
agrees that it is jointly and severally liable for, and, as a primary obligor and not merely as surety, absolutely, unconditionally
and irrevocably guarantees to the Credit Parties, the prompt payment when due, whether at stated maturity, upon acceleration or
otherwise, and at all times thereafter, of the Obligations and all costs and expenses including all court costs and attorneys’ and
paralegals’ fees and expenses paid or incurred by the Administrative Agent, the Issuing Banks and the Lenders in endeavoring
to collect all or any part of the Obligations from, or in prosecuting any action against, the Borrower, any Loan Guarantor or any
other guarantor of all or any part of the Obligations (such costs and expenses, together with the Obligations, collectively the
“Guaranteed Obligations”. Each Loan Guarantor further agrees that the Guaranteed Obligations may be extended or renewed in
whole or in part without notice to or further assent from it, and that it remains bound upon its guarantee notwithstanding any
such extension or renewal. All terms of this Loan Guaranty apply to and may be enforced by or on behalf of any domestic or
foreign branch or Affiliate of any Lender that extended any portion of the Guaranteed Obligations.
SECTION 10.02 Guaranty of Payment. This Loan Guaranty is a guaranty of payment and not of collection. Each Loan
Guarantor waives any right to require the Administrative Agent, any Issuing Bank or any Lender to sue the Borrower, any Loan
Guarantor, any other guarantor, or any other Person obligated for all or any part of the Guaranteed Obligations (each, an
“Obligated Party”), or otherwise to enforce its payment against any collateral securing all or any part of the Guaranteed
Obligations.
SECTION 10.03 No Discharge or Diminishment of Loan Guaranty.
(a) Except as otherwise provided for herein, the obligations of each Loan Guarantor hereunder are unconditional and
absolute and not subject to any reduction, limitation, impairment or termination for any reason (other than the indefeasible
payment in full in cash of the Guaranteed Obligations (other than Unliquidated Obligations), and the cash collateralization of all
Unliquidated Obligations in a manner satisfactory to each affected Lender), including: (i) any claim of waiver, release,
extension, renewal, settlement, surrender, alteration, or compromise of any of the Guaranteed Obligations, by operation of law or
otherwise; (ii) any change in the corporate existence, structure or ownership of the Borrower or any other Obligated Party liable
for any of the Guaranteed Obligations; (iii) any insolvency, bankruptcy, reorganization or other similar proceeding affecting any
Obligated Party, or their assets or any resulting release or discharge of any obligation of any Obligated Party; or (iv) the
existence of any claim, setoff or other rights which any Loan Guarantor may have at any time against any Obligated Party, the
Administrative Agent, any Issuing Bank, any Lender, or any other Person, whether in connection herewith or in any unrelated
transactions.
(b) The obligations of each Loan Guarantor hereunder are not subject to any defense or setoff, counterclaim,
recoupment, or termination whatsoever by reason of the invalidity, illegality, or unenforceability of any of the Guaranteed
Obligations or otherwise, or any provision of applicable law or
117
regulation purporting to prohibit payment by any Obligated Party, of the Guaranteed Obligations or any part thereof.
(c) The obligations of any Loan Guarantor hereunder are not discharged or impaired or otherwise affected by: (i) the
failure of the Administrative Agent, any Issuing Bank or any Lender to assert any claim or demand or to enforce any remedy
with respect to all or any part of the Guaranteed Obligations; (ii) any waiver or modification of or supplement to any provision
of any agreement relating to the Guaranteed Obligations; (iii) any release, non-perfection, or invalidity of any indirect or direct
security for the obligations of the Borrower for all or any part of the Guaranteed Obligations or any obligations of any other
Obligated Party liable for any of the Guaranteed Obligations; (iv) any action or failure to act by the Administrative Agent, any
Issuing Bank or any Lender with respect to any collateral securing any part of the Guaranteed Obligations; or (v) any default,
failure or delay, willful or otherwise, in the payment or performance of any of the Guaranteed Obligations, or any other
circumstance, act, omission or delay that might in any manner or to any extent vary the risk of such Loan Guarantor or that
would otherwise operate as a discharge of any Loan Guarantor as a matter of law or equity (other than the indefeasible payment
in full in cash of the Guaranteed Obligations).
SECTION 10.04 Defenses Waived. To the fullest extent permitted by applicable law, each Loan Guarantor hereby
waives any defense based on or arising out of any defense of the Borrower or any Loan Guarantor or the unenforceability of all
or any part of the Guaranteed Obligations from any cause, or the cessation from any cause of the liability of the Borrower, any
Loan Guarantor or any other Obligated Party, other than the payment in full in cash of the Guaranteed Obligations (other than
Unliquidated Obligations). Without limiting the generality of the foregoing, each Loan Guarantor irrevocably waives acceptance
hereof, presentment, demand, protest and, to the fullest extent permitted by law, any notice not provided for herein, as well as
any requirement that at any time any action be taken by any Person against any Obligated Party, or any other Person. Each Loan
Guarantor confirms that it is not a surety under any state law and shall not raise any such law as a defense to its obligations
hereunder. The Administrative Agent may compromise or adjust any part of the Guaranteed Obligations, make any other
accommodation with any Obligated Party or exercise any other right or remedy available to it against any Obligated Party,
without affecting or impairing in any way the liability of such Loan Guarantor under this Loan Guaranty except to the extent the
Guaranteed Obligations (other than Unliquidated Obligations) have been fully paid in cash. To the fullest extent permitted by
applicable law, each Loan Guarantor waives any defense arising out of any such election even though that election may operate,
pursuant to applicable law, to impair or extinguish any right of reimbursement or subrogation or other right or remedy of any
Loan Guarantor against any Obligated Party.
SECTION 10.05 Rights of Subrogation. No Loan Guarantor will assert any right, claim or cause of action, including a
claim of subrogation, contribution or indemnification that it has against any Obligated Party, or any collateral, until the
Commitments have terminated and the Loan Parties and the Loan Guarantors have fully performed all their Obligations (other
than Unliquidated Obligations) to the Administrative Agent, the Issuing Banks and the Lenders.
SECTION 10.06 Reinstatement; Stay of Acceleration. If at any time any payment of any portion of the Guaranteed
Obligations (including a payment effected through exercise of a right of setoff) is rescinded or must otherwise be restored or
returned upon the insolvency, bankruptcy, or reorganization of the Borrower or otherwise (including pursuant to any settlement
entered into by any Credit Party in its discretion), each Loan Guarantor’s obligations under this Loan Guaranty with respect to
that payment shall be reinstated at such time as though the payment had not been made and whether or not the Administrative
Agent, the Issuing Banks and the Lenders are in possession of this Loan Guaranty. If acceleration of the time for payment of any
of the Guaranteed Obligations is stayed upon the insolvency, bankruptcy or reorganization of the Borrower, all such amounts
otherwise subject to acceleration under the
118
terms of any agreement relating to the Guaranteed Obligations shall nonetheless be payable by the Loan Guarantors forthwith
on demand by the Administrative Agent.
SECTION 10.07 Information. Each Loan Guarantor assumes all responsibility for being and keeping itself informed of
the Borrower’s financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the
Guaranteed Obligations and the nature, scope and extent of the risks that each Loan Guarantor assumes and incurs under this
Loan Guaranty, and agrees that neither the Administrative Agent nor any Issuing Bank nor any Lender shall have any duty to
advise any Loan Guarantor of information known to it regarding those circumstances or risks.
SECTION 10.08 [Reserved].
SECTION 10.09 [Reserved].
SECTION 10.10 Maximum Liability. Notwithstanding any other provision of this Loan Guaranty, the amount
guaranteed by each Loan Guarantor hereunder shall be limited to the extent, if any, required so that its obligations hereunder
shall not be subject to avoidance under Section 548 of the Bankruptcy Code or under any applicable state Uniform Fraudulent
Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common law. In determining the limitations, if any, on
the amount of any Loan Guarantor’s obligations hereunder pursuant to the preceding sentence, it is the intention of the parties
hereto that any rights of subrogation, indemnification or contribution which such Loan Guarantor may have under this Loan
Guaranty, any other agreement or applicable law shall be taken into account.
SECTION 10.11 Contribution.
(a) To the extent that any Loan Guarantor shall make a payment under this Loan Guaranty (a “Guarantor Payment”)
which, taking into account all other Guarantor Payments then previously or concurrently made by any other Loan Guarantor,
exceeds the amount which otherwise would have been paid by or attributable to such Loan Guarantor if each Loan Guarantor
had paid the aggregate Guaranteed Obligations satisfied by such Guarantor Payment in the same proportion as such Loan
Guarantor’s “Allocable Amount” (as defined below) (as determined immediately prior to such Guarantor Payment) bore to the
aggregate Allocable Amounts of each of the Loan Guarantors as determined immediately prior to the making of such Guarantor
Payment, then, following payment in full in cash of the Guarantor Payment and the Guaranteed Obligations (other than
Unliquidated Obligations), and all Commitments and Letters of Credit have terminated or expired or, in the case of all Letters of
Credit, are fully collateralized on terms reasonably acceptable to the Administrative Agent and the Issuing Bank, and this
Agreement has terminated, such Loan Guarantor shall be entitled to receive contribution and indemnification payments from,
and be reimbursed by, each other Loan Guarantor for the amount of such excess, pro rata based upon their respective Allocable
Amounts in effect immediately prior to such Guarantor Payment.
(b) As of any date of determination, the “Allocable Amount” of any Loan Guarantor shall be equal to the excess of
the fair saleable value of the property of such Loan Guarantor over the total liabilities of such Loan Guarantor (including the
maximum amount reasonably expected to become due in respect of contingent liabilities, calculated, without duplication,
assuming each other Loan Guarantor that is also liable for such contingent liability pays its ratable share thereof), giving effect
to all payments made by other Loan Guarantors as of such date in a manner to maximize the amount of such contributions.
(c) This Section 10.11 is intended only to define the relative rights of the Loan Guarantors, and nothing set forth in
this Section 10.11 is intended to or shall impair the obligations of the Loan
119
Guarantors, jointly and severally, to pay any amounts as and when the same shall become due and payable in accordance with
the terms of this Loan Guaranty.
(d) The parties hereto acknowledge that the rights of contribution and indemnification hereunder shall constitute
assets of the Loan Guarantor or Loan Guarantors to which such contribution and indemnification is owing.
(e) The rights of the indemnifying Loan Guarantors against other Loan Guarantors under this Section 10.11 shall be
exercisable upon the full payment of the Guaranteed Obligations in cash (other than Unliquidated Obligations) and the
termination or expiry (or, in the case of all Letters of Credit, full cash collateralization), on terms reasonably acceptable to the
Administrative Agent and the Issuing Bank, of the Commitments and all Letters of Credit issued hereunder and the termination
of this Agreement.
SECTION 10.12 Liability Cumulative. The liability of each Loan Party as a Loan Guarantor under this Article X is in
addition to and shall be cumulative with all liabilities of each Loan Party to the Administrative Agent, the Issuing Banks and the
Lenders under this Agreement and the other Loan Documents to which such Loan Party is a party or in respect of any
obligations or liabilities of the other Loan Parties, without any limitation as to amount, unless the instrument or agreement
evidencing or creating such other liability specifically provides to the contrary.
[Signature Pages Follow.]
120
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their
respective authorized officers as of the day and year first above written.
BORROWER:
ALIGN TECHNOLOGY, INC., a Delaware
corporation
By: Name:
Title:
SIGNATURE PAGE TO ALIGN TECHNOLOGY CREDIT AGREEMENT
CITIBANK, N.A., individually as a Lender, as Administrative Agent,
Swingline Lender and an Issuing Bank
By: Name:
Title:
SIGNATURE PAGE TO ALIGN TECHNOLOGY CREDIT AGREEMENT
BANK OF AMERICA, N.A., individually as a Lender
By: Name:
Title:
SIGNATURE PAGE TO ALIGN TECHNOLOGY CREDIT AGREEMENT
HSBC BANK USA, N.A., individually as a Lender
By: Name:
Title:
SIGNATURE PAGE TO ALIGN TECHNOLOGY CREDIT AGREEMENT
COMMITMENT SCHEDULE
Lender
Total Commitment
CITIBANK, N.A.
BANK OF AMERICA, N.A.
HSBC BANK USA, N.A.
Total
$120,000,000
$90,000,000
$90,000,000
$300,000,000
Exhibit B
AMENDED FORM OF BORROWING REQUEST
(See attached.)
[FORM OF] BORROWING REQUEST
, 20
EXHIBIT F
Citibank, N.A.
388 Greenwich Street, 26th Floor New York, NY 10013
Attention: [ ]
Ladies and Gentlemen:
This borrowing request (this “Borrowing Request”) is furnished pursuant to Section 2.03 of that certain Credit Agreement, dated
as of July 21, 2020 (as amended by that certain First Amendment to Credit Agreement, dated as of April 21, 2022, and by that certain
Second Amendment to Credit Agreement, dated as of December 23, 2022, and as further amended, restated, amended and restated,
supplemented or otherwise modified from time to time, the “Credit Agreement”), among, inter alios, ALIGN TECHNOLOGY, INC., a
Delaware corporation (the “Borrower”), the other Loan Parties party thereto, the Lenders from time to time party thereto, and Citibank,
N.A. as Administrative Agent for the Lenders. Unless otherwise defined herein, capitalized terms used in this Borrowing Request have the
meanings ascribed thereto in the Credit Agreement.
The Borrower hereby notifies the Administrative Agent of its request for the following Borrowing (the “Proposed Borrowing”):
(1) Aggregate principal amount of Borrowing: $[ ]1.
(2) The Borrowing shall be a [ ]2.
(3) The date of the Proposed Borrowing (must be a Business Day): [ ]3.
(4) If a Term SOFR Borrowing, the duration of Interest Period shall be: [ ]4.
The Borrower hereby directs the Administrative Agent to disburse all proceeds of the Proposed Borrowing on the Borrowing Date
specified above by wire transfer to the account indicated on Schedule 1 hereto.
1 Subject to Section 2.02(c) of the Credit Agreement.
2 State whether a Term SOFR Borrowing or ABR Borrowing. If no Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing.
3 The Administrative Agent must be notified in writing by hand delivery, fax or other electronic transmission (including “.pdf” or “.tif”) not later than (a) in the case of a Term SOFR
Borrowing, not later than 12:00 p.m., New York City time, three Business Days before the date of the Proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 12:00 p.m,
New York City time, on the date of the Proposed Borrowing.
4 Must be a period contemplated by the definition of “Interest Period”. If no Interest Period is specified, then the Interest Period shall be of one- month’s duration.
The Borrower certifies that the following statements are true on the date hereof, and will be true on
the date of the Proposed Borrowing:
(a) The representations and warranties of the Borrower set forth in the Credit Agreement are true and correct in all
material respects on and as of the date of the Proposed Borrowing with the same effect as though such representations and
warranties had been made on and as of the date of such Borrowing, except that (i) to the extent that such representations and
warranties specifically refer to an earlier date, such representations and warranties are true and correct in all material respects as of
such earlier date, and (ii) any representation and warranty that is qualified as to “materiality” or “Material Adverse Effect” are true
and correct in all respects.
continuing.
At the time of and immediately after giving effect to the Proposed Borrowing, no Default has occurred and is
ALIGN TECHNOLOGY, INC.
By:
Name:
Title:
2
SCHEDULE 1 TO BORROWING REQUEST
WIRE INSTRUCTIONS
PAYEE:
TOTAL
AMOUNT
$[ ]
$[ ]
3
AMENDED FORM OF NOTICE OF CONTINUATION/CONVERSION
Exhibit C
(See attached.)
[FORM OF] NOTICE OF CONTINUATION/CONVERSION
, 20
EXHIBIT G
Citibank, N.A.
388 Greenwich Street, 26th Floor New York, NY 10013
Attention: [ ]
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement, dated as of July 21, 2020 (as amended by that certain First
Amendment to Credit Agreement, dated as of April 21, 2022, and by that certain Second Amendment to Credit Agreement, dated as of
December 23, 2022, and as further amended, restated, amended and restated, supplemented or otherwise modified from time to time, the
“Credit Agreement”), among, inter alios, ALIGN TECHNOLOGY, INC., a Delaware corporation (the “Borrower”), the other Loan
Parties party thereto, the Lenders from time to time party thereto and Citibank, N.A., as administrative agent (the “Administrative Agent”).
Capitalized terms used but not defined herein shall have the meanings given such terms in the Credit Agreement.
The Borrower hereby notifies the Administrative Agent of an interest rate election and in that connection sets forth below the
terms thereof:
[on , 20 (which is a Business Day), the Borrower will convert $[ ● ]1 of the aggregate outstanding principal
amount of the Loans, bearing interest at the [Alternate Base Rate] [Term SOFR Reference Rate], into a [Term SOFR][ABR] Loan [and, in
the case of a [Term SOFR] Loan, having an Interest Period of [●] month(s)]2[; and][.]]
(1)
[on , 20 (which is a Business Day), the Borrower will continue $[ ● ] of the aggregate outstanding principal
amount of the Loans bearing interest at the [Term SOFR Reference Rate], as [Term SOFR] Loans having an Interest Period of [ ● ]
month(s)3.]
(2)
ALIGN TECHNOLOGY, INC.
By: Name:
Title:
1 Subject to Section 2.02(c) of the Credit Agreement.
2 Must be a period contemplated by the definition of “Interest Period.”
3 Must be a period contemplated by the definition of “Interest Period.”
Exhibit 10.20
Opening Transaction
GOLDMAN SACHS & CO. LLC | 200 WEST STREET | NEW YORK, NEW YORK 10282-2198 | TEL: 212-902-1000
Align Technology, Inc.
410 N. Scottsdale Road, Suite 1300
Tempe, Arizona 85281
________________
Goldman Sachs & Co. LLC
Fixed Dollar Accelerated Share Repurchase Transaction
October 28, 2022
To:
A/C:
From:
Re:
Date:
Dear Sir/Madam:
The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and conditions of the Transaction entered into between Goldman
Sachs & Co. LLC (“Dealer”) and Align Technology, Inc. (“Issuer”) on the Trade Date specified below (the “Transaction”). This confirmation constitutes a
“Confirmation” as referred to in the Agreement specified below.
The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (as published by the International Swaps and
Derivatives Association, Inc. (“ISDA”)) (the “Equity Definitions”) are incorporated into this Confirmation. The Transaction is a Share Forward Transaction
for purposes of the Equity Definitions. Any reference to a currency shall have the meaning contained in Section 1.7 of the 2006 ISDA Definitions, as
published by ISDA.
1. This Confirmation evidences a complete and binding agreement between Dealer and Issuer as to the terms of the Transaction to which this
Confirmation relates and shall supersede all prior or contemporaneous written or oral communications with respect thereto. This Confirmation shall be
subject to an agreement (the “Agreement”) in the form of the 2002 ISDA Master Agreement as if Dealer and Issuer had executed an agreement in such
form without any Schedule but with the elections set forth in this Confirmation (and (1) the election of USD as the Termination Currency, (2) the election
that subparagraph (ii) of Section 2(c) will not apply to the Transactions and (3) the election that the “Cross Default” provisions of Section 5(a)(vi) shall
apply to Dealer, with a “Threshold Amount” of 3% of Dealer shareholders’ equity for Dealer (provided that (a) the phrase “or becoming capable at such
time of being declared” shall be deleted from clause (1) of such Section 5(a)(vi) of the Agreement and (b) the following sentence shall be added to the end
thereof: “Notwithstanding the foregoing, a default hereunder shall not constitute an Event of Default if (i) the default was caused solely by error or
omission of an administrative or operational nature; (ii) funds were available to enable the party to make the payment when due; and (iii) the payment is
made within two Local Business Days of such party’s receipt of written notice of its failure to pay)”.
The Transaction shall be the only transaction under the Agreement. If there exists any ISDA Master Agreement between Dealer and Issuer or any
confirmation or other agreement between Dealer and Issuer pursuant to which an ISDA Master Agreement is deemed to exist between Dealer and Issuer,
then, notwithstanding anything to the contrary in such ISDA Master Agreement, such confirmation or agreement or any other agreement to which Dealer
and Issuer are parties, the Transaction shall not be considered a transaction under, or otherwise governed by, such existing or deemed to be existing ISDA
Master Agreement.
Page 2
If there is any inconsistency between the Agreement, this Confirmation and the Equity Definitions, the following will prevail for purposes of the
Transaction in the order of precedence indicated: (i) this Master Confirmation; (ii) the Equity Definitions; and (iii) the Agreement.
2. The terms of the particular Transaction to which this Confirmation relates are as follows:
GENERAL TERMS:
Trade Date:
Buyer:
Seller:
Shares:
Forward Price:
Discount:
10b-18 VWAP:
Observation Dates:
Calculation Period:
As specified in Schedule I
Issuer
Dealer
Common Stock, par value USD 0.0001 per share, of Issuer (Ticker: ALGN)
A price per Share (as determined by the Calculation Agent) equal to the greater of (A) (i) the
arithmetic mean (not a weighted average, subject to “Market Disruption Event” below) of the
10b-18 VWAP on each Observation Date that is a Trading Day during the Calculation Period
minus (ii) the Discount and (B) $5.00.
As specified in Schedule I
On any Trading Day, a price per Share equal to the volume- weighted average price of the
Rule 10b-18 eligible trades in the Shares for the entirety of such Trading Day as determined
by the Calculation Agent by reference to the screen entitled “ALGN
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