Align Technology will close its 12 Invisalign stores by April 3, 2019, as a result of the arbitration of the claims asserted against it by SDC Financial LLC, SmileDirectClub LLC, and the Members of SDC Financial LLC other than the Company, known collectively as the SDC Entities.
“Since April 2018, Align has been engaged in an arbitration proceeding with the SDC Entities stemming from the claim that our Invisalign retail stores violate non-compete provisions applicable to the members of SDC Financial LLC, including Align,” said Joe Hogan, Align Technology president and CEO.
“Throughout this process, we have maintained that we have acted in good faith and integrity with regards to the SDC Entities and our contractual obligations. And we believe that what makes Invisalign stores and every part of the Invisalign experience substantially different from SDC scan shops is our focus on a doctor’s office for treatment,” said Hogan.
“While we are disappointed by the arbitrator’s decision, it has no bearing on our long-held strategy of educating millions of consumers worldwide on the benefits of having a better smile and connecting them directly with Invisalign providers. We’ll continue to raise consumer awareness and drive patients to doctor’s offices for great outcomes and great treatment experiences,” said Hogan.
The arbitration concluded on January 23, 2019, and the arbitrator issued his decision on March 4, 2019. The arbitrator held that Align breached the non-compete provision applicable to the members of SDC Financial LLC, including that Align misused the SDC Entities’ confidential information and violated fiduciary duties to SDC Financial LLC.
The arbitrator also ordered Align to close its Invisalign stores by April 3 and enjoined the company from opening new Invisalign stores or providing certain services in physical retail establishments in connection with the marketing and sale of clear aligners. Further, the arbitrator enjoined Align from using the SDC Entities’ confidential information and extended the expiration date of the non-compete provision to August 18, 2022.
Additionally, the arbitrator ordered Align to tender its SDC Financial LLC membership interests to the SDC Entities for a purchase price equal to the capital account balance as of October 31, 2018, a price that is significantly below the current fair market value of such investment, Align said. No financial damages were awarded to the SDC Entities. The decision does not impact Align’s existing supply agreement with SDC, which remains in place through 2019.
Align is now evaluating the financial impacts of closing its Invisalign stores and the divesture of its equity investment in SDC. It expects to record a material charge in the first quarter of 2019 but does not expect the arbitrator’s decision to have a material impact on its revenues for the first quarter or on fiscal 2019. Also, Align expects to complete its evaluation of the financial impacts prior to the end of the first quarter.
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