<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
----------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
From the transition period from to
------------------ -----------------------
Commission file number 0-4829-03
---------------------------------------------------------
NABI
- --------------------------------------------------------------------------------
(Name of Registrant)
Delaware 59-1212264
- -------------------------- -----------------------------------------------------
(State or Jurisdiction of Incorporation I.R.S. Employer
or Organization) Identification Number
5800 Park of Commerce Boulevard N.W., Boca Raton, Florida 33487
- --------------------------------------------------------------------------------
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.10 PER SHARE
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. [ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of February 29, 2000, 35,526,498 shares of common stock were
outstanding, of which 34,947,999 shares were held of record by non-affiliates.
The aggregate market value of shares held by non-affiliates was approximately
$384,427,989 based on the closing price per share of such common stock on such
date as reported by the Nasdaq National Market.
Documents Incorporated by Reference
Portions of Nabi's definitive Proxy Statement for its annual meeting of
shareholders which Nabi intends to file within 120 days after the end of Nabi's
fiscal year ended December 31, 1999 are incorporated by reference into Part III
hereof as provided therein.
<PAGE> 2
NABI
- --------------------------------------------------------------------------------
PART I
ITEM 1. BUSINESS
OVERVIEW
Nabi (the "Company") is nearing completion of a multi-year transition from being
a leading provider of antibody products (plasma) to other pharmaceutical
manufacturers to becoming a fully-integrated biopharmaceutical company
developing, manufacturing and marketing its own products for the prevention and
treatment of infectious diseases and immunological disorders. During 1999, the
Company achieved two major milestones that are key to the success of this
transition plan. In March, Nabi received the Food and Drug Administration's
("FDA") approval and quickly launched its first internally developed
pharmaceutical product, Nabi-HB(TM) [Hepatitis B Immune Globulin (Human)],
produced from antibodies collected in Nabi's own network of U.S.-based antibody
collection centers. This has confirmed the Company's ability to both develop and
successfully commercialize products that address infectious and autoimmune
diseases, while at the same time leveraging the value of its expertise in
collecting specialty antibodies. In December, the Company filed with the FDA a
Biologics License Application ("BLA") for a hepatitis immune globulin product to
be produced at its Boca Raton manufacturing facility. When approved, Nabi will
have a product that it controls from collection of the specialty antibody
through the manufacture, sale and distribution of the final pharmaceutical
product. Building on these significant achievements, Nabi also realized two
other major goals in 1999 - a return to operating profitability and the
announcement of positive interim data from its pivotal phase III clinical trial
for Nabi(R) StaphVAX(R) (STAPHYLOCOCCUS AUREUS Type 5 and Type 8 Capsular
Polysaccharide Conjugate Vaccine). Each of these accomplishments will be
discussed further in this Annual Report on Form 10-K.
Nabi currently markets four pharmaceutical products, Nabi-HB, WinRho SDF(R)
[Rho(D) Immune Globulin Intravenous (Human)], Autoplex(R) T [Anti-Inhibitor
Coagulant Complex, Heat Treated] and Aloprim(TM) [(Allopurinol sodium) for
injection]. In addition the Company has an extensive pipeline of new products
under development. At December 31, 1999 the Company was conducting clinical
trials related to five of its products, both currently marketed and products
under development. The Company is also one of the largest collectors and
suppliers of non-specific and specialty antibody products in the world. Nabi
collects these products from an extensive donor base in the U.S. Some of these
antibodies are used in the production of Nabi's pharmaceutical products. Most
are supplied to other pharmaceutical companies for the manufacture of numerous
products. The mission of the Company is to generate value for its shareholders
by focusing Nabi's competitive advantages in technology, facilities, people and
markets on delivering products that prevent and treat life-threatening
conditions.
PRODUCTS
CURRENTLY MARKETED PHARMACEUTICAL PRODUCTS
Revenues generated from Nabi's pharmaceutical products have grown almost
eight-fold since 1994. Sales of these products totaled $71 million in 1999,
representing a 29% increase over the 1998 level of $55 million. In 1999,
pharmaceutical products accounted for more than 30% of the Company's total
revenues and 79% of the Company's gross margin. During 1999, Nabi launched two
new products, Nabi-HB and Aloprim. Each of Nabi's four currently marketed
pharmaceutical products are described below:
2
<PAGE> 3
NABI-HB [HEPATITIS B IMMUNE GLOBULIN (HUMAN)]
According to the U.S. Center for Disease Control and Prevention ("CDC"), viral
hepatitis ranks third as a reportable disease, surpassed only by venereal
diseases and chickenpox. Approximately one third of all viral hepatitis cases
are reported as hepatitis B. The hepatitis B virus ("HBV") is a major health
concern globally as it now affects approximately 300 million people worldwide.
Hepatitis B is 100 times more infectious than the human immunodeficiency virus
("HIV"). The CDC estimates that in the U.S. alone there are one to two million
chronic hepatitis B carriers, 300,000 new hepatitis B infections per year,
22,000 babies born to hepatitis B positive mothers and 5,000 individuals who die
from hepatitis B, or its complications, annually.
Nabi-HB is a human polyclonal antibody product used to prevent hepatitis B
following sexual or other exposure, including needlestick and transmission from
a hepatitis B antigen-positive mother to a newborn. Nabi launched the product
immediately upon receipt of FDA approval in March 1999. Cangene Corporation
("Cangene") currently manufactures Nabi-HB for the Company. See also "Strategic
Alliances."
WINRHO SDF [RHO(D) IMMUNE GLOBULIN INTRAVENOUS (HUMAN)]
Immune Thrombocytopenia Purpura ("ITP") is an autoimmune disease that manifests
itself in abnormally low platelet levels (thrombocytopenia) resulting in
excessive bleeding. The term "purpura" refers to the appearance of large purple
patches on the body caused by bleeding into the skin and mucous membranes. In
ITP, the body's immune system produces antibodies that attach to platelets
causing them to be removed from circulation, primarily by the spleen. Because
platelets are required for blood clotting, as platelet counts decrease, the
incidence of bleeding episodes increase. In certain cases, such as severe trauma
or spontaneous intracranial hemorrhage, the bleeding can be life threatening. In
the U.S., it is estimated that there are 15 per 100,000 cases of ITP annually,
or approximately 40,000 cases. In children, the disease is usually acute in
onset and is often resolved with treatment in six months. In adult ITP, the
onset is insidious and rarely resolves itself spontaneously. Additionally, ITP
is more common in females than males. ITP can occur as either a primary disease,
or secondary to another underlying disease such as HIV or Lupus.
WinRho SDF is a human polyclonal antibody product approved for the treatment of
ITP and for the suppression of Rh isoimmunization. WinRho SDF has been
designated by the FDA as an Orphan Drug for the treatment of ITP through 2002.
Nabi began exclusive marketing of WinRho SDF in the U.S. in mid-1995 under a
license and distribution agreement with Cangene. Nabi is currently conducting
several Phase IV clinical studies involving WinRho SDF, including (a) a
comparison of WinRho SDF versus IVIG for the treatment of ITP, (b) an evaluation
of WinRho SDF in the treatment of ITP during pregnancy, and (c) a comparison of
WinRho SDF versus routine care with prednisone followed by splenectomy in the
management of ITP. See also "Strategic Alliances" and "Government and Industry
Regulation-Orphan Drug Act."
AUTOPLEX T [ANTI-INHIBITOR COAGULANT COMPLEX, HEAT TREATED]
Hemophilia is a blood disorder characterized by a lack of a particular
functional coagulation factor. In the case of hemophilia A, the deficient factor
is Factor VIII. Physicians typically treat hemophilia by replacing the deficient
factor with either recombinant clotting factor or plasma derived human Factor
VIII or IX. In most cases, replacement therapy is effective in stopping bleeding
episodes. However, the treatment of hemophilia A is complicated when an
inhibitor or antibody is produced in response to outside sources of Factor VIII.
These antibodies combine with the infused Factor VIII and neutralize its
activity. There are approximately 20,000 hemophilia A patients in the U.S., and
approximately 10-15% of them suffer from the production of these inhibitors.
Autoplex T is a coagulation complex used to treat hemophilia A patients who have
developed inhibitors to Factor VIII. Autoplex T "bypasses" the Factor VIII
requirement for clotting by stimulating other components of the coagulation
process. Nabi acquired exclusive rights to Autoplex T in the U.S.,
3
<PAGE> 4
Canada and Mexico from Baxter Healthcare Corporation ("Baxter") in May 1997. In
connection with the acquisition, Baxter agreed to manufacture Autoplex T until
May 2000 or such later time as may be determined under the terms of a consent
order entered into between Baxter and the Federal Trade Commission ("FTC"), but
in any event four months after Nabi receives approval from the FDA to
manufacture Autoplex T. The FTC could require Nabi to return to Baxter Nabi's
rights to Autoplex T if Nabi does not obtain FDA approval to manufacture the
product by May 2000 or by a later date agreed to by the FTC. At the discretion
of the FTC, the period Baxter manufactures Autoplex T can be extended for up to
four twelve-month intervals. Nabi anticipates that the period Baxter
manufactures Autoplex T under the terms of a consent order from the FTC will be
extended for the first twelve-month period through May 2001. If the rights
revert to Baxter and Baxter later sells these rights, Nabi and Baxter will share
equally the proceeds of any such sale and, under certain circumstances, Baxter
will be required to make a specified payment to Nabi.
ALOPRIM [(ALLOPURINOL SODIUM) FOR INJECTION]
Aloprim is indicated for the treatment of chemotherapy induced hyperuricemia in
patients with leukemia, lymphomas, or solid organ tumors. There are
approximately 90,000 patients annually who suffer from these conditions in the
U.S. Aloprim I.V. was licensed from Catalytica Pharmaceuticals ("Catalytica") in
June 1999, as part of Nabi's ongoing strategy to opportunistically in-license
late stage products targeted to the physician population Nabi currently sells
to. Nabi has exclusive U.S. and Canadian distribution rights to Aloprim and
global rights to launch the product in those territories in which Glaxo Wellcome
(former license holder prior to Catalytica) does not sell the product. Nabi is
currently exploring future clinical development of Aloprim in new indications
beyond oncology. See also "Strategic Alliances."
MARKETED ANTIBODY PRODUCTS
NON-SPECIFIC ANTIBODIES
Nabi is one of the world's largest suppliers of human non-specific antibody
products to the pharmaceutical and diagnostic industries.
In 1999, Nabi derived revenues of $109.3 million from sales of non-specific
antibodies as compared to 1998 levels of $133.1 million. The lower revenue from
non-specific antibodies was attributable to two major factors. First, Nabi sold
six U.S. centers in April 1999 and transferred its German antibody collection
operations to a third party in the fourth quarter of 1999. These changes were
part of the Company's ongoing efforts to increase profitability by concentrating
on the production and sale of higher margin specialty antibody and
pharmaceutical products. Second, the Company experienced a decline in antibody
collections on a same store basis. The Company believes low unemployment levels
and the increasing impact of regulations limiting donor eligibility have
contributed to these lower collection levels. Sales of non-specific antibodies
in 1999 accounted for 47% of total Company revenues, an 8% decrease from 1998
levels.
Among other uses, non-specific antibodies are used to manufacture intravenous
immune globulin ("IVIG"), a product used to fight infections and in the
treatment of several conditions, including bone marrow transplantation, B cell
chronic lymphocytic leukemia, hypogammaglobulinemia, Kawasaki syndrome and other
chronic immune deficiencies.
SPECIALTY ANTIBODIES
During 1999, sales of specialty antibodies were $53.2 million, a 3% decrease
from 1998 sales of $55 million. Although certain specialty product sales
increased during 1999, including anti-CMV, tetanus, and anti-Hbs, this increase
was more than offset by reduced sales for anti-D, anti-RSV, lower laboratory
testing service revenue and reduced sales of diagnostic products. Specialty
antibody sales accounted for 23% of the Company's total revenue in 1999 and
1998.
4
<PAGE> 5
Specialty antibody products, derived from plasma that contains high
concentrations of a specific antibody, are used primarily to manufacture
hyperimmune globulins. These immunoglobulins are used to treat chronic immune
disorders as well as to prevent and treat viral diseases such as hepatitis A and
B, CMV, tetanus and rabies. Specialty antibodies are also used to treat Rh
incompatibility and to develop diagnostic products. Over time, Nabi anticipates
a strategic shift of converting non-specific antibody production into the
production of specialty antibodies used in the manufacture of its own
pharmaceutical products.
Nabi identifies potential specialty antibody donors through screening and
testing procedures. Nabi also has developed FDA-licensed programs to vaccinate
potential donors to stimulate their production of specific antibodies. Through
Nabi's nationwide operations and access to its large and diverse donor base of
approximately 275,000 individuals, Nabi believes it has a strategic advantage in
its ability to collect specialty antibodies.
Nabi's principal specialty antibody products include:
o ANTI-D. Anti-D is the antibody to the Rh blood group antigen D. This
antigen is responsible for the designation of blood as either Rh+ or Rh-.
Anti-D antibodies have long been used to prevent Rh-D immunization in
Rh-negative women and subsequent hemolytic disease ("blue baby disease") in
Rh-positive infants. These antibodies collected from donors who have high
levels of anti-D antibodies, are also used to treat ITP in children and
adults. Nabi has proprietary donor stimulation and management programs that
enhance its ability to increase collection of anti-D antibodies.
o HEPATITIS B ANTIBODIES. Antibodies to HBV are used to manufacture hepatitis
B immune globulin therapeutic products that provide passive immunity
against HBV. Nabi is strategically committed to utilizing its collection
of these specialty antibodies to produce Nabi-HB, the Company's hepatitis B
pharmaceutical product. Nabi believes that its proprietary donor
stimulation and donor management programs generally allow Nabi to produce
anti-hepatitis B antibodies having a higher concentration and broader
specificity than competing products.
o CMV ANTIBODIES. By screening its large donor population, Nabi can identify
individuals with high concentrations of CMV antibodies, and can supply
these antibodies to manufacturers to enhance intravenous immune globulin
products and to produce CMV-specific immune globulin therapeutic products.
o RABIES ANTIBODIES. Rabies antibodies are used by manufacturers to make
therapeutic products that provide a short-term protective antibody immunity
to patients exposed to the rabies virus. Nabi utilizes donor stimulation
and management programs that enhance its ability to increase collection of
rabies antibodies.
o TETANUS ANTIBODIES. Manufacturers use specialty antibodies enriched with
antibodies to tetanus toxin to produce therapeutic products, which provide
short-term protective immunity to patients exposed to tetanus. Nabi
utilizes donor stimulation and management programs that enhance its ability
to increase collection of tetanus antibodies.
5
<PAGE> 6
The following is a summary of Nabi's currently marketed products :
<TABLE>
<CAPTION>
PRODUCTS INDICATIONS OR POTENTIAL APPLICATIONS STATUS
-------- ------------------------------------- ------
<S> <C> <C>
NABI-HB Post exposure prevention of hepatitis B infection CURRENTLY MARKETED; in Phase
IV clinical trials
WINRHO SDF Treatment of ITP CURRENTLY MARKETED; in Phase
IV clinical trials
AUTOPLEX T Treatment of hemophilia patients with CURRENTLY MARKETED
inhibitors to Factor VIII
ALOPRIM Manage patients with leukemia, lymphoma and solid CURRENTLY MARKETED
tumor malignancies receiving cancer therapy and
who suffer from elevated serum and urinary uric
acid levels.
NON-SPECIFIC ANTIBODIES Intermediate for production of CURRENTLY MARKETED
non-specific antibodies (i.e., standard IVIG)
SPECIALTY Intermediate for production of specific CURRENTLY MARKETED
ANTIBODIES antibodies (e.g., tetanus, rabies, HBV
and anti-D antibodies)
</TABLE>
RESEARCH AND DEVELOPMENT PRODUCT PIPELINE
Nabi has an extensive pipeline of anti-microbial pharmaceutical products under
development. Its lead program consists of first and second-generation vaccines
for long-term protection against Gram-positive infections in at risk
populations. These vaccines will also be used as immunizing agents in donors for
the production of Nabi antibody products. Nabi is initially concentrating its
development efforts on preventing those infections that are hospital-acquired
(nosocomial infections) or associated with chronic disease. Nabi believes there
also may be areas outside of infectious diseases, for example, in the prevention
and treatment of nicotine addiction, where its conjugate vaccine technologies
may also be applied successfully. During April 1999, Nabi was awarded the Frost
and Sullivan 1998 Market Engineering Entrepreneurial Company Award as
recognition for its work in the area of specialty vaccines.
NABI GRAM-POSITIVE PROGRAM
EPIDEMIOLOGY
In the U.S. alone, approximately 5-7 million people annually are at risk for
nosocomial bacterial infections. Bacteria such as S. AUREUS, S. EPIDERMIDIS, and
ENTEROCOCCUS species are included in the
6
<PAGE> 7
Gram-positive category. It is estimated that in 1995, there were approximately 2
million nosocomial infections in the U.S. Between 60,000 and 80,000 of these
patients will die, mostly due to bacteremia (blood infections) and pneumonia. In
a recent survey of hospitals throughout the U.S. reported in 1999, the mortality
rate associated with Gram-positive bacteremia was determined to be approximately
25%.
S. AUREUS is the cause of approximately 15% of these nosocomial infections.
It is estimated that S. AUREUS is carried on the skin or in the noses of up to
40% of people, including healthcare workers, who may then transmit this
infection to patients. S. AUREUS infections are caused when this organism enters
patients through surgical or other incisions or intravenous lines. The
infections may also pass from patient to patient. Staph infections can also
occur without hospitalization. The potential severity of community-acquired
antibiotic-resistant S. AUREUS infections was recently demonstrated in a report
by the CDC of four pediatric deaths from community-acquired
methicillin-resistant S. AUREUS ("MRSA") infections in Minnesota and North
Dakota between 1997-1999.
Over the past two decades, infectious disease experts have become increasingly
concerned about the emerging Gram-positive bacterial resistance to contemporary
antibiotics, coupled with the increasing prevalence of organisms having greater
virulence. It is currently estimated that up to 40% of S. AUREUS and more than
80% of S. EPIDERMIDIS are methicillin-resistant. Of greater concern is the fact
that a number of infections caused by another Gram-positive pathogen,
ENTEROCOCCUS, are also very resistant to most antibiotics including vancomycin.
If vancomycin resistance becomes broadly applicable to S. AUREUS and S.
EPIDERMIDIS, many clinicians fear a return to the pre-penicillin era of the
1950's and 1960's when staph infections were generally fatal.
Beyond the significant morbidity and mortality associated with Gram-positive
infections, the costs associated with these infections are significant. In a
study conducted by The Lewin Group in New York City, the average cost per
infection attributable to S. AUREUS is estimated to exceed $30,000, and the
average hospital charge attributable to S. AUREUS is more than double the
average cost associated with hospital stays overall. The majority of the cost
and mortality of S. AUREUS infections was due to pneumonia and bacteremia.
DUAL APPROACH
Nabi is taking two approaches to developing products to combat staph infections.
Nabi StaphVAX is a vaccine intended to stimulate antibody production to provide
active, long-term protection. After receiving the vaccine, the patient's immune
system responds in about two weeks with the production of specific antibodies
which may last for over a year. Nabi(R) Altastaph(TM) is a purified form of the
antibodies to Nabi StaphVAX. It can be provided to a patient who is at immediate
risk of infection. The protection provided by Nabi Altastaph is short-term
(potentially lasting two to three weeks) but may be extended by giving repeated
doses. Clinical trials are currently underway to evaluate the extent of
protection offered by these two approaches.
NABI STAPHVAX (STAPHYLOCOCCUS AUREUS TYPE 5 AND TYPE 8 CAPSULAR POLYSACCHARIDE
CONJUGATE VACCINE)
Nabi is in a pivotal Phase III clinical trial with Nabi StaphVAX, a vaccine
intended to prevent S. AUREUS infections. Nabi StaphVAX is a capsular
polysaccharide based conjugate vaccine which targets the two S. AUREUS serotypes
(Type 5 and Type 8) responsible for over 85% of S. AUREUS infections. Active
vaccination with Nabi StaphVAX induces the body's production of specific
antibodies that are believed will bind to and help kill invading S. AUREUS
bacteria. The antibodies to the vaccine are polyclonal and bind to multiple
sites on the bacteria, making it difficult for the bacteria to develop
resistance by mutating. This bivalent vaccine, currently in pivotal Phase III
clinical trials, is based on patented vaccine technology in-licensed by Nabi
from the Public Health Services ("PHS")/National Institute of Health ("NIH").
See also "Strategic Alliances".
Nabi StaphVAX relies on a completely different mechanism of action than those of
systemic antibiotics. It is believed that this approach will be effective
against even antibiotic resistant strains of S. AUREUS. In
7
<PAGE> 8
addition, since vaccines and antibodies present a different mechanism of action
from that of antibiotics, concurrent use of Nabi StaphVAX with Nabi Altastaph or
antibiotics may act synergistically, or additively, to combat infection. The
success of such treatments might help to reduce the emergence of additional
antibiotic resistant strains of bacteria in the future.
Nabi StaphVAX is being developed for patients who are at high risk of infection
and able to respond to a vaccine by producing their own antibodies. The initial
clinical target is hemodialysis patients with end stage renal disease
("ESRD") who are at high risk and long-term risk of S. AUREUS infections due to
their vascular access grafts. Other potential patient populations for Nabi
StaphVAX include: (a) at-risk patients such as the elderly who are expected to
have long stays in medical or extended care facilities; (b) patients undergoing
planned surgery who can be vaccinated in advance and in whom staph infections
can have serious consequences; (c) prosthetic surgery and vascular graft
patients whose implants are at long-term risk of staph infections; (d) chronic
osteomyelitis patients; and (e) hematology/oncology patients, for whom S. AUREUS
is an increased risk.
Nabi StaphVAX is currently nearing the completion of a Phase III pivotal trial
in patients on hemodialysis. Earlier clinical trials have shown Nabi StaphVAX to
be safe and immunogenic in humans. In August 1999, Nabi announced that, based on
an analysis of interim data from its ongoing pivotal clinical trial of Nabi
StaphVAX, statistical significance may be achievable given the trend towards
protection seen to date. The double-blinded, placebo-controlled trial, involving
1,800 ESRD patients on hemodialysis, was fully enrolled as of August 1999.
Assuming a one-year follow-up period for all patients, the Company anticipates
that the trial will be completed by or around the end of the third quarter of
2000 and the results compiled this year. However, Nabi has filed a request with
the FDA to accelerate trial completion, allowing the Company to compile results
around the end of the third quarter of 2000. If these results demonstrate
statistical significance, Nabi will pursue FDA licensure. Nabi intends to
establish the safety and immunogenicity of Nabi StaphVAX in other patient
populations to expand the clinical indications for this vaccine beyond the Phase
III trial's patient population. Currently, Nabi does not have internal
commercial scale vaccine manufacturing capability and is in the process of
identifying an appropriate third party contract-manufacturer or partner for
commercial production of Nabi StaphVAX. Concurrent with transferring production
to this third party and completion of the necessary bridging studies required by
the FDA for filing a BLA, commercialization of Nabi StaphVAX is expected to
commence in late 2002.
NABI ALTASTAPH [STAPHYLOCOCCUS AUREUS IMMUNE GLOBULIN INTRAVENOUS (HUMAN)]
Nabi Altastaph is a specific human antibody-based product that contains high
levels of antibodies against S. AUREUS Type 5 and Type 8 polysaccharides. These
specialty antibodies are produced by immunizing healthy plasma donors with Nabi
StaphVAX at Nabi's donor centers. The collected antibodies will be purified at
the Company's manufacturing facility in Boca Raton, Florida. In contrast to Nabi
StaphVAX, which is intended to provide long-term protection, Nabi Altastaph is
designed to provide immediate, on-demand protection for patients who are at
high, short-term risk from infection or who are immunocompromised and cannot
respond effectively to a vaccine. This type of prophylactic treatment is likely
to be cost-effective because a single dose persists in the bloodstream for
several weeks to provide protection for the entire risk period. High-risk
populations include low birth weight newborns, trauma patients and emergency
surgical patients.
In 1999, Nabi Altastaph successfully completed a Phase I/II trial in low birth
weight newborns that demonstrated its safety and pharmacokinetics at a variety
of dosage levels. The preliminary pharmokinetics analysis indicates that titers
of the specific anti-staph antibodies are dose-related. Even the lowest dose
(500 mg/kg) of Nabi Altastaph resulted in plasma titers that preclinical models
predict may be protective against infection.
Nabi also plans to evaluate the use of Nabi Altastaph as a therapeutic drug for
the treatment of diagnosed S. AUREUS infections. As a therapeutic product, Nabi
Altastaph may act synergistically, or additively, with antibiotics. Clinical
studies of Nabi Altastaph in bacteremia in hospital-intensive care units are in
the planning stages. Nabi is also planning to conduct clinical studies of the
combined use of Nabi
8
<PAGE> 9
Altastaph and Nabi StaphVAX in preventing infections. Nabi's antibody collection
centers will provide a significant advantage in the immunization of donors and
the procurement of the specialty antibodies used in the manufacture of Nabi
Altastaph.
ONGOING DEVELOPMENT
Nabi has also identified and patented a serotype of S. AUREUS, named type 336,
that accounts for over 90% of non-type 5 and non-type 8 S. AUREUS clinical
infections (about 10%-12% of all clinically significant S. AUREUS infections).
The Company has identified, purified and characterized type 336 antigen and has
prepared a conjugate vaccine that is capable of protecting animals from
challenge with clinical isolates of this serotype. During 1998, Nabi was issued
a patent on a S. AUREUS 336 antigen, vaccines made from that antigen, and
antibodies reactive to the antigen. The next generation of Nabi StaphVAX is
expected to contain type 336 antigen in addition to type 5 and type 8 antigens.
S. EPIDERMIDIS and ENTEROCOCCUS SPP. are the two other clinically significant
Gram-positive bacteria causing nosocomial infections. Nabi intends to extend
product coverage to these two Gram-positive bacteria in subsequent generations
of Nabi StaphVAX and Nabi Altastaph. The Company has filed patent applications
on selected enterococcal antigens and was issued two patents during 1999
containing claims covering both a S. EPIDERMIDIS VACCINE and a hyperimmune
globulin made using the vaccine. Prototypic S. EPIDERMIDIS and enterococcal
vaccines produced by Nabi have been shown to induce antibodies that are
protective in animal models and that facilitate killing of bacteria by human
phagocytes.
ANTI-VIRAL PROGRAM:
HEPATITIS B IMMUNE GLOBULIN (HUMAN)
In December 1999, Nabi submitted to the FDA a BLA for its Hepatitis B Immune
Globulin (Human) for post-exposure prophylaxis to HBV and its Boca Raton
manufacturing facility in which the pharmaceutical product will be manufactured.
In November 1999, Nabi initiated clinical studies for the use of hepatitis B
immune globulin to prevent the reinfection of transplanted livers in HBV
positive patients. Nabi's application to the FDA for this new indication for the
product will be filed as a new BLA later in 2000.
NABI(R) CIVACIR(TM) [HEPATITIS C IMMUNE GLOBULIN (HUMAN)]
Hepatitis C virus ("HCV") has significant economic impact because it causes
chronic infections in a large percentage of those infected and results in
significant morbidity and mortality in later stages of the disease. Management
believes that approximately 40% to 50% of liver transplants are due to
complications resulting from chronic HCV infections. HCV infection also
contributes to frequent hospitalizations and failure of the transplanted liver
when it occurs in transplant patients. There are approximately four million
individuals in the U.S. and an estimated 170 million individuals worldwide
infected with HCV. Nabi Civacir contains antibodies that are neutralizing to
HCV. Nabi is developing Nabi Civacir for the prevention of HCV reinfection of
transplanted livers and for the treatment of certain stages of chronic HCV
infections.
In 1999, Nabi completed a series of chimpanzee studies of Nabi Civacir in
collaboration with the CDC under a Cooperative and Research Development
Agreement ("CRADA"). The results from these animal studies suggest that the
elevated level of anti-HCV in serum maintained by multiple infusions of Nabi
Civacir may be associated with the elimination of virus from the blood,
prevention of acute hepatitis and the possible elimination of HCV antigen from
liver cells after experimental HCV infection. In chronically infected
chimpanzees, Nabi Civacir appears to reduce circulating levels of HCV in the
bloodstream and reduce liver disease. Nabi has manufactured a clinical lot of
Nabi Civacir and also plans to manufacture commercial lots at its Boca Raton
manufacturing facility when the product is licensed by the FDA.
9
<PAGE> 10
RENS (RING EXPANDED NUCLEOSIDES AND NUCLEOTIDES)
Nucleosides and nucleotides are the building blocks of DNA and RNA. Scientists
at the University of Maryland Baltimore County ("UMBC") and at Nabi have
developed a novel, proprietary, platform technology which permits the synthesis
of a new class of nucleoside and nucleotide analogs called Ring Expanded
Nucleosides ("RENs") and Ring Expanded Nucleotides ("RENt"). Nucleoside and
nucleotide analogs have been shown to possess anti-microbial, anti-viral and
anti-tumor activities. In addition to evaluating RENs compounds as stand alone
drugs, Nabi believes there are opportunities to evaluate use of its current
antibody based anti-virals in combination with RENs compounds.
In 1998, Nabi and UMBC were issued a U.S. patent with claims encompassing
certain RENs and RENt compounds. Nabi has exclusively licensed UMBC rights in
the patented inventions, inclusive of a pending patent application claiming
therapeutic (anti-viral/anti-tumor) uses of these analogs. A number of active
compounds have been prepared by Nabi through its collaboration with UMBC under a
series of Maryland Industrial Partnership ("MIPS") grants. A lead compound, Nabi
3700.001, has been selected for further development. In pre-clinical IN-VITRO
studies, this drug has been shown to have an acceptable toxicity profile and to
have good anti-viral activity and specificity against hepatitis B virus. Under
the license agreement Nabi is obligated to pay the UMBC a royalty based on net
sales.
OTHER PROGRAMS:
NABI(R) NICVAX(TM) (NICOTINE CONJUGATE VACCINE)
The use of tobacco products has been associated with increased risk of heart and
lung diseases and cancer worldwide. Globally, one out of three people over the
age of 15 smoke, compared to one out of four in the U.S. Smoking related medical
expenses account for about $50 billion per year and $50 billion in indirect
costs. Smoking related deaths number 400,000 each year, more than AIDS, alcohol,
drug abuse, car crashes, murders, suicides, and fires combined. Approximately
80% of those who smoke begin before they are 18, with 3,000 more starting each
day. Addiction to nicotine has been identified as one of the major factors that
prevent cigarette smokers and other tobacco users from discontinuing the
activity.
Leveraging the conjugate vaccine technology developed for its Gram-positive
program, Nabi is developing Nabi NicVAX, a vaccine to prevent and treat nicotine
addiction. Prototypic versions of the vaccine have been shown to induce high
titers of nicotine-specific antibodies in vaccinated animals. Preclinical
studies evaluating the ability of the vaccine to prevent entrance of nicotine
into the brain and to modify animal behavior in response to nicotine were
conducted during 1998 and 1999, and results have been published in a
peer-reviewed journal. Antibodies generated in response to vaccinations with
Nabi NicVAX appear to block the physiological and behavioral responses to
nicotine addiction in animal models. Nabi believes that a nicotine vaccine that
produces highly specific antibodies that bind to nicotine might also prevent
nicotine addiction in humans by blocking nicotine from reaching acetylcholine
receptors in the brain. The Company also believes that Nabi NicVAX might be an
effective product for those attempting to give up tobacco by helping to prevent
relapse into continued nicotine use. The Company has filed a patent application
on Nabi NicVAX and its uses to prevent and treat nicotine addiction. Clinical
trials on Nabi NicVAX are anticipated to begin immediately following toxicology
studies currently underway in collaboration with the National Institute on Drug
Abuse.
10
<PAGE> 11
The following is a summary of Nabi's products under development:
<TABLE>
<CAPTION>
PRODUCTS PURPOSE STATUS
-------- ------- ------
<S> <C> <C>
GRAM-POSITIVE PROGRAM:
Nabi StaphVAX Vaccine to provide long-term protection against In pivotal Phase III clinical trials
onset of staph infections in ESRD patients on hemodialysis,
completion expected in 2000
Nabi Altastaph High dose of antibodies to provide treatment or Completed Phase I/II clinical trials
immediate protection against staph infections in premature infants; scheduled for
Phase II trials in second half of
2000, subject to the timing of NIH
funding
Next generation Combat S.AUREUS, S. EPIDERMIDIS, and Enterococcal Research and pre-clinical
products bacterial infections development
(vaccines and
hyperimmune antibodies)
ANTI VIRAL PROGRAMS:
Hepatitis B Immune Antibodies administered post exposure for BLA filed with FDA December 1999
Globulin (Human) prevention of hepatitis B virus infection for product to be manufactured in
Boca Raton facility.
Prevention of hepatitis B virus reinfection in In pivotal Phase II/III clinical
liver transplant patients trials
Nabi CIVACIR Antibody to treat chronic hepatitis C virus Scheduled for Phase I/II clinical
infections and to prevent reinfection of trials in liver transplant patients
transplanted livers in patients with hepatitis 2000, subject to the timing of NIH
C liver disease funding
RENS & RENT Small molecule nucleoside and nucleotide analog Research
technology to treat viral infections and cancer.
OTHER PROGRAMS:
Nabi NicVAX Vaccine for smoking cessation and prevention and Phase I/II clinical trial
treatment of nicotine addiction anticipated to begin once toxicology
studies are completed later in 2000
</TABLE>
STRATEGIC ALLIANCES
Nabi is actively pursuing strategic alliances to assist in the development of
its product pipeline. The Company's current key strategic alliances are
discussed below.
CANGENE CORPORATION
Under a license and distribution agreement with Cangene, Nabi has exclusive
marketing rights for, and shares in the profits from, sales of WinRho SDF in the
U.S. Cangene, which holds the FDA licenses for the product, is required to
supply the necessary quantities of WinRho SDF to support such sales. The Cangene
agreement terminates in 2005 and requires Nabi, among other things, to meet
specified
11
<PAGE> 12
annual sales goals or make specified annual payments to Cangene in order to
maintain exclusivity. During 1999, Nabi continued to meet and exceed these
goals.
Cangene also manufactures Nabi-HB for the Company under an agreement with a
three-year term through March 2002. See also "Supply and Manufacturing -
Pharmaceuticals". In addition, Cangene has exclusive marketing rights for
Nabi-HB in Canada provided it meets specified sales goals. Nabi shares in the
profits from sales of Nabi-HB in Canada. The term of the Canadian marketing
agreement with Cangene for Nabi-HB is co-extensive with the term of the
manufacturing agreement for Nabi-HB.
CATALYTICA PHARMACEUTICALS
In 1999, Nabi entered into an agreement with Catalytica under which Catalytica
has granted Nabi exclusive distribution rights in the U.S. and Canada to
Aloprim, as well as global rights in territories where the license holder prior
to Catalytica (Glaxo Wellcome) has not commercialized the product. Under the
five-year agreement, Nabi will sell and Catalytica will manufacture the product
and both companies will share in profits from the sale of the product. Nabi has
the option to purchase the rights to the product at any time within five
years from the effective date of the agreement. Aloprim is not currently
approved for sale and distribution in Canada. Catalytica shall use its
commercially reasonable best efforts to acquire the sales and distribution
rights for Aloprim in Canada. The costs associated with obtaining these Canadian
sales and distribution rights will be shared equally by Catalytica and Nabi.
OTHER LICENSES
Nabi is seeking partnering opportunities to license certain of its currently
marketed products outside the U.S. with entities who have international
marketing and distribution capabilities. Under a license agreement with the PHS/
NIH, Nabi has exclusive rights to a patent relating to a carbohydrate/protein
conjugate vaccine against STAPHYLOCOCCUS, and is obligated to pay PHS a royalty
based on net sales. The licensed patent rights cover Nabi StaphVAX and Nabi
Altastaph products. The license terminates with respect to each country on the
date that the patent rights expire in such country.
CUSTOMER RELATIONSHIPS
Nabi sells its pharmaceutical products to wholesalers, distributors, and home
healthcare companies and sells its antibody products to pharmaceutical and
diagnostic manufacturers, most of which have been customers of Nabi for many
years.
Customers for antibody products to which sales exceeded 10% of Nabi's annual
consolidated sales in the last three fiscal years ending December 31, 1999 were
Baxter and Bayer Corporation. Aggregate sales of antibody products to these
customers were approximately $95 million, $89 million and $93 million, or 41%,
37% and 41% of total sales for the years ended December 31, 1999, 1998 and 1997,
respectively.
Nabi generally sells its antibody products under contracts ranging from one to
five years. Certain contracts allow for annual pricing renegotiations. Others
contain provisions that provide for fixed price increases that have been agreed
to by both parties at the inception of the contract period. Pricing for product
deliveries is generally mutually agreed to prior to the beginning of the
contract year and fixed for that year, but generally does provide for price
increases/decreases to reflect changes in customer specifications and new
governmental regulations. Consequently, Nabi's profit margins may be adversely
or beneficially affected if the cost of collecting antibody products rises or
falls during the year.
Effective July 1, 1999, Nabi entered into an agreement to supply non-specific
and anti-D antibodies to Baxter through December 31, 2004. The five and one-half
year contract is expected to generate $300 million of revenues for Nabi over the
term of the agreement. The supply agreement includes pricing adjustments and
replaces a multi-year agreement that expired at the end of fiscal 1999.
12
<PAGE> 13
SUPPLY AND MANUFACTURING
PHARMACEUTICAL PRODUCTS
Nabi has completed construction of a biopharmaceutical manufacturing facility in
Boca Raton, Florida that is designed for the manufacture, formulation,
processing and packaging of pharmaceutical products produced from specialty
antibodies collected at its U.S. centers. Nabi submitted a BLA to the FDA in
December 1999 for a hepatitis B immune globulin (human) product for post
exposure prophylaxis of hepatitis B to be manufactured in this new facility.
Nabi has manufactured clinical lots of the Hepatitis B Immune Globulin (Human)
and Civacir in this new facility.
Catalytica manufactures Aloprim for and has granted the Company exclusive
distribution rights in the U.S. and Canada under an agreement which terminates
in June 2004.
Cangene manufactures Nabi-HB for the Company under an agreement that establishes
minimum purchase quantities and terminates March 2002, although either party may
terminate the agreement upon 12 months' notice. Nabi collects and supplies the
specialty antibodies necessary for the manufacture of Nabi-HB.
Nabi is required to purchase its requirements of WinRho SDF from Cangene, which
has granted Nabi exclusive marketing rights to the product in the U.S., under an
agreement which terminates in 2005.
In 1997, Nabi acquired from Baxter the exclusive rights to Autoplex T in the
U.S., Canada and Mexico. In connection with the acquisition, Baxter agreed to
manufacture Autoplex T until May 2000 or such later time as may be determined
under the terms of a consent order entered into between Baxter and the Federal
Trade Commission ("FTC"), but in any event four months after Nabi receives
approval from the FDA to manufacture Autoplex T. The FTC could require Nabi to
return to Baxter Nabi's rights to Autoplex T if Nabi does not obtain FDA
approval to manufacture the product by May 2000 or by a later date agreed to by
the FTC. At the discretion of the FTC, the period Baxter manufactures Autoplex T
can be extended for up to four twelve-month intervals. Nabi anticipates that the
period Baxter manufactures Autoplex T under the terms of a consent order from
the FTC will be extended for the first twelve-month period through May 2001. If
the rights revert to Baxter and Baxter later sells these rights, Nabi and Baxter
will share equally the proceeds of any such sale and under certain circumstances
Baxter will be required to make a specified payment to Nabi. Nabi expects to
manufacture Autoplex T for commercial sale in its Boca Raton manufacturing
facility.
Nabi manufactures both pre-clinical and clinical lots of vaccine products under
development at its facility in Rockville, Maryland and immune globulin products
under development at its Boca Raton, Florida and Miami, Florida facilities.
Currently, Nabi does not have a commercial scale vaccine manufacturing
capability. Nabi is in the process of identifying an appropriate third party
contract-manufacturer or partner for initial commercial production of Nabi
StaphVAX .
ANTIBODY COLLECTION PROCESS
Nabi currently collects and processes antibody products from 57 collection
centers located across the U.S. Each Nabi-owned center is licensed and regulated
by the FDA. Most of Nabi's centers are located in urban areas and many are near
universities and military bases. Prospective donors are required to complete a
medical questionnaire and are subject to laboratory testing and a physical
examination under the direction or supervision of a physician. Following this
screening, antibodies are collected from suitable donors by means of a process
known as plasmapheresis. During 1999, eleven of Nabi's antibody collection
centers received Bayer Quality Awards and one center was the recipient of
Bayer's prestigious William A. Tarleton Excellence Award for 1999.
13
<PAGE> 14
PATENTS AND PROPRIETARY RIGHTS
Nabi's continued success will depend, in part, on its ability to obtain and
protect its patent rights, trade secrets and other intellectual property. Nabi
has acquired title or obtained licenses to a number of patents or patent
applications and has filed a number of patent applications of its own. During
1999, Nabi was issued two patents (U.S. Pat. Nos. 5,866,140 and 5,961,975)
containing claims covering both a S. EPIDERMIDIS vaccine and a hyperimmune
globulin made using the vaccine. See also "Factors to Be Considered -
Uncertainty of Legal Protection Afforded by Patents and Proprietary Rights".
GOVERNMENT AND INDUSTRY REGULATION
The collection, processing and sale of Nabi's products as well as its research,
preclinical development and clinical trials are subject to regulation for safety
and efficacy by numerous governmental authorities in the U.S. and other
countries, including the United Kingdom, Germany and Australia. Domestically,
the federal Food, Drug and Cosmetic Act, the Public Health Service Act, and
other federal and state statutes and regulations govern the collection, testing,
manufacture, safety, efficacy, labeling, storage, record keeping, approval,
advertising and promotion of Nabi's products.
PHARMACEUTICAL PRODUCTS
Vaccines and human polyclonal antibody products are classified as "biological
products" under FDA regulations. The steps required before a biological product
may be marketed in the U.S. generally include preclinical studies and the filing
of an Investigational New Drug ("IND") application with the FDA, which must be
accepted by the FDA before human clinical studies may commence. After human
clinical studies, the FDA must approve a Biologics License Application/New Drug
Application ("BLA"/"NDA"). In addition to approving each product, the FDA must
approve the manufacturing facilities for the product. Biological products, once
approved, have no provision allowing competitors to market generic versions.
Each biological product must undergo the entire development process in order to
be approved.
Preclinical studies are conducted to evaluate the potential safety and efficacy
of a product. The results of preclinical studies are submitted as part of the
IND application, which must be approved by the FDA before human clinical trials
may begin. The initial human clinical evaluation, called a Phase I trial,
generally involves administration of a product to a small number of normal
healthy volunteers to test for safety. Phase II trials involve administration of
a product to a limited number of patients with a particular disease to determine
dosage and safety, as well as provide indications of efficacy. Phase III trials
examine the efficacy and safety of a product in an expanded patient population
at geographically dispersed clinical sites. The FDA reviews the clinical plans
and the results of trials and can discontinue the trials at any time if there
are significant safety issues.
The results of all trials are submitted in the form of a BLA/NDA for approval to
commence commercial sales. For BLA/NDA approval, the FDA requires, among other
things, that the prospective manufacturer's methods conform to the agency's
current Good Manufacturing Practice ("cGMP") regulations, which must be followed
at all times. In complying with standards set forth in these regulations,
manufacturers must continue to expend time, money and effort in the area of
production and quality control to ensure full regulatory compliance. The
approval process is affected by several factors, including the severity of the
disease, the availability of alternative treatments, and the risks and benefits
demonstrated in clinical trials. The FDA also may require post-marketing
surveillance to monitor potential adverse effects of the product. The regulatory
process can be modified by Congress or the FDA in specific situations.
ANTIBODY PRODUCTS
The collection, storage and testing of antibody based products is regulated by
the FDA. Any person operating a plasma collection facility in the U.S. must have
an Establishment License and individual
14
<PAGE> 15
Product Licenses issued by the FDA and each collection facility must be
inspected and approved by the FDA. In the future, the Establishment License
Application ("ELA") and Product License Application ("PLA") will be replaced by
a single application, the BLA. Nabi holds Establishment Licenses and Product
Licenses issued by the FDA covering all Nabi-owned collection centers located in
the U.S. In addition, collection centers require FDA approval to collect each
specialty antibody product. Nabi is also subject to and is required to be in
compliance with applicable regulatory requirements of the foreign countries
where it exports products.
Nabi continually pursues its commitment to quality and compliance with
applicable FDA regulations and other regulatory requirements through its own
internal training and quality assurance programs. As part of its commitment to
quality, Nabi has embraced the Quality Plasma Program ("QPP") which was
initiated by the American Blood Resources Association, an industry group that
establishes standards for plasmapheresis centers. QPP imposes standards for
plasmapheresis centers in addition to those presently required by the FDA. QPP
certification is proving increasingly significant, because many customers will
only purchase antibodies that have been collected in QPP certified centers. All
of Nabi's domestic-owned centers are QPP certified centers.
ORPHAN DRUG ACT
Under the Orphan Drug Act, the FDA may designate a product as having Orphan Drug
status to treat a "rare disease or condition," which currently is defined as a
disease or condition that affects populations of less than 200,000 individuals
in the U.S., or, if victims of a disease number more than 200,000, for which the
sponsor establishes that it does not realistically anticipate its product sales
in the U.S. will be sufficient to recover its costs. If a product is designated
an Orphan Drug, the sponsor is entitled to receive certain incentives to
undertake the development and marketing of the product. In addition, the sponsor
that obtains the first marketing approval for a designated Orphan Drug for a
given indication effectively has marketing exclusivity for a period of seven
years. There may be multiple designations of Orphan Drug status for a given drug
and for different indications. However, only the sponsor of the first BLA/NDA
approved for a given drug for its use in treating a given rare disease may
receive marketing exclusivity. WinRho SDF and Aloprim have received Orphan Drug
protection, WinRho SDF for the treatment of ITP through 2002, and Aloprim for
treatment of chemotherapy induced hyperuricemia through 2003. See also "Factors
to Be Considered - Uncertainty of Orphan Drug Designation".
OTHER
Nabi's Miami-based FDA-certified testing laboratory is licensed by the State of
Florida agency for Health Care Administration, and the states of Maryland, New
York, and Pennsylvania. The laboratory also has testing permits from California
and West Virginia. The laboratory is licensed pursuant to Medicare regulations
and regulations of the U.S. Health Care Finance Administration's Clinical
Laboratory Improvement Act of 1988. Nabi is currently seeking ISO 9001
certification for the laboratory.
COMPETITION
PHARMACEUTICAL PRODUCTS
Nabi believes that Nabi-HB has achieved a significant share of the domestic
market and that Nabi's access to the vaccines and specialty antibodies necessary
for the manufacture of Nabi-HB will allow it to maintain its market share. See
also "Supply and Manufacturing - Pharmaceutical Products".
Nabi believes that WinRho SDF has a significant and growing share of the
domestic market for ITP treatment. Competing therapeutic modalities include the
use of steroids, intravenous immune globulins ("IVIG"), and splenectomy (a
surgical procedure to remove the spleen).
Autoplex T competes in the anti-inhibitor segment of the hemophilia A
marketplace. Autoplex T and other competitive agents are used to treat patients
that have developed inhibitors (an immunity) to Factor
15
<PAGE> 16
VIII, the standard therapy for people suffering from hemophilia A. There are two
pharmaceutical products currently on the market that compete with Autoplex T.
Aloprim is the only intravenous indication that competes in the allopurinol
market for leukemia, lymphoma and solid organ tumor patients that have
chemotherapy-induced hyperuricemia. Specifically, Aloprim, being an intravenous
agent, can also be used in patients who have difficulty swallowing oral
allopurinol due to their cancer status.
ANTIBODY PRODUCTS
Nabi and other independent suppliers of antibody products sell these products
principally to pharmaceutical companies that process this raw material into
finished products. Although these pharmaceutical companies generally own
plasmapheresis centers, in the aggregate, they purchase a substantial portion of
their antibody requirements from independent suppliers. There is competition
among these independent suppliers. Nabi attempts to compete for sales by
maintaining competitive pricing and by providing customers with high-quality
products and superior customer service. Management believes Nabi has the ability
to continue to compete successfully in these areas.
Nabi competes for donors with pharmaceutical companies that obtain antibodies
for their own use through their own collection centers, other commercial
collectors of antibody products, and non-profit organizations such as the
American Red Cross and community blood banks which solicit donations of whole
blood. Nabi competes for donors by providing competitive compensation and
outstanding donor service, by implementing programs to attract donors through
education as to the uses for collected antibodies, by encouraging groups to have
their members become antibody donors for fund raising purposes and by improving
the attractiveness of Nabi's collection facilities.
EMPLOYEES
Nabi employed 1,746 persons at December 31, 1999. Nabi believes that the
relations between Nabi's management and its employees are generally good.
FACTORS TO BE CONSIDERED
This Annual Report on Form 10-K contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Statements in
this Annual Report on Form 10-K that are not historical facts are hereby
identified as "forward-looking statements" for the purpose of the safe harbor
provided by Section 21E of the Securities and Exchange Act of 1934 and Section
27A of the Securities Act of 1933. Words such as "estimate", "project", "plan",
"intend", "expect", "believe" and similar expressions are intended to identify
forward-looking statements. All forward-looking statements are necessarily only
estimates of future results and there can be no assurance that actual results
will not differ materially from expectations, and, therefore, investors are
cautioned not to place undue reliance on such statements. Set forth below is a
discussion of certain factors which could cause Nabi's actual results to differ
materially from the results projected or suggested in such forward-looking
statements. Investors should understand that it is not possible to predict or
identify all such factors and that this list should not be considered a complete
statement of all potential risks and uncertainties. Nabi undertakes no
obligation to update any forward-looking statements as a result of future events
or developments.
UNCERTAINTY OF NEW PRODUCT DEVELOPMENT
Nabi's future success will depend on its ability to achieve scientific and
technological advances and to translate such advances into commercially
competitive products on a timely basis. Nabi's pharmaceutical products under
development are at various stages, and substantial further development,
preclinical testing and clinical trials will be required to determine their
technical feasibility and commercial viability. The proposed development
schedules for these products may be affected by a variety of factors, including
technological difficulties, competition, failure to achieve desired results in
clinical trials, proprietary technology positions of others, reliance on third
parties for manufacturing, failure to market
16
<PAGE> 17
effectively and changes in government regulation. Positive results for a product
in a clinical trial do not necessarily assure that positive results will be
obtained in future clinical trials or that government approval to commercialize
the product will be obtained. In addition, any delay in the development,
introduction or marketing of Nabi's products under development could result
either in such products being marketed at a time when their cost and performance
characteristics would not be competitive in the marketplace or in a shortening
of their commercial lives. There can be no assurance that Nabi's pharmaceutical
products under development will prove to be technologically feasible,
commercially viable and able to obtain necessary regulatory approvals and
licenses on a timely basis, if at all. Nabi's failure to successfully develop
and commercialize in a timely manner its pharmaceutical products and obtain
necessary regulatory approvals could have a material adverse effect on Nabi's
future operations. In particular, Nabi's failure to obtain the statistically
significant results for Nabi StaphVAX required for FDA approval may have a major
impact on market valuation.
COSTS OF RESEARCH AND DEVELOPMENT
Nabi has incurred and expects to continue incurring significant expenses
associated with its pharmaceutical product development activities, including the
cost of clinical trials relating to product development and marketing expenses
relating to product introduction. Products under development may not generate
revenues for several years or at all. Nabi currently does not have the financial
resources to concurrently fund all of its pharmaceutical product development
programs. Nabi has elected to focus on its product development activities
relating to Nabi StaphVAX and clinical support for Nabi's currently marketed
products. Nabi is actively pursuing strategic alliances to assist in the
development and commercialization of its pharmaceutical products. There can be
no assurance that Nabi's efforts will be successful, and if they are not, Nabi
will not be able to continue to aggressively develop its early stage products.
Nabi's ability to continue to fund its ongoing research and development
activities will be dependent on its ability to generate revenues from its
pharmaceutical products or obtain financing. There can be no assurance,
therefore, that Nabi will be able to continue to fund its research and
development activities at the current level and if Nabi is required to further
reduce the funding for its research and development activities, this could have
a material adverse effect on Nabi's future prospects.
COMPETITIVE MARKET FOR PHARMACEUTICAL PRODUCTS
Nabi's currently marketed pharmaceutical products compete with those of other
companies. Most of these companies have greater financial resources, research
and product development capabilities and marketing organizations than Nabi. In
order to successfully develop additional pharmaceutical products, additional
expenditures, management resources and time will be required. Nabi may need to
supplement its own sales efforts through the use of a partner. If Nabi so
elects, there can be no assurance that Nabi will be able to find a partner on
acceptable terms or at all, or that any such partner will be successful in its
efforts. If Nabi succeeds in bringing one or more products to market, it will
compete with many other companies that may have extensive and well-funded
marketing and sales operations. Nabi's failure to successfully market new
pharmaceutical products could have a material adverse effect on Nabi's business,
financial condition and results of operations.
RISK WITH RESPECT TO CERTAIN EXISTING PRODUCTS
Nabi could lose its exclusive marketing rights to WinRho SDF if it fails to
achieve specified performance criteria including sales goals and compensatory
payments. Pursuant to the terms under which Nabi acquired its rights to Autoplex
T from Baxter, the FTC could require Nabi to return to Baxter Nabi's rights to
Autoplex T if Nabi does not obtain FDA approval to manufacture the product by
May 2000 or a later date agreed to by the FTC. Nabi will not obtain FDA approval
to manufacture Autoplex T by May 2000 and is seeking an extension from the FTC.
Although Nabi believes it will receive the extension, there can be no assurance
that it will be granted by the FTC. Loss of exclusive marketing rights to market
WinRho SDF or rights to Autoplex T would have an adverse effect on Nabi's
business, financial condition and results of operations.
17
<PAGE> 18
The future capability of Nabi to produce high potency anti-HBs antibodies will
be directly dependent on the availability of a suitable vaccine to stimulate the
antibody response in donors. Nabi is currently utilizing a human plasma source
vaccine for donor stimulation. The supply of the vaccine, which is no longer
manufactured, is expected to be exhausted in the next few years. Based on
studies conducted to date with currently licensed alternative vaccines
manufactured using recombinant technology, Nabi has been unable to identify a
comparable replacement for the human source vaccine. Nabi's cost of production
of hepatitis B immune globulin will significantly increase if the currently
licensed vaccines remain the only alternative for stimulation of antibody
production in donors.
ADDITIONAL FINANCING REQUIREMENTS AND ACCESS TO CAPITAL
Nabi's outstanding debt matures in 2002 and 2003. To satisfy these obligations,
Nabi may need to raise additional capital to repay the debt or restructure the
outstanding debt. In addition, Nabi may need to raise additional capital to
increase funding of its product research, development and marketing activities
and to support capital expenditures. Nabi intends to seek additional funding
through public or private equity or debt financing, collaborative arrangements
with strategic partners or from other sources. There can be no assurance,
however, that additional financing will be available on acceptable terms, if at
all. If adequate funds are not available, Nabi will have to defer certain
investments in the areas of research, product development, manufacturing or
marketing activity, or otherwise modify its business strategy, and its business
and future prospects could be materially and adversely affected.
UNCERTAINTY OF MARKET ACCEPTANCE
There can be no assurance that any of Nabi's products in development will
achieve market acceptance. The degree of market acceptance will depend upon a
number of factors, including the receipt of regulatory approvals, the
establishment and demonstration in the medical community of the clinical
efficacy and safety of Nabi's products and their potential advantages over
existing treatment methods, the prices of such products, and reimbursement
policies of government and third party payers. The failure of Nabi's product
pipeline to gain market acceptance could have a material adverse effect on
Nabi's business, financial condition and results of operations.
FACTORS AFFECTING ANTIBODY PRODUCTS SUPPLY AND DEMAND; UNCERTAINTY OF
TECHNOLOGICAL CHANGE
Nabi's customers for antibody products, including itself in the cases of Nabi
Altastaph and Civacir, are subject to extensive regulation by the FDA. Failure
by these customers to comply with FDA regulations can lead to temporary closure
of their manufacturing facilities. Cutbacks in the customers' production would
reduce the need for antibodies provided by Nabi and impact its revenues. Plant
closures and cutbacks in customers' production because of regulatory problems
have occurred in recent years, and Nabi's financial performance has been
adversely affected as a result thereof. There can be no assurance that these
customer regulatory problems, which are not within Nabi's control, will not
re-occur with the same adverse impact on Nabi.
Concern over the safety of antibody products has resulted in the adoption of
more rigorous screening procedures by regulatory authorities and manufacturers
of antibody products. These changes resulted in increased cost to Nabi in
providing non-specific and specialty antibodies to its customers. New
procedures, which include a more extensive investigation into a donor's
background and new tests, have also disqualified numerous potential donors and
discouraged other donors who may be reluctant to undergo the screening
procedures. These more stringent measures, particularly when coupled with a
period of low unemployment nationally, could adversely affect Nabi's antibody
production with a corresponding adverse effect on Nabi's business, financial
condition and results of operations. In addition, Nabi's efforts to increase
production to meet customer demand have resulted in higher costs to attract and
retain donors.
Most of the antibody products Nabi collects, processes and sells to its
customers are used in the manufacture of therapeutic products to treat certain
diseases. Several companies are marketing and developing products to treat some
of these diseases based upon technology which would lessen or
18
<PAGE> 19
eliminate the need for human antibodies. Such products could adversely affect
the demand for antibody products. Products utilizing technology developed to
date have not proven as cost-effective and marketable to healthcare providers as
products based on human antibodies. However, Nabi is unable to predict the
impact on its business of future technological advances.
The worldwide supply of plasma has fluctuated historically. Future changes in
government regulation relating to the collection and use of antibodies, its
fractionation or any negative public perception about the antibody collection
process or the safety of products derived from blood or plasma could further
adversely affect the overall supply of or demand for antibodies. Increases in
supply or decreases in demand of antibody products could have a material adverse
effect on Nabi's business, financial condition and results of operations.
GOVERNMENT REGULATION; UNCERTAINTY OF REGULATORY APPROVALS
Nabi's research, preclinical development, clinical trials, manufacturing and
marketing of its products are subject to extensive regulation by various
government authorities in the U.S. The process of obtaining FDA and other
required regulatory approvals is lengthy and expensive, and the time required
for such approvals is uncertain. The approval process is affected by such
factors as the severity of the disease, the availability of alternative
treatments, and the risks and benefits demonstrated in clinical trials. The FDA
also may require post-marketing surveillance to monitor potential adverse
effects of the product. The regulatory process can be modified by Congress or
the FDA in specific situations. Many of Nabi's clinical trials are at a
relatively early stage and, except for Nabi-HB, WinRho SDF, Autoplex T, Aloprim
and certain non-specific and specialty antibody products, no approval from the
FDA or any other government agency for the manufacturing or marketing of any of
its products under development has been granted. There can be no assurance that
Nabi will be able to obtain the necessary approvals for manufacturing or
marketing of any of its products. Failure to obtain additional FDA approvals of
products currently marketed or FDA approval for products under development could
have a material adverse effect on Nabi's future business, financial condition
and results of operations. If a product is approved, its failure to comply with
applicable regulatory requirements could, among other things, result in fines,
suspension or revocation of regulatory approvals, product recalls or seizures,
operating restrictions, injunctions and criminal prosecutions.
Distribution of Nabi's products outside the U.S. is subject to extensive
government regulation. These regulations, including the requirements for
approvals or clearance to market, the time required for regulatory review and
the sanctions imposed for violations, vary from country to country. There can be
no assurance that Nabi will obtain regulatory approvals in such countries or
that it will not be required to incur significant costs in obtaining or
maintaining its foreign regulatory approvals. In addition, the export by Nabi of
certain of its products that have not yet been cleared for domestic commercial
distribution may be subject to FDA export restrictions. Failure to obtain
necessary regulatory approvals, the restriction, suspension or revocation of
existing approvals or any other failure to comply with regulatory requirements
would have a material adverse effect on Nabi's business, financial condition and
results of operations.
Nabi's U.S. antibody collection, storage, labeling and distribution activities
also are subject to strict regulation and licensing by the FDA. Nabi's
collection centers in the U.S. are subject to periodic inspection by the FDA,
and from time to time Nabi receives notices of deficiencies from the FDA as a
result of such inspections. Nabi's failure or the failure of its collection
centers to continue to meet regulatory standards or to remedy any such
deficiencies could result in corrective action by the FDA, including closure of
one or more collection centers and fines or penalties. In addition, before new
antibody collection centers are opened, the collection centers and their
procedures and personnel must meet certain regulatory standards to obtain
necessary licenses. New regulations may be enacted and existing regulations or
their interpretation or enforcement are subject to change. Therefore, there can
be no assurance that Nabi will be able to continue to comply with any
regulations or that the costs of such compliance will not have a material
adverse effect on Nabi's business, financial condition and results of
operations.
19
<PAGE> 20
DEPENDENCE UPON THIRD PARTIES TO MANUFACTURE PRODUCTS; LIMITED MANUFACTURING
CAPABILITY AND EXPERIENCE
Nabi does not currently manufacture any of its marketed pharmaceutical products
and is dependent upon third parties to manufacture these products for Nabi. The
failure by Nabi's manufacturers to meet Nabi's needs for these products or
delays in the receipt of deliveries could have a material adverse effect on
Nabi's business, financial condition and results of operations. Nabi has
constructed a biopharmaceutical manufacturing facility that is designed to allow
Nabi to manufacture, formulate and package pharmaceutical products. Nabi
submitted a BLA for licensure for a product manufactured in the Boca Raton
facility to the FDA in December 1999. No assurance can be given that Nabi will
be able to obtain such licensure, and failure to obtain such licensure on a
timely basis, or at all, would have a material adverse effect on business,
financial condition and results of operations. The new facility is designed to
process specialty antibodies into pharmaceutical products. However, Nabi has not
previously owned or operated such a facility and has no direct experience in
commercial, large-scale manufacturing of pharmaceutical products. There can be
no assurance that when FDA licensure is received, Nabi will have sufficient
product to manufacture so that the facility can be operated efficiently and
profitably. Further, there can be no assurance that when the facility is ready
for its intended use Nabi will have product to manufacture, either on its own
behalf or on behalf of third parties, to offset the cost of the facility's
operation. Nabi's failure to successfully operate its new manufacturing facility
would have a material adverse effect on Nabi's business, financial condition and
results of operations.
Nabi anticipates that the facility will be able to produce Nabi-HB for
commercial sale in 2001, but there can be no assurance that Nabi will be able to
do so. However, Nabi expects to have an adequate supply of Nabi-HB based on its
manufacturing agreement with Cangene that expires in 2002. Moreover,
manufacturing products at a single site may present risks if a disaster (such as
a fire or hurricane) causes interruption of manufacturing capability. In such an
event, Nabi will have to resort to alternative sources of manufacturing that
could increase its costs as well as result in significant delays while required
regulatory approvals are obtained. Any such delays or increased costs could have
a material adverse effect on Nabi's business, financial condition and results of
operations.
Nabi's research and development pipeline principally involves specialty
vaccines. In order to obtain FDA approval to market these vaccines, Nabi must be
able to demonstrate that it has FDA-licensed facilities to manufacture the
vaccines. Nabi currently does not have such facilities. Nabi's failure to
develop an acceptable manufacturing capability in a timely manner will adversely
impact the timing of an FDA submission and FDA approval to sell the vaccines on
a commercial basis. Although Nabi is discussing arrangements with third parties,
there can be no assurance that Nabi will be able to enter into agreements on
terms acceptable to Nabi.
POTENTIAL ADVERSE EFFECT OF LITIGATION
Antibody products collected by Nabi and products using these antibody products
manufactured by Nabi's customers run the risk of being HIV-contaminated. As a
result, suits may be filed against Nabi's customers and Nabi claiming that the
plaintiffs became infected with HIV as a result of using the HIV-contaminated
products. Such suits have been filed in the past, and in a number of suits Nabi
was one of several defendants. With the exception of one suit which is still
pending, all of these suits have been dismissed without liability to Nabi. No
assurance can be given that additional lawsuits relating to infection with HIV
will not be brought against Nabi by persons who have become infected with HIV or
from plasma fractionates. In addition, there can be no assurance that lawsuits
based on other causes of action will not be filed or that Nabi will be
successful in the defense of any or all existing or potential future lawsuits.
Defense of suits can be expensive and time-consuming, regardless of the outcome,
and an adverse result in one or more suits, could have a material adverse effect
on Nabi's business, financial condition and results of operations.
20
<PAGE> 21
RISK OF PRODUCT LIABILITY; LIMITED INSURANCE
The processing and sale of Nabi's products involves a risk of product liability
claims, and Nabi currently is a party to litigation involving such claims. In
addition, there can be no assurance that infectious diseases will not be
transmitted by Nabi's products and create additional product liability claims.
Product liability insurance for the biopharmaceutical industry generally is
expensive to the extent it is available at all. There can be no assurance that
Nabi will be able to maintain such insurance on acceptable terms or that it will
be able to secure increased coverage if the commercialization of its products
progresses, or that existing or future claims against Nabi will be covered by
Nabi's product liability insurance. Moreover, there can be no assurance that the
existing coverage of Nabi's insurance policy and/or any rights of
indemnification and contribution that Nabi may have will offset existing or
future claims. A successful claim against Nabi with respect to uninsured
liabilities or in excess of insurance coverage and not subject to any
indemnification or contribution could have a material adverse effect on Nabi's
business, financial condition and results of operations.
STRATEGIC ALLIANCES
Nabi is pursuing strategic alliances with third parties for the development of
certain of its pharmaceutical products. No assurance can be given that Nabi will
be successful in these efforts or, if successful, that the collaborators will
conduct their activities in a timely manner. If Nabi is not successful in its
efforts, Nabi will not be able to continue to aggressively develop its early
stage products. Even if Nabi is successful, if any of Nabi's collaborative
partners violate or terminate their agreements with Nabi or otherwise fail to
conduct their collaborative activities in a timely manner, the development or
commercialization of products could be delayed, and Nabi might be required to
devote significant additional resources to product development and
commercialization or terminate certain development programs. In addition, there
can be no assurance that disputes will not arise in the future with respect to
the ownership of rights to any technology developed with third parties. These
and other possible disagreements between collaborators and Nabi could lead to
delays in the collaborative research, development or commercialization of
certain products or could require or result in litigation or arbitration, which
would be time-consuming and expensive, and could have a material adverse effect
on Nabi's business, financial condition and results of operations.
UNCERTAINTY OF LEGAL PROTECTION AFFORDED BY PATENTS AND PROPRIETARY RIGHTS
The patent positions of biotechnology firms generally are highly uncertain and
involve complex legal and factual questions. There can be no assurance that
existing patent applications will result in issued patents, that Nabi will be
able to obtain additional licenses to patents of others or that Nabi will be
able to develop additional patentable technology of its own. Because patent
applications in the U.S. are not disclosed by the Patent and Trademark Office
until patents issue, and because publication of discoveries in the scientific or
patent literature often lags behind actual discoveries, Nabi cannot be certain
that it was the first creator of inventions covered by its pending patent
applications or that it was the first to file patent applications for such
inventions. There can be no assurances that any patents issued to Nabi will
provide it with competitive advantages or will not be challenged by others.
Furthermore, there can be no assurance that others will not independently
develop similar products, or, if patents are issued to Nabi, design around such
patents.
A number of pharmaceutical companies, biotechnology companies, universities and
research institutions have filed patent applications or received patents
relating to products or processes competitive with or similar to those of Nabi.
Some of these applications or patents may be competitive with Nabi's
applications or conflict in certain respects with claims made under Nabi's
applications. Such a conflict could result in a significant reduction of the
coverage of Nabi's patents, if issued. In addition, if patents that contain
competitive or conflicting claims are issued to others and such claims are
ultimately determined to be valid, Nabi may be required to obtain licenses to
these patents or to develop or obtain alternative technology. If any licenses
are required, there can be no assurance that Nabi will be able to obtain any
such licenses on commercially favorable terms, if at all. Nabi's failure to
obtain a license to any technology that it may require to commercialize its
products could have a material adverse effect on Nabi's business, financial
condition and results of operations. Litigation, which could result in
substantial
21
<PAGE> 22
cost to Nabi, may also be necessary to enforce any patents issued to Nabi or to
determine the scope and validity of third party proprietary rights.
Nabi also relies on secrecy to protect its technology, especially where patent
protection is not believed to be appropriate or obtainable. Nabi maintains
strict controls and procedures regarding access to and use of its proprietary
technology and processes. However, there can be no assurance that these controls
or procedures will not be violated, that Nabi would have adequate remedies for
any violation, or that Nabi's trade secrets will not otherwise become known or
be independently discovered by competitors.
UNCERTAINTY OF ORPHAN DRUG DESIGNATION
If a product is designated an Orphan Drug by the FDA, the sponsor is entitled to
receive certain incentives to undertake the development and marketing of the
product. In addition, the sponsor that obtains the first marketing approval for
a designated Orphan Drug for a given indication effectively has marketing
exclusivity for a period of seven years. There may be multiple designations of
Orphan Drug status for a given drug with different indications. However, only
the sponsor of the first approved BLA/NDA for a given drug indication in
treating a given rare disease may receive marketing exclusivity. While it may be
advantageous to obtain Orphan Drug status for eligible products, there can be no
assurance that the precise scope of protection that is currently afforded by
Orphan Drug status will be available in the future or that the current level of
exclusivity will remain in effect. Congress has considered legislation that
would amend the Orphan Drug Act to limit the scope of marketing exclusivity
granted to Orphan Drug products. WinRho SDF has received Orphan Drug marketing
exclusivity for the treatment of ITP (and has obtained Orphan Drug status for
certain other indications) and certain other of Nabi's products under
development have Orphan Drug status. Aloprim has received Orphan Drug status for
the treatment of chemotherapy induced hyperuricemia. There can be no assurance
that Nabi will succeed in obtaining Orphan Drug marketing exclusivity for
products that have Orphan Drug status or that Orphan Drug marketing exclusivity
with respect to WinRho SDF or other products, if obtained, will be of material
benefit to Nabi. Furthermore, another manufacturer could obtain an Orphan Drug
designation as well as approval for the same product for a different indication
or a different product for the same indication.
INTENSE COMPETITION; UNCERTAINTY OF TECHNOLOGICAL CHANGE
Competition in the development of biopharmaceutical products is intense, both
from biotechnology and pharmaceutical companies, and is expected to increase.
Many of Nabi's competitors have greater financial resources and larger research
and development staffs than Nabi, as well as substantially greater experience in
developing products, obtaining regulatory approvals, and manufacturing and
marketing pharmaceutical products. Competition with these companies involves not
only product development, but also acquisition of products and technologies from
universities and other institutions. Nabi also competes with universities and
other institutions in the development of pharmaceutical products, technologies
and processes and for qualified scientific personnel. There can be no assurance
that Nabi's competitors will not succeed in developing technologies and products
that are more effective or affordable than those being developed by Nabi. In
addition, one or more of Nabi's competitors may achieve product
commercialization of or patent protection for competitive products earlier than
Nabi, which would preclude or substantially limit sales of Nabi's products.
Further, several companies are attempting to develop and market products to
treat certain diseases based upon technology that would lessen or eliminate the
need for human antibodies. The successful development and commercialization by
any of Nabi's competitors of any such product could have a material adverse
effect on Nabi's business, financial condition and results of operations.
Nabi competes for antibody donors with pharmaceutical companies, other
independent antibody suppliers, other commercial collection companies and
non-profit organizations such as the American Red Cross and community blood
banks that solicit the donation of blood. A number of these competitors have
access to greater financial, marketing and other resources than Nabi. Nabi
competes for donors by offering financial incentives to donors to compensate
them for their time and inconvenience, providing outstanding customer service to
its donors, implementing programs designed to attract donors
22
<PAGE> 23
through education as to the uses for collected antibodies, encouraging groups to
have their members become antibodies donors and improving the attractiveness of
Nabi's antibodies collection facilities. Nabi also competes with other
independent antibody suppliers that sell antibodies principally to
pharmaceutical companies that process antibodies into finished products. If Nabi
is unable to maintain and expand its donor base, its business, financial
condition and results of operations will be materially and adversely affected.
DEPENDENCE ON SMALL NUMBER OF CUSTOMERS FOR SIGNIFICANT ANTIBODY PRODUCT SALES
Nabi's antibody sales are currently concentrated among a few large
pharmaceutical companies. During the 1999, 1998 and 1997 fiscal years, antibody
product sales to Nabi's top two customers collectively accounted for
approximately 41%, 37% and 41%, respectively, of Nabi's consolidated sales. Only
these top two customers purchased more than 10% of our consolidated sales in any
such period. The loss of any major customer or a material reduction in a major
customer's purchases of antibodies could have a material adverse effect upon
Nabi's business, financial condition and results of operations.
UNCERTAINTY OF PRODUCT PRICING AND REIMBURSEMENT
Nabi's ability to commercialize its pharmaceutical products and related
treatments will be dependent in part upon the availability of, and Nabi's
ability to obtain, adequate levels of reimbursement from government health
administration authorities, private healthcare insurers and other organizations.
Significant uncertainty exists as to the reimbursement status of newly approved
healthcare products, and there can be no assurance that adequate third party
coverage will be available, if at all. Inadequate levels of reimbursement may
prohibit Nabi from maintaining price levels sufficient for realization of an
adequate return on its investment in developing new pharmaceutical products and
could result in the termination of production of otherwise commercially viable
products. Government and other third party payers are increasingly attempting to
contain healthcare costs by limiting both the coverage and level of
reimbursement for new products approved for marketing by the FDA and by
refusing, in some cases, to provide any coverage for disease indications for
which the FDA has not granted marketing approval. Also, the trend towards
managed healthcare in the U.S. and the concurrent growth of organizations such
as HMOs, which could control or significantly influence the purchase of
healthcare services and products, as well as legislative proposals to reform
healthcare or reduce government insurance programs, may all result in lower
prices for Nabi's products. The cost containment measures that healthcare
providers are instituting and the impact of any healthcare reform could have an
adverse effect on Nabi's ability to sell its products and may have a material
adverse effect on Nabi's business, financial condition and results of
operations.
There can be no assurance that reimbursement in the U.S. or foreign countries
will be available for Nabi's products, or, if available, will not be decreased
in the future, or that reimbursement amounts will not reduce the demand for, or
the price of, Nabi's products. The unavailability of third party reimbursement
or the inadequacy of the reimbursement for medical treatments using Nabi's
products could have a material adverse effect on Nabi's business, financial
condition and results of operations. Moreover, Nabi is unable to forecast what
additional legislation or regulation, if any, relating to the healthcare
industry or third party coverage and reimbursement may be enacted in the future
or what effect such legislation or regulation would have on Nabi's business.
Most of Nabi's antibody product sales are made pursuant to contracts having
initial terms ranging from one to five years. These contracts generally provide
for annual pricing renegotiations. The pricing generally remains fixed for the
first year and subsequently is subject to price changes to reflect changes in
customer specifications or price adjustments to compensate Nabi for increased
costs associated with new governmental or customer testing requirements. As a
result, Nabi's business, financial condition and results of operations would be
adversely affected if its costs of collecting and preparing antibodies rise
during a given year and Nabi is not able to pass on the increased costs until
the next annual pricing re-negotiation.
23
<PAGE> 24
ITEM 2. PROPERTIES
A majority of the space occupied by Nabi is primarily used to collect antibody
products and is leased from non-affiliates under leases expiring through 2010.
A majority of these leases contain renewal options that permit Nabi to renew the
leases for varying periods up to ten years at the then fair rental value. Nabi
believes that in the normal course of its business it will be able to renew or
replace its existing leases. Nabi also owns four collection facilities located
in Arizona, Indiana, Minnesota and Washington. Nabi's collection centers range
in size from approximately 3,000 to 21,000 square feet.
Nabi leases office, laboratory, warehouse and pilot manufacturing space in
Miami, Florida and Rockville, Maryland.
Nabi owns a facility that houses its executive offices and its biopharmaceutical
manufacturing facility in Boca Raton, Florida. Nabi will commence commercial
manufacturing in this location after it obtains FDA licensure.
ITEM 3. LEGAL PROCEEDINGS
Nabi is a party to litigation in the ordinary course of business. Nabi does not
believe that any such litigation will have a material adverse effect on its
business, financial position or results of operations.
In addition, Nabi is a co-defendant with various other parties in one suit filed
in the U.S. by, or on behalf of, individuals who claim to have been infected
with HIV as a result of either using HIV-contaminated products made by the
defendants other than Nabi or having familial relations with those so infected.
The claims against Nabi are based on negligence and strict liability. Several
similar suits previously pending against Nabi, including a purported class
action, have been dismissed.
Nabi denies all claims against it in these suits and intends to defend these
cases vigorously. Nabi believes that any such litigation will not have a
material adverse effect on its business, financial position or results of
operations.
24
<PAGE> 25
ITEM 3A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Nabi are as follows:
NAME AGE POSITION
- ---- --- --------
DAVID J. GURY 61 Chairman of the Board, President and
Chief Executive Officer
BRUCE K. FARLEY 49 Senior Vice President, Manufacturing Operations
THOMAS H. MCLAIN 42 Senior Vice President, Corporate Services
and Chief Financial Officer
DAVID D. MUTH 46 Senior Vice President, Business Operations
ROBERT B. NASO, PH.D. 55 Senior Vice President, Quality, Regulatory
and Product Development
MARK L. SMITH 38 Senior Director of Finance and
Chief Accounting Officer
DAVID J. GURY has served as Nabi's Chairman of the Board, President and Chief
Executive Officer since April 3, 1992. Previously, since May 21, 1984, he was
Nabi's President and Chief Operating Officer. He has been a director of Nabi
since 1984.
BRUCE K. FARLEY has served as Senior Vice President, Manufacturing Operations
since February 1999, when he joined Nabi. Previously, Mr. Farley was Executive
Vice President and Chief Operating Officer of Meris Laboratories, where he led
the Company through a strategic reorganization and sale. From 1983 to 1996, he
was employed by Laboratory Corporation of America (formerly National Health
Laboratories) in numerous positions of increasing general management and
operational responsibility as Vice President, Divisional Manager Northwest
(Seattle), Vice President, Chief Operating Officer, Esoteric and Drugs of Abuse
Testing (Nashville), Divisional Manager, California (San Diego), and Regional
Manager (Houston).
THOMAS H. MCLAIN has served as Senior Vice President, Corporate Services and
Chief Financial Officer of Nabi since June 1998. Previously, from 1988 to 1998,
Mr. McLain was employed by Bausch & Lomb, Inc. where, as Staff Vice President,
Business Process Reengineering, he led a cross functional team to restructure
the global finance and purchasing organizations. He also held various positions
of increasing responsibility in finance at Bausch & Lomb, including Staff Vice
President, Accounting and Reporting and Assistant Corporate Controller. Before
joining Bausch & Lomb, Mr. McLain practiced with the accounting firm of Ernst &
Young.
DAVID D. MUTH has served as Senior Vice President of Business Operations since
March 1998. Since November 1996, he was Senior Vice President of Sales,
Marketing and Business Development and responsible for growing Nabi's
pharmaceutical business. Mr. Muth joined Nabi in August 1996 as the Senior Vice
President of Business Development. Previously, he was Senior Vice President of
Business Development at Duramed Pharmaceuticals, Inc. from February 1995 to May
1996. From 1978 to 1995, Mr. Muth was employed at Johnson and Johnson where he
held numerous positions of increasing responsibility in business development,
sales, marketing, new product development and finance at the Corporate
Headquarters in New Brunswick, New Jersey, at Ethicon Inc. in Sommerville, New
Jersey and at Ortho McNeil Pharmaceuticals in Raritan, New Jersey.
25
<PAGE> 26
ROBERT B. NASO, PH.D. has served as Senior Vice President Quality, Regulatory
and Product Development, since August 1998. He joined Nabi in November 1995 as
Senior Vice President, Research and Development and General Manager, Rockville
Operations. Previously, he was Vice President of Research at Univax Biologics,
Inc. beginning in May 1992, and became Vice President of Research and
Development in October 1994. From 1983 to 1992, Dr. Naso was employed at Johnson
and Johnson where he held various positions of increasing responsibility in
research and development.
MARK L. SMITH has served as Senior Director of Finance and Chief Accounting
Officer since joining the Company in August 1999. Prior to joining the Company,
Mr. Smith served as Vice President of Finance and Chief Financial Officer of
Neuromedical Systems, Inc. where he played a leadership role in that company's
strategic restructuring and sale. Prior to joining Neuromedical Systems, Mr.
Smith served in various financial executive capacities at Genzyme Corporation
from 1996 until 1998 and as Vice President of Finance and Administration and
Chief Financial Officer of Genetrix, Inc. from 1991 until 1996. Before joining
Genetrix, Mr. Smith practiced with the accounting firm of PricewaterhouseCoopers
in both Australia and the U.S.
26
<PAGE> 27
NABI
- --------------------------------------------------------------------------------
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Nabi's common stock is quoted on the Nasdaq National Market under the symbol
"NABI." The following table sets forth for each period the high and low sale
prices for the common stock (based upon intra-day trading) as reported by the
Nasdaq National Market.
HIGH LOW
--------------------------
1999
- ------------------------------------------------------------------------------
First Quarter 4 2 1/2
Second Quarter 3 5/8 2 13/32
Third Quarter 6 2 13/16
Fourth Quarter 5 7/8 3 1/16
1998
- ------------------------------------------------------------------------------
First Quarter 4 7/8 2 5/8
Second Quarter 4 1/2 2 21/32
Third Quarter 3 3/4 1 7/8
Fourth Quarter 3 7/16 1
The closing price of Nabi common stock on February 29, 2000 was $11 per share.
The number of record holders of Nabi's common stock at December 31, 1999 was
1,430.
No cash dividends have been previously paid on Nabi's common stock and none are
anticipated in 2000. Nabi's credit agreement also restricts dividend payments.
27
<PAGE> 28
ITEM 6. SELECTED FINANCIAL DATA - FIVE YEARS ENDED DECEMBER 31, 1998
The following table sets forth selected consolidated financial data for Nabi for
the five years ended December 31, 1999 that were derived from Nabi's audited
consolidated financial statements. On November 29, 1995, Univax, a publicly
traded biopharmaceutical company, was merged with and into Nabi in a tax-free,
stock-for-stock transaction. The merger was accounted for as a pooling of
interests and accordingly, all prior period financial information has been
combined.
The data should be read in conjunction with, and are qualified by reference to,
Nabi's Consolidated Financial Statements and the Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations". All
amounts in the following table are expressed in thousands, except for per share
data.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales $233,603 $243,087 $228,744 $239,909 $195,928
Cost of products sold 163,407 178,366 180,533 181,914 152,148
-------- -------- -------- -------- --------
Gross profit 70,196 64,721 48,211 57,995 43,780
Selling, general and administrative expense 33,282 31,151 25,012 21,095 26,816
Research and development expense 15,469 21,822 19,126 16,721 20,132
Royalty expense 13,739 10,946 6,617 5,253 3,490
Freight and amortization 1,905 2,169 3,087 3,757 3,015
Non-recurring (credit) charges (1,935) 14,605 5,680 -- --
-------- -------- -------- -------- --------
Operating income (loss) 7,736 (15,972) (11,311) 11,169 (9,673)
Interest income 74 48 272 1,275 1,064
Interest expense (4,313) (5,681) (4,712) (3,987) (1,931)
Other, net (110) (105) (70) (511) (334)
-------- -------- -------- -------- --------
Income (loss) before income taxes and extraordinary charge 3,387 (21,710) (15,821) 7,946 (10,874)
(Provision) benefit for income taxes (43) (47) 4,668 6,214 (6,687)
-------- -------- -------- -------- --------
Income (loss) before extraordinary charge 3,344 (21,757) (11,153) 14,160 (17,561)
Extraordinary charge -- -- -- (932) --
-------- -------- -------- -------- --------
Net income (loss) $ 3,344 $(21,757) $(11,153) $ 13,228 $(17,561)
======== ======== ======== ======== ========
Basic earnings (loss) per share:
Income (loss) before extraordinary charge $ 0.10 $ (0.62) $ (0.32) $ 0.41 $ (0.52)
Extraordinary charge -- -- -- (0.03) --
-------- -------- -------- -------- --------
Net income (loss) $ 0.10 $ (0.62) $ (0.32) $ 0.38 $ (0.52)
======== ======== ======== ======== ========
Diluted earnings (loss) per share:
Income (loss) before extraordinary charge $ 0.09 $ (0.62) $ (0.32) $ 0.40 $ (0.52)
Extraordinary charge -- -- -- (0.03) --
-------- -------- -------- -------- --------
Net income (loss) $ 0.09 $ (0.62) $ (0.32) $ 0.37 $ (0.52)
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 35,999 $ 41,964 $ 63,933 $ 63,530 $ 14,690
Total assets 214,162 218,300 225,906 202,142 137,975
Notes payable, including current maturities 112,998 118,044 121,081 83,465 42,894
Total stockholders' equity 58,177 54,189 75,663 86,061 69,442
</TABLE>
28
<PAGE> 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of Nabi's financial condition and results
of operations for each of the three years ended December 31, 1999, 1998, and
1997, should be read in conjunction with the Consolidated Financial Statements
and Notes thereto and with the information contained under "Factors to be
Considered" in Item 1. All amounts are expressed in thousands, except for per
share data.
Nabi is nearing completion of a multi-year transition from being a leading
provider of antibody products to other pharmaceutical manufacturers to becoming
a fully integrated biopharmaceutical company, developing, manufacturing and
marketing its own products for the prevention and treatment of infections
diseases and immunological disorders. Nabi has a portfolio of marketed products
and significant research and development capabilities that are focused on the
development and commercialization of products that prevent and treat infectious
and autoimmune diseases. Nabi currently has several clinical trials underway in
these areas and has four marketed pharmaceutical products.
RESULTS OF OPERATIONS
The following table sets forth Nabi's results of operations expressed as a
percentage of sales:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
RESULTS OF OPERATIONS
Sales 100.0% 100.0% 100.0%
Cost of products sold 70.0% 73.4% 78.9%
----- ----- -----
Gross profit margin 30.0% 26.6% 21.1%
Selling, general and administrative expense 14.2% 12.8% 10.9%
Research and development expense 6.6% 9.0% 8.4%
Royalty expense 5.9% 4.5% 2.9%
Other operating expense 0.8% 0.9% 1.3%
Non-recurring charges (0.8)% 6.0% 2.5%
----- ----- -----
Operating income (loss) 3.3% (6.6)% (4.9)%
Interest income 0.0% 0.0% 0.0%
Interest expense (1.9)% (2.3)% (2.0)%
Other, net (0.0)% (0.0)% (0.0)%
----- ----- -----
Income (loss) before (provision) benefit for income taxes 1.4% (8.9)% (6.9)%
(Provision) benefit for income taxes (0.0)% (0.0)% 2.0%
----- ----- -----
1.4% (8.9)% (4.9)%
===== ===== =====
</TABLE>
29
<PAGE> 30
Information concerning Nabi's sales by industry segment, for the respective
periods, is set forth in the following table. All dollar amounts set forth in
the table are expressed in thousands.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------
SEGMENT 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pharmaceutical Products $71,112 30.4% $54,983 22.6% $34,470 15.0%
Antibody Products:
-Non-specific antibodies 109,316 46.8 133,141 54.8 135,331 59.2
-Specialty antibodies 53,175 22.8 54,963 22.6 58,943 25.8
------------ ------------ ------------- ----------- ------------ ----------
162,491 69.6 188,104 77.4 194,274 85.0
------------ ------------ ------------- ----------- ------------ ----------
TOTAL $233,603 100.0% $243,087 100.0% $228,744 100.0%
============ ============ ============= =========== ============ ==========
</TABLE>
1999 AS COMPARED TO 1998
SALES. Nabi's strategy is to shift the mix of revenues from low-margin
non-specific antibody products to higher margin specialty antibody and
pharmaceutical products. While total sales for 1999 decreased by $9.5 million,
or 4%, from 1998, pharmaceutical sales increased as a percentage of total sales
to 30.4% in 1999 from 22.6% of revenues in 1998. Pharmaceutical sales increased
by approximately $16 million or 29% from 1998, reflecting the successful launch
of Nabi-HB in March 1999, which contributed to 47% of the pharmaceutical sales
increase; increased sales of WinRho SDF attributable to higher volumes shipped
to distributors and improved pricing, which resulted in 36% of the
pharmaceutical sales increase; and the launch of Aloprim in June 1999,
representing 14% of the pharmaceutical sales increase. During the third quarter
of 1998, Nabi had exhausted the remaining inventory of H-BIG, the predecessor
product to Nabi-HB.
Total antibody sales decreased by 14% from 1998. Non-specific antibody sales
decreased 18%, reflecting lower production volumes. This was attributable to two
major factors. First, Nabi sold six of its U.S. centers in April 1999 and
transferred its German antibody collection operations to a third party in the
fourth quarter. Second, the Company experienced a decline in antibody
collections on a same store basis. The Company believes low unemployment levels
and the increasing impact of regulations limiting donor eligibility have
contributed to these lower collection levels. Specialty antibody sales decreased
slightly (3%), reflecting lower revenues for laboratory services, diagnostic
products, and anti-D and RSV antibodies, partially offset by increased sales of
other specialty products, including anti-CMV, tetanus, hepatitis B and rabies.
GROSS PROFIT MARGIN. The strategic transition of Nabi's business from
low-margin, non-specific antibodies to high-margin pharmaceutical products and
specialty antibody products continued in 1999. As a result, despite a 4%
decrease in sales, gross profit for 1999 was $70.2 million or 30.0% of sales,
compared to $64.7 million or 26.6% of sales in 1998. The increase in gross
profit margin resulted from an improved sales mix of higher-margin
pharmaceutical products, offset by the effects of reduced margins on lower
non-specific and specialty antibody sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense was $33.3 million or 14.2% of sales in 1999, compared to $31.2 million
or 12.8% of sales in 1998. The increase reflects higher advertising expenses and
costs to expand the Company's sales force to drive increased pharmaceutical
product sales and support the launches of Nabi-HB and Aloprim. 1999 expenses
also include systems costs related to Nabi's Year 2000 readiness efforts. The
increase was partially offset by the cost benefits associated with
reorganizational measures initiated in the first half of 1998.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was $15.5
million or 6.6% of sales in 1999, compared to $21.8 million or 9.0% of sales in
1998. In 1998, Nabi incurred significant expenditures related to the advancement
of clinical trials and the submission of the PLA for Nabi-HB, which was approved
by the FDA in March 1999. In 1999, Nabi reduced pre-clinical product development
activities at its Rockville, Maryland site, and focused its ongoing research and
development efforts on
30
<PAGE> 31
the Gram-positive program, including Nabi StaphVAX, and support for
currently marketed products. At the same time, the Company is actively seeking
corporate and government partners to fund the significant cost of further
development for the products at earlier stages in Nabi's extensive research and
development pipeline.
ROYALTY EXPENSE. Nabi has entered into various royalty and profit-sharing
agreements requiring royalty payments related to specified pharmaceutical
product sales. Royalty expense was $13.7 million, or 19.3% of pharmaceutical
sales in 1999, compared to $10.9 million, or 19.9% of pharmaceutical sales in
1998. Royalty expense decreased as a percentage of pharmaceutical revenue due to
a recent agreement limiting the amount of royalties to be paid on sales of
Nabi-HB in 1999 and 2000. Royalty obligations related to WinRho SDF shall
decrease in 2000 through the termination of the agreement due to achieving
profitability milestones.
NON-RECURRING CREDIT AND CHARGES. During the fourth quarter of 1998, Nabi's
Board of Directors approved a plan to sell or close certain antibody collection
centers and actions to reduce pre-clinical product development activities at the
Company's Rockville, Maryland facility. Results for 1998 included approximately
$14.6 million for non-recurring charges. The 1998 charges were comprised of
restructuring ($13.0 million) and litigation ($1.6 million) costs. In February
1999, the Company reduced staff levels at its Rockville facility, thereby
eliminating 35 positions as a result of the restructuring. During 1999, the
Company sold or closed seven U.S. antibody collection centers out of the eight
centers specified in the original plan. Resolution of the contemplated actions
relating to the remaining antibody collection center is expected to be completed
by the end of the third quarter of 2000.
As part of the plan to restructure Nabi's antibody operations, the Company made
a provision in 1998 for the cost of the planned shut-down of its German antibody
collection operations, which was determined likely to occur at that time.
However, in the third quarter of 1999, Nabi was able to reach an agreement to
transfer those operations to a third party. As a result, Nabi avoided estimated
cash expenses for severance and future lease costs amounting to $1.9 million and
accordingly recognized a non-recurring credit in that amount.
INTEREST EXPENSE. Interest expense for 1999 was $4.3 million, compared to $5.7
million in 1998. The decrease in interest expense is attributable to both higher
amounts of capitalized interest and lower average outstanding bank borrowings
during 1999. Capitalized interest relating primarily to construction of Nabi's
biopharmaceutical manufacturing facility in Boca Raton, Florida was
approximately $4.7 million for 1999 as compared to $3.8 million for 1998.
OTHER FACTORS. The provision for income taxes was $43,000 for 1999, compared to
$47,000 in 1998. The 1.3% effective tax rate for 1999 differs from the statutory
rate of 35% due to the tax benefit from the transfer of Nabi's German operations
to a third party and from a reduction in the valuation allowance relating to the
Company's deferred tax assets which had been previously reserved.
1998 AS COMPARED TO 1997
SALES. Sales for 1998 increased by $14.3 million, or 6%, to $243.1 million
compared to $228.7 million for 1997. The increase was primarily attributable to
a substantial increase in pharmaceutical sales based on strong demand for WinRho
SDF and Autoplex T. Pharmaceutical sales in 1998 also included sales of H-BIG
during the first three fiscal quarters until Nabi essentially exhausted its
inventory of this product. Nabi's successor product, Nabi-HB, was launched
immediately after the announcement of FDA approval on March 25, 1999. This
significant improvement in pharmaceutical sales was offset by a 3% decrease in
antibody product sales. Certain high-margin specialty antibody sales increased
during 1998, such as anti-D and hepatitis B, but these revenue gains were more
than offset by decreased market demand for other lower margin specialty antibody
products. While non-specific antibody shipments increased in 1998, sales
declined due to lower pricing under contracts which were negotiated in late 1997
when there was a general disruption in the plasma industry. Antibody product
revenues
31
<PAGE> 32
also benefited from a short-term opportunity to provide laboratory testing
services for a plasma fractionator during 1998.
GROSS PROFIT MARGIN. Gross profit and related margin for 1998 was $64.7 million
or 26.6%, compared to $48.2 million or 21.1% in 1997. The significant
improvement in the gross profit margin resulted from increased contribution from
sales of high-margin pharmaceutical products and certain high-margin specialty
antibodies, offset by the effects of reduced margins earned on non-specific
antibody sales. Gross profits and related margins on antibody product sales were
adversely impacted by several factors in 1998: lower contract prices for
non-specific antibodies, higher fees paid to donors to increase production to
meet demand, higher costs to meet new regulatory and quality requirements and
underabsorption of fixed overhead as a result of reduced production levels. The
impact of these factors was partially offset by a reduction in certain expenses
associated with process improvement initiatives within antibody operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense was $31.2 million or 12.8% of sales in 1998, compared to $25.0 million
or 10.9% of sales in 1997. The increase was primarily attributable to the
expansion of the Company's sales force and promotional activity expenses
associated with increasing pharmaceutical product sales. In addition,
incremental expenditures were incurred in 1998 associated with ongoing support
of new information systems that were implemented enterprise wide in mid 1997.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was $21.8
million or 9% of sales in 1998, compared to $19.1 million or 8.4% of sales in
1997. The increase in expenses relates primarily to the higher costs associated
with the advancement of clinical trials for Nabi-HB, Nabi StaphVAX and Nabi
Altastaph.
ROYALTY EXPENSE. Royalty expense is directly related to pharmaceutical sales.
The Company incurred $10.9 million of royalty expense, or 19.9% of
pharmaceutical sales in 1998, compared to $6.6 million, or 19.2% of
pharmaceutical sales in 1997. This increase in expense is attributable to higher
sales of pharmaceutical products.
NON-RECURRING CHARGES. Results for 1998 include approximately $14.6 million of
non-recurring charges. The 1998 charges were comprised of certain restructuring
costs ($13.0 million) and costs relating to litigation ($1.6 million). During
the fourth quarter of 1998, Nabi's management determined that certain
restructuring initiatives were necessary to sharpen the Company's focus and to
improve overall profitability and cash flow. As part of this process, management
and the Board of Directors re-examined each of the Company's business segments
with a view towards strategic optimization. While sales of antibody products
were essentially flat year over year, there was considerable margin pressure in
this segment of the Company's overall business. To address this problem, the
Company decided to pursue a shift in its revenue mix towards higher margin
specialty antibody products and streamline its production of non-specific
antibodies.
Nabi also determined its own product development spending needs to be focused on
clinical trials and marketing programs for currently marketed and late
development stage pharmaceutical products. As a result of these decisions, the
Company will decrease its rate of internal spending on preclinical research
activities in 1999 and reduced staff accordingly at its Rockville, Maryland
facility in February 1999. Also included in the restructuring charge is the
write-off of the Company's vaccine pilot plant in Maryland.
The additional non-recurring charge of $1.6 million relates to management's
estimate of the Company's costs incurred in connection with its ongoing
litigation with the general contractor for the Boca Raton, Florida manufacturing
facility. This litigation was initiated by Nabi.
INTEREST EXPENSE. Interest expense for 1998 was $5.7 million, compared to $4.7
million in 1997. The increase was primarily attributable to higher average
outstanding borrowings as compared to 1997. Capitalized interest relating
primarily to construction of Nabi's biopharmaceutical manufacturing facility in
32
<PAGE> 33
Boca Raton, Florida during 1998 was approximately $3.8 million as compared to
$2.4 million during 1997.
OTHER FACTORS. The provision for income taxes was $47,000 for 1998, compared to
a benefit of $4.7 million in 1997. The benefit for 1997 relates to the refund of
income taxes previously paid on taxable income in prior years. The effective tax
rate differs from the statutory rate of 35% due primarily to the establishment
of a valuation allowance for net operating loss carryforwards generated in 1998.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, Nabi's credit agreement provided for a revolving credit
facility of up to $45 million subject to certain borrowing base restrictions,
and a $5 million term loan. The credit agreement matures in September 2002.
Borrowings under the revolving credit and term loan agreement totaled $32.5
million at December 31, 1999 as compared to $37.5 million at December 31, 1998,
and additional availability was approximately $7.4 million at December 31, 1999.
The credit agreement is secured by substantially all of Nabi's assets, requires
the maintenance of certain financial covenants and prohibits the payment of
dividends.
Effective February 1, 2000, Nabi amended its credit agreement retroactively to
December 31, 1999. The amendment provided for the amendment of certain current
and future financial covenants, a reduction of certain excess credit facility
requirements, and the extension of the maturity of the term loan to be
concurrent with that of the revolving credit agreement, September 2002. The
amendment requires monthly principal payments of $83,333 on the term loan
commencing May 1, 2000, continuing through the expiration of the agreement at
which time the remaining balance is due in full.
As of December 31, 1999, Nabi's current assets exceeded current liabilities by
$36 million as compared to a net working capital position of $42 million at
December 31, 1998. Cash and cash equivalents at December 31, 1999 were $0.8
million compared to $1 million at December 31, 1998. The primary source of cash
during 1999 was operations, including the positive effect of non-cash
adjustments to net income for the year, reductions of trade receivables, and
increases in trade payables and accrued expenses. Net cash provided by operating
activities was $23.3 million representing an improvement of $5.1 million from
1998. The primary uses of cash during 1999 were capital expenditures,
principally associated with the Company's manufacturing facility in Boca Raton,
Florida, and a $5 million reduction of borrowings under the revolving credit
agreement.
Projected capital expenditures for 2000 include costs associated with the Boca
Raton, Florida manufacturing facility, including capitalized interest, the
development of Nabi StaphVAX manufacturing capability with a third party
contract-manufacturer or partner, the development of information systems and
related expenditures, and antibody collection center renovations. Nabi believes
that cash flow from operations and its available bank credit facilities will be
sufficient to meet its anticipated cash requirements for 2000. The Company is
also in the process of seeking additional cash to fund the development of its
pharmaceutical product pipeline from strategic alliances and may seek additional
funding from new or existing credit facilities and equity placements.
YEAR 2000
During 1998, a cross-functional team was established to address Year 2000
readiness for key financial and operational computer systems, equipment
(including lab equipment), information and business systems and external
supplier and customer relationships. The Company established a program to
address Year 2000 issues which focused on Nabi's business critical processes and
had four overlapping phases: Phase I, the identification and assessment of
systems, equipment and business relationships; Phase II, the testing of Year
2000 readiness for internal systems and equipment and the inquiry/audit of Year
2000 readiness for external suppliers and customers; Phase III, the remediation
or replacement of equipment or business relationships that would not be Year
2000 compliant/ready, including re-testing as required; and Phase IV,
contingency planning to mitigate the potential effect of problems which might be
so deeply embedded in the identified business critical processes that they are
beyond the Company's
33
<PAGE> 34
reasonable ability to identify and control. The Company utilized both internal
and external resources in its Year 2000 readiness efforts.
Prior to year end, Nabi completed its Year 2000 readiness efforts for business
critical processes including the Desktop Computer Installation and Donor
Management System (DMS) implementation referenced in the Company's Form 10-Q,
filed in November 1999. The total project cost to achieve Year 2000 readiness is
estimated at $3 million dollars, including expense and capital expenditures,
not all of which were incremental to the Company's operations. These
expenditures have primarily been incurred during 1998 and 1999, however, some
cost will be expended in 2000. These costs have been funded by a combination of
operating cash flows, bank credit facilities, and operating lease agreements.
Approximately 25% of Nabi's 1999 information technology planned expenditures
were directly attributable to Year 2000 remediation efforts. Year 2000 related
expenditures were approximately $0.8 million in the fourth quarter of 1999 and
$2.3 million for the twelve months ended December 31, 1999.
Nabi will continue to communicate with business critical suppliers and customers
as necessary and monitor new developments throughout year 2000. At this time the
company is not aware of any negative impact on its operations from the Year 2000
problem. However, given the nature of the Year 2000 problem, there can be no
absolute assurance that the Company's efforts have been fully successful. If
they have not, the Company's operations or financial condition may be materially
and adversely affected in the future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and information required by Item 8 are listed in the
Index, presented as Item 14, and included herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On September 15, 1999, the Company filed a current report on Form 8-K,
reporting under Item 4 thereof, a change in the Registrant's Certifying
Accountant. This Form 8-K is hereby incorporated by reference.
34
<PAGE> 35
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this Item and not already provided in Item 3A will
be contained in Nabi's Proxy statement, which Nabi intends to file within 120
days following Nabi's fiscal year end, December 31, 1999, and such information
is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item will be contained in Nabi's Proxy
Statement which Nabi intends to file within 120 days following Nabi's fiscal
year end, December 31, 1999, and such information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item will be contained in Nabi's Proxy
Statement which Nabi intends to file within 120 days following Nabi's fiscal
year end, December 31, 1999, and such information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item will be contained in Nabi's Proxy
Statement which Nabi intends to file within 120 days following Nabi's fiscal
year end, December 31, 1999, and such information is incorporated herein by
reference.
35
<PAGE> 36
NABI
- --------------------------------------------------------------------------------
SIGNATURES
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 on this 10th day of March,
2000.
NABI
By: /s/ David Gury
-------------------------------------
David J. Gury
Chairman of the Board, President and
Chief Executive Officer
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 capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- -----
<S> <C> <C>
/s/ David J. Gury Chairman of the Board, March 10, 2000
- -------------------------------------------- President, Chief Executive Officer
David J. Gury
/s/ Thomas McLain Senior Vice President, Corporate March 10, 2000
- -------------------------------------------- Services and Chief Financial Officer
Thomas H. McLain
/s/ Mark Smith Chief Accounting Officer, March 10, 2000
- -------------------------------------------- Senior Director of Finance
Mark L. Smith
/s/ David Castaldi Director March 10, 2000
- --------------------------------------------
David L. Castaldi
/s/ Joseph Cook Director March 10, 2000
- --------------------------------------------
Joseph C. Cook, Jr.
/s/ George Ebright Director March 10, 2000
- --------------------------------------------
George W. Ebright
/s/ Richard Harvey Director March 10, 2000
- --------------------------------------------
Richard A. Harvey, Jr.
/s/ Linda Jenckes Director March 10, 2000
- --------------------------------------------
Linda Jenckes
/s/ David Thompson Director March 10, 2000
- --------------------------------------------
David A. Thompson
</TABLE>
36
<PAGE> 37
NABI
- --------------------------------------------------------------------------------
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following consolidated financial statements of Nabi and its subsidiaries are
included pursuant to Item 8 hereof.
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Report of Management.................................................................................38
Reports of Independent Certified Public Accountants...............................................39-40
Consolidated Balance Sheets at December 31, 1999 and 1998............................................41
Consolidated Statements of Operations for the years ended December 31, 1999, 1998
and 1997.............................................................................................42
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997.....................................................................43
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998
and 1997.............................................................................................44
Notes to Consolidated Financial Statements...........................................................45
(a) (2) FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts and Reserves.........................................62
All other schedules omitted are not required, inapplicable or the
information required is furnished in the financial statements or notes therein.
(a) (3) EXHIBITS..............................................................................................63
(b) REPORTS ON FORM 8-K
</TABLE>
On November 29, 1999, the Company filed a current report on Form 8-K, reporting
under Item 8 thereof, a change in fiscal year beginning fiscal 2000.
37
<PAGE> 38
NABI
- --------------------------------------------------------------------------------
REPORT OF MANAGEMENT
The following consolidated financial statements of Nabi were prepared by the
Company's management, which is responsible for their reliability and
objectivity. The statements have been prepared in conformity with accounting
principles generally accepted in the U.S. and, as such, include amounts based on
informed estimates and judgments of management with consideration given to
materiality. Financial information elsewhere in this annual report is consistent
with that in the consolidated financial statements.
Management is further responsible for maintaining a system of internal controls
to provide reasonable assurance that Nabi's books and records reflect the
transactions of the Company; that assets are safeguarded; and that management's
established policies and procedures are followed. Management systematically
reviews and modifies the system of internal controls to improve its
effectiveness. The internal control system is augmented by the communication of
accounting and business policies throughout the Company; the careful selection,
training and development of qualified personnel; the delegation of authority and
establishment of responsibilities.
Independent accountants are engaged to audit the consolidated financial
statements of the Company and issue a report thereon. They have informed
management and the audit committee of the Board of Directors that their audits
were conducted in accordance with auditing standards generally accepted in the
U.S., which require a review and evaluation of internal controls to determine
the nature, timing and extent of audit testing. The Reports of Independent
Certified Public Accountants are included in this report.
The recommendations of the independent certified public accountants are reviewed
by management. Control procedures have been implemented or revised as
appropriate to respond to these recommendations. In management's opinion, as of
December 31, 1999, the internal control system was functioning effectively and
accomplished the objectives discussed herein.
/s/ David Gury Chairman of the Board,
- ------------------------------ President, Chief Executive Officer
David J. Gury
/s/ Thomas McLain Senior Vice President, Corporate
- ------------------------------ Services and Chief Financial Officer
Thomas H. McLain
/s/ Mark Smith Chief Accounting Officer,
- ------------------------------ Senior Director of Finance
Mark L. Smith
38
<PAGE> 39
NABI
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of Nabi
We have audited the accompanying consolidated balance sheet of Nabi and
subsidiaries as of December 31, 1999, and the related consolidated statements of
operations, changes in stockholder's equity, and cash flows for the year then
ended. Our audit also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Nabi and
subsidiaries as of December 31, 1999, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Ernst & Young LLP
- ---------------------------
ERNST & YOUNG LLP
Miami, Florida
February 16, 2000
39
<PAGE> 40
NABI
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of Nabi
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a) (1) and (2) present fairly, in all material
respects, the financial position of Nabi and its subsidiaries at December 31,
1998, and the results of their operations and their cash flows for each of the
two years in the period ended December 31, 1998, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of Nabi's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of Nabi for any period subsequent
to December 31, 1998.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Miami, Florida
March 26, 1999
40
<PAGE> 41
NABI
PART I Financial Information
Item 1 Financial Statements
- -------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998
- --------------------------------------------- ----------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 806 $ 1,016
Trade accounts receivable, net 34,019 40,029
Inventories, net 35,932 38,203
Prepaid expenses and other current assets 7,747 6,227
--------- ---------
TOTAL CURRENT ASSETS 78,504 85,475
PROPERTY, PLANT AND EQUIPMENT, NET 109,138 99,018
OTHER ASSETS:
Goodwill, net 13,236 16,165
Intangible assets, net 6,028 7,032
Other, net 7,256 10,610
--------- ---------
TOTAL ASSETS $ 214,162 $ 218,300
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 16,025 $ 14,964
Accrued expenses 25,776 28,466
Notes payable 704 81
--------- ---------
TOTAL CURRENT LIABILITIES 42,505 43,511
NOTES PAYABLE 112,294 117,963
OTHER 1,186 2,637
--------- ---------
TOTAL LIABILITIES 155,985 164,111
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Convertible preferred stock, par value $.10 per share:
5,000 shares authorized; no shares outstanding -- --
Common stock, par value $.10 per share: 75,000 shares authorized;
34,961 and 34,903 shares issued and outstanding, respectively 3,496 3,490
Capital in excess of par value 138,071 137,911
Accumulated deficit (83,390) (86,734)
Accumulated other comprehensive loss -- (478)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 58,177 54,189
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 214,162 $ 218,300
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
41
<PAGE> 42
NABI
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997
- --------------------------------------------- --------- -------- ---------
<S> <C> <C> <C>
Sales $ 233,603 $ 243,087 $ 228,744
COSTS AND EXPENSES:
Costs of products sold 163,407 178,366 180,533
Selling, general and administrative expense 33,282 31,151 25,012
Research and development expense 15,469 21,822 19,126
Royalty expense 13,739 10,946 6,617
Freight and amortization 1,905 2,169 3,087
Non-recurring (credit) charges (1,935) 14,605 5,680
--------- --------- ---------
OPERATING INCOME (LOSS) 7,736 (15,972) (11,311)
INTEREST INCOME 74 48 272
INTEREST EXPENSE (4,313) (5,681) (4,712)
OTHER, NET (110) (105) (70)
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 3,387 (21,710) (15,821)
(PROVISION) BENEFIT FOR INCOME TAXES (43) (47) 4,668
--------- --------- ---------
NET INCOME (LOSS) $ 3,344 ($ 21,757) ($ 11,153)
========= ========= =========
BASIC EARNINGS (LOSS) PER SHARE $ 0.10 ($ 0.62) ($ 0.32)
========= ========= =========
DILUTED EARNINGS (LOSS) PER SHARE $ 0.09 ($ 0.62) ($ 0.32)
========= ========= =========
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 34,934 34,885 34,737
========= ========= =========
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 35,841 34,885 34,737
========= ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
42
<PAGE> 43
NABI
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
COMMON STOCK WARRANTS CAPTIAL IN OTHER
----------------- ---------------- EXCESS OF ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
(IN THOUSANDS) SHARES AMOUNT SHARES AMOUNT PAR VALUE DEFICIT INCOME (LOSS) EQUITY
- -------------- ------ ------ ------ ------ --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER
31, 1996 34,614 $3,461 100 $ -- $136,525 ($53,824) ($102) $ 86,060
Comprehensive loss:
Net loss for the
year
Foreign currency -- -- -- -- -- (11,153) -- (11,153)
translation adjustments -- -- -- -- -- -- (518) (518)
--------
Total comprehensive loss -- -- -- -- -- -- -- (11,671)
Stock options exercised 185 19 -- -- 427 -- -- 446
Tax benefit from stock
options exercised -- -- -- -- 477 -- -- 477
Other 2 -- -- -- 351 -- -- 351
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31,
1997 34,801 3,480 100 -- 137,780 (64,977) (620) 75,663
Comprehensive loss:
Net loss for the year -- -- -- -- -- (21,757) -- (21,757)
Foreign currency
translation adjustments -- -- -- -- -- -- 142 142
--------
Total comprehensive loss -- -- -- -- -- -- -- (21,615)
Stock options exercised 97 10 -- -- 105 -- -- 115
Tax benefit from stock
options exercised -- -- -- -- 5 -- -- 5
Other 5 -- -- -- 21 -- -- 21
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER
31, 1998 34,903 3,490 100 -- 137,911 (86,734) (478) 54,189
Comprehensive income:
Net income for the
year -- -- -- -- -- 3,344 -- 3,344
Write-down of cumulative
foreign currency
translation adjustments
related to the transfer
of German operations to
a third party -- -- -- -- -- -- 478 478
--------
Total comprehensive income -- -- -- -- -- -- -- 3,822
Stock options exercised 42 4 -- -- 85 -- -- 89
Tax benefit from stock
options exercised -- -- -- -- 32 -- -- 32
Other 16 2 -- -- 43 -- -- 45
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER
31, 1999 34,961 $3,496 100 $ -- $138,071 ($83,390) $ -- $58,177
==================================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
43
<PAGE> 44
NABI
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
(AMOUNTS IN THOUSANDS) 1999 1998 1997
- ---------------------- -------- -------- ---------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,344 ($21,757) ($11,153)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 10,128 11,502 9,856
Non-recurring (credit) charges (1,935) 13,039 5,680
Provision for slow-moving or obsolete inventory 2,235 2,936 1,023
Deferred income taxes -- -- 2,503
Other (22) 459 1,179
Change in assets and liabilities:
Trade accounts receivable 6,146 (3,949) 1,066
Inventories 35 2,248 (16,119)
Prepaid expenses and other assets (895) 9,912 (12,259)
Other assets (43) 1,298 (2,633)
Accounts payable and accrued liabilities 4,271 2,520 (4,769)
-------- -------- --------
Total adjustments 19,920 39,965 (14,473)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 23,264 18,208 (25,626)
-------- -------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from maturity of short-term investments -- -- 8,850
Proceeds from sale of centers 2,518 -- --
Capital expenditures (21,036) (18,931) (36,367)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (18,518) (18,931) (27,517)
-------- -------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
(Repayments) borrowings under line of credit, net (5,002) (1,783) 34,246
Repayments of term debt -- (261) (614)
Borrowings under term debt -- 5,000 --
Other debt (43) (4,729) 3,949
Proceeds from the exercise of options 89 115 446
-------- -------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (4,956) (1,658) 38,027
-------- -------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (210) (2,381) (15,116)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,016 3,397 18,513
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 806 $ 1,016 $ 3,397
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 8,232 $ 8,336 $ 6,295
======== ======== ========
Income taxes (refunded) paid, net ($ 103) ($ 7,645) $ 350
======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
44
<PAGE> 45
NABI
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 BUSINESS AND ORGANIZATION
Nabi is nearing completion of a multi-year transition from being a leading
provider of antibody products to other pharmaceutical manufacturers to becoming
a fully integrated biopharmaceutical company, developing, manufacturing and
marketing its own products for the prevention and treatment of infectious
diseases and immunological disorders. Nabi has a portfolio of marketed products
and significant research and development capabilities that are focused on the
development and commercialization of products that prevent and treat infectious
and autoimmune diseases. Nabi currently has several clinical trials underway in
these areas and has four marketed pharmaceutical products.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Nabi and its subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
ACCOUNTING ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
BASIS OF PRESENTATION: Certain items in the 1998 and 1997 consolidated financial
statements have been reclassified to conform to the current year's presentation.
All dollar amounts are expressed in thousands of dollars except amounts related
to per share data.
REVENUE RECOGNITION: Revenue is recognized when title and risk of loss are
transferred to the customer. Cash collections in excess of amounts earned on
billings are recorded as deferred revenue and recognized as services are
rendered or products are shipped.
RESEARCH AND DEVELOPMENT EXPENSE: Research and development costs are expensed as
incurred. Amounts payable to third parties under collaborative product
development agreements are recorded at the earlier of the milestone achievement
or as payments become contractually due.
ADVERTISING COSTS: The Company accounts for advertising costs under guidance set
forth in Statement of Position 93-7, "Reporting on Advertising Costs," which
allows the Company to defer costs associated with the production of media
advertising for major new campaigns until the time the advertising first takes
place. Once the advertising is publicly released for the first time, all related
deferred costs must be expensed. Other advertising costs are expensed as
incurred. Deferred advertising costs of $545 are recorded as other current
assets as of December 31, 1999. Advertising expenses for the years ended
December 31, 1999, 1998, and 1997 amounted to $3,418, $2,340, and $1,484,
respectively.
EARNINGS PER SHARE: Basic earnings per share are determined based on the
weighted average number of common shares outstanding during the year. Diluted
earnings per share are determined based on the weighted average number of common
shares and potentially dilutive securities outstanding during the year.
FINANCIAL INSTRUMENTS: The carrying amounts of financial instruments including
cash and cash equivalents, short-term investments, accounts receivable, accounts
payable and short-term debt approximated fair value as of December 31, 1999 and
1998, because of the relatively short maturity of these instruments.
45
<PAGE> 46
CASH EQUIVALENTS & SHORT-TERM INVESTMENTS: Cash equivalents consist of money
market funds and bankers acceptances with maturities of three months or less.
Short-term investments consist of securities issued or guaranteed by the U.S.
Treasury and U.S. Government Agency Securities.
INVENTORIES: Inventories are stated at the lower of cost or market with cost
determined on the first-in first-out ("FIFO") method.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are carried at
cost. Depreciation is recognized on the straight-line method over the estimated
useful lives of the assets. Depreciable lives of property and equipment are as
follows:
ASSET LIFE
----- ----
Buildings 35 - 39 Years
Furniture and fixtures 5 - 8 Years
Information systems 3 - 7 Years
Machinery and equipment 3 - 8 Years
Leasehold improvements Lesser of lease term or economic life
GOODWILL: Goodwill represents the excess of cost over the fair value of
identifiable assets acquired in business acquisitions. Goodwill is amortized
ratably from the dates of acquisition over periods ranging from 10 to 25 years
and is evaluated periodically.
INTANGIBLE ASSETS: Intangible assets represent the fair values of certain assets
acquired in business, product and plasma center acquisitions including customer
lists, donor lists, trademarks and trademark registrations, and non-competition
agreements. These costs are amortized ratably from the date of acquisition over
periods ranging from 3 to 25 years and are evaluated periodically.
IMPAIRMENT OF LONG-LIVED ASSETS: The Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be fully recoverable. If this review
reveals indications of impairment, as generally determined based on estimated
undiscounted cash flows, the carrying amount of the related long-lived assets
are adjusted to fair value.
STOCK-BASED COMPENSATION: The Company accounts for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations in accounting for stock options granted at fair market value.
Note 9 to the consolidated financial statements contains a summary of the pro
forma effects to reported net income (loss) and earnings (loss) per share for
1999, 1998 and 1997 as if the Company had elected to recognize compensation
expense based on the fair market value of the options granted at grant date as
prescribed by SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.
46
<PAGE> 47
NOTE 3 TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable are comprised of the following:
DECEMBER 31,
----------------------
1999 1998
------- -------
Trade accounts receivable $34,081 $40,250
Allowance for doubtful accounts (62) (221)
------- -------
TOTAL $34,019 $40,029
======= =======
NOTE 4 INVENTORIES
The components of inventories are as follows:
DECEMBER 31,
-----------------------
1999 1998
------- -------
Finished goods $35,547 $36,975
Work in process 701 1,964
Raw materials 2,960 3,772
------- -------
39,208 42,711
Allowances for slow-moving and
obsolete inventory (3,276) (4,508)
------- -------
TOTAL $35,932 $38,203
======= =======
NOTE 5 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and related allowances for depreciation and
amortization are summarized below:
DECEMBER 31,
----------------------
1999 1998
-------- --------
Information systems $ 21,605 $ 21,968
Leasehold improvements 16,521 20,747
Machinery and equipment 10,179 18,075
Land and buildings 8,628 8,852
Furniture and fixtures 4,258 5,052
Construction in progress 76,743 56,297
-------- --------
Total property, plant and equipment 137,934 130,991
Less accumulated depreciation and
amortization (28,796) (31,973)
-------- --------
TOTAL $109,138 $ 99,018
======== ========
Construction in progress consists primarily of costs incurred in connection with
construction of Nabi's biopharmaceutical manufacturing facility in Boca Raton,
Florida and includes deferred validation costs of $24,679 and $16,268 at
December 31, 1999 and 1998, respectively. Capitalized interest associated with
the biopharmaceutical facility and system development projects was approximately
$13,560 and $8,902 at December 31, 1999 and 1998, respectively. Interest
capitalized amounted to $4,658, $3,753, and $2,392 during 1999, 1998 and 1997,
respectively.
47
<PAGE> 48
The biopharmaceutical manufacturing facility requires FDA licensure to produce
pharmaceutical products for sale in the U.S. The anticipated costs of completion
to prepare the facility for its intended use are estimated to be approximately
$15,000 in 2000.
Depreciation and amortization expense during 1999, 1998 and 1997 includes
depreciation and amortization of property, plant and equipment of $7,828, $8,596
and $6,506, respectively, and amortization of assets under capital leases of
approximately $169, $191 and $447, respectively.
NOTE 6 OTHER ASSETS
Other assets consist of the following:
DECEMBER 31,
----------------------
1999 1998
------- -------
Goodwill $18,452 $21,442
Less accumulated amortization (5,216) (5,277)
------- -------
$13,236 $16,165
======= =======
Intangible assets $11,201 $12,601
Less accumulated amortization (5,173) (5,569)
------- -------
$6,028 $7,032
======= =======
Other, primarily deferred tax assets and
deferred loan costs $10,016 $12,631
Less accumulated amortization (2,760) (2,021)
------- -------
TOTAL $ 7,256 $10,610
======= =======
NOTE 7 ACCRUED EXPENSES
Accrued expenses consist of the following:
DECEMBER 31,
----------------------
1999 1998
------- -------
Employee compensation and benefits $ 5,618 $ 5,682
Accrued royalties and product costs 8,915 3,422
Accrued interest 2,379 2,424
Accrued restructuring costs, current 3,307 10,970
Other 5,557 5,968
------- -------
TOTAL $25,776 $28,466
======= =======
48
<PAGE> 49
NOTE 8 NOTES PAYABLE
Notes payable consist of the following:
DECEMBER 31,
------------------------
1999 1998
-------- --------
Bank indebtedness:
Revolving credit facility $ 27,461 $ 32,463
Term loan 5,000 5,000
-------- --------
32,461 37,463
6.5% Convertible Subordinated Notes 80,500 80,500
Equipment term notes -- 81
Other 37 --
-------- --------
Total notes payable 112,998 118,044
Current maturities (704) (81)
-------- --------
Notes payable, long-term $112,294 $117,963
======== ========
At December 31, 1999, the annual aggregate maturities of debt through the year
2004 and thereafter were $704; $1,000; $30,794; $80,500; and $0.
Short-term indebtedness outstanding at December 31, 1999 and 1998 had a
weighted-average interest rate of approximately 9.38% and 5.39%, respectively.
At December 31, 1999, Nabi's credit agreement provided for a revolving credit
facility of up to $45,000 subject to certain borrowing base restrictions, and a
$5,000 term loan. The credit agreement matures in September 2002. Borrowings
under the revolving credit and term loan agreement totaled $32,461 at December
31, 1999 as compared to $37,463 at December 31, 1998, and additional
availability was approximately $7,400 at December 31, 1999. This credit
agreement bears interest at the bank's prime rate plus 1%, is secured by
substantially all assets, including a mortgage on the biopharmaceutical
manufacturing facility, and contains covenants prohibiting dividend payments and
requiring the maintenance of certain financial covenants. At December 31, 1999
Nabi had outstanding letters of credit for approximately $814 that reduce the
Company's availability under the revolving credit facility.
Effective February 1, 2000, Nabi amended its credit agreement to allow for
retroactive application to December 31, 1999. The amendment provided for the
amendment of certain financial covenants and the extension of the maturity of
the term loan to be concurrent with that of the revolving credit agreement, or
September 2002. The amendment requires monthly principal payments on the term
loan of $83 commencing May 1, 2000 through the expiration of the agreement, at
which time the remaining balance is due in full.
During 1996, Nabi issued $80,500 of 6.5% Convertible Subordinated Notes due
February 1, 2003 ("Notes") in a private placement. The Notes are convertible
into common stock at a conversion price of $14 per share at any time and may be
redeemed at Nabi's option without premium. A total of 5,750,000 shares of common
stock have been registered and reserved for issuance upon conversion of the
Notes. At December 31, 1999, the fair value of Nabi's 6.5% Convertible
Subordinated Notes was approximately $59,872. The fair value was estimated using
an independently quoted market price. The carrying value of all other long-term
notes payable approximated fair value based upon quoted market prices for the
same or similar debt issues.
49
<PAGE> 50
NOTE 9 STOCKHOLDERS' EQUITY
WARRANTS
In November 1995, Nabi issued a warrant to purchase 100,000 shares of its common
stock to an affiliate of its principal bank lender in connection with an
agreement whereby Nabi had the right to issue up to $20,000 in subordinated
notes. The warrants have an exercise price of $9.82 per share and expire on
December 31, 2000. No subordinated notes have been issued under this agreement.
STOCK OPTIONS
Nabi maintains four stock option plans for its employees. Under these plans,
Nabi has granted options to certain employees entitling them to purchase shares
of common stock within ten years. The options vest over periods ranging from six
months to four years from the date of grant and have been granted at exercise
prices equal to the fair market value of the underlying common stock on the date
of grant.
Nabi also maintains a Stock Plan for Non-Employee Directors, under which Nabi
has granted options to certain directors entitling them to purchase shares of
Nabi common stock within five years, vesting at six months after the date of
grant and at an exercise price equal to the fair market value of the underlying
common stock at the date of grant.
At December 31, 1999, there were options outstanding under all of Nabi's stock
plans to acquire 6.2 million shares of its common stock of which 3.0 million are
exercisable. Additionally, 2.6 million shares of common stock are reserved for
future grants under the plans. Stock options granted and outstanding under these
plans as of December 31, 1999 are presented below:
<TABLE>
<CAPTION>
EXERCISE PRICE PER WEIGHTED AVERAGE
OPTIONS SHARE EXERCISE PRICE
-------------- ------------------ ----------------
(In Thousands)
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 3,117 $.19 - $13.75 $ 7.96
Granted 1,001 4.25 - 11.13 10.89
Exercised or canceled (345) 1.03 - 13.75 6.59
----- -------------
BALANCE AT DECEMBER 31, 1997 3,773 .19 - 13.75 8.46
Granted 1,959 2.63 - 4.06 3.38
Exercised or canceled (741) .19 - 13.75 6.74
----- -------------
BALANCE AT DECEMBER 31, 1998 4,991 .19 - 13.75 8.63
Granted 1,999 2.69 - 5.94 2.86
Exercised or canceled (754) .19 - 13.75 6.35
----- -------------
BALANCE AT DECEMBER 31, 1999 6,236 $.19 - $13.75 $ 8.53
===== =============
</TABLE>
50
<PAGE> 51
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------------------------------------------------------
Options Average Average Options Average
(In Years Exercise (In Exercise
Exercise Price Range Thousands) Remaining Price Thousands) Price
- --------------------- ---------- --------- -------- ---------- ---------
<C> <C> <C> <C> <C> <C>
$ .19 - $ 4.25 3,662 7.9 $ 3.04 978 $ 3.19
$ 4.44 - $ 7.59 1,122 5.0 6.58 1,006 6.80
$ 8.39 - $11.125 814 6.6 10.79 520 10.66
$12.97 - $13.75 638 7.0 13.73 514 13.72
----- -----
TOTAL 6,236 6.6 $ 8.53 3,018 $ 8.59
===== =====
</TABLE>
The following information reflects Nabi's pro forma loss information as if
compensation expense associated with Nabi's stock plans had been recorded under
the provisions of SFAS 123. Pro forma compensation expense has been determined
based upon the estimated fair market value of the options at the date of grant.
1999 1998 1997
-------- --------- ---------
Net loss ($1,744) ($25,779) ($12,658)
Basic and diluted loss per share ($0.05) ($0.74) ($0.36)
The estimated fair value of each option grant is determined using the
Black-Scholes option-pricing model with the following ranges of assumptions:
expected term of two to five years; expected volatility of 57% - 99%; and
expected risk-free interest rates of 4% - 8%. The weighted-average estimated
fair value of options granted during 1999, 1998 and 1997 was $1.90, $2.32 and
$6.48, respectively.
SHAREHOLDERS RIGHTS PLAN
Effective July 25, 1997, Nabi's Board of Directors adopted a shareholders rights
plan under which a dividend of one preferred share purchase right (the "Right")
was distributed for each outstanding share of common stock. Each right entitles
the holder to purchase one one-hundredth of a share of Series One Preferred
Stock at a price of $70, subject to adjustment. The Rights expire August 1,
2007, and are exercisable only if an individual or group has acquired or
obtained the right to acquire, or has announced a tender or exchange offer that
if consummated would result in such individual or group acquiring beneficial
ownership of 15% or more of the common stock. Such percentage may be lowered at
the Board's discretion. If the Rights become exercisable, the holder may be
entitled to receive upon exercise shares of Nabi's common stock having a market
value of two times the exercise price of the Rights, or the number of shares of
the acquiring company which have a market value of two times the exercise price
of the Rights. The Rights separate from the common stock if they become
exercisable. Nabi is entitled to redeem the Rights in whole for $0.01 per Right
under certain circumstances.
NOTE 10 NON-RECURRING CHARGES
In December 1998, the Board of Directors approved a plan to sell or close
certain antibody collection centers, including the Company's German operations.
In addition, the Board approved actions to reduce product development activities
at the Company's Rockville, Maryland facility. This reflected a decision for
Nabi to primarily focus its ongoing research and development investment on
support for products which are currently marketed or in later stages of
development. Nabi is actively seeking corporate and government partners to fund
further development of the remaining products in its research and development
pipeline.
In connection with the plan, Nabi recorded a net restructuring charge of $13,164
in the fourth quarter of 1998. The restructuring charge was comprised of $2,529
in termination benefits resulting from the elimination of 36 positions within
U.S. antibody operations, 67 positions within German operations, and
51
<PAGE> 52
36 positions in Rockville; $3,682 for non-cancelable lease obligations; $5,058
for write-downs of leasehold improvements, equipment and furniture and fixtures,
of which $4,797 is a non-cash item; and $967 in non-cash write-downs of
intangible assets. The write-downs were based upon management's assessment of
fair value.
In February 1999, the Company reduced staff levels at its Rockville facility,
thereby eliminating 35 positions as a result of the restructuring. As of
December 31, 1999, $3,000 of the remaining restructuring accrual primarily
relates to non-cancelable lease obligations associated with the Rockville
facility.
Included in the original $13,164 restructuring charge were estimated cash
expenses for severance and future lease costs related to the planned shut-down
of the Company's German operations which was determined likely to occur at that
time. Rather than shutting down these operations, Nabi successfully reached an
agreement during the third quarter of 1999 to transfer those operations to a
third party. As a result, Nabi reversed $1,935 of the accrual related to
severance and future lease costs since the Company will avoid these obligations.
During 1999, the Company sold or closed seven U.S. antibody collection centers
out of the eight centers as specified in the original plan. Additionally, two
executives were terminated and primarily all of their related severance benefits
were paid as of December 31, 1999. As of December 31, 1999, approximately $400
of the remaining restructuring accrual is associated with unpaid severance
benefits and costs for disposition of the remaining antibody collection center.
Resolution of the contemplated actions relating to this center is expected to be
completed by the end of the third quarter of 2000.
A summary of the Company's restructuring activity for 1998 and 1999 is presented
below:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
--------------------
<S> <C>
BALANCE AT DECEMBER 31, 1997 $1,365
ACTIVITY DURING 1998:
Restructuring accrual associated with disposition of antibody centers
and the reduction of product development activities 13,164
Termination benefit payments (354)
Non-cancelable lease obligation payments and other cash outflows (742)
Non-cash write downs of fixed and intangible assets (98)
Change in estimated restructuring charge (121)
-------
BALANCE AT DECEMBER 31, 1998 13,214
ACTIVITY DURING 1999:
Non-recurring credit (1,935)
Termination benefit payments (957)
Non-cancelable lease obligation payments and other cash outflows (467)
Non-cash write downs of fixed and intangible assets (5,018)
Non-cash write downs related to German operations transfer (754)
-------
BALANCE AT DECEMBER 31, 1999 $ 4,083
=======
</TABLE>
The current portion of the restructuring accrual was $3,307 and $10,970 at
December 31, 1999 and 1998, respectively.
In addition, during 1998, Nabi recorded a $1,563 non-recurring charge which
represented management's estimate of costs incurred in connection with the
Company's ongoing litigation with the general contractor for its
biopharmaceutical manufacturing facility in Boca Raton, Florida. This litigation
was initiated by Nabi and concluded in 1999 with no material amounts incurred by
Nabi above the original estimate.
52
<PAGE> 53
NOTE 11 INCOME TAXES
Income (loss) before income taxes was taxed under the following jurisdictions:
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997
------ -------- ---------
Domestic $ 933 ($16,595) ($15,348)
Foreign 2,454 (5,115) (473)
------ -------- ---------
TOTAL $3,387 ($21,710) ($15,821)
====== ======== =========
The (provision) benefit for income taxes consists of the following:
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997
------ -------- ---------
Current
Federal $ -- $ -- $ 6,929
State (43) (47) (60)
----- -------- ---------
(43) (47) 6,869
----- -------- ---------
Deferred
Federal -- -- (2,126)
State -- -- (75)
----- -------- ---------
-- -- (2,201)
----- -------- ---------
TOTAL ($43) ($47) $ 4,668
===== ======== =========
53
<PAGE> 54
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss ("NOL") carryforward $ 22,255 $ 22,543 $ 17,987
Capitalized research and development costs 6,235 7,619 9,003
Non-recurring charge 2,186 3,162 --
Research tax credit 3,248 3,368 2,882
Provision for slow-moving and obsolete inventory 1,180 1,695 482
Amortization 2,277 2,167 2,349
Provision for bad debt 22 80 145
Depreciation 913 653 678
Alternative minimum tax credit 900 900 703
Other 2,273 1,089 928
-------- -------- --------
41,489 43,276 35,157
Valuation allowance (34,886) (36,508) (28,324)
-------- -------- --------
Deferred tax assets 6,603 6,768 6,833
DEFERRED TAX LIABILITIES:
Amortization (885) (945) (906)
Other -- (13) (4)
-------- -------- --------
Deferred tax liabilities (885) (958) (910)
-------- -------- --------
Net deferred tax assets $ 5,718 $ 5,810 $ 5,923
======== ======== ========
</TABLE>
In November 1995, Univax, a publicly traded biopharmaceutical company, was
merged with and into Nabi. The merger qualifies as a tax-free reorganization
within the meaning of Section 368 of the Internal Revenue Code of 1986, as
amended. Univax's pre-merger deferred tax assets are available to offset the
future taxable income of Nabi, subject to certain annual and change of control
limitations. The Univax pre-merger deferred tax assets primarily include NOL
carryforwards, capitalized research and development expense and research tax
credit carryforwards. Nabi's NOLs of $63,649 and research tax credit
carryforwards of $3,248 expire in varying amounts through the year 2019.
The ultimate realization of the remaining deferred tax assets is largely
dependent on Nabi's ability to generate sufficient future taxable income. Nabi
believes that the valuation allowance of $34,886 at December 31, 1999 is
appropriate, given its historical loss experience and other factors. The change
in the valuation allowance during 1999 was $1,622.
The significant elements contributing to the difference between the federal
statutory tax rate and the effective tax rate are as follows:
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
----- ----- ------
Federal statutory rate 35.0% (35.0)% (35.0)%
State income taxes, net of federal benefit 0.8 0.1 0.1
Goodwill and other amortization 4.6 0.8 1.1
Foreign trade income -- -- 1.0
Transfer of German operations (37.7) -- --
Merger transaction cost (1.1) -- (0.9)
Increase (reduction) in valuation allowance (4.7) 37.7 5.5
Tax credits -- (3.1) 0.2
Other 4.4 (0.3) (1.5)
---- ---- ----
TOTAL 1.3% 0.2% (29.5)%
==== ==== ====
54
<PAGE> 55
NOTE 12 EARNINGS PER SHARE
The following is a reconciliation between basic and diluted earnings per share
for the years ended December 31, 1999, 1998 and 1997:
Effect of
Basic Dilutive Securities Diluted
EPS Stock options EPS
------ ------------------- -------
1999
Net income $ 3,344 -- $ 3,344
Weighted average shares 34,934 907 35,841
Per Share $ 0.10 $ 0.09
-------- --- --------
1998
Net loss $(21,757) -- $(21,757)
Weighted average shares 34,885 -- 34,885
Per Share $ (0.62) $ (0.62)
-------- --- --------
1997
Net loss $(11,153) -- $(11,153)
Weighted average shares 34,737 -- 34,737
Per Share $ (0.32) $ (0.32)
-------- --- --------
NOTE 13 EMPLOYEE BENEFIT PLANS
The Company has two defined contribution plans. The plans permit employees to
contribute up to 15% of pre-tax annual compensation with a discretionary match
by the Company equal to 50% of each participant's contribution, up to an amount
equal to 2% of the participant's earnings. Nabi's matching contributions to the
plans were approximately $510, $494 and $438 in 1999, 1998, and 1997,
respectively.
NOTE 14 LEASES
Nabi conducts a majority of its operations under operating lease agreements. The
majority of the related lease agreements contain renewal options which enable
Nabi to renew the leases for periods of two to five years at the then fair
rental value at the end of the initial lease term.
Rent expense was approximately $6,092, $6,868 and $6,785 for the years ended
December 31, 1999, 1998 and 1997, respectively.
As of December 31, 1999, the aggregate future minimum lease payments under all
non-cancelable operating leases with initial or remaining lease terms in excess
of one year are as follows:
YEAR ENDING DECEMBER 31,
- ------------------------
2000 $6,153
2001 5,452
2002 3,614
2003 3,222
2004 2,091
Thereafter 3,965
-------
Total minimum lease commitments $24,497
=======
55
<PAGE> 56
NOTE 15 RELATED PARTY TRANSACTIONS
Effective September 30, 1992, Nabi acquired H-BIG (hepatitis B immune
globulin) a proprietary antibody-based product from Abbott Laboratories
("Abbott"), in consideration of 2 million shares of Nabi common stock valued at
$3,854 and royalties based upon product sales. Nabi's replacement product for
H-BIG, Nabi-HB, was launched in March 1999. During 1999, the royalty
agreement was amended limiting the amount of royalties to be paid on sales of
Nabi-HB. With respect to its investment in Nabi, Abbott has agreed to various
standstill measures, including agreements not to acquire additional shares
without approval of Nabi's Board of Directors and to vote its shares in the same
proportion as other shareholders.
Related party transactions with Abbott for the years ended December 31, 1999,
1998 and 1997 are summarized below:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------- -------
<S> <C> <C> <C>
Sales of antibody products $ 427 $ 2,949 $ 2,720
Purchases of diagnostic, pharmaceutical
and testing products 9,142 12,606 14,028
Product royalty obligations 1,500 2,311 2,489
Laboratory testing equipment rental payments and other 1,123 1,030 1,030
</TABLE>
At December 31, 1999 and 1998, trade accounts receivable from Abbott totaled $46
and $301 respectively, and trade accounts payable to Abbott aggregated $1,696
and $2,167, respectively.
At December 31, 1999, notes receivable from corporate officers aggregated $315,
bear interest at the prime rate and mature on December 31, 2000. At December 31,
1998, notes receivable from corporate officers aggregated $431 at an interest
rate of prime and matured on December 31, 1999.
NOTE 16 STRATEGIC ALLIANCES, LICENSES AND ROYALTY AGREEMENTS
In connection with an exclusive licensing and distribution agreement with
Cangene Corporation ("Cangene") to market and distribute WinRho SDF in the U.S.
through March 2005, Nabi was obligated to expend a minimum of $3,000 for sales
and marketing expenses in each of the fiscal years ended May 1996 and 1997. In
addition, Nabi agreed to loan Cangene fifty percent (50%) of the cost of capital
improvements to its manufacturing facility up to $3,000, of which $2,380 was
advanced at December 31, 1999 and is due March 2000. Under the agreement, which
terminates in 2005, Nabi has exclusive marketing rights for, and shares in the
profits of, sales of WinRho SDF in the U.S., provided that Nabi achieves
specified sales or makes specified payments. Nabi continued to meet and exceed
these sales goals in 1999.
Effective April 1999, Nabi entered into a manufacturing agreement with Cangene
for the manufacture of Nabi-HB which superseded an agreement entered into in
1997. The manufacturing agreement requires Nabi to purchase a specified minimum
amount. In addition, Cangene has exclusive marketing rights for Nabi-HB in
Canada provided it meets specified sales goals. Nabi will share in the profits
from sales of Nabi-HB in Canada. The term of the Canadian marketing agreement
with Cangene for Nabi-HB is co-extensive with the term of the manufacturing
agreement for Nabi-HB.
As discussed in Note 15, Nabi is obligated to pay Abbott royalties based upon
its Nabi-HB product sales. Nabi is also obligated to pay royalties to the New
York Blood Center, Inc. based upon sales of its Nabi-HB product.
56
<PAGE> 57
In 1997, Nabi acquired from Baxter Healthcare Corporation ("Baxter") the
exclusive rights to Autoplex T in the U.S. Canada and Mexico. In connection with
the acquisition, Baxter agreed to manufacture Autoplex T until May 2000 or
such later time as may be determined under the terms of a consent order entered
into between Baxter and the Federal Trade Commission ("FTC"), but in any event
four months after Nabi receives approval from the FDA to manufacture Autoplex T.
The FTC could require Nabi to return to Baxter Nabi's rights to AutoPlex T if
Nabi does not obtain FDA approval to manufacture the product by May 2000 or by a
later date agreed to by the FTC. At the discretion of the FTC, the period Baxter
manufactures AutoPlex T can be extended for up to four twelve-month intervals.
Nabi anticipates that the period Baxter manufactures AutoPlex T under the terms
of a consent order from the FTC will be extended for the first twelve-month
period through May 2001. If the rights revert to Baxter and Baxter later sells
these rights, Nabi and Baxter will share equally the proceeds of any such sale,
and under certain circumstances, Baxter will be required to make a specified
payment to Nabi. Upon FDA licensure to manufacture the product, Nabi is
obligated to pay $1,000 to Baxter, subject to recovery of fifty percent (50%) of
expenditures incurred to license the product in excess of $6,000. Baxter is also
a significant antibody products customer and a principal supplier of antibody
collection supplies to Nabi.
In 1999, Nabi entered into an agreement with Catalytica Pharmaceuticals, Inc.
("Catalytica") under which Catalytica has granted Nabi exclusive distribution
rights in the U.S. and Canada to Aloprim, as well as global rights in
territories where the license holder prior to Catalytica (Glaxo Wellcome) has
not commercialized the product. Under the five-year agreement, Nabi will sell
and Catalytica will manufacture the product and both companies will share in
profits from the sale of the product. Nabi has the option to purchase the rights
to the product at any time within five years from the effective date of the
agreement.
NOTE 17 COMMITMENTS AND CONTINGENCIES
Nabi is a party to litigation in the ordinary course of business. In addition,
Nabi is a co-defendant with various other parties in one suit filed in the U.S.
by, or on behalf of, individuals who claim to have been infected with HIV as a
result of either using HIV-contaminated products made by the defendants other
than Nabi or having familial relations with those so infected. Nabi does not
believe that any such litigation will have a material adverse effect on its
business, financial position or results of operations.
During July 1999, Nabi entered into a purchase agreement with Baxter to supply
antibody collection materials and related collection equipment. The purchase
agreement requires Nabi to purchase stated minimum quantities of specified
supplies or a minimum percentage of total supplies of the specified types
purchased by Nabi, whichever is the greater. The purchase agreement ends
December 31, 2004.
At December 31, 1999, Nabi had outstanding purchase commitments in the normal
course of business with various suppliers.
NOTE 18 INDUSTRY SEGMENT INFORMATION
Nabi adopted SFAS 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, in the fourth quarter of 1998. Prior year segment information has
been restated to a comparative basis.
57
<PAGE> 58
Nabi manages its operations in two reportable segments, the antibody products
and pharmaceutical products segments. The antibody products segment consists of
the collection and sale of non-specific and specialty antibody products to other
pharmaceutical manufacturers, the production and sale of antibody-based control
and diagnostic products and laboratory testing services. The pharmaceutical
products segment consists of the production and sale of proprietary
pharmaceutical products and research and development efforts for the
pharmaceutical product line.
The accounting policies for each of the segments are the same as those described
in the summary of significant accounting policies. There are no intersegment
revenues. Nabi evaluates the performance of each segment based on operating
profit or loss; interest expense and income taxes are not allocated.
Information regarding Nabi's operations and assets for the two industry segments
is as follows:
For the Years Ended December 31,
----------------------------------
1999 1998 1997
-------- -------- --------
SALES:
Antibody Products $162,491 $188,104 $194,274
Pharmaceutical products 71,112 54,983 34,470
-------- -------- --------
$233,603 $243,087 $228,744
======== ======== ========
OPERATING INCOME (LOSS):
Antibody Products $ 2,302 $ (4,473) $ 1,990
Pharmaceutical products 5,434 (11,499) (13,301)
-------- -------- --------
$ 7,736 $(15,972) $(11,311)
======== ======== ========
DEPRECIATION AND AMORTIZATION EXPENSE:
Antibody Products $ 7,281 $ 8,340 $ 6,687
Pharmaceutical products 2,159 2,427 2,520
-------- -------- --------
$ 9,440 $ 10,767 $ 9,207
======== ======== ========
NON-RECURRING CHARGE:
Antibody Products $ (1,935) $ 5,855 $ 1,839
Pharmaceutical products -- 8,750 3,841
-------- -------- --------
$ (1,935) $ 14,605 $ 5,680
======== ======== ========
CAPITAL EXPENDITURES:
Antibody Products $ 5,170 $ 4,377 $ 20,226
Pharmaceutical products 15,866 14,147 16,071
-------- -------- --------
$ 21,036 $ 18,524 $ 36,297
======== ======== ========
December 31,
---------------------
1999 1998
-------- --------
ASSETS:
Antibody Products $106,506 $129,572
Pharmaceutical products 99,691 78,725
-------- --------
$206,197 $208,297
======== ========
58
<PAGE> 59
A reconciliation of reportable segment selected financial information to the
total combined amounts of the selected financial information is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
INCOME (LOSS) BEFORE INCOME TAXES:
Reportable segment operating income $ 7,736 $(15,972) $(11,311)
Unallocated interest expense (4,313) (5,681) (4,712)
Unallocated other income and expense, net (36) (57) 202
-------- -------- --------
Consolidated income (loss) before income
taxes $ 3,387 $(21,710) $(15,821)
======== ======== ========
DEPRECIATION AND AMORTIZATION EXPENSE:
Reportable segment depreciation &
amortization expense $ 9,440 $ 10,767 $ 9,207
Unallocated (corporate) depreciation &
amortization expense 688 735 649
-------- -------- --------
Consolidated depreciation &
amortization expense $ 10,128 $ 11,502 $ 9,856
======== ======== ========
CAPITAL EXPENDITURES:
Reportable segment capital expenditures $ 21,036 $ 18,524 $ 36,297
Unallocated (corporate) capital
expenditures -- 407 70
-------- -------- --------
Consolidated capital expenditures $ 21,036 $ 18,931 $ 36,367
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS:
Reportable segment assets $206,197 $208,297
Unallocated (corporate) assets 7,965 10,003
-------- --------
Consolidated assets $214,162 $218,300
======== ========
</TABLE>
Information regarding sales and long-lived assets by geographic area for the
years ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
SALES:
Domestic $177,463 $177,870 $163,502
Foreign 56,140 65,217 65,242
-------- -------- --------
Total $233,603 $243,087 $228,744
======== ======== ========
LONG-LIVED ASSETS:
Domestic $135,658 $131,317 $125,201
Foreign -- 1,508 1,733
-------- -------- --------
Total $135,658 $132,825 $126,934
======== ======== ========
</TABLE>
Foreign revenue is determined based upon customer location. The majority of the
Company's revenues are generated from the U.S. The Company's principal foreign
markets are the United Kingdom, Korea and Germany.
59
<PAGE> 60
Sales in 1999 to two customers of Nabi's antibody products segment exceeded 10%
of total sales, representing $50,100 and $44,960 respectively. Sales in 1998 to
two customers of Nabi's antibody products segment exceeded 10% of total sales,
representing $44,920 and $44,215, respectively. Sales in 1997 to two customers
of Nabi's antibody product segment exceeded 10% of total sales, representing
$59,244 and $34,128, respectively.
60
<PAGE> 61
NABI
- -------------------------------------------------------------------------------
NOTE 19 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
NET BASIC EARNINGS DILUTED EARNINGS
GROSS INCOME (LOSS) (LOSS)
SALES MARGIN (LOSS) PER SHARE PER SHARE
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
1st Quarter $58,023 $12,794 ($514) ($0.01) ($0.01)
2nd Quarter 62,198 19,529 1,052 0.03 0.03
3rd Quarter (1) 54,181 16,592 1,450 0.04 0.04
4th Quarter 59,201 21,281 1,356 0.04 0.04
YEAR 1999 $233,603 $70,196 $3,344 $0.10 $0.09
1998
1st Quarter $58,614 $14,025 ($1,918) ($0.06) ($0.06)
2nd Quarter 61,178 17,636 (517) (0.01) (0.01)
3rd Quarter 58,713 16,193 (3,757) (0.11) (0.11)
4th Quarter (2) 64,582 16,867 (15,565) (0.44) (0.44)
YEAR 1998 $243,087 $64,721 ($21,757) ($0.62) ($0.62)
</TABLE>
(1) During the third quarter of 1999, Nabi reversed $1.9 million of the
accrued severance and lease charges relating to its German operations that
were originally planned to be shut down in 1998, but were susequently
transferred to a third party. See Note 10.
(2) During the fourth quarter of 1998, Nabi recognized approximately $14.6
million of non-recurring charges. The charges were comprised of certain
restructuring costs ($13.0 million) and costs relating to litigation
($1.6 million). See Note 10.
61
<PAGE> 62
NABI
- --------------------------------------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
Additions Deductions
------------------------- -----------
Write-Offs
Balance At Charged to Charged to Charged Balance
Beginning of Costs and Other Against At End
Classification Period Expenses Accounts Reserve of Period
-------------- ------------ ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1999:
Allowance for doubtful accounts $ 221 $ (136) $ -- $ 23 $ 62
Deferred tax asset valuation allowance $36,508 $ -- $(1,622) $ -- $34,886
Inventory reserve $ 4,508 $2,235 $ (802) $2,665 $ 3,276
------- ------ ------- ------ -------
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts $ 403 $ (20) $ -- $ 162 $ 221
Deferred tax asset valuation allowance $28,324 $ -- $ 8,184 $ -- $36,508
Inventory reserve $ 641 $2,936 $ 1,692 $ 761 $ 4,508
------- ------ ------- ------ -------
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts $ 647 $1,013 $ -- $1,257 $ 403
Deferred tax asset valuation allowance $27,251 $ -- $ 1,073 $ -- $28,324
Inventory reserve $ 5,555 $1,023 $ 625 $6,562 $ 641
------- ------ ------- ------ -------
</TABLE>
62
<PAGE> 63
NABI
- --------------------------------------------------------------------------------
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
3.1 Restated Certificate of Incorporation of Nabi (incorporated by
reference to Nabi's Annual Report on Form 10-K for the year ended
December 31, 1995)....................................................................... N/A
3.2 By-Laws (incorporated by reference to Nabi's Registration Statement
on Form S-4; Commission File No. 33-63497).................................................N/A
4.1 Specimen Stock Certificate (incorporated by reference to Nabi's
Registration Statement on Form S-2; Commission File No. 33-83096)..........................N/A
4.2 Indenture between Nabi and State Street Bank and Trust Company,
dated as of February 1, 1996 (incorporated by reference to Nabi's
Annual Report on Form 10-K for the year ended December 31, 1995)...........................N/A
4.3 Registration Rights Agreement by and between Nabi and Robertson,
Stephens & Company LLC and Raymond James & Associates, Inc., dated
as of February 1, 1996 (incorporated by reference to Nabi's Annual
Report on Form 10-K for the year ended December 31, 1995)................................. N/A
10.1 Shareholder Agreement effective as of September 30, 1992 between
Nabi and Abbott Laboratories (incorporated by reference to Nabi's
Annual Report on Form 10-K for the year ended December 31, 1992)...........................N/A
10.2 Plasma Supply Agreement dated January 1, 1994 between Baxter
Healthcare Corporation and Nabi (confidential treatment)
(incorporated by reference to Nabi's Registration Statement on Form
S-2; Commission File No. 33-83096).........................................................N/A
10.3 Lease Agreements dated December 11, 1990, as modified on May 23,
1994 between Nabi and Angelo Napolitano, Trustee, for certain real
property located at 16500 N.W. 15th Avenue, Miami, Florida
(incorporated by reference to Nabi's Registration Statement on Form
S-2; Commission File No. 33-83096).........................................................N/A
10.4 Lease Agreement dated March 31, 1994 between Nabi and Angelo
Napolitano, Trustee, for certain real property located at 16500 N.W.
15th Avenue, Miami, Florida (incorporated by reference to Nabi's
Registration Statement on Form S-2; Commission File No. 33-83096)..........................N/A
10.5 Employment Agreement dated January 1, 1993 between Nabi and David J.
Gury (incorporated by reference to Nabi's Annual Report on Form 10-K
for the year ended December 31,1992)...................................................... N/A
10.6 1990 Equity Incentive Plan (incorporated by reference to Nabi's
Proxy Statement dated April 22, 1997)..................................................... N/A
10.7 Amended and Restated Incentive Stock Option Plan adopted in 1993
(incorporated by reference to Nabi's Annual Report on Form 10-K for
the year ended December 31, 1992)......................................................... N/A
10.8 Stock Plan for Non-Employee Directors (incorporated by reference to
Nabi's Proxy Statement dated April 26, 1995)...............................................N/A
10.9 Employment Agreement dated January 1, 1997 between John C. Carlisle
and Nabi (incorporated by reference to Nabi's Annual Report on Form
10-K for the year ended December 31, 1996).................................................N/A
</TABLE>
63
<PAGE> 64
<TABLE>
<CAPTION>
<S> <C> <C>
10.11 $50 Million Loan and Security Agreement dated as of September 12,
1997 between Nabi, certain Financial Institutions and NationsBank,
N.A. (incorporated by reference to Nabi's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997)............................................ N/A
10.12 Rights Agreement dated as of August 1, 1997, as Amended between Nabi
and Registrar and Transfer Company (incorporated by reference to
Nabi's Annual Report on Form 10-K for the year ended December 31, 1997)....................N/A
10.13 Amendment No. 1 and Waiver dated as of November 14, 1997 to Loan and
Security Agreement dated as of September 12, 1997 (incorporated by
reference to Nabi's Annual Report on Form 10-K for the year ended
December 31, 1997).........................................................................N/A
10.14 Amendment No. 2 and Waiver dated as of March 30, 1998 to Loan and
Security Agreement dated as of September 12, 1997 (incorporated by
reference to Nabi's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998)......................................................................N/A
10.15 Addendum to Employment Agreement dated January 15, 1998 between
David D. Muth and Nabi (incorporated by reference to Nabi's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).........................N/A
10.16 Employment Agreement dated June 1, 1998 between Thomas H. McLain and
Nabi (incorporated by reference to Nabi's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998)..................................................N/A
10.17 Employment Agreement dated August 1, 1998 between Dr. Robert B. Naso
and Nabi (incorporated by reference to Nabi's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998)........................................N/A
10.18 Employment Agreement dated August 19, 1996 between David D. Muth and
Nabi (incorporated by reference to Nabi's Quarterly Report on Form
10-K for the year ended December 31, 1998).................................................N/A
10.19 Change in Control: Executive Compensation Package Agreement dated
September 28, 1998 between David J. Gury and Nabi (incorporated by
reference to Nabi's Quarterly Report on Form 10-K for the year ended
December 31, 1998).........................................................................N/A
10.20 Employment Agreement dated February 9, 1999 between Bruce K. Farley
and Nabi (incorporated by reference to Nabi's Quarterly Report on
Form 10-K for the year ended December 31, 1998)...........................................N/A
10.21 Amendment No. 3 and Waiver dated as of March 1, 1999 to Loan and
Security Agreement dated as of September 12, 1997 (incorporated by
reference to Nabi's Quarterly Report on Form 10-K for the year ended
December 31, 1998).........................................................................N/A
10.22 1998 Non-Qualified Employee Stock Option Plan (incorporated by
reference to Nabi's Quarterly Report on Form 10-K for the year ended
December 31, 1998).........................................................................N/A
10.23 Amended and Restated By-Laws of Nabi dated May 28, 1999
(incorporated by Reference to Nabi's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999).......................................................N/A
10.24 Employment Agreement dated August 1, 1999 between David D. Muth and
Nabi (incorporated by reference to Nabi's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999).............................................N/A
10.25* Amendment No. 4 dated as of February 1, 2000 to Loan and Security
Agreement dated as of September 12, 1997................................................66-93
</TABLE>
64
<PAGE> 65
<TABLE>
<CAPTION>
<S> <C> <C>
21* Subsidiaries of the Registrant..............................................................94
23.1* Consent of Independent Certified Public Accountants.........................................95
23.2* Consent of Independent Certified Public Accountants.........................................96
27* Financial Data Schedule.....................................................................97
</TABLE>
- -----------------
* FILED HEREWITH
65
<PAGE> 1
Exhibit 10.25
AMENDMENT NO. 4
DATED AS OF FEBRUARY 1, 2000
TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 4 dated as of February 1, 2000 (this "Amendment") is
made between Nabi, a Delaware corporation (the "Borrower"), the financial
institutions party from time to time to the Loan Agreement referred to below
(the "Lenders"), and Bank of America, N.A., formerly NationsBank, N.A., a
national banking association, as agent for the Lenders (in that capacity,
together with any successors in that capacity, the "Agent").
PRELIMINARY STATEMENTS
The Borrower, the Lenders and the Agent are parties to a Loan and
Security Agreement dated as of September 12, 1997, as amended by Amendment No. 1
and Waiver dated November 14, 1997, Amendment No. 2 and Waiver dated March 30,
1998 and Amendment No. 3 and Waiver dated as of March 1, 1999 (the "Loan
Agreement"; unless otherwise defined herein, terms are used herein as defined in
the Loan Agreement).
The Borrower has requested that the Lenders modify certain financial
covenants, adjust the amortization of the Term Loan and amend certain other
provisions of the Loan Agreement, and the Lenders have agreed, upon and subject
to the terms, conditions and provisions of this Amendment.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the Loan Agreement, the Loans made
by the Lenders and outstanding thereunder, the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
Section 1. AMENDMENT TO LOAN AGREEMENT. The Loan Agreement is hereby
amended, subject to the provisions of Section 2 of this Amendment,
(a) by amending Section 2B.3 REPAYMENT OF TERM LOAN in its entirety to
read as follows:
SECTION 2B.3. REPAYMENT OF TERM LOAN. Subject to the
provisions of this Agreement, the outstanding principal amount of the
Term Loan is due and payable, and shall be repaid in full by the
Borrower, in consecutive monthly installments each in the amount of
$83,333.33 on the first day of each month commencing May 1, 2000 and a
final installment on the Termination Date in the full remaining unpaid
amount of the Term Loan.
(b) by amending subsections (b) and (c) of Section 10.1 FINANCIAL
RATIOS in their entirety to read as follows:
(b) MINIMUM FIXED CHARGE COVERAGE. The consolidated Fixed
Charge Coverage Ratio of the Borrower and its Consolidated Subsidiaries
for any fiscal period described below to be less than the ratio set
forth below opposite such period:
66
<PAGE> 2
PERIOD RATIO
------ -----
the four consecutive Fiscal Quarters ending .89 to 1
December 31, 1998
the two consecutive Fiscal Quarters ending
June 30, 1999 .54 to 1
the three consecutive Fiscal Quarters ending
September 30, 1999 1.05 to 1
the four consecutive Fiscal Quarters ending
December 31, 1999 1.00 to 1
the four consecutive Fiscal Quarters ending
March 31, 2000, June 30, 2000, September 1.20 to 1
30, 2000 and December 31, 2000
the four consecutive Fiscal Quarters ending
March 31, 2001, June 30, 2001, September 1.25 to 1
30, 2001
the four consecutive Fiscal Quarters ending
December 31, 2001 and the last day of each 1.40 to 1
Fiscal Quarter ending thereafter
(c) MINIMUM EBITDA Consolidated EBITDA of the Borrower and its
Consolidated Subsidiaries for each fiscal period set forth below to be
less than the amount set forth opposite such fiscal period:
FISCAL PERIOD AMOUNT
------------- ------
the Fiscal Quarter ending March 31, 1999 $1.00
the Fiscal Year ending December 31, 2000 $18,500,000
the Fiscal Year ending December 31, 2001 $22,500,000
and each Fiscal Year ending thereafter
(c) by amending Section 10.5 CAPITAL EXPENDITURES by replacing the
schedule set forth therein with the following schedule:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- ------
<S> <C>
1998 $33,500,000
1999 $24,000,000
2000 $27,900,000
Each Fiscal Year thereafter $10,000,000 or such greater or
lesser amount as may be
agreed to by the Borrower and
the Required Lenders
</TABLE>
67
<PAGE> 3
(d) by amending Section 10.15 MINIMUM COLLATERAL AVAILABILITY in its
entirety to read as follows:
SECTION 10.15. MINIMUM COLLATERAL AVAILABILITY. Permit Collateral
Availability at any time during each period set forth below to be less than the
amount set forth opposite such period:
February 1, 2000 through $0
August 31, 2000
September 1, 2000 through $1,000,000
September 30, 2000
October 1, 2000 through $1,500,000
October 31, 2000
On or after November 1, 2000 $2,000,000
Section 2. EFFECTIVENESS OF AMENDMENT. This Amendment shall become
effective retroactively to December 31, 1999 as of the first date (the
"Amendment Effective Date") on which the Agent shall have received the following
documents (each of which shall be in form and substance satisfactory to the
Agent and, other than the Term Notes referred to below, in sufficient copies for
each Lender):
(a) this Amendment duly executed and delivered by the Borrower, each
Lender and the Agent;
(b) an Amended and Restated Term Note in the form attached hereto as
ANNEX A, properly completed and duly executed and delivered by the Borrower
payable to each Lender;
(c) a certificate of the Secretary of the Borrower having attached
thereto the articles or certificate of incorporation and bylaws of the Borrower
as in effect on the Amendment Effective Date (or containing the certification of
such Secretary that no amendment or modification of such articles or certificate
or bylaws has become effective since the last date on which such documents were
delivered to the Lenders pursuant to the Loan Agreement), all corporate action,
including shareholders' approval, if necessary, taken by the Borrower and/or its
shareholders to authorize the execution, delivery and performance of this
Amendment, and to the further effect that the incumbency certificate delivered
in connection with the occurrence of the Effective Date remains in effect,
unchanged;
(d) a certificate of the president or any vice-president of the
Borrower on behalf of the Borrower stating that, to the best of his knowledge
and based on an examination reasonably believed by him to be sufficient to
enable him to make an informed statement,
(i) after giving effect to the Amendment, all of the
representations and warranties made or deemed to be made under the Loan
Agreement are true and correct in all material respects as of the date
hereof, and
(ii) after giving effect to the Amendment, no Default or Event
of Default exists, and the Agent shall be satisfied as to the truth and
accuracy thereof;
68
<PAGE> 4
(e) the Confirmation of Guarantors attached hereto as ANNEX B duly
executed and delivered by each Guarantor;
(f) an amendment fee to the Agent for the Ratable benefit of the
Lenders in the amount of $125,000 which fee is earned on the date hereof and is
not subject to rebate or refund and shall be payable in two installments: the
first installment, payable on the date hereof, shall be in the amount of $75,000
and the second installment, payable on April 1, 2000, shall be in the amount of
$50,000; PROVIDED, HOWEVER, that the second installment shall not be payable if
the Borrower shall have received, on or prior to April 1, 2000, an amount in
settlement of certain past due Receivables, which, had such amount been included
in the computation of the Borrower's 1999 financial results, would have resulted
in a Fixed Charge Coverage Ratio of the Borrower and its Consolidated
Subsidiaries as of December 31, 1999 of at least 1.25 to 1 or consolidated Net
Income of the Borrower and its Consolidated Subsidiaries for Fiscal Year 1999 of
at least $3,300,000; and
(g) such other documents and instruments as the Agent or any Lender may
reasonably request.
Section 3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby makes
the following representations and warranties to the Agent and the Lenders, which
representations and warranties shall survive the delivery of this Amendment and
the making of additional Loans under the Loan Agreement as amended hereby:
(a) AUTHORIZATION OF AGREEMENTS. The Borrower has the right and power,
and has taken all necessary action to authorize it, to execute, deliver and
perform this Amendment and each other agreement contemplated hereby to which it
is a party in accordance with their respective terms. This Amendment and each
other agreement contemplated hereby to which it is a party have been duly
executed and delivered by the duly authorized officers of the Borrower and each
is, or each when executed and delivered in accordance with this Amendment will
be, a legal, valid and binding obligation of the Borrower, enforceable in
accordance with its terms.
(b) COMPLIANCE OF AGREEMENTS WITH LAWS. The execution, delivery and
performance of this Amendment and each other agreement contemplated hereby to
which the Borrower is a party in accordance with their respective terms do not
and will not, by the passage of time, the giving of notice or otherwise,
(i) require any Governmental Approval or violate any
Applicable Law relating to the Borrower or any of its Subsidiaries,
(ii) conflict with, result in a breach of or constitute a
default under the articles or certificate of incorporation or by-laws
or any shareholders' agreement of the Borrower or any of its
Subsidiaries, any material provisions of any indenture, agreement or
other instrument to which the Borrower, any of its Subsidiaries or any
of Borrower's or such Subsidiaries' property may be bound or any
Governmental Approval relating to the Borrower or any of its
Subsidiaries, or
(iii) result in or require the creation or imposition of any
Lien upon or with respect to any property now owned or hereafter
acquired by the Borrower other than the Security Interest.
Section 4. EXPENSES. The Borrower agrees to pay or reimburse on demand
all costs and expenses, including, without limitation, reasonable fees and
disbursements of counsel, incurred by the Agent in connection with the
negotiation, preparation, execution and delivery of this Amendment and the other
Loan Documents contemplated hereby or the filing or recording of any thereof,
including, without being limited to, any taxes, title premiums or other expenses
related thereto.
Section 5. EFFECT OF AMENDMENT. From and after the Amendment Effective
Date, all references in the Loan Agreement and in any other Loan Document to
"this Agreement," "the Loan Agreement,"
69
<PAGE> 5
"hereunder," "hereof" and words of like import referring to the Loan Agreement,
shall mean and be references to the Loan Agreement as amended by this Amendment.
Except as expressly amended hereby, the Loan Agreement and all terms, conditions
and provisions thereof remain in full force and effect and are hereby ratified
and confirmed. The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of the Lenders under any of the Loan Documents, nor constitute a
waiver of any provision of any of the Loan Documents.
Section 6. COUNTERPART EXECUTION; GOVERNING LAW.
(a) EXECUTION IN COUNTERPARTS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
Delivery of an executed signature page of any party hereto by facsimile
transmission shall be effective as delivery of a manually delivered counterpart
thereof.
(b) GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Georgia.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
[CORPORATE SEAL] BORROWER:
Attest: Nabi
By: /s/ Thomas H. McLain By: /s/ David J. Gury
---------------------------------------- ----------------------------
Name: Thomas H. McLain Name: David J. Gury
Title: Sr. VP Corporate Services and CFO Title: President & CEO
AGENT:
BANK OF AMERICA, N.A.,
formerly NATIONSBANK, N.A..
By: /s/ Andrew Doherty
----------------------------
Name: Andrew Doherty
Title: Vice President
LENDERS:
BANK OF AMERICA, N.A.,
formerly NATIONSBANK, N.A.
By: /s/ Andrew Doherty
----------------------------
Name: Andrew Doherty
Title: Vice President
BANKBOSTON, N.A.
By: /s/ Michael R. O'Neal
----------------------------
Name: Michael R. O'Neal
Title: Vice President
70
<PAGE> 6
ANNEX A
AMENDED AND RESTATED TERM NOTE
$2,500,000 Atlanta, Georgia
February 1, 2000
FOR VALUE RECEIVED, the undersigned, NABI, a Delaware corporation (the
"Borrower"), hereby unconditionally promises to pay to the order of BANKBOSTON,
N.A. (the "Lender") at the offices of Bank of America, N.A., a national banking
association, as agent for the Lenders (together with its successor agents the
"Agent") located at 600 Peachtree Street, N.E., Atlanta, Georgia, 30308, or at
such other place within the United States as shall be designated from time to
time by the Agent, the principal amount of TWO MILLION FIVE HUNDRED THOUSAND AND
NO/100 DOLLARS ($2,500,000), constituting the Term Loan made by the Lender to
the Borrower pursuant to the Loan Agreement (as hereinafter defined), in lawful
money of the United States of America in federal or other immediately available
funds, in such amounts and on the dates specified in the Loan Agreement
applicable from time to time in accordance with the provisions thereof.
The Borrower also unconditionally promises to pay interest on the
unpaid principal amount of this Note outstanding from time to time for each day
from the date of disbursement until such principal amount is paid in full at the
rates per annum and on the dates specified in the Loan Agreement applicable from
time to time in accordance with the provisions thereof. Nothing contained in
this Note or in the Loan Agreement shall be deemed to establish or require the
payment of a rate of interest in excess of the maximum rate permitted by any
Applicable Law. In the event that any rate of interest required to be paid
hereunder exceeds the maximum rate permitted by Applicable Law, the provisions
of the Loan Agreement relating to the payment of interest under such
circumstances shall control.
For the purposes of this Note, "LOAN AGREEMENT" means the Loan and
Security Agreement dated as of September 12, 1997, as amended, between the
Borrower, the Lender, the other financial institutions party thereto from time
to time, and the Agent, as the same may be further amended, modified,
supplemented or restated from time to time. Reference is made to the Loan
Agreement for the definitions of other terms used in this Term Note.
This Term Note is one of the Term Notes under, and is subject to the
provisions and entitled to the benefits of, the Loan Agreement, is secured by
the Collateral and other property as provided in the Loan Documents, is subject
to optional and mandatory prepayment in whole or in part and is subject to
acceleration prior to maturity upon the occurrence of one or more Events of
Default, all as provided in the Loan Documents.
This Term Note is made by the Borrower in favor of the Lender in
substitution and exchange for the Term Note dated May 7, 1998 payable to the
order of the Lender in the original principal amount of $2,500,000, but not in
extinguishment or as a novation of the indebtedness evidenced by such Note.
Presentment for payment, demand, protest and notice of demand, notice
of dishonor and notice of non-payment and all other notices are hereby waived by
the Borrower to the fullest extent permitted by Applicable Law. No failure to
exercise, and no delay in exercising, any rights hereunder on the part of the
holder hereof shall operate as a waiver of such rights.
The Borrower hereby agrees to pay on demand all costs and expenses
incurred in collecting the Secured Obligations hereunder or in enforcing or
attempting to enforce any of the Lender's rights
71
<PAGE> 7
hereunder, including, but not limited to, reasonable attorneys' fees and
expenses if collected by or through an attorney, whether or not suit is filed,
all as provided in the Loan Agreement.
THE PROVISIONS OF SECTION 14.5 OF THE LOAN AGREEMENT ARE HEREBY
EXPRESSLY INCORPORATED BY REFERENCE HEREIN.
THIS TERM NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF GEORGIA WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS
PRINCIPLES THEREOF.
IN WITNESS WHEREOF, the undersigned has executed this Note as
of the day and year first above written.
NABI
By: /s/ David J. Gury
---------------------------
Name: David J. Gury
Title: President and Ceo
[CORPORATE SEAL]
Attest:
By: /s/ Thomas H. McLain
--------------------------------------
Name: Thomas H. McLain
Title: Sr. VP Corporate Services and CFO
72
<PAGE> 8
ANNEX A
AMENDED AND RESTATED TERM NOTE
$2,500,000 Atlanta, Georgia
February 1, 2000
FOR VALUE RECEIVED, the undersigned, NABI, a Delaware corporation (the
"Borrower"), hereby unconditionally promises to pay to the order of BANK OF
AMERICA, N.A., formerly NationsBank, N.A. (the "Lender"), at the offices of Bank
of America, N.A., a national banking association, as agent for the Lenders
(together with its successor agents the "Agent") located at 600 Peachtree
Street, N.E., Atlanta, Georgia, 30308, or at such other place within the United
States as shall be designated from time to time by the Agent, the principal
amount of TWO MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($2,500,000),
constituting the Term Loan made by the Lender to the Borrower pursuant to the
Loan Agreement (as hereinafter defined), in lawful money of the United States of
America in federal or other immediately available funds, in such amounts and on
the dates specified in the Loan Agreement applicable from time to time in
accordance with the provisions thereof.
The Borrower also unconditionally promises to pay interest on the
unpaid principal amount of this Note outstanding from time to time for each day
from the date of disbursement until such principal amount is paid in full at the
rates per annum and on the dates specified in the Loan Agreement applicable from
time to time in accordance with the provisions thereof. Nothing contained in
this Note or in the Loan Agreement shall be deemed to establish or require the
payment of a rate of interest in excess of the maximum rate permitted by any
Applicable Law. In the event that any rate of interest required to be paid
hereunder exceeds the maximum rate permitted by Applicable Law, the provisions
of the Loan Agreement relating to the payment of interest under such
circumstances shall control.
For the purposes of this Note, "LOAN AGREEMENT" means the Loan and
Security Agreement dated as of September 12, 1997, as amended, between the
Borrower, the Lender, the other financial institutions party thereto from time
to time, and the Agent, as the same may be further amended, modified,
supplemented or restated from time to time. Reference is made to the Loan
Agreement for the definitions of other terms used in this Term Note.
This Term Note is one of the Term Notes under, and is subject to the
provisions and entitled to the benefits of, the Loan Agreement, is secured by
the Collateral and other property as provided in the Loan Documents, is subject
to optional and mandatory prepayment in whole or in part and is subject to
acceleration prior to maturity upon the occurrence of one or more Events of
Default, all as provided in the Loan Documents.
This Term Note is made by the Borrower in favor of the Lender in
substitution and exchange for the Term Note dated May 7, 1998 payable to the
order of the Lender in the original principal amount of $2,500,000, but not in
extinguishment or as a novation of the indebtedness evidenced by such Note.
Presentment for payment, demand, protest and notice of demand, notice
of dishonor and notice of non-payment and all other notices are hereby waived by
the Borrower to the fullest extent permitted by Applicable Law. No failure to
exercise, and no delay in exercising, any rights hereunder on the part of the
holder hereof shall operate as a waiver of such rights.
The Borrower hereby agrees to pay on demand all costs and expenses
incurred in collecting the Secured Obligations hereunder or in enforcing or
attempting to enforce any of the Lender's rights
73
<PAGE> 9
hereunder, including, but not limited to, reasonable attorneys' fees and
expenses if collected by or through an attorney, whether or not suit is filed,
all as provided in the Loan Agreement.
THE PROVISIONS OF SECTION 14.5 OF THE LOAN AGREEMENT ARE HEREBY
EXPRESSLY INCORPORATED BY REFERENCE HEREIN.
THIS TERM NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF GEORGIA WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS
PRINCIPLES THEREOF.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
day and year first above written.
NABI
By: /s/ David J. Gury
---------------------------
Name: David J. Gury
Title: President and Ceo
[CORPORATE SEAL]
Attest:
By: /s/ Thomas H. McLain
--------------------------------------
Name: Thomas H. McLain
Title: Sr. VP Corporate Services and CFO
74
<PAGE> 10
CERTIFICATE AS TO CERTIFICATE OF INCORPORATION, BY-LAWS, CORPORATE ACTION AND
INCUMBENCY OF OFFICERS OF NABI
I, Thomas H. McLain, Assistant Secretary of Nabi, a Delaware
corporation (the "Borrower"), in my capacity as such officer, hereby certify to
Bank of America, N.A., formerly NationsBank, N.A., a national banking
association (the "Agent") in connection with the Amendment No. 4, dated as of
February 1, 2000, to the Loan and Security Agreement dated as of September 12,
1997, as amended by Amendment No. 1 and Waiver dated as of November 14, 1997,
Amendment No. 2 and Waiver dated as of March 27, 1998 and Amendment No. 3 and
Waiver dated as of March 1, 1999 (as so amended, the "Loan Agreement"), between
the Borrower, the financial institutions party thereto from time to time (the
"Lenders") and the Agent as follows:
1. There has been no amendment or other modification to the Certificate
of Incorporation of the Borrower from the form of such Certificate delivered to
the Lenders on September 12, 1997 in connection with the making of the Initial
Loans under the Loan Agreement, except for changing the Borrower's name from
NABI to Nabi, as evidenced to you in connection with the execution of Amendment
No. 2 on December 23, 1997, and the Certificate of Incorporation, as so amended,
has been in effect at all times from and including September 12, 1997, through
and including the date hereof.
2. Attached as EXHIBIT A hereto are the Amended and Restated By-laws of
the Borrower as amended through May 28, 1999, which incorporate the only
modification of such By-laws from the form of the By-laws delivered to the
Lenders on September 12, 1997 in connection with the making of the Initial Loans
under the Loan Agreement. The By-laws attached hereto have been in effect at all
times from and including May 28, 1999, through and including the date hereof.
3. The resolutions of the Borrower's Board of Directors furnished to
the Agent on September 12, 1997, authorizing the execution, delivery and
performance of the Loan Agreement and any amendments thereto by David J. Gury,
President and Chief Executive Officer of the Borrower, have not been rescinded,
amended or modified and are in full force and effect on the date hereof.
4. The incumbency certificate furnished to the Agent on September 12,
1997 as it relates to David J. Gury remains on the date hereof in effect and
unchanged.
IN WITNESS WHEREOF, I have hereunto set my hand this 2nd day of
February, 2000.
/s/ Thomas H. McLain
--------------------------------------
Thomas H. McLain
The undersigned, David J. Gury, Chairman, President and Chief Executive
Officer of the Borrower, does hereby certify that Thomas H. McLain is the duly
elected, qualified and acting Assistant Secretary of the Borrower and the
signature set forth above is his genuine signature.
/s/ David J. Gury
--------------------------------------
David J. Gury
75
<PAGE> 11
EXHIBIT A
AMENDED AND RESTATED
BY-LAWS OF
NABI
AS AMENDED THROUGH
MAY 28, 1999
ARTICLE I
OFFICES
The registered office shall be in the City of Dover, County of Kent,
State of Delaware, and the name of the resident agent in charge thereof is The
United States Corporation Company.
The corporation may also have offices at such other places within or
without the State of Delaware as the Board of Directors may from time to time
appoint or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of stockholders for any
purpose shall be held at such place, within or without the State of Delaware, as
shall be designated by the Board of Directors or the Chairman of the Board and
stated in the notice of the meeting.
SECTION 2. ANNUAL MEETING. An annual meeting of the stockholders of the
corporation, for the election of Directors to succeed those whose terms expire
and for the transaction of such other business as may properly come before the
meeting, shall be held on such date and at such time as shall be fixed from time
to time by the Board of Directors and stated in the notice of the meeting.
SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders may
be called by the Chairman of the Board or by order of the Board of Directors,
and, subject to the procedures set forth in this Section 3, shall be called by
the Chairman of the Board or by the Secretary at the request in writing of
stockholders owning shares of the capital stock of the corporation which
represent a majority of the votes entitled to be cast at such meeting. Upon
request in writing sent by registered mail to the Chairman of the Board by any
stockholder or stockholders entitled to call a special meeting of stockholders
pursuant to this Section 3 (which request shall state the purpose or purposes of
the proposed meeting), the Board of Directors shall determine a place and time
for such meeting, which time shall be not less than ninety (90) nor more than
one hundred (100) days after the receipt and determination of the validity of
such request, and a record date for the determination of stockholders entitled
to vote at such meeting in the manner set forth in Section 8 of this Article II.
Business transacted at any special meeting shall be confined to the purpose or
purposes stated in the notice of such meeting.
SECTION 4. NOTICE OF MEETING. Notice of the time and place of holding
each annual meeting and each special meeting of stockholders shall be given by
the Secretary, not less than ten nor more than
76
<PAGE> 12
sixty days before the meeting, to each stockholder of record entitled to vote at
such meeting. Notices of all meetings of stockholders shall state the purposes
for which the meetings are held.
SECTION 5. LIST OF STOCKHOLDERS. At least ten days before every meeting
of stockholders a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder,
shall be prepared by the Secretary, who shall have charge of the stock ledger.
Such list shall be open for said ten days to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, either
at a place specified in the notice of the meeting (which place shall be within
the city where the meeting is to be held) or, if no such other place has been so
specified, at the place where the meeting is to be held. Such list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder present at the meeting.
SECTION 6. QUORUM. At any meeting of stockholders, the holders of
issued and outstanding shares of capital stock which represent a majority of the
votes entitled to be cast thereat, present in person or represented by proxy,
shall constitute a quorum for the transaction of business. If, however, such
quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time until a
quorum shall be present or represented. Unless the adjournment is for more than
thirty days or a new record date is fixed for the adjourned meeting, notice of
the adjourned meeting need not be given if the time and place thereof are
announced at the meeting at which the adjournment is taken. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally called.
SECTION 7. VOTING. At any meeting of the stockholders, every
stockholder having the right to vote shall be entitled to vote in person, or by
proxy appointed by an instrument in writing subscribed by such stockholder and
bearing a date not more than eleven months prior to said meeting. When a quorum
is present at any meeting, the holders of shares of stock present in person or
represented by proxy, which shares represent a majority of votes cast on any
question before the meeting, shall decide the question unless the question is
one upon which by express provision of law or of the certificate of
incorporation or of these by-laws a different vote is required, in which case
such express provision shall govern and control the decision of such question.
SECTION 8. FIXING OF RECORD DATE. (a) In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action other than stockholder action by
written consent, the Board of Directors may fix a record date, which shall not
precede the date such record date is fixed and shall not be more than sixty nor
less than ten days before the date of such meeting, nor more than sixty days
prior to any such other action. If no record date is fixed, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given. The record date for any other purpose other than
stockholder action by written consent shall be at the close of business on the
day on which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
(b) In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than 10 days after the date upon
which the resolution fixing the record
77
<PAGE> 13
date is adopted by the Board of Directors. Any stockholder of record seeking to
have the stockholders authorize or take corporate action by written consent
shall, by written notice to the Secretary, request the Board of Directors to fix
a record date. The Board of Directors shall promptly, but in all events within
10 days after the date on which such a request is received, adopt a resolution
fixing the record date. If no record date has been fixed by the Board of
Directors within 10 days of the date on which such a request is received, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by applicable law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or any officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by applicable law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts the resolution taking such prior action.
SECTION 9. NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the procedures set forth in the By-laws shall be eligible to
serve as Directors. Nominations of persons for election to the Board of
Directors of the corporation may be made at a meeting of stockholders (a) by or
at the direction of the Board of Directors or (b) by any stockholder of the
corporation who is a stockholder of record at the time of giving of notice
provided for in this Section 9, who shall be entitled to vote for the election
of directors at the meeting and who complies with the notice procedures set
forth in this Section 9. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of the corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the corporation not less than 90 days; provided, however, that in the
event that less than 100 days' notice or prior public disclosure of the date of
the meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the meeting or such public
disclosure was made. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or reelection as a
Director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of Directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to being named
in the proxy statement as a nominee and to serving as a Director if elected);
and (b) as to the stockholder giving the notice (i) the name and address, as
they appear on the corporation's books, of such stockholder and (ii) the class
and number of shares of the corporation which are beneficially owned by such
stockholder. At the request of the Board of Directors, any person nominated by
the Board of Directors for election as a Director shall furnish to the Secretary
of the corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
to serve as a Director of the corporation unless nominated in accordance with
the procedures set forth in this By-law. The Chairman of the meeting shall, if
the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by the By-laws, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded. Notwithstanding the foregoing provisions of
this Section 9, a stockholder shall also comply with all applicable requirements
of the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder with respect to the matters set forth in this Section.
SECTION 10. NOTICE OF BUSINESS. At any meeting of the stockholders,
only such business shall be conducted as shall have been brought before the
meeting (a) by or at the direction of the Board of Directors or (b) by any
stockholder of the corporation who is a stockholder of record at the time of
giving of the notice provided for in this Section 10, who shall be entitled to
vote at such meeting and who complies with the notice procedures set forth in
this Section 10. For business to be properly brought
78
<PAGE> 14
before a stockholder meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of the corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not less than 90 days prior
to the meeting; provided, however, that in the event that less than 100 days'
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder, to be timely must be received no later
than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
A stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (a) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (c) the class
and number of shares of the corporation which are beneficially owned by the
stockholder and (d) any material interest in the stockholder in such business.
Notwithstanding anything in the By-laws to the contrary, no business shall be
conducted at a stockholder meeting except in accordance with the procedures set
forth in this Section 10. The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting and in accordance with the provisions of the By-laws,
and if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing provisions of this Section 10, a stockholder shall
also comply with all applicable requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder with respect to the
matters set forth in this Section.
ARTICLE III
DIRECTORS
SECTION 1. DIRECTORS AND THEIR TERMS OF OFFICE. There shall be a Board
of Directors consisting of not less than three nor more than fifteen persons,
the exact number of Directors to be determined from time to time by resolution
adopted by affirmative vote of a majority of the number of Directors required at
the time to constitute a full board as fixed in or determined pursuant to these
by-laws as then in effect. The Directors shall, except as otherwise provided in
Section 3 of this Article, be elected at the annual meeting or at any meeting of
the stockholders held in lieu of such annual meeting, which meeting, for the
purposes of these by-laws, shall be deemed the annual meeting, and each Director
so elected shall hold office until his successor is elected and qualified. A
Director need not be a stockholder. Within the limits above specified, the
number of Directors may at any time be increased or decreased by vote of the
Directors at any meeting of the Directors provided that no decrease in the
number of Directors shall affect the term of any Director in office.
SECTION 2. POWERS OF DIRECTORS. The affairs, property and business of
the corporation shall be managed by the Board of Directors which may exercise
all such powers of the corporation and do all such lawful acts and things as are
not by law or by the certificate of incorporation or these by-laws directed or
required to be exercised or done by the stockholders.
SECTION 3. VACANCIES. If any vacancies occur in the Board of Directors
caused by death, resignation, retirement, disqualification or removal from
office of any Directors or otherwise, or any new Directorship is created by any
increase in the authorized number of Directors, Directors to fill the vacancy or
vacancies or to fill the newly created Directorship may be elected solely by a
majority vote of the Directors then in office, whether or not a quorum, at any
meeting of the Board and the Directors so chosen shall hold office until their
successors, if any, are duly elected and qualified.
SECTION 4. ANNUAL MEETING OF DIRECTORS. The first meeting of each newly
elected board may be held without notice immediately after an annual meeting of
stockholders (or a special meeting of stockholders held in lieu of an annual
meeting) at the same place as that at which such meeting of stockholders was
held; or such first meeting may be held at such place (within or without the
State of
79
<PAGE> 15
Delaware) and time as shall be fixed by the consent in writing of all the
Directors, or may be called in the manner hereinafter provided with respect to
the call of special meetings.
SECTION 5. REGULAR MEETINGS OF DIRECTORS. Regular meetings of the Board
of Directors may be held at such times and at such place or places (within or
without the State of Delaware) as the Board of Directors may from item to time
prescribe. No notice need be given of any regular meeting and a notice, if
given, need not specify the purposes thereof.
SECTION 6. SPECIAL MEETINGS OF DIRECTORS. Special meetings of the Board
of Directors may be called at any time by or under the authority of the Chairman
of the Board and shall be called by him or by the Secretary on written request
of any two Directors or, if they fail to do so, by two Directors in the name of
the Secretary, to be held in each instance at such place (within or without the
State of Delaware) as the person calling the meeting may designate in the call
thereof. Notice of each special meeting of the Board of Directors, stating the
time and place thereof, shall be given to each Director by the Secretary, not
less than twenty-four hours before the meeting. Such notice need not specify the
purposes of the meeting.
SECTION 7. QUORUM; VOTING. At any meeting of the Board of Directors a
majority of the number of Directors required to constitute a full Board, as
fixed in or determined pursuant to these by-laws as then in effect, shall
constitute a quorum for the transaction of business, but if a quorum shall not
be present at any meeting of Directors, the Directors present thereat may
adjourn the meeting from time to time without notice other than announcement at
the meeting, until a quorum shall be present. Except as otherwise provided by
law or by the certificate of incorporation or by the by-laws, the affirmative
vote of at least a majority of the Directors present at a meeting at which there
is a quorum shall be the act of the Board of Directors.
SECTION 8. MEETINGS BY TELEPHONE. Members of the Board of Directors or
of any committee thereof may participate in meetings of the Board of Directors
or of such committee by means of conference telephone or similar communications
equipment by means of which all person participating in the meeting can hear
each other, and such participation shall constitute presence in person at such
meeting.
SECTION 9. ACTION WITHOUT MEETING. Unless otherwise restricted by the
certificate of incorporation, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if all members of the Board of Directors or of such committee,
as the case may be, consent thereto in writing and the writing or writings are
filed with the minutes of proceedings of the Board of Directors or of such
committee.
SECTION 10. COMPENSATION. By resolution of the Board of Directors, the
Directors, as such, may receive stated salaries for their services, and may be
allowed a fixed sum and expenses of attendance, if any, for attendance at each
regular or special meeting of the Board. Members of committees may also be
allowed a fixed sum and expenses of attendance, if any, for attending committee
meetings. Nothing herein contained shall preclude any Director from serving the
corporation in any other capacity and receiving compensation for such services.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
The Board of Directors, by the affirmative vote of a majority of the
number of Directors required at the time to constitute a full board as fixed in
or determined pursuant to these by-laws as then in effect, may designate two or
more of its members to constitute an Executive Committee, which committee shall,
when the Board of Directors is not in session, have and may exercise, to the
extent provided by resolution of the Board of Directors, from time to time, all
the powers of the Board of Directors (including all action
80
<PAGE> 16
which may be taken by the Board of Directors as by law, by the certificate of
incorporation or by the by-laws provided) insofar as such powers may be lawfully
delegated, and may have power to authorize the seal of the corporation to be
affixed to all papers which may require it.
The Board of Directors, by the affirmative vote of a majority of the
number of Directors required at the time to constitute a full board as fixed in
or determined pursuant to these by-laws as then in effect, may also appoint
other committees, the members of which may, but need not, be Directors, the
number composing such committees, not less than two, and the powers (to be
advisory only if all the members are not Directors) conferred upon them to be
determined by resolution of the Board of Directors.
No committee shall have power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the by-laws; and unless the resolution shall expressly so provide,
no committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
Vacancies in the membership of committees shall be filled by the Board
of Directors at a regular meeting or at a special meeting.
At any meeting of any committee a majority of the whole committee shall
constitute a quorum and except as otherwise provided by statute or by the
certificate of incorporation or by the by-laws the affirmative vote of at least
a majority of the members present at a meeting at which there is a quorum shall
be the act of the committee.
The Secretary of the corporation, or in his absence, an Assistant
Secretary, or other person designated by a committee, shall act as secretary of
such committee.
The Executive Committee and each of the other committees, except as
otherwise provided by resolution of the Board of Directors, shall fix the time
and place of its meetings within or without the State of Delaware, shall adopt
its own rules and procedure, and shall keep a record of its acts and proceedings
and report the same from time to time to the Board of Directors.
ARTICLE V
OFFICERS
SECTION 1. OFFICERS AND THEIR ELECTION, TERM OF OFFICE AND VACANCIES.
The officers of the corporation shall be a Chairman of the Board, a President, a
Secretary, a Treasurer and such Vice Presidents, Assistant Secretaries,
Assistant Treasurers and other officers as the Board of Directors may from time
to time determine and elect or appoint. All officers shall be elected annually
by the Board of Directors at their first meeting following the annual meeting of
stockholders or any special meeting held in lieu thereof and shall hold office
until their successors are duly elected and qualified. The Chairman of the Board
must be a Director. All other officers may, but need not be, members of the
Board of Directors. Two or more offices may be held by the same person. Any
officer elected by the Board of Directors may be removed at any time by the
Board of Directors. If any vacancy shall occur among the officers, it shall be
filled by the Board of Directors.
SECTION 2. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be
the chief executive officer of the corporation with full control and
responsibility for management decisions, subject to the supervision and control
of the Board of Directors and such limitations as the Board of Directors may
from time to time impose. The Chairman of the Board when present shall preside
at all meetings of the stockholders and of the Directors. It shall be his duty
and he shall have the power to see that all orders
81
<PAGE> 17
and resolutions of the Board are carried into effect. The Chairman of the Board
shall perform such additional duties and have such additional powers as the
Directors shall designate. In the absence or disability of the Chairman of the
Board, his powers and duties shall be performed by such officer of the
corporation as the Board shall designate.
SECTION 3. PRESIDENT. The President shall be the chief operating
officer of the corporation with full control and responsibility for the
operations of the corporation. The President, as soon as reasonably possible
after the close of each fiscal year, shall submit to the Board a report of the
operations of the corporation for such year and a statement of its affairs and
shall from time to time report to the Board all matters within his knowledge
which the interests of the corporation may require to be brought to its notice.
The President shall perform such duties and have such powers additional to the
foregoing as the Board shall designate.
SECTION 4. VICE PRESIDENTS. In the absence or disability of the
President, his powers and duties shall be performed by the Vice President, if
only one, or, if more than one, by the one designated for the purpose by the
Board. Each Vice President shall have such other powers and perform such other
duties as the Board shall from time to time designate.
SECTION 5. TREASURER. The Treasurer shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the corporation in such depositaries as shall be designated by the
Board or in the absence of such designation in such depositaries as he shall
from time to time deem proper. He shall disburse the funds of the corporation as
shall be ordered by the Board, taking proper vouchers for such disbursements. He
shall promptly render to the President and to the Board such statements of his
transactions and accounts as the President and Board respectively may from time
to time require. The Treasurer shall perform such duties and have such powers
additional to the foregoing as the Board may designate.
SECTION 6. ASSISTANT TREASURERS. In the absence or disability of the
Treasurer, his powers and duties shall be performed by the Assistant Treasurer,
if only one, or if more than one, by the one designated for the purpose by the
Board Each Assistant Treasurer shall have such other powers and perform such
other duties as the Board shall from time to time designate.
SECTION 7. THE SECRETARY. The Secretary shall issue notices of all
meetings of stockholders and Directors and of the executive and other committees
where notices of such meetings are required by law or these by-laws. He shall
keep the minutes of meetings of stockholders and of the Board of Directors and
of the executive and other committees, respectively, unless such committees
appoint their own respective secretaries and be responsible for the custody
thereof. Unless the Board shall appoint a transfer agent and/or registrar, the
Secretary shall be charged with the duty of keeping, or causing to be kept,
accurate records of all stock outstanding, stock certificates issued and stock
transfers. He shall sign such instruments as require his signature and shall
perform such other duties and shall have such powers as the Board of Directors
shall designate from time to time, in all cases subject to the control of the
Board of Directors. The Secretary shall have custody of the corporate seal,
shall affix and attest such seal on all documents whose execution under seal is
duly authorized. In his absence at any meeting, an Assistant Secretary or the
Secretary pro tempore shall perform his duties thereat.
SECTION 8. ASSISTANT SECRETARIES. In the absence or disability of the
Secretary, his powers and duties shall be performed by the Assistant Secretary,
if only one, or, if more than one, by the one designated for the purpose by the
Board. Each Assistant Secretary shall have such powers and perform such other
duties as the Board shall from time to time designate.
SECTION 9. Salaries. The salaries of officers, agents and employees
shall be fixed from time to time by or under authority from the Board of
Directors.
82
<PAGE> 18
ARTICLE VI
RESIGNATIONS AND REMOVALS
SECTION 1. OFFICERS, AGENTS. EMPLOYEES AND MEMBERS OF COMMITTEES. Any
officer, agent or employee of the corporation may resign at any time by giving
written notice to the Board of Directors or to the Chairman of the Board or to
the Secretary of the corporation; and any member of any committee may resign by
giving written notice either as aforesaid or to the committee of which he is a
member or to the chairman thereof. Any such resignation shall take effect at the
time specified therein, or if the time be not specified, upon receipt thereof,
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective. The Board of Directors may at any
time, with or without cause, remove from office or discharge or terminate the
employment of any officer, agent, employee or member of any committee.
SECTION 2. DIRECTORS. Any Director of the corporation may resign at any
time by giving written notice to the Board of Directors or to the Chairman of
the Board or to the Secretary of the corporation. Any such resignation shall
take effect at the time specified therein, or if the time be not specified, upon
receipt thereof; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective. When one or more
Directors shall resign from the Board of Directors, effective at a future date,
a majority of the Directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective and
each Director so chosen shall hold office as provided in these by-laws in the
filling of other vacancies. The stockholders of the corporation entitled to vote
upon the election of Directors may, at any time, remove from office any one or
more Directors only with cause, and his successor or their successors shall be
elected by the remaining Directors as provided in these By-laws in the filling
of other vacancies. A Director may be removed for cause only after reasonable
notice and opportunity to be heard before the body proposing to remove him.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
SECTION 1. The corporation shall indemnify, to the fullest extent
permitted by the General Corporation Law of the State of Delaware as presently
in effect or as hereafter amended:
(a) Subject to the provisions of Section 10, any person who
was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative and whether external
or internal to the corporation (other than by action by or in the right
of the corporation) by reason of the fact that he is or was a Director
or officer of the corporation, or is or was serving at the request of
the corporation as a Director or officer of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with
such suit, action or proceeding if he acted in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of NOLO
CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was
lawful.
83
<PAGE> 19
(b) Any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by
or in the right of the corporation to procure a judgment in its favor
by reason of the fact that he is or was a Director or officer of the
corporation, or is or was serving at the request of the corporation as
a Director or officer of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including
attorneys' fees) and amounts paid in settlement actually and reasonably
incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery of the State of Delaware or the court in
which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or
such other court shall deem proper.
SECTION 2. The Board of Directors, in its discretion, may authorize the
corporation to indemnify to the fullest extent permitted by the General
Corporation Law of the State of Delaware (as presently in effect or as hereafter
amended):
(a) Subject to the provisions of Section 10, any person who
was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he is
or was an employee or agent of the corporation, or is or was serving at
the request of the corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such suit, action or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to
the best interest of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was
unlawful.
(b) Any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by
or in the right of the corporation to procure a judgment in its favor
by reason of the fact that he is or was an employee or agent of the
corporation, or is or was serving at the request of the corporation as
an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including
attorneys' fees) and amounts paid in settlement actually and reasonably
incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery of the State of Delaware or the court in
which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or
such other court shall deem proper.
SECTION 3. Any indemnification under this Article VII (unless required
by law or ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that
84
<PAGE> 20
indemnification of the Director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections l and 2 of this Article VII. Such determination shall be made (i) by
the Board of Directors by a majority vote of a quorum consisting of Directors
who were not parties to such action, suit or proceeding, or (ii) if such a
quorum is not obtainable, or, even if obtainable a quorum of disinterested
Directors so directs, by independent legal counsel in a written opinion, or
(iii) by the stockholders of the corporation.
SECTION 4. Expenses incurred by a Director or officer in defending a
civil or criminal action, suit or proceeding shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the Director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this Article VII. Any advance
under this Section 4 shall be made promptly, and in any event within ninety
days, upon the written request of the person seeking the advance.
SECTION 5. The indemnification and advancement of expenses provided by,
or granted pursuant to, the other Sections of this Article VII shall not be
deemed exclusive of any other rights to which any person, whether or not
entitled to be indemnified under this Article VII, may be entitled under any
statute, by-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office. Each person who is or becomes a
Director or officer as described in Section 1 shall be deemed to have served or
to have continued to serve in such capacity in reliance upon the indemnity
provided for in this Article VII. All rights to indemnification under this
Article VII shall be deemed to be provided by a contract between the corporation
and the person who serves as a Director or officer of the corporation at any
time while these by-laws and other relevant provisions of the General
Corporation Law of the State of Delaware and other applicable law, if any, are
in effect. Any repeal or modification thereof shall not affect any rights or
obligations then existing.
SECTION 6. The Board of Directors may at any time and from time to time
cause the corporation to purchase and maintain insurance on behalf of any person
who is or was a Director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a Director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of the State of Delaware (as
presently in effect or hereafter amended), the Certificate of Incorporation of
the corporation or these By-laws.
SECTION 7. The corporation's indemnification under Sections 1 and 2 of
this Article VII of any person who is or was a Director, officer, employee or
agent of the corporation, or is or was serving, at the request of the
corporation as a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall be reduced by any
amounts such person receives as indemnification (i) under any policy of
insurance purchased and maintained on his behalf by the corporation, (ii) from
such other corporation, partnership, joint venture, trust or other enterprise,
or (iii) under any other applicable indemnification provision.
SECTION 8. In the discretion of the Board of Directors of the
corporation, for the purposes of this Article VII, references to "the
corporation" may also include any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its Directors or officers, so that any person who is or was a Director
or officer of such constituent corporation, or is or was serving at the request
of such constituent corporation as a Director or officer of another corporation,
partnership, joint venture, trust or other enterprise, would stand in the same
position under the provisions of this Article VII with respect to the resulting
or surviving corporation as he would have with respect to such other constituent
corporation if its separate existence had continued.
85
<PAGE> 21
SECTION 9. In addition to and without limiting the foregoing provisions
of this Article VII and except to the extent otherwise required by law, any
person seeking indemnification under or pursuant to Section 1 of this Article
VII shall be deemed and presumed to have met the applicable standard of conduct
set forth in Section l unless the contrary shall be established.
SECTION 10.
(a) In addition to and without limiting the foregoing provisions of
this Article VII and except to the extent otherwise required by law, (a) it
shall be a condition of the corporation's obligation to indemnify under Sections
l(a) and 2(a) of this Article VII (in addition to any other condition in these
By-laws or by law provided or imposed) that the person asserting, or proposing
to assert, the right to be indemnified, promptly after receipt of notice of
commencement of any action, suit or proceeding in respect of which a claim for
indemnification is or is to be made against the corporation, notify the
corporation of the commencement of such action, suit or proceeding, including
therewith a copy of all papers served and the name of counsel retained or to be
retained by such person in connection with such action, suit or proceeding, and
thereafter to keep the corporation timely and fully apprised of all developments
and proceedings in connection with such action, suit or proceeding or as the
corporation shall request, and (b) the fees and expenses of any counsel retained
by a person asserting, or proposing to assert, the right to be indemnified under
Section l(a) or 2(a) of this Article VII shall be at the expense of such person
unless the counsel retained shall have been approved by the corporation in
writing.
(b) If a claim for indemnification or advancement of expenses under
this Article VII is not paid in full by the corporation within 90 days after a
written claim therefor has been received by the corporation, the claimant may at
any time thereafter bring suit against the corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expenses of prosecuting such claim.
SECTION 11. For purposes of this Article VII, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the corporation"
shall include any service by a Director or officer of the corporation which
imposes duties on, or involves services by, such person with respect to any
employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Article VII.
SECTION 12. To the extent that a Director, officer, agent or employee
of the corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Section 1 or in Section 2, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
SECTION 13. The indemnification and advancement of expenses provided
by, or granted pursuant to, this Article VII shall continue as to a person who
has ceased to be a Director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
SECTION 14. If any term or provision of this Article VII or the
application thereof to any person, property or circumstance shall to any extent
be invalid or unenforceable, the remainder of this Article VII or the
application of such term or provision to persons, property or circumstances
other than those as to which it is invalid or unenforceable shall not be
affected thereby, and each term and provision of this Article VII shall be valid
and enforced to the fullest extent permitted by law.
86
<PAGE> 22
ARTICLE VIII
CAPITAL STOCK
SECTION 1. STOCK CERTIFICATES. Each stockholder shall be entitled to a
certificate or certificates representing in the aggregate the share owned by him
and certifying the number and class thereof, which shall be in such form as this
Board shall adopt. Each certificate of stock shall be signed by the Chairman of
the Board or the President or a Vice President, and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary. Any of or all
the signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate has ceased to be such officer, transfer agent or
registrar before the certificate is issued, such certificate may nevertheless be
issued by the corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
SECTION 2. TRANSFER OF STOCK. Shares of stock shall be transferable on
the books of the corporation pursuant to applicable law and such rules and
regulations as the Board of Directors shall from time to time prescribe.
SECTION 3. HOLDERS OF RECORD. Prior to due presentment for registration
of transfer the corporation may treat the holder of record of a share of its
stock as the complete owner thereof exclusively entitled to vote, to receive
notifications and otherwise entitled to all the rights and powers of a complete
owner thereof, notwithstanding notice to the contrary.
SECTION 4. TRANSFER AGENT AND REGISTRAR. The Board of Directors may at
any time appoint a transfer agent or agents and/or registrar or registrars for
the transfer and/or registration of shares of stock.
SECTION 5. LOST, STOLEN, DESTROYED OR MUTILATED STOCK CERTIFICATES. The
Board of Directors may direct a new stock certificate or certificates to be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, destroyed or mutilated, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost, stolen, destroyed or mutilated. When authorizing such issue of
a new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen, destroyed or mutilated certificate or certificates, or his legal
representative, to (a) advertise the same in such manner as it shall require
and/or (b) give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen, destroyed or mutilated and/or (c)
comply with any other reasonable requirements prescribed by the Board.
87
<PAGE> 23
ARTICLE IX
SECURITIES OF OTHER CORPORATIONS
Subject to any limitations that may be imposed by the Board of
Directors, the Chairman of the Board, the President or any person or persons
authorized by the Board may in the name and on behalf of the corporation (i)
act, or appoint any other person or persons (with or without powers of
substitution) to act in the name and on behalf of the corporation (as proxy or
otherwise), at any meeting of the holders of stock or other securities of any
corporation or other organization, securities of which shall be held by this
corporation, or (ii) express consent or dissent, as a holder of such securities,
to corporate or other action by such other corporation or organization.
ARTICLE X
CHECKS, NOTES, DRAFTS AND OTHER INSTRUMENTS
Checks, notes, drafts and other instruments for the payment of money
drawn or endorsed in the name of the corporation may be signed by any officer or
officers or person or persons authorized by the Board of Directors to sign the
same. No officer or person shall sign any such instrument as aforesaid unless
authorized by the Board to do so.
ARTICLE XI
DIVIDENDS AND RESERVES
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
corporation may, subject to any provisions of the certificate of incorporation,
be declared pursuant to law by the Board of Directors. Dividends may be paid in
cash, in property or in shares of the capital stock.
SECTION 2. RESERVES. Before payment of any dividend there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the Board of Directors from time to time, in its absolute discretion,
thinks proper as a reserve fund to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the Directors shall think conducive to the interest of
the corporation, and the Directors may modify or abolish any such reserve in the
manner in which it was created.
ARTICLE XII
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors may
from time to time prescribe and the same may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.
ARTICLE XIII
FISCAL YEAR
The fiscal year of the corporation shall end on the 31st day of
December of each year.
ARTICLE XIV
BOOKS AND RECORDS
The books, accounts and records of the corporation, except as may be
otherwise required by the laws of the State of Delaware, may be kept outside of
the State of Delaware, at such place or places as the Board of Directors may
from time to time appoint. Except as may otherwise be provided by law, the Board
of Directors shall determine whether and to what extent the books, accounts,
records and documents of the corporation, or any of them, shall be open to the
inspection of the stockholders, and no stockholder shall have any right to
inspect any book, account, record or document of the corporation, except as
conferred by law or by resolution of the stockholders or Board of Directors.
ARTICLE XV
NOTICES
SECTION 1. MANNER OF GIVING OF NOTICE. Whenever the provisions of a
law, the certificate of incorporation, the by-laws or rules of a committee
require notice to be given to any Director, officer,
88
<PAGE> 24
stockholder or member of a committee, they shall not be construed to mean
personal notice; such notice may be given by telegram or by depositing such
notice in a post office or letter box, in a postpaid, sealed wrapper, addressed
to such Director, officer, stockholder or member of a committee at his address
as the same appears in the books or records of the corporation (unless he shall
have filed with the Secretary a written request that notice intended for him be
sent to some other address, in which case it shall be sent to the address
designated in the most recent such request); and the time when such telegram
shall be transmitted or notice deposited shall be deemed to be the time of the
giving of such notice.
SECTION 2. WAIVER OF NOTICE. Whenever notice is required by law, the
certificate of incorporation, the by-laws, or as otherwise provided by law, a
written waiver thereof, signed by the person entitled to notice, shall be deemed
equivalent to notice, whether signed before or after the time required for such
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting except when the person attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders, Directors or members of a committee of directors need be
specified in any written waiver of notice.
ARTICLE XVI
SEPARABILITY
If any term or provision of the by-laws, or the application thereof to
any person or circumstance or period of time, shall to any extent be invalid or
unenforceable, the remainder of the by-laws, or the application of such term or
provision to persons or circumstances or periods of time other than those as to
which it is invalid or unenforceable, shall not be affected thereby and each
term and provision of the by-laws shall be valid and enforced to the fullest
extent permitted by law.
89
<PAGE> 25
ARTICLE XVII
AMENDMENTS
The by-laws may be made, altered or repealed by the stockholders or, if
such power is conferred by the certificate of incorporation, by the Board of
Directors except that any by-law made by the stockholders may be altered or
repealed only by the stockholders if such by-law expressly so provides.
90
<PAGE> 26
CERTIFICATE AS TO REPRESENTATIONS, WARRANTIES AND NO DEFAULTS
I, Thomas H. McLain, Assistant Secretary, Chief Financial Officer and
Senior Vice President and Senior Vice President, Corporate Services of NABI, a
Delaware corporation (the "Borrower"), in my capacity as such officer, hereby
certify to Bank of America, N.A., formerly NationsBank, N.A., a national banking
association (the "Agent") in connection with the effectiveness of Amendment No.
4 dated as of February 1, 2000 (the "Amendment") to the Loan and Security
Agreement dated as of September 12, 1997, as amended by Amendment No. 1 and
Waiver dated as of November 14, 1997, Amendment No. 2 and Waiver dated as of
March 27, 1998 and Amendment No. 3 and Waiver dated as of March 1, 1999 (as so
amended, the "Loan Agreement"), between the Borrower, the financial institutions
party thereto from time to time (the "Lenders") and the Agent that, to the best
of my knowledge and based on an examination sufficient to enable me to make an
informed statement, after giving effect to the Amendment,
1. All of the representations and warranties made or deemed to be
made under the Loan Agreement are true and correct in all
material respects on and as of the date hereof; and
2. No Default or Event of Default under and as defined in the
Loan Agreement exists on the date hereof.
IN WITNESS WHEREOF, I have executed this Certificate this 2nd day of
February, 2000.
/s/ Thomas H. McLain
------------------------------------
Thomas H. McLain
91
<PAGE> 27
ANNEX B
CONSENT AND CONFIRMATION OF GUARANTORS
The undersigned, each in their capacity as a Guarantor under the
Subsidiary Guaranty dated as of September 12, 1997 (as modified or amended to
date, the "Subsidiary Guaranty"), in favor of the Lenders, hereby confirms, for
the benefit of the Borrower and the Lenders, that (1) such Guarantor is a
Subsidiary of Borrower, (2) such Guarantor has received a copy of Amendment No.
4 dated as of February 1, 2000 and consents thereto (to the extent such consent
may be required) and (3) the Subsidiary Guaranty of which such Guarantor is the
maker constitutes a continuing, unconditional, guaranty of the Secured
Obligations under and as defined in the Subsidiary Guaranty. Each of the
undersigned is and continues to be liable under the Subsidiary Guaranty in
accordance with the terms thereof, notwithstanding the execution and delivery of
the aforesaid Amendment.
Dated: February 2, 2000
BIOMUNE CORPORATION
[CORPORATE SEAL] By: /s/ Thomas H. McLain
-------------------------------
Name: Thomas H. McLain
Title: Treasurer and Director
NABI FINANCE, INC.
[CORPORATE SEAL] By: /s/ Thomas H. McLain
-------------------------------
Name: Thomas H. McLain
Title: President and Director
92
<PAGE> 28
ACKNOWLEDGMENT OF EXECUTION
STATE OF NEW YORK
COUNTY OF SUFFOLKS
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this 2nd day of February, 2000, personally appeared David J. Gury who,
being by me duly sworn, says that he resides at 2360 NW 43rd Street, Boca Raton,
FL 33431, is known to be the President and Chief Executive Officer of Nabi, a
Delaware corporation (the "Corporation"), and that by authority duly given, by
and as the act of the Corporation, the foregoing and annexed Amendment No. 4
dated as of February 1, 2000 to Loan and Security Agreement dated as of
September 12, 1997 was signed by him as said officer on behalf of the
Corporation in Suffolk County, February 2, 2000 on this date.
WITNESS my hand and official seal, this 2nd day of February, 2000.
/s/ Lisa G. Guerra
--------------------------------------
Notary Public, State of New York
No. 41-4968358
My commission expires: JUNE 18, 2000
[NOTARIAL SEAL]
93
<PAGE> 1
NABI EXHIBIT 21
- --------------------------------------------------------------------------------
SUBSIDIARIES OF THE REGISTRANT
Set forth below is a listing of all of the existing subsidiaries of the
Registrant. The Registrant owns 100% of the stock of each of the subsidiaries
listed below.
SUBSIDIARIES STATE OR NATION OF INCORPORATION
------------ ---------------------------------
NABI Foreign Sales, Ltd............ Barbados, West Indies
BioMune Corporation............... Delaware
NABI Finance, Inc................. Delaware
94
<PAGE> 1
NABI EXHIBIT 23.1
- --------------------------------------------------------------------------------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement Form
S-3 No. 333-2253) of Nabi and in the related Prospectus and the Registration
Statements (Forms S-8 No. 33-42223, No. 33-42224, No. 33-05219, No. 33-60795,
No. 33-64092, No. 33-65069, No. 333-56037, No. 333-56071, No. 333-81009 and No.
333-95269) pertaining to the following employee benefit plans of Nabi (1990
Equity Incentive Plan, 1998 Non-Qualified Employee Stock Option Plan, Stock
Option Plan for Non-Employee Directors, North American Biologicals, Inc. Amended
and Restated Incentive Stock Option Plan (ISO), and 1989 Stock Option Plan for
Univax Corporation) of our report dated February 16, 2000, with respect to the
consolidated financial statements and schedule of Nabi included in this Annual
Report (Form 10-K) for the year ended December 31, 1999.
/s/ Ernst & Young LLP
- -----------------------
Ernst & Young LLP
Miami, Florida
March 10, 2000
95
<PAGE> 1
NABI EXHIBIT 23.2
- --------------------------------------------------------------------------------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 333-2253) and
the Registration Statements on Form S-8 (No. 33-42223, No. 33-42224, No.
33-05219, No. 33-60795, No. 33-64092, No. 33-65069, No. 333-56037, No.
333-56071, No. 333-81009 and No. 333-95269) of Nabi and its subsidiaries of our
report dated March 26, 1999, appearing in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Miami, Florida
March 14, 2000
96
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 806
<SECURITIES> 0
<RECEIVABLES> 34,019<F1>
<ALLOWANCES> 0
<INVENTORY> 35,932<F1>
<CURRENT-ASSETS> 78,504
<PP&E> 109,138<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 214,162
<CURRENT-LIABILITIES> 42,505
<BONDS> 112,998
0
0
<COMMON> 3,496
<OTHER-SE> 54,681
<TOTAL-LIABILITY-AND-EQUITY> 214,162
<SALES> 233,603
<TOTAL-REVENUES> 233,603
<CGS> 163,407
<TOTAL-COSTS> 163,407
<OTHER-EXPENSES> 62,460
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 4,313
<INCOME-PRETAX> 3,387
<INCOME-TAX> 43
<INCOME-CONTINUING> 3,344
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,344
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.09
<FN>
<F1>RECEIVABLES, INVENTORIES AND PP&E REPRESENT NET AMOUNTS.
<F2>LOSS PROVISION INCLUDED IN OTHER EXPENSES.
</FN>
</TABLE>
