Enzo Biochem Inc. on Thursday said it will reorganize under Chapter 11 of the bankruptcy code as part of a settlement with its bondholders.

The company, which had defaulted on the bonds, said it had reached an agreement in principle with the holders of 85 percent of its outstanding 9 percent subordinated debentures due 2001.

Enzo will go into a prepackaged reorganization under Chapter 11 to enforce compliance in case "any of the other 15 percent of the bondholders hold out and do not agree to this," said spokeswoman Carol Dempster.

The reorganization has been pre-approved by the bankruptcy court, and final approval could be granted within 25 days, Dempster said.

Enzo's wholly owned subsidiaries -- Enzo Diagnostics Inc., EnzoLabs Inc. and Enzo Therapeutics Inc. -- will not be involved in the restructuring, except that EnzoLabs will be a guarantor and will provide security for the revised debt.

Farmingdale, N.Y.-based Enzo develops and markets DNA probes and other diagnostics. Enzo stock (AMEX:ENZ) closed at $1.13, up 44 cents, on Thursday.

The outstanding debentures will be exchanged for new bonds that are convertible to common stock at $5 per share. Enzo can make interest payments in either cash or stock, at 85 percent of market value with a $1 floor, for a period of three years.

The bonds must be prepaid from 50 percent of the net pretax proceeds from the sale or financing of a six-story building that the company is renovating in New York City, and from a suit brought against Johnson & Johnson in 1987 relating to a research and development contract.

The agreement also provides a package of benefits for members of Enzo's senior management because the company "did not want the management to leave," according to Dempster.

These include three-year employment agreements, 10-year warrants to purchase a total of 2 million shares of common stock at up to $4 per share and incentives that provide warrants for up to an additional 2 million shares of stock at an exercise price of $2 per warrant. Enzo has 11.4 million outstanding shares of stock.

Under certain conditions, if the company fails to make its debt payments, management also will be allowed to buy the stock and assets of Enzo Diagnostics and/or Enzo Therapeutics at the end of three years.

-- Kris Herbst BioWorld Washington Bureau

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