Enzo Biochem Inc. on Thursday said it will reorganize underChapter 11 of the bankruptcy code as part of a settlement withits bondholders.

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

Enzo will go into a prepackaged reorganization under Chapter11 to enforce compliance in case "any of the other 15 percentof the bondholders hold out and do not agree to this," saidspokeswoman Carol Dempster.

The reorganization has been pre-approved by the bankruptcycourt, 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 involvedin the restructuring, except that EnzoLabs will be a guarantorand will provide security for the revised debt.

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

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

The bonds must be prepaid from 50 percent of the net pretaxproceeds from the sale or financing of a six-story buildingthat the company is renovating in New York City, and from asuit brought against Johnson & Johnson in 1987 relating to aresearch and development contract.

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

These include three-year employment agreements, 10-yearwarrants to purchase a total of 2 million shares of commonstock at up to $4 per share and incentives that providewarrants for up to an additional 2 million shares of stock at anexercise price of $2 per warrant. Enzo has 11.4 millionoutstanding shares of stock.

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

-- Kris Herbst BioWorld Washington Bureau

(c) 1997 American Health Consultants. All rights reserved.