As filed with the Securities and Exchange Commission on August 14, 2001
Registration No. 333-____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ENZON, INC.
(Exact name of registrant as specified in its charter)
Delaware 2836
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code)
22-2372868
(I.R.S. Employer Identification No.)
20 Kingsbridge Road
Piscataway, New Jersey 08854
(732) 980-4500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Arthur J. Higgins
President and Chief Executive Officer
Enzon, Inc.
20 Kingsbridge Road
Piscataway, New Jersey 08854
(732) 980-4500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Kevin T. Collins, Esq.
Dorsey & Whitney LLP
250 Park Avenue
New York, New York 10177
(212) 415-9319
Facsimile: (212) 953-7201
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: |_|
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earliest effective registration statement
for the same offering: |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: |_|
CALCULATION OF REGISTRATION FEE
Proposed
Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Offering Amount of
Securities to be Registered Registered (1)(2) Per Note Price (1) Registration Fee
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4 1/2% Convertible Subordinated Notes due 2008.... $400,000,000 100% $400,000,000 $100,000
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Common Stock, par value $0.01 per share(2)........ 5,635,390 shares -- -- --
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(1) Equals the aggregate principal amount of the securities being registered.
(2) Such number represents the number of shares of common stock that are
currently issuable upon conversion of the notes; pursuant to Rule 416 under
the Securities Act of 1933, as amended, the registrant is also registering
such indeterminate number of shares of common stock as may be issued from
time to time upon conversion of the notes as a result of the antidilution
protection of the notes. Pursuant to Rule 457(i), no registration fee is
required for these shares.
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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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PROSPECTUS (Subject to Completion)
Dated August 14, 2001
$400,000,000
ENZON, Inc.
4 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2008
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Certain securityholders of Enzon, Inc. may offer for sale 4 1/2% Convertible
Subordinated Notes due 2008 of Enzon, and the shares of common stock of Enzon
into which the notes are convertible, at various times at market prices
prevailing at the time of sale or at privately negotiated prices. The selling
holders may sell the notes or the common stock to or through underwriters,
broker-dealers or agents, who may receive compensation in the form of
discounts, concessions or commissions.
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Interest on the notes is payable in arrears on January 1 and July 1 of each
year, beginning on January 1, 2002. The notes will mature on July 1, 2008
unless earlier converted or redeemed.
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The holders of the notes may convert any portion of a note (in multiples of
$1,000) into common stock at any time on or before July 1, 2008, at a
conversion price of $70.98 per share, subject to adjustment in certain events.
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On or after July 7, 2004, we may redeem any of the notes at the redemption
prices set forth herein plus accrued interest.
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The notes are subordinated in right of payment to all of our senior
indebtedness. As of June 30, 2001, we had no senior indebtedness outstanding.
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For a more detailed description of the notes, see "Description of Notes,"
beginning on page 18.
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The common stock is quoted on the Nasdaq National Market under the symbol
"ENZN." On August 13, 2001, the reported last sale price of the common stock
on the Nasdaq National Market was $66.32 per share.
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We will not receive any proceeds from the sale of the notes and the common
stock into which the notes are convertible by the selling holders. We will pay
all expenses (other than selling commissions and fees and stock transfer
taxes) of the registration and sale of the notes and the common stock.
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Investing in the notes or the common stock into which the notes are
convertible involves a high degree of risk. See "Risk Factors" beginning on
page 5.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
_____________, 2001
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell and we are not soliciting
offers to buy these securities in any jurisdiction where the offer or sale is
not permitted.
TABLE OF CONTENTS
Page
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Our Company ............................................................. 3
Risk Factors ............................................................ 5
Special Note Regarding Forward-Looking Statements ....................... 15
Ratio of Earnings to Fixed Charges ...................................... 16
Use of Proceeds ......................................................... 16
Description of Notes .................................................... 17
Description of Capital Stock ............................................ 27
Page
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Certain United States and Federal Income Tax Considerations ............. 29
Selling Holders ......................................................... 35
Plan of Distribution .................................................... 35
Legal Matters ........................................................... 36
Experts ................................................................. 36
Where You Can Find More Information ..................................... 37
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In this prospectus, "Enzon," "company," "we," "us," "our" and "ours" refer
to Enzon, Inc., and "common stock" refers to Enzon's common stock, par value
$0.01 per share, in each case except where the context otherwise requires or
as otherwise indicated.
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You should only rely on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not
authorized anyone to provide you with different information. The selling
holders are not making an offer of these securities in any state where the
offer is not permitted. You should not assume that the information in this
prospectus or any prospectus supplement is accurate as of any date other than
the date on the front of the document.
2
OUR COMPANY
We are a biopharmaceutical company that develops and commercializes enhanced
therapeutics for life- threatening diseases through the application of our two
proprietary platform technologies: PEG and single-chain antibodies. We apply
our PEG, or polyethylene glycol, technology to improve the delivery, safety
and efficacy of proteins and small molecules with known therapeutic efficacy.
We apply our single-chain antibody, or SCA, technology to discover and produce
antibody-like molecules that offer many of the therapeutic benefits of
monoclonal antibodies while addressing some of their limitations.
PEG Products
PEG-INTRON(TM) is a PEG-enhanced version of Schering-Plough's alpha-
interferon product, INTRON(R) A. We have designed PEG-INTRON to allow for less
frequent dosing and to yield greater efficacy as compared to INTRON A. Our
worldwide partner for PEG-INTRON, Schering-Plough, received approval for the
treatment of adult patients with chronic hepatitis C during May 2000 in the
European Union and in the United States in January 2001. PEG-INTRON is also
approved for use in combination with REBETOL (ribavirin, USP) Capsules for the
treatment of chronic hepatitis C in adult patients not previously treated. A
Phase III clinical trial is also being conducted for PEG-INTRON for the
treatment of malignant melanoma, and earlier stage clinical trials of PEG-
INTRON are being conducted for other indications, including HIV. Schering-
Plough's worldwide sales of INTRON A, REBETRON Combination Therapy and PEG-
INTRON for all indications in 2000 totaled $1.4 billion.
PROTHECAN is a PEG-enhanced version of camptothecin, a compound in the class
of molecules called topoisomerase inhibitors. Camptothecin has been shown in
clinical testing to be potent against certain tumor types, but it possesses
limited clinical utility due to significant side effects and poor solubility.
We have shown in pre-clinical studies that PROTHECAN has reduced side effects
compared to camptothecin as well as other topoisomerase inhibitors and that it
preferentially accumulates in tumors. In July 2001, we initiated a Phase II
clinical trial in patients with small-cell lung cancer.
PEG-paclitaxel is a PEG-modified version of paclitaxel. Preclinical animal
studies have demonstrated that PEG-paclitaxel can be dosed at higher levels
than TAXOL(R) (paclitaxel). We filed an Investigational New Drug, or IND,
application with the FDA for PEG-paclitaxel in December 2000. In May 2001, we
initiated the patient dosing in a Phase I clinical trial for PEG-paclitaxel.
The trial is designed to determine the safety, tolerability and pharmacology
of PEG-paclitaxel in patients with advanced solid tumors and lymphomas.
We have commercialized two additional products based on our PEG technology:
ADAGEN for the treatment of a congenital enzyme deficiency disease called
SCID, and ONCASPAR for the treatment of acute lymphoblastic leukemia. Each of
these products is a PEG-enhanced version of a naturally occurring enzyme. Both
products have been on the market for several years and have demonstrated the
safe and effective application of our PEG technology.
Single-Chain Antibodies
SCAs are genetically engineered proteins which possess the binding
specificity and affinity of monoclonal antibodies and are designed to expand
on the therapeutic and diagnostic applications possible with monoclonal
antibodies. Preclinical studies have shown that SCAs allow for greater tissue
penetration and faster clearance from the body. We believe that we possess
strong intellectual property in the area of SCAs. The most clinically advanced
SCAs based on our technology are being developed by one of our licensees,
Alexion Pharmaceuticals, for complications arising during cardiopulmonary
bypass, for which a Phase IIb clinical trial has been completed, and
myocardial infarction, for which Phase II clinical trials are ongoing.
3
Strategy
To further realize the potential value of our PEG and SCA technologies, we
intend to pursue the following strategic initiatives:
o continue to identify proteins and small molecules of known therapeutic
value that we believe can be improved by our PEG technology and develop
PEG-enhanced versions of such compounds;
o acquire technologies and companies which are complementary to our
technologies and clinical focus;
o enter into license agreements with third parties to apply our PEG
technology to their existing compounds; and
o advance our SCA technology through in-licensing, collaborations and
entering into license agreements with third parties.
Corporate Information
Enzon, Inc. was incorporated in Delaware in 1981. Our principal executive
offices are located at 20 Kingsbridge Road, Piscataway, New Jersey, 08854. Our
telephone number at this location is (732) 980-4500. Our web site is located
at http://www.enzon.com. The information contained on our web site is not a
part of this registration statement.
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ADAGEN(R), ONCASPAR(R) and PROTHECAN(R) are our registered trademarks. Other
trademarks and trade names used in this registration statement are the
property of their respective owners.
4
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks described below are not the only ones facing
our company. Additional risks not presently known to us or that we currently
deem immaterial may also impair our business operations.
Our business, financial condition or results of operations could be
materially adversely affected by any of these risks. The trading price of the
notes and our common stock could decline due to any of these risks, and you
may lose all or part of your investment.
This prospectus also contains and incorporates by reference forward-looking
statements that involve risks and uncertainties. Our actual results could
differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including the risks faced by us described
below and elsewhere in and incorporated by reference in this prospectus.
Risks Related To Our Company
Our near term success is heavily dependent on Schering-Plough's effective
marketing of PEG-INTRON.
In the near term, our results of operations are heavily dependent on
Schering-Plough's sales of PEG-INTRON. Under our agreement with Schering-
Plough, pursuant to which we applied our PEG technology to develop a modified
form of Schering-Plough's INTRON A, we will receive royalties on worldwide
sales of PEG-INTRON. Schering-Plough is responsible for conducting and funding
the clinical studies, obtaining regulatory approval and marketing the product
worldwide on an exclusive basis. Schering-Plough has received a Marketing
Authorization for PEG-INTRON in the United States in January 2001 and in the
European Union in May 2000 for the treatment of hepatitis C. Schering-Plough
has also been granted marketing approval for the sale of PEG-INTRON and
REBETOL Capsules as combination therapy for the treatment of hepatitis C. If
Schering-Plough fails to effectively market PEG-INTRON or discontinues the
marketing of PEG-INTRON for these indications this would have a material
adverse effect on our business, financial condition and results of operation.
Even though the use of PEG-INTRON as a stand alone therapy or as combination
therapy with REBETOL received FDA approval, we cannot assure you that
Schering-Plough will be successful in marketing PEG-INTRON or that Schering-
Plough will not continue to market INTRON A, either as a stand-alone product
or in combination therapy with REBETOL. The amount and timing of resources
dedicated by Schering-Plough to the marketing of PEG-INTRON is not within our
control. If Schering-Plough breaches or terminates its agreement with us, the
commercialization of PEG-INTRON could be slowed or blocked completely. Our
revenues will be negatively affected if Schering-Plough continues to market
INTRON A in competition with PEG-INTRON or if it cannot meet the manufacturing
demands of the market. If Schering-Plough breaches the agreement, a dispute
may arise between us. A dispute would be both expensive and time-consuming and
may result in delays in the development and commercialization of PEG-INTRON,
which would likely have a material adverse effect on our business, financial
condition and results of operations.
We have a history of losses and we may not sustain profitability.
We have incurred substantial losses since our inception. As of March 31,
2001, we had an accumulated deficit of approximately $122 million. Although we
earned a profit for the nine months ended March 31, 2001, we cannot assure you
that we will be able to remain profitable. Our ability to remain profitable
will depend primarily on Schering-Plough's effective marketing of PEG-INTRON,
as well as on the rate of growth in our other product sales or royalty revenue
and on the level of our expenses. Our ability to achieve long-term
profitability will depend upon our or our licensees' ability to obtain
regulatory approvals for additional product candidates. Even if our product
candidates receive regulatory approval, we cannot assure you that our products
will achieve market acceptance or will be commercialized successfully or that
our operations will sustain profitability.
5
We are subject to extensive regulation. Compliance with these regulations
can be costly, time consuming and subject us to unanticipated delays in
developing our products.
The manufacturing and marketing of pharmaceutical products in the United
States and abroad are subject to stringent governmental regulation. The sale
of any of our products for use in humans in the United States will require the
prior approval of the FDA. Similar approvals by comparable agencies are
required in most foreign countries. The FDA has established mandatory
procedures and safety standards that apply to the clinical testing,
manufacture and marketing of pharmaceutical products. Obtaining FDA approval
for a new therapeutic product may take several years and involve substantial
expenditures. ADAGEN was approved by the FDA in 1990. ONCASPAR was approved in
the United States and in Germany in 1994, and in Canada in 1997, in each case
for patients with acute lymphoblastic leukemia who are hypersensitive to
native forms of L-asparaginase. ONCASPAR was approved in Russia in April 1993
for therapeutic use in a broad range of cancers. PEG-INTRON was approved in
Europe and the United States for the treatment of hepatitis C in May 2000 and
January 2001, respectively. Except for these approvals, none of our other
products has been approved for sale and use in humans in the United States or
elsewhere.
We cannot assure you that we or our licensees will be able to obtain FDA or
other relevant marketing approval for any of our other products. In addition,
any approved products are subject to continuing regulation. If we or our
licensees fail to comply with applicable requirements it could result in:
o criminal penalties,
o civil penalties,
o fines,
o recall or seizure,
o injunctions requiring suspension of production,
o orders requiring ongoing supervision by the FDA, or
o refusal by the government to approve marketing or export applications or
to allow us to enter into supply contracts.
If we or our licensees fail to obtain or maintain requisite governmental
approvals or fail to obtain or maintain approvals of the scope requested, it
will delay or preclude us or our licensees or marketing partners from
marketing our products. It could also limit the commercial use of our
products. Any such failure or limitation may have a material adverse effect on
our business, financial condition and results of operations.
We have experienced problems complying with the FDA's regulations for
manufacturing our products, and we may not be able to resolve these problems.
Manufacturers of drugs also must comply with the applicable FDA good
manufacturing practice regulations, which include quality control and quality
assurance requirements as well as the corresponding maintenance of records and
documentation. Manufacturing facilities are subject to ongoing periodic
inspection by the FDA and corresponding state agencies, including unannounced
inspections, and must be licensed as part of the product approval process
before they can be used in commercial manufacturing. We or our present or
future suppliers may be unable to comply with the applicable good
manufacturing practice regulations and other FDA regulatory requirements. We
manufacture ONCASPAR and ADAGEN, and Schering-Plough is responsible for the
manufacture of PEG-INTRON.
During 1998, we began to experience manufacturing problems with one of our
FDA-approved products, ONCASPAR. The problems were due to increased levels of
white particulates in batches of ONCASPAR, which resulted in an increased
rejection rate for this product. During fiscal 1999, we agreed with the FDA to
temporary labeling and distribution restrictions for ONCASPAR and instituted
additional inspection and labeling procedures prior to distribution. During
May 1999, the FDA required us to limit distribution of ONCASPAR to only those
patients who are hypersensitive to native L-asparaginase. In November 1999,
the FDA withdrew this distribution restriction.
6
In July 1999, the FDA conducted an inspection of our manufacturing facility
in connection with our product license for ADAGEN. Following that inspection,
the FDA documented several deviations from Current Good Manufacturing
Practices, known as cGMP, in a Form 483 report. We provided the FDA with a
corrective action plan. In November 1999, the FDA issued a warning letter
citing the same cGMP deviations listed in the July 1999 Form 483, but it also
stated that the FDA was satisfied with our proposed corrective actions. As a
result of the deviations, the FDA decided not to approve product export
requests from us for ONCASPAR until it determined that all noted cGMP
deviations were either corrected or in the process of being corrected. This
restriction was removed in August 2000.
Since January 2000, the FDA has conducted follow-up inspections as well as
routine inspections of our manufacturing facility related to ONCASPAR and
ADAGEN. Following certain of these inspections, the FDA issued Form 483 reports,
citing deviations from cGMP. We have or are in the process of responding to such
reports with corrective action plans and are currently in discussion with the
FDA concerning some observations set forth in the Form 483s.
In March 2001, we voluntarily replaced a batch of ADAGEN that was found to
have an impurity which we believe was introduced in the filling process.
If we or our licensees face additional manufacturing problems in the future
or we or our licensees are unable to satisfactorily resolve these problems,
the FDA could require us or our licensees to discontinue the distribution of
our products or to delay continuation of clinical trials. If we or our
licensees cannot market and distribute our products for an extended period,
sales of the products will suffer, which would adversely affect our financial
results.
Our clinical trials could take longer to complete and cost more than we
expect.
We will need to conduct significant additional clinical studies of all of
our product candidates which have not yet been approved for sale. These
studies are costly, time consuming and unpredictable. Any unanticipated costs
or delays in our clinical studies could harm our business, financial condition
and results of operations.
A Phase III clinical trial is being conducted for PEG-INTRON for one cancer
indication. Schering-Plough is also in early stage clinical trials for PEG-
INTRON in other cancer indications. We are currently conducting early stage
clinical trials of our two other PEG products, PROTHECAN currently in Phase II
and PEG-paclitaxel currently in Phase I. The rate of completion of clinical
trials depends upon many factors, including the rate of enrollment of
patients. If we or the other sponsors of these clinical trials are unable to
accrue sufficient clinical patients in our respective trials during the
appropriate period, such trials may be delayed and will likely incur
significant additional costs. In addition, FDA or institutional review boards
may require us to delay, restrict, or discontinue our clinical trials on
various grounds, including a finding that the subjects or patients are being
exposed to an unacceptable health risk.
The cost of human clinical trials varies dramatically based on a number of
factors, including:
o the order and timing of clinical indications pursued,
o the extent of development and financial support from corporate
collaborators,
o the number of patients required for enrollment,
o the difficulty of obtaining clinical supplies of the product candidate,
and
o the difficulty in obtaining sufficient patient populations and
clinicians.
All statutes and regulations governing the conduct of clinical trials are
subject to change in the future, which could affect the cost of our clinical
trials. Any unanticipated costs or delays in our clinical studies could harm
our business, financial condition and results of operations.
7
In some cases, we rely on corporate collaborators or academic institutions
to conduct some or all aspects of clinical trials involving our product
candidates. We will have less control over the timing and other aspects of
these clinical trials than if we conducted them entirely on our own. We cannot
assure you that these trials will commence or be completed as we expect or
that they will be conducted successfully.
If pre-clinical and clinical trials do not yield positive results, our
product candidates will fail.
If pre-clinical and clinical testing of one or more of our product
candidates do not demonstrate the safety and efficacy of the desired
indications, those potential products will fail. Numerous unforeseen events
may arise during, or as a result of, the testing process, including the
following:
o the results of pre-clinical studies may be inconclusive, or they may not
be indicative of results that will be obtained in human clinical trials,
o potential products may not have the desired effect or may have
undesirable side effects or other characteristics that preclude
regulatory approval or limit their commercial use if approved,
o results attained in early human clinical trials may not be indicative of
results that are obtained in later clinical trials, and
o after reviewing test results, we or our corporate collaborators may
abandon projects which we might previously have believed to be promising.
Clinical testing is very costly and can take many years. The failure to
adequately demonstrate the safety and efficacy of a therapeutic product under
development would delay or prevent regulatory approval, which could adversely
affect our business and financial performance.
In June 2001, we reported that Schering-Plough completed its Phase III
clinical trial which compared PEG-INTRON to INTRON A in patients with newly
diagnosed chronic myelogenous leukemia, or CML. In the study, although PEG-
INTRON demonstrated clinical comparability and a comparable safety profile
with INTRON A, the efficacy results for PEG-INTRON did not meet the protocol-
specified statistical criteria for non-inferiority--the primary endpoint of
the study. The results of this Phase III study have not yet been presented or
published, and are not publicly available at this time. We cannot assure you
that those results will support any marketing approval of PEG-INTRON for the
treatment of CML.
Even if we obtain regulatory approval for our products, they may not be
accepted in the marketplace.
The commercial success of our products will depend upon their acceptance by
the medical community and third-party payors as clinically useful, cost-
effective and safe. Even if our products obtain regulatory approval, we cannot
assure you that they will achieve market acceptance of any kind. The degree of
market acceptance will depend on many factors, including:
o the receipt, timing and scope of regulatory approvals,
o the timing of market entry in comparison with potentially competitive
products,
o the availability of third-party reimbursement, and
o the establishment and demonstration in the medical community of the
clinical safety, efficacy and cost-effectiveness of drug candidates, as
well as their advantages over existing technologies and therapeutics.
If any of our products do not achieve market acceptance, we will likely lose
our entire investment in that product.
We depend on our collaborative partners. If we lose our collaborative
partners or they do not apply adequate resources to our collaborations, our
product development and financial performance may suffer.
We rely heavily and will depend heavily in the future on collaborations with
corporate partners, primarily pharmaceutical companies, for one or more of the
research, development, manufacturing, marketing and other commercialization
activities relating to many of our product candidates. If we lose our
collaborative partners, or if they do not apply adequate resources to our
collaborations, our product development and financial performance may suffer.
8
The amount and timing of resources dedicated by our collaborators to their
collaborations with us is not within our control. If any collaborator breaches
or terminates its agreements with us, or fails to conduct its collaborative
activities in a timely manner, the commercialization of our product candidates
could be slowed or blocked completely. We cannot assure you that our
collaborative partners will not change their strategic focus or pursue
alternative technologies or develop alternative products as a means for
developing treatments for the diseases targeted by these collaborative
programs. Our collaborators could develop competing products. In addition, our
revenues will be affected by the effectiveness of our corporate partners in
marketing any successfully developed products.
We cannot assure you that our collaborations will be successful. Disputes
may arise between us and our collaborators as to a variety of matters,
including financing obligations under our agreements and ownership of
intellectual property rights. These disputes may be both expensive and time-
consuming and may result in delays in the development and commercialization of
products.
We are dependent upon a single outside supplier for each of the crucial raw
materials necessary to the manufacture of each of our products and product
candidates.
We cannot assure you that sufficient quantities of our raw material
requirements will be available to support the continued research, development or
manufacture of our products. We purchase the unmodified compounds utilized in
our approved products and products under development from outside suppliers. We
may be required to enter into supply contracts with outside suppliers for
certain unmodified compounds. We do not produce the unmodified adenosine
deaminase used in the manufacture of ADAGEN or the unmodified forms of
L-asparaginase used in the manufacture of ONCASPAR. We have a supply contract
with an outside supplier for the supply of each of these unmodified compounds.
If we experience a delay in obtaining or are unable to obtain any unmodified
compound, including unmodified adenosine deaminase or unmodified L-asparagi-
nase, on reasonable terms, or at all, it could have a material adverse effect on
our business, financial condition and results of operations.
If we are required to obtain an alternate source for an unmodified compound
utilized in a product, the FDA and relevant foreign regulatory agencies will
likely require that we perform additional testing to demonstrate that the
alternate material is biologically and chemically equivalent to the unmodified
compound previously used in our clinical trials. This testing could delay or
stop development of a product, limit commercial sales of an approved product
and cause us to incur significant additional expenses. If we are unable to
demonstrate that the alternate material is chemically and biologically
equivalent to the previously used unmodified compound, we will likely be
required to repeat some or all of the pre-clinical and clinical trials
conducted for the compound. The marketing of an FDA approved drug could be
disrupted while such tests are conducted. Even if the alternate material is
shown to be chemically and biologically equivalent to the previously used
compound, the FDA or relevant foreign regulatory agency may require that we
conduct additional clinical trials with the alternate material.
There is one FDA-approved supplier of the adenosine deaminase enzyme, or
ADA, in ADAGEN. The ADA enzyme, until recently, was obtained by our supplier
from bovine intestines in cattle of German origin. Bovine spongiform
encephalopathy (BSE or mad cow disease) has been detected in cattle herds in
Germany after we acquired the ADA enzyme and at a time when the herds were
identified by the supplier as BSE-free. The FDA has advised us that we may
continue to distribute our current inventory of ADAGEN which contains the ADA
enzyme obtained from cattle of German origin until such time as we are able to
obtain FDA approval of the use of the ADA enzyme obtained from cattle of New
Zealand origin. We cannot assure you that the FDA will approve the use of the
ADA obtained in New Zealand prior to the time that our current inventory of
ADAGEN is exhausted. If we do not receive such timely approval, we will be
unable to distribute ADAGEN.
The United States and foreign patents upon which our original PEG technology
was based have expired. We depend on patents and proprietary rights, which may
offer only limited protection against potential infringement and the
development by our competitors of competitive products.
Research Corporation Technologies, Inc. held the patent upon which our
original PEG technology was based and had granted us a license under such
patent. Research Corporation's patent contained broad claims covering the
attachment of PEG to polypeptides. However, this United States patent and its
corresponding foreign patents
9
have expired. Based upon the expiration of the Research Corporation patent,
other parties will be permitted to make, use or sell products covered by the
claims of the Research Corporation patent, subject to other patents, including
those which we hold. We have obtained several patents with claims covering
improved methods of attaching or linking PEG to therapeutic compounds. We
cannot assure you that any of these patents will enable us to prevent
infringement or that competitors will not develop alternative methods of
attaching PEG to compounds potentially resulting in competitive products
outside the protection that may be afforded by our patents. We are aware that
others have also filed patent applications and have been granted patents in
the United States and other countries with respect to the application of PEG
to proteins and other compounds. We cannot assure you that the expiration of
the Research Corporation patent or other patents related to PEG that have been
granted to third parties will not have a material adverse effect on our
business, financial condition and results of operations.
The pharmaceutical industry places considerable importance on obtaining
patent and trade secret protection for new technologies, products and
processes. Our success depends, in part, on our ability to develop and
maintain a strong patent position for our products and technologies both in
the United States and in other countries. We have been licensed, and been
issued, a number of patents in the United States and other countries, and we
have other patent applications pending to protect our proprietary technology.
Although we believe that our patents provide certain protection from
competition, we cannot assure you that such patents will be of substantial
protection or commercial benefit to us, will afford us adequate protection
from competing products, or will not be challenged or declared invalid. In
addition we cannot assure you that additional United States patents or foreign
patent equivalents will be issued to us. The scope of patent claims for
biotechnological inventions is uncertain, and our patents and patent
applications are subject to this uncertainty.
To facilitate development of our proprietary technology base, we may need to
obtain licenses to patents or other proprietary rights from other parties. If
we are unable to obtain such licenses, our product development efforts may be
delayed or blocked.
We are aware that certain organizations are engaging in activities that
infringe certain of our PEG and SCA technology patents. We cannot assure you
that we will be able to enforce our patent and other rights against such
organizations.
We expect that there will continue to be significant litigation in the
biotechnology and pharmaceutical industries regarding patents and other
proprietary rights. We have become involved in patent litigation, and we may
likely become involved in additional patent litigation in the future. We may
incur substantial costs in asserting any patent rights and in defending suits
against us related to intellectual property rights. Such disputes could
substantially delay our product development or commercialization activities
and could have a material adverse effect on our business, financial condition
and results of operations. There is one pending litigation matter involving
our patents.
We also rely on trade secrets, know-how and continuing technological
advancements to protect our proprietary technology. We have entered into
confidentiality agreements with our employees, consultants, advisors and
collaborators. However, these parties may not honor these agreements, and we
may not be able to successfully protect our rights to unpatented trade secrets
and know-how. Others may independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to our trade
secrets and know-how.
We have limited sales and marketing experience, which makes us dependent on
our marketing partners.
Other than ADAGEN, which we market on a worldwide basis to a small patient
population, we have not engaged in the direct commercial marketing of any of
our products and therefore we do not have significant experience in sales,
marketing or distribution. For some of our products, we have provided
exclusive marketing rights to our corporate partners in return for milestone
payments and royalties to be received on sales. To the extent that we enter
into licensing arrangements for the marketing and sale of our products, any
revenues we receive will depend primarily on the efforts of these third
parties. We will not control the amount and timing of marketing resources that
such third parties devote to our products. In addition, if we market products
directly, significant additional expenditures and management resources would
be required to increase the size of our internal sales force. In any sales or
marketing effort, we would compete with many other companies that currently
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have extensive and well-funded sales operations. Our marketing and sales
efforts may be unable to compete successfully against other such companies.
We may acquire other companies and may be unable to successfully integrate
such companies with our operations.
We may expand and diversify our operations with acquisitions. If we are
unsuccessful in integrating any such company with our operations, or if
integration is more difficult than anticipated, we may experience disruptions
that could have a material adverse effect on our business, financial condition
and results of operations. Some of the risks that may affect our ability to
integrate or realize any anticipated benefits from any acquisition include
those associated with:
o unexpected losses of key employees or customers of the acquired company;
o conforming the acquired company's standards, processes, procedures and
controls with our operations;
o coordinating our new product and process development;
o diversion of existing management relating to the integration and
operation of the acquired company;
o hiring additional management and other critical personnel; and
o increasing the scope, geographic diversity and complexity of our
operations.
We may need to obtain additional financing to meet our future capital needs,
and this financing may not be available when we need it.
Our current development projects require substantial capital. We may require
substantial additional funds to conduct research activities, pre-clinical
studies, clinical trials and other activities relating to the successful
commercialization of potential products. In addition, we may seek to acquire
additional technologies. We do not expect to achieve significant sales or
royalty revenue from our current FDA-approved products, ADAGEN and ONCASPAR.
In addition, we cannot be sure that we will be able to obtain significant
revenue from PEG-INTRON. Additional funds from other sources may not be
available on acceptable terms, if at all. If adequate funds are unavailable
from operations or additional sources of financing, we may have to delay,
reduce the scope of or eliminate one or more of our research or development
programs which would materially and adversely affect our business, financial
condition and operations.
While we believe that our cash, cash equivalents and investments will be
adequate to satisfy our capital needs for the foreseeable future, our actual
capital requirements will depend on many factors, including:
o the level of revenues we receive from our FDA-approved products and
product candidates,
o continued progress of our research and development programs,
o our ability to establish additional collaborative arrangements,
o changes in our existing collaborative relationships,
o progress with pre-clinical studies and clinical trials,
o the time and costs involved in obtaining regulatory clearance for our
products,
o the costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims,
o competing technological and market developments, and
o our ability to market and distribute our products and establish new
collaborative and licensing arrangements.
We may seek to raise any necessary additional funds through equity or debt
financings, collaborative arrangements with corporate partners or other
sources which may be dilutive to existing stockholders. We cannot assure you
that we will be able to obtain additional funds on acceptable terms, if at
all. If adequate funds are not available, we may be required to:
11
o delay, reduce the scope or eliminate one or more of our development
projects,
o obtain funds through arrangements with collaborative partners or others
that may require us to relinquish rights to technologies, product
candidates or products that we would otherwise seek to develop or
commercialize ourselves, or
o license rights to technologies, product candidates or products on terms
that are less favorable to us than might otherwise be available.
We depend on key personnel and may not be able to retain these employees or
recruit additional qualified personnel, which would harm our business.
Because of the specialized scientific nature of our business, we are highly
dependent upon qualified scientific, technical and managerial personnel. There
is intense competition for qualified personnel in the pharmaceutical field.
Therefore, we may not be able to attract and retain the qualified personnel
necessary for the development of our business. The loss of the services of
existing personnel, as well as the failure to recruit additional key
scientific, technical and managerial personnel in a timely manner, would harm
our research and development programs and our business.
Risks Related To Our Industry
We face rapid technological change and intense competition, which could harm
our business and results of operations.
The biopharmaceutical industry is characterized by rapid technological
change. Our future success will depend on our ability to maintain a
competitive position with respect to technological advances. Rapid
technological development by others may result in our products and
technologies becoming obsolete.
We face intense competition from established biotechnology and
pharmaceutical companies, as well as academic and research institutions that
are pursuing competing technologies and products. We know that competitors are
developing or manufacturing various products that are used for the prevention,
diagnosis or treatment of diseases that we have targeted for product
development. Many of our competitors have substantially greater research and
development capabilities and experiences and greater manufacturing, marketing
and financial resources than we do. Accordingly, our competitors may develop
technologies and products that are superior to those we or our collaborators
are developing and render our technologies and products or those of our
collaborators obsolete and noncompetitive. In addition, many of our
competitors have much more experience than we do in pre-clinical testing and
human clinical trials of new drugs, as well as obtaining FDA and other
regulatory approval. If we cannot compete effectively, our business and
financial performance would suffer.
We may be sued for product liability.
Because our products and product candidates are new treatments with limited,
if any, past use on humans, their use during testing or after approval could
expose us to product liability claims. We maintain product liability insurance
coverage in the total amount of $40.0 million for claims arising from the use
of our products in clinical trials prior to FDA approval and for claims
arising from the use of our products after FDA approval. We cannot assure you
that we will be able to maintain our existing insurance coverage or obtain
coverage for the use of our other products in the future. Also, this insurance
coverage and our resources may not be sufficient to satisfy any liability
resulting from product liability claims, and a product liability claim may
have a material adverse effect on our business, financial condition or results
of operations.
Sales of our products could be adversely affected if the costs for these
products are not reimbursed by third-party payors.
In recent years, there have been numerous proposals to change the health
care system in the United States. Some of these proposals have included
measures that would limit or eliminate payments for medical procedures and
treatments or subject the pricing of pharmaceuticals to government control. In
addition, government and private third-party payors are increasingly
attempting to contain health care costs by limiting both the coverage and the
level of reimbursement of drug products. Consequently, significant uncertainty
exists as to the reimbursement status of newly-approved health care products.
12
Our ability to commercialize our products will depend, in part, on the
extent to which reimbursement for the cost of the products and related
treatments will be available from third-party payors. If we or any of our
collaborators succeeds in bringing one or more products to market, we cannot
assure you that third-party payors will establish and maintain price levels
sufficient for realization of an appropriate return on our investment in
product development. In addition, lifetime limits on benefits included in most
private health plans may force patients to self-pay for treatment. For
example, patients who receive ADAGEN are expected to require injections for
their entire lives. The cost of this treatment may exceed certain plan limits
and cause patients to self-fund further treatment. Furthermore, inadequate
third-party coverage may lead to reduced market acceptance of our products.
Significant changes in the health care system in the United States or
elsewhere could have a material adverse effect on our business and financial
performance.
Risks Related To The Notes and Our Common Stock
The notes are subordinated.
The notes are unsecured and subordinated in right of payment to all of our
existing and future senior indebtedness. In the event of our bankruptcy,
liquidation or reorganization, or upon acceleration of the notes due to an
event of default under the indenture and in certain other events, our assets
will be available to pay obligations on the notes only after all senior
indebtedness has been paid. As a result, there may not be sufficient assets
remaining to pay amounts due on any or all of the outstanding notes. We are
not prohibited from incurring debt, including senior indebtedness, under the
indenture. If we were to incur additional debt or liabilities, our ability to
pay our obligations on the notes could be adversely affected. As of June 30,
2001, we had no senior indebtedness outstanding. See "Description of Notes--
Subordination of Notes."
The price of our common stock has been, and may continue to be, volatile
which may significantly affect the trading price of the notes.
Historically, the market price of our common stock has fluctuated over a
wide range, and it is likely that the price of our common stock will fluctuate
in the future. The market price of our common stock could be impacted due to a
variety of factors, including:
o the results of pre-clinical testing and clinical trials by us, our
corporate partners or our competitors,
o announcements of technical innovations or new products by us, our
corporate partners or our competitors,
o the status of corporate collaborations and supply arrangements,
o regulatory approvals,
o government regulation,
o developments in patent or other proprietary rights,
o public concern as to the safety and efficacy of products developed by us
or others,
o litigation, and
o general market conditions in our industry.
In addition, due to one or more of the foregoing factors in one or more
future quarters, our results of operations may fall below the expectations of
securities analysts and investors. In that event, the market price of our
common stock could be materially and adversely affected.
The stock market has recently experienced extreme price and volume
fluctuations. These fluctuations have especially affected the market price of
the stock of many high technology and healthcare-related companies. Such
fluctuations have often been unrelated to the operating performance of these
companies. Nonetheless, these broad market fluctuations may negatively affect
the market price of our common stock.
We may be unable to redeem the notes upon a fundamental change.
We may be unable to redeem the notes in the event of a fundamental change.
Upon a fundamental change, holders of the notes may require us to redeem all
or a portion of the notes. If a fundamental change were to occur,
13
we may not have enough funds to pay the redemption price for all tendered
notes. Any future credit agreements or other agreements relating to our
indebtedness may contain similar provisions, or expressly prohibit the
repurchase of the notes upon a fundamental change or may provide that a
fundamental change constitutes an event of default under that agreement. If a
fundamental change occurs at a time when we are prohibited from purchasing or
redeeming notes, we could seek the consent of our lenders to redeem the notes
or could attempt to refinance this debt. If we do not obtain a consent, we
could not purchase or redeem the notes. Our failure to redeem tendered notes
would constitute an event of default under the indenture. In such
circumstances, or if a fundamental change would constitute an event of default
under our senior indebtedness, the subordination provisions of the indenture
would restrict payments to the holders of notes. The term "fundamental change"
is limited to certain specified transactions and may not include other events
that might adversely affect our financial condition or the market value of the
notes or our common stock. Our obligation to offer to redeem the notes upon a
fundamental change would not necessarily afford holders of the notes
protection in the event of a highly leveraged transaction, reorganization,
merger or similar transaction involving us. See "Description of Notes--
Redemption at Option of the Holder."
A public market for the notes may fail to develop or be sustained.
The initial purchasers of the notes, although they have advised us that they
intend to make a market in the notes, are not obligated to do so and may
discontinue this market making activity at any time without notice. In
addition, market making activity by the initial purchasers will be subject to
the limits imposed by the Securities Act of 1933, as amended and the Exchange
Act of 1934, as amended. As a result, we cannot assure you that any market for
the notes will develop or, if one does develop, that it will be maintained. If
an active market for the notes fails to develop or be sustained, the trading
price of the notes could be materially adversely affected.
Events with respect to our share capital could cause the price of our common
stock to decline.
Sales of substantial amounts of our common stock in the open market, or the
availability of such shares for sale, could adversely affect the price of our
common stock. An adverse effect on the price of our common stock may adversely
affect the trading price of the notes. We had 41,990,859 shares of common
stock outstanding as of June 30, 2001. The following securities that may be
exercised for, or are convertible into, shares of our common stock were issued
and outstanding as of June 30, 2001:
o Options. Stock options to purchase 3,283,817 shares of our common stock at
a weighted average exercise price of approximately $24.98 per share; of
this total, 1,939,502 were exercisable at a weighted average exercise
price of $6.23 per share as of such date.
o Series A Preferred Stock. 7,000 shares of our Series A preferred stock are
outstanding, all of which were convertible into 15,909 shares of our
common stock as of such date.
The shares of our common stock that may be issued under the options are
currently registered with the SEC. The shares of common stock that may be
issued upon conversion of the Series A preferred stock are eligible for sale
without any volume limitations pursuant to Rule 144(k) under the Securities
Act.
The notes represent a significant amount of indebtedness.
As a result of the initial offering of the notes, our long-term debt is
$400,000,000. This indebtedness has affected us by:
o significantly increasing our interest expense and related debt service
costs, and
o making it more difficult to obtain additional financing.
We may not generate sufficient cash flow from operations to satisfy the
annual debt service payments that will be required under the notes. This may
require us to use a portion of the proceeds of the notes to pay interest or
borrow additional funds or sell additional equity to meet our debt service
obligations. If we are unable to satisfy our debt service requirements,
substantial liquidity problems could result, which would negatively impact our
future prospects.
The market for unrated debt is subject to disruptions, which could have an
adverse effect on the market price of the notes.
14
The notes have not been rated. As a result, holders of the notes have the
risks associated with an investment in unrated debt. Historically, the market
for unrated debt has been subject to disruptions that have caused substantial
volatility in the prices of such securities and greatly reduced liquidity for
the holders of such securities. If the notes are traded, they may trade at a
discount from their initial offering price, depending on, among other things,
prevailing interest rates, the markets for similar securities, general
economic conditions and our financial condition, results of operations and
prospects. The liquidity of, and trading markets for, the notes also may be
adversely affected by general declines in the market for unrated debt. Such
declines may adversely affect the liquidity of, and trading markets for, the
notes, independent of our financial performance or prospects. In addition,
certain regulatory restrictions prohibit certain types of financial
institutions from investing in unrated debt, which may further suppress demand
for such securities. We cannot assure you that the market for the notes will
not be subject to similar disruptions. Any such disruptions may have an
adverse effect on the holders of the notes.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some statements incorporated by reference or contained in this prospectus
discuss our future expectations, contain projections of our results of
operations or financial condition or include other "forward-looking"
information within the meaning of Section 27A of the Securities Act. Our
actual results may differ materially from those expressed in forward-looking
statements made or incorporated by reference in this prospectus. Forward-
looking statements that express our beliefs, plans, objectives, assumptions or
future events or performance may involve estimates, assumptions, risks and
uncertainties. Therefore, our actual results and performance may differ
materially from those expressed in the forward-looking statements. Forward-
looking statements often, although not always, include words or phrases such
as the following:
o "will likely result"
o "are expected to"
o "will continue"
o "is anticipated"
o "estimate"
o "intends"
o "plans"
o "projection"
o "outlook"
You should not unduly rely on forward-looking statements contained or
incorporated by reference in this prospectus. Actual results or outcomes may
differ materially from those predicted in our forward-looking statements due
to the risks and uncertainties inherent in our business, including risks and
uncertainties in:
o clinical trial results
o obtaining and maintaining regulatory approval of our products
o market acceptance of and continuing demand for our products
o the impact of competitive products and pricing
o our ability to obtain additional financing to support our operations
o factors discussed in the documents listed below
You should read and interpret any forward-looking statement together with
the following documents:
o our most recent annual report on Form 10-K
15
o our quarterly reports on Form 10-Q
o the risk factors contained in this prospectus under the caption "Risk
Factors"
o our other filings with the Securities and Exchange Commission
Any forward-looking statement speaks only as of the date on which that
statement is made. We will not update any forward-looking statement to reflect
events or circumstances that occur after the date on which such statement is
made.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges was negative for all periods
presented, other than the nine months ended March 31, 2001, because of net
losses incurred by Enzon. The dollar amounts of the deficiencies for these
periods and the March 31, 2001 ratio are disclosed below (dollars in thousands):
Nine Months
Ended March 31, Year Ended June 30,
--------------- --------------------------------------------
2001 2000 1999 1998 1997 1996
Ratio of earnings to fixed charges* ....... 34:1 N/A N/A N/A N/A N/A
Deficiency of earnings available to
cover fixed charges*..................... N/A $(6,306) $(4,919) $(3,617) $(4,557) $(5,175)
- ---------------
* Earnings consist of net income (loss) plus fixed charges less capitalized
interest and preferred stock dividends paid. Fixed charges consist of
interest expenses, including amortization of debt issuance costs and that
portion of rental expense we believe to be representative of interest.
USE OF PROCEEDS
All of the securities offered pursuant to this prospectus are being offered
by the selling holders listed under "Selling Holders." We will not receive any
proceeds from the sale by the selling holders of the notes or the underlying
common stock.
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DESCRIPTION OF NOTES
The notes were issued under an indenture dated as of June 26, 2001, between
Enzon, as issuer, and Wilmington Trust Company, as trustee. You may request a
copy of the indenture from the trustee.
The following description is a summary of the material provisions of the
notes and the indenture. It does not purport to be complete. This summary is
subject to and is qualified by reference to all the provisions of the
indenture, including the definitions of certain terms used in the indenture.
Wherever particular provisions or defined terms of the indenture or form of
note are referred to, these provisions or defined terms are incorporated in
this prospectus by reference.
As used in this "Description of Notes" section, references to "Enzon," "we,"
"our" or "us" refer solely to Enzon and not to our subsidiaries.
General
The notes are general unsecured obligations of Enzon, subordinate in right
of payment to certain current and future indebtedness as described under "--
Subordination of Notes." The notes are convertible into common stock as
described under "--Conversion of Notes." The notes are limited to $400,000,000
aggregate principal amount. The notes are issued only in denominations of
$1,000 and multiples of $1,000. The notes will mature on July 1, 2008 unless
earlier converted, redeemed at our option or redeemed at the holder's option
upon a fundamental change.
Neither we nor any of our subsidiaries are subject to any financial
covenants under the indenture. In addition, neither we nor any of our
subsidiaries are restricted under the indenture from paying dividends,
incurring debt (including senior indebtedness), or issuing or repurchasing our
securities.
Holders of notes are not afforded protection under the indenture in the
event of a highly leveraged transaction or a change in control of us except to
the extent described below under "--Redemption at Option of the Holder."
We pay interest in arrears on January 1 and July 1 of each year, beginning
January 1, 2002, to record holders at the close of business on the preceding
December 15 and June 15, as the case may be, except:
o that interest payable upon redemption will be paid to the person to whom
principal is payable, unless the redemption date is an interest payment
date; and
o as set forth in the next sentence.
In the case of any note, or portion of any note, which is converted into
common stock during the period after any record date for any interest payment
but prior to the next interest payment date:
o if the note has been called for redemption on a redemption date that
occurs during this period, we will not be required to pay interest on the
interest payment date;
o if the note is to be redeemed in connection with a fundamental change on
a redemption date that occurs during this period, we will not be required
to pay interest on the interest payment date; or
o if otherwise, any note not called for redemption that is submitted for
conversion during this period must also be accompanied by an amount equal
to the interest due on the interest payment date on the converted
principal amount, unless at the time of conversion there is a default in
the payment of interest on the notes. See "--Conversion of Notes."
We will maintain an office in the Borough of Manhattan, the City of New
York, for the payment of interest, which shall initially be an office or
agency of the trustee. We may pay interest either:
o by check mailed to your address as it appears in the note register,
provided that if you are a holder of the notes with an aggregate
principal amount in excess of $2.0 million, you shall be paid, at your
written election, by wire transfer in immediately available funds; or
o by wire transfer to an account maintained by such holder in the United
States.
17
However, payments to The Depository Trust Company, New York, New York, which
we refer to as DTC, will be made by wire transfer of immediately available
funds to the account of DTC or its nominee. Interest will be computed on the
basis of a 360-day year composed of twelve 30-day months.
Conversion of Notes
Holders of the notes may convert their notes, in whole or in part, into
common stock through the final maturity date of the notes, subject to prior
redemption of the notes. If we call notes for redemption, holders may convert
the notes only until the close of business on the business day prior to the
redemption date unless we fail to pay the redemption price. If holders have
submitted their notes for redemption upon a fundamental change, then holders
may only convert their notes upon the withdrawal of their redemption election.
Holders may convert their notes in part so long as this part is $1,000 in
principal amount or an integral multiple of $1,000. If any notes not called
for redemption are converted after a record date for any interest payment date
and prior to the next interest payment date, the notes so converted must be
accompanied by an amount equal to the interest payable on the interest payment
date on the converted principal amount unless a default in the payment of
interest exists at the time of conversion.
The initial conversion price for the notes is $70.98 per share of common
stock, subject to adjustment as described below. We will not issue fractional
shares of common stock upon conversion of notes. Instead, we will pay cash
equal to the market price of the common stock on the business day prior to the
conversion date. Except as described below, holders of notes will not receive
any accrued interest or dividends upon conversion.
To convert a note into common stock a holder must:
o complete and manually sign the conversion notice on the back of the note
or facsimile of the conversion notice and deliver this notice to the
conversion agent;
o surrender the note to the conversion agent;
o if required, furnish appropriate endorsements and transfer documents;
o if required, pay all transfer or similar taxes; and
o if required, pay funds equal to interest payable on the next interest
payment date.
The date the holder complies with these requirements is the conversion date
under the indenture.
We will adjust the conversion price if any of the following events occurs:
(1) we issue common stock as a dividend or distribution on our common
stock;
(2) we issue to all holders of common stock certain rights or warrants to
purchase our common stock;
(3) we subdivide or combine our common stock;
(4) we distribute to all holders of our common stock, shares of our
capital stock, evidences of indebtedness or assets, including securities but
excluding:
o rights or warrants listed in (2) above;
o dividends or distributions listed in (1) above; and
o cash distributions listed in (5) below;
(5) we distribute cash, excluding any dividend or distribution in
connection with our liquidation, dissolution or winding up or any quarterly
cash dividend on our common stock to the extent that the aggregate cash
dividend per share of common stock in any quarter does not exceed the
greater of:
o the amount per share of common stock of the next preceding quarterly
cash dividend on the common stock to the extent that the preceding
quarterly dividend did not require an adjustment of the conversion
price pursuant to this clause (5), as adjusted to reflect subdivisions
or combinations of the common stock; and
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o 3.75% of the average of the last reported sale price of the common stock
during the ten trading days immediately prior to the declaration date of
the dividend.
If an adjustment is required to be made under this clause (5) as a result
of a distribution that is a quarterly dividend, the adjustment would be
based upon the amount by which the distribution exceeds the amount of the
quarterly cash dividend permitted to be excluded pursuant to this clause
(5). If an adjustment is required to be made under this clause (5) as a
result of a distribution that is not a quarterly dividend, the adjustment
would be based upon the full amount of the distribution;
(6) we or one of our subsidiaries makes a payment in respect of a tender
offer or exchange offer for our common stock to the extent that the cash and
value of any other consideration included in the payment per share of common
stock exceeds the current market price per share of common stock on the
trading day next succeeding the last date on which tenders or exchanges may
be made pursuant to such tender or exchange offer; and
(7) someone other than us or one of our subsidiaries makes a payment in
respect of a tender offer or exchange offer in which, as of the closing date
of the offer, our board of directors is not recommending rejection of the
offer. The adjustment referred to in this clause (7) will only be made if:
o the tender offer or exchange offer is for an amount that increases the
offeror's ownership of common stock to more than 25% of the total
shares of common stock outstanding; and
o the cash and value of any other consideration included in the payment
per share of common stock exceeds the current market price per share of
common stock on the business day next succeeding the last date on which
tenders or exchanges may be made pursuant to the tender or exchange
offer.
However, the adjustment referred to in this clause (7) will generally not be
made if as of the closing of the offer, the offering documents disclose a plan
or an intention to cause us to engage in a consolidation or merger or a sale
of all or substantially all of our assets.
To the extent that we have a rights plan in effect upon conversion of the
notes into common stock, holders will receive, in addition to the common
stock, the rights under the rights plan whether or not the rights have
separated from the common stock at the time of conversion, subject to limited
exceptions.
In the event of:
o any reclassification of our common stock;
o a consolidation, merger or combination involving us; or
o a sale or conveyance to another person or entity of all or substantially
all of our property and assets;
in which holders of our common stock would be entitled to receive stock, other
securities, other property, assets or cash for their common stock, upon
conversion of holders of the notes will be entitled to receive the same type
of consideration which they would have been entitled to receive if they had
converted the notes into our common stock immediately prior to any of these
events.
You may in certain situations be deemed to have received a distribution
subject to United States federal income tax as a dividend in the event of any
taxable distribution to holders of common stock or in certain other situations
requiring a conversion price adjustment. See "United States Federal Tax
Considerations."
We may, from time to time, reduce the conversion price for a period of at
least 20 days if our board of directors has made a determination that this
reduction would be in our best interests. Any such determination by our board
will be conclusive. We would give holders at least 15 days' notice of any
reduction in the conversion price. In addition, we may reduce the conversion
price if our board of directors deems it advisable to avoid or diminish any
income tax to holders of common stock resulting from any stock or rights
distribution. See "United States Federal Tax Considerations."
We will not be required to make an adjustment in the conversion price unless
the adjustment would require a change of at least 1% in the conversion price.
However, we will carry forward any adjustments that are less than one percent
of the conversion price. Except as described above in this section, we will
not adjust the conversion
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price for any issuance of our common stock or convertible or exchangeable
securities or rights to purchase our common stock or convertible or
exchangeable securities.
Optional Redemption by Enzon
The notes are not entitled to any sinking fund. At any time on or after July
7, 2004, we may redeem the notes in whole or in part at the following prices
expressed as a percentage of the principal amount:
Redemption Period Price
----------------- -----
Beginning on July 7, 2004 and ending on June 30, 2005................ 102.571%
Beginning on July 1, 2005 and ending on June 30, 2006................ 101.929%
Beginning on July 1, 2006 and ending on June 30, 2007................ 101.286%
Beginning on July 1, 2007 and ending on June 30, 2008................ 100.643%
and 100 percent if redeemed at July 1, 2008. In each case, we will pay
interest to, but excluding, the redemption date. If the redemption date is an
interest payment date, interest shall be paid to the record holder on the
relevant record date. We are required to give notice of redemption by mail to
holders not more than 60 days but not less than 30 days prior to the
redemption date.
If less than all of the outstanding notes are to be redeemed, the trustee
will select the notes to be redeemed in principal amounts of $1,000 or
multiples of $1,000 by lot, pro rata or by another method the trustee
considers fair and appropriate. If a portion of your notes is selected for
partial redemption and you convert a portion of your notes, the converted
portion will be deemed to be of the portion selected for redemption.
We may not redeem the notes if we have failed to pay interest on the notes
and such failure to pay is continuing. We will issue a press release if we
redeem the notes.
Redemption at Option of the Holder
If a fundamental change of Enzon occurs prior to July 1, 2008, holders of
notes may require us to redeem their notes, in whole or in part, on a
repurchase date that is 30 days after the date of our notice of the
fundamental change. The notes will be redeemable in integral multiples of
$1,000 principal amount.
We will redeem the notes at a price equal to 100 percent of the principal
amount to be redeemed, plus accrued interest to, but excluding, the repurchase
date. If the repurchase date is an interest payment date, we will pay interest
to the record holder on the relevant record date.
We will mail to all record holders a notice of a fundamental change of Enzon
within 10 days after it has occurred. We are also required to deliver to the
trustee a copy of the fundamental change notice. If a holder elects to redeem
their notes, they must deliver to us or our designated agent, on or before the
30th day after the date of our fundamental change notice, their redemption
notice and any notes to be redeemed, duly endorsed for transfer. We will
promptly pay the redemption price for notes surrendered for redemption
following the repurchase date.
A "fundamental change" of Enzon is any transaction or event (whether by
means of an exchange offer, liquidation, tender offer, consolidation, merger,
combination, reclassification, recapitalization or otherwise) in connection
with which all or substantially all of our common stock is exchanged for,
converted into, acquired for or constitutes solely the right to receive,
consideration which is not all or substantially all common stock that:
o is listed on, or immediately after the transaction or event will be
listed on, a United States national securities exchange, or
o is approved, or immediately after the transaction or event will be
approved, for quotation on the Nasdaq National Market or any similar
United States system of automated dissemination of quotations of
securities prices.
We will comply with any applicable provisions of Rule 13e-4 and any other
tender offer rules under the Exchange Act in the event of a fundamental
change.
These fundamental change redemption rights could discourage a potential
acquiror of Enzon. However, this fundamental change redemption feature is not
the result of management's knowledge of any specific effort to
20
obtain control of Enzon by means of a merger, tender offer or solicitation, or
part of a plan by management to adopt a series of anti-takeover provisions.
The term "fundamental change" is limited to specified transactions and may not
include other events that might adversely affect our financial condition or
business operations. Our obligation to offer to redeem the notes upon a
fundamental change would not necessarily afford holders protection in the
event of a highly leveraged transaction, reorganization, merger or similar
transaction involving Enzon.
We may be unable to redeem the notes in the event of a fundamental change.
If a fundamental change were to occur, we may not have enough funds to pay the
redemption price for all tendered notes. Any future credit agreements or other
agreements relating to our indebtedness may contain provisions prohibiting
redemption of the notes under certain circumstances, or expressly prohibit our
repurchase of the notes upon a fundamental change or may provide that a
fundamental change constitutes an event of default under that agreement. If a
fundamental change occurs at a time when we are prohibited from purchasing or
redeeming notes, we could seek the consent of our lenders to redeem the notes
or attempt to refinance this debt. If we do not obtain consent, we would not
be permitted to purchase or redeem the notes. Our failure to redeem tendered
notes would constitute an event of default under the indenture, which might
constitute a default under the terms of our other indebtedness. In these
circumstances, or if a fundamental change would constitute an event of default
under our senior indebtedness, the subordination provisions of the indenture
would restrict payments to the holders of notes.
Subordination of Notes
Payment on the notes will, to the extent provided in the indenture, be
subordinated in right of payment to the prior payment in full of all of our
senior indebtedness. The notes also are effectively subordinated to all debt
and other liabilities, including trade payables and lease obligations, if any,
of our subsidiaries.
Upon any distribution of our assets upon any dissolution, winding up,
liquidation or reorganization, the payment of the principal of, or premium, if
any, interest, and liquidated damages, if any, on the notes will be
subordinated in right of payment to the prior payment in full in cash or other
payment satisfactory to the holders of senior indebtedness of all senior
indebtedness. In the event of any acceleration of the notes because of an
event of default, the holders of any outstanding senior indebtedness would be
entitled to payment in full in cash or other payment satisfactory to the
holders of senior indebtedness of all senior indebtedness obligations before
the holders of the notes are entitled to receive any payment or distribution.
We are required under the indenture to promptly notify holders of senior
indebtedness, if payment of the notes is accelerated because of an event of
default.
We may not make any payment on the notes if:
o a default in the payment of designated senior indebtedness occurs and is
continuing beyond any applicable period of grace (called a "payment
default"); or
o a default other than a payment default on any designated senior
indebtedness occurs and is continuing that permits holders of designated
senior indebtedness to accelerate its maturity, or in the case of a
lease, a default occurs and is continuing that permits the lessor to
either terminate the lease or require us to make an irrevocable offer to
terminate the lease following an event of default under the lease, and
the trustee receives a notice of such default (called "payment blockage
notice") from us or any other person permitted to give such notice under
the indenture (called a "non-payment default").
We may resume payments and distributions on the notes:
o in case of a payment default, upon the date on which such default is
cured or waived or ceases to exist; and
o in case of a non-payment default, the earlier of the date on which such
nonpayment default is cured or waived or ceases to exist or 179 days
after the date on which the payment blockage notice is received, if the
maturity of the designated senior indebtedness has not been accelerated,
or in the case of any lease, 179 days after notice is received if we have
not received notice that the lessor under such lease has exercised its
right to terminate the lease or require us to make an irrevocable offer
to terminate the lease following an event of default under the lease.
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No new period of payment blockage may be commenced pursuant to a payment
blockage notice unless 365 days have elapsed since the initial effectiveness
of the immediately prior payment blockage notice. No non-payment default that
existed or was continuing on the date of delivery of any payment blockage
notice shall be the basis for any later payment blockage notice.
If the trustee or any holder of the notes receives any payment or
distribution of our assets in contravention of the subordination provisions on
the notes before all senior indebtedness is paid in full in cash or other
payment satisfactory to holders of senior indebtedness, then such payment or
distribution will be held in trust for the benefit of holders of senior
indebtedness or their representatives to the extent necessary to make payment
in full cash or payment satisfactory to the holders of senior indebtedness of
all unpaid senior indebtedness.
Because of the subordination provisions discussed above, in the event of our
bankruptcy, dissolution or reorganization, holders of senior indebtedness may
receive more, ratably, and holders of the notes may receive less, ratably,
than our other creditors. This subordination will not prevent the occurrence
of any event of default under the indenture.
The notes are exclusively obligations of Enzon. A substantial portion of our
operations are conducted through our subsidiaries. As a result, our cash flow
and our ability to service our debt, including the notes, is dependent upon
the earnings of our subsidiaries. In addition, we are dependent on the
distribution of earnings, loans or other payments from our subsidiaries. In
addition, any payment of dividends, distributions, loans or advances by our
subsidiaries to us could be subject to statutory or contractual restrictions.
Payments to us by our subsidiaries will also be contingent upon our
subsidiaries' earnings and business considerations.
Our right to receive any assets of any of our subsidiaries upon their
liquidation or reorganization, and therefore the right of the holders to
participate in those assets, will be effectively subordinated to the claims of
that subsidiary's creditors, including trade creditors. In addition, even if
we were a creditor to any of our subsidiaries, our rights as a creditor would
be subordinate to any security interest in the assets of our subsidiaries and
any indebtedness of our subsidiaries senior to that held by us.
The term "senior indebtedness" is defined in the indenture and includes
principal, premium, interest, rent, fees, costs, expenses and other amounts
accrued or due on our existing or future indebtedness, as defined below, or
any existing or future indebtedness guaranteed or in effect guaranteed by us,
subject to certain exceptions. The term does not include:
o any indebtedness that by its express terms is not senior to the notes or
is pari passu or junior to the notes; or
o any indebtedness we owe to any of our majority-owned subsidiaries; or
o the notes.
The term "indebtedness" is also defined in the indenture and includes, in
general terms, our liabilities in respect of borrowed money, notes, bonds,
debentures, letters of credit, bank guarantees, bankers' acceptances, capital
and certain other leases, interest rate and foreign currency derivative
contracts or similar arrangements, guarantees and certain other obligations
described in the indenture, subject to certain exceptions. The term does not
include, for example, any account payable or other accrued current liability
or obligation incurred in the ordinary course of business in connection with
the obtaining of materials or services.
The term "designated senior indebtedness" is defined in the indenture and
includes, in general terms, any senior indebtedness that by its terms
expressly provides that it is "designated senior indebtedness" for purposes of
the indenture.
As of May 31, 2001, we had no senior indebtedness outstanding and our
subsidiaries had no significant indebtedness. Neither we nor our subsidiaries
are prohibited from incurring debt, including senior indebtedness, under the
indenture. We may from time to time incur additional debt, including senior
indebtedness. Our subsidiaries may also from time to time incur additional
debt and liabilities.
We are obligated to pay reasonable compensation to the trustee and to
indemnify the trustee against certain losses, liabilities or expenses incurred
by the trustee in connection with its duties relating to the notes. The
22
trustee's claims for these payments will generally be senior to those of
noteholders in respect of all funds collected or held by the trustee.
Events of Default; Notice and Waiver
The following will be events of default under the indenture:
o we fail to pay principal or premium, if any, when due upon redemption or
otherwise on the notes, whether or not the payment is prohibited by
subordination provisions;
o we fail to pay any interest and liquidated damages, if any, on the notes,
when due and such failure continues for a period of 30 days, whether or
not the payment is prohibited by subordination provisions of the
indenture;
o we fail to perform or observe any of the covenants in the indenture for
60 days after notice; or
o certain events involving our bankruptcy, insolvency or reorganization.
The trustee may withhold notice to the holders of the notes of any default,
except defaults in payment of principal, premium, interest or liquidated
damages, if any, on the notes. However, the trustee must consider it to be in
the interest of the holders of the notes to withhold this notice.
If an event of default occurs and continues, the trustee or the holders of
at least 25% in principal amount of the outstanding notes may declare the
principal, premium, if any, and accrued interest and liquidated damages, if
any, on the outstanding notes to be immediately due and payable. In case of
certain events of bankruptcy or insolvency involving us, the principal,
premium, if any, and accrued interest and liquidated damages, if any, on the
notes will automatically become due and payable. However, if we cure all
defaults, except the nonpayment of principal, premium, if any, interest or
liquidated damages, if any, that became due as a result of the acceleration,
and meet certain other conditions, with certain exceptions, this declaration
may be cancelled and the holders of a majority of the principal amount of
outstanding notes may waive these past defaults. Payment of principal,
premium, if any, or interest on the notes that are not made when due will
accrue interest at the annual rate of 4 1/2% from the required payment date.
The holders of a majority of outstanding notes will have the right to direct
the time, method and place of any proceedings for any remedy available to the
trustee, subject to limitations specified in the indenture.
No holder of the notes may pursue any remedy under the indenture, except in
the case of a default in the payment of principal, premium or interest on the
notes, unless:
o the holder has given the trustee written notice of an event of default;
o the holders of at least 25% in principal amount of outstanding notes make
a written request, and offer reasonable indemnity, to the trustee to
pursue the remedy;
o the trustee does not receive an inconsistent direction from the holders
of a majority in principal amount of the notes; and
o the trustee fails to comply with the request within 60 days after
receipt.
Modification and Waiver
The consent of the holders of a majority in principal amount of the
outstanding notes is required to modify or amend the indenture. However, a
modification or amendment requires the consent of the holder of each
outstanding note if it would:
o extend the fixed maturity of any note;
o reduce the rate or extend the time for payment of interest of any note;
o reduce the principal amount or premium of any note;
o reduce any amount payable upon redemption of any note;
23
o adversely change our obligation to redeem any note upon a fundamental
change;
o impair the right of a holder to institute suit for payment on any note;
o change the currency in which any note is payable;
o impair the right of a holder to convert any note;
o adversely modify, in any material respect, the subordination provisions
of the indenture; or
o reduce the percentage of notes required for consent to any modification
of the indenture.
We are permitted to modify certain provisions of the indenture without the
consent of the holders of the notes.
Form, Denomination and Registration
The notes will be:
o in fully registered form;
o without interest coupons; and
o in denominations of $1,000 principal amount and integral multiples of
$1,000.
Except as indicated below, the notes will be evidenced by one or more global
notes. We will deposit the global note or notes with DTC and register the
global notes in the name of Cede & Co. as DTC's nominee. Except as set forth
below, a global note may be transferred, in whole or in part, only to another
nominee of DTC or to a successor of DTC or its nominee.
Holders of notes may hold their interests in a global note directly through
DTC if such holder is a participant in DTC, or indirectly through
organizations that are participants in DTC (called "participants"). Transfers
between participants will be effected in the ordinary way in accordance with
DTC rules and will be settled in clearing house funds. The laws of some states
require that certain persons take physical delivery of securities in
definitive form. As a result, the ability to transfer beneficial interests in
the global note to such persons may be limited.
Holders of notes who are not participants may beneficially own interests in
a global note held by DTC only through participants, or certain banks,
brokers, dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly (called "indirect participants"). So long as Cede & Co., as the
nominee of DTC, is the registered owner of a global note, Cede & Co. for all
purposes will be considered the sole holder of such global note. Except as
provided below, owners of beneficial interests in a global note will:
o not be entitled to have certificates registered in their names;
o not receive physical delivery of certificates in definitive registered
form; and
o not be considered holders of the global note.
We will pay interest on and the redemption price of a global note to Cede &
Co., as the registered owner of the global note, by wire transfer of
immediately available funds on each interest payment date or the redemption or
repurchase date, as the case may be. Neither we, the trustee nor any paying
agent will be responsible or liable:
o for the records relating to, or payments made on account of, beneficial
ownership interests in a global note; or
o for maintaining, supervising or reviewing any records relating to the
beneficial ownership interests.
We have been informed that DTC's practice is to credit participants'
accounts on that payment date with payments in amounts proportionate to their
respective beneficial interests in the principal amount represented by a
global note as shown in the records of DTC, unless DTC has reason to believe
that it will not receive payment on that payment date. Payments by
participants to owners of beneficial interests in the principal amount
24
represented by a global note held through participants will be the
responsibility of the participants, as is now the case with securities held
for the accounts of customers registered in "street name."
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants, the ability of a person having a beneficial
interest in the principal amount represented by the global note to pledge such
interest to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of such interest, may be affected by the
lack of a physical certificate evidencing its interest.
Neither we, the trustee, registrar, paying agent nor conversion agent will
have any responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations. DTC has advised us that it will take
any action permitted to be taken by a holder of notes, including the
presentation of notes for exchange, only at the direction of one or more
participants to whose account with DTC interests in the global note are
credited, and only in respect of the principal amount of the notes represented
by the global note as to which the participant or participants has or have
given such direction.
DTC has advised us that it is:
o a limited purpose trust company organized under the laws of the State of
New York, and a member of the Federal Reserve System;
o a "clearing corporation" within the meaning of the Uniform Commercial
Code; and
o a "clearing agency" registered pursuant to the provisions of Section 17A
of the Exchange Act.
DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between participants
through electronic book-entry changes to the accounts of its participants.
Participants include securities brokers, dealers, banks, trust companies and
clearing corporations and other organizations. Some of the participants or
their representatives, together with other entities, own DTC. Indirect access
to the DTC system is available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
DTC has agreed to the foregoing procedures to facilitate transfers of
interests in a global note among participants. However, DTC is under no
obligation to perform or continue to perform these procedures, and may
discontinue these procedures at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed
by us within 90 days, we will issue notes in certificated from in exchange for
global notes.
Registration Rights of the Noteholders
Under a registration rights agreement, we are required to use our reasonable
efforts to cause a shelf registration statement, of which this prospectus is a
part, to become effective and to use reasonable efforts to keep the shelf
registration statement effective until the earlier of:
o all of the registrable securities have been sold pursuant to the shelf
registration statement; or
o the expiration of the holding period under Rule 144(k) under the
Securities Act, or any successor provision.
When we use the term "registrable securities" in this section, we are
referring to the notes and the common stock issuable upon conversion of the
notes until the earliest of:
o the effective registration under the Securities Act and the resale of the
securities in accordance with the registration statement;
o the expiration of the holding period under Rule 144(k) under the
Securities Act; and
o the sale to the public pursuant to Rule 144 under the Securities Act, or
any similar provision then in force, but not Rule 144A.
We may suspend the use of the prospectus under certain circumstances
relating to pending corporate developments, public filings with the SEC and
similar events. Any suspension period shall not:
25
o exceed 30 days in any three-month period; or
o an aggregate of 90 days for all periods in any 12-month period.
Notwithstanding the foregoing, we will be permitted to suspend the use of
the prospectus for up to 60 days in any 3-month period under certain
circumstances, relating to possible acquisitions, financings or other similar
transactions.
We will pay predetermined liquidated damages if the shelf registration
statement is not timely filed or made effective or if the prospectus is
unavailable for periods in excess of those permitted above:
o on the notes at an annual rate equal to 0.5% of the aggregate principal
amount of the notes outstanding until the registration statement is filed
or made effective or during the additional period the prospectus is
unavailable; and
o on the common stock that has been converted, at an annual rate equal to
0.5% of the conversion price during such periods.
A holder who elects to sell registrable securities pursuant to the shelf
registration statement will be required to:
o be named as a selling stockholder in the related prospectus;
o deliver a prospectus to purchasers; and
o be subject to the provisions of the registration rights agreement,
including indemnification provisions.
The summary of the registration rights agreement is not complete. This
summary is subject to, and is qualified in its entirety by reference to, all
the provisions of the registration rights agreement.
Information Concerning the Trustee
We have appointed Wilmington Trust Company, the trustee under the indenture,
as paying agent, conversion agent, note registrar and custodian for the notes.
The trustee or its affiliates may provide banking and other services to us in
the ordinary course of their business.
The indenture contains certain limitations on the rights of the trustee, if
it or any of its affiliates is then our creditor, to obtain payment of claims
in certain cases or to realize on certain property received on any claim as
security or otherwise. The trustee and its affiliates will be permitted to
engage in other transactions with us. However, if the trustee or any affiliate
continues to have any conflicting interest and a default occurs with respect
to the notes, the trustee must eliminate such conflict or resign.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 60,000,000 shares of common stock,
par value $.01 per share, and 3,000,000 shares of preferred stock, par value
$.01 per share. Unless otherwise designated by our board of directors, all
issued shares shall be deemed common stock with equal rights and preferences.
Common Stock
As of June 30, 2001, there were 41,990,859 shares of our common stock
outstanding. In addition, as of June 30, 2001, there were stock options
outstanding to purchase an aggregate of 3,283,817 shares of common stock.
Holders of our common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Directors are elected by a plurality of the votes of the shares
present in person or represented by proxy at the annual meeting and entitled
to vote in such election. Holders of our common stock are entitled to receive
ratably the dividends, if any, as may be declared by the board of directors
out of legally available funds. These rights are subject to the prior rights
of any preferred stock then outstanding.
Upon our liquidation, dissolution or winding up, the holders of common stock
are entitled to receive ratably our net assets available after the payment of
all debts and other liabilities, and after the satisfaction of the rights of
any outstanding preferred stock. Holders of the common stock have no
preemptive, subscription, redemption or conversion rights, nor are they
entitled to the benefit of any sinking fund. The outstanding shares of common
stock are validly issued, fully paid and non-assessable. The rights, powers,
preferences and privileges of holders of common stock are subordinate to, and
may be adversely affected by, the rights of the holders of shares of any
series of preferred stock whether outstanding or issued in the future.
Preferred Stock
Our board of directors has the authority to issue up to 3,000,000 shares of
preferred stock in one or more series and to fix the powers, designations,
preferences and relative rights thereof without any further vote of
shareholders. The voting powers of holders of common stock could be diluted by
the issuance of this preferred stock. The issuance of this preferred stock
could also have the effect of delaying, deferring or preventing a change in
our control. The issuance of this preferred stock could decrease the amount of
earnings and assets available for distribution to holders of our common stock
or adversely affect the rights and powers, including voting rights, of the
holders of our common stock.
Series A Preferred Stock
As of June 30, 2001, there were 7,000 shares of our Series A preferred stock
outstanding. Shares of our Series A preferred stock are convertible into
common stock at a conversion price of $11.00 per share. The value of the
shares of Series A preferred stock for conversion purposes is $25.00 per
share. Holders of the Series A preferred stock are entitled to an annual
dividend of $2.00 per share, payable semiannually, but only when and if
declared by our board of directors, out of funds legally available. Dividends
on the Series A preferred stock are cumulative and accrue and accumulate but
will not be paid, except in liquidation or upon conversion, until such time as
the board of directors deems it appropriate in light of our then current
Financial condition. No dividends are to be paid or set apart for payment on
our common stock, nor are any shares of common stock to be redeemed, retired
or otherwise acquired for valuable consideration unless we have paid in full
or made appropriate provision for the payment in full of all dividends which
have then accumulated on the Series A preferred stock. Holders of the Series A
preferred stock are entitled to one vote per share on matters to be voted upon
by our stockholders and except as required by Delaware law, our Series A
preferred stock votes together with our common stock as a single class on all
matters which come to a vote of our stockholders. As of June 30, 2001,
undeclared accrued dividends in arrears were $157,811 or $22.54 per share of
Series A preferred stock. All shares of common stock are junior in rank to the
Series A preferred stock with respect to the preferences as to dividends,
distributions and payments upon our liquidation, dissolution or winding up.
27
Registration Rights
We have granted Schering-Plough piggyback and demand registration rights
with respect to 847,489 shares of our common stock that were issued in June
1995. In addition, there are demand and/or piggyback registration rights on
240,323 shares of common stock. Two persons affiliated with Evolution Capital
have piggyback and demand registration rights with respect to 188,779 shares
of our common stock issued upon the exercise of warrants. The demand rights
give these warrant holders a one-time right to require us to register, upon
their request. In addition, transferees of the Carson Group, Inc. and two of
its principals have piggyback registration rights with respect to an aggregate
of 51,147 shares of our common stock issued upon exercise of warrants as
consideration for finder's services that were provided to us. Transferees of
Clearwater Fund IV were also granted piggyback registration rights under a
registration rights agreement with us with respect to the 206,227 shares of
common stock issued upon exercise of the warrants they held, which shares are
currently covered by an effective registration statement. Absent any
contractual limitations, the holders of these rights could cause a significant
number of shares of our common stock to be registered and sold in the public
market. Such sales, or the perception that these sales could occur, may have
an adverse effect on the market price for our common stock and could impair
our ability to raise capital through an offering of equity securities. We have
obtained waivers of all such piggyback registration rights applicable to this
offering, except rights with respect to an aggregate of 17,500 shares of our
common stock.
We originally registered the resale of approximately 3,983,000 shares of our
common stock owned by stockholders who purchased such shares in a private
placement of shares of our common stock that closed in July 1998.
We originally registered the resale of approximately 4,122,317 shares of our
common stock owned by stockholders who purchased such shares in a private
placement of shares of our common stock that closed in January and March 1996.
We are required to maintain the effectiveness of this registration statement
until the earlier of the date that all of the shares are sold or March 15,
2004.
Indemnification and Limitation of Liability
Our charter documents provide that our directors and officers shall be
indemnified by us to the fullest extent permitted by Delaware law, as it now
exists or may in the future be amended, against all expenses and liabilities
reasonably incurred in connection with their service for or on behalf of us.
In addition, our certificate of incorporation provides that our directors will
not be personally liable for monetary damages to us for breaches of their
fiduciary duty as directors, unless they violated their duty of loyalty to
either us or our stockholders, acted in bad faith, knowingly or intentionally
violated the law, authorized illegal dividends or redemptions or derived an
improper personal benefit from their action as directors. We have insurance
which insures our directors and officers against certain losses and which
insures us against our obligations to indemnify our directors and officers.
Our officers and directors have executed indemnity agreements with us which
supplement the protections provided by our certificate of incorporation and
by-laws.
These agreements require us to pay for any damages, judgments, settlements,
costs and expenses for the defense of legal actions, claims, proceedings and
appeals due to any actual or alleged breach of duty, neglect, error,
misstatement, misleading statement, omission or other act done, suffered or
wrongfully attempted by the officer or director. If we do not pay such costs
and expenses within 90 days after we receive a written claim, such officers or
directors may bring a suit against us to recover the unpaid amount of the
claim. If such officer or director is successful, we will be required to pay
for the expenses incurred relating to the claim.
Provisions of our Certificate of Incorporation, By-laws and State Law
Provisions with Potential Antitakeover Effects
Certain provisions of our certificate of incorporation and by-laws, as well
as Delaware law, may operate in a manner that could discourage or render more
difficult a takeover of our company or the removal of our management or may
limit the price certain investors may be willing to pay for shares of our
common stock.
Our by-laws provide for the division of the board of directors into three
classes as nearly equal in size as possible with staggered three-year terms.
In addition, it provides that directors may be removed only for cause by
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the affirmative vote of the holders of a majority of our outstanding shares of
capital stock entitled to vote. Any vacancy on the board of directors, however
occurring, including a vacancy resulting from an enlargement of the Board, may
only be filled by vote of a majority of the directors then in office. The
likely effect of the classification of the board of directors and the
limitations on the removal of directors and filling of vacancies is an
increase in the time required for the stockholders to change the composition
of the board of directors. For example, because only three directors may be
replaced by stockholder vote at each annual meeting of stockholders,
stockholders seeking to replace a majority of the members of the board of
directors will need at least two annual meetings of stockholders to effect
this change. In addition, our board of directors has the authority to issue up
to 3,000,000 shares of preferred stock in one or more series and to fix the
powers, designations, preferences and relative rights thereof without any
further vote of our stockholders. The voting powers of holders of our common
stock could be diluted by the issuance of this preferred stock. The issuance
of this preferred stock could also have the effect of delaying, deferring or
preventing a change in control. In addition, the issuance of this preferred
stock could decrease the amount of earnings and assets available for
distribution to holders of our common stock or adversely affect the rights and
powers, including voting rights, of the holders of our common stock.
The provisions of Section 203 of the General Corporation Law of Delaware
will prohibit us from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless:
o before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination,
o upon the closing of the transaction that resulted in the interested
stockholder becoming such, the interested stockholder owned at least 85%
of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding shares held by directors who are also
officers of the corporation and shares held by employee stock plans, or
o following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of at least two-thirds of the
outstanding voting stock of the corporation not owned by the interested
stockholder.
A "business combination" includes mergers, asset sales, consolidations and
other transactions resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is defined as a person who, at the
time of determination of whether a person is an interested stockholder:
o beneficially owns 15% or more of our common stock, or
o is an affiliate or associate of ours and beneficially owned 15% or more
of our common stock at any time within three years of the date of
determination.
A Delaware corporation may "opt out" of Section 203 with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or by-laws resulting from an amendment
approved by holders of at least a majority of the outstanding voting stock.
Neither our certificate nor our by-laws contain any such exclusion.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Continental Stock
Transfer & Trust Company. Its address is Two Broadway, 19th Floor, New York,
New York 10004.
CERTAIN UNITED STATES AND FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal income tax
considerations relating to the purchase, ownership and disposition of the
notes and common stock into which the notes may be converted, but does not
purport to be a complete analysis of all the potential tax considerations
relating thereto. This summary is based on
29
laws, regulations, rulings and decisions now in effect, all of which are
subject to change or differing interpretation possibly with retroactive
effect. Except as specifically discussed below with regard to non-U.S. holders
(as defined below), this summary applies only to U.S. holders (as defined
below) that are beneficial owners of the notes and that will hold the notes
and common stock into which the notes may be converted as "capital assets"
(within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code")).
For purposes of this summary, U.S. holders include (1) individual citizens
or residents of the U.S., including an alien individual who is a lawful
permanent resident of the United States or who meets the substantial presence
residency test under the federal income tax laws, (2) corporations or
partnerships (including any entity treated as a corporation or a partnership
for U.S. tax purposes) created or organized in or under the laws of the U.S.,
any State of the United States or the District of Columbia, (3) estates, the
incomes of which are subject to U.S. federal income taxation regardless of the
source of such income or (4) trusts subject to the primary supervision of a
U.S. court and the control of one or more U.S. persons. Persons other than
U.S. holders ("non-U.S. holders") are subject to special U.S. federal income
tax considerations, some of which are discussed below.
If a partnership (including for this purpose any entity treated as a
partnership for U.S. tax purposes) is a beneficial owner of the notes or
common stock into which the notes may be converted, the U.S. tax treatment of
a partner in the partnership will generally depend on the status of the
partner and the activities of the partnership. A holder of the notes or common
stock into which the notes may be converted that is a partnership and partners
in such partnership should consult their individual tax advisors about the
U.S. federal income tax consequences of holding and disposing of the notes and
the common stock into which the notes may be converted.
This discussion does not address tax considerations applicable to an
investor's particular circumstances or to investors that may be subject to
special tax rules such as (1) banks, thrifts, regulated investment companies,
or other financial institutions or financial service companies, (2) S
corporations, (3) holders subject to the alternative minimum tax, (4) tax-
exempt organizations, (5) insurance companies, (6) foreign persons or entities
(except to the extent specifically set forth below), (7) brokers or dealers in
securities or currencies, (8) holders whose "functional currency" is not the
U.S. dollar, or (9) persons that will hold the notes as a position in a
hedging transaction, "straddle," "conversion transaction" (as defined for tax
purposes) or persons deemed to sell the notes or common stock under the
constructive sale provisions of the Code.
This summary discusses the tax considerations applicable to the initial
purchasers of the notes who purchase the notes at their "issue price" as
defined in Section 1273 of the Code and the regulations thereunder and does
not discuss the tax considerations applicable to subsequent purchasers of the
notes. We have not sought any ruling from the Internal Revenue Service, or
IRS, or an opinion of counsel with respect to the statements made and the
conclusions reached in the following summary, and there can be no assurance
that the IRS will agree with such statements and conclusions. In addition, the
IRS is not precluded from successfully adopting a contrary position. This
summary does not consider the effect of the federal estate or gift tax laws
(except as set forth below with respect to non-U.S. holders) or the tax laws
of any applicable foreign, state, local or other jurisdiction. This summary
also assumes that the IRS will respect the classification of the notes as
indebtedness for federal income tax purposes.
INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME
TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES
ARISING UNDER THE FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY
STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX
TREATY.
U.S. Holders
Taxation of Interest
Interest paid on the notes will be included in the income of a U.S. holder
as ordinary income at the time it is treated as received or accrued, in
accordance with such holder's regular method of accounting for U.S. federal
income tax purposes. Under Treasury Regulations, the possibility of an
additional payment under a note may be disregarded for purposes of determining
the amount of interest or original issue discount income to be recognized by
the holder in respect of such note (or the timing of such recognition) if the
likelihood of the payment, as of the
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date the notes are issued, is remote. Failure of Enzon to file or cause to be
declared effective a shelf registration statement as described under
"Description of Notes--Registration Rights of the Noteholders" may result in
the payment of predetermined liquidated damages in the manner described in
that section of this prospectus. In addition, holders may require Enzon to
redeem any and all of their notes in the event of a fundamental change, and
Enzon may redeem some or all of the notes on or after July 7, 2004 subject to
certain conditions. Enzon believes that the likelihood of a liquidated damages
payment with respect to the notes is remote and does not intend to treat such
possibility as affecting the yield to maturity of any note. Similarly, Enzon
intends to take the position that a "fundamental change" or a redemption is
remote under the Treasury Regulations, and likewise does not intend to treat
the possibility of a "fundamental change" or a redemption as affecting the
yield to maturity of any note. In the event any of these contingencies occurs,
it may affect the amount and timing of the income that must be recognized by a
U.S. holder of notes.
Sale, Exchange or Redemption of the Notes
Upon the sale, exchange (other than a conversion) or redemption of a note, a
U.S. holder generally will recognize capital gain or loss equal to the
difference between (1) the amount of cash proceeds and the fair market value
of any property received on the sale, exchange or redemption (except to the
extent such amount is attributable to accrued interest income not previously
included in income, which will be taxable as ordinary income, or is
attributable to accrued interest that was previously included in income, which
amount may be received without generating further income) and (2) such
holder's adjusted tax basis in the note. A U.S. holder's adjusted tax basis in
a note generally will equal the cost of the note to such holder less any
principal payments received by you. Such capital gain or loss will be long-
term capital gain or loss if the U.S. holder's holding period in the note is
more than one year at the time of sale, exchange or redemption. Long-term
capital gains recognized by some noncorporate U.S. holders, including
individuals, will generally be subject to taxation at reduced rates. The
deductibility of capital losses is subject to limitations.
Conversion of the Notes
A U.S. holder generally will not recognize any income, gain or loss upon
conversion of a note into common stock except with respect to cash received in
lieu of a fractional share of common stock or common stock that is
attributable to accrued interest not previously included in income. Cash
received in lieu of a fractional share of common stock upon conversion will be
treated as a payment in exchange for the fractional share of common stock.
Accordingly, the receipt of cash in lieu of a fractional share of common stock
generally will result in capital gain or loss (measured by the difference
between the cash received for the fractional share and the holder's adjusted
tax basis in the fractional share). Common stock received upon conversion that
is attributable to accrued interest not previously included in income will be
subject to the rules described above with respect to taxation of interest. See
"U.S. Holders--Taxation of Interest" above.
A U.S. holder's tax basis in the common stock received on conversion of a
note will be the same as such holder's adjusted tax basis in the note at the
time of conversion (reduced by any basis allocable to a fractional share
interest), and the holding period for the common stock received on conversion
will generally include the holding period of the note converted. However, a
U.S. holder's tax basis in shares of common stock considered attributable to
accrued interest not previously included in income (or to cash tendered with
notes converted after a record date for a particular interest payment date and
prior to such interest payment date) generally will equal the amount of such
accrued interest (and/or cash), and the holding period for such shares shall
begin on the date of conversion.
Distributions on Common Stock
Distributions, if any, made on the common stock after a conversion generally
will be included in the income of a U.S. holder as ordinary dividend income to
the extent of our current or accumulated earnings and profits. A dividend
distribution to a corporate U.S. holder may qualify for a dividends-received
deduction; however, certain holding period requirements, taxable income and
other limitations may apply. Distributions in excess of our current and
accumulated earnings and profits will be treated as a non-taxable return of
capital that reduces the U.S. holder's basis in the common stock dollar-for-
dollar until the basis has been reduced to zero, and thereafter as capital
gain.
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Holders of convertible debt instruments such as the notes may, in some
circumstances, be deemed to have received distributions of stock if the
conversion price of such instruments is adjusted to the extent the adjustment
results in an increase in the holder's proportionate interest in the earnings
and profits or assets of Enzon. However, adjustments to the conversion price
made pursuant to a bona fide, reasonable adjustment formula which has the
effect of preventing the dilution of the interest of the holders of the debt
instruments will generally not be considered to result in a constructive
distribution of stock. Some of the possible adjustments provided in the notes
(including, without limitation, adjustments in respect of taxable dividends to
our stockholders or adjustments at our discretion) will not qualify as being
pursuant to a bona fide reasonable adjustment formula. If such adjustments are
made, U.S. holders of notes will be deemed to have received constructive
distributions taxable as dividends to the extent of our current and
accumulated earnings and profits even though they have not received any cash
or property as a result of such adjustments. A holder's tax basis in a note,
however, generally will be increased by the amount of any constructive
dividend included in taxable income. In addition, in some circumstances, an
adjustment or the failure to provide for an adjustment may result in taxable
dividend income to the holders of common stock.
Sale, Exchange or Redemption of Common Stock
Upon the sale, exchange or redemption of common stock a U.S. holder
generally will recognize capital gain or loss equal to the difference between
(1) the amount of cash and the fair market value of any property received upon
the sale or exchange and (2) such U.S. holder's adjusted tax basis in the
common stock. Such capital gain or loss will be long-term capital gain or loss
if the U.S. holder's holding period in common stock is more than one year at
the time of the sale, exchange or redemption. Long-term capital gains
recognized by some non-corporate U.S. holders, including individuals, will
generally be subject to taxation at reduced rates. A U.S. holder's basis and
holding period in common stock received upon conversion of a note are
determined as discussed above under "Conversion of the Notes." The
deductibility of capital losses is subject to limitations.
Backup Withholding and Information Reporting
Backup withholding of U.S. federal income tax at a rate currently of 31
percent may apply to payments pursuant to the terms of a note or common stock
(including proceeds received upon the sale, exchange, redemption, retirement
or other disposition of the notes or common stock) to a U.S. holder that is
not an "exempt recipient" and that fails to provide required identifying
information (such as the holder's U.S. taxpayer identification number, or
"TIN") in the manner required. Generally, individuals are not exempt
recipients. Corporations are generally exempt recipients, whereas other
entities may be exempt recipients. Payments made in respect of a note or
common stock (including proceeds received upon the sale, exchange, redemption,
retirement or other disposition of the notes or common stock) must be reported
to the IRS, unless the U.S. holder is an exempt recipient or otherwise
establishes an exemption. Any amounts withheld from a payment to a U.S. holder
under the backup withholding rules is allowable as a refund or credit against
the holder's U.S. federal income tax, provided that the required information
is furnished to the IRS in a timely manner.
Non-U.S. Holders
In general, subject to the discussion below concerning backup withholding:
Taxation of Interest
Payments of interest on the notes by us or any paying agent to a beneficial
owner of a note that is a non-U.S. holder generally will not be subject to
U.S. withholding tax, provided that (l) such non-U.S. holder does not own,
actually or constructively pursuant to the conversion feature of the notes or
otherwise, 10 percent or more of the total combined voting power of all
classes of our stock entitled to vote within the meaning of Section 871(h)(3)
of the Code, (2) such non-U.S. holder is not a "controlled foreign
corporation" within the meaning of Section 957(a) of the Code with respect to
which we are a "related person" within the meaning of Section 864(d)(4) of the
Code, (3) such non-U.S. holder is not a bank receiving interest described in
Section 881(c)(3)(A) of the Code, and (4) the certification requirements under
Section 871(h) or Section 881(c) of the Code and Treasury Regulations
thereunder are satisfied.
To satisfy the certification requirements referred to in (4) above, Sections
871(h) and 881(c) of the Code and currently effective Treasury regulations
thereunder require that either (1) the beneficial owner of a note must
32
certify, under penalties of perjury, to us or our paying agent, as the case
may be, that such owner is a non-U.S. holder and must provide such owner's
name and address, and TIN, if any, on Form W-8BEN (or a suitable substitute
form) or (2) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business (a "Financial Institution") and holds the note on behalf of
the beneficial owner thereof must certify, under penalties of perjury, to us
or our paying agent, as the case may be, that a Form W-8BEN (or a suitable
substitute form) has been received from the beneficial owner or a qualifying
intermediary and must furnish the payor with a copy thereof.
Interest on notes not excluded from U.S. withholding tax as described above
and not effectively connected with a United States trade or business generally
will be subject to U.S. withholding tax at a 30 percent rate, except where an
applicable U.S. income tax treaty provides for the reduction or elimination of
such withholding tax.
Sale, Exchange or Redemption of the Notes or Common Stock
A non-U.S. holder of a note or common stock will not be subject to U.S.
federal income tax on gains realized on the sale, exchange or redemption of
such note or common stock unless (1) such non-U.S. holder is an individual who
is present in the United States for 183 days or more in the taxable year of
sale, exchange or other disposition, and other required conditions are met,
(2) such gain is effectively connected with the conduct by the non-U.S. holder
of a trade or business in the United States and, if an applicable U.S. income
tax treaty requires, is attributable to a U.S. permanent establishment
maintained by the non-U.S. holder, (3) the non-U.S. holder is subject to Code
provisions applicable to some U.S. expatriates, or (4) in certain
circumstances, if we are, or have been at any time within the shorter of the
five-year period preceding such sale or other disposition or the period such
non-U.S. holder held the common stock or note, a U.S. real property holding
corporation (a "USRPHC") within the meaning of Section 897(c)(2) of the Code
for U.S. federal income tax purposes. We do not believe that we are currently
a USRPHC or that we will become one in the future.
Conversion of the Notes
A non-U.S. holder generally should not be subject to U.S. federal income tax
on the conversion of a note into common stock. To the extent a non-U.S. holder
receives cash in lieu of a fractional share of common stock upon conversion,
such cash may give rise to gain that would be subject to the rules described
above with respect to the sale, exchange or redemption of a note or common
stock. See "Non-U.S. holders-Sale, Exchange or Redemption of the Notes or
Common Stock" above. To the extent a non-U.S. holder receives upon conversion
common stock that is attributable to accrued interest not previously included
in income, such stock may give rise to income that would be subject to the
rules described above with respect to the taxation of interest. See "Non-U.S.
Holders--Taxation of Interest" above.
Distributions on Common Stock
Distributions on common stock after conversion will constitute a dividend
for U.S. federal income tax purposes to the extent of our current or
accumulated earnings and profits as determined under U.S. federal income tax
principles. Dividends paid on common stock held by a non-U.S. holder generally
will be subject to U.S. withholding tax at a 30 percent rate, except where an
applicable U.S. income tax treaty provides for the reduction or elimination of
such withholding tax or where the dividends are effectively connected with the
holder's conduct of a trade or business in the United States and are taxable
as described below. A non-U.S. holder may be required to satisfy specific
requirements in order to claim a reduction or exemption from withholding under
the foregoing rules.
Distributions in excess of our current and accumulated earnings and profits
as determined under U.S. federal income tax principles will be treated as a
non-taxable return of capital that reduces the non-U.S. holder's basis in the
common stock dollar-for-dollar until the basis has been reduced to zero, and
therafter as capital gain. Such capital gain will generally not be taxable to
a non-U.S. holder except under the circumstances described above under "Non-
U.S. Holders-Sale, Exchange or Redemption of the Notes or Common Stock."
The conversion price of the notes is subject to adjustment in some
circumstances. Any such adjustment or failure to make an adjustment could, in
some circumstances, give rise to a deemed distribution to non-U.S. holders of
the notes or common stock that is taxable as a dividend to the extent of our
accumulated earnings and
33
profits. See "U.S. Holders-Distributions on Common Stock" above. In such case,
the deemed distribution would be subject to the rules described above
regarding U.S. withholding tax on dividends.
Income or Gains Effectively Connected With A U.S. Trade or Business
If a non-U.S. holder of a note or common stock is engaged in a trade or
business in the U.S. and if interest on the note, dividends on the common
stock, or gain realized on the sale, exchange or other disposition of the note
or common stock is effectively connected with the conduct of such trade or
business (and, if applicable tax treaty requires, is attributable to a U.S.
permanent establishment maintained by the non-U.S. holder in the U.S.), the
non-U.S. holder, although exempt from U.S. withholding tax (provided that the
certification requirements discussed in the next sentence are met), will
generally be subject to U.S. federal income tax on such interest, dividends or
gain on a net income basis in the same manner as if it were a U.S. holder. The
non-U.S. holder will be required, under currently effective Treasury
Regulations, to provide us with a properly executed IRS Form W-8ECI or
successor form in order to claim an exemption from U.S. withholding tax. In
addition, if such non-U.S. holder is a foreign corporation, it may be subject
to a branch profits tax equal to 30% (or such lower rate provided by an
applicable U.S. income tax treaty) of a portion of its effectively connected
earnings and profits for the taxable year.
U.S. Federal Estate Tax
A note held by an individual who at the time of death is not a citizen or
resident of the U.S. (as specially defined for U.S. federal estate tax
purposes) will not be subject to U.S. federal estate tax with respect to the
note if the individual did not actually or constructively own 10 percent or
more of the total combined voting power of all classes of our stock and, at
the time of the individual's death, payments with respect to such note would
not have been effectively connected with the conduct by such individual of a
trade or business in the U.S. Common stock held by an individual, actually or
constructively, who at the time of death is not a citizen or resident of the
U.S. (as specially defined for U.S. federal estate tax purposes) will be
included in such individual's estate for U.S. federal estate tax purposes,
unless an applicable estate tax treaty otherwise provides.
Non-U.S. holders should consult with their tax advisors regarding U.S.
federal, state and local and foreign income and estate tax consequences with
respect to the notes and common stock.
Backup Withholding and Information Reporting
A non-U.S. holder may have to comply with specific certification procedures
to establish that he is not a U.S. person in order to avoid information
reporting and backup withholding tax requirements with respect to our payments
of principal and interest on the notes. In addition, we must report annually
to the IRS and to each non-U.S. holder the amount of any dividends paid to,
and the tax withheld with respect to, such holder, regardless of whether any
tax was actually withheld. Copies of these information returns may also be
made available under the provisions of a specific treaty or agreement to the
tax authorities of the country in which the non-U.S. holder resides. Any
amounts withheld under the backup withholding rules from a payment to a non-
U.S. holder of a note or common stock will be allowed as a refund or credit
against such holder's U.S. federal income tax provided that the required
information is furnished to the IRS in a timely manner. Non-U.S. holders of
the notes or our common stock should consult their tax advisors regarding the
application of information reporting and backup withholding in their
particular situations, the availability of exemptions and the procedure for
obtaining any available exemption.
THE PRECEDING DISCUSSION OF THE MATERIAL U.S. FEDERAL INCOME TAX
CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISOR AS TO
THE PARTICULAR U.S. FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES OF PURCHASING,
HOLDING AND DISPOSING OF THE NOTES AND OUR COMMON STOCK. TAX ADVISORS SHOULD
ALSO BE CONSULTED AS TO THE U.S. ESTATE AND GIFT TAX CONSEQUENCES AND THE
FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES AND
OUR COMMON STOCK, AS WELL AS THE CONSEQUENCES OF ANY PROPOSED CHANGE IN
APPLICABLE LAWS.
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SELLING HOLDERS
The notes were originally issued by Enzon and sold by Morgan Stanley & Co.
Incorporated, CIBC World Markets Corp., SG Cowen Securities Corporation and
Legg Mason Wood Walker Incorporated, as initial purchasers, in a transaction
exempt from the registration requirements of the Securities Act to persons
reasonably believed by such initial purchasers to be "qualified institutional
buyers" (as defined in Rule 144A under the Securities Act). Selling holders,
which term includes their transferees, pledges or donees or their successors,
may from time to time offer and sell pursuant to this prospectus any or all of
the notes and the underlying common stock.
Prior to any use of this prospectus in connection with an offering of the
notes and the underlying common stock, this prospectus will be supplemented to
set forth the name of the selling holder and the number of notes and shares of
underlying common stock beneficially owned by such holder. The prospectus
supplement will also disclose whether any selling holder has held any position
of office with, been employed by or otherwise had material relationship with,
the company or any of its affiliates during the three years prior to the date
of the prospectus supplement.
PLAN OF DISTRIBUTION
The selling holders and their successors (which term includes their
transferees, pledgees or donees or their successors) may sell the notes and
the common stock into which the notes are convertible directly to purchasers
or through underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, concessions or commissions from the
selling holders or the purchasers (which discounts, concessions or commissions
as to any particular underwriter, broker-dealer or agent may be in excess of
those customary in the types of transactions involved).
The notes and the common stock into which the notes are convertible may be
sold in one or more transactions at fixed prices, at prevailing market prices
at the time of sale, at prices related to such prevailing market prices, at
varying prices determined at the time of sale, or at negotiated prices. Such
sales may be effected in transactions (which may involve crosses or block
transactions) (1) on any national securities exchange or quotation service on
which the notes or the common stock may be listed or quoted at the time of
sale, (2) in the over-the-counter market, (3) in transactions otherwise than
on such exchanges or services or in the over-the-counter market, (4) through
the writing of options (whether such options are listed on an options exchange
or otherwise), (5) through the settlement of short sales or (6) through the
combination of the above. In connection with the sale of the notes and the
common stock into which the notes are convertible or otherwise, the selling
holders may enter into hedging transactions with broker-dealers or other
financial institutions which may in turn engage in short sales of the notes or
the common stock into with the notes are convertible and deliver these
securities to close out such short positions, or loan or pledge the notes or
the common stock into which the notes are convertible to broker-dealers that
in turn may sell these securities.
The aggregate proceeds to the selling holders from the sale of the notes or
common stock into which the notes are convertible offered by them hereby will
be the purchase price of such notes or common stock less discounts and
commissions, if any. Each of the selling holders reserves the right to accept
and, together with their agents from time to time, to reject, in whole or in
part, any proposed purchase of notes or common stock to be made directly or
through agents. We will not receive any of the proceeds from the sale of the
notes or the underlying common stock covered by this prospectus.
Our outstanding common stock is listed for trading on the Nasdaq National
Market. We do not intend to list the notes for trading on any national
securities exchange or on the Nasdaq National Market and can give no assurance
about the development of any trading market for the notes.
In order to comply with the securities laws of some states, if applicable,
the notes and common stock into which the notes are convertible may be sold in
such jurisdictions only through registered or licensed brokers or dealers. In
addition, in some states the notes and common stock into which the notes are
convertible may not be sold unless they have been registered or qualified for
sale or an exemption from registration or qualification requirements is
available and is complied with.
35
The selling holders and any underwriters, broker-dealers or agents that
participate in the sale of the notes and common stock into which the notes are
convertible may be "underwriters" within the meaning of Section 2(11) of the
Securities Act. Any discounts, commissions, concessions or profit they earn on
any resale of the shares may be underwriting discounts and commissions under
the Securities Act. Selling holders who are "underwriters" within the meaning
of Section 2(11) of the Securities Act will be subject to the prospectus
delivery requirements of the Securities Act. The selling holders have
acknowledged that they understand their obligations to comply with the
provisions of the Exchange Act and the rules thereunder relating to stock
manipulation, particularly Regulation M, and have agreed that they will not
engage in any transaction in violation of such provisions.
In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under
Rule 144 or Rule 144A rather than pursuant to this prospectus. We cannot
assure you that a selling holder will not sell any notes or common stock
described herein or will not transfer, devise or gift such securities by other
means not described in this prospectus.
To the extent required, the specific notes or common stock to be sold, the
name of the selling holders, the respective purchase prices and public
offering prices, the names of any agent, dealer or underwriter, and any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying prospectus supplement or, if appropriate, a post-
effective amendment to the registration statement of which this prospectus is
a part.
We entered into a registration rights agreement for the benefit of holders
of the notes to register their notes and common stock under applicable federal
and state securities laws under certain circumstances and at certain times.
The registration rights agreement provides for cross-indemnification of the
selling holders and Enzon and their respective directors, officer and
controlling persons against certain liabilities in connection with the offer
and sale of the notes and common stock, including liabilities under the
Securities Act. Enzon will pay substantially all of the expenses incurred by
the selling holders and Enzon incident to the offering and sale of the notes
and the common stock, provided that each selling holder will be responsible
for payment of commission, concessions and discounts of underwriters, broker-
dealers or agents.
LEGAL MATTERS
Certain legal matters relating to the notes and the underlying common stock
will be passed upon for Enzon by Dorsey & Whitney LLP, New York, New York.
EXPERTS
The consolidated financial statements of Enzon, Inc. and subsidiaries as of
June 30, 2000 and 1999, and for each of the years in the three-year period
ended June 30, 2000, have been incorporated by reference in this prospectus
and in the registration statement in reliance upon the report of KPMG LLP,
independent certified public accountants, and upon the authority of said firm
as experts in accounting and auditing.
36
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-3 with respect to the notes and the common stock offered
by this prospectus. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information set forth in
the registration statement or the exhibits and schedules which are a part of
the registration statement. For further information about us, the notes and
our common stock, you should review the registration statement and exhibits
and schedules thereto. We file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy materials that we have filed with the Securities and
Exchange Commission at the following Securities and Exchange Commission public
reference rooms:
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference rooms.
Our common stock is quoted on the Nasdaq National Market under the symbol
"ENZN," and our Securities and Exchange Commission filings can also be read at
the following Nasdaq address:
Nasdaq Operations,
1735 K Street, N.W.
Washington, D.C. 20006
Our Securities and Exchange Commission filings are also available to the
public on the Securities and Exchange Commission's Internet website at
http://www.sec.gov.
We incorporate by reference into this prospectus the documents listed below
and any future filings we make with the Securities and Exchange Commission
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act,
including any filings after the date of this prospectus, until either of the
following has occurred: (1) all the notes have been sold, or (2) the holding
period applicable to the notes and the underlying common stock under Rule
144(k) under the Securities Act, or any successor provision, has expired. The
information incorporated by reference is an important part of this prospectus.
Any statement in a document incorporated by reference into this prospectus
will be deemed to be modified or superseded to the extent a statement
contained in (x) this prospectus or (y) any other subsequently filed document
that is incorporated by reference into this prospectus modifies or supersedes
such statement.
o Our Annual Report on Form 10-K and 10-K/A for our fiscal year ended June
30, 2000.
o Our Quarterly Reports on Form 10-Q for our fiscal quarters ended
September 30, 2000, December 31, 2000 and March 31, 2001.
o Our definitive proxy statement filed with the Securities and Exchange
Commission for our Annual Meeting of Stockholders held on December 5,
2000.
o Our Reports on Form 8-K filed on August 17, 2000, September 18, 2000,
November 2, 2000, November 6, 2000, November 7, 2000, November 8, 2000,
December 19, 2000, December 21, 2000, January 22, 2001, February 6, 2001,
February 16, 2001, February 22, 2001, March 26, 2001, March 30, 2001, May
7, 2001, May 9, 2001, May 23, 2001, May 24, 2001, June 13, 2001, June 14,
2001, June 21, 2001, July 17, 2001; July 27, 2001, August 9, 2001 and
August 13, 2001.
You may request a copy of these filings, at no cost, by writing to us at the
following address or telephoning us at (732) 980-4500 between the hours of
9:00 a.m. and 4:00 p.m., Eastern Standard time:
Enzon, Inc.,
Attention: Investor Relations
20 Kingsbridge Road
Piscataway, NJ 08854
37
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses payable by the
Registrant in connection with the sale of securities being registered hereby.
All amounts are estimates except for the registration fee.
Amount
to be Paid
----------
Registration Fee .................................................. $100,000
Legal fees and expenses ........................................... 50,000
Accounting fees and expenses ...................................... 25,000
Printing Expenses ................................................. 25,000
Miscellaneous ..................................................... 10,000
--------
TOTAL............................................................ $210,000
========
Item 15. Indemnification of Officers and Directors
Section 145 of the Delaware General Corporation Law contains detailed
provisions for indemnification of directors and officers of Delaware
corporations against expenses, judgments, fines and settlements in connection
with litigation.
In accordance with the DGCL, Article 10 of our certificate of incorporation
provides that a director shall not be liable to us:
o for any breach of the director's duty of loyalty to us or our
stockholders;
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o under section 174 of the DGCL providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions;
o for any transaction from which a director derived an improper benefit; or
o for any act or omission occurring prior to the date when said Article 10
became effective.
Section 8.1 of our bylaws provides for the indemnification, to the fullest
extent authorized by law, of any person made, or threatened to be made, a
party to an action or proceeding, whether criminal, civil, administrative or
investigative, against expenses, judgments, fines, and amounts paid in
settlement incurred in connection with such action or proceeding, by reason of
the fact that such person is or was a director or officer of Enzon. Enzon's
Directors' and Officers' Liability Insurance, which is provided for under
Section 8.3 of our bylaws, insures our directors and officers against any
liability arising out of such person's status as a director or officer, and
insures us against our obligations to indemnify our directors and officers.
Our officers and directors have executed indemnity agreements with us which
supplement the protections provided by our certificate of incorporation and
bylaws. These agreements require us to pay for any damages, judgments,
settlements, costs and expenses for the defense of legal actions, claims,
proceedings and appeals due to any actual or alleged breach of duty, neglect,
error, misstatement, misleading statement, omission or other act done,
suffered or wrongfully attempted by the officer or director. If we do not pay
such costs and expenses within 90 days after we receive a written claim, such
officers or directors may bring a suit against us to recover the unpaid amount
of the claim. If such officer or director is successful, we will be required
to pay for the expenses incurred relating to the claim.
II-1
Item 16. Exhibits
(a) The following exhibits are filed as part of this Registration Statement:
Exhibit
Number Description of Exhibit
4.1 Indenture, dated as of June 26, 2001, between the Registrant and
Wilmington Trust Company, as trustee, including the form of 4 1/2%
Convertible Subordinated Note due 2008 attached as Exhibit A thereto
4.2 Registration Rights Agreement between the Registrant and the initial
purchasers, dated as of June 26, 2001
5.1 Opinion of Dorsey & Whitney LLP
12.1 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of KPMG LLP, Independent Certified Public Accountants
23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on the signature page of the
Registration Statement)
25.1 Form T-1 Statement of Eligibility of the Wilmington Trust Company to
act as trustee under the indenture
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act,
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement,
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that clauses (a) and (b) do not apply if the information
required to be included in a post-effective amendment by such clauses is
contained in periodic reports filed with or furnished to the Securities and
Exchange Commission by the Registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") that
are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section 13(a)
of Section 15(d) of the Exchange Act that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-2
Insofar as the indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions referenced in Item 15 of this
Registration Statement, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered hereunder, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant certifies
that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Piscataway, State of New Jersey, on August 14,
2001.
ENZON, INC.
By: /s/ ARTHUR J. HIGGINS
Arthur J. Higgins
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Arthur J. Higgins and Kenneth J. Zuerblis, and
each of them, his or her true and lawful attorney-in-fact and agent, with full
power of substitution, for him or her and in his or her name, place and stead,
in any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement (or any other
registration statement for the same offering that is effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933) and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming
all that each of said attorneys-in-fact and agents, or his or her substitute
or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the indicated capacities
on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ ARTHUR J. HIGGINS President, Chief Executive Officer and Director August 14, 2001
- ------------------------- (principal executive officer)
Arthur J. Higgins
/s/ KENNETH J. ZUERBLIS Vice President, Finance, Chief Financial Officer and August 14, 2001
- ------------------------- Secretary
Kenneth J. Zuerblis (principal financial and accounting officer)
Chairman of the Board
- -------------------------
Randy H. Thurman
/s/ DAVID S. BARLOW Director August 14, 2001
- -------------------------
David S. Barlow
/s/ ROLF A. CLASSON Director August 14, 2001
- -------------------------
Rolf A. Classon
Director
- -------------------------
Rosina B. Dixon, M.D.
/s/ DAVID W. GOLDE, M.D. Director August 14, 2001
- -------------------------
David W. Golde, M.D.
/s/ ROBERT LEBUHN Director August 14, 2001
- -------------------------
Robert LeBuhn
II-4
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
4.1 Indenture, dated as of June 26, 2001, between the Registrant and
Wilmington Trust Company, as trustee, including the form of 4 1/2%
Convertible Subordinated Note due 2008 attached as Exhibit A thereto
4.2 Registration Rights Agreement between the Registrant and the initial
purchasers, dated as of June 26, 2001
5.1 Opinion of Dorsey & Whitney LLP
12.1 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of KPMG LLP, Independent Certified Public Accountants
23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on the signature page of the
Registration Statement)
25.1 Form T-1 Statement of Eligibility of the Wilmington Trust Company to
act as trustee under the indenture