Enzolytics Inc (ENZC)

[foxi]

Great post, good questions and insights.

Finally there will probably be no further information on the dividend other then what they already said. Until they have the actual numbers after the deal close then they will be able to precisely give hard numbers and we probably won't know until they actually declare the dividend.

It'd be informative to look up the classes of SAGA shares, and totals authorized and outstanding, and see how they work.

https://www.nasdaq.com/market-activity/stocks/saga/sec-filings

I see from the 5/22 10-K:

On the first page for Nasdaq under Title of Each Class, they list equities as "Units" consisting of shares and Rights:

Units, each consisting of one share of Class A common stock, par value $0.0001 per share, and one Right

There are two classes of commons. Only Class A is traded on Nasdaq:

our Class A common stock and rights commenced separate public trading on
February 8, 2022. Our Class B common stock is not listed on any exchange.

In a business combination, existing SAGA shareholders will also be awarded new shares because of their "Rights":

Each holder of a right will automatically receive one-eighth (1/8) of one share of Class A common stock upon consummation of a Business Combination

There are existing holders of Class B but they are effectively restricted from converting to Class A:

The initial holders of the Class B common stock have agreed not to transfer, assign or sell any of the founder shares until the earlier of (i) one year after the date of the consummation of our initial business combination [...]

However they are likely to bypass that restriction if the SAGA price exceeds $12 for 30 days (it's currently trading just under $11):

Notwithstanding the foregoing, if the closing price of our shares of Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing 150 days after our initial business combination, the Class B common stock will no longer be subject to such transfer restrictions.

Here are the current SAGA classes and totals. Are there enough shares available to issue a meaningful dividend?:

Preferred stock, $.0001 par value; 1,000,000 shares authorized: none issued and outstanding
Class A common stock, $.0001 par value, 100,000,000 shares authorized, 515,000 shares
issued and outstanding
Class B common stock, $.0001 par value, 10,000,000 shares authorized, 2,875,000 shares
issued and outstanding

There may be other instruments that need to be accounted for, that could have a strong dilutive effect if exercised (emphasis below is mine):

At December 31, 2022 and December 31, 2021, there were 515,000 Class A common stock issued and outstanding, excluding 956,337 and 11,500,000 respectively Class A common stock subject to possible redemption.

I saw something interesting on pages 4 and 5 of the ENZC quarterly filed 5/22/23.
Only Series C and Series D are entitled to receive dividends (emphasis below is mine):

For common equity, describe any dividend, voting and preemption rights. There is no dividend, or preemption rights with common equity. [...]

https://www.otcmarkets.com/stock/enzc/disclosure
https://www.otcmarkets.com/otcapi/company/financial-report/371665/content

Assuming this can be overridden with a special dividend, and/or whatever bypass is needed for ENZC common shareholders to be awarded SAGA shares, there are further considerations:

- If ENZC shareholders get paid a dividend in SAGA shares, will those be subject to a lock-up period? (eg Dividend shares are restricted and cannot be sold for, say, a year.) Can other SAGA shareholders sell theirs sooner?

- Would fractional shares be issued? Otherwise, would ENZC shareholders with smaller portfolios get any meaningful dividend? Remember as of 3/31/23 ENZC reported 2,880,435,953 common O/S, 941,078 Series C O/S, and 21,259 Series D O/S. Especially the common O/S is a huge pool.

- ENZC has a Common class and Preferred classes A through F. Would a special dividend apply to more classes than Series C and Series D? Would the dividend shares be divided at equal rates or different rates for each class?

- If the "value" of the ENZC-SAGA transaction is $450 million, but equities will be exchanged as payment, that would suggest the cash exchanged will be less than $450 million. Will there be enough cash to fund operations or will SAGA and ENZC still need to raise money for their separate businesses through dilution/other means? The subsidiaries ENZC is selling currently have nonzero operating and research expenses and do not yet have a profitable revenue stream. The subsidiaries ENZC is keeping are likewise. If there's a lock-up period, SAGA dividend shareholders would be along for the ride, for better or worse. ENZC shareholders might also face dilution if ENZC has A/S capacity, no new private investors, and insufficient operating cash to fund its remaining subsidiaries.

Hopefully they address these questions in the upcoming filing.


Some quick and dirty math: If the value of the SAGA transaction is $450M, and SAGA stock is valued at $12, and there's zero other considerations for simplicity, SAGA could issue 37,500,000 Class A shares to equal the transaction value. If that's then split between ENZC Common shares only, the dividend could be equally distributed 1:76, ie one SAGA share for every 76 ENZC shares. Dramatically oversimplified but it's maybe a ballpark. In the real world, there are other parties all entitled to a piece of the very complicated pie.