DEFA14A: TransCode Amends Preferred Stock Terms for Nasdaq Compliance

TransCode Therapeutics amended its Series A and B Preferred Stock terms, clarifying conversion limits and removing delisting-triggered conversion rights, pending shareholder approval for a larger transaction.

Summary

• TransCode Therapeutics, Inc. filed an Amended and Restated Certificate of Designation for its Series A and Series B Non-Voting Convertible Preferred Stock on October 27, 2025.
• The amendment was approved by a majority of preferred stockholders and the Board of Directors.
• A key change clarifies that the company will not issue more than an aggregate of 19.9% of its Common Stock outstanding as of October 8, 2025, pursuant to the Purchase Agreement and Section 6.1.1, prior to obtaining stockholder approval for the full conversion, ensuring compliance with Nasdaq listing rules.
• The amendment removed the ability for preferred stockholders to convert their shares into Common Stock at their option in the event of a delisting of Common Stock from Nasdaq.
• No additional securities were issued or sold as a direct result of this amendment.
• The company expects to file a proxy statement with the SEC to seek stockholder approval for the conversion of preferred stock into common stock and for a change of control under Nasdaq Listing Rules 5110 and 5635(b).
• Series A Non-Voting Convertible Preferred Stock consists of 1,242.0718 shares, and Series B Non-Voting Convertible Preferred Stock consists of 223.7337 shares, each with a par value of $0.0001.
• Preferred stockholders are entitled to a one-time 5% per annum payment-in-kind (PIK) dividend on Series A shares, payable in Series A shares, upon the earlier of stockholder approval or 180 days from issuance.
• The conversion ratio for each preferred share is 10,000 shares of Common Stock, subject to a 9.99% beneficial ownership limitation for each holder and their attribution parties, which can be waived or changed under certain conditions.

Sentiment

Score: 6

Explanation: The filing is largely procedural, clarifying terms and ensuring compliance with Nasdaq rules, which is a positive for corporate governance. While one change removes a protective clause for preferred holders (delisting conversion), other provisions like the PIK dividend and strong conversion delivery protections are favorable. Overall, it formalizes aspects of a previously disclosed transaction, leaning slightly positive due to compliance and investor protections.

Positives

• The amendment ensures compliance with Nasdaq listing rules by clarifying the 19.9% issuance limit prior to stockholder approval, which is a positive for corporate governance and market standing.
• The inclusion of a one-time 5% PIK dividend for Series A preferred stockholders provides additional return for these investors.
• Strong protections for preferred holders against failure to deliver conversion shares, including cash settlement at Fair Value or a 'Buy-In' remedy, enhance investor confidence in the conversion process.
• Series A preferred stockholders have a redemption option at $10.7639 per common share (as-converted) if the company materially breaches its obligations under the Repurchase Agreement, offering a downside protection.

Negatives

• The removal of the preferred stockholders' option to convert shares into Common Stock upon a Nasdaq delisting removes a protective clause for these investors.
• The full conversion of preferred stock and the associated change of control are contingent on future stockholder approval, introducing a potential point of uncertainty.

Risks

• Failure to obtain stockholder approval for the conversion of preferred stock into common stock and the change of control could impact the company's financing structure and strategic plans.
• The beneficial ownership limitation of 9.99% restricts immediate full conversion for holders, requiring careful management of conversion requests.
• Potential for cash settlement or 'Buy-In' obligations if the company fails to timely deliver Common Stock upon conversion, which could impact liquidity.
• The redemption right for Series A preferred stockholders upon a material breach of the Repurchase Agreement could lead to significant cash outflows for the company.

Future Outlook

The company expects to file a proxy statement with the SEC to obtain stockholder approval for the conversion of the Series A and Series B Preferred Stock into Common Stock and for a change of control under Nasdaq Listing Rules. This approval is a necessary step for the full implementation of the terms related to the Purchase Agreement and Investment Agreement.

Industry Context

This amendment reflects standard corporate governance practices for publicly traded companies, particularly in the biotech sector, when undertaking significant financing or strategic transactions involving convertible securities. Such amendments are often necessary to ensure compliance with stock exchange listing rules, like those of Nasdaq, which require shareholder approval for transactions that could result in substantial dilution or a change of control. The structuring with non-voting preferred stock and beneficial ownership limitations is common in PIPE (Private Investment in Public Equity) deals or strategic investments to manage immediate dilution and regulatory thresholds.

Comparison to Industry Standards

• The 19.9% issuance cap prior to shareholder approval is a common strategy employed by companies to comply with Nasdaq Listing Rule 5635, which typically requires shareholder approval for issuances exceeding 20% of outstanding common stock. This is a standard practice across various industries, including biotech, to facilitate capital raises while adhering to regulatory requirements.
• The use of non-voting convertible preferred stock with specific conversion ratios, beneficial ownership limitations, and dividend structures is a standard financing mechanism, particularly for growth-stage companies or those seeking strategic investments, similar to structures seen in deals involving companies like Moderna (MRNA) or BioNTech (BNTX) during their earlier financing rounds, though specific terms vary.
• Provisions for cash settlement or 'Buy-In' remedies in case of failure to deliver conversion shares are robust protections for investors, aligning with best practices in convertible security agreements to mitigate execution risk for holders, comparable to terms found in convertible notes or preferred stock agreements of other publicly traded biopharmaceutical companies.

Corporate Governance

Related Party Transactions

• The filing references a Membership Interest Purchase Agreement, an Investment Agreement, and a Repurchase Agreement, all dated October 8, 2025, between TransCode Therapeutics, Inc. and DEFJ, LLC. These agreements involve the issuance and terms of the Series A and Series B Preferred Stock.

Stakeholder Impact

• **Preferred Stockholders:** Experience a clarification of conversion limits and the removal of a delisting-triggered conversion right, but gain a PIK dividend and strong protections for conversion delivery. Their full conversion is contingent on common stockholder approval.
• **Common Stockholders:** Will be asked to vote on the conversion of preferred stock, which will lead to dilution, and a change of control. The 19.9% cap prior to their vote protects against immediate, significant dilution without their consent.
• **Regulatory Bodies (SEC, Nasdaq):** The amendments demonstrate the company's efforts to comply with SEC reporting requirements and Nasdaq listing rules, which is positive for regulatory oversight.

Next Steps

• The company expects to file a proxy statement with the SEC.
• Hold a shareholder meeting to vote on the Conversion Proposal (approval of preferred stock conversion) and the Change of Control Proposal.

Key Dates

Recommendation

This filing primarily details procedural amendments to previously established preferred stock terms, aimed at ensuring compliance with Nasdaq listing rules and clarifying conversion mechanics for a prior investment. It does not introduce new fundamental financial performance data or significant strategic shifts that would alter the company's underlying valuation or investment thesis. While there are minor adjustments to preferred shareholder rights, these are largely expected in the context of a larger, previously disclosed transaction. Therefore, a 'hold' recommendation is appropriate as the filing does not present new information warranting a change in investment stance, but rather facilitates the execution of existing plans.

Keywords

TransCode Therapeutics, RNAZ, Preferred Stock, Convertible Securities, Nasdaq Listing Rules, Corporate Governance, Shareholder Approval, SEC Filing, Investment Agreement, DEFJ LLC