DEF: Tivic Health Seeks Shareholder Nod for Major Capital Raises

Tivic Health Systems, Inc. calls a special meeting to approve significant common stock issuances tied to convertible preferred stock, a secured note, and warrants, crucial for future funding and a recent acquisition.

Summary

• Tivic Health Systems, Inc. is holding a Special Meeting of Stockholders on February 19, 2026, to seek approval for several significant equity-related transactions.
• The company needs approval to issue common stock exceeding Nasdaq's 19.99% cap (353,013 shares) upon conversion of Series C Preferred Stock and exercise of Series C Warrants, which could total up to $75.0 million in funding.
• Stockholder approval is also sought for the issuance of common stock upon conversion of a $16.25 million Senior Secured Convertible Note and related warrants to 3i, LP, the proceeds of which were used to acquire assets of Scorpius Holdings, Inc.
• Approval is required for the issuance of common stock related to Series B Preferred Stock and warrants held by 3i, LP, following an amendment that lowered the conversion floor price to $0.39 per share, impacting up to $8.4 million in potential funding.
• The Board of Directors unanimously recommends voting "FOR" all proposals, including a proposal to adjourn the meeting if necessary to secure sufficient votes.
• Failure to obtain approval would severely limit access to future capital tranches, require cash repayments for the Note, and incur additional costs for repeated stockholder meetings.

Sentiment

Score: 3

Explanation: While the company is securing significant capital, the terms are highly dilutive for existing common shareholders (up to 99.41% potential dilution from Series C alone), and the need for shareholder approval for already-executed agreements suggests a precarious financial position. The management rights granted to Series C investors based on cash burn targets also indicate heightened investor control and potential financial stress. The acquisition of Scorpius is a positive strategic move, but the overall financing structure points to significant challenges and a high cost of capital.

Positives

• Secured up to $75.0 million in potential capital through Series C Preferred Stock and Warrants, with an initial $12.0 million already received.
• Secured $16.25 million through a Senior Secured Convertible Note and Warrant, which funded the acquisition of Scorpius Holdings, Inc.'s CDMO business.
• Continued access to up to $3.5 million from Series B Preferred Stock and Warrants, adding to the $4.9 million already received.
• The acquisition of Scorpius assets strengthens the company's manufacturing capabilities, particularly for its late-stage TLR5 agonist, Entolimod.
• The capital raises provide much-needed working capital for business growth and product candidate development.

Negatives

• Significant potential dilution for existing common stockholders: up to 99.16% from Series C Preferred conversion, and 99.41% if Series C Warrants are also exercised.
• Further dilution from the Senior Secured Convertible Note and Note Warrant, potentially issuing up to 52,093,421 shares at the Note Floor Price of $0.39, plus 4,553,213 shares from the Note Warrant.
• The conversion prices for Series B, Series C, and the Note can be below the Minimum Price, indicating a discounted issuance.
• The company will incur additional costs and management distraction if stockholder approval is not obtained, requiring repeated meetings.
• The Senior Secured Convertible Note is secured by company assets, and failure to approve share issuances could lead to cash repayment obligations.
• The Series C Preferred holders have management rights to appoint directors if cash burn targets are consistently missed.
• The Series C Preferred Investors have a right of first refusal and participation rights in future financings, and can require redemption of Series C Preferred from future financing proceeds.
• The Note prohibits the company from incurring new indebtedness (with exceptions) and from entering into Variable Rate Transactions or issuing common stock equivalents during a restricted period.

Risks

• Failure to obtain stockholder approval for the issuance of common stock in excess of Nasdaq's 19.99% cap could severely limit the company's ability to access significant portions of the committed capital (up to $63 million from Series C, and $3.5 million from Series B).
• If stockholder approval is not obtained for the Note, the company would be required to make cash repayments, diverting cash from general working capital.
• The collateral securing the Senior Secured Convertible Note would remain subject to security interests if share issuances are not approved.
• The substantial potential dilution from the conversion of preferred stock and exercise of warrants could significantly reduce the voting power and economic rights of existing common stockholders and may lead to a decline in the common stock price or increased volatility.
• The influx of newly registered shares into the public market could negatively affect the trading price of the common stock.
• The company will incur additional costs and management distraction by repeatedly holding stockholder meetings if initial approval is not secured.
• The Series C Preferred investors have the right to appoint directors if the company's net monthly cash burn exceeds Board-approved targets by more than 15% for two consecutive fiscal quarters.
• The Series C Preferred Purchase Agreement will automatically terminate if any Tranche Closing has not occurred prior to June 9, 2027.
• The Series B Preferred Purchase Agreement will automatically terminate if any Tranche Closing has not occurred prior to December 9, 2026.

Future Outlook

The company's ability to fully access committed capital of up to $75 million from Series C investors and the remaining $3.5 million from Series B investors, as well as to manage its Senior Secured Convertible Note obligations through share issuances, is contingent upon obtaining stockholder approval. This funding is critical for business growth and product candidate development, including the late-stage TLR5 agonist, Entolimod. Failure to secure approval would necessitate alternative, potentially less favorable, capital raises and incur ongoing administrative costs.

Management Comments

• Our Board of Directors has carefully reviewed and considered the foregoing proposals, and has concluded that each proposal is in the best interests of the Company and its stockholders.
• Access to such financing would provide much needed working capital for the purpose of growing our business and the development of our product candidates.
• We and our Board believe [cash repayments of the Note] would be better used for our general working capital purposes.
• The process of continuing to hold stockholder meetings to obtain the requisite stockholder approval would cause us to incur additional costs and expenses... and would divert our managements attention from the operation of our business, which could materially harm our business.

Industry Context

This filing highlights a common challenge for smaller, growth-stage biotechnology or medical device companies like Tivic Health Systems, Inc., which often rely on dilutive equity financing to fund research, development, and commercialization efforts. The acquisition of Scorpius Holdings' CDMO business, funded by the convertible note, suggests a strategic move towards vertical integration or securing manufacturing capabilities for its product pipeline, such as Entolimod, which is a typical strategy in the pharmaceutical and biotech sectors to control supply chains and reduce reliance on third-party manufacturers. The terms of the preferred stock and convertible notes, including variable conversion prices and significant dilution potential, are characteristic of high-risk, high-reward investments in companies seeking substantial capital for development.

Comparison to Industry Standards

• The reliance on convertible preferred stock and secured convertible notes with variable conversion prices and warrants is a common financing mechanism for early to mid-stage biotech or medical device companies that may not have consistent profitability or strong cash flows.
• The significant potential dilution (over 99% for Series C) is exceptionally high, even for growth companies, and could be a red flag for common shareholders, indicating a substantial transfer of future equity value to new investors.
• The acquisition of a Contract Development and Manufacturing Organization (CDMO) business, like Scorpius, for internal manufacturing of a late-stage asset (Entolimod) is a strategic move seen across the biotech industry, exemplified by companies like Catalent or Lonza expanding their capabilities, or smaller biotechs insourcing critical production to de-risk supply.
• The inclusion of management rights for preferred stockholders (e.g., appointing directors based on cash burn targets) is a strong protective covenant often demanded by institutional investors in distressed or high-risk situations, similar to terms seen in venture debt or private equity rounds for companies facing liquidity challenges.
• The requirement for Nasdaq stockholder approval due to exceeding the 19.99% issuance threshold at a discounted price is a standard regulatory hurdle for listed companies undertaking large dilutive financings.

Management Changes

Corporate Governance

Related Party Transactions

• 3i, LP, is a significant investor, involved in the Senior Secured Convertible Note, Note Warrant, and the Series B Preferred Purchase Agreement (via assignment from Helena).
• The Note proceeds were used to acquire assets from Scorpius Holdings, Inc., where 3i, LP, was involved as a collateral agent, suggesting a pre-existing relationship or a structured transaction involving 3i.

Stakeholder Impact

• Shareholders (Common Stock): Face extreme dilution (potentially over 99%) from the conversion of preferred stock and warrants, which will significantly reduce their voting power and economic interest. The stock price may decline or become more volatile due to the influx of new shares.
• Preferred Stockholders (Series B, Series C): Gain significant influence and protective rights, including cumulative dividends, liquidation preferences, and in the case of Series C, the right to appoint directors under certain performance conditions. They also have anti-dilution protection through variable conversion prices and participation rights in future financings.
• Creditors (3i, LP): As holder of the Senior Secured Convertible Note, 3i, LP, has a secured interest in the company's collateral (Scorpius assets) and specific repayment terms, including the option for cash repayment if share issuances are not approved.
• Management: Will be distracted and incur additional costs if stockholder approval is not obtained, potentially harming business operations. Jennifer Ernst's continued dedication is a key person requirement for Series C investors.
• Employees: No direct impact mentioned, but the company's ability to grow and develop products (and thus job security/opportunities) is tied to securing this capital.
• Customers/Suppliers: No direct impact mentioned, but the acquisition of Scorpius's CDMO business could impact existing supplier relationships or enhance manufacturing capabilities for customers.

Next Steps

• Stockholders to vote on proposals at the Special Meeting on February 19, 2026.
• If proposals are approved, the company can proceed with subsequent tranches of Series C and Series B financing, accessing up to an additional $63 million and $3.5 million respectively.
• If proposals are not approved, the company will be required to convene additional stockholder meetings every four months until approval is obtained.
• The company will file a registration statement for the resale of common stock issuable upon conversion of Series C Preferred and exercise of Series C Warrants.
• The company will file a registration statement for the resale of common stock issuable upon conversion of the Note and exercise of the Note Warrant.
• The company will file a registration statement for the resale of common stock issuable upon conversion of Series B Preferred and exercise of Series B Warrants.
• The company will announce preliminary voting results at the Special Meeting and publish final results in a Current Report on Form 8-K within four business days.

Key Dates

Recommendation

The proposed transactions involve an exceptionally high level of potential dilution for existing common stockholders, with Series C alone potentially diluting current shareholders by over 99%. This indicates a severe erosion of existing equity value. The company's reliance on such heavily dilutive financing, coupled with the granting of significant control and protective rights to preferred investors (e.g., director appointment based on cash burn, right of first refusal, redemption rights), suggests a company in a distressed financial state with a very high cost of capital. While the capital raises are necessary for operations and a strategic acquisition, the terms are highly unfavorable to common shareholders, making the common stock a 'strong sell' given the near-total transfer of future equity upside to new investors.

Keywords

Tivic Health Systems, TIVC, SEC Filing, Proxy Statement, Capital Raise, Convertible Preferred Stock, Convertible Note, Warrants, Shareholder Approval, Dilution, Nasdaq Listing Rule 5635(d), Scorpius Acquisition, Entolimod, Corporate Governance, Financial Reporting