On July 11, 2024, Onconetix, Inc., a Delaware corporation (the "Company"), reported to have entered into common stock preferred investment options exercise inducement offer letters (the "Inducement Letter") with certain holders of existing preferred investment options ("PIOs") to purchase shares of the Company’s common stock at the original exercise prices of $2.546 and $1.09 per share, issued on August 11, 2022 and August 2, 2023, respectively (collectively, the "Existing PIOs"), pursuant to which the holders agreed to exercise for cash their Existing PIOs to purchase an aggregate of 7,458,642 of the Company’s common stock, at a reduced exercise price of $0.15 per share, in consideration for the Company’s agreement to issue new PIOs (the "Inducement PIOs") to purchase up to an aggregate of 22,375,926 shares of the Company’s common stock (the "Inducement PIO Shares") (Filing, 8-K, Onconetix, JUL 11, 2024, View Source [SID1234644792]). The Company expects to receive aggregate gross proceeds of approximately $1,118,796 from the exercise of the Existing PIOs by the holders and the sale of the Inducement PIOs, before deducting placement agent fees and other offering expenses payable by the Company. The Company expects to use the net proceeds of these transactions for general corporate and working capital purposes. The closing of the transactions contemplated pursuant to the Inducement Letter is expected to occur on July 12, 2024 (the "Closing Date"), subject to satisfaction of customary closing conditions.

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The Company engaged H.C. Wainwright & Co., LLC ("Wainwright") to act as its exclusive placement agent in connection with the transactions summarized herein and will pay Wainwright a cash fee equal to 7.5% of the gross proceeds received from the exercise of the Existing PIOs as well as a management fee equal to 1.0% of the gross proceeds from the exercise of the Existing PIOs. The Company also agreed to reimburse Wainwright for its expenses in connection with the exercise of the Existing PIOs and the issuance of the Inducement PIOs, up to $50,000 for fees and expenses of legal counsel and other out-of-pocket expenses and agreed to pay Wainwright for non-accountable expenses in the amount of $35,000 for non-accountable expenses. The Company also agreed to issue to Wainwright or its designees warrants (the "Placement Agent Warrants," and such shares of common stock issuable thereunder, the "Placement Agent Warrant Shares") to purchase (i) 522,105 shares of common stock which will have the same terms as the Inducement PIOs except for an exercise price equal to $0.1875 per share and a term of five (5) years following the date of stockholder approval and (ii) upon any exercise for cash of the Inducement PIOs, 7.5% of the aggregate exercise price and that number of shares of common stock equal to 7.0% of the aggregate number of such shares of common stock underlying the Inducement PIOs that have been exercised, which will have substantially the same terms as the Placement Agent Warrants.

The resale of the shares of the Company’s common stock issuable upon exercise of the Existing PIOs are registered pursuant to an existing Registration Statement on Form S-1 (File No. 333-277066), declared effective by the Securities and Exchange Commission (the "SEC") on July 1, 2024.

The Company also agreed to file a registration statement covering the resale of the Inducement PIO Shares issued or issuable upon the exercise of the Inducement PIOs (the "Resale Registration Statement") within 30 days after the date of the Inducement Letter and to use commercially reasonable efforts to cause such Resale Registration Statement to be declared effective by the SEC within 60 days following the date of the Inducement Letter (or within 90 days following the date of the Inducement Letter in the case of full review of the Resale Registration Statement by the SEC). In the Inducement Letter, the Company agreed not to issue any shares of common stock or common stock equivalents or to file any other registration statement with the SEC (in each case, subject to certain exceptions) until the later of (i) the filing of a definitive proxy statement on Schedule 14A for the purpose of obtaining the requisite stockholder approval (as described below) and (ii) 30 days after the Closing Date. The Company also agreed not to effect or agree to effect any variable rate transaction (as defined in the Inducement Letter) until six (6) months after the Closing Date (subject to certain exceptions).

Inducement PIO Terms

The following summary of certain terms and provisions of the Inducement PIOs is not complete and is subject to, and qualified in its entirety by, the provisions of the Inducement PIOs, the form of which is filed as Exhibit 4.1 to this Current Report on Form 8-K and is incorporated herein by reference. The following description of the Inducement PIOs is qualified in its entirety by reference to such exhibit.

Stockholder Approval

The shares of common stock issuable upon exercise of the Inducement PIOs is subject to stockholder approval. The Company agreed to convene a stockholders’ meeting on or before 90 days following the Closing Date, to obtain such approval.

Duration and Exercise Price

Each Inducement PIO will have an exercise price equal to $0.15 per share. The Inducement PIOs will be exercisable at any time on or after the date upon the stockholders’ approval of the issuance of the Inducement PIO Shares upon the exercise of the Inducement PIOs. 7,458,642 Inducement PIOs will have a term of exercise of five (5) years following the date of stockholder approval, and the remaining 14,917,284 Inducement PIOs will have a term of exercise of twenty-four (24) months following the date of stockholder approval. The exercise price and number of shares of common stock issuable upon exercise is subject to appropriate adjustment in the event of stock dividends, stock splits, subsequent rights offerings, pro rate distributions, reorganizations, a Fundamental Transaction (as defined in the Inducement PIOs) or similar events affecting our common stock and the exercise price.

Exercisability

The Inducement PIOs will be exercisable (following the stockholders’ approval), at the option of each holder, in whole or in part, by delivering to the Company a duly executed exercise notice accompanied by payment in full for the number of shares of our common stock purchased upon such exercise (except in the case of a cashless exercise as discussed below). A holder (together with its affiliates) may not exercise any portion of such holder’s Inducement PIOs to the extent that the holder would own more than 4.99% (or 9.99% at such holder’s election) of the outstanding common stock immediately after exercise, except that upon at least 61 days’ prior notice from the holder to the Company, the holder may increase the amount of ownership of outstanding stock after exercising the holder’s Inducement PIOs up to 9.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Inducement PIOs.

Cashless Exercise

If, at the time a holder exercises its Inducement PIOs, a registration statement registering the resale of the Inducement PIO Shares by the holder under the Securities Act (as defined herein) is not then effective or available, then in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of shares of common stock determined according to a formula set forth in the Inducement PIOs.

Trading Market

There is no established trading market for the Inducement PIOs, and the Company does not expect an active trading market to develop. The Company does not intend to apply to list the Inducement PIOs on any securities exchange or other trading market. Without a trading market, the liquidity of the Inducement PIOs will be extremely limited.

Rights as a Stockholder

Except as otherwise provided in the Inducement PIOs or by virtue of the holder’s ownership of shares of the Company’s common stock, such holder of Inducement PIOs does not have the rights or privileges of a holder of the Company’s common stock, including any voting rights, until such holder exercises such holder’s Inducement PIOs. The Inducement PIOs provide that the holders of the Inducement PIOs have the right to participate in distributions or dividends paid on the Company’s shares of common stock.

Waivers and Amendments

The Inducement PIOs may be modified or amended or the provisions of the Inducement PIOs waived with the Company’s and the holder’s written consent.

The form of Inducement Letter and Inducement PIO are attached as Exhibits 10.1 and 4.1, respectively. The description of the terms of the Inducement Letter and the Inducement PIO is not intended to be complete and is qualified in its entirety by reference to such exhibits. The Inducement Letter contains customary representations, warranties and covenants by the Company which were made only for the purposes of such agreements and as of specific dates, were solely for the benefit of the parties to such agreements and may be subject to limitations agreed upon by the contracting parties.