ALRN Aileron Therapeutics Inc

On September 21, 2020, Aileron Therapeutics, Inc. (the “Company”) and Lincoln Park Capital Fund, LLC (“Lincoln Park”), entered into a purchase agreement (the “Purchase Agreement”), which provides that subject to the terms and conditions set forth therein, the Company may sell to Lincoln Park up to $15 million of shares of common stock, par value $0.001 per share of the Company (the “Common Stock”), from time to time during the term of the Purchase Agreement.

Additionally, on September 21, 2020, the Company and Lincoln Park entered into a registration rights agreement (the “Registration Rights Agreement”), pursuant to which the Company agreed to file a registration statement with the Securities and Exchange Commission (“SEC”) covering the resale of shares of Common Stock that are issued to Lincoln Park under the Purchase Agreement.

Under the terms and subject to the conditions of the Purchase Agreement, the Company has the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to $15.0 million of shares of Common Stock. Such sales of Common Stock by the Company, if any, will be subject to certain limitations, and may occur from time to time, at the Company’s sole discretion, over a 36-month period commencing on the date that a registration statement covering the resale of shares of Common Stock that are issued under the Purchase Agreement, which the Company agreed to file with the SEC pursuant to the Registration Rights Agreement, is declared effective by the SEC and a final prospectus in connection therewith is filed and the other conditions set forth in the Purchase Agreement are satisfied. Lincoln Park has no right to require the Company to sell any Common Stock to Lincoln Park, but Lincoln Park is obligated to make purchases as the Company directs, subject to conditions set forth in the Purchase Agreement.

Upon entering into the Purchase Agreement, the Company issued and sold 367,647 shares of Common Stock (the “Initial Purchase Shares”) to Lincoln Park at a price per share of $1.36, which was the last closing sale price of the Common Stock on the Nasdaq Capital Market (“Nasdaq”) on September 18, 2020. The consideration for the Initial Purchase Shares is part of the $15 million of shares of Common Stock that the Company may sell to Lincoln Park under the Purchase Agreement. Additionally, the Company agreed to issue to Lincoln Park as a commitment fee 220,588 shares of Common Stock (the “Commitment Shares”) as consideration for Lincoln Park entering into the Purchase Agreement.

Under the Purchase Agreement, the Company may from time to time, at its discretion, direct Lincoln Park to purchase on any single business day (a “Regular Purchase”) up to (i) 250,000 shares of Common Stock if the closing sale price of the Common Stock is not below $1.50 per share on Nasdaq, (ii) 200,000 shares of Common Stock if the closing sale price of the Common Stock is not below $1.00 per share on Nasdaq or (iii) 150,000 shares of Common Stock if the closing sale price of the Common Stock is below $1.00 per share on Nasdaq. In any case, Lincoln Park’s commitment in any single Regular Purchase may not exceed $1,000,000. The foregoing share amounts and per share prices will be adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction occurring after the date of the Purchase Agreement.

The purchase price per share for each such Regular Purchase will be based on prevailing market prices of the Common Stock immediately preceding the time of sale as computed under the Purchase Agreement. Under the Purchase Agreement, the Company may not effect any sales of shares of Common Stock on any purchase date that the closing sale price of the Common Stock on Nasdaq is less than the floor price of $0.30 per share.

In addition to Regular Purchases, the Company may also direct Lincoln Park to purchase other amounts as accelerated purchases or as additional accelerated purchases on the terms and subject to the conditions set forth in the Purchase Agreement.

Under applicable rules of Nasdaq, in no event the Company may issue or sell to Lincoln Park under the Purchase Agreement shares of Common Stock in excess of 7,853,619 shares (including the Initial Purchase Shares and the Commitment Shares), which represents 19.99% of the 39,258,100 shares of Common Stock that were outstanding immediately prior to the execution of the Purchase Agreement (the “Exchange Cap”), unless (i) the Company obtains stockholder approval to issue shares of Common Stock in excess of the Exchange Cap or (ii) the average price of all applicable sales of Common Stock to Lincoln Park under the Purchase Agreement equals or exceeds $1.3376 per share (which represents the arithmetic average of the closing sale prices of the Common Stock for the five consecutive business days immediately preceding the execution of the Purchase Agreement), such that the issuances and sales of Common Stock to Lincoln Park under the Purchase Agreement would be exempt from the Exchange Cap limitation under applicable Nasdaq rules.

The Purchase Agreement also prohibits the Company from directing Lincoln Park to purchase any shares of Common Stock if those shares, when aggregated with all other shares of Common Stock then beneficially owned by Lincoln Park and its affiliates, would result in Lincoln Park and its affiliates having beneficial ownership, at any single point in time, of more than 9.99% of the then total outstanding shares of Common Stock.

The Purchase Agreement contains customary representations, warranties, covenants, indemnification and termination provisions. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Common Stock. There are no limitations on use of proceeds, financial or business covenants, restrictions on future financings (other than restrictions on the Company’s ability to enter into additional “equity line” or a substantially similar transaction whereby a specific investor is irrevocably bound pursuant to an agreement with the Company to purchase securities over a period of time from the Company at a price based on the market price of the Common Stock at the time of such purchase), rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement. The Purchase Agreement may be terminated by the Company at any time, at the Company’s sole discretion, without any cost or penalty. During any “event of default” under the Purchase Agreement, Lincoln Park does not have the right to terminate the Purchase Agreement; however, the Company may not initiate any purchase of shares by Lincoln Park until such event of default is cured.

The net proceeds under the Purchase Agreement to the Company will depend on the frequency of sales and the number of shares sold to Lincoln Park and prices at which the Company sells shares to Lincoln Park. The Company expects that any net proceeds received by the Company from such sales to Lincoln Park will be used for working capital and general corporate purposes.

The foregoing descriptions of the Purchase Agreement and the Registration Rights Agreement are qualified in their entirety by reference to the full text of the Purchase Agreement and the Registration Rights Agreement, each of which is attached hereto as Exhibit 10.1 and Exhibit 10.2, respectively, and each of which is incorporated herein by reference.

The Purchase Agreement and Registration Rights Agreement contain customary representations and warranties, covenants and indemnification provisions that the parties made to, and solely for the benefit of, each other in the context of all of the terms and conditions of such agreements and in the context of the specific relationship between the parties thereto. The provisions of the Purchase Agreement and Registration Rights Agreement, including any representations and warranties contained therein, are not for the benefit of any party other than the parties thereto and are not intended as documents for investors and the public to obtain factual information about the current state of affairs of the parties thereto. Rather, investors and the public should look to other disclosures contained in our annual, quarterly and current reports we may file with the SEC.

This Current Report on Form 8-K shall not constitute an offer to sell or a solicitation of an offer to buy any shares of Common Stock, nor shall there be any sale of shares of Common Stock in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or other jurisdiction.