FILING PURSUANT TO RULE 424(b)(2)
REGISTRATION STATEMENT NO. 333-136327
PROSPECTUS SUPPLEMENT NO. 1
(TO PROSPECTUS DATED AUGUST 4, 2006)
GERON CORPORATION
COMMON STOCK,
WARRANTS TO PURCHASE COMMON STOCK AND
COMMON STOCK ISSUABLE UPON EXERCISE OF WARRANTS
You should read this prospectus supplement and the accompanying
prospectus carefully before you invest. Both documents contain information you
should consider carefully before making your investment decision.
We are offering pursuant to the terms and conditions of a securities
purchase agreement an aggregate of 3,423,314 shares of our common stock, par
value $0.001 per share, warrants to purchase an aggregate of 6,451,686
additional shares of common stock and the shares of our common stock to be
issued upon exercise of such warrants. We will receive immediate proceeds from
the sale of these shares and warrants equal to $40.0 million, less our expenses
relating to the sale, which are estimated to be $120,000.
We are issuing three types of warrants, to which we refer as the A
Warrants, the B Warrants and the C Warrants. The A Warrants are warrants to
purchase up to an aggregate of 3,000,000 shares of common stock, which are
exercisable from time to time beginning June 13, 2007 until December 15, 2010.
The exercise price of the A Warrants is equal to 120% of the average of the
closing bid prices of our common stock for the five trading day period
immediately prior to June 13, 2007, not to exceed $12.14 per share. The B
Warrants are warrants to purchase up to an aggregate of 1,875,000 shares of
common stock, which are exercisable from time to time at a price of $8.00 per
share during the period from December 15, 2006 until February 28, 2007. The
terms of the B Warrants provide that the seventy five-day term for exercise of
the warrants may, in certain circumstances, be extended until December 15, 2009,
upon payment by the warrant holder of an extension fee equal to $7.99 per
warrant share, such that if extended with respect to all warrant shares, the
aggregate extension fee payable to the Company would be approximately $15.0
million (with nominal additional consideration to be received upon actual
exercise). The C Warrants, for which we will receive proceeds per underlying
share equal to the purchase price per share of Common Stock ($8.00), are
warrants to purchase up to an aggregate of 1,576,686 shares of Common Stock
which are exercisable from time to time for nominal additional consideration
during the period from December 15, 2006 until December 15, 2008. The above
referenced dates assume a closing date of December 15, 2006 for this offering.
None of the A Warrants, B Warrants or C Warrants is exercisable to the
extent that exercise of such warrants would cause any purchaser and its
affiliates to beneficially own more than 4.9% of the outstanding shares of our
common stock. We will receive additional proceeds of approximately $15.0 million
upon the full exercise of the B Warrants and the C Warrants (the portion of the
proceeds received upon exercise of the C Warrants will be nominal) and a maximum
of approximately $36.4 million upon the full exercise of the A Warrants (less
our expenses relating to the sales, which are estimated to be $15,000).
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There will be no warrant agent in connection with the issuance of the A
Warrants, the B Warrants or the C Warrants.
LIMITATION ON THE USE OF OUR NET OPERATING LOSSES
We have significant amounts of net operating loss, or NOL,
carryforwards (including, as of December 31, 2005, domestic federal NOL
carryforwards of approximately $286,000,000, which will expire at various dates
beginning 2006 through 2025, if not utilized). These NOLs may be used to offset
future taxable income, to the extent we generate any taxable income, and thereby
reduce or eliminate our future federal income taxes otherwise payable. However,
the Internal Revenue Code of 1986, as amended, or Code, imposes significant
limitations on the utilization of NOLs in the event of an "ownership change," as
defined in Section 382 of the Code. This Section 382 limitation is an annual
limitation on the amount of pre-ownership change NOLs that a corporation may use
to offset its post-ownership change income. We may or may not have experienced
an ownership change as a result of events in the past and/or the sale of shares
of common stock and warrants pursuant to this prospectus supplement (or a
combination thereof). If so, the use of our NOLs (or a portion thereof) against
our future taxable income may be subject to a limitation under Section 382.
MATERIAL U.S. FEDERAL TAX CONSIDERATIONS
The following is a general discussion of the material U.S. federal
income tax consequences of the ownership and disposition of our common stock and
warrants, which we refer to as "Units," but is not a complete analysis of all
the potential tax consequences relating thereto. For the purposes of this
discussion, a U.S. Holder is any beneficial owner of our common stock or
warrants that is treated for U.S. federal income tax purposes as:
o an individual citizen or resident of the United States;
o a corporation (or other entity taxable as a corporation) created or
organized in the United States or under the laws of the United States,
any state thereof or the District of Columbia;
o an estate whose income is subject to U.S. federal income tax
regardless of its source; or
o a trust (x) if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or
more United States persons have the authority to control all
substantial decisions of the trust or (y) which has made a valid
election to be treated as a United States person.
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If a partnership (or an entity treated as a partnership for U.S.
federal income tax purposes) holds our common stock or warrants, the tax
treatment of a partner will generally depend on the status of the partner and
upon the activities of the partnership. Accordingly, partnerships which hold our
common stock and partners in such partnerships should consult their own tax
advisors.
This discussion does not address all aspects of U.S. federal income
taxation that may be relevant in light of a U.S. holder's special tax status or
special circumstances. U.S. expatriates, insurance companies, tax-exempt
organizations, dealers in securities, banks or other financial institutions,
"controlled foreign corporations," "passive foreign investment companies,"
corporations that accumulate earnings to avoid U.S. federal income tax, U.S.
Holders whose functional currency is not the U.S. dollar, partnerships or other
pass-through entities, and investors that hold our common stock as part of a
hedge, straddle or conversion transaction are among those categories of
potential investors that are subject to special rules not covered in this
discussion. This discussion does not address any tax consequences arising under
the laws of any state, local or non-U.S. taxing jurisdiction. Furthermore, the
following discussion is based on current provisions of the Code and Treasury
Regulations and administrative and judicial interpretations thereof, all as in
effect on the date hereof, and all of which are subject to change, possibly with
retroactive effect. Accordingly, each Non-U.S. Holder should consult its own tax
advisors regarding the U.S. federal, state, local and non-U.S. income and other
tax consequences of acquiring, holding and disposing of shares of our common
stock.
U.S. HOLDERS
Dividends Paid on Common Stock
A U.S. Holder generally will be required to include in gross income as
ordinary dividend income the amount of any distributions paid on the common
stock to the extent that such distributions are paid out of our current or
accumulated earnings and profits as determined for U.S. federal income tax
purposes. Distributions in excess of such earnings and profits will reduce the
U.S. Holder's tax basis in its common stock and, to the extent such excess
distributions exceed such tax basis, will be treated as gain from a sale or
exchange of such common stock. Corporate holders may be entitled to a dividends
received deduction with respect to such distributions and are urged to consult
their own tax advisors in this regard. With respect to non-corporate U.S.
Holders for taxable years beginning before January 1, 2011, dividends may be
taxed at the lower applicable capital gains rate provided that certain holding
period requirements are met.
Disposition of Common Stock
Upon the sale or other disposition of common stock, a U.S. Holder
generally will recognize capital gain or loss equal to the difference between
the amount realized on the sale and such holder's adjusted tax basis in the
common stock. A U.S. Holder's tax basis in its common stock generally will equal
that portion of the cost of the Unit that is allocated to the common stock
(based on the relative fair market values of the common stock and the warrant
comprising the Unit). Gain or loss upon the disposition of the common stock will
be long-term capital gain if, at the time of the disposition, the holding period
for the common stock exceeds on year.
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Tax Treatment of Warrants
A U.S. Holder will recognize gain or loss upon the sale, redemption,
lapse or other taxable disposition of a warrant in an amount equal to the
difference between the amount of cash and the fair market value of other
property received (if any) by the U.S. Holder and the U.S. Holder's tax basis in
the warrant. A U.S. Holder's tax basis in a warrant will equal that portion of
the cost of the Unit that is allocated to the warrant (based on the relative
fair market values of the common stock and the warrant comprising the Unit).
Such gain or loss will be capital gain or loss if the common stock to which the
warrants relate would be a capital asset in the hands of the warrant holder and
will be long-term capital gain or loss if the holding period exceeds one year.
The cash exercise of a warrant will not, and the cashless exercise of a
warrant should not, be a taxable event for the exercising U.S. Holder, except
with respect to cash, if any, received in lieu of a fractional share. The
Internal Revenue Service, or IRS, may argue, however, that the surrender of one
or more warrants in payment of the exercise price of another warrant upon a
cashless exercise results in taxable gain or loss to the exercising U.S. Holder
in an amount equal to the difference between the exercise price deemed paid and
such U.S. Holder's tax basis in the warrant surrendered for the payment of the
exercise price. A U.S. Holder will generally have a holding period in shares of
common stock acquired upon exercise of a warrant that commences on the day after
the date of exercise of the warrant. With respect to the cashless exercise of a
warrant, it is possible that a U.S. Holder may have a holding period in shares
of common stock received in exchange for the surrender of one or more warrants
which includes the holding period of the warrants so surrendered.
If the exercise price is nominal, it is possible that the warrants may
be deemed to have been exercised for tax purposes on the date on which they
first became exercisable or possibly on the date issued, regardless of whether
they are actually exercised on the date on which they are first exercisable. As
a result, it is possible that the holding period of shares of common stock may
be deemed to have begun on the date on which the warrants first became
exercisable or possibly on the date issued.
An adjustment to the exercise price or conversion ratio of the
warrants, or the failure to make such adjustments, may in certain circumstances
result in constructive distributions to the holders of the warrants that could
be taxable as dividends under Section 305 of the Code. In such event, a holder's
tax basis in the warrant would be increased by the amount of any such dividend.
NON-U.S. HOLDERS
A Non-U.S. Holder is a beneficial owner of our common stock or warrants
that is not a U.S. Holder or a U.S. domestic partnership or other entity treated
as a U.S. domestic partnership for U.S. federal income tax purposes.
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Dividends Paid on Common Stock
Payments on our common stock will constitute dividends for
U.S. federal income tax purposes to the extent paid from our current or
accumulated earnings and profits, as determined under U.S. federal income tax
principles. Amounts not treated as dividends for U.S. federal income tax
purposes will constitute a return of capital and will first be applied against
and reduce a holder's adjusted basis in the common stock, but not below zero,
and then the excess, if any, will be treated as gain from the sale of the common
stock (the tax treatment of which is described below).
Amounts treated as dividends paid to a Non-U.S. Holder of
common stock generally will be subject to U.S. withholding tax either at a rate
of 30% of the gross amount of the dividends or such lower rate as may be
specified by an applicable tax treaty. In order to receive a reduced treaty
rate, a Non-U.S. Holder must provide a valid IRS Form W-8BEN or other successor
form certifying qualification for the reduced rate. If a Non-U.S. Holder holds
our common stock through a foreign partnership or a foreign intermediary, the
foreign partnership or foreign intermediary will also be required to comply with
additional certification requirements.
Dividends received by a Non-U.S. Holder that are effectively
connected with a United States trade or business conducted by the Non-U.S.
Holder are exempt from such withholding tax. In order to obtain this exemption,
a Non-U.S. Holder must provide a valid IRS Form W-8ECI or other successor form
properly certifying such exemption. Such effectively connected dividends,
although not subject to withholding tax, are generally taxed at the same
graduated rates applicable to United States persons, net of allowable deductions
and credits. In addition to the graduated tax described above, dividends
received by a corporate Non-U.S. Holder that are effectively connected with a
United States trade or business of such holder may also be subject to a branch
profits tax at a rate of 30% or such lower rate as may be specified by an
applicable tax treaty.
A Non-U.S. Holder may obtain a refund of any excess amounts
currently withheld if an appropriate claim for refund is filed timely with the
IRS.
Tax Treatment of Warrants
An adjustment to the exercise price or conversion ratio of the
warrants, or the failure to make such adjustments, may in certain circumstances
result in constructive distributions to the holders of the warrants that could
be taxable as dividends under Section 305 of the Code and subject to the
withholding described above. In such event, we intend to withhold any applicable
withholding tax from any subsequent distributions of cash or property made to a
Non-U.S. Holder, including any common stock issued by us upon the exercise of a
warrant.
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Gain on Disposition of Common Stock or Warrants
A Non-U.S. Holder generally will not be subject to U.S. federal income
tax on any gain realized upon the sale or other disposition of our common stock
or warrants unless:
o the gain is effectively connected with a United States trade or
business of the Non-U.S. Holder or, if a tax treaty applies, as
attributable to a United States permanent establishment maintained by
such non-United States holder;
o the Non-U.S. Holder is an individual who holds his or her common stock
or warrants as a capital asset (generally, an asset held for
investment purposes) and who is present in the United States for a
period or periods aggregating 183 days or more during the taxable year
in which the sale or disposition occurs and other conditions are met;
or
o our common stock or warrants constitute a United States real property
interest by reason of our status as a "United States real property
holding corporation," or USRPHC, for U.S. federal income tax purposes
at any time within the shorter of the five-year period preceding the
disposition or the holder's holding period for our common stock.
We believe that we are not currently and do not expect to become a
USRPHC. However, because the determination of whether we are a USRPHC depends on
the fair market value of our United States real property interests relative to
the fair market value of our other business assets, there can be no assurance
that we will not become a USRPHC in the future.
Unless an applicable treaty provides otherwise, gain described in the
first bullet point above will be subject to U.S. federal income tax imposed on
net income on the same basis that applies to United States persons generally
and, for corporate holders under certain circumstances, the branch profits tax,
but will generally not be subject to withholding. An individual Non-U.S. Holder
described in the second bullet point above will be subject to a flat 30% tax on
the gain derived from the sale, which may be offset by United States source
capital losses. Non-U.S. Holders should consult any applicable income tax
treaties that may provide for different rules.
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Our common stock is quoted on the Nasdaq Global Market under the symbol "GERN."
On December 13, 2006, the last reported sale price of our common stock on the
Nasdaq Global Market was $9.34 per share. As of December 13, 2006, we had
66,472,124 shares of common stock outstanding.
Investing in our common stock involves certain risks. See "Risk
Factors" beginning on page 1 of the prospectus dated August 4, 2006, or the
Prospectus, and the specific risks set forth under the caption "Additional
Factors That May Affect Future Results" incorporated by reference from our
filings made with the Securities and Exchange Commission under the Securities
Exchange of Act of 1934, as amended, between the date of the Prospectus and the
termination of the offering.
You should rely on the information provided or incorporated by
reference in this prospectus supplement and the Prospectus. We have not
authorized anyone else to provide you with different information. You should not
assume that the information in this prospectus supplement or the Prospectus is
accurate as of any date other than the date on the front of these documents.
Neither the U.S. Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the securities or passed
upon the accuracy or adequacy of this prospectus supplement or the Prospectus.
Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is December 14, 2006.
TABLE OF CONTENTS
PROSPECTUS
About this Prospectus 1
About Geron 1
Risk Factors 1
Forward-Looking Statements 1
Ratio of Earnings to Fixed Charges 2
Use of Proceeds 2
Plan of Distribution 2
Description of Debt Securities 4
Description of Common Stock 12
Description of Preferred Stock 13
Description of Warrants 15
Certain Provisions of Delaware Law and of the Company's Charter and Bylaws 16
Legal Matters 17
Experts 17
Limitation on Liability and Disclosure of Commission Position on
Indemnification for Securities Act Liabilities 17
Where You Can Find More Information 18
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