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EXHIBIT 99.01
DESCRIPTION OF CAPITAL STOCK
GENERAL
Immediately following the closing of this offering, our authorized capital
stock will consist of 50,000,000 shares of common stock, par value $0.001 per
share, and 5,000,000 shares of preferred stock, par value $0.001 per share. As
of March 31, 2000, we had outstanding 14,855,053 shares of common stock,
assuming the conversion of all preferred stock into common stock, which will
occur upon the completion of this offering. As of March 31, 2000, we had
approximately 180 stockholders.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the stockholders, and there are no cumulative voting
rights. Subject to preferences to which holders of preferred stock issued after
this offering may be entitled, holders of common stock will be entitled to
receive ratably any dividends that may be declared from time to time by the
board of directors out of funds legally available for that purpose. In the event
of our liquidation, dissolution or winding up, holders of common stock will be
entitled to share in our assets remaining after the payment of liabilities and
the satisfaction of any liquidation preference granted to the holders of any
outstanding shares of preferred stock. Holders of common stock have no
preemptive or conversion rights or other subscription rights, and there are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are, and the shares of common stock offered
by us in this offering, when issued and paid for, will be, fully paid and
nonassessable. The rights, preferences and privileges of the holders of common
stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock that we may issue in the
future.
PREFERRED STOCK
Upon the closing of this offering, the board of directors will be
authorized, subject to any limitations prescribed by law, without stockholder
approval, from time to time to issue preferred stock in one or more series. Each
series may have rights and preferences, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences, as
determined by the board of directors. The rights of the holders of common stock
will be subject to, and may be adversely affected by, the rights of the holders
of any preferred stock that may be issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, a majority of our outstanding voting
stock. We have no present plans to issue any shares of preferred stock.
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WARRANTS
As of March 31, 2000, we had outstanding the following warrants to purchase
our preferred stock:
<TABLE>
<CAPTION>
TOTAL NUMBER
OF SHARES
SUBJECT TO EXERCISE PRICE
TYPE OF STOCK WARRANTS PER SHARE EXPIRATION DATE
------------ -------------- ---------------
<S> <C> <C> <C>
Series A Preferred Stock .............................. 16,768 $0.80 April 13, 2000
Series A Preferred Stock .............................. 80,000 $0.625 February 18, 2001
Series B Preferred Stock .............................. 16,667 $0.90 April 1, 2001
Series B Preferred Stock .............................. 16,667 $0.90 March 29, 2002
</TABLE>
The warrant to purchase 16,768 shares of Series A preferred stock was
exercised in April 2000. Following completion of this offering, the warrant to
purchase 80,000 shares of Series A preferred stock will become exercisable for
80,000 shares of our common stock, and the warrants to purchase Series B
preferred stock will become exercisable for 34,734 shares of our common stock.
REGISTRATION RIGHTS
Stockholders and warrant holders beneficially owning 9,193,831 shares of
our common stock after this offering are entitled to rights with respect to the
registration of their shares under the Securities Act, as described below.
Demand Registration Rights. At any time after six months following the
completion of this offering, the holders of at least a majority of the shares
having registration rights can request that we register all or a portion of
their shares so long as the total offering price of the shares to the public is
at least $4,000,000. We are required to file only one registration statement in
response to this demand registration right. We may postpone the filing of this
registration statement for up to 120 days if we determine that the filing would
be seriously detrimental to us and our stockholders, although we may only
exercise this right once in any 12-month period. The underwriters of any
underwritten offering will have the right to limit the number of shares to be
included in that registration statement.
Piggyback Registration Rights. If we register any securities for public
sale, the stockholders with registration rights will have the right to include
their shares in this registration, subject to specified exceptions. The
underwriters of any underwritten offering will have the right to limit the
number of shares registered by these holders to 25% of the total shares covered
by the registration statement.
Form S-3 Registration Statements. The holders of the shares having
registration rights can request that we register their shares if we are eligible
to file a registration statement on Form S-3 and if the total price of the
shares of common stock offered to the public is at least $1,000,000. These
holders may only require us to file two Form S-3 Registration Statements in any
12-month period. We may postpone the filing of any registration statement for up
to 120 days if we determine that the filing would be seriously detrimental to us
and our stockholders, although we may exercise this right only once in any
12-month period.
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We will pay all expenses related to any demand or piggyback registration
and up to two registrations on Form S-3, except for underwriters' discounts and
commissions, which will be paid by the selling stockholders. The registration
rights described above will expire five years following the completion of this
offering.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND OUR CERTIFICATE OF INCORPORATION AND
BYLAWS
Provisions of our restated certificate of incorporation and bylaws may have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of us. These
provisions could limit the price that investors might be willing to pay in the
future for shares of our common stock. These provisions;
o divide our board of directors into three classes serving staggered
three-year terms;
o require that directors only be removed "for cause" and only with the
approval of 66 2/3 % of our stockholders;
o eliminate the right of stockholders to act by written consent without
a meeting;
o limit the right of stockholders to call special meetings;
o eliminate cumulative voting in the election of directors;
o allow us to issue preferred stock without any vote or further action
by the stockholders; and
o establish advance notice requirements for various stockholder actions.
The classification system of electing directors may tend to discourage a
third party from making a tender offer or otherwise attempting to obtain control
of us and may maintain the incumbency of our board of directors, as the
classification of the board of directors increases the difficulty of replacing a
majority of the directors. These provisions may have the effect of deferring
hostile takeovers, delaying changes in our control or management, or making it
more difficult for stockholders to take various corporate actions.
In addition, we are subject to Section 203 of the Delaware General
Corporation Law, which, subject to specified exceptions, prohibits a Delaware
corporation from engaging in any "business combination"' with any "interested
stockholder," unless:
o prior to the date of the proposed action, the board of directors of
the corporation approved either the business combination or the
transaction that resulted in the stockholder's becoming an interested
stockholder;
o upon completion of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining
the number of shares outstanding those shares owned by persons who are
directors and also officers and by employee stock plans in
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which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or
o on or subsequent to the date of the proposed action, the business
combination is approved by the board of directors and authorized at an
annual or special meeting of stockholders, and not by written consent,
by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
A "business combination" generally includes a merger, asset or stock sale,
or other transaction resulting in a financial benefit to the interested
stockholder. In general, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock.
This statute could prohibit or delay the accomplishment of mergers or other
takeover or change in control attempts with respect to Talarian and,
accordingly, may discourage attempts to acquire us.
CALIFORNIA FOREIGN CORPORATION LAW
Section 2115 of the California Corporations Code provides that under some
circumstances several provisions of the California Corporations Code may be
applied to foreign corporations qualified to do business in California
notwithstanding the law of the jurisdiction where the corporation is
incorporated. These corporations are referred to in this prospectus as
"quasi-California" corporations. Section 2115 applies to foreign corporations
that have more than half of their voting stock held by stockholders residing in
California and more than half of their business deriving from California,
measured on or after the 135th day of the corporation's fiscal year. If we were
determined to be a quasi-California corporation, we would have to comply with
California law with respect to, among other things, elections of directors and
distributions to stockholders. Under the California Corporations Code, a
corporation is prohibited from paying dividends unless:
o the retained earnings of the corporation immediately prior to the
distribution equal or exceed the amount of the proposed distribution;
or
o (a) the assets of the corporation, exclusive of specific non-tangible
assets, equal or exceed 1 1/4 times its liabilities, exclusive of
specific liabilities; and
o (b) the current assets of the corporation at least equal its current
liabilities. If the average pre-tax net earnings of the corporation
before interest expense for the two years preceding the distribution
were less than the average interest expense of the corporation for
those years, however, the current assets of the corporation must
exceed 1 1/4 times its current liabilities.
Following this offering, we will be exempt from the application of Section
2115 until October 1, 2001, and thereafter we will be exempt if we remain listed
on the Nasdaq National Market and our voting stock is held by more than 800
stockholders.
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TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services L.L.C.
LISTING
We have obtained approval to list our common stock on the Nasdaq National
Market under the trading symbol "TALR."
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