<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
TRANSWITCH CORPORATION
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
TRANSWITCH CORPORATION
------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
________________________________________________________________________
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________________________________________________________________________
(5) Total fee paid:
________________________________________________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
________________________________________________________________________
(3) Filing Party:
________________________________________________________________________
(4) Date Filed:
________________________________________________________________________
<PAGE>
TRANSWITCH CORPORATION
8 PROGRESS DRIVE
SHELTON, CONNECTICUT 06484
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 29, 1997
----------------
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of TranSwitch
Corporation, a Delaware corporation (the "Corporation"), will be held on
Thursday, May 29, 1997, at 10:00 A.M., Connecticut time, at the Ramada Plaza
Hotel, 780 Bridgeport Avenue, Shelton, Connecticut 06484 for the following
purposes:
1. To elect a Board of Directors for the ensuing year.
2. To consider and act upon a proposal to approve an amendment to the
Corporation's Amended and Restated 1995 Stock Plan to increase the number
of shares of Common Stock, par value $.001 per share, of the Corporation
authorized to be issued thereunder by an additional 900,000 shares, for a
total of 2,469,019 shares authorized to be issued thereunder.
3. To ratify the selection of the firm of KPMG Peat Marwick LLP as
auditors for the fiscal year ending December 31, 1997.
4. To transact such other business as may properly come before the
meeting and any adjournments thereof.
Only stockholders of record at the close of business on April 15, 1997 are
entitled to notice of and to vote at the meeting and any adjournment thereof.
By Order of the Board of Directors
Michael C. McCoy
Secretary
Shelton, Connecticut
April 24, 1997
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED STAMPED ENVELOPE BY RETURN MAIL PRIOR TO THE DATE OF
THE ANNUAL MEETING OF STOCKHOLDERS IN ORDER TO ASSURE REPRESENTATION OF YOUR
SHARES.
<PAGE>
TRANSWITCH CORPORATION
8 PROGRESS DRIVE
SHELTON, CONNECTICUT 06484
----------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 29, 1997
----------------
APRIL 24, 1997
Proxies in the form enclosed with this proxy statement are solicited by the
Board of Directors of TranSwitch Corporation (the "Corporation") for use at
the Annual Meeting of Stockholders to be held on Thursday, May 29, 1997, at
10:00 A.M., at the Ramada Plaza Hotel, 780 Bridgeport Avenue, Shelton,
Connecticut 06484, or at any adjournments thereof (the "Annual Meeting").
Only stockholders of record as of the close of business on April 15, 1997,
the record date fixed by the Board of Directors, will be entitled to notice
of, and to vote at, the Annual Meeting and any adjournments thereof. As of
that date, 12,057,092 shares of Common Stock, $.001 par value per share, of
the Corporation were issued and outstanding. Stockholders are entitled to cast
one vote for each share held of record by them on each proposal submitted to a
vote at the Annual Meeting. Stockholders may vote in person or by proxy.
Execution of a proxy will not in any way affect a stockholder's right to
attend the Annual Meeting and vote in person. Any stockholder giving a proxy
has the right to revoke that proxy by (i) filing a later-dated proxy or a
written notice of revocation with the Secretary of the Corporation at any time
before it is exercised, or (ii) voting in person at the Annual Meeting. The
holders of a majority of the outstanding shares of Common Stock entitled to
vote at the Annual Meeting will constitute a quorum for the transaction of
business.
The persons named as attorneys in the proxies, Dr. Santanu Das and Michael
F. Stauff, were selected by the Board of Directors and are directors and/or
officers of the Corporation. All properly executed proxies returned in time to
be counted at the Annual Meeting will be voted as stated below under "Voting
Procedures." Any stockholder giving a proxy has the right to withhold
authority to vote for any individual nominee to the Board of Directors by so
marking the proxy in the space provided thereon.
In addition to the election of directors, the stockholders will consider and
vote upon proposals (i) to approve an amendment to the Corporation's Amended
and Restated 1995 Stock Plan to increase the number of shares of Common Stock
of the Corporation authorized to be issued thereunder by an additional 900,000
shares, for a total of 2,469,019 shares authorized to be issued thereunder,
and (ii) to ratify the selection of auditors, all as further described in this
proxy statement. Where a choice has been specified on the proxy with respect
to the foregoing matters, including the election of directors, the shares
represented by the proxy will be voted in accordance with the specifications
and will be voted FOR any such proposal if no specification is indicated.
The Board of Directors of the Corporation knows of no other matters to be
presented at the Annual Meeting. If any other matter should be presented at
the Annual Meeting upon which a vote properly may be taken, shares represented
by all proxies received by the Board of Directors will be voted with respect
thereto in accordance with the judgment of the persons named as attorneys in
the proxies.
An Annual Report to Stockholders, containing financial statements for the
fiscal year ended December 31, 1996, is being mailed together with this proxy
statement to all stockholders entitled to
<PAGE>
vote. This proxy statement and the form of proxy were first mailed to
stockholders on or about April 24, 1997.
MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth as of April 15, 1997 certain information
regarding the ownership of shares of the Corporation's Common Stock by (i)
each person who, to the knowledge of the Corporation, beneficially owned more
than 5% of the shares of Common Stock of the Corporation outstanding at such
date, (ii) each director (or nominee for director) of the Corporation, (iii)
each Named Officer (as defined below under "Compensation and Other Information
Concerning Directors and Officers--Executive Compensation") and (iv) all
directors (and nominees for director) and officers as a group. Unless
otherwise indicated below, each person listed below maintains a business
address at c/o TranSwitch Corporation, 8 Progress Drive, Shelton, Connecticut
06484.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS(2)
------------------------------------ ------------ -----------
<S> <C> <C>
Dr. Santanu Das(3).................................... 214,844 1.8%
Dr. Albert E. Paladino(4)............................. 213,311 1.8%
c/o Advanced Technology Ventures
281 Winter Street
Suite 350
Waltham, MA 02154
Dr. Steward S. Flaschen(5)............................ 115,371 *
Jitender Vij(6)....................................... 57,273 *
Michael F. Stauff(7).................................. 49,692 *
Francisco A. Middleton(8)............................. 48,850 *
Robert G. Pico(9)..................................... 46,508 *
Dr. Charles Lee(10)................................... 33,804 *
c/o Lee Enterprise
Suite 202 Old
Greenwich, CT 06870
John C. McDonald(11).................................. 30,000 *
Dr. Ljubomir Micic(12)................................ 25,000 *
c/o Van Net A Project Management GmbH
Alderstrasse 19
79098 Freiburg, Germany
James J. Millar....................................... 302 *
221 Nassau Street
Princeton, NJ 08542
All directors and officers as a group (16 per-
sons)(13)............................................ 1,054,325 8.5%
</TABLE>
- --------
* Less than 1% of the outstanding Common Stock.
(1) Except as otherwise noted in the footnotes to this table, each person or
entity named in the table has sole voting and investment power with
respect to all shares of Common Stock shown as owned based upon
information provided to the Corporation by the directors (and nominees),
officers and principal stockholders.
(2) Percentages of ownership are based upon 12,057,092 shares of Common Stock
issued and outstanding as of April 15, 1997. Shares of Common Stock
subject to options or warrants that are exercisable within 60 days after
April 15, 1997 ("Presently Exercisable Securities") are deemed outstanding
for computing the percentage ownership of the person holding such
Presently Exercisable Securities, but are not deemed outstanding for the
percentage ownership of any other person.
2
<PAGE>
(3) Includes 90,000 shares owned and 114,844 shares subject to Presently
Exercisable Securities held by Dr. Das. Also includes 10,000 shares owned
by family members of Dr. Das. Dr. Das disclaims beneficial ownership of
the shares owned by his family members.
(4) Consists of 27,064 shares owned by Dr. Paladino, 26,957 shares owned by
Advanced Technology Ventures II ("ATV II"), and 159,290 shares owned by
Advanced Technology Ventures III, L.P. ("ATV III"). The sole general
partner of ATV II is NP Associates, and the sole general partner of ATV
III is ATV Associates III, L.P. Dr. Paladino is a general partner of NP
Associates and ATV Associates III and may be deemed to share voting and
investment power over the shares owned by ATV II and ATV III. Dr. Paladino
disclaims beneficial ownership of the shares owned by ATV II and ATV III,
except to the extent of his pecuniary interests therein.
(5) Includes 49,433 shares owned by the Joyce D. Flaschen Revocable Investment
Trust of which Dr. Flaschen is the trustee, and 53,438 shares owned by the
Steward S. Flaschen Revocable Investment Trust of which Dr. Flaschen is
the trustee. Dr. Flaschen disclaims beneficial ownership of the shares
held by the Joyce D. Flaschen Revocable Investment Trust. Also includes
12,500 shares subject to Presently Exercisable Securities.
(6) Includes 18,895 shares owned and 30,378 shares subject to Presently
Exercisable Securities held by Mr. Vij. Also includes 8,000 shares owned
by children of Mr. Vij. Mr. Vij disclaims beneficial ownership of the
shares owned by his children.
(7) Consists of 20,051 shares owned and 29,641 shares subject to Presently
Exercisable Securities.
(8) Consists of 28,705 shares owned and 20,145 shares subject to Presently
Exercisable Securities.
(9) Consists of 20,927 shares owned and 25,581 shares subject to Presently
Exercisable Securities.
(10) Consists of 13,804 shares owned and 20,000 shares subject to Presently
Exercisable Securities.
(11) Consists of 22,500 shares owned by John C. McDonald and Gayle Ann
McDonald, Trustees under Revocable Trust Agreement dated April 23, 1973,
as amended, F/B/O John C. McDonald and Gayle Ann McDonald and 7,500
shares subject to Presently Exercisable Securities.
(12) Consists of 17,500 shares owned and 7,500 shares subject to Presently
Exercisable Securities.
(13) Includes 370,334 shares subject to Presently Exercisable Securities.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The business and affairs of the Corporation are managed under the direction
of its Board of Directors. The Board of Directors met nine (9) times during
the fiscal year ended December 31, 1996. The Audit Committee of the Board of
Directors, consisting of Dr. Lee (Chairman), Mr. Millar, Mr. McDonald and Dr.
Flaschen, reviews with the Corporation's independent auditors the scope and
timing of their audit services and any other services they are asked to
perform, the auditor's report on the Corporation's financial statements
following completion of their audit and the Corporation's policies and
procedures with respect to internal accounting and financial controls. In
addition, the Audit Committee makes annual recommendations to the Board of
Directors for the appointment of independent auditors for the ensuing year.
The Audit Committee met two (2) times during the fiscal year ended December
31, 1996. The Compensation Committee of the Board of Directors, consisting of
Dr. Paladino (Chairman), Dr. Lee, Mr. Millar and Dr. Flaschen, reviews and
evaluates the compensation and benefits of all officers of the Corporation,
reviews general policy matters relating to compensation and benefits of
employees of the Corporation and makes recommendations concerning these
matters to the Board of Directors. The Compensation Committee also administers
the Corporation's stock option and stock purchase plans. The Compensation
Committee met ten (10) times during the fiscal year ended December 31, 1996.
The Board of Directors does not currently have a standing nominating
committee. Each of the directors attended at least 75% of the aggregate of all
meetings of the Board of Directors and all committees on which he serves.
3
<PAGE>
OCCUPATIONS OF DIRECTORS AND OFFICERS
The following table sets forth the current directors and officers of the
Corporation and the Nominees to be elected at the Annual Meeting, their ages
and the positions currently held by each such person with the Corporation.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dr. Santanu Das......... 52 President, Chief Executive Officer and Director
Michael F. Stauff....... 47 Senior Vice President, Chief Financial Officer and Treasurer
William G. Bartholomay.. 50 Vice President, Engineering
John H. Haynes.......... 53 Vice President, Sales
Michael C. McCoy........ 48 Vice President, Controller and Secretary
Francisco A. Middleton.. 46 Vice President, Transmission Products
Robert G. Pico.......... 52 Vice President, Business Development
Kandaswamy Thangamuthu.. 53 Vice President, Operations
Daniel C. Upp........... 56 Vice President, Technology Strategy
Jitender K. Vij......... 49 Vice President, Systems Engineering
Dr. Steward S.
Flaschen(1)(2)......... 70 Director
Dr. Charles Lee(1)(2)... 57 Director
John C. McDonald(2)..... 61 Director
Dr. Ljubomir Micic...... 66 Director
James J. Millar(1)(2)... 38 Director
Dr. Albert E.
Paladino(1)............ 64 Director
</TABLE>
- --------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
NOMINEES FOR ELECTION OF DIRECTORS AT THE ANNUAL MEETING
Dr. Santanu Das, a founder of the Corporation, has been President, Chief
Executive Officer and a director of the Corporation since its inception in
1988. Prior to joining the Corporation, Dr. Das held various positions,
including President, with Spectrum Digital Corporation where he worked from
1986 through August of 1988. Prior to joining Spectrum Digital Corporation, he
held various positions, including Director, Applied Technology Division of ITT
Corporation's Advanced Technology Center. Dr. Das holds a Ph.D. from
Washington University, St. Louis and an undergraduate degree from Jadavpur
University, Calcutta, India.
Dr. Steward S. Flaschen, a founder of the Corporation, has been a director
of the Corporation and Chairman of the Board of Directors since the
Corporation's inception. Dr. Flaschen is Chairman of the Board of Telco
Systems, an SEC Independent General Partner of Merrill Lynch Venture Capital
and member of the Board of Directors of Sipex Corporation, a semiconductor
company. He was previously a Senior Vice President and a member of the
Management Policy Board and a General Technical Director of ITT Corporation.
Prior to joining ITT Corporation, Dr. Flaschen was Director of Research and
Development of the Semiconductor Products Division of Motorola Corporation.
Dr. Charles Lee became a director of the Corporation in August 1989. He has
thirty years of experience in telecommunications and specializes in the
emerging growth markets of China and the far east. Dr. Lee is Chairman of
Charles Lee Enterprise, a telecommunications business development and
consulting firm, and is also a director of BroadBand Technologies, Inc. and
Voysys Corporation. He holds two M.S. degrees and a Ph.D. from the University
of Minnesota.
Dr. Ljubomir Micic has been a director of the Corporation since June 1994.
He is the Chief Executive Officer of VEN-NET-A, a German consulting company.
Prior to his retirement from ITT
4
<PAGE>
Corporation in 1990, he was a Vice President of ITT Corporation and Chairman
of its Semiconductor Division.
Dr. Albert E. Paladino has been a director of the Corporation since its
inception in 1988. He is a general partner of Advanced Technology Ventures, a
venture capital firm specializing in investing in early stage technology
enterprises. Dr. Paladino serves as a director of numerous high technology
companies, including Millitech Corporation, R F Micro Devices, Inc. and
Thunderbird Technologies. He holds a B.S. and M.S. from Alfred University and
a ScD from the Massachusetts Institute of Technology.
ADDITIONAL CURRENT DIRECTORS
John C. McDonald has been a director of the Corporation since October 1992.
He is a director of The Burnham Fund, a public growth and income mutual fund.
He also has been the President of MBX Inc., a communications research firm,
since June of 1991. Prior to joining MBX Inc., Mr. McDonald was Chief
Scientist of Contel Corporation.
James J. Millar has been a director of the Corporation since March 1992. He
has been a general partner of Early Stage Enterprises, a private venture
capital firm, since July 1996. Prior to Early Stage Enterprises, Mr. Millar
was a general partner of DSV Management, Ltd., a private venture capital firm,
with which he had been associated since 1985.
OFFICERS
Michael F. Stauff is Senior Vice President, Chief Financial Officer and
Treasurer of the Corporation. Prior to joining the Corporation in November
1994, Mr. Stauff was the Vice President, Treasurer and Chief Financial Officer
of I.M. Holdings, an international manufacturer of marine electronic and
hardware products, since 1985. He holds a B.S.B.A. and an M.B.A. from
Northeastern University.
William G. Bartholomay has been the Corporation's Vice President,
Engineering, since 1994. From 1992 to 1994, Mr. Bartholomay held various
positions with the Corporation, including Director, Special VLSI Projects.
Prior to joining the Corporation, Mr. Bartholomay was Director of the Shelton
Development Center for Ascom Timeplex and prior to that held positions at
Alcatel Advanced Technology Center, ITT Corporation and AT&T. Mr. Bartholomay
holds a B.S.E.E. from the University of California, Davis Campus, and a
M.S.E.E. from the Massachusetts Institute of Technology.
John H. Haynes has been the Corporation's Vice President, Sales, since May
1996. Mr. Haynes joined the Corporation from Analog Devices, Inc. where he
served as Northeast Area Director (U.S.A. and Canada) and in other sales
positions over a 20-year period. He holds an H.N.C. in electrical engineering
from Reddington College, England.
Michael C. McCoy, a founder of the Corporation, is the Corporation's Vice
President, Controller and Secretary. Mr. McCoy has been the Secretary of the
Corporation since its inception and was Director of Finance and Administration
from the Corporation's inception to July 1995. Since July 1995, he has been
Vice President and Controller. Prior to joining the Corporation, Mr. McCoy was
Division Controller of the Advanced Technology Division of ITT Corporation. He
holds a B.S.B.A. from Kent State University.
Francisco A. Middleton has been Vice President, Transmission Products since
October 1995. Mr. Middleton was the Corporation's Vice President, Applications
Engineering from December 1993 to October 1995, Vice President, Strategic
Programs from August 1992 to November 1993 and Vice President, Engineering and
Operations from May 1990 to August 1992. Prior to joining the
5
<PAGE>
Corporation in May 1990, he was General Manager of the Electronics Division of
Yale Security, Inc. Prior to his work at Yale Security, Inc., he had spent 15
years at ITT Corporation, most recently as Director of Technology Strategy. He
holds a B.S.E.E. from National Polytechnic Institute in Mexico City, Mexico.
Robert G. Pico is the Corporation's Vice President, Business Development.
Prior to joining the Corporation in October 1989, Mr. Pico spent nine years at
ITT Telecom, most recently as Corporate VLSI/ASIC Worldwide Purchasing
Manager. Prior to joining ITT Telecom, he held various positions with United
Technologies Corporation's Hamilton Standard Division over the course of 12
years. He holds a B.S.E.E. from the University of Hartford and a M.S. in
physics from Trinity College.
Kandaswamy Thangamuthu has been Vice President, Operations of the
Corporation since joining the Corporation in November 1993. From 1988 to
November 1993, he was the President of Elcomp International Inc., a technical
and management consulting firm specializing in technology transfer and set-up
of engineering, wafer processing and assembly operations in Far East
countries. Prior to joining Elcomp International Inc., he held several
executive level positions with ITT Corporation in the areas of VLSI, Product
Engineering, CAD and Manufacturing where he was employed for more than 10
years. Mr. Thangamuthu holds an M.S.E.E. from the University of Illinois and
an M.B.A. from the University of New Haven.
Daniel C. Upp, a founder of the Corporation, has been its Vice President,
Technology Strategy since May 1990. From April 1988 to May 1990, he was
Director of Engineering. Prior to joining the Corporation, Mr. Upp was
Director of Exploratory Systems for ITT Corporation's Advanced Technology
Center, where he was employed for 10 years. He holds a B.S.E.E. and a M.S.E.E.
from Ohio State University.
Jitender K. Vij is the Corporation's Vice President, Systems Engineering.
From 1990 to 1993, Mr. Vij held various positions with the Corporation,
including most recently Vice President, Applications, Engineering. Prior to
joining the Corporation, Mr. Vij was Technical Director for Southern New
England Telecommunications and prior to that held senior positions at Alcatel
Advanced Technology Center and Teleglobe, Canada. Mr. Vij holds a B.S.E.E.
from Punjab University, India.
6
<PAGE>
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth the compensation earned
by the Corporation's Chief Executive Officer and each of the four other most
highly compensated officers of the Corporation whose total salary and bonus
for 1996 exceeded $100,000 (collectively, the "Named Officers") for services
rendered in all capacities to the Corporation for 1994, 1995 and 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- ---------------------
SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
--------------------------- ---- ---------- --------- ---------------------
<S> <C> <C> <C> <C>
Dr. Santanu Das............. 1996 $ 178,173 $ 39,000 80,000
President and Chief Execu- 1995 170,000 86,000 30,000
tive Officer 1994 168,250 25,000 --
Robert G. Pico.............. 1996 148,740 0 22,000
Vice President, Business 1995 140,450 15,000 2,000
Development 1994 132,300 9,000 1,200
Francisco A. Middleton(1)... 1996 127,061 7,000 23,025
Vice President, Transmis- 1995 117,725 15,025 3,000
sion Products 1994 117,376 13,000 1,300
Jitender Vij................ 1996 116,015 7,000 26,025
Vice President, Systems En- 1995(2) -- -- --
gineering 1994(2) -- -- --
Michael F. Stauff(1)........
Senior Vice President, 1996 112,752 10,000 22,300
Chief Financial Officer and 1995 105,030 28,000 5,000
Treasurer 1994(3) -- -- --
</TABLE>
- --------
(1) Messrs. Middleton and Stauff will each receive a severance payment equal
to three months salary if the Corporation terminates his employment.
(2) Information is not provided for 1994 and 1995 because Mr. Vij was not a
Named Officer, as described in Item 402(a)(3) of Regulation S-K under the
Securities Act of 1933, as amended.
(3) Information is not provided for 1994 because Mr. Stauff was not a Named
Officer, as described in Item 402(a)(3) of Regulation S-K under the
Securities Act of 1933, as amended.
Option Grants. The following table sets forth information concerning stock
options granted during the fiscal year ended December 31, 1996 under the
Corporation's Amended and Restated 1995 Stock Plan to the Named Officers (the
Corporation did not grant any stock appreciation rights during fiscal 1996):
7
<PAGE>
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(4)
------------------------------------------------ ---------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED(1) IN YEAR(2) ($/SHARE)(3) DATE 5% 10%
---- ---------- ------------- ------------ ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Dr. Santanu Das......... 80,000 5.3 9.76 2006 478,247 1,223,785
Robert G. Pico.......... 22,000 1.5 9.68 2006 131,130 334,887
Francisco A. Middleton.. 23,025 1.5 9.61 2006 136,899 349,039
Jitender Vij............ 26,025 1.7 9.55 2006 154,418 393,159
Michael F. Stauff....... 22,300 1.5 9.68 2006 132,948 339,582
</TABLE>
- --------
(1) These options have terms of 10 years from the date of grant and become
exercisable as to 25% of the shares covered thereby on the date of grant,
an additional 12.5% six months thereafter, an additional 12.5% six months
thereafter and an additional 6.25% at the end of each three-month period
thereafter until such options are fully exercisable.
(2) Options to purchase a total of 1,524,630 shares were granted to employees
(including the Named Officers) in fiscal 1996 under the Corporation's
Amended and Restated 1995 Stock Plan.
(3) The exercise price was the fair market value of a share of the
Corporation's Common Stock at the time of grant as determined in
accordance with the Corporation's Amended and Restated 1995 Stock Plan.
The exercise price may be paid in cash or in shares of the Corporation's
Common Stock valued at fair market value on the exercise date.
(4) The potential realizable value is calculated based on the term of the
option at the time of grant (10 years). Stock price appreciation of 5% and
10% is based on the fair market value at the time of grant and assumes
that the option is exercised at the exercise price and sold on the last
day of its term at the appreciated price, pursuant to rules promulgated by
the Securities and Exchange Commission. The potential realizable value
does not represent the Corporation's prediction of its stock price
performance. This table does not take into account any appreciation or
depreciation in for the fair value of the Common Stock from the date of
grant to date. There can be no assurance that the actual stock price
appreciation over the 10-year option term will be at the assumed 5% and
10% levels or at any other defined level.
Option Exercises and Unexercised Option Holdings. The following table sets
forth certain information concerning option exercises and unexercised stock
options held as of December 31, 1996 by each of the Named Officers:
AGGREGATED OPTION EXERCISES
AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT
OPTIONS AT YEAR-END YEAR-END(2)
------------------------- -------------------------
SHARES
ACQUIRED VALUE
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Santanu Das......... 0 0 216,425 86,075 831,531 75,094
Robert G. Pico.......... 23,500 129,655 21,075 16,625 62,328 2,781
Francisco A. Middleton.. 5,500 59,015 24,688 18,137 77,335 2,781
Jitender Vij............ 18,000 231,530 32,013 21,262 112,235 3,338
Michael F. Stauff....... 5,000 16,650 28,650 33,650 77,875 77,875
</TABLE>
- --------
(1) Calculated as the difference between the fair market value of the
underlying securities at the exercise date of the underlying options and
the aggregate exercise price.
(2) Value is based on the difference between the option exercise price and the
fair market value of the Corporation's Common Stock on December 31, 1996,
multiplied by the number of shares underlying the options.
8
<PAGE>
Employment Agreements and Severance Policy. None of the Named Officers has a
long-term employment agreement with the Corporation. The employment of each of
the Named Officers may be terminated by the Corporation at any time. The
Corporation's policy is to pay a severance payment of three months' base
salary to any of the Named Officers whose employment is terminated by the
Corporation. Letters sent by the Corporation to Francisco Middleton and
Michael Stauff offering them employment with the Corporation expressly contain
this three months severance provision.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors currently consists of
Dr. Albert E. Paladino (Chairman), Dr. Steward S. Flaschen, Dr. Charles Lee
and James J. Millar, each of whom is an independent, non-employee director.
The Compensation Committee is responsible for developing the compensation
programs that relate to the Corporation's executive officers, senior
management and other key employees and for establishing the specific short-
and long-term compensation elements thereunder. The Compensation Committee
also oversees the general compensation structure for all of the Corporation's
employees. In addition, the Compensation Committee administers the
Corporation's 1989 Stock Option Plan, Amended and Restated 1995 Stock Plan and
1995 Employee Stock Purchase Plan.
The Corporation's executive compensation program established by the
Compensation Committee is designed to provide levels of compensation in
formats that assist the Corporation in attracting, motivating and retaining
qualified executives by providing a competitive compensation package geared to
individual and corporate performance. The Compensation Committee strives to
establish performance criteria, evaluate performance and establish base
salary, annual bonuses and long-term incentives for the Corporation's key
decision makers based upon performance and designed to provide appropriate
incentives for maximization of the Corporation's short- and long-term
financial results for the benefit of the Corporation's stockholders.
In order to meet its objectives, the Compensation Committee has chosen three
basic components for the Corporation's executive compensation program to meet
the Corporation's compensation philosophy. Base salaries, the fixed regular
component of executive compensation, are based upon (i) base salary levels
among a competitive peer group, (ii) the Corporation's past financial
performance and future expectations, (iii) the general and industry-specific
business environment and (iv) individual performance. Annual bonuses, which
are directly linked to the Corporation's yearly performance, are designed to
provide additional cash compensation based on short-term performance of
certain key employees. Stock option grants, under the long-term component of
executive compensation, are designed to incentivize and reward executive
officers and key employees for delivering value to the Corporation's
stockholders over a longer, measurable period of time. Historically, the
Corporation has used the grant of stock options that vest over some measurable
period of time, currently four years, to accomplish this objective.
Dr. Santanu Das is the President and Chief Executive Officer and a director
of the Corporation. His fiscal 1996 performance was evaluated on the basis of
the factors described above applicable to executive officers generally. His
base salary was based on a number of factors, including the base salaries of
executives performing similar functions for peer companies. The annual bonus
and stock option grant components of his compensation, as well as his salary,
reflect the Corporation's financial performance, the continued introduction
and commercialization of new products and progress toward achieving business
goals, as well as the achievement by Dr. Das of other non-financial goals. In
assessing Dr. Das' performance for fiscal 1996, the Compensation Committee
took into account the degree to which the financial and non-financial goals on
which his compensation was based had been achieved.
9
<PAGE>
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally prevents publicly-held corporations from deducting, for
federal income tax purposes, compensation (including compensation recognized
by the executive as a result of exercising a non-qualified stock option) in
excess of $1 million paid to certain executives, with certain exceptions. The
Compensation Committee has considered these requirements and it is the
Compensation Committee's present intention that, so long as it is consistent
with its overall compensation objectives, substantially all executive
compensation will be deductible for federal income tax purposes.
MEMBERS OF THE COMPENSATION COMMITTEE:
Dr. Albert E. Paladino (Chairman)
Dr. Steward S. Flaschen
Dr. Charles Lee
James J. Millar
COMPENSATION OF DIRECTORS
Directors who are not employees of the Corporation receive a stipend of
$7,000 per year, payable quarterly, and a participation fee of $1,000 for each
meeting of the Board of Directors attended and for each committee meeting
attended, unless the committee meeting is held on the same date as a meeting
of the Board of Directors. Likewise, each non-employee director receives a
participation fee of $1,000 for each meeting of the Board of Directors of any
subsidiary of the Corporation or any of its committees attended, unless the
committee meeting is held on the same day as a Board of Directors meeting. No
employee of the Corporation receives separate compensation for services
rendered as a director. All directors are reimbursed for expenses in
connection with attending Board and committee meetings.
Each non-employee director of the Corporation is also entitled to
participate in the Corporation's 1995 Non-Employee Director Stock Option Plan
(the "Director Plan"). Under the Director Plan, each director who is not also
an employee of the Corporation receives upon the date of his or her initial
election as a director an option to purchase 12,500 shares of Common Stock,
which option is one-third vested on the date of grant and vests as to an
additional one-third on each of the first and second anniversaries of the date
of grant. In addition, on each one-year anniversary of the date a non-employee
director is first elected to the Board of Directors, so long as he or she is
still a director on that date, such director receives an option to purchase
7,500 shares of Common Stock, vesting in full on the first anniversary of the
date of grant. All options granted under the Director Plan have an exercise
price equal to the fair market value of the Common Stock on the date of grant.
The term of each option is for a period of five years from the date of grant.
Options may not be assigned or transferred except by will or by the laws of
descent and distribution and are exercisable to the extent vested only while
the optionee is serving as a director of the Corporation or within 90 days
after the optionee ceases to serve as a director of the Corporation (except
that if a director dies or becomes disabled while he or she is serving as a
director of the Corporation, the option automatically becomes fully vested and
is exercisable until the scheduled expiration date of the Option).
The Corporation has purchased directors' and officers' liability insurance
from General Star Indemnity and Zurich Insurance covering all of the
Corporation's directors and officers. The aggregate premium for this insurance
policy in 1996 was $175,000.
10
<PAGE>
STOCK PERFORMANCE GRAPH
The following performance graph compares the percentage change in the
cumulative total stockholder return on the Corporation's Common Stock during
the period from the Corporation's initial public offering on June 14, 1995
through December 31, 1996, with the cumulative total return on (i) a group
consisting of 40 corporations in the Corporation's Standard Industrial
Classification (SIC) Code 3674--Semiconductors and Related Devices (the "SIC
Code 3674 Index"),* (ii) a group of the Corporation's Peer Companies on a line
of business basis (the "Peer Group")* and (iii) the Nasdaq Composite Index
(Total Return) (the "Nasdaq Composit Index"). The comparison assumes $100 was
invested on June 14, 1995 in the Corporation's Common Stock, the SIC Code 3674
Index, The Peer Group and the Nasdaq Composite Index and assumes reinvestment
of dividends, if any.
COMPARISON OF FIVE YEAR** CUMULATIVE TOTAL RETURN AMONG TRANSWITCH
CORPORATION, THE SIC CODE 3674 INDEX, THE PEER GROUP AND THE NASDAQ COMPOSITE
INDEX
LOGO
<TABLE>
<CAPTION>
JUNE 14, 1995 DECEMBER 31, 1995 DECEMBER 31, 1996
(%) (%) (%)
------------- ----------------- -----------------
<S> <C> <C> <C>
TranSwitch Corporation Com-
mon Stock.................. 100.00 121.92 57.53
SIC Code 3674 Index......... 100.00 100.77 162.23
Peer Group.................. 100.00 160.23 250.99
Nasdaq Composite Index...... 100.00 116.80 145.15
</TABLE>
- --------
* The Corporation has elected to replace the Peer Group constructed by the
Corporation with an index compiled by Media General Financial Services of
Richmond, Virginia, of 40 publicly traded
11
<PAGE>
corporations in SIC Code 3674 (Semiconductors and Related Devices) (the
"SIC Code 3674 Index") as the industry index for purposes of the
performance graph. The SIC Code 3674 Index provides a broader
representation of component vendors than did the Peer Group, which also
included systems vendors. Moreover, an increasing tide of mergers and
acquisitions among Peer Group companies has made the index difficult to
maintain and diminished its usefulness as a yardstick to measure the
Corporation's performance. The companies included in the Peer Group, which
the SIC Code 3674 Index replaces, were C-Cube Microsystems Inc., Cascade
Communications Corp., Cisco Systems, Inc., Digital Link Corp., Level One
Communications Inc., Linear Technology Corp., Maxim Integrated Products,
Inc., PairGain Technologies, Inc., Sierra Semiconductor Corp. and Summa
Four, Inc.
** Prior to June 14, 1995, the Corporation's Common Stock was not publicly
traded. Comparative data is provided only for the period from that date
through December 31, 1996.
SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Corporation's directors, executive officers and
holders of more than 10% of the Corporation's Common Stock (collectively,
"Reporting Persons") to file with the SEC initial reports of ownership and
reports of changes in ownership of Common Stock of the Corporation. Such
persons are required by regulations of the SEC to furnish the Corporation with
copies of all such filings. Based on its review of the copies of such filings
received by it with respect to fiscal 1996 and written representations from
certain Reporting Persons, the Corporation believes that all Reporting Persons
complied with all Section 16(a) filing requirements in 1996, with the
exception of John Haynes and Robert Pico. Mr. Haynes was late in filing his
Initial Statement of Beneficial Ownership of Securities on Form 3 to reflect
his ownership of the Corporation's securities as of May 5, 1996, the date he
became an executive officer of the Corporation. The Form 3 was filed on June
4, 1996. Mr. Pico was late in filing his Statement of Changes in Beneficial
Ownership of Securities on Form 4 to reflect his exercise on December 31, 1996
of an option to purchase shares of the Corporation's Common Stock. This
transaction was reported on the Annual Statement of Changes in Beneficial
Ownership of Securities on Form 5 filed on February 6, 1997.
AMENDED AND RESTATED 1995 STOCK PLAN
At the Annual Meeting, the stockholders are being requested to consider and
approve an amendment to the Amended and Restated 1995 Stock Plan (the "Stock
Plan") increasing the number of shares reserved for issuance thereunder by an
additional 900,000 shares, for a total of 2,469,019 shares reserved for
issuance thereunder. See "Proposal to Amend the Amended and Restated 1995
Stock Plan" below. Following is a summary of the material features of the
Stock Plan.
STOCK PLAN
The Stock Plan was adopted by the Board of Directors on April 11, 1995,
approved by the Corporation's stockholders on April 19, 1995 and became
effective on June 12, 1995. The Stock Plan currently provides for the issuance
of a maximum of 1,569,019 shares of Common Stock pursuant to the grant to
employees of Incentive Stock Options ("ISOs") within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code") and the
grant of Non-Qualified Stock Options (the "NQSOs"), stock awards ("Awards") or
opportunities to make direct purchases of stock in the Corporation
("Purchases") to employees, consultants, directors and officers of the
Corporation. As of April 15, 1997, 100 employees (including directors who are
also employees of the Corporation and officers), 6 consultants and 6 non-
employee directors are eligible to participate in the Stock Plan.
12
<PAGE>
The Stock Plan is administered by the Compensation Committee of the Board of
Directors, which currently consists of four outside directors, Dr. Charles
Lee, James J. Millar, Dr. Albert E. Paladino and Dr. Steward S. Flaschen.
Subject to the provisions of the Stock Plan, the Compensation Committee has
the authority to select the optionees and determine the terms of the options
granted, including: (i) the number of shares subject to each option, (ii) when
the option becomes exercisable, (iii) the exercise price of the option, (iv)
the duration of the option and (v) the time, manner and form of payment upon
exercise of an option. The Compensation Committee determines the exercise
price per share for NQSOs, Awards and Purchases under the Stock Plan, so long
as such exercise price is no less than the minimum legal consideration
required therefor under the laws of any jurisdiction in which the Corporation
may be organized. The exercise price per share for each ISO granted under the
Stock Plan may not be less than the fair market value per share of Common
Stock on the date of such grant. In the case of an ISO to be granted to an
employee owning stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation, the price
per share for such ISO shall not be less than one hundred ten percent (110%)
of the fair market value per share of Common Stock on the date of grant. An
option is not transferable by the option holder except by will or by the laws
of descent and distribution. Each option expires on the date specified by the
Compensation Committee, but not more than (i) ten years from the date of grant
in the case of options generally and (ii) five years from the date of grant in
the case of ISOs granted to an employee owning stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Corporation. Generally, no ISO may be exercised more than three months
following termination of employment. However, in the event that termination is
due to death or disability, the option is exercisable for a maximum of 180
days after such termination.
On April 15, 1997, the market price, as reported by the Nasdaq National
Market, of the Corporation's Common Stock, the class of stock underlying all
options, awards and purchases subject to the Stock Plan, was $5.63 per share.
As of April 15, 1997, options to purchase 1,375,880 shares of Common Stock at
a weighted average exercise price of $6.49 per share were outstanding under
the Stock Plan.
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING
OPTIONS GRANTED UNDER
THE STOCK PLAN AS OF
NAME AND POSITION APRIL 15, 1997
----------------- ---------------------------
<S> <C>
Dr. Santanu Das................................... 110,000
President and Chief Executive Officer
Michael F. Stauff................................. 34,800
Senior Vice President, Chief Financial Officer
and Treasurer
Robert G. Pico.................................... 29,000
Vice President, Business Development
Francisco A. Middleton............................ 33,025
Vice President, Transmission Products
Jitender Vij...................................... 36,525
Vice President, Systems Engineering
All current officers as a group (10) persons...... 449,550
All current directors who are not officers as a 20,000
group (6) persons................................
All employees who are not officers as a group..... 902,605
</TABLE>
13
<PAGE>
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING DISCUSSION OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF
THE ISSUANCE AND EXERCISE OF OPTIONS, AWARDS AND PURCHASES GRANTED UNDER THE
STOCK PLAN IS BASED UPON THE PROVISIONS OF THE CODE AS IN EFFECT ON THE DATE
OF THIS PROXY STATEMENT, CURRENT REGULATIONS, AND EXISTING ADMINISTRATIVE
RULINGS OF THE INTERNAL REVENUE SERVICE. IT IS NOT INTENDED TO BE A COMPLETE
DISCUSSION OF ALL OF THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF
THESE PLANS OR OF THE REQUIREMENTS THAT MUST BE MET IN ORDER TO QUALIFY FOR
THE DESCRIBED TAX TREATMENT. IN ADDITION THERE MAY BE FOREIGN, STATE, AND
LOCAL TAX CONSEQUENCES THAT ARE NOT DISCUSSED HEREIN.
The following general rules are applicable under current United States
federal income tax law to ISOs granted under the Stock Plan:
1. In general, no taxable income results to the optionee upon the grant
of an ISO or upon the issuance of shares to him or her upon the exercise of
the ISO, and the Corporation is not entitled to a federal income tax
deduction upon either the grant or exercise of an ISO.
2. If shares acquired upon exercise of an ISO are not disposed of within
(i) two years following the date the ISO was granted or (ii) one year
following the date the shares are issued to the optionee pursuant to the
ISO exercise (the "Holding Periods"), the difference between the amount
realized on any subsequent disposition of the shares and the exercise price
will generally be treated as capital gain or loss to the optionee.
3. If shares acquired upon exercise of an ISO are disposed of and the
optionee does not satisfy the requisite Holding Periods (a "Disqualifying
Disposition"), then in most cases the lesser of (i) any excess of the fair
market value of the shares at the time of exercise of the ISO over the
exercise price or (ii) the actual gain on disposition, will be treated as
compensation to the optionee and will be taxed as ordinary income in the
year of such disposition.
4. In any year that an optionee recognizes ordinary income on a
Disqualifying Disposition of stock acquired by exercising an ISO, the
Corporation generally will be entitled to a corresponding deduction for
federal income tax purposes.
5. Any excess of the amount realized by the optionee as the result of a
Disqualifying Disposition over the sum of (i) the exercise price and (ii)
the amount of ordinary income recognized under the above rules will be
treated as capital gain.
6. Capital gain or loss recognized by an optionee on a disposition of
shares will be long-term capital gain or loss if the optionee's holding
period for the shares exceeds one year.
7. An optionee may be entitled to exercise an ISO by delivering shares of
the Corporation's Common Stock to the Corporation in payment of the
exercise price, if the optionee's ISO agreement so provides. If an optionee
exercises an ISO in such fashion, special rules will apply.
8. In addition to the tax consequences described above, the exercise of
ISOs may result in a further "alternative minimum tax" under the Code. The
Code provides that an "alternative minimum tax" (at a maximum rate of 28%)
will be applied against a taxable base which is equal to "alternative
minimum taxable income," reduced by a statutory exemption. In general, the
amount by which the value of the Common Stock received upon exercise of the
ISO exceeds the exercise price is included in the optionee's alternative
minimum taxable income. A taxpayer is required to pay the higher of his
regular tax liability or the alternative minimum tax. A taxpayer who pays
alternative minimum tax attributable to the exercise of an ISO may be
entitled to a tax credit against his or her regular tax liability in later
years.
9. Special rules apply if the Common Stock acquired through the exercise
of an ISO is subject to vesting, or is subject to certain restrictions on
resale under federal securities laws applicable to directors, officers or
10% stockholders.
14
<PAGE>
The following general rules are applicable under current federal income tax
law to NQSOs granted under the Stock Plan.
1. The optionee generally does not recognize any taxable income upon the
grant of a NQSO, and the Corporation is not entitled to a federal income
tax deduction by reason of such grant.
2. The optionee generally will recognize ordinary compensation income at
the time of exercise of the NQSO in an amount equal to the excess, if any,
of the fair market value of the shares on the date of exercise over the
exercise price. The Corporation may be required to withhold income tax on
this amount.
3. When the optionee sells the shares acquired through the exercise of a
NQSO, he or she generally will recognize a capital gain or loss in an
amount equal to the difference between the amount realized upon the sale of
the shares and his or her basis in the stock (generally, the exercise price
plus the amount taxed to the optionee as ordinary income). If the
optionee's holding period for the shares exceeds one year, such gain or
loss will be a long-term capital gain or loss.
4. The Corporation generally should be entitled to a federal income tax
deduction when ordinary income is recognized by the optionee pursuant to
the exercise of a NQSO.
5. An optionee may be entitled to exercise a NQSO by delivering shares of
the Corporation's Common Stock to the Corporation in payment of the
exercise price. If an optionee exercises a NQSO in such fashion, special
rules will apply.
6. Special rules apply if the Common Stock acquired through the exercise
of a NQSO is subject to vesting, or is subject to certain restrictions on
resale under federal securities laws applicable to directors, officers or
10% stockholders.
The following general rules are applicable under current federal income tax
law to the grant of Awards and Purchases under the Stock Plan:
Under current federal income tax law, persons receiving Common Stock
pursuant to an award of Common Stock ("Award") or a grant of an opportunity to
purchase Common Stock ("Purchase") generally recognize ordinary income equal
to the fair market value of the shares received, reduced by any purchase price
paid. The Corporation generally will be entitled to a corresponding federal
income tax deduction. When such stock is sold, the seller generally will
recognize capital gain or loss. Special rules apply if the stock acquired is
subject to vesting, or is subject to certain restrictions on resale under
federal securities laws applicable to directors, officers or 10% stockholders.
15
<PAGE>
PROPOSALS FOR CONSIDERATION AT THE ANNUAL MEETING OF STOCKHOLDERS
ITEM NO. 1:
PROPOSAL RELATING TO ELECTION OF DIRECTORS
The Board of Directors of the Corporation has nominated five persons for
election as directors of the Corporation at the Annual Meeting (the
"Nominees"). All of the Nominees are currently members of the Corporation's
Board of Directors. The Nominees and the year they first joined the Board of
Directors are:
<TABLE>
<CAPTION>
NOMINEE YEAR FIRST JOINED BOARD
------- -----------------------
<S> <C>
Dr. Santanu Das................................... 1988
Dr. Steward S. Flaschen........................... 1988
Dr. Charles Lee................................... 1989
Dr. Ljubomir Micic................................ 1994
Dr. Albert E. Paladino............................ 1988
</TABLE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ELECTION OF THE
NOMINEES AS DIRECTORS OF THE CORPORATION
The directors of the Corporation are elected annually and hold office until
the next annual meeting of stockholders and until their successors have been
elected and qualified or until their earlier death, resignation or removal.
Shares represented by all proxies received by the Board of Directors and not
marked so as to withhold authority to vote for any individual Nominee or for
all Nominees will be voted (unless one or more Nominees are unwilling or
unable to serve) FOR the election of the Nominees. The Board of Directors
knows of no reason why any Nominee should be unwilling or unable to serve, but
if such should be the case, proxies will be voted for the election of another
person or the Board of Directors may vote to fix the number of directors at a
lesser number. A plurality of the votes cast by the stockholders present or
represented by proxy and entitled to vote at the Annual Meeting is required
for the elections of directors. See "Voting Procedures" below.
ITEM NO. 2:
PROPOSAL TO AMEND THE AMENDED AND RESTATED 1995 STOCK PLAN
The Corporation's Amended and Restated 1995 Stock Plan (the "Stock Plan")
was adopted by the Board of Directors on April 11, 1995 and approved by the
stockholders of the Corporation on April 19, 1995. On March 6, 1997, the Board
of Directors approved an amendment to the Stock Plan (the "Amendment")
increasing the number of shares reserved for issuance thereunder by 900,000
shares, for a total of 2,469,019 shares available for issuance thereunder,
subject to stockholder approval of the Amendment. At the Annual Meeting, the
stockholders are being requested to consider and approve the Amendment.
The Board of Directors believes that the Corporation's ability to continue
to attract and retain qualified employment candidates is in large part
dependent upon the Corporation's ability to provide such employment candidates
long-term, equity-based incentives in the form of stock options as part of
their compensation. As of April 15, 1997, 193,139 shares remained available
for issuance under the Stock Plan. The Board of Directors believes that the
remaining shares available for issuance under the Stock Plan are insufficient
for such purposes.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR AMENDMENT OF THE
STOCK PLAN
16
<PAGE>
ITEM NO. 3:
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors, upon the recommendation of the Audit Committee, has
selected the firm of KPMG Peat Marwick LLP, independent certified public
accountants, to serve as auditors for the fiscal year ending December 31,
1997. KPMG Peat Marwick LLP has served as the Corporation's auditors since
fiscal 1993. It is expected that a member of KPMG Peat Marwick LLP will be
present at the Annual Meeting with the opportunity to make a statement if so
desired and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF KPMG
PEAT MARWICK LLP AS AUDITORS
VOTING PROCEDURES
The presence, in person or by proxy, of at least a majority of the
outstanding shares of Common Stock entitled to vote at the meeting is
necessary to constitute a quorum for the transaction of business. Votes
withheld from any nominee, abstentions and broker "non-votes" are counted as
present or represented for purposes of determining the presence or absence of
a quorum for the meeting. A "non-vote" occurs when a broker or other nominee
holding shares for a beneficial owner votes on one proposal, but does not vote
on another proposal because, in respect of such other proposal, the broker or
other nominee does not have discretionary voting power and has not received
instructions from the beneficial owner. In the election of directors, the
nominee receiving the highest number of affirmative votes of the shares
present or represented and entitled to vote at the meeting shall be elected as
director. On all other matters being submitted to stockholders of this
meeting, the affirmative vote of a majority of the shares present, in person
or represented by proxy, and voting on that matter is required for approval.
An automated system administered by the Corporation's transfer agent tabulates
the votes. The vote on each matter submitted to stockholders is tabulated
separately. Shares voted to abstain, since they are not affirmative votes for
this matter, will have the same affect as votes against the matter. Shares
subject to broker "non-votes" are not considered to have been voted for the
particular matter and have the practical effect of reducing the number of
affirmative votes required to achieve a majority for such matter by reducing
the total number of shares from which the majority is calculated.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the proxy statement to
be furnished to all stockholders entitled to vote at the next annual meeting
of stockholders of the Corporation must be received at the Corporation's
principal executive offices not later than December 23, 1997. In order to
curtail controversy as to the date on which a proposal was received by the
Corporation, it is suggested that proponents submit their proposals by
Certified Mail, Return Receipt Requested.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Corporation, and in
addition to soliciting stockholders by mail through its regular employees, the
Corporation may request banks, brokers and other custodians, nominees and
fiduciaries to solicit their customers who have stock of the Corporation
registered in the names of a nominee and, if so, will reimburse such banks,
brokers and other custodians, nominees and fiduciaries for their reasonable
out-of-pocket costs. Solicitation by officers and employees of the Corporation
may also be made of some stockholders in person or by mail, telephone or
telegraph following the original solicitation.
17
<PAGE>
TRANSWITCH CORPORATION
SECOND AMENDED AND RESTATED
1995 STOCK PLAN
---------------
1. PURPOSE. The purpose of the TranSwitch Corporation 1995 Stock Plan
-------
(the "Plan") is to encourage key employees of TranSwitch Corporation (the
"Company") and of any present or future parent or subsidiary of the Company
(collectively, "Related Corporations") and other individuals who render services
to the Company or a Related Corporation, by providing opportunities to
participate in the ownership of the Company and its future growth through (a)
the grant of options which qualify as "incentive stock options" ("ISOs") under
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code");
(b) the grant of options which do not qualify as ISOs ("Non-Qualified Options");
(c) awards of stock in the Company ("Awards"); and (d) opportunities to make
direct purchases of stock in the Company ("Purchases"). Both ISOs and Non-
Qualified Options are referred to hereafter individually as an "Option" and
collectively as "Options." Options, Awards and authorizations to make Purchases
are referred to hereafter collectively as "Stock Rights." As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation," respectively, as those terms are defined in Section 424 of the
Code.
2. ADMINISTRATION OF THE PLAN.
---------------------------
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be
---------------------------------
administered by the Board of Directors of the Company (the "Board") or by a
committee appointed by the Board (the "Committee"); provided that the Plan shall
be administered: (i) to the extent required by applicable regulations under
Section 162(m) of the Code, by two or more "outside directors" (as defined in
applicable regulations thereunder) and (ii) to the extent required by Rule 16b-3
promulgated under the Securities Exchange Act of 1934 or any successor provision
("Rule 16b-3"), by a disinterested administrator or administrators within the
meaning of Rule 16b-3. Hereinafter, all references in this Plan to the
"Committee" shall mean the Board if no Committee has been appointed. Subject to
ratification of the grant or authorization of each Stock Right by the Board (if
so required by applicable state law), and subject to the terms of the Plan, the
Committee shall have the authority to (i) determine to whom (from among the
class of employees eligible under paragraph 3 to receive ISOs) ISOs shall be
granted, and to whom (from among the class of individuals and entities eligible
under paragraph 3 to receive Non-Qualified Options and Awards and to make
Purchases) Non-Qualified Options, Awards and authorizations to make Purchases
may be granted; (ii) determine the time or times at which Options or Awards
shall be granted or Purchases made; (iii) determine the purchase price of shares
subject to each Option or Purchase, which prices shall not be less than the
minimum price specified in paragraph 6; (iv) determine whether each Option
granted shall be an ISO or a Non-Qualified Option; (v) determine (subject to
paragraph 7) the time or times when each Option shall become exercisable and the
duration of the exercise period; (vi) extend the period during which outstanding
Options may be exercised; (vii) determine whether restrictions such as
repurchase options are to be imposed on shares subject to Options, Awards and
Purchases and the nature of such restrictions, if any, and (viii) interpret the
Plan and prescribe and rescind rules and regulations relating to it. If the
Committee determines to issue a Non-Qualified Option, it shall take whatever
actions it deems necessary, under Section 422 of the Code and the regulations
promulgated thereunder, to ensure that such Option is not treated as an ISO. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Stock Right
<PAGE>
-2-
granted under it shall be final unless otherwise determined by the Board. The
Committee may from time to time adopt such rules and regulations for carrying
out the Plan as it may deem advisable. No member of the Board or the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any Stock Right granted under it.
B. COMMITTEE ACTIONS. The Committee may select one of its members
-----------------
as its chairman, and shall hold meetings at such time and places as it may
determine. A majority of the Committee shall constitute a quorum and acts of a
majority of the members of the Committee at a meeting at which a quorum is
present, or acts reduced to or approved in writing by all the members of the
Committee (if consistent with applicable state law), shall be the valid acts of
the Committee. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan.
C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Subject to the
--------------------------------------
provisions of the first sentence of paragraph 2(A) above, if applicable, Stock
Rights may be granted to members of the Board. All grants of Stock Rights to
members of the Board shall in all other respects be made in accordance with the
provisions of this Plan applicable to other eligible persons. Consistent with
the provisions of the first sentence of Paragraph 2(A) above, members of the
Board who either (i) are eligible to receive grants of Stock Rights pursuant to
the Plan or (ii) have been granted Stock Rights may vote on any matters
affecting the administration of the Plan or the grant of any Stock Rights
pursuant to the Plan, except that no such member shall act upon the granting to
himself or herself of Stock Rights, but any such member may be counted in
determining the existence of a quorum at any meeting of the Board during which
action is taken with respect to the granting to such member of Stock Rights.
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted only to employees
-----------------------------
of the Company or any Related Corporation. Non-Qualified Options, Awards and
authorizations to make Purchases may be granted to any employee, officer or
director (whether or not also an employee) or consultant of the Company or any
Related Corporation. The Committee may take into consideration a recipient's
individual circumstances in determining whether to grant a Stock Right. The
granting of any Stock Right to any individual or entity shall neither entitle
that individual or entity to, nor disqualify such individual or entity from,
participation in any other grant of Stock Rights.
4. STOCK. The stock subject to Stock Rights shall be authorized but
-----
unissued shares of Common Stock of the Company, par value $.001 per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company in any
manner. The aggregate number of shares which may be issued pursuant to the Plan
is 2,469,019, subject to adjustment as provided in paragraph 13. If any Stock
Right granted under the Plan shall expire or terminate for any reason without
having been exercised in full or shall cease for any reason to be exercisable in
whole or in part or shall be repurchased by the Company, the shares of Common
Stock subject to such Stock Right shall again be available for grants of Stock
Rights under the Plan.
No employee of the Company or any Related Corporation may be granted
Options to acquire, in the aggregate, more than 400,000 of shares of Common
Stock under the Plan. If any Option granted under the Plan shall expire or
terminate for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part or shall be repurchased by
the Company, the shares subject to such Option shall be included in the
determination of the aggregate number of shares of Common Stock deemed to have
been granted to such employee under the Plan.
<PAGE>
-3-
5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan
------------------------
at any time on or after April 11, 1995 and prior to April 11, 2005. The date of
grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant. Options granted under the Plan are intended to qualify as performance-
based compensation to the extent required under Proposed Treasury Regulation
Section 1.162-27.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
-------------------------------------
A. PRICE FOR NON-QUALIFIED OPTIONS, AWARDS AND PURCHASES. The
-----------------------------------------------------
exercise price per share specified in the agreement relating to each Non-
Qualified Option granted, and the purchase price per share of stock granted in
any Award or authorized as a Purchase, under the Plan shall in no event be less
than the minimum legal consideration required therefor under the laws of any
jurisdiction in which the Company or its successors in interest may be
organized. Non-Qualified Options granted under the Plan, with an exercise price
less than the fair market value per share of Common Stock on the date of grant,
and Awards and Purchases under the Plan with a purchase price per share less
than the fair market value per share of Common Stock on the date of grant or
authorization, as applicable, are intended to qualify as performance-based
compensation under Section 162(m) of the Code and any applicable regulations
thereunder. Any such Non-Qualified Options granted under the Plan or Awards made
or Purchases authorized under the Plan shall be exercisable or issued, as the
case may be, only upon the attainment of a pre-established, objective
performance goal established by the Committee. If the Committee grants Non-
Qualified Options with an exercise price less than the fair market value per
share of Common Stock on the date of grant, or makes Awards or authorizes
Purchases under the Plan with a purchase price per share less than the fair
market value per share of Common Stock on the date of grant or authorization, as
applicable, such grant or authorization will be submitted for, and will be
contingent upon, shareholder approval.
B. PRICE FOR ISOS. The exercise price per share specified in the
--------------
agreement relating to each ISO granted under the Plan shall not be less than the
fair market value per share of Common Stock on the date of such grant. In the
case of an ISO to be granted to an employee owning stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or any Related Corporation, the price per share specified in the
agreement relating to such ISO shall not be less than one hundred ten percent
(110%) of the fair market value per share of Common Stock on the date of grant.
For purposes of determining stock ownership under this paragraph, the rules of
Section 424(d) of the Code shall apply.
C. $100,000 ANNUAL LIMITATION ON ISO VESTING. Each eligible
-----------------------------------------
employee may be granted Options treated as ISOs only to the extent that, in the
aggregate under this Plan and all incentive stock option plans of the Company
and any Related Corporation, ISOs do not become exercisable for the first time
by such employee during any calendar year with respect to stock having a fair
market value (determined at the time the ISOs were granted) in excess of
$100,000. The Company intends to designate any Options granted in excess of such
limitation as Non-Qualified Options.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an Option is
----------------------------------
granted under the Plan, the Company's Common Stock is publicly traded, "fair
market value" shall be determined as of the date of grant or, if the prices or
quotes discussed in this sentence are unavailable for such date, the last
business day for which such prices or quotes are available prior to the date of
grant and shall mean (i) the average (on that date) of the high and low prices
of the Common Stock on the principal
<PAGE>
-4-
national securities exchange on which the Common Stock is traded, if the Common
Stock is then traded on a national securities exchange; or (ii) the last
reported sale price (on that date) of the Common Stock on the Nasdaq National
Market, if the Common Stock is not then traded on a national securities
exchange; or (iii) the closing bid price (or average of bid prices) last quoted
(on that date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the Nasdaq National Market.
If the Common Stock is not publicly traded at the time an Option is granted
under the Plan, "fair market value" shall mean the fair value of the Common
Stock as determined by the Committee after taking into consideration all factors
which it deems appropriate, including, without limitation, recent sale and offer
prices of the Common Stock in private transactions negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
---------------
paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years from the date of grant in the case of Options generally and (ii) five
years from the date of grant in the case of ISOs granted to an employee owning
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, as determined
under paragraph 6(B). Subject to earlier termination as provided in paragraphs
9 and 10, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a Non-Qualified Option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9 through
------------------
12, each Option granted under the Plan shall be exercisable as follows:
A. VESTING. The Option shall either be fully exercisable on the
-------
date of grant or shall become exercisable thereafter in such installments as the
Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
----------------------------
exercisable it shall remain exercisable until expiration or termination of the
Option, unless otherwise specified by the Committee.
C. PARTIAL EXERCISE. Each Option or installment may be exercised
----------------
at any time or from time to time, in whole or in part, for up to the total
number of shares with respect to which it is then exercisable.
D. ACCELERATION OF VESTING. The Committee shall have the right to
-----------------------
accelerate the date that any installment of any Option becomes exercisable;
provided that the Committee shall not, without the consent of an optionee,
accelerate the permitted exercise date of any installment of any Option granted
to any employee as an ISO (and not previously converted into a Non-Qualified
Option pursuant to paragraph 16) if such acceleration would violate the annual
vesting limitation contained in Section 422(d) of the Code, as described in
paragraph 6(C).
9. TERMINATION OF EMPLOYMENT. Unless otherwise specified in the
-------------------------
agreement relating to such ISO, if an ISO optionee ceases to be employed by the
Company and all Related Corporations other than by reason of death or disability
as defined in paragraph 10, no further installments of his or her ISOs shall
become exercisable, and his or her ISOs shall terminate on the earlier of (a)
ninety (90) days after the date of termination of his or her employment, or (b)
their specified expiration dates, except to the extent that such ISOs (or
unexercised installments thereof) have been converted into Non-Qualified Options
pursuant to paragraph 16. For purposes of this paragraph 9, employment shall be
considered as
<PAGE>
-5-
continuing uninterrupted during any bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service) provided
that the period of such leave does not exceed 90 days or, if longer, any period
during which such optionee's right to reemployment is guaranteed by statute. A
bona fide leave of absence with the written approval of the Committee shall not
be considered an interruption of employment under this paragraph 9, provided
that such written approval contractually obligates the Company or any Related
Corporation to continue the employment of the optionee after the approved period
of absence. ISOs granted under the Plan shall not be affected by any change of
employment within or among the Company and Related Corporations, so long as the
optionee continues to be an employee of the Company or any Related Corporation.
Nothing in the Plan shall be deemed to give any grantee of any Stock Right the
right to be retained in employment or other service by the Company or any
Related Corporation for any period of time.
10. DEATH; DISABILITY.
-----------------
A. DEATH. If an ISO optionee ceases to be employed by the Company
-----
and all Related Corporations by reason of his or her death, any ISO owned by
such optionee may be exercised, to the extent otherwise exercisable on the date
of death, by the estate, personal representative or beneficiary who has acquired
the ISO by will or by the laws of descent and distribution, until the earlier of
(i) the specified expiration date of the ISO or (ii) 180 days from the date of
the optionee's death.
B. DISABILITY. If an ISO optionee ceases to be employed by the
----------
Company and all Related Corporations by reason of his or her disability, such
optionee shall have the right to exercise any ISO held by him or her on the date
of termination of employment, for the number of shares for which he or she could
have exercised it on that date, until the earlier of (i) the specified
expiration date of the ISO or (ii) 180 days from the date of the termination of
the optionee's employment. For the purposes of the Plan, the term "disability"
shall mean "permanent and total disability" as defined in Section 22(e)(3) of
the Code or any successor statute.
11. ASSIGNABILITY. No Stock Right shall be assignable or transferable by
-------------
the grantee except by will, by the laws of descent and distribution or, in the
case of Non-Qualified Options only, pursuant to a valid domestic relations
order. Except as set forth in the previous sentence, during the lifetime of a
grantee each Stock Right shall be exercisable only by such grantee.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
-------------------------------
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. The Committee may specify that any Non-
Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination and cancellation provisions as the
Committee may determine. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one or more officers
of the Company to execute and deliver such instruments. The proper officers of
the Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
-----------
optionee's rights with respect to Options granted to such optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
<PAGE>
-6-
A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock
--------------------------------
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of Options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
B. CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated
-------------------------
with or acquired by another entity in a merger, sale of all or substantially all
of the Company's assets or otherwise (an "Acquisition"), the Committee or the
board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to outstanding Options, either (i)
make appropriate provision for the continuation of such Options by substituting
on an equitable basis for the shares then subject to such Options either (a) the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition, (b) shares of stock of the surviving
corporation or (c) such other securities as the Successor Board deems
appropriate, the fair market value of which shall not materially exceed the fair
market value of the shares of Common Stock subject to such Options immediately
preceding the Acquisition; or (ii) upon written notice to the optionees, provide
that all Options must be exercised, to the extent then exercisable, within a
specified number of days of the date of such notice, at the end of which period
the Options shall terminate; or (iii) terminate all Options in exchange for a
cash payment equal to the excess of the fair market value of the shares subject
to such Options (to the extent then exercisable) over the exercise price
thereof.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a
----------------------------------
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding shares of
Common Stock, an optionee upon exercising an Option shall be entitled to receive
for the purchase price paid upon such exercise the securities he or she would
have received if he or she had exercised such Option prior to such
recapitalization or reorganization.
D. MODIFICATION OF ISOS. Notwithstanding the foregoing, any
--------------------
adjustments made pursuant to subparagraphs A, B or C with respect to ISOs shall
be made only after the Committee, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424 of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs or would cause adverse tax consequences to the
holders, it may refrain from making such adjustments.
E. DISSOLUTION OR LIQUIDATION. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such other
time and subject to such other conditions as shall be determined by the
Committee.
F. ISSUANCES OF SECURITIES. Except as expressly provided herein, no
-----------------------
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to Options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.
<PAGE>
-7-
G. FRACTIONAL SHARES. No fractional shares shall be issued under
-----------------
the Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.
H. ADJUSTMENTS. Upon the happening of any of the events described
-----------
in subparagraphs A, B or C above, the class and aggregate number of shares set
forth in paragraph 4 hereof that are subject to Stock Rights which previously
have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine the specific adjustments to
be made under this paragraph 13 and, subject to paragraph 2, its determination
shall be conclusive.
14. MEANS OF EXERCISING OPTIONS. An Option (or any part or installment
---------------------------
thereof) shall be exercised by giving written notice to the Company at its
principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify
the number of shares as to which such Option is being exercised, accompanied by
full payment of the purchase price therefor either (a) in United States dollars
in cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) at the discretion of the
Committee, by delivery of the grantee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, (d) at the discretion
of the Committee and consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise, or (e) at the
discretion of the Committee, by any combination of (a), (b), (c) and (d) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (b), (c), (d) or
(e) of the preceding sentence, such discretion shall be exercised in writing at
the time of the grant of the ISO in question. The holder of an Option shall not
have the rights of a shareholder with respect to the shares covered by such
Option until the date of issuance of a stock certificate to such holder for such
shares. Except as expressly provided above in paragraph 13 with respect to
changes in capitalization and stock dividends, no adjustment shall be made for
dividends or similar rights for which the record date is before the date such
stock certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on
--------------------------
April 11, 1995, subject, with respect to the validation of ISOs granted under
the Plan, to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written consent. If the
approval of stockholders is not obtained prior to April 11, 1996, any grants of
ISOs under the Plan made prior to that date will be rescinded. The Plan shall
expire at the end of the day on April 10, 2005 (except as to Options outstanding
on that date). Subject to the provisions of paragraph 5 above, Options may be
granted under the Plan prior to the date of stockholder approval of the Plan.
The Board may terminate or amend the Plan in any respect at any time, except
that, without the approval of the stockholders obtained within 12 months before
or after the Board adopts a resolution authorizing any of the following actions:
(a) the total number of shares that may be issued under the Plan may not be
increased (except by adjustment pursuant to paragraph 13); (b) the benefits
accruing to participants under the Plan may not be materially increased; (c) the
requirements as to eligibility for participation in the Plan may not be
materially modified; (d) the provisions of paragraph 3 regarding eligibility for
grants of ISOs may not be modified; (e) the provisions of paragraph 6(B)
regarding the exercise price at which shares may be offered pursuant to ISOs may
not be modified (except by adjustment pursuant to paragraph 13); (f) the
expiration date of the Plan may not be extended; and (g) the Board may not take
any action which would cause the Plan to fail to comply with Rule 16b-3. Except
as otherwise provided
<PAGE>
-8-
in this paragraph 15, in no event may action of the Board or stockholders alter
or impair the rights of a grantee, without such grantee's consent, under any
Option previously granted to such grantee.
16. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS. The Committee, at the
---------------------------------------------
written request or with the written consent of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's ISOs
(or any installments or portions of installments thereof) that have not been
exercised on the date of conversion into Non-Qualified Options at any time prior
to the expiration of such ISOs, regardless of whether the optionee is an
employee of the Company or a Related Corporation at the time of such conversion.
Such actions may include, but shall not be limited to, extending the exercise
period or reducing the exercise price of the appropriate installments of such
ISOs. At the time of such conversion, the Committee (with the consent of the
optionee) may impose such conditions on the exercise of the resulting Non-
Qualified Options as the Committee in its discretion may determine, provided
that such conditions shall not be inconsistent with this Plan. Nothing in the
Plan shall be deemed to give any optionee the right to have such optionee's ISOs
converted into Non-Qualified Options, and no such conversion shall occur until
and unless the Committee takes appropriate action.
17. APPLICATION OF FUNDS. The proceeds received by the Company from the
--------------------
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By accepting an ISO
----------------------------------------------
granted under the Plan, each optionee agrees to notify the Company in writing
immediately after such optionee makes a Disqualifying Disposition (as described
in Sections 421, 422 and 424 of the Code and regulations thereunder) of any
stock acquired pursuant to the exercise of ISOs granted under the Plan. A
Disqualifying Disposition is generally any disposition occurring on or before
the later of (a) the date two years following the date the ISO was granted or
(b) the date one year following the date the ISO was exercised.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a Non-
--------------------------------------
Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 18), the vesting or transfer of restricted
stock or securities acquired on the exercise of an Option hereunder, or the
making of a distribution or other payment with respect to such stock or
securities, the Company may withhold taxes in respect of amounts that constitute
compensation includable in gross income. The Committee in its discretion may
condition (i) the exercise of an Option, (ii) the grant of an Award, (iii) the
making of a Purchase of Common Stock for less than its fair market value, or
(iv) the vesting or transferability of restricted stock or securities acquired
by exercising an Option, on the grantee's making satisfactory arrangement for
such withholding. Such arrangement may include payment by the grantee in cash
or by check of the amount of the withholding taxes or, at the discretion of the
Committee, by the grantee's delivery of previously held shares of Common Stock
or the withholding from the shares of Common Stock otherwise deliverable upon
exercise of a Option shares having an aggregate fair market value equal to the
amount of such withholding taxes.
20. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver
-----------------------
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
<PAGE>
-9-
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
send tax information statements to employees and former employees that exercise
ISOs under the Plan, and the Company may be required to file tax information
returns reporting the income received by grantees of Options in connection with
the Plan.
21. GOVERNING LAW. The validity and construction of the Plan and the
-------------
instruments evidencing Options shall be governed by the laws of the State of
Delaware, or the laws of any jurisdiction in which the Company or its successors
in interest may be organized.
Date Approved by the Board of Directors of the Company: April 11, 1995
Date Approved by Stockholders of the Company: April 19, 1995
Amended and restated by the Board of Directors of the Company: January 25, 1996.
Amended and restated by the Board of Directors of the Company: March 6, 1997.
<PAGE>
PROXY
TRANSWITCH CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 29, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
TRANSWITCH CORPORATION
The undersigned, revoking all prior proxies, hereby appoints Dr. Santanu
Das and Michael F. Stauff, and each of them alone, proxies, with full power of
substitution, to vote all shares of Common Stock of TranSwitch corporation (the
"Corporation") which the undersigned is entitled to vote at the Annual Meeting
of Stockholders of the Corporation, to be held on Thursday, May 29, 1997, at
10:00 a.m., Connecticut time, at the Ramada Plaza Hotel, 780 Bridgeport Avenue,
Shelton, Connecticut 06484, and at any adjournments thereof, upon the matters
set forth in the Notice of Annual Meeting of Stockholders and related Proxy
Statement dated April 24, 1997, a copy of which has been received by the
undersigned, AND IN THEIR DISCRETION UPON ANY OTHER BUSINESS THAT MAY PROPERLY
COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF. Attendance of the
undersigned at the meeting or at any adjourned session thereof will not be
deemed to revoke this proxy unless the undersigned shall affirmatively indicate
thereat the intention of the undersigned to vote said shares in person.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE.
Please sign exactly as your name(s) appear(s) on the books of
the Corporation. If signing as attorney, executor, trustee
or guardian, please give your full title as such. If stock
is held jointly, each owner should sign.
Has your address changed? Do you have any comments?
_________________________ __________________________
_________________________ __________________________
_________________________ __________________________
(OVER)
<PAGE>
[X] PLEASE MARK
VOTES AS IN THIS
EXAMPLE.
- --------------------------------------------------------------------------------
TRANSWITCH CORPORATION
- --------------------------------------------------------------------------------
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE
PROPOSALS IN ITEMS, 2 AND 3, AND DISCRETIONARY AUTHORITY WILL BE DEEMED GRANTED
UNDER ITEM 4.
Mark box at right if an address change or comment has been noted on the
reverse side of this card. [_]
RECORD DATE SHARES:
-----------------------------
Please be sure to sign and date this Proxy. | Date |
- --------------------------------------------------------------------------------
| |
- ---- Stockholder sign here ------------------- Co-owner sign here---------------
1. To elect a Board of Directors for the ensuing year.
Dr. Santanu Das With- For All
Dr. Steward S. Flaschen For hold Except
Dr. Charles Lee
Dr. Ljubomir Micic [_] [_] [_]
Dr. Albert E. Paladino
INSTRUCTIONS: To withhold auhority to vote for any individual nominee, mark the
"For All Except" box and write that nominee's name in the space provided below:
- --------------------------------------------------------------------------------
For Against Abstain
2. To approve an amendment to the Corporation's
Amended and Restated 1995 Stock Plan to [_] [_] [_]
increase the number of shares of Common Stock,
par value $.001 per share, of the Corporation
authorized to be issued thereunder by an
additional 900,000 shares, for a total of
2,469,019 shares.
For Against Abstain
3. To ratify the selection of the firm of KPMG Peat
Marwick LLP as independent auditors of the [_] [_] [_]
corporation for the fiscal year ending
December 31, 1997.
4. To transact such other business as may properly come before the meeting.
Please sign exactly as your name(s) appear(s) on the books of the
Corporation. If signing as attorney, executor, trustee or guardian, please
give your full title as such. If stock is held jointly, each owner should
sign.
DETACH CARD DETACH CARD
