<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
for the quarterly period ended September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
for the transition period from to
----------- -----------
Commission File Number 0-25996
TRANSWITCH CORPORATION
(Exact name of Registrant as Specified in its Charter)
Delaware 06-1236189
(State of Incorporation) (I.R.S. Employer
Identification Number)
8 Progress Drive
Shelton, Connecticut 06484
(Address of Principal Executive Offices)
Telephone (203) 929-8810
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Common stock, par value $.001 per share, outstanding at October 31, 1997:
12,286,394 shares.
Page 1 of 13
<PAGE>
TranSwitch Corporation
INDEX
For the quarter ended September 30, 1997
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the Three and
Nine Months Ended September 30, 1997 and 1996 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
Page 2 of 13
<PAGE>
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
TranSwitch Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(in thousands, except share data) September 30, December 31,
Assets 1997 1996
------ ---- ----
Current assets: (unaudited)
<S> <C> <C>
Cash and cash equivalents $ 6,334 $ 3,911
Short term investments 2,999 8,777
Accounts receivable, net 4,154 2,893
Inventories, net 5,035 3,524
Prepaid expenses and other current assets 789 305
-------- --------
Total current assets 19,311 19,410
Property and equipment, net 3,240 2,647
Product licenses, net 1,120 1,254
-------- --------
Total Assets $ 23,671 $ 23,311
============ ======== ========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 3,030 $ 1,805
Accrued liabilities 3,249 2,110
Product license fee payable, current portion 1,117 845
-------- --------
Total current liabilities 7,396 4,760
Product license fee payable, less current portion 561 1,252
Stockholders' equity:
Common Stock, $.001 par value; authorized 25,000,000 shares;
issued and outstanding; 11,912,486 shares at December 31, 1996,
and 12,214,756 shares at September 30, 1997 12 12
Additional paid in capital 46,096 45,375
Accumulated deficit (30,394) (28,088)
-------- --------
Total stockholders' equity 15,714 17,299
-------- --------
Total Liabilities and Stockholders' Equity $ 23,671 $ 23,311
========================================== ======== ========
</TABLE>
See accompanying notes.
Page 3 of 13
<PAGE>
TranSwitch Corporation
Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 7,438 $ 2,615 $ 18,750 $ 15,460
Cost of Revenues 2,828 2,071 8,005 7,712
-------- -------- -------- --------
Gross Profit 4,610 544 10,745 7,748
Operating Expenses:
Research and development 2,227 2,251 6,841 6,334
Marketing and sales 1,796 1,433 4,970 3,907
General and administrative 523 506 1,608 1,420
-------- -------- -------- --------
Total Operating Expenses 4,546 4,190 13,419 11,661
-------- -------- -------- --------
Operating Income (Loss) 64 (3,646) (2,674) (3,913)
Interest Income, net 114 166 368 588
-------- -------- -------- --------
Net Income (Loss) $ 178 $ (3,480) $ (2,306) $ (3,325)
======== ======== ======== ========
Net Income (Loss) per Common Share $ 0.01 $ (0.29) $ (0.19) $ (0.28)
======== ======== ======== ========
Weighted Average Number of Common Shares
Outstanding and Equivalents 12,867 11,820 12,103 11,705
======== ======== ======== ========
</TABLE>
See accompanying notes.
Page 4 of 13
<PAGE>
TranSwitch Corporation
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,306) $ (3,325)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 1,019 837
Stock compensation expense 248 117
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (1,261) 2,433
(Increase) decrease in prepaids and other current assets (484) 133
(Increase) in inventories (1,511) (1,365)
Increase in accounts payable 1,225 107
Increase in accrued liabilities 1,411 45
--------- --------
Total adjustments 647 2,307
--------- --------
Net cash (used in) operating activities (1,659) (1,018)
Cash flows from Investing activities:
Capital expenditures and cost of product licenses (1,478) (2,230)
Purchase of short term investments (7,505) (17,233)
Proceeds from sale of short term investments 13,283 13,269
--------- --------
Net cash provided by (used in) investing activities 4,300 (6,194)
Cash flows from financing activities:
Proceeds from the exercise of stock options and warrants 473 228
Repayment of long term liabilities (691) -
--------- --------
Net cash (used in) provided by financing activities (218) 228
Increase (decrease) in cash and cash equivalents 2,423 (6,984)
--------- --------
Cash and cash equivalents at beginning of period 3,911 13,630
Cash and cash equivalents at end of period $ 6,334 $ 6,646
--------- --------
Supplemental disclosure of cash flows information:
Cash paid for interest $ 5 $ 107
</TABLE>
See accompanying notes.
Page 5 of 13
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the third quarter ended September 30, 1997
Note 1. Interim Financial Statements
- -------------------------------------
The accompanying unaudited interim financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission for reporting on Form 10-Q. Accordingly, certain information and
footnotes required by generally accepted accounting principles for complete
financial statements are not included herein. The financial statements are
prepared on a consistent basis with and should be read in conjunction with the
statements and notes thereto contained in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996 filed with the Securities and
Exchange Commission on March 25, 1997.
In the opinion of management, these statements include all adjustments,
consisting of normal, recurring adjustments, which are necessary for a fair
presentation for such periods. The results of operations for any interim period
are not necessarily indicative of the results which may be achieved for the
entire fiscal year ending December 31, 1997.
Note 2. Inventories
- --------------------
Inventories are carried at the lower of cost (on a first in, first out
basis) or estimated net realizable value. Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Raw Materials $ 901,069 $ 600,035
Work in Process 2,026,201 1,500,306
Finished Goods 2,107,346 1,423,514
-------------- --------------
Total Inventories $ 5,034,616 $ 3,523,855
================= ============== ==============
</TABLE>
Page 6 of 13
<PAGE>
Note 3. Consolidated Statement of Stockholders' Equity
- -------------------------------------------------------
(in thousands, except share data)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 11,912,486 $12 $45,375 ($28,088) $17,299
Shares of common stock issued upon exercise of
stock options 142,320 - 97 - 97
Exercise of warrants 100 - - - -
Compensation related to issuance of stock options - - 86 - 86
Net loss - - - (1,592) (1,592)
----------- ---- ------- -------- -------
Balance at March 31, 1997 12,054,906 $12 $45,558 ($29,680) $15,890
Shares of common stock issued upon exercise
of stock options 61,755 - 93 - 93
Compensation related to issuance of stock options - - 80 - 80
Net loss - - - ( 892) (892)
----------- ---- ------- -------- -------
Balance at June 30, 1997 12,116,661 $12 $45,731 ($30,572) $15,171
Shares of common stock issued upon exercise of
stock options 90,147 - 275 - 275
Exercise of warrants 7,948 - 8 - 8
Compensation related to issuance of stock options - - 82 - 82
Net income - - - 178 178
----------- ---- ------- -------- -------
Balance at September 30, 1997 12,214,756 $12 $46,096 ($30,394) $15,714
- ----------------------------- =========== ==== ======= ======== =======
</TABLE>
Note 4. Subsequent Event
- ------------------------
Subsequent to the end of the quarter, on October 10, 1997 the Company
completed the private placement of $14.5 million in Convertible Preferred Stock.
Under the terms of the private placement the investors purchased 14,500 shares
of Series A Convertible Preferred Stock, par value $.01 per share, at an
original issue price of $1,000.00 per share, for a stated value of $14.5
million. The shares are convertible into the Company's Common Stock at a price
equal to the lower of $10.58 or 90% of the 10-day average closing bid price as
reported on the Nasdaq National Market prior to the date of conversion. No
dividends are payable on the Preferred Stock. The Company will file with the
Securities and Exchange Commission a registration statement covering the
underlying Common Stock into which the Preferred Stock is convertible. There is
mandatory conversion of the Preferred Stock upon the fifth anniversary of the
closing subject to certain conditions.
Page 7 of 13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
General
TranSwitch Corporation, a Delaware corporation ("TranSwitch" or the
"Company") was organized and commenced operations in April 1988. Since its
incorporation, the Company has designed, sourced and marketed highly integrated
digital and mixed-signal semiconductor solutions for the telecommunications and
data communications markets. The Company's customers are the original equipment
manufacturers (OEM's) who serve four communications market segments; worldwide
public network infrastructure, including cable television (CATV), internet
infrastructure, corporate wide area networks (WAN) and local area networks
(LAN). The Company's products are generally incorporated into OEM's products at
the design stage, which often requires significant expenditures by the Company
well in advance of substantial orders from the customer.
The Company believes that period to period comparisons of its financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance. In addition, the Company's results of
operations may fluctuate from period to period in the future.
Three and nine month periods ended September 30, 1997 and 1996
Revenue
The Company derives its revenues principally from product sales. Total
revenues for the quarter ended September 30, 1997 were $7.4 million,
representing an increase of 184% over the $2.6 million recorded in the prior
year comparable period. Total revenues for the nine months ended September 30,
1997 were $18.8 million, an increase of 21% over the $15.5 million for the nine
months ended September 30, 1996. The increased revenue for the nine month period
is primarily attributable to sales of new ATM products that are just being
introduced and strong demand for the SONET product lines.
Gross Profit
Gross profit was $4.6 million for the quarter ended September 30, 1997
compared to $544 thousand in the corresponding period of the prior year. Gross
profit for the nine months ended September 30, 1997 was $10.7 million compared
to $7.7 million for the same period in 1996. The increase in gross profit for
the first nine months of 1997 was primarily the result of higher sales volume in
the period versus the comparable period a year ago. Gross margin was 62.0% for
the quarter ended September 30, 1997 as compared to 20.8% for the quarter ended
September 30, 1996 and for the nine months ended September 30, 1997 was 57.3%
compared to 50.1% for the same period a year ago. The increase in the gross
margin is attributable to the higher level of revenue in
Page 8 of 13
<PAGE>
the comparable periods. Gross margin for the three and nine month periods ended
September 30, 1996 reflects a charge of $660,000 to cost of products sold to
adjust inventory for products where there was a significant drop in demand.
Research and Development
Research and development expenses were 29.9% of total revenues for the
quarter ended September 30, 1997 as compared to 86.0% of total revenues for the
quarter ended September 30, 1996; total spending for the two periods was
relatively constant at $2.2 million. In the nine month period ended September
30, 1997 research and development expenses were 36.5% of revenues as compared to
41.0% for the same period a year ago; spending in the nine months ended
September 30, 1997 was $6.8 million, an 8% increase over the $6.3 million for
the comparable period a year ago. The dollar increase for the comparable nine
month period was the result of the Company's continued investment in research
and development activities. The decrease as a percentage of total revenue in the
periods is primarily attributed to the higher revenue level in the comparable
periods.
Marketing and Sales
Marketing and sales expenses were 24.1% of total revenues for the
quarter ended September 30, 1997 compared to 54.8% for the quarter ended
September 30, 1996. The marketing and sales expenses increased 25.3% to $1.8
million for the quarter ended September 30, 1997 compared to $1.4 million for
the quarter ended September 30, 1996. In the nine month period ended September
30, 1997 marketing and sales expenses were 26.5% of total revenues compared to
25.3% for the same period in 1996. Total spending increased 27.2% to $5.0
million for the nine month period in 1997 as compared to $3.9 million spent in
the same period in 1996. The dollar increase in spending was the result of the
increase in marketing and sales personnel and expansion of the Company's
distribution network as part of the Company's continued investment in its
marketing and sales infrastructure. The decrease as a percentage of total
revenue in the quarter as compared to the prior period is primarily attributable
to the increase in the revenue level in the quarter.
General and Administrative
General and administrative expenses for the quarter ended September 30,
1997 increased to $523,000 from $506,000 for the same quarter in the prior year,
and as a percentage of total revenues decreased to 7.0% for the quarter ended
September 30, 1997 compared to 19.3% for the quarter ended September 30, 1996.
The total spending for the nine month period ended September 30, 1997 increased
13.2% to $1.6 million from the $1.4 million spent for the same period a year ago
and as a percentage of total revenues decreased to 8.6% for the nine months
ended September 30, 1997 as compared to the 9.2% for the comparable period a
year ago. The dollar increase in expense was the result of the Company's
continued investment in the general and administrative area. The decrease as a
percentage of total revenue in the quarter is primarily attributed to the
increase in revenue levels in the comparable periods.
Page 9 of 13
<PAGE>
Interest Income, net
Interest income, net of interest expense, was $114,000 in the quarter
ended September 30, 1997 compared to $166,000 in the corresponding period in
1996 and for the nine month period was $368,000 in 1997 as compared to $588,000
in the same period in 1996. The decline in interest income is primarily the
result of the reduction in cash and short term investments between the two
periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and met its capital
requirements since it was incorporated in 1988 and through 1995 primarily
through private placements of preferred stock, borrowings from a working capital
line and equipment financing from Silicon Valley Bank, an initial public
offering of its common stock in June, 1995 and cash generated from its
operations.
In the first nine months of 1997, the Company used $1.7 million of cash
in its operating activities, the result of a net loss of $2.3 million and an
increase in working capital of $0.7 million, offset by non-cash items of $1.3
million. Capital expenditures in this period were $1.5 million, including
purchases of computer equipment, tooling, software acquisitions and product
licenses.
At September 30, 1997 the Company had cash and cash equivalents and
short term investments of approximately $9.3 million. In addition, in the
quarter ended September 30, 1997 the Company executed a new financing
arrangement with Silicon Valley Bank whereby the Company has a total credit
facility of $8 million, consisting of a $2 million line of credit for capital
equipment and a $6 million line of credit for working capital purposes. The
agreement contains certain financial restrictions and covenants which, among
other things, include provisions that define line availability, maintaining a
minimum amount of cash, net worth and profitability. Although the Company
anticipates that its existing cash, cash flow from operations, if any, and its
line of credit are sufficient to satisfy its cash needs for at least 12 months,
the Company believes that its ability to take advantage of business
opportunities and to increase the market penetration of its products, among
other things, would be enhanced by raising additional capital. Therefore, the
Company explores on a regular basis a variety of capital raising opportunities.
There can be no assurance that the Company would be able to secure any
additional financing or that additional financing will be available on favorable
terms. Further, there can be no assurance that events will not occur that would
otherwise require the Company to seek additional financing, and under such
circumstances, no assurances can be given that financing would be available, if
at all, on terms favorable to the Company.
Subsequent to the end of the quarter on October 10, 1997 the Company
completed the private placement of $14.5 million in Convertible Preferred Stock.
Under the terms of the private placement, investors purchased 14,500 shares of
Series A Convertible Preferred Stock, at $1,000.00 per share, for a stated value
of $14.5 million.
Page 10 of 13
<PAGE>
Certain Factors That May Affect Future Results
The Company's quarterly and annual operating results are affected by a
wide variety of factors that could materially adversely affect revenues and
profitability, including: competitive pressures on selling prices; the timing
and cancellation of customers orders; the timing and provision of pricing
protections and returns from certain distributors; availability of foundry
capacity and raw materials; fluctuations in yields; changes in product mix; the
Company's ability to introduce new products and technologies on a timely basis;
introduction of products and technologies by the Company's competitors; market
acceptance of the Company's and its competitors' products; the level of orders
received which can be shipped in a quarter; the amount and timing of recognition
of non-recurring engineering revenue; the timing of investments in research and
development, including tooling expenses associated with product development and
pre-production; and whether the Company's customers buy directly from the
Company or a distributor. Due to the absence of a substantial noncancellable
backlog, the Company typically plans its production and inventory levels based
on internal forecasts of customer demand, which are highly unpredictable and can
fluctuate substantially. Because the Company is continuing to increase its
operating expenses for personnel and new product development and for inventory
in anticipation of future sales levels, operating results would be adversely
affected if increased sales are not achieved. As a result of the foregoing and
other factors, the Company may experience material fluctuations in future
operating results on a quarterly or annual basis which could materially and
adversely affect its business, financial condition, operating results and stock
price.
Page 11 of 13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1, Silicon Valley Bank Loan Document Modification
Agreement
Exhibit 10.2 Amended and Restated Promissory Note, Working
Capital Line
Exhibit 10.3 Amended and Restated Promissory Note, Equipment Line
Exhibit 11, Statement re: computation of per share earnings.
Exhibit 27, Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the third quarter ended
September 30, 1997.
Page 12 of 13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TranSwitch Corporation
(Registrant)
Date: November 6, 1997 /s/ Dr. Santanu Das
----------------------------
Dr. Santanu Das
Chairman of the Board,
President, Chief Executive Officer
(Principal Executive Officer)
/s/ Michael F. Stauff
----------------------------
Michael F. Stauff
Senior Vice President and Chief
Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Page 13 of 13
<PAGE>
EXHIBIT 10.1
LOAN DOCUMENT MODIFICATION AGREEMENT
-------------------------------------
(No. 5., dated as of July 11,. 1997)
------------------------------------
LOAN DOCUMENT MODIFICATION AGREEMENT dated as of July 11, 1997 by and
between TRANSWITCH CORPORATION, a Delaware corporation with its principal place
of business at 8 Progress Drive, Shelton, Connecticut 06484 (tile "Borrower")
--------
and SILICON VALLEY BANK (the "Bank"), a California-chartered bank with its
----
principal place of business at 3003 Tasman Drive, Santa Clara, California 95054,
and with a loan production office located at Wellesley Office Park, 40 William
Street, Wellesley, Massachusetts 02181, doing business under the name "Silicon
Valley East."
1 . Reference to Existing Loan Documents
------------------------------------
Reference is hereby made to that certain Commitment Letter dated as of July
1, 1993 between the Bank and the Borrower, as amended by letter amendments dated
as of September 1, 1994 and March 21, 1995, and as further amended by loan
modification agreements dated as of April 19, 1995, January 5, 1996 and December
31, 1996 (as so amended, and with the attached schedules and exhibits, the
"Commitment Letter") and the Loan Documents referred to therein, including
-----------------
without limitation that certain Amended and Restated Promissory Note of the
Borrower dated December 31, 1996 (the "Working Capital Note") and that certain
--------------------
Promissory Note (Equipment Line of Credit) dated December 31, 1996 (the
"Equipment Line Note"), and the Security Instruments referred to therein.
-------------------
Unless otherwise defined herein, capitalized terms used in this Agreement shall
have the same respective meanings as set forth in the Commitment Letter.
2. Effective Date.
--------------
This Agreement shall become effective as of July 11, 1997 (the "Effective
---------
Date"), provided that the Bank shall have received the following on or before
- ----
July 25, 1997 and provided further, however, in no event shall this Agreement
become effective until signed by an officer of the Bank in California:
(a) two copies of this Agreement, duly executed by the Borrower;
(b) an Amended and Restated Promissory Note (Working Capital
Line of Credit) in the principal amount of $6,000,000 in the form enclosed
herewith (the "Third Amended Working Capital Note"), duly executed by the
----------------------------------
Borrower;
(c) an Amended and Restated Promissory Note (Equipment Line of
Credit) in the principal amount of $2,000,000 in respect of the Equipment Line
Commitment in the form enclosed herewith (the "Amended Equipment Line Note"),
---------------------------
duly executed by the Borrower;
(d) evidence of the approval by your Board of Directors of this
Agreement, the Third Amended Working Capital Note and the Amended Equipment Line
Note; and
<PAGE>
-2-
(e) a check in the amount of $1,875 in payment of the fees of
Sullivan & Worcester LLP, counsel to the Bank in connection with the
transactions contemplated hereby.
By the signature of its authorized officer below, the Borrower is hereby
representing that, except as modified in Schedule 1 attached hereto, the
----------
representations of the Borrower set forth in the Loan Documents (including those
contained in the Commitment Letter, as amended hereby) are true and correct as
of the Effective Date as if made on and as of such date. In addition, the
Borrower confirm its authorization as to the debiting of its account with the
Bank in the aggregate amount of $10,000 in order to pay the Bank's facility fee
for the period up to and including the extended Commitment Expiration Date.
Finally, the Borrower agrees that, as of the Effective Date, it has no defenses
against its obligations to pay any amounts outstanding under the Commitment
Letter and the other Loan Documents.
3. Description of Change in Terms.
------------------------------
As of the Effective Date, the Commitment Letter is modified in the
following respects:
(a) The first sentence of the first unnumbered paragraph of the
Commitment Letter, as heretofore amended, is hereby amended and restated to read
in its entirety as follows:
"Silicon Valley Bank (the 'Bank') is pleased to inform you that it has
approved for TranSwitch Corporation (the 'Borrower'), subject to the terms
set forth in this letter and the attached schedules (collectively referred
to as the 'Commitment Letter'), the following credit facilities: (i) a
working capital line of credit of $6,000,000 (the 'Working Capital
Commitment'); and (ii) an equipment line of credit of $2,000,000 (the
'Equipment Line of Credit Commitment' and, together with the Working
Capital Commitment, the 'Commitments')."
(b) Subparagraphs (a) and (b) of numbered paragraph 1 of the
Commitment Letter, as heretofore amended, are hereby amended and restated to
read in their entirety as follows:
"(a) a promissory note payable to the order of the Bank by the
Borrower in the principal amount of $6,000,000 with respect to the Working
Capital Commitment (as the same may be amended, modified or supplemented
from time to time, the 'Working Capital Note');
"(b) a promissory note payable to the order of the Bank by the
Borrower in the principal amount of $2,000,000 with respect to the
Equipment Commitment (as the same may be amended, modified or supplemented
from time to time, the 'Equipment Line Note' and together with the Working
Capital Note, the 'Notes'); "
(c) Numbered paragraph 2 of the Commitment Letter, as heretofore
amended, is hereby amended and restated to read in its entirety as follows:
<PAGE>
- 3 -
"2. The Working Capital Commitment will commence the date hereof and
will expire on July 10, 1998 (the 'Working Capital Expiry Date'). The
Equipment Line of Credit Commitment will commence December 31, 1996 and
will expire on November 30, 1997 (the 'Equipment Expiry Date')."
(d) The first sentence of numbered paragraph 3 of the Commitment
Letter, as heretofore amended, is hereby amended and restated to read in its
entirety as follows:
"Advances under the Working Capital Commitment shall bear interest at
a fluctuating rate of interest equal to the Bank's Prime Rate (as defined
below) plus three-quarters of one per cent (0.75%) per annum, and advances
under the Equipment Line of Credit Commitment shall bear interest at a
fluctuating rate of interest equal to the Bank's Prime Rate plus one per
cent (1.0%) per annum. Borrower shall make payments of interest in respect
of advances under the Working Capital monthly on the tenth (10th) day of
each month and on the Working Capital Expiry Date."
(e) Numbered paragraphs 21 through 25 of Schedule II to the
Commitment Letter, as heretofore amended, are hereby amended and restated to
read in their entirety as follows:
"21. Quick Ratio. The Borrower will not permit its Quick Ratio to be
-----------
less than 1.25 to 1 at the end of any month, commencing with the month
ending July 31, 1997."
"22. Minimum Profitability. The Borrower will not permit Net Loss for
---------------------
any fiscal quarter set forth below to exceed the amount set forth opposite
such quarter:
<TABLE>
<CAPTION>
Quarter Ending Maximum Net Loss
-------------- ----------------
<S> <C>
June 30, 1997 $1,200,000
September 30, 1997 $1,300,000
December 31, 1997 $ 750,000
Each quarter thereafter $ 600,000
</TABLE>
"23. Leverage. The Borrower will not permit the ratio of Total Senior
--------
Liabilities to Tangible Net Worth at the end of any month, commencing with
the month ending July 31, 1997, to be more than 1.25 to 1.
"24. Tangible Net Worth. The Borrower will not permit Tangible Net
------------------
Worth at the end of any month, commencing with the month ending July 31,
1997, to be less than $11,000,000.
"25. Liquidity. The Borrower will not permit the sum of its
---------
unrestricted cash on hand plus availability under the Working Capital
Commitment to be less
<PAGE>
-4-
than $4,000,000 for any month, commencing with the month ending July 31,
1997."
(f) The Compliance Certificate referred to in Schedule 4(c) of
Schedule II to the Commitment Letter, as heretofore amended, is hereby deleted
and replaced with the Compliance Certificate attached hereto as Exhibit A.
(g) The definition of "Eligible Development Software" in Schedule
III of the Commitment Letter, as heretofore amended, is hereby amended by
deleting the date "December 31, 1996" appearing in the last line of subparagraph
(b) thereof and substituting the date "July 11, 1997."
(h) The definition of "Eligible Equipment" in Schedule III of the
Commitment Letter, as heretofore amended, is hereby amended by deleting the date
"December 31, 1996" appearing in the last line of subparagraph (b) thereof and
substituting the date "July 11, 1997."
4. Conforming Changes.
------------------
The Commitment Letter and the other Loan Documents are hereby amended
wherever necessary or appropriate to reflect the foregoing changes.
5. Continuing Validity.
-------------------
Upon the effectiveness hereof, each reference in each Security Instrument
or other Loan Document to the "Commitment Letter," "thereunder," "thereof,"
"therein," or words of like import referring to the Commitment Letter, shall
mean and be a reference to the Commitment Letter, as amended hereby. Except as
specifically set forth above, the Commitment Letter shall remain in full force
and effect and is hereby ratified and confirmed. Each of the other Loan
Documents, is in full force and effect and is hereby ratified and confirmed. The
amendments set forth above (i) do not constitute a waiver or modification of any
term, condition or covenant of the Commitment Letter or any other Loan Document,
other than as expressly set forth herein, and (ii) shall not prejudice any
rights which the Bank may now or hereafter have under or in connection with the
Commitment Letter, as modified hereby, or the other Loan Documents and shall not
obligate the Bank to assent to any further modifications.
6. Miscellaneous.
-------------
(a) This Agreement may be signed in one or more counterparts each of
which taken together shall constitute one and the same document.
(b) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
(c) THE BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE
<PAGE>
-5-
COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT, OR PROCEEDING OF ANY KIND
AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS LOAN MODIFICATION AGREEMENT;
PROVIDED, HOWEVER, THAT IF FOR ANY REASON LENDER CANNOT AVAIL ITSELF OF THE
COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, THEN VENUE SHALL LIE IN SANTA CLARA
COUNTY, CALIFORNIA.
(d) The Borrower agrees to promptly pay on demand all costs and
expenses of the Bank in connection with the preparation, reproduction, execution
and delivery of this letter amendment and the other instruments and documents to
be delivered hereunder, including the reasonable fees and out-of-pocket expenses
of Sullivan & Worcester LLP, special counsel for the Bank with respect thereto.
IN WITNESS WHEREOF, the Bank and the Borrower have caused this Agreement to
be signed under seal by their respective duly authorized officers as of the date
set forth above.
SILICON VALLEY EAST, a Division
of Silicon Valley Bank
By:/s/ James C. Maynard
-------------------------------
Name: James C. Maynard
Title: Vice President
SILICON VALLEY BANK
By:/s/ Amy Young
-------------------------------
Name: Amy Young
Title: AVP
(signed in Santa Clara, CA)
TRANSWITCH CORPORATION
By:/s/ M.F. Stauff
-------------------------------
Name: M.F. Stauff
Title: Sr. Vice President
<PAGE>
SCHEDULE A
to
SCHEDULE I
With respect to:
Item 10. Subsidiaries. The borrower has the following subsidiaries:
------------
TranSwitch Europe N.V./S.A.
Tervurenlaan 252-254
1150 Brussels, Belgium
TranSwitch Corporation Taiwan Branch
13-3F
30 Pei Ping East Road
Taipei, Taiwan
<PAGE>
Exhibit A
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: TRANSWITCH CORPORATION
The undersigned authorized officer of TranSwitch Corporation (the
"Borrower") hereby certifies that in accordance with the terms and conditions of
the Commitment Letter dated as of July 1, 1993 from Silicon Valley Bank (the
"Bank") to the Borrower, as amended through the date hereof (the "Agreement"),
(i) Borrower is in complete compliance for the period ending ____________ with
all required covenants except as noted below and (ii) all representations and
warranties of Borrower stated in the Agreement are true and correct in all
material respects as of the date hereof. Attached herewith are the required
documents supporting the above certification. The Officer further certifies that
these are prepared in accordance with Generally Accepted Accounting Principles
(GAAP) and are consistently applied from one period to the next except as
explained in an accompanying letter or footnotes. The Officer expressly
acknowledges that no borrowings may be requested by the Borrower at any time or
date of determination that Borrower is not in compliance with any of the terms
of the Agreement, and that such compliance is determined not just at the date
this certificate is delivered.
Please indicate compliance status by checking Yes/No under "Complies" column.
<TABLE>
<CAPTION>
Reporting Covenant Required Complies
------------------ -------- --------
<S> <C> <C>
Quarterly financial statements (10Q) Quarterly within 45 days Yes [_] No [_]
Annual statements (CPA Audited) FYE within 100 days Yes [_] No [_]
A/R & A/P Agings Monthly within 25 days when borrowing Yes [_] No [_]
A/R Audit Annual Yes [_] No [_]
<CAPTION>
Financial Covenant Required Actual Complies
------------------ -------- ------ --------
<S> <C> <C>
Maintain on a monthly basis:
Minimum Quick Ratio 1.25:1 ___:1 Yes [_] No [_]
Minimum Tangible Net Worth $11,000,000 Yes [_] No [_]
Maximum Debt/Tangible Net Worth 1.25:1 ___:1 Yes [_] No [_]
Minimum Cash + net working
capital availability $ 4,000,000 Yes [_] No [_]
Profitability:
Quarter ending 6/30/97 $(1,200,000) Yes [_] No [_]
Quarter ending 9/30/97 $(1,300,000) Yes [_] No [_]
Quarter ending 12/31/97 $( 750,000) Yes [_] No [_]
Each quarter after 12/31/97 $( 600,000) Yes [_] No [_]
</TABLE>
Comments Regarding Exceptions: See Attached.
Sincerely,
- --------------------------------------------
SIGNATURE
TITLE:
DATE:
<PAGE>
EXHIBIT 10.2
AMENDED AND RESTATED PROMISSORY NOTE
(Working Capital Line of Credit Loans)
$6,000,000 Wellesley, Massachusetts
July 11, 1997 (originally dated July 1,
1993, as previously amended and
restated as of March 21, 1995, and
further amended and restated as of
December 31, 1996)
For value received, the undersigned, TRANSWITCH CORPORATION, a Delaware
corporation (the "Borrower"), promises to pay to SILICON VALLEY BANK (the
--------
"Bank") at the office of the Bank located at 3003 Tasman Drive, Santa Clara,
----
California 95054, or to its order, the lesser of Six Million Dollars
($6,000,000) or the outstanding principal amount hereunder, on July 10, 1998
(the "Maturity Date"), together with interest on the principal amount hereof
-------------
from time to time outstanding at a fluctuating rate per annum equal to the Prime
Rate (as defined below) plus three-quarters of one percent (0.75%) until the
Maturity Date, payable monthly in arrears on the tenth (10th) day of each month
occurring after the date hereof and on the Maturity Date. The Borrower promises
to pay on demand interest at a per annum rate of interest equal to the Prime
Rate plus 5% on any overdue principal (and to the extent permitted by law,
overdue interest). The Bank's "Prime Rate" is the per annum rate of interest
from time to time announced and made effective by the Bank as its Prime Rate
(which rate may or may not be the lowest rate available from the Bank at any
given time).
Computations of interest shall be made by the Bank on the basis of a year
of 360 days for the actual number of days occurring in the period for which such
interest is payable.
This promissory note amends and restates the terms and conditions of the
obligations of the Borrower under the Working Capital Note dated July 1, 1993,
as previously amended and restated as of March 21, 1995, and further amended and
restated as of December 31, 1996 (the "Original Note"), by the Borrower to the
-------------
Bank. Nothing contained in this promissory note shall be deemed to create or
represent the issuance of new indebtedness or the exchange by the Borrower of
the Original Note for a new promissory note. This promissory note is the Working
Capital Note referred to in the Commitment Letter dated July 1, 1993, as amended
by letter amendments dated as of September 1, 1994 and March 21, 1995, as
further amended by loan modification agreements dated as of April 19, 1995, and
January 5, 1996 and December 31, 1996, and as further amended by a loan
modification agreement dated as of July 11, 1997, by the Bank and accepted by
the Borrower, together with all related schedules, as the same may be amended,
modified or supplemented from time to time (the "Commitment Letter"), and is
-----------------
subject to optional and mandatory prepayment as provided therein, and is
entitled to the benefits
<PAGE>
- 2 -
thereof and of the other Loan Documents referred to therein. This promissory
note is secured by a Security Agreement dated July 1, 1993 by the Borrower in
favor of the Bank, as the same may be amended, modified or supplemented from
time to time.
Each reference in each Loan Document (as defined in the Commitment Letter)
to "the Note," "thereof," "therein," "thereunder," or words of like import
referring to the Original Note, shall mean and be a reference to the Original
Note, as amended and restated hereby.
Upon the occurrence of any Event of Default under, and as defined in, the
Commitment Letter, the principal amount then outstanding of and the accrued
interest on the advances under this promissory note and all other amounts
payable under this promissory note shall, at the option of the Bank, become
immediately due and payable, without notice (including, without limitation,
notice of intent to accelerate), presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by the
Borrower.
The Bank shall keep a record of the amount and the date of the making of
each advance pursuant to the Commitment Letter and each payment of principal
with respect thereto by maintaining a computerized record of such information
and printouts of such computerized record, which computerized record, and the
printouts thereof, shall constitute prima facie evidence of the accuracy of the
----- -----
information so endorsed.
The undersigned agrees to pay all reasonable costs and expenses of the Bank
(including, without limitation, the reasonable fees and expenses of attorneys)
in connection with the enforcement of this note and the other Loan Documents and
the preservation of their respective rights hereunder and thereunder.
No delay or omission on the part of the Bank in exercising any right
hereunder shall operate as a waiver of such right or of any other right of the
Bank, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
Borrower and every endorser or guarantor of this note, regardless of the time,
order or place of signing, waive presentment, demand, protest and notices of
every kind and assents to any one or more extensions or postponements of the
time of payment or any other indulgences, to any substitutions, exchanges or
releases of collateral for this note, and to the additions or releases of any
other parties or persons primarily or secondarily liable.
THIS NOTE HAS BEEN DELIVERED TO THE BANK AND ACCEPTED BY THE BANK IN THE
STATE OF CALIFORNIA.
THE BORROWER HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY NOW OR HEREAFTER HAVE
TO A JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING WHICH ARISES OUT OF OR BY
REASON OF THIS NOTE, ANY LOAN DOCUMENT (AS DEFINED IN THE COMMITMENT LETTER), OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
<PAGE>
- 3 -
BY ITS EXECUTION AND DELIVERY OF THIS NOTE, THE BORROWER ACCEPTS FOR ITSELF
AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NON-
EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION
IN THE COMMONWEALTH OF MASSACHUSETTS (OR IF FOR ANY REASON ACCESS TO SUCH
COURTS IS DENIED TO THE BANK, THEN, IN THE STATE OF CALIFORNIA) IN ANY ACTION,
SUIT OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY REASON OF
THIS NOTE, ANY LOAN DOCUMENT (AS DEFINED IN THE COMMITMENT LETTER), OR THE
TRANSACTIONS CONTEMPLATED HEREBY, IN ADDITION TO ANY OTHER COURT IN WHICH SUCH
ACTION, SUIT OR PROCEEDING MAY BE BROUGHT, IRREVOCABLY AGREES TO BE BOUND BY ANY
FINAL JUDGMENT RENDERED BY ANY SUCH COURT IN ANY SUCH ACTION, SUIT OR PROCEEDING
IN WHICH IT SHALL HAVE BEEN SERVED WITH PROCESS IN THE MANNER HEREINAFTER
PROVIDED, SUBJECT TO EXERCISE AND EXHAUSTION OF ALL RIGHTS OF APPEAL AND TO THE
EXTENT THAT IT MAY LAWFULLY DO SO, WAIVES AND AGREES NOT TO ASSERT, BY WAY OF
MOTION, AS A DEFENSE OR OTHERWISE, IN SUCH ACTION, SUIT OR PROCEEDING ANY CLAIMS
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT ITS
PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE ACTION, SUIT
OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE THEREOF IS
IMPROPER, AND AGREES THAT PROCESS MAY BE SERVED UPON IT IN ANY SUCH ACTION, SUIT
OR PROCEEDING IN THE MANNER PROVIDED BY CHAPTER 223A OF THE GENERAL LAWS OF
MASSACHUSETTS, RULE 4 OF THE MASSACHUSETTS RULES OF CIVIL PROCEDURE OR RULE 4 OF
THE FEDERAL RULES OF CIVIL PROCEDURE.
ALL RIGHTS AND OBLIGATIONS HEREUNDER SHALL BE GOVERNED BY THE LAW OF THE
COMMONWEALTH OF MASSACHUSETTS AND THIS NOTE SHALL BE DEEMED TO BE UNDER SEAL.
TRANSWITCH CORPORATION
By /s/ M.F. Stauff
-----------------------------
Name: M.F. Stauff
Title: Sr. Vice President, C.F.O.
<PAGE>
EXHIBIT 10.3
AMENDED AND RESTATED PROMISSORY NOTE
(Equipment Line of Credit Loans)
$2,000,000 Wellesley, Massachusetts
July 11, 1997 (originally
dated December 31, 1996)
For value received, the undersigned TRANSWITCH CORPORATION, a Delaware
corporation (the "Borrower"), promises to pay to SILICON VALLEY BANK (the
--------
"Bank") at the office of the Bank located at 3003 Tasman Drive, Santa Clara,
----
California 95054, or to its order, the lesser of (i) Two Million Dollars
($2,000,000) or (ii) the principal outstanding hereunder as of November 30,
1997, in sixty (60) equal monthly installments payable on the last day of each
month, commencing December 31, 1997 and ending on November 30, 2002 (the
"Maturity Date"), together with interest on the principal amount hereof from
-------------
time to time outstanding at a fluctuating rate per annum equal to the Prime Rate
(as defined below) plus one per cent (1%) until the Maturity Date, payable
monthly in arrears on the last day of each calendar month occurring after the
date hereof and on the Maturity Date. The Borrower promises to pay on demand
interest at a per annum rate of interest equal to the Prime Rate plus five per
cent (5%) on any overdue principal (and to the extent permitted by law, overdue
interest). The Bank's "Prime Rate" is the per annum rate of interest from time
to time announced and made effective by the Bank as its Prime Rate (which rate
may or may not be the lowest rate available from the Bank at any given time).
Computations of interest shall be made by the Bank on the basis of a year
of 360 days for the actual number of days occurring in the period for which such
interest is payable.
This promissory note amends and restates the terms and conditions of the
obligations of the Borrower under the Promissory Note (Equipment Line of Credit
Loans) dated December 31, 1996 (the "Original Note"), by the Borrower to the
-------------
Bank. Nothing contained in this promissory note shall be deemed to create or
represent the issuance of new indebtedness or the exchange by the Borrower of
the Original Note for a new promissory note. This note is the Equipment Line
Note referred to in the Loan Document Modification Agreement of even date
herewith, which amended the Commitment Letter dated as of July 1, 1993, between
the Bank and the Borrower, as amended by letter amendments dated as of September
1, 1994 and March 21, 1995, and as further amended by loan modification
agreements dated as of April 19, 1995, January 5, 1996 and December 31, 1996,
together with all related schedules, as the same may be further amended,
modified or supplemented from time to time (the "Commitment Letter"), and is
-----------------
entitled to the benefits of the Commitment Letter and of the other Loan
Documents referred to therein, and is subject to optional and mandatory
prepayment as provided therein. This note is secured by, inter alia, a Security
----------
Agreement dated as of July 1, 1993, by the Borrower in favor of the Bank, as the
same may be amended, modified or supplemented from time to time and by other the
Security Instruments referenced in the Commitment Letter.
<PAGE>
- 2 -
Upon the occurrence of any Event of Default under, and as defined in, the
Commitment Letter, the principal amount then outstanding of and the accrued
interest on the advances under this note and all other amounts payable under
this note shall, at the option of the Bank, become immediately due and payable,
without notice (including, without limitation, notice of intent to accelerate),
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Borrower.
The Bank shall keep a record of the amount and the date of the making of
each advance pursuant to the Commitment Letter and each payment of principal
with respect thereto either by maintaining a computerized record of such
information and printouts of such computerized record, which endorsement or
computerized record, and the printouts thereof, shall constitute prima facie
----- -----
evidence of the accuracy of the information so endorsed.
The undersigned agrees to pay all reasonable costs and expenses of the Bank
(including, without limitation, the reasonable fees and expenses of attorneys)
in connection with the enforcement of this note and the other Loan Documents and
the preservation of their respective rights hereunder and thereunder.
No delay or omission on the part of the Bank in exercising any right
hereunder shall operate as a waiver of such right or of any other right of the
Bank, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
Borrower and every endorser or guarantor of this note regardless of the time,
order or place of signing waives presentment, demand, protest and notices of
every kind and assents to any one or more extensions or postponements of the
time of payment or any other indulgences, to any substitutions, exchanges or
releases of collateral for this note, and to the additions or releases of any
other parties or persons primarily or secondarily liable.
THIS NOTE SHALL BE DEEMED DELIVERED TO THE BANK AND ACCEPTED BY THE BANK IN
THE STATE OF CALIFORNIA.
THE BORROWER HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY NOW OR HEREAFTER HAVE
TO A JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING WHICH ARISES OUT OF OR BY
REASON OF THIS NOTE, ANY LOAN DOCUMENT (AS DEFINED IN THE COMMITMENT LETTER), OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
BY ITS EXECUTION AND DELIVERY OF THIS NOTE, THE BORROWER ACCEPTS FOR ITSELF
AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NON-
EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION
IN THE COMMONWEALTH OF MASSACHUSETTS (OR IF FOR ANY REASON ACCESS TO SUCH COURTS
IS DENIED TO THE BANK, THEN IN THE STATE OF CALIFORNIA) IN ANY ACTION, SUIT OR
PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS NOTE,
ANY LOAN DOCUMENT (AS DEFINED IN THE CREDIT AGREEMENT), OR THE TRANSACTIONS
CONTEMPLATED HEREBY, IN ADDITION TO ANY OTHER COURT IN WHICH SUCH ACTION, SUIT
OR PROCEEDING MAY BE BROUGHT, IRREVOCABLY AGREES TO BE BOUND BY ANY FINAL
JUDGMENT
<PAGE>
- 3 -
RENDERED BY ANY SUCH COURT IN ANY SUCH ACTION, SUIT OR PROCEEDING IN WHICH IT
SHALL HAVE BEEN SERVED WITH PROCESS IN THE MANNER HEREINAFTER PROVIDED, SUBJECT
TO EXERCISE AND EXHAUSTION OF ALL RIGHTS OF APPEAL AND TO THE EXTENT THAT IT MAY
LAWFULLY DO SO, WAIVES AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE
OR OTHERWISE, IN SUCH ACTION, SUIT OR PROCEEDING ANY CLAIMS THAT IT IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT ITS PROPERTY IS
EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE ACTION, SUIT OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE THEREOF IS
IMPROPER, AND AGREES THAT PROCESS MAY BE SERVED UPON IT IN ANY SUCH ACTION, SUIT
OR PROCEEDING IN THE MANNER PROVIDED BY CHAPTER 223A OF THE GENERAL LAWS OF
MASSACHUSETTS, RULE 4 OF THE MASSACHUSETTS RULES OF CIVIL PROCEDURE OR RULE 4 OF
THE FEDERAL RULES OF CIVIL PROCEDURE.
ALL RIGHTS AND OBLIGATIONS HEREUNDER SHALL BE GOVERNED BY THE LAW OF THE
COMMONWEALTH OF MASSACHUSETTS AND THIS NOTE SHALL BE DEEMED TO BE UNDER SEAL.
TRANSWITCH CORPORATION
By: /s/ M.F. Stauff
-------------------------------
Name: M.F. Stauff
Title: Sr. Vice President, C.F.O.
<PAGE>
Exhibit 11:
TranSwitch Corporation
Computation of Earnings per Share (1)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary (2)
Weighted average number of common shares outstanding 12,184 11,820 12,103 11,705
Common stock issuable with respect to common equivalents
for stock options and warrants 683 - - -
--------- --------- --------- ---------
Weighted average common shares and equivalents 12,867 11,820 12,103 11,705
Net income (loss) $ 178 $ (3,480) $ (2,306) $ (3,325)
- ---------------- --------- ---------- ---------- ----------
Net income (loss) per share $ 0.01 $ (0.29) $ (0.19) $ (0.28)
=========================== ========= ========== ========== ==========
</TABLE>
- ----------
(1) This exhibit should be read in connection with "Stockholders' Equity and
Loss Per Share" in Note 3 of the notes to the Consolidated Financial Statements.
(2) Fully diluted per share amounts are the same as primary.
Page ___ of ___
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 6,334 6,334
<SECURITIES> 2,999 2,999
<RECEIVABLES> 4,284 4,284
<ALLOWANCES> 130 130
<INVENTORY> 5,035 5,035
<CURRENT-ASSETS> 19,311 19,311
<PP&E> 8,432 8,432
<DEPRECIATION> 5,192 5,192
<TOTAL-ASSETS> 23,671 23,671
<CURRENT-LIABILITIES> 7,396 7,396
<BONDS> 0 0
0 0
0 0
<COMMON> 12 12
<OTHER-SE> 15,712 15,712
<TOTAL-LIABILITY-AND-EQUITY> 23,671 23,671
<SALES> 7,438 18,750
<TOTAL-REVENUES> 7,438 18,750
<CGS> 2,828 8,005
<TOTAL-COSTS> 4,546 13,419
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 178 (2,306)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 178 (2,306)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 178 (2,307)
<EPS-PRIMARY> $0.01 ($0.19)
<EPS-DILUTED> $0.01 ($0.19)
</TABLE>
