TRANSWITCH CORP /DE, DEF 14A, 1998-04-17

TRANSWITCH CORP /DE
DEF 14A, 1998-04-17
SEMICONDUCTORS & RELATED DEVICES

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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):

________________________________________________________________________

(4) Proposed maximum aggregate value of transaction:

________________________________________________________________________

(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

THREE ENTERPRISE DRIVE
SHELTON, CONNECTICUT 06484

----------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 27, 1998

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
Wednesday, May 27, 1998, 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 and ratify the
Corporation's Third Amended and Restated 1995 Stock Plan, with a total of
3,500,000 shares of Common Stock, par value $.001 per share, of the
Corporation ("Common Stock") available for issuance thereunder.

3. To consider and act upon a proposal to approve an amendment to the
Corporation's 1995 Non-Employee Director Stock Option Plan to (a) increase
the number of shares of Common Stock of the Corporation available for
issuance thereunder by an additional 100,000 shares, to a total of 250,000
shares available for issuance thereunder, and (b) amend Section 4(b) of the
1995 Non-Employee Director Stock Option Plan to increase the annual option
granted thereunder to each non-employee director from an option to purchase
7,500 shares of Common Stock on each one-year anniversary of the date that
he or she is first elected to the Board of Directors, to an option to
purchase 9,600 shares of Common Stock on each one-year anniversary of the
date that he or she is first elected to the Board of Directors.

4. To ratify the selection of the firm of KPMG Peat Marwick LLP as
auditors for the fiscal year ending December 31, 1998.

5. 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 13, 1998 are
entitled to notice of and to vote at the meeting and any adjournment thereof.

By Order of the Board of Directors

/s/ Michael C. McCoy

Michael C. McCoy
Secretary

Shelton, Connecticut
April 20, 1998

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

THREE ENTERPRISE DRIVE
SHELTON, CONNECTICUT 06484

----------------

PROXY STATEMENT

FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 27, 1998

----------------

APRIL 20, 1998

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 Wednesday, May 27, 1998, at
10:00 A.M., at the Ramada Plaza Hotel, 780 Bridgeport Avenue, Shelton,
Connecticut 06484, or at any adjournments thereof (the "Annual Meeting").

The Board of Directors has fixed the close of business on April 13, 1998 as
the record date (the "Record Date"). Only stockholders of record as of the
close of business on the Record Date will be entitled to notice of, and to
vote at, the Annual Meeting and any adjournments thereof. As of the Record
Date, 13,307,566 shares of Common Stock, $.001 par value per share (the
"Common Stock"), of the Corporation were issued and outstanding. Stockholders
are entitled to cast one vote for each share of Common Stock held of record by
them on each proposal submitted to a vote at the Annual Meeting. As of the
Record Date, 7,750 shares of Series A Convertible Preferred Stock, $.01 par
value per share (the "Preferred Stock") of the Corporation were issued and
outstanding. Stockholders are entitled to cast the number of votes equal to
the largest number of whole shares of Common Stock into which their shares of
Preferred Stock could be converted at the Record Date 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, Santanu Das and Michael F.
Stauff, were selected by the Board of Directors and are directors and/or
executive 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 to (i) approve and ratify the Corporation's Third Amended
and Restated 1995 Stock Plan, with a total of 3,500,000 shares of Common Stock
available for issuance thereunder, (ii) approve an amendment to the
Corporation's 1995 Non-Employee Director Stock Option Plan to increase the
number of shares of Common Stock available for issuance thereunder by an
additional 100,000 shares, to a total of 250,000 shares available for issuance
thereunder, (iii) amend Section 4(b) of the 1995 Non-Employee Director Stock
Option Plan to increase the annual option granted thereunder to each non-
employee director from an option to purchase 7,500 shares of Common Stock on
each one-year anniversary of the date that he or she is first elected to the
Board of Directors, to an option to purchase 9,600 shares of Common Stock on
each one-year anniversary of the date that he or she is first elected to the
Board of Directors, and (iv) ratify the selection of auditors, all as further
described in this proxy statement.

1
<PAGE>

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. See "Proposals for
Consideration at the Annual Meeting of Stockholders."

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 and the Corporation's Annual Report on Form
10-K, containing financial statements for the fiscal year ended December 31,
1997, are being mailed together with this proxy statement to all stockholders
entitled to vote. This proxy statement and the form of proxy were first mailed
to stockholders on or about April 20, 1998.

MANAGEMENT AND PRINCIPAL STOCKHOLDERS

The following table sets forth as of the Record Date certain information
regarding the ownership of shares of 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
Executive Officer (as defined below under "Compensation and Other Information
Concerning Directors and Executive Officers--Executive Compensation") and (iv)
all directors (and nominees for director) and executive officers as a group.
Unless otherwise indicated below, each person listed below maintains a
business address at c/o TranSwitch Corporation, Three Enterprise 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>
Santanu Das(3)....................................... 263,300 2.0%
Steward S. Flaschen(4)............................... 122,871 *
Michael F. Stauff(5)................................. 73,101 *
Jitender Vij(6)...................................... 64,450 *
Francisco A. Middleton(7)............................ 63,085 *
Charles Lee(8)....................................... 51,304 *
17 Stepping Stone Lane
Greenwich, CT 06870
Albert E. Paladino(9)................................ 34,423 *
c/o Advanced Technology Ventures
281 Winter Street
Suite 350
Waltham, MA 02154
John H. Haynes(10)................................... 34,350 *
Ljubomir Micic....................................... 17,500 *
c/o Ven Net A Project Management GmbH
Alderstrasse 19
79098 Freiburg, Germany
Erik H. van der Kaay................................. 3,800 *
David D. French...................................... 0 --
All directors and executive officers as a group (9
persons)(11)........................................ 569,699 4.3%
</TABLE>

2
<PAGE>

- --------
* 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),
executive officers and principal stockholders.
(2) Applicable percentage ownership as of the Record Date is based upon
13,307,566 shares of Common Stock issued and outstanding. Beneficial
ownership is determined in accordance with the rules of the Securities
and Exchange Commission and includes voting and investment power with
respect to the shares. Shares of Common Stock subject to options that are
exercisable within 60 days after the Record Date ("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.
(3) Includes 111,000 shares owned and 152,300 shares subject to Presently
Exercisable Securities held by Dr. Das. Also includes 10,000 shares held
in trust for family members of Dr. Das. Dr. Das disclaims beneficial
ownership of the shares held in trust for his family members.
(4) Includes 49,433 shares owned by the Joyce D. Flaschen Revocable
Investment Trust of which Dr. Flaschen is the trustee and 58,438 shares
owned by the Steward S. Flaschen Revocable Investment Trust. Dr. Flaschen
disclaims beneficial ownership of the shares held by the Joyce D.
Flaschen Revocable Investment Trust. Also includes 15,000 shares subject
to Presently Exercisable Securities.
(5) Consists of 21,344 shares owned and 51,757 shares subject to Presently
Exercisable Securities.
(6) Includes 37,337 shares owned and 27,113 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 37,503 shares owned and 25,582 shares subject to Presently
Exercisable Securities.
(8) Consists of 13,804 shares owned and 37,500 shares subject to Presently
Exercisable Securities.
(9) Consists of 26,932 shares owned and 7,500 shares subject to Presently
Exercisable Securities.
(10) Consists of 600 shares owned and 33,750 shares subject to Presently
Exercisable Securities.
(11) Includes 348,358 shares subject to Presently Exercisable Securities.

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<PAGE>

The following table sets forth as of the Record Date certain information
regarding the ownership of shares of the Corporation's Preferred Stock by (i)
each person who, to the knowledge of the Corporation, beneficially owned more
than 5% of the shares of Preferred Stock of the Corporation outstanding at
such date, (ii) each director (or nominee for director) of the Corporation,
(iii) each Named Executive Officer (as defined below under "Compensation and
Other Information Concerning Directors and Executive Officers--Executive
Compensation") and (iv) all directors (and nominees for director) and
executive officers as a group. Unless otherwise indicated below, each person
listed below maintains a business address at c/o TranSwitch Corporation, 3
Enterprise Drive, Shelton, CT 06484.

<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS(2)
------------------------------------ ------------ -----------
<S> <C> <C>
The Kaufmann Fund, Inc.............................. 3,000 38.7%
The Kaufmann Fund
140 East 45th Street, 43rd floor
New York, NY 10017
Deltec Asset Management Corporation................. 2,000 25.8%
535 Madison Avenue
New York, NY 10022
Raptor Global Fund Ltd. ............................ 832 10.7%
c/o Curacao International Trust Company
Kaya Flamboyan 9
Curacao, Netherlands Antilles
Tudor BVI Futures Ltd. ............................. 766 9.9%
c/o Curacao International Trust Company
Kaya Flamboyan 9
Curacao, Netherlands Antilles
Clarion Capital Corporation......................... 500 6.5%
1801 East 9th Street, Suite 510
Cleveland, OH 44114
Santanu Das......................................... 0 --
Steward S. Flaschen................................. 0 --
Michael F. Stauff................................... 0 --
Jitender Vij........................................ 0 --
Francisco A. Middleton.............................. 0 --
Charles Lee......................................... 0 --
17 Stepping Stone Lane
Greenwich, CT 06870
Albert E. Paladino.................................. 0 --
c/o Advanced Technology Ventures
281 Winter Street
Suite 350
Waltham, MA 02154
John H. Haynes...................................... 0 --
Ljubomir Micic...................................... 0 --
c/o Ven Net A Project Management GmbH
Alderstrasse 19
79098 Freiburg, Germany
Erik H. van der Kaay................................ 0 --
David D. French..................................... 0 --
All directors and executive officers as a group (10
persons)........................................... 0 --
</TABLE>

4
<PAGE>

- --------
(1) Each person or entity named in the table has sole voting and investment
power with respect to all shares of Preferred Stock shown as owned based
upon information provided to the Corporation by the principal
stockholders.
(2) Applicable percentage ownership as of the Record Date is based upon 7,750
shares of Preferred Stock issued and outstanding. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and includes voting and investment power with respect to the
shares. Shares of Preferred Stock subject to options that are exercisable
within 60 days after the Record Date ("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.

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 eight (8) times during
the fiscal year ended December 31, 1997. The Audit Committee of the Board of
Directors, consisting of Charles Lee (Chairman), Ljubomir Micic and Steward S.
Flaschen, reviews with the Corporation's independent auditors the scope and
timing of their audit services and any other services the independent auditors
are asked to perform, the independent 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, 1997. The Compensation Committee of the Board of Directors,
consisting of Albert E. Paladino (Chairman), Charles Lee, Erik H. van der Kaay
and Steward S. 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. Subject to
the approval of the Board of Directors, the Compensation Committee also
administers the Corporation's stock option and stock purchase plans. The
Compensation Committee met eight (8) times during the fiscal year ended
December 31, 1997. 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.

5
<PAGE>

OCCUPATIONS OF DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the current directors and executive 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>
Santanu Das. ........... 53 Chairman of the Board of Directors, President and
Chief Executive Officer
Michael F. Stauff....... 48 Senior Vice President, Chief Financial Officer and Treasurer
Terrence S. Rogers...... 43 Vice President, Worldwide Sales
Steward S.
Flaschen(1)(2)......... 71 Director
David D. French......... 41 Director
Erik H. van der
Kaay(1)................ 58 Director
Charles Lee(1)(2)....... 58 Director
Ljubomir Micic(2)....... 67 Director
Albert E. Paladino(1)... 65 Director
</TABLE>
- --------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.

NOMINEES FOR ELECTION OF DIRECTORS AT THE ANNUAL MEETING

Santanu Das, a founder of the Corporation, has been President, Chief
Executive Officer and a director of the Corporation since its inception in
1988 and Chairman of the Board of Directors since May 1997. 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.

Steward S. Flaschen, a founder of the Corporation, has been a director of
the Corporation since the Corporation's inception and served as Chairman of
the Board of Directors until May 1997. 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.

David D. French became a director of the Corporation in April 1998. He is
Vice President of Analog Devices, Inc. and serves as General Manager of that
company's DSP and Computer Products Division. Prior to joining Analog Devices,
Mr. French held management positions at Texas Instruments and Fairchild
Semiconductor. He holds a B.S.E.E. from the University of Rochester.

Erik H. van der Kaay became a director of the Corporation in September 1997
and is also a member of the Board of Directors of RF Micro Devices and SSE
Telecom, Inc. He is President and Chief Executive Officer of Datum, Inc. in
Irvine, California. Previously, Mr. van der Kaay was Executive Vice President
of Allen Telecom, Inc. since February 1997 and held other senior management
positions with that company beginning in June of 1990. Prior to joining Allen
Telecom, he was President and Chief Executive Officer of Millitech Corporation
of South Deerfield, Massachusetts.

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

6
<PAGE>

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.

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 Corporation in 1990, he was a Vice President of ITT
Corporation and Chairman of its Semiconductor Division.

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.

EXECUTIVE 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.

Terrence S. Rogers joined the Corporation as Vice President, Worldwide
Sales, in February 1998 from Nippon Steel Semiconductor USA where he was Vice
President, Marketing and Sales. Prior to Nippon Steel, Mr. Rogers held
positions at Siemens Components, Hyundai Electronics America, OKI
Semiconductor Group and Texas Instruments. He holds a B.S.E.E. and a B.A. in
Psychology from the University of Notre Dame and an M.B.A., Marketing, from
the University of Arizona.

7
<PAGE>

COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND NAMED EXECUTIVE 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 1997 exceeded $100,000 (collectively, the "Named Executive Officers") for
services rendered in all capacities to the Corporation for the fiscal years
ended December 31, 1997, 1996 and 1995:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
---------------- ------------
SECURITIES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
------------------ ---- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Santanu Das(1).......... 1997 $194,862 $62,525 110,000(2) $5,910(3)
Chairman of the Board
of Directors, 1996 178,173 39,000 80,000 1,325(4)
President and Chief Ex-
ecutive Officer 1995 170,000 86,000 30,000 1,354(4)
John H. Haynes.......... 1997 170,709 25,375 80,000(5) 5,447(6)
Vice President, Sales
(7) 1996(8) -- -- -- 768(4)
1995(8) -- -- -- 691(4)
Francisco A. Middle-
ton(9)(10)............. 1997 152,308 28,300 40,025(11) 5,447(12)
Vice President, Trans-
mission Products 1996 127,061 7,000 23,025 516(4)
1995 117,725 15,025 3,000 484(4)
Jitender Vij(9)......... 1997 140,713 16,300 44,025(13) 5,065(14)
Vice President, Systems
Engineering 1996 116,015 7,000 26,025 762(4)
1995(15) -- -- -- 393(4)
Michael F.
Stauff(10)(16)......... 1997 121,494 24,250 42,300(17) 4,650(18)
Senior Vice President,
Chief Financial 1996 112,752 10,000 22,300 522(4)
Officer and Treasurer 1995 105,030 28,000 5,000 479(4)
</TABLE>
- --------
(1) Dr. Das will receive a severance payment equal to his then current annual
base salary and the highest annual bonus paid to him over the preceding
five years if the Corporation terminates his employment other than for
cause or if Dr. Das resigns from his position due to a substantial
reduction in his responsibilities or authority.
(2) Includes 110,000 securities underlying options that were repriced as of
May 30, 1997.
(3) Includes $4,750 contributed to defined contributions plans and $1,160 in
premiums paid with respect to term life insurance on behalf of Dr. Das.
(4) Premiums paid with respect to term life insurance on behalf of the
executive officer.
(5) Includes 70,000 securities underlying options that were repriced as of
May 30, 1997.
(6) Includes $4,750 contributed to defined contributions plans and $697 in
premiums paid with respect to term life insurance on behalf of Mr.
Haynes.
(7) Mr. Haynes resigned from the Corporation effective as of January 9, 1998.
(8) Information is not provided for 1995 and 1996 because Mr. Haynes was not
a Named Executive Officer in 1995 and 1996, as described in Item
402(a)(3) of Regulation S-K under the Securities Act of 1933, as amended.

8
<PAGE>

(9) Each of Messrs. Middleton and Vij will receive a severance payment equal
to three months' salary and twenty-five percent of the highest annual
bonus paid to him over the preceding five years if the Corporation
terminates his employment without cause within 12 months of a change of
control.
(10) Each of Messrs. Middleton and Stauff will receive a severance payment
equal to three months' salary if the Corporation terminates his
employment for any reason.
(11) Includes 33,025 securities underlying options that were repriced as of
May 30, 1997.
(12) Includes $4,750 contributed to defined contributions plans and $697 in
premiums paid with respect to term life insurance on behalf of Mr.
Middleton.
(13) Includes 36,525 securities underlying options that were repriced as of
May 30, 1997.
(14) Includes $4,431 contributed to defined contributions plans and $634 in
premiums paid with respect to term life insurance on behalf of Mr. Vij.
(15) Information is not provided for 1995 because Mr. Vij was not a Named
Executive Officer in 1995, as described in Item 402(a)(3) of Regulation
S-K under the Securities Act of 1933, as amended.
(16) Mr. Stauff will receive a severance payment equal to six months' salary
and fifty percent of the highest annual bonus paid to him over the
preceding five years if the Corporation terminates his employment without
cause within 12 months of a change of control.
(17) Includes 34,800 securities underlying options that were repriced as of
May 30, 1997.
(18) Includes $3,945 contributed to defined contributions plans and $705 paid
with respect to term life insurance on behalf of Mr. Stauff.

9
<PAGE>

Option Grants. The following table sets forth information concerning stock
options granted during the fiscal year ended December 31, 1997 under the
Corporation's Second Amended and Restated 1995 Stock Plan to the Named
Executive Officers. The Corporation did not grant any stock appreciation
rights during fiscal 1997.

OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL
-------------------------------------------------- RATES OF STOCK
NUMBER OF PERCENT OF PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------
NAME GRANTED FISCAL YEAR(2) ($/SHARE)(3) DATE 5% 10%
---- ---------- -------------- ------------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Santanu Das............. 30,000(4) 2.34% $6.38 6/27/05 $107,635 $266,200
50,000(4) 3.89 6.38 1/25/06 167,674 409,030
30,000(4) 2.34 6.38 7/22/06 92,445 221,894
John H. Haynes.......... 10,000(5) .78 6.50 1/16/07 40,876 103,593
50,000(4) 3.89 6.38 4/22/06 173,366 425,759
10,000(4) .78 6.38 7/22/06 35,878 88,734
10,000(4) .78 6.38 1/16/07 38,278 95,991
Francisco A. Middleton.. 7,000(5) .55 6.50 1/16/07 28,615 72,515
3,000(4) .23 6.38 6/27/05 9,244 22,189
11,025(4) .86 6.38 1/25/06 36,972 90,191
12,000(4) .93 6.38 7/22/06 43,054 106,480
7,000(4) .55 6.38 1/16/07 26,795 67,193
Jitender Vij............ 7,500(5) .58 6.50 1/16/07 30,659 77,695
3,000(4) .23 6.38 6/27/05 9,245 22,189
11,025(4) .86 6.38 1/25/06 36,972 90,191
15,000(4) 1.17 6.38 7/22/06 53,818 133,100
7,500(4) .58 6.38 1/16/07 28,709 71,993
Michael F. Stauff....... 7,500(5) .58 6.50 1/16/07 30,659 77,695
12,300(4) .96 6.38 1/25/06 41,248 100,621
10,000(4) .78 6.38 7/22/06 35,878 88,734
7,500(4) .58 6.38 1/16/07 28,709 71,993
5,000(4) .39 6.38 7/22/06 15,408 36,982
</TABLE>
- --------
(1) 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.
(2) Options to purchase a total of 1,277,300 shares were granted to employees
(including the Named Executive Officers) in fiscal year 1997 under the
Corporation's Second Amended and Restated 1995 Stock Plan and 467,550
options outstanding under the Corporation's Second Amended and Restated
1995 Stock Plan were repriced as of May 30, 1997.

10
<PAGE>

(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 Second 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) Consists of securities underlying options that were repriced as of May 30,
1997. These options have terms of 10 years from the original date of grant
and become exercisable over four years at the rate of 25% 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.
(5) These options have terms of 10 years from the date of grant and become
exercisable over four years at the rate of 25% 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.

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, 1997 by each of the Named Executive Officers:

AGGREGATED OPTION EXERCISES AND YEAR END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT YEAR-END AT YEAR-END(2)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Santanu Das............. 125,000 $1,056,250 128,581 48,919 $497,119 $78,331
John H. Haynes.......... -- -- 25,000 45,000 28,000 50,400
Francisco A. Middleton.. 7,000 33,110 25,436 17,389 84,858 20,346
Jitender Vij............ 4,250 20,103 36,543 19,982 157,445 23,423
Michael F. Stauff....... 4,000 17,320 39,308 26,492 161,205 85,471
</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, 1997,
multiplied by the number of shares underlying the options.

Employment Agreements and Severance Policy. None of the Named Executive
Officers has a long-term employment agreement with the Corporation. The
employment of each of the Named Executive Officers may be terminated by the
Corporation at any time. To help retain the continued services of Dr. Das, the
Company has entered into a Severance Agreement with Dr. Das, providing for a
severance payment equal to his then-current annual base salary and the highest
annual bonus paid to him over the preceding five years if the Corporation
terminates his employment other than for cause or if Dr. Das resigns from his
position due to a substantial reduction in his responsibility or authority.
The Company has also entered into Executive Agreements with Dr. Das and each
of the other Named Executive Officers, which provide for severance payments
equal to, in the case of Dr. Das, his then-current annual base salary and the
highest annual bonus paid to him over the previous five years; in the case of
Mr. Stauff, fifty percent (50%) of his then-current annual base and fifty
percent (50%) of the highest annual bonus paid to him over the preceding five
years; and, in the case of each of the other Named Executive Officers, twenty-
five percent (25%) of his then-current base and twenty-five percent (25%) of
the highest annual bonus paid to each such Named Executive Officer over the
preceding five years in the event of a termination without cause within 12
months of a change in control of the Company. In the event that Dr. Das is
entitled to payments under both agreements, the maximum amount payable to him
is equal to the payment required under one of the agreements.

11
<PAGE>

Notwithstanding the foregoing, the Corporation's policy is to pay a severance
payment of three months' base salary to any of the Named Executive Officers
whose employment is terminated by the Corporation for any reason. Letters sent
by the Corporation to Francisco Middleton and Michael Stauff offering them
employment with the Corporation expressly contain this latter three months
severance provision.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION AND OPTION REPRICING

The Compensation Committee of the Board of Directors currently consists of
Albert E. Paladino (Chairman), Steward S. Flaschen, Charles Lee and Erik H.
van der Kaay, each of whom is an independent, non-employee director. The
Compensation Committee reviews and evaluates the compensation and benefits of
all executive officers of the Corporation, reviews general policy matters
relating to compensation and benefits of employees of the Corporation,
administers the Corporation's 1989 Stock Option Plan, Second Amended and
Restated 1995 Stock Plan and 1995 Employee Stock Purchase Plan and makes
recommendations concerning these matters to the Board of Directors for
approval.

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 provide performance incentives to 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.

Santanu Das is the Chairman of the Board of Directors, President and Chief
Executive Officer of the Corporation. His fiscal 1997 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 improved
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 1997, 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.

On May 30, 1997, the Compensation Committee discussed the impact of declines
in the price of Company's Common Stock below the exercise price with respect
to a substantial number of stock options granted to the Company's executive
officers pursuant to the Corporation's Second Amended

12
<PAGE>

and Restated 1995 Stock Plan. The Compensation Committee believed that the
disparity between the exercise price of the options and the then-current
market price no longer provided a meaningful incentive to the executive
officers. In accordance with its belief that stock option grants should
provide performance incentives and reward executive officers for delivering
value to the Corporation's stockholders over a longer, measurable period of
time, the Compensation Committee recommended to the Board of Directors that it
would be in the best interest of the Corporation and its stockholders to
restore the incentives for executive officers to exert their best efforts on
behalf of the Corporation by repricing the option exercise price of an
aggregate of 457,550 options granted over approximately the past three prior
years to all persons deemed to be executive officers of the Corporation at any
time after the Corporation's initial public offering on June 14, 1995 to the
then-current market price of $6.38 per share. Following approval of the Board
of Directors, the repricing was effected by offering option holders new
options in exchange for their old options. The new options have the same
vesting periods as the old options; the vesting period does not restart as of
the date of the repricing. All other terms and conditions of the new options
likewise remain unchanged.

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 BOARD OF DIRECTORS:

Santanu Das
Steward S. Flaschen(1)
David D. French
Erik H. van der Kaay(1)
Charles Lee(1)
Ljubomir Micic
Albert E. Paladino(2)
- --------
(1) Member of the Compensation Committee.
(2) Chairman of the Compensation Committee.

13
<PAGE>

OPTION REPRICING

The following table sets forth information concerning the repricing of stock
options held by persons who were deemed to be executive officers of the
Corporation at any time after the Corporation's initial public offering on
June 14, 1995, including (i) the date of the repricing, (ii) the number of
shares subject to the repriced options, (iii) the market price at the time of
repricing, (iv) the exercise price prior to repricing, (v) the new exercise
price and (vi) the original option term remaining at the date of repricing.

TEN YEAR OPTION REPRICINGS

<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL
OPTION TERM
MARKET PRICE REMAINING AT
OF STOCK AT EXERCISE PRICE DATE OF
NUMBER OF TIME OF AT TIME OF NEW REPRICING OR
OPTIONS REPRICED REPRICING OR REPRICING OR EXERCISE OF AMENDMENT
NAME DATE OR AMENDED (#) AMENDMENT AMENDMENT PRICE (YEARS)
---- ------- ---------------- ------------ -------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Santanu Das............. 5/30/97 30,000 $6.38 $ 9.13 $6.38 7
Chairman of the Board
of 5/30/97 50,000 6.38 10.13 6.38 8
Directors, President
and 5/30/97 30,000 6.38 9.13 6.38 9
Chief Executive Officer
Michael F. Stauff....... 5/30/97 12,300 6.38 10.13 6.38 8
Senior Vice President, 5/30/97 10,000 6.38 9.13 6.38 7
Chief Financial Officer 5/30/97 7,500 6.38 6.50 6.38 9
and Treasurer 5/30/97 5,000 6.38 9.13 6.38 8
William G. Bartholomay.. 5/30/97 20,000 6.38 7.50 6.38 7
Vice President, 5/30/97 2,000 6.38 9.13 6.38 7
Product Definition 5/30/97 9,150 6.38 10.13 6.38 8
5/30/97 15,000 6.38 9.13 6.38 8
5/30/97 5,000 6.38 6.50 6.38 9
John H. Haynes.......... 5/30/97 10,000 6.38 6.50 6.38 10
Vice President, Sales 5/30/97 10,000 6.38 9.13 6.38 9
5/30/97 50,000 6.38 11.75 6.38 9
Michael C. McCoy........ 5/30/97 5,000 6.38 9.13 6.38 7
Vice President, Con-
troller 5/30/97 12,000 6.38 11.38 6.38 7
and Corporate Secretary 5/30/97 11,550 6.38 10.13 6.38 8
5/30/97 10,000 6.38 9.13 6.38 8
5/30/97 7,500 6.38 6.50 6.38 8
Francisco A. Middleton.. 5/30/97 3,000 6.38 9.13 6.38 7
Vice President, 5/30/97 11,025 6.38 10.13 6.38 8
Strategic Sales 5/30/97 12,000 6.38 9.13 6.38 8
5/30/97 7,000 6.38 6.50 6.38 9
Robert G. Pico.......... 5/30/97 2,000 6.38 9.13 6.38 7
Vice President, 5/30/97 12,000 6.38 10.13 6.38 8
Business Development 5/30/97 10,000 6.38 9.13 6.38 8
5/30/97 5,000 6.38 6.50 6.38 9
Terrence S. Rogers...... -- -- -- -- -- --
Vice President,
Worldwide Sales
Kandaswamy Thangamuthu.. 5/30/97 12,000 6.38 10.13 6.38 8
Vice President, 5/30/97 8,000 6.38 9.13 6.38 8
Operations 5/30/97 3,000 6.38 6.50 6.38 9
Daniel C. Upp........... 5/30/97 2,000 6.38 9.13 6.38 7
Vice President, 5/30/97 12,000 6.38 10.13 6.38 8
Technology Strategy 5/30/97 10,000 6.38 9.13 6.38 8
5/30/97 10,000 6.38 6.50 6.38 9
Jitender K. Vij......... 5/30/97 3,000 6.38 9.13 6.38 7
Vice President, 5/30/97 11,025 6.38 10.13 6.38 8
Systems Engineering 5/30/97 15,000 6.38 9.13 6.38 8
5/30/97 7,500 6.38 6.50 6.38 9
</TABLE>

14
<PAGE>

COMPENSATION OF DIRECTORS

Directors who are not employees of the Corporation receive a stipend of
$10,000 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 meeting of the Board of
Directors. 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.
See "Item 3: Proposals to Amend the 1995 Non-Employee Director Stock Option
Plan."

The Corporation has purchased directors' and officers' liability insurance
from General Star Indemnity and Zurich Insurance covering all of the
Corporation's directors and executive officers. The aggregate premium for this
insurance policy in 1997 was $166,250.

15
<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, 1997, 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"), and (ii) the Nasdaq Composite Index (Total Return) (the
"Nasdaq Composite 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 MARKET INDEX

<TABLE>
<CAPTION>
JUNE 14, 1995 DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997
(%) (%) (%) (%)
------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
TranSwitch Corporation
Common Stock........... 100.00 121.92 57.53 82.19
SIC Code 3674 Index..... 100.00 100.77 162.23 169.06
Nasdaq Market Index..... 100.00 116.80 145.15 177.55
</TABLE>
- --------
* 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, 1997.

16
<PAGE>

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 1997 and written representations from
certain Reporting Persons, the Corporation believes that all Reporting Persons
complied with all Section 16(a) filing requirements in 1997 except as noted
below. Mr. Erik H. van der Kaay filed an amended Form 3 reporting one
transaction that was omitted from the originally filed Form 3 and filed a Form
5 reporting one transaction that was not reported in a timely manner.

THIRD AMENDED AND RESTATED 1995 STOCK PLAN

At the Annual Meeting, the stockholders will be requested to approve and
ratify the Corporation's Third Amended and Restated 1995 Stock Plan (the
"Third 1995 Stock Plan"), with a total of 3,500,000 Shares of Common Stock
available for issuance thereunder. The Corporation's Third 1995 Stock Plan was
adopted by the Board of Directors on March 5, 1998. The terms of the Third
1995 Stock Plan are the same as the terms of the Corporation's Second Amended
and Restated 1995 Stock Plan (the "Second 1995 Stock Plan"), except that the
Third 1995 Stock Plan provides for the issuance of a maximum of 3,500,000
shares of Common Stock and the Second 1995 Stock Plan provides for the
issuance of a maximum of 2,469,019 shares of Common Stock available for
issuance thereunder. (See "Proposal to Approve and Ratify the Third Amended
and Restated 1995 Stock Plan.") A summary of the Third 1995 Stock Plan is set
forth below.

THE THIRD 1995 STOCK PLAN

The Third 1995 Stock Plan was adopted by the Board of Directors on March 5,
1998, and will become effective upon approval by the stockholders at the
Annual Meeting. The Third 1995 Stock Plan will provide for the issuance of a
maximum of 3,500,000 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 executive officers of
the Corporation. (In comparison, the Second 1995 Stock Plan provides for the
issuance of a maximum of 2,469,019 shares of Common Stock.) As of the Record
Date, [100] employees (including directors who are also employees of the
Corporation and executive officers), [6] consultants and [5] non-employee
directors are eligible to participate in the Second 1995 Stock Plan. The same
number of persons are expected to be eligible to participate in the Third 1995
Stock Plan.

The Third 1995 Stock Plan will be administered by the Compensation Committee
of the Board of Directors. Subject to the provisions of the Third 1995 Stock
Plan and to the approval of the full Board of Directors, the Compensation
Committee will have 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
will determine the exercise price per share for NQSOs, Awards and Purchases
under the Third 1995 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 to be granted under the Third 1995 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

17
<PAGE>

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 will
expire 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. All
options outstanding under the Second 1995 Stock Plan will continue to be
outstanding, under the same terms, under the Third 1995 Stock Plan.

On the Record Date, the market price, as reported by the Nasdaq National
Market, of Common Stock, the class of stock underlying all options, awards and
purchases subject to the Second 1995 Stock Plan and that will underlie all
options, awards and purchases subject to the Third 1995 Stock Plan, was $12.00
per share. As of the Record Date, options to purchase 2,343,846 shares of
Common Stock at a weighted average exercise price of $7.17 per share were
outstanding under the Second 1995 Stock Plan.

<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING
OPTIONS GRANTED UNDER THE
SECOND 1995 STOCK PLAN AS
NAME AND POSITION OF THE RECORD DATE
----------------- ---------------------------
<S> <C>
Santanu Das........................................ 220,500
Chairman of the Board of Directors,
President and Chief Executive Officer
Michael F. Stauff.................................. 80,050
Senior Vice President, Chief Financial Officer and
Treasurer
Terrence S. Rogers................................. 75,000
Vice President, Worldwide Sales
All current executive officers as a group (3 per-
sons)............................................. 375,550
All current directors who are not executive
officers as a group
(6 persons)....................................... 30,000
All employees who are not executive officers as a
group............................................. 1,938,296
</TABLE>

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
PROPOSED THIRD 1995 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 will be applicable under current United States
federal income tax law to ISOs granted under the Third 1995 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.

18
<PAGE>

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 18 months.

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.

The following general rules are applicable under current federal income tax
law to NQSOs to be granted under the Third 1995 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 18 months, 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.

19
<PAGE>

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 Third 1995 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.

1995 NON-EMPLOYEE DIRECTOR STOCK OPTIONS PLAN

At the Annual Meeting, the stockholders will be requested to consider and
approve the Amendment to the Corporation's 1995 Non-Employee Director Stock
Option Plan (the "Non-Employee Director Plan") to (a) increase the number of
shares of Common Stock available for issuance thereunder by 100,000 shares, to
a total of 250,000 shares available for issuance thereunder, and (b) amend
section 4(b) of the Non-Employee Director Plan to increase the annual options
granted thereunder to each non-employee director from an option to purchase
7,500 shares of Common Stock on each one-year anniversary of the date that he
or she is first elected to the Board of Directors, to an option to purchase
9,600 shares of Common Stock on each one-year anniversary of the date that he
or she is first elected to the Board of directors.

THE NON-EMPLOYEE DIRECTOR PLAN

The Non-Employee Director Plan was adopted by the Board of Directors on
April 11, 1995, approved by the stockholders on April 19, 1995 and became
effective on June 12, 1995. Should item No. 3 receive the approval of the
stockholders, the Non-Employee Director Plan will provide that the aggregate
number of shares available for issuance thereunder to directors who are not
employees or officers of the Corporation (each a "Non-Employee Director")
shall increase from 150,000 shares to 250,000 shares of Common Stock. As of
the date hereof, Steward S. Flaschen, David D. French, Erik H. van der Kaay,
Charles Lee, Ljubomir Micic and Albert E. Paladino are Non-Employee Directors
and, thus, eligible to participate in the Non-Employee Director Plan.

The Non-Employee Director Plan is currently administered by the Compensation
Committee of the Board of Directors, subject to the terms of the Non-Employee
Director Plan and approval by the Board of Directors. Under the Non-Employee
Director Plan, each Non-Employee Director 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, should Item No. 3 receive the approval of the
stockholders, the option granted to each Non-Employee Director pursuant to the
Non-Employee Director Plan on each one-year anniversary date that such
director is first elected shall be increased from 7,500 shares of Common Stock
to 9,600 shares of Common Stock, vesting in full on the first anniversary of
the date of grant. All options granted under the Non-Employee Director Plan
have an exercise price equal to the fair market value of the Common Stock on
the date of grant. The

20
<PAGE>

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, by the laws of
descent and distribution or pursuant to a valid domestic relations order 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).

On the Record Date, the market price, as reported by the Nasdaq National
Market, of Common Stock, the class of stock underlying all options, awards and
purchases subject to the Non-Employee Director Plan, was $12.00 per share. As
of the Record Date, options to purchase 110,000 shares of Common Stock at a
weighted average exercise price of $10.58 per share were outstanding under the
Non-Employee Director Plan.

<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING
OPTIONS GRANTED UNDER THE
NON-EMPLOYEE DIRECTOR PLAN
NON-EMPLOYEE DIRECTOR AS OF THE RECORD DATE
- --------------------- ---------------------------
<S> <C>
Steward S. Flaschen..... 15,000
David D. French......... 0(1)
Erik H. van der Kaay.... 12,500
Charles Lee............. 15,000
Ljubomir Micic.......... 22,500
Albert E. Paladino...... 15,000
All Non-Employee Direc-
tors as a group (6)
persons................ 80,000
</TABLE>

(1) Mr. French became a member of the Board of Directors on April 14, 1998 and
received a grant of 12,500 shares underlying options as of that date.

<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING
OPTIONS TO BE GRANTED
NAME AND POSITION ANNUALLY(1)
- ----------------- ---------------------------
<S> <C>
Santanu Das........................................ 0(2)
President and Chief Executive Officer
Michael F. Stauff ................................. 0(2)
Senior Vice President, Chief Financial Officer and
Treasurer
Terrence S. Rogers................................. 0(2)
Vice President, Worldwide Sales
All current executive officers as a group (3
persons).......................................... 0(3)
All current directors who are not executive
officers as a group
(6 persons)....................................... 57,600(4)
All employees who are not executive officers as a
group............................................. 0(5)
</TABLE>
- --------
(1) Provided that Item No. 3 is approved by the stockholders.
(2) Dr. Das and Messrs. Stauff and Rogers are not eligible to participate in
the Non-Employee Director Plan.
(3) Officers of the Corporation are not eligible to participate in the Non-
Employee Director Plan.
(4) Consists of options to purchase 9,600 shares of Common Stock awarded to
each Non-Employee Director on each one-year anniversary of the date he or
she is first elected to the Board of Directors. Does not include options
to purchase 12,500 shares awarded to each Non-Employee Director upon the
date of his or her initial election as a director.
(5) Employees of the Corporation are not eligible to participate in the Non-
Employee Director Plan.

21
<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
NON-EMPLOYEE DIRECTOR 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 federal income tax
law to NQSOs, which are the only options that may be granted under the Non-
Employee Director 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.

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.

22
<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 seven 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>
Santanu Das....................................... 1988
David D. French................................... 1998
Steward S. Flaschen............................... 1988
Erik H. van der Kaay.............................. 1997
Charles Lee....................................... 1989
Ljubomir Micic.................................... 1994
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.")

ITEM NO. 2:

PROPOSAL TO APPROVE AND RATIFY THE THIRD AMENDED AND
RESTATED 1995 STOCK PLAN

The Corporation's Third Amended and Restated 1995 Stock Plan (the "Third
1995 Stock Plan") was adopted by the Board of Directors on March 5, 1998. The
terms of the Third 1995 Stock Plan are the same as the terms of the
Corporation's Second Amended and Restated 1995 Stock Plan (the "Second 1995
Stock Plan"), except that the Third 1995 Stock Plan provides for the issuance
of a maximum of 3,500,000 shares of Common Stock and the Second 1995 Stock
Plan provides for the issuance of a maximum of 2,469,019 shares of Common
Stock available for issuance thereunder.

The stockholders will be requested at the Annual Meeting to approve and
ratify the Third 1995 Stock Plan, with a total of 3,500,000 shares of Common
Stock available for issuance thereunder. 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
the Record Date, 278,778 shares of Common Stock remained available for
issuance under the Second 1995 Stock Plan. The Board of Directors believes
that the remaining shares

23
<PAGE>

available for issuance under the Second 1995 Stock Plan are insufficient for
such purposes, and that the adoption of the Third 1995 Stock Plan, which
provides for 1,030,981 additional shares available for issuance, is therefore
necessary. A majority of the votes cast by the stockholders present or
represented by proxy and entitled to vote at the Annual Meeting is required to
approve and ratify the Third 1995 Stock Plan.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR APPROVAL AND RATIFICATION OF THE THIRD 1995 STOCK PLAN

ITEM NO. 3:

PROPOSALS TO AMEND THE 1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

The Corporation's 1995 Non-Employee Director Stock Option Plan (the "Non-
Employee Director 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 5, 1998, the Board of Directors approved, subject to stockholder
approval at the Annual Meeting, an amendment to the Stock Plan to (a) increase
the number of shares of Common Stock available for issuance thereunder by
100,000 shares, for a total of 250,000 shares available for issuance
thereunder, and (b) amend Section 4(b) of the Non-Employee Director Plan to
increase the annual options granted to each non-employee director then serving
from an option to purchase 7,500 shares of Common Stock on each one-year
anniversary of the date he or she is first elected to the Board of Directors
to an option to purchase 9,600 shares of Common Stock on each one-year
anniversary of the date he or she is first elected to the Board of Directors.

The stockholders will be requested at the Annual Meeting to approve the
proposed amendments to the Non-Employee Director Plan set forth above. The
Board of Directors believes that the Corporation's ability to attract and
retain highly qualified individuals who are not employees or officers of the
Corporation to serve on Board of Directors also depends in large part upon the
Corporation's ability to provide such individuals long-term, equity-based
incentives in the form of stock options as part of their compensation. As of
the Record Date, 25,000 shares of Common Stock remained available for issuance
under the Non-Employee Director Plan. The Board of Directors believes that the
remaining shares available for issuance under the Non-Employee Director Plan
are insufficient for such purposes. Moreover, the Board of Directors believes
that an in increase in the number of shares that a director may purchase under
the Non-Employee Director Plan is necessary to achieve such purposes. A
majority of the votes cast by the holders of Common Stock present or
represented by proxy and entitled to vote at the Annual Meeting is required to
approve the proposed amendments to the Non-Employee Director Plan.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR AMENDMENT OF THE NON-EMPLOYEE DIRECTOR PLAN

24
<PAGE>

ITEM NO. 4:

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,
1998. KPMG Peat Marwick LLP has served as the Corporation's auditors since
fiscal year 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 capital 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 majority vote 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 21, 1998. 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. The Corporation has retained
MacKenzie Partners, Inc., New York, New York, to assist in the solicitation of
proxies at a cost estimated not to exceed $7,500, plus reimbursement of out-
of-pocket expenses.

25
<PAGE>

TRANSWITCH CORPORATION

THIRD AMENDED AND RESTATED
1995 STOCK PLAN
---------------

1. PURPOSE. The purpose of the TranSwitch Corporation Third Amended and
-------
Restated 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 3,500,000, 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.

Amended and restated by the Board of Directors of the Company: March 5, 1998.

<PAGE>

TRANSWITCH CORPORATION

1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

1. Purpose. This Non-Qualified Stock Option Plan, to be known as the 1995
-------
Non-Employee Director Stock Option Plan (hereinafter, this "Plan"), is intended
to promote the interests of TranSwitch Corporation (hereinafter, the "Company")
by providing an inducement to obtain and retain the services of qualified
persons who are not employees or officers of the Company to serve as members of
its Board of Directors (the "Board").

2. Available Shares. The total number of shares of Common Stock, par
----------------
value $.001 per share, of the Company (the "Common Stock") for which options may
be granted under this Plan shall not exceed 250,000 shares, subject to
adjustment in accordance with paragraph 10 of this Plan. Shares subject to this
Plan are authorized but unissued shares or shares that were once issued and
subsequently reacquired by the Company. If any options granted under this Plan
are surrendered before exercise or lapse without exercise, in whole or in part,
the shares reserved therefor shall continue to be available under this Plan.

3. Administration. This Plan shall be administered by the Board or by a
--------------
committee appointed by the Board (the "Committee"). In the event the Board
fails to appoint or refrains from appointing a Committee, the Board shall have
all power and authority to administer this Plan. In such event, the word
"Committee" wherever used herein shall be deemed to mean the Board. The
Committee shall, subject to the provisions of the Plan, have the power to
construe this Plan, to determine all questions hereunder, and to adopt and amend
such rules and regulations for the administration of this Plan as it may deem
desirable. No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to this Plan or any
option granted under it.

4. Automatic Grant of Options. Subject to the availability of shares
--------------------------
under this Plan,

(a) each person who first becomes a member of the Board after the
effective date of an initial public offering of the Company's Common Stock and
who is not an employee or officer of the Company (a "Non-Employee Director")
shall be automatically granted on the date such person becomes a member of the
Board, without further action by the Board, an option to purchase 12,500
shares of the Common Stock, and

(b) after the effective date of an initial public offering of the
Company's Common Stock, each person who is a Non-Employee Director on each
successive one-year anniversary (during the term of this Plan) of the date of
such person's first election to the Board shall be automatically granted on
each such date an option to purchase 9,600 shares of the Common Stock.

The options to be granted under this paragraph 4 shall be the only options
ever to be granted at any time to such member under this Plan. Notwithstanding
anything to the contrary set forth herein, if this Plan is not approved by a
majority of the Company's stockholders present, or represented, and voting on
such matter at the first meeting of Stockholders of the Company following April
11, 1995, then the Plan and the options granted pursuant to this Section 4 shall
terminate and become void, and no further options shall be granted under this
Plan.

5. Option Price. The purchase price of the stock covered by an option
------------
granted pursuant to this Plan shall be 100% of the fair market value of such
shares on the day the option is granted. The option price will be subject to
adjustment in accordance with the provisions of paragraph 10 of this Plan.
<PAGE>

-2-

For purposes of this Plan, 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 last business day for which the prices or quotes discussed
in this sentence are available prior to the date such option is granted and
shall mean (i) the average (on that date) of the high and low prices of the
Common Stock on the principal 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 Stock 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 Stock
Market. However, if the Common Stock is not publicly traded at the time an
option is granted under the Plan, "fair market value" shall be deemed to be 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; provided, however, that the "fair
market value" of the stock issuable upon exercise of an option granted pursuant
to the Plan within 120 days prior to the time the Company's Common Stock is
publicly traded shall be deemed to be equal to the initial per share purchase
price at which the Company's Common Stock is offered to the public.

6. Period of Option. Unless sooner terminated in accordance with the
----------------
provisions of paragraph 8 of this Plan, an option granted hereunder shall expire
on the date which is five (5) years after the date of grant of the option.

7. (a) Vesting of Shares and Non-Transferability of Options. Options
----------------------------------------------------
granted under this Plan shall not be exercisable until they become vested.
Options granted under this Plan shall vest in the optionee and thus become
exercisable as follows, provided that the optionee has continuously served as a
member of the Board through such vesting date:

(i) For options granted pursuant to Section 4(a) hereof:
<TABLE>
<CAPTION>
Percentage of Option
Shares for which
Option Will be Exercisable Date of Vesting
-------------------------- ---------------
<S> <C>
33 1/3% Less than one year from the date of grant

66 2/3% One year from the date of grant

100% Two years from the date of grant
</TABLE>
The number of shares as to which options may be exercised shall be cumulative,
so that once the option shall become exercisable as to any shares it shall
continue to be exercisable as to said shares, until expiration or termination of
the option as provided in this Plan.

(ii) For options granted pursuant to Section 4(b) hereof, all
such options shall vest in full on the one-year anniversary of the date of
grant.

(b) Non-transferability. Any option granted pursuant to this Plan
-------------------
shall not be assignable or transferable other than by will or the laws of
descent and distribution or pursuant to a domestic relations order and shall be
exercisable during the optionee's lifetime only by him or her.
<PAGE>

-3-

8. Termination of Option Rights.
----------------------------

(a) Except as otherwise specified in the agreement relating to an
option, in the event an optionee ceases to be a member of the Board for any
reason other than death or permanent disability, any then unexercised portion of
options granted to such optionee shall, to the extent not then vested,
immediately terminate and become void; any portion of an option which is then
vested but has not been exercised at the time the optionee so ceases to be a
member of the Board may be exercised, to the extent it is then vested, by the
optionee within 90 days of the date the optionee ceased to be a member of the
Board; and all options shall terminate after such 90 days have expired.

(b) In the event that an optionee ceases to be a member of the
Board by reason of his or her death or permanent disability, any option
granted to such optionee shall be immediately and automatically accelerated
and become fully vested and all unexercised options shall be exercisable by
the optionee (or by the optionee's personal representative, heir or legatee,
in the event of death) until the scheduled expiration date of the option.

9. Exercise of Option. Subject to the terms and conditions of this
------------------
Plan and the option agreements, an option granted hereunder shall, to the extent
then exercisable, be exercisable in whole or in part by giving written notice to
the Company by mail or in person addressed to TranSwitch Corporation, at its
principal executive offices, stating the number of shares with respect to which
the option is being exercised, accompanied by payment in full for such shares.
Payment may be (a) in United States dollars in cash or by check, (b) in whole or
in part in shares of the Common Stock of the Company already owned by the person
or persons exercising the option or shares subject to the option being exercised
(subject to such restrictions and guidelines as the Board may adopt from time to
time), valued at fair market value determined in accordance with the provisions
of paragraph 5 or (c) 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. There shall be no
such exercise at any one time as to fewer than one hundred (100) shares or all
of the remaining shares then purchasable by the person or persons exercising the
option, if fewer than one hundred (100) shares. The Company's transfer agent
shall, on behalf of the Company, prepare a certificate or certificates
representing such shares acquired pursuant to exercise of the option, shall
register the optionee as the owner of such shares on the books of the Company
and shall cause the fully executed certificate(s) representing such shares to be
delivered to the optionee as soon as practicable after payment of the option
price in full. The holder of an option shall not have any rights of a
stockholder with respect to the shares covered by the option, except to the
extent that one or more certificates for such shares shall be delivered to him
or her upon the due exercise of the option.

10. Adjustments Upon Changes in Capitalization and Other Events.
-----------------------------------------------------------
Upon the occurrence of any of the following events, an optionee's rights with
respect to options granted to him or her hereunder shall be adjusted as
hereinafter provided:

(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.
<PAGE>

-4-

(b) Recapitalization Adjustments. 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, each option granted
under this Plan which is outstanding but unvested as of the effective date of
such event shall become exercisable in full thirty (30) days prior to the
effective date of such event. In the event of a reorganization,
recapitalization, merger, consolidation, or any other change in the corporate
structure or shares of the Company, to the extent permitted by Rule 16b-3 under
the Securities Exchange Act of 1934, adjustments in the number and kind of
shares authorized by this Plan and in the number and kind of shares covered by,
and in the option price of outstanding options under this Plan necessary to
maintain the proportionate interest of the optionee and preserve, without
exceeding, the value of such option, shall be made. Notwithstanding the
foregoing, no such adjustment shall be made which would, within the meaning of
any applicable provisions of the Internal Revenue Code of 1986, as amended,
constitute a modification, extension or renewal of any option or a grant of
additional benefits to the holder of an option.

(c) 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.

(d) Adjustments. Upon the happening of any of the foregoing events,
-----------
the class and aggregate number of shares set forth in paragraph 2 of this Plan
that are subject to options which previously have been or subsequently may be
granted under this Plan shall also be appropriately adjusted to reflect such
events. The Board shall determine the specific adjustments to be made under
this paragraph 10 and its determination shall be conclusive.

11. Restrictions on Issuance of Shares. Notwithstanding the
----------------------------------
provisions of paragraphs 4 and 9 of this Plan, the Company shall have no
obligation to deliver any certificate or certificates upon exercise of an option
until one of the following conditions shall be satisfied:

(a) The issuance of shares with respect to which the option has been
exercised is at the time of the issue of such shares effectively registered
under applicable Federal and state securities laws as now in force or hereafter
amended; or

(b) Counsel for the Company shall have given an opinion that the
issuance of such shares is exempt from registration under Federal and state
securities laws as now in force or hereafter amended; and the Company has
complied with all applicable laws and regulations with respect thereto,
including without limitation all regulations required by any stock exchange upon
which the Company's outstanding Common Stock is then listed.

12. Legend on Certificates. The certificates representing shares
----------------------
issued pursuant to the exercise of an option granted hereunder shall carry such
appropriate legend, and such written instructions shall be given to the
Company's transfer agent, as may be deemed necessary or advisable by counsel to
the Company in order to comply with the requirements of the Securities Act of
1933 or any state securities laws.

13. Representation of Optionee. If requested by the Company, the
--------------------------
optionee shall deliver to the Company written representations and warranties
upon exercise of the option that are necessary to show compliance with Federal
and state securities laws, including representations and warranties to the
<PAGE>

-5-

effect that a purchase of shares under the option is made for investment and not
with a view to their distribution (as that term is used in the Securities Act of
1933).

14. Option Agreement. Each option granted under the provisions of
----------------
this Plan shall be evidenced by an option agreement, which agreement shall be
duly executed and delivered on behalf of the Company and by the optionee to whom
such option is granted. The option agreement shall contain such terms,
provisions and conditions not inconsistent with this Plan as may be determined
by the officer executing it.

15. Termination and Amendment of Plan. Options may no longer be
---------------------------------
granted under this Plan after April 11, 2005, and this Plan shall terminate when
all options granted or to be granted hereunder are no longer outstanding. The
Board may at any time terminate this Plan or make such modification or amendment
thereof as it deems advisable; provided, however, that the Board may not,
-------- -------
without approval by the affirmative vote of the holders of a majority of the
shares of Common Stock present in person or by proxy and voting on such matter
at a meeting, (a) increase the maximum number of shares for which options may be
granted under this Plan (except by adjustment pursuant to Section 10), (b)
materially modify the requirements as to eligibility to participate in this
Plan, (c) materially increase benefits accruing to option holders under this
Plan or (d) amend this Plan in any manner which would cause Rule 16b-3 under the
Securities Exchange Act (or any successor or amended provision thereof) to
become inapplicable to this Plan; and provided further that the provisions of
-------- -------
this Plan specified in Rule 16b-3(c)(2)(ii)(A) (or any successor or amended
provision thereof) under the Securities Exchange Act of 1934 (including without
limitation, provisions as to eligibility, amount, price and timing of awards)
may not be amended more than once every six months, other than to comport with
changes in the Internal Revenue Code, the Employee Retirement Income Security
Act, or the rules thereunder. Termination or any modification or amendment of
this Plan shall not, without consent of a participant, affect his or her rights
under an option previously granted to him or her.

16. Withholding of Income Taxes. Upon the exercise of an option, the
---------------------------
Company, in accordance with Section 3402(a) of the Internal Revenue Code, may
require the optionee to pay withholding taxes in respect of amounts considered
to be compensation includable in the optionee's gross income.

17. Compliance with Regulations. It is the Company's intent that the
---------------------------
Plan comply in all respects with Rule 16b-3 under the Securities Exchange Act of
1934 (or any successor or amended provision thereof) and any applicable
Securities and Exchange Commission interpretations thereof. If any provision of
this Plan is deemed not to be in compliance with Rule 16b-3, the provision shall
be null and void.

18. Governing Law. The validity and construction of this Plan and
-------------
the instruments evidencing options shall be governed by the laws of the State of
Delaware, without giving effect to the principles of conflicts of law thereof.

Date Approved by Board of Directors of the Company: April 11, 1995

Date Approved by Stockholders of the Company: April 19, 1995

Date Amended by the Board of Directors of the Company: March 5, 1998

<PAGE>

SIDE A
- ------

TRANSWITCH CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 27, 1998

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 (the "Common Stock") of
TranSwitch Corporation (the "Corporation"), par value $.001 per share, and
Series A Convertible Preferred Stock of the Corporation, $.01 par value per
share, that the undersigned is entitled to vote at the Annual Meeting of
Stockholders of the Corporation to be held on Wednesday, May 27, 1998, 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 20, 1998, 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.

1. To elect a Board of Directors for the ensuing year.

[_] FOR all nominees listed [_] WITHHOLD AUTHORITY
below (except as marked to to vote for all
the contrary below) nominees listed below

Santanu Das
Steward S. Flaschen
David D. French
Erik H. van der Kaay
Charles Lee
Ljubomir Micic
Albert E. Paladino

INSTRUCTIONS: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below:

------------------------------------------------------------.

2. To approve and ratify the Corporation's Third Amended and Restated 1995
Stock Plan, with a total of 3,500,000 shares of Common Stock available
for issuance thereunder.

[_] FOR [_] AGAINST [_] ABSTAIN

3. To approve an amendment to the Corporation's 1995 Non-Employee Director
Stock Option Plan to (a) increase the number of shares of Common Stock
available for issuance thereunder by an additional 100,000 shares, to
a total of

<PAGE>

250,000 shares available for issuance thereunder, and (b) amend
Section 4(b) of the 1995 Non-Employee Director Stock Option Plan to
increase the annual option granted thereunder to each non-employee
director from an option to purchase 7,500 shares of Common Stock
on each one-year anniversary of the date that he or she is first
elected to the Board of Directors, to an option to purchase 9,600
shares of Common Stock on each one-year anniversary of the date that
he or she is first elected to the Board of Directors.

[_] FOR [_] AGAINST [_] ABSTAIN

4. 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, 1998.

[_] FOR [_] AGAINST [_] ABSTAIN

5. To transact such other business as may properly come before the
meeting.

SIDE B
- ------

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, 3 AND 4, AND DISCRETIONARY AUTHORITY WILL BE DEEMED
GRANTED UNDER ITEM 5.

Dated:_________________, 1998

__________________________________
Signature(s) of Stockholder(s)

__________________________________
Please Print Name:
(If signing as attorney, executor,
trustee or guardian, please give
your full title as such. If stock
is held jointly, each owner should
sign.)