TRANSWITCH CORP /DE, S-3/A, 1999-01-21

TRANSWITCH CORP /DE
S-3/A, 1999-01-21
SEMICONDUCTORS & RELATED DEVICES

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<PAGE>

As filed with the Securities and Exchange Commission on January 21, 1999

Registration No. 333-69005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------

AMENDMENT NO. 1

TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
TranSwitch Corporation
(Exact name of Registrant as specified in its charter)
---------------------
<TABLE>
<S> <C>
Delaware 3674 06-1236189
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Identification Number)
of incorporation or Classification Code
organization) Number)
</TABLE>

Three Enterprise Drive
Shelton, Connecticut 06484
(203) 929-8810
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
---------------------
Dr. Santanu Das
President and Chief Executive Officer
TranSwitch Corporation
Three Enterprise Drive
Shelton, Connecticut 06484
(203) 929-8810
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
Copies of all communications, including all communications sent to the agent
for service, should be sent to:

<TABLE>
<S> <C>
Timothy C. Maguire, Esq. Peter B. Tarr, Esq.
Testa, Hurwitz & Thibeault, LLP Hale and Dorr LLP
High Street Tower 60 State Street
125 High Street Boston, Massachusetts 02109
Boston, Massachusetts 02110 (617) 526-6000
(617) 248-7000
</TABLE>

Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.

If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following. [_]
---------------------

TranSwitch hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until TranSwitch shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The Information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED JANUARY 21, 1999

1,700,000 Shares

Common Stock

TranSwitch Corporation is offering 1,700,000 shares of its common stock.
TranSwitch's common stock is traded on the Nasdaq National Market under the
symbol "TXCC." The last reported sale price of the common stock on the Nasdaq
National Market on January 19, 1999 was $44.25 per share.

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

Investing in the Common Stock involves risks.

See "Risk Factors" beginning on page 6.

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

<TABLE>
<CAPTION>
Per share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions..........................
Proceeds to the Company.........................................
</TABLE>

The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.

TranSwitch has granted the underwriters a 30-day option to purchase up to an
additional 255,000 shares of common stock to cover over-allotments. BancBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
purchasers on , 1999.

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

BancBoston Robertson Stephens

NationsBanc Montgomery Securities LLC

Advest, Inc.

The date of this Prospectus is , 1999.
<PAGE>

A stylized ring of TranSwitch semiconductor devices overlaid on a magnified
photograph of a TranSwitch integrated circuit, together with three blocks of
text, as follows:

SONET/SDH

The SONET/SDH standards are deployed worldwide for the fiber-based public
network transport infrastructure. TranSwitch's SONET/SDH products are used to
build add drop multiplexers, cross connects and hybrid transport systems.

Asynchronous

TranSwitch's asynchronous products are used in the public network and in wide
area network equipment such as bandwidth managers, routers and Internet access
servers.

ATM

ATM is a technology for Broadband access and backbone networks. TranSwitch
cell/packet products are used to build multi-service platforms.
<PAGE>

Stylized representation, using block diagrams, of a global telecommunications
and data communications network, identifying TranSwitch applications in public
network, corporate WAN and Internet access applications.
<PAGE>

You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the common stock. In this prospectus, references
to the "Company," "TranSwitch," "we," "us" and "our" refer to TranSwitch
Corporation and its subsidiaries.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 6
Certain Information...................................................... 15
Use of Proceeds.......................................................... 15
Price Range of Common Stock.............................................. 16
Capitalization........................................................... 17
Dilution................................................................. 18
Dividend Policy.......................................................... 18
Selected Consolidated Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 20
Business................................................................. 27
Management............................................................... 41
Principal Stockholders................................................... 43
Description of Capital Stock............................................. 44
Underwriting............................................................. 46
Legal Matters............................................................ 47
Experts.................................................................. 47
Where You Can Find More Information...................................... 48
Index to Consolidated Financial Statements............................... F-1
</TABLE>

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

We own or have rights to trademarks or tradenames that we use in conjunction
with the sale of our products. TranSwitch, XBERT, SARA, COBRA, CUBIT and SALI-
25C are registered trademarks owned by us. CELLBUS, PHAME, ASPEN, McHDLC,
PHAST, Connectivity Engines and Engines for Global Connectivity are trademarks
of the Company.
<PAGE>

SUMMARY

Because this is only a summary, it does not contain all the information that
may be important to you. You should read the entire prospectus, especially
"Risk Factors" and the Consolidated Financial Statements and Notes, before
deciding to invest in our common stock. Unless otherwise indicated, all
information contained in this prospectus assumes that the underwriters will not
exercise their over-allotment option. This prospectus contains forward-looking
statements which involve risks and uncertainties. TranSwitch's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under
"Risk Factors" and elsewhere in this prospectus.

The Company

Our Business..........TranSwitch designs, develops, markets and supports
highly integrated digital and mixed-signal (analog
and digital) semiconductor solutions for the
telecommunications and data communications markets.
Our products are high-speed semiconductor solutions
that provide core functionality for equipment used in
communications networks. Our expertise in digital and
mixed-signal design, together with our
telecommunications experience, allows us to determine
and implement optimal combinations of design elements
to meet our customers' needs. We believe this
approach allows our customers to achieve faster time
to market and to introduce systems that offer greater
functionality and improved performance, while
reducing system size and cost.

Our Market............We target our products to equipment suppliers who
supply three fast-growing market segments: the
worldwide public network infrastructure for data and
voice communications, the Internet infrastructure
that supports the World Wide Web and other data
services, and corporate wide area networks. There is
an increasing worldwide demand for improvements in
communications infrastructure in order to provide
greater capacity and improved performance in
transmitting voice and data. As a result, new network
equipment is being designed and incorporated into
public networks used by local and long distance
telecommunications service providers, specialized
networks used by Internet service providers and
private computer networks. New fiber optic networks
are being built and new standards for transporting
voice and data traffic are emerging. The complexity
of these new networks requires the use of
semiconductor devices to allow network equipment
manufacturers to design and develop equipment faster
and at a lower cost.

Our Products..........Our products are Very Large Scale Integrated (VLSI)
semiconductor solutions that provide core
functionality for communications network equipment.
Our three product lines are designed to be compliant
with SONET/SDH, asynchronous and ATM
telecommunications and data communications standards.

Our Customers.........We have sold our VLSI semiconductor devices to more
than 400 customers worldwide. We sell our products
through a direct sales force and worldwide network of
independent distributors and sales representatives
located in the United States and 15 other countries.
Our customers are primarily original equipment
manufacturers which incorporate our products into the
networking equipment they sell to the
telecommunications and data communications markets.
Our customers include Alcatel, Ascend Communications,
Cisco, ECI Telecom, Ericsson, IBM, Lucent, Nortel,
Newbridge Networks, Siemens and Tellabs.

<PAGE>

Recent Operating
Results.......... On January 21, 1999, the Company announced operating
results for the quarter and year ended December 31,
1998. Total revenues for the fourth quarter of 1998
were $13.7 million, an increase of 64.3% over total
revenues of $8.3 million reported for the comparable
period in 1997. In addition, the Company reported net
income of $2.5 million, or diluted earnings per share
of $0.16, for the fourth quarter of 1998, compared to
net income of $433,000, or diluted earnings per share
of $0.03, for the comparable period in 1997. Total
revenues for the year ended December 31, 1998 were
$44.2 million, an increase of 63.1% over the $27.1
million reported for the year ended December 31,
1997. The Company reported net income of $6.0
million, or diluted earnings per share of $0.40, for
the year ended December 31, 1998, compared to a net
loss of $1.9 million, or a net loss per share of
$0.15, for the year ended December 31, 1997.

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by the Company ........... 1,700,000 shares
Common Stock Outstanding after the Offering.... 16,329,371 shares
Use of Proceeds................................ Working capital, potential acquisitions and
general corporate purposes.
Nasdaq National Market Symbol.................. TXCC.
</TABLE>

Summary Consolidated Financial Data
(in thousands, except per share data)

<TABLE>
<CAPTION>
September 30, 1998
----------------------
Actual As Adjusted(2)
------- --------------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments ...... $24,331 $ 95,138
Working capital......................................... 29,330 100,137
Total assets............................................ 43,283 114,090
Total stockholders' equity.............................. 35,514 106,321
</TABLE>
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(1) Net loss per share amount for 1993 not meaningful.

(2) Adjusted to reflect the proceeds from the sale of 1,700,000 shares of
common stock by the Company at an assumed public offering price of $44.25
per share and after deducting underwriting discounts and estimated offering
expenses. See "Use of Proceeds" and "Capitalization."

5
<PAGE>

RISK FACTORS

An investment in this common stock is very risky. You should carefully
consider the following risk factors, in addition to the remainder of this
prospectus, before purchasing the common stock. This prospectus contains
forward-looking statements that involve risks and uncertainties. Many factors,
including those described below, may cause actual results to differ materially
from anticipated results.

Operating Losses

Prior to the year ended December 31, 1998, we had not completed a profitable
year since our inception in 1988. As of September 30, 1998, we had an
accumulated deficit of $26.5 million. For 1997, we incurred a net loss of
approximately $1.9 million, and we realized net income of approximately $3.5
million for the nine months ended September 30, 1998. Our revenues have
increased in recent years, and revenues for recent quarters have exceeded
revenues for the same quarter of the prior year. Still, we cannot be certain
that we can sustain these growth rates or that we will remain profitable on a
quarterly or annual basis in the future. For more information, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Potential Fluctuations in Operating Results

Our quarterly and annual operating revenues, expenses and operating results
may fluctuate due to a number of factors including:

. the timing and cancellation of . our ability to introduce new
customer orders; products and technologies on a
timely basis;

. market acceptance of our and . introduction of products and
our customers' products; technologies by our
competitors;

. the level of orders received . the timing of our investments
which can be shipped in a in research and development,
quarter; including tooling expenses
associated with product
development and pre-
production;

. the timing and provision of . whether our customers buy from
pricing protections and a distributor or directly from
returns from our distributors; us;

. availability of foundry . competitive pressures on
capacity and raw materials; selling prices; and

. fluctuations in manufacturing . general economic conditions.
yields;

. changes in product mix;

Sudden shortages of raw materials or production capacity constraints can lead
semiconductor producers to allocate available supplies or capacity to larger
customers than us, which could interrupt our ability to meet our production
obligations. Historically, average selling prices in the semiconductor industry
have decreased over the life of a product, and as a result, the average selling
prices of our products may decrease in the future. Decreases in the price of
our products would adversely affect our operating results.

Our business is characterized by short-term orders and shipment schedules,
and customer orders typically can be canceled or rescheduled without
significant penalty to our customer. Because we do not have substantial
noncancellable backlog, we typically plan our production and inventory levels
based on internal forecasts of customer demand, which are highly unpredictable
and can fluctuate substantially.

Because we are continuing to increase our operating expenses for personnel
and new product development and for inventory in anticipation of increasing
sales levels, we must continue to generate increased sales to offset these
increased expenses. In addition, we are limited in our ability to reduce
expenses quickly in response to any revenue shortfalls. In response to
anticipated long lead times to obtain inventory and materials

6
<PAGE>

from our foundries, we may order in advance of anticipated customer demand,
which might result in excess inventory levels if the expected orders fail to
materialize. As a result, we cannot predict the timing and amount of sales to
our customers, and any significant downturn in customer demand for our products
would reduce our quarterly and our annual operating results.

Management of Growth

Due to the level of technical and marketing expertise necessary to support
our existing and new customers, we must attract highly qualified and well-
trained personnel. There may be only a limited number of persons with the
requisite skills to serve in these positions, and it may become increasingly
difficult for us to hire such personnel. As we expand, we may also
significantly strain our management, manufacturing, financial, systems and
other resources. We cannot be certain that our systems, procedures, controls
and existing space will be adequate to support our operations.

We Depend on Outside Fabrication Facilities

We do not own or operate a Very Large Scale Integrated (VLSI) circuit
fabrication facility. Four foundries currently supply us with most of our
semiconductor device requirements. While we have had good relations with these
foundries, we cannot be certain that we will be able to renew or maintain
contracts with them. In addition, we cannot be certain that renewed or new
contracts will contain terms as favorable as our current terms. There are other
significant risks associated with our reliance on outside foundries, including:

.the lack of assured semiconductor wafer supply and control over delivery
schedules;

.the unavailability of, or delays in obtaining access to, key process
technologies; and

.limited control over quality assurance, manufacturing yields and
production costs.

In addition, manufacturing integrated circuits is a highly complex and
technology-demanding process. Although we try to diversify our sources of
semiconductor devices and work closely with our foundries to minimize the
likelihood of reduced manufacturing yields, our foundries occasionally
experience lower than anticipated manufacturing yields, particularly in
connection with the introduction of new products and the installation and
start-up of new process technologies. Such reduced manufacturing yields have at
times reduced our operating results.

Limited Capacity and Few Foundries Able to Supply Our Manufacturing Needs

We purchase semiconductor devices from outside foundries pursuant to purchase
orders. We do not have a guaranteed level of production capacity at any of our
foundries. We provide the foundries with rolling forecasts of our production
requirements; however, the ability of each foundry to provide wafers to us is
limited by the foundry's available capacity. Therefore, our foundry suppliers
could choose to prioritize capacity for other customers or reduce or eliminate
deliveries to us on short notice. Accordingly, we cannot be certain that our
foundries will allocate sufficient capacity to satisfy our requirements.

We have been, and expect in the future to be, particularly dependent upon a
limited number of foundries for our VLSI device requirements. In particular, as
of the date of this prospectus, a single foundry supplier manufactures all of
our semiconductor devices manufactured utilizing the BiCMOS process. As a
result, we expect that we could experience a substantial delay or interruption
in the shipment of our products due to the following:

. sudden demand for an increased amount of semiconductor devices or
sudden reduction or elimination of any existing source or sources of
semiconductor devices;

. time required to qualify alternative manufacturing sources for
existing or new products could be substantial; or

. failure to find alternative manufacturing sources to produce VLSI
devices with acceptable manufacturing yields.

7
<PAGE>

Dependence on Telecommunications, Internet and Data Communications Markets

We derive virtually all of our product revenues from sales of products for
telecommunications, Internet and data communications applications. These
markets are characterized by the following:

. intense competition;

. rapid technological change; and

. short product life cycles, especially in the data communications
market.

In addition, although the telecommunications, Internet and data
communications equipment markets have grown rapidly in the last few years, we
cannot be certain that these markets will continue to grow or that a
significant slowdown in these markets will not occur.

Products for telecommunications, Internet and data communications
applications are based on industry standards, which are continually evolving.
Our future success will depend, in part, upon our ability to successfully
develop and introduce new products based on emerging industry standards, which
could render our existing products unmarketable or obsolete. If the
telecommunications, Internet or data communications markets evolve to new
standards, we cannot be certain that we will be able to successfully design and
manufacture new products that address the needs of our customers or that such
new products will meet with substantial market acceptance. In addition, a
substantial majority of our revenues have been, and are expected to continue to
be, derived from sales of SONET/SDH (Synchronous Optical Network/Synchronous
Digital Hierarchy) and ATM (Asynchronous Transfer Mode) products. Failure of
our SONET/SDH and ATM-based products to achieve a significant degree of market
acceptance will reduce our operating results.

Dependence on New Products; Risk of Product Development Delays

Our success depends upon our ability to do the following:

. develop new VLSI devices for existing and new markets;

. introduce these products in a timely manner; and

. have such products selected for design into new products of leading
systems manufacturers.

The development of these new devices is highly complex, and from time to time
we have experienced delays in completing the development of new products.
Successful product development and introduction depends on a number of factors,
including the following:

. accurate new product definition;

. timely completion and introduction of new product designs;

. availability of foundry capacity;

. achievement of manufacturing yields; and

. market acceptance of our products and our customers' products.

Our success also depends upon our ability to do the following:

. build products to applicable standards;

. develop products that meet customer requirements;

. adjust to changing market conditions as quickly and cost-effectively
as necessary to compete successfully;

8
<PAGE>

. introduce new products that achieve market acceptance; and

. introduce new products in a timely and cost-effective manner and in
sufficient quantities to meet customer demand.

In addition, we cannot ensure that the electronic systems manufactured by our
customers will be introduced in a timely manner or that such systems will
achieve market acceptance.

We generally incorporate our new products into our customers' products or
systems at the design stage. However, customer decisions to use our products
(design wins), which can often require significant expenditures by us without
any assurance of success, often precede the generation of volume sales, if any,
by a year or more. Moreover, the value of any design win will largely depend
upon the commercial success of the customer's product and on the extent to
which the design of the customer's electronic system accommodates components
manufactured by our competitors. We cannot ensure that we will continue to
achieve design wins.

Customer Concentration

Historically, a relatively small number of customers have accounted for a
significant portion of our total revenues in any particular period. We have no
long-term volume purchase commitments from any of our significant customers.
The following table sets forth, for the periods indicated, the percentage of
our total revenues derived from our significant customers listed below:

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
----------------------- -----------------
Customer 1995 1996 1997 1998
-------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Columbia Technology (1).............. * * * 18%
Insight Electronics, Inc.(1)......... 16% 16% 41% 22%
Tellabs Operations, Inc.(2).......... 17% 14% 16% 20%
ECI Telecom Ltd. .................... * 22% * *
</TABLE>
- --------
* Below 10% of our total revenues
(1) Columbia Technology and Insight Electronics are distributors of our
products to various end-users, none of which comprised more than 10% of our
total revenues during the periods mentioned.
(2) The Company's sales to Tellabs during 1995, 1996 and 1997 were made through
Reptron Electronics, Inc., Tellabs' designated distributor. In the nine-
month period ended September 30, 1998, sales to Tellabs were made through
Reptron and Arrow Electronics, Inc., also Tellabs' designated distributor.
Sales to Tellabs through Arrow during this period represented 14% of the
Company's total revenues.

We anticipate that sales of our products to relatively few customers will
continue to account for a significant portion of our total revenues. Due to
these factors, some of the following may reduce our operating results:

. reduction, delay or cancellation of orders from one or more of our
significant customers;

. development by one or more of our significant customers of other
sources of supply;

. selection by one or more of our significant customers of devices
manufactured by one of our competitors for inclusion in future product
generations;

. loss of one or more of our current customers or a disruption in our
sales and distribution channels; or

. failure of one of our significant customers to make timely payment of
our invoices.

We cannot be certain that our current customers will continue to place orders
with us, that orders by existing customers will continue at the levels of
previous periods or that we will be able to obtain orders from new customers.

<PAGE>

Our Success Depends on Intellectual Property

Our success depends in part on our ability to obtain patents and licenses and
to preserve other intellectual property rights covering our products and
development and testing tools. To that end, we have obtained certain domestic
and foreign patents and intend to continue to seek patents on our inventions
when appropriate. The process of seeking patent protection can be time
consuming and expensive. We cannot ensure the following:

. patents will issue from currently pending or future applications;

. our existing patents or any new patents will be sufficient in scope or
strength to provide meaningful protection or any commercial advantage
to us;

. foreign intellectual property laws will protect our intellectual
property rights; or

. others will not independently develop similar products, duplicate our
products or design around any patents issued to us.

Intellectual property rights are uncertain and involve complex legal and
factual questions. We may be unknowingly infringing on the proprietary rights
of others and may be liable for that infringement, which could result in
significant liability for us. We are not aware of any third party intellectual
property rights that would prevent our use and sale of our products, although
we have received correspondence from others alleging infringement. If we do
infringe the proprietary rights of others, we could be forced to either seek a
license to intellectual property rights of others or alter our products so that
they no longer infringe the proprietary rights of others. A license could be
very expensive to obtain or may not be available at all. Similarly, changing
our products or processes to avoid infringing the rights of others may be
costly or impractical.

We are responsible for any patent litigation costs. If we were to become
involved in a dispute regarding intellectual property, whether ours or that of
another company, we may have to participate in legal proceedings. These types
of proceedings may be costly and time consuming for us, even if we eventually
prevail. If we do not prevail, we might be forced to pay significant damages,
obtain a license or stop making a certain product.

We also rely on trade secrets, proprietary know-how and confidentiality
provisions in agreements with employees and consultants to protect our
intellectual property. Other parties may not comply with the terms of their
agreements with us, and we may not be able to adequately enforce our rights
against these people.

Competition

The semiconductor industry is intensely competitive and is characterized by
the following:

. price erosion;

. rapid technological change;

. shortage in fabrication capacity;

. heightened international competition in many markets; and

. unforeseen manufacturing yield problems.

These factors are likely to result in pricing pressures on our products,
potentially affecting our margins.

Our ability to compete successfully in the rapidly evolving area of high-
performance integrated circuit technology depends on factors both within and
outside our control, including:

. success in designing and subcontracting the manufacture of new
products that implement new technologies;

. protection of our products by effective utilization of intellectual
property laws;

. product quality;

10
<PAGE>

. reliability;

. price;

. efficiency of production;

. the pace at which customers incorporate our integrated circuits into
their products;

. success of competitors' products; and

. general economic conditions.

Our competition consists of suppliers from the United States as well as other
countries, including competition from semiconductor divisions of vertically
integrated companies such as IBM Corporation, Lucent Technologies, NEC
Corporation and Siemens AG. New entrants will probably attempt to obtain a
share of the market for our current and future products. Certain of our
competitors are more established, benefit from greater market recognition and
have substantially greater financial, development, manufacturing, and marketing
resources than we have.

Foreign Sales

Foreign sales are a significant part of our total revenues. The table below
sets forth, for the periods indicated, the dollar amount of our revenue derived
from Europe, the Middle East, the Far East and Canada and other regions:

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
----------------------------------------- -----------------
Region 1995 1996 1997 1998
------ ------------- ------------- ------------- -----------------
(in millions) (in millions) (in millions) (in millions)
<S> <C> <C> <C> <C>
Europe ................. $3.1 $2.1 $3.9 $ 2.8
Middle East ............ -- 4.2 0.5 3.9
Far East................ 1.8 2.0 2.9 7.3
Canada and other
regions............... 1.6 0.6 1.7 0.5
---- ---- ---- -----
Total Foreign Sales..... $6.5 $8.9 $9.0 $14.5
</TABLE>

Foreign sales represented 38%, 46%, 33% and 48% of total revenues for the
years ended December 31, 1995, 1996 and 1997 and the nine months ended
September 30, 1998, respectively. We expect foreign sales to continue to
account for a significant percentage of our revenues. A significant portion of
our total revenues will therefore be subject to risks associated with foreign
sales, including the following:

. unexpected changes in legal and regulatory requirements and policy
changes affecting the telecommunications and data communications
markets;

. changes in tariffs;

. exchange rates and other barriers;

. political and economic instability;

. difficulties in accounts receivable collection;

. difficulties in managing distributors or representatives;

. difficulties in staffing and managing foreign operations;

. difficulties in protecting our intellectual property overseas;

. seasonality of sales; and

. potentially adverse tax consequences.

In particular, sales to Pacific Rim countries may be impacted by the current
financial instability plaguing these nations. The currency fluctuations and
difficulty of obtaining loans from unstable banking and other financial
institutions in the Far East may cause our customers in that region to delay or
reduce their orders.

11
<PAGE>

Although our sales to date have been denominated in United States dollars, the
value of the United States dollar in relation to foreign currencies may also
reduce our sales to foreign customers. To the extent that we expand our
international operations or change our pricing practices to denominate prices
in foreign currencies, we will expose our margins to increased risks of
currency fluctuations.

The Semiconductor Industry

We provide semiconductor devices to telecommunications and data
communications OEMs. The semiconductor industry is highly cyclical and has been
subject to significant economic downturns at various times, characterized by:

. diminished product demand;

. accelerated erosion of selling prices; and

. production over-capacity.

We may experience substantial fluctuations in future operating results due to
general semiconductor industry conditions, overall economic conditions or other
factors.

Transition to New Process Technologies

Our future success depends upon our ability to do the following:

. develop products that utilize new process technologies;

. introduce new process technologies to the marketplace ahead of
competitors; and

. have new process technologies selected to be designed into products of
leading systems manufacturers.

Semiconductor design and process methodologies are subject to rapid
technological change, and require large expenditures for research and
development. We currently manufacture our products using 0.8, 0.5 or 0.35
micron CMOS processes or a 1.0 micron BiCMOS process. We continuously evaluate
the benefits, on a product-by-product basis, of migrating to smaller geometry
process technologies. Other companies in the industry have experienced
difficulty in transitioning to new manufacturing processes and, consequently,
have suffered reduced yields or delays in product deliveries. We believe that
transitioning our products to smaller geometries will be important for us to
remain competitive, and we cannot be certain that we can successfully make such
transitions, if at all, without delay or inefficiencies.

Dependence On Key Personnel

Our success depends largely upon the continued service of our executive
officers, including Dr. Santanu Das, President, Chief Executive Officer and
Chairman of the Board of Directors, and other key management and technical
personnel, including Daniel C. Upp, Vice President, Technology Strategy, and on
our ability to continue to attract, retain and motivate other qualified
personnel. The competition for such employees is intense. To help retain the
continued services of Dr. Das and Mr. Upp, we have entered into a Severance
Agreement with each of them, which provides for the following payments in case
of termination without cause or resignation due to a significant reduction in
the nature or scope of employment:

. in the case of Dr. Das, twelve months' then-current base salary and
one hundred percent (100%) of the highest annual bonus paid to him
over the previous five years; and

. in the case of Mr. Upp, six months' then-current base salary and fifty
percent (50%) of the highest annual bonus paid to him over the
previous five years.

12
<PAGE>

We have also entered into Executive Agreements with Dr. Das, Mr. Upp and
other designated key personnel, which provide for the following payments in
case of termination without cause if our Company undergoes a change in control:

. in the case of Dr. Das, twelve months' then-current base salary and
one hundred percent (100%) of the highest annual bonus paid to him
over the previous five years; and

. in the case of Mr. Upp, and other designated key personnel, six
months' then-current base salary and fifty percent (50%) of the
highest annual bonus paid to each such person over the previous five
years.

If either Dr. Das or Mr. Upp is entitled to payments under both agreements,
he will receive only the maximum amount payable to him under one of the
agreements. We have no long-term employment contracts with any of our
employees.

Volatility of Stock Price

The market for securities of high technology companies, including our
Company, has been highly volatile. The market sale price of our common stock
has fluctuated between $45 1/4 and $3 5/8 from June 19, 1995 to January 19,
1999, and the last sale price was $44 1/4 on January 19, 1999. It is likely
that the price of the common stock will continue to fluctuate widely in the
future. Factors affecting the trading price of our common stock include:

. responses to quarter-to-quarter variations in operating results;

. announcements of technological innovations or new products by us or
our competitors;

. general conditions in the telecommunications and data communications
equipment markets; and

. changes in earnings estimates by analysts.

Dilution

Investors in this offering will incur immediate and substantial dilution in
the net tangible book value per share of our common stock.

Year 2000

Many currently installed computer systems and software products are dependent
upon internal calendars coded to accept only two digit entries in the date code
field. These date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. Computer systems and
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements.

None of our current products utilize internal calendars that are dependent
upon the input of a specific date. As a result, all of our current products are
inherently Year 2000 compliant. Moreover, based on assessments made to date, we
do not anticipate material disruptions to our operations as a result of Year
2000 issues.

However, if certain critical vendors, service providers or business partners,
such as foundries, public utilities providing electricity, water or telephone
service, financial institutions with whom we maintain accounts or key suppliers
of our parts and materials, fail to provide needed services to us, or to our
key outside suppliers or customers, customer orders could decline or our
operations could shut down for as long as the failure or failures persist. At
present, we have not developed contingency plans, but we will determine whether
to develop any such plans as we complete our assessment of Year 2000 issues.
Accordingly, we cannot be certain that Year 2000 issues will not adversely
affect our business, results of operations and financial results.

13
<PAGE>

Risks Associated with Potential Acquisitions

We may pursue acquisitions that could provide new technologies, products or
service offerings. Future acquisitions by us may involve the following:

. use of significant amounts of cash;

. potentially dilutive issuances of equity securities; or

. incurrence of debt or amortization expenses related to goodwill and
other intangible assets.

In addition, acquisitions involve numerous risks, including:

. difficulties in the assimilation of the operations, technologies,
product and personnel of the acquired company;

. the diversion of management's attention from other business concerns;

. risks of entering markets in which we have no or limited prior
experience; and

. the potential loss of key employees of the acquired company.

We have engaged in discussions in the past with third parties concerning
potential acquisitions of product lines, technologies and businesses. However,
we currently have no commitments or agreements with respect to any such
acquisition. In the event that such an acquisition does occur, we cannot be
certain that our business, operating results and financial condition will not
be materially adversely affected.

Anti-Takeover Effect of Delaware Law and Certain Charter and By-law Provisions

Delaware corporate law contains, and our certificate of incorporation and by-
laws contain, certain provisions that could have the effect of delaying,
deferring or preventing a change in control of our Company. These provisions
could limit the price that certain investors might be willing to pay in the
future for shares of our common stock. Certain of these provisions:

. authorize the issuance of "blank check" preferred stock (preferred
stock which our board of directors can create and issue without prior
stockholder approval) with rights senior to those of common stock;

. prohibit stockholder action by written consent; and

. establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can
be acted upon by stockholders at a meeting.

14
<PAGE>

CERTAIN INFORMATION

TranSwitch was incorporated in Delaware on April 26, 1988. Our executive
offices are located at 3 Enterprise Drive, Shelton, Connecticut, and our
telephone number is (203) 929-8810. Our web site is located at
www.transwitch.com. Information contained on our web site is not part of this
prospectus.

USE OF PROCEEDS

The net proceeds to TranSwitch from the sale of 1,700,000 shares of common
stock offered by TranSwitch hereby at an assumed public offering price of
$44.25 and after deducting underwriting discounts and commissions and estimated
offering expenses, are estimated to be approximately $70.8 million
(approximately $81.5 million if the underwriters' over-allotment option is
exercised in full).

TranSwitch intends to use the proceeds of this offering primarily for general
corporate purposes, including working capital and purchases of capital
equipment. TranSwitch may also use a portion of the net proceeds for
acquisitions of complementary businesses, products or technologies, although we
currently have no commitments or agreements for any such acquisitions. Pending
such uses, TranSwitch expects to invest the net proceeds in short-term,
interest-bearing, investment grade securities.

<PAGE>

PRICE RANGE OF COMMON STOCK

TranSwitch's common stock is traded on the Nasdaq National Market under the
symbol "TXCC." The following table sets forth, for the period indicated, the
range of high and low bid prices for TranSwitch's common stock on the Nasdaq
National Market.

<TABLE>
<CAPTION>
Price Range of
Common Stock
-----------------
High Low
-------- --------
<S> <C> <C>
Year Ended December 31, 1996:
First Quarter.............................................. $ 13 5/8 $ 7 7/8
Second Quarter............................................. 21 3/8 4 3/8
Third Quarter.............................................. 13 5 1/2
Fourth Quarter............................................. 6 7/8 3 5/8
Year Ended December 31, 1997:
First Quarter.............................................. $ 7 3/8 $ 4 5/8
Second Quarter............................................. 9 3/4 4
Third Quarter.............................................. 12 1/8 8 1/8
Fourth Quarter............................................. 14 1/8 6 3/4
Year Ended December 31, 1998:
First Quarter.............................................. $ 12 3/8 $ 7 1/2
Second Quarter............................................. 15 1/8 10 3/4
Third Quarter.............................................. 19 7/8 12 3/4
Fourth Quarter ............................................ 44 7/8 10 7/8
Year Ended December 31, 1999:
First Quarter (through January 19, 1999) .................. $ 43 7/8 $ 33
</TABLE>

As of December 9, 1998, there were approximately 166 holders of record of the
common stock. On January 19, 1999, the last sale price reported on the Nasdaq
National Market for the common stock was $44.25 per share.

16
<PAGE>

CAPITALIZATION

The following table reflects the actual capitalization of TranSwitch at
September 30, 1998 and as adjusted to reflect the receipt of the estimated
proceeds from the sale of 1,700,000 shares of common stock at an assumed public
offering price of $44.25 per share and after deducting underwriting discounts
and estimated offering expenses.

<TABLE>
<CAPTION>
Actual As Adjusted
-------- -----------
(in thousands)
<S> <C> <C>
Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized; none issued and outstanding.............. $ -- $ --
Common stock, $0.001 par value, 25,000,000 shares
authorized; 14,315,104 shares outstanding;
16,015,104 shares outstanding, as adjusted(1)........ 14 16
Additional paid-in capital............................. 61,959 132,764
Accumulated (deficit).................................. (26,459) (26,459)
-------- --------
Total stockholders' equity.......................... 35,514 106,321
-------- --------
Total capitalization................................ $ 35,514 $106,321
======== ========
</TABLE>
- --------
(1) Excludes 2,481,898 shares of common stock issuable upon exercise of stock
options outstanding as of September 30, 1998 at a weighted average exercise
price of $7.65 per share.

17
<PAGE>

DILUTION

"Dilution" represents the difference between the assumed price to public per
share of common stock and the net tangible book value per share immediately
after the completion of this offering. "Net tangible book value per share"
represents the amount of total tangible assets less total liabilities, divided
by the number of shares of common stock outstanding.

The net tangible book value of TranSwitch as of September 30, 1998 was $34.5
million, or $2.41 per share of common stock. After giving effect to our sale of
1,700,000 shares of common stock in this offering, assuming a public offering
price of $44.25 per share and after deduction of underwriting discounts and
commissions and estimated offering expenses, the pro forma net tangible book
value of the common stock as of September 30, 1998 would have been
approximately $105.3 million, or $6.58 per share. This represents an immediate
increase in net tangible book value of $4.17 per share to existing stockholders
and an immediate dilution in net tangible book value of $37.67 per share to new
investors purchasing shares at the public offering price.

The following table illustrates the dilution per share as described above:

<TABLE>
<S> <C> <C>
Assumed public offering price..................................... $44.25
Net tangible book value before the offering..................... $2.41
Increase attributable to new investors.......................... $4.17
-----
Pro forma net tangible book value after the offering.............. $ 6.58
------
Dilution to new investors......................................... $37.67
======
</TABLE>

We have reserved 2,481,898 shares of common stock for issuance upon the
exercise of stock options outstanding as of September 30, 1998, at a weighted
average exercise price of $7.65 per share. The issuance of shares upon exercise
of these options is not reflected in the preceding table. If all these
outstanding options were exercised in full, the dilution per share to new
investors would be $38.42.

DIVIDEND POLICY

We intend to retain any future earnings to finance the growth and development
of our business, and we do not plan to pay any cash dividends in the
foreseeable future. In addition, our working capital credit line with Silicon
Valley Bank prohibits our payment of cash dividends without the bank's consent.

18
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this prospectus. The consolidated statements
of operations data for the years ended December 31, 1995, 1996 and 1997 and the
consolidated balance sheet data at December 31, 1996 and 1997 presented below
are derived from, and are qualified in their entirety by reference to, the
consolidated financial statements of TranSwitch, which have been audited by
KPMG LLP, independent certified public accountants, and together with their
report thereon are included elsewhere in this prospectus. The consolidated
statements of operations data for the years ended December 31, 1993 and 1994
and the consolidated balance sheet data at December 31, 1993, 1994 and 1995 are
derived from TranSwitch's audited consolidated financial statements not
included herein. The consolidated statements of operations data for the nine
months ended September 30, 1997 and 1998 and the consolidated balance sheet
data at September 30, 1998 are derived from TranSwitch's unaudited consolidated
financial statements that are included elsewhere in this prospectus and
include, in the opinion of management, all adjustments, consisting only of
normal recurring adjustments necessary for a fair presentation of the
information set forth therein. The results of operations for the nine months
ended September 30, 1998 are not necessarily indicative of results expected for
the full year of 1998 or future results.

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- -------- ------- -------- --------
(in thousands, except per share data)
Consolidated Statements of Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues.......................................... $12,018 $12,101 $17,466 $ 19,650 $27,084 $ 18,750 $ 30,477
Total cost of revenues.................................. 6,012 5,916 7,395 13,806 11,254 8,005 11,619
------- ------- ------- -------- ------- -------- --------
Gross profit............................................ 6,006 6,185 10,071 5,844 15,830 10,745 18,858
------- ------- ------- -------- ------- -------- --------
Operating expenses:
Research and development.............................. 4,075 5,551 6,660 8,928 9,194 6,841 7,967
Marketing and sales................................... 1,757 3,348 4,329 5,454 6,681 4,970 6,163
General and administrative............................ 1,276 1,357 1,472 2,229 2,288 1,608 1,825
------- ------- ------- -------- ------- -------- --------
Total operating expenses........................... 7,108 10,256 12,461 16,611 18,163 13,419 15,955
------- ------- ------- -------- ------- -------- --------
Operating income (loss)................................. (1,102) (4,071) (2,390) (10,767) (2,333) (2,674) 2,903
Interest income, net.................................... 8 134 617 690 460 368 763
------- ------- ------- -------- ------- -------- --------
Income (loss) before provision for income taxes......... (1,094) (3,937) (1,773) (10,077) (1,873) (2,306) 3,666
------- ------- ------- -------- ------- -------- --------
Provision for income taxes.............................. -- -- -- -- -- -- 164
------- ------- ------- -------- ------- -------- --------
Net income (loss)....................................... $(1,094) $(3,937) $(1,773) $(10,077) $(1,873) $ (2,306) $ 3,502
======= ======= ======= ======== ======= ======== ========
Basic earnings (loss) per share (1)..................... -- $ (0.48) $ (0.18) $ (0.86) $ (0.15) $ (0.19) $ 0.26
======= ======= ======= ======== ======= ======== ========
Weighted average shares outstanding..................... -- 8,178 10,062 11,751 12,152 12,103 13,701
------- ------- ------- -------- ------- -------- --------
Diluted earnings (loss) per share ...................... -- $ (0.48) $ (0.18) $ (0.86) $ (0.15) $ (0.19) $ 0.24
======= ======= ======= ======== ======= ======== ========
Weighted average shares and share equivalents outstanding.. -- 8,178 10,062 11,751 12,152 12,103 14,579
------- ------- ------- -------- ------- -------- --------
</TABLE>

<TABLE>
<CAPTION>
December 31, September 30, 1998
----------------------------------------- ----------------------
1993 1994 1995 1996 1997 Actual As Adjusted(2)
------- ------- ------- ------- ------- ------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash, cash equivalents
and short-term
investments............ $ 6,702 $ 3,352 $17,250 $12,688 $21,618 $24,331 $ 95,138
Working capital......... 7,634 3,656 21,811 14,650 25,648 29,330 100,137
Total assets............ 10,994 8,969 32,670 23,311 36,589 43,283 114,090
Notes payable to banks,
less current portion... -- 469 -- -- -- -- --
Mandatorily redeemable
convertible preferred
stock.................. 20,211 20,252 -- -- -- -- --
Convertible preferred
stock.................. -- -- -- -- 14,357 -- --
Total stockholders'
equity (deficit)....... (11,445) (15,324) 26,706 17,299 30,161 35,514 106,321
</TABLE>
- -------
(1) Net loss per share amount for 1993 not meaningful.

(2) Adjusted to reflect the sale of 1,700,000 shares of common stock by the
Company at an assumed public offering price of $44.25 per share and after
deducting the underwriting discounts and estimated offering expenses.

19
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks
and uncertainties. When used in this prospectus, the words "intend,"
"anticipate," "believe," "estimate," "plan" and "expect" and similar
expressions as they relate to us are included to identify forward-looking
statements. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this
prospectus.

Overview

TranSwitch Corporation commenced its operations in April 1988. Since
incorporation, TranSwitch has designed, sourced and marketed high-speed VLSI
semiconductor devices for public and private network applications worldwide.
TranSwitch shipped its first product in 1990 and has increased its volume of
shipments over the last eight years. TranSwitch's product development efforts
have been focused on devices that meet the needs of public and private network
telecommunications and data communications equipment providers that serve the
telecommunications public network, Internet and corporate wide-area network
markets, and are compliant with established standards in these markets,
including SONET/SDH, asynchronous and ATM.

The Company derives its revenues from product sales principally to domestic
and international telecommunications and data communications equipment OEMs and
to distributors. Revenues are recognized on product shipment. Agreements with
certain distributors provide price protection and return and allowance rights.
In certain cases, the Company works with network equipment OEMs during their
system design phase with the goal of having TranSwitch products designed into
the OEM's products. The Company's sales cycle often extends over more than one
year because of the long lead times between the OEM's design to the start of
volume shipments. The Company incurs product research and development expenses
well before the generation of substantial revenues from product sales to OEMs.
A significant portion of the Company's total revenues has been, and is
anticipated to be, derived from foreign sales. All foreign sales are currently
denominated in U.S. dollars. The Company's cost of revenues consists primarily
of the purchase cost of finished VLSI devices produced by third party
semiconductor manufacturers. The Company intends to continue to outsource all
of its VLSI device fabrication requirements.

Prior to the year ended December 31, 1998, TranSwitch had not been
profitable, on a yearly basis, since its inception. As of September 30, 1998,
TranSwitch had an accumulated deficit of $26.5 million. TranSwitch's operating
results are subject to quarterly and annual fluctuations as a result of several
factors that could materially and adversely affect profitability. These factors
include, among others:

. the timing and cancellations of the Company's customers' orders;

. market acceptance of the Company's products and those of its
customers;

. the level of orders received which can be shipped in a quarter;

. the timing and provision of pricing protections and returns from the
Company's distributors;

. availability of foundry capacity and raw materials;

. fluctuations in manufacturing yield;

. changes in product mix;

. TranSwitch's ability to introduce new products and technologies on a
timely basis;

. the introduction of products and technologies by the Company's
competitors;

. the timing of the Company's investments in research and development;

. whether TranSwitch's customers buy from a distributor or directly from
the Company;

. competitive pressure on selling prices; and

. general economic conditions.

20
<PAGE>

Recent Operating Results

On January 21, 1999, the Company announced operating results for the quarter
and year ended December 31, 1998. A summary of such announcement is set forth
in the paragraph below containing certain preliminary unaudited financial data
for the quarter and year ended December 31, 1998. The Company's operating
results for any one quarter are not necessarily indicative of future results of
operations and should be read in conjunction with the Company's audited
consolidated financial statements and the notes thereto included elsewhere in
this prospectus.

Total revenues for the fourth quarter of 1998 were $13.7 million, an increase
of 64.3% over total revenues of $8.3 million reported for the comparable period
in 1997. In addition, the Company reported net income of $2.5 million, or
diluted earnings per share of $0.16, for the fourth quarter of 1998, compared
to net income of $433,000, or diluted earnings per share of $0.03, for the
comparable period in 1997. Total revenues for the year ended December 31, 1998
were $44.2 million, an increase of 63.1% over the $27.1 million reported for
the year ended December 31, 1997. The Company reported net income of $6.0
million, or diluted earnings per share of $0.40, for the year ended December
31, 1998, compared to a net loss of $1.9 million, or a net loss per share of
$0.15, for the year ended December 31, 1997.

Results of Operations

The following table sets forth, for the periods indicated, consolidated
statements of operations data as a percentage of total revenues:

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
--------------------------- -------------------
1995 1996 1997 1997 1998
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Total revenues............. 100.0 % 100.0 % 100.0 % 100.0 % 100.0%
Total cost of revenues..... 42.3 70.3 41.6 42.7 38.1
------- ------- ------- -------- --------
Gross profit............... 57.7 29.7 58.4 57.3 61.9
------- ------- ------- -------- --------
Operating expenses
Research and
development............ 38.1 45.4 33.9 36.5 26.2
Marketing and sales...... 24.8 27.8 24.7 26.5 20.2
General and
administrative......... 8.4 11.3 8.4 8.6 6.0
------- ------- ------- -------- --------
Total operating
expenses............ 71.3 84.5 67.0 71.6 52.4
------- ------- ------- -------- --------
Operating income (loss).... (13.6) (54.8) (8.6) (14.3) 9.5
Interest income, net....... 3.5 3.5 1.7 2.0 2.5
------- ------- ------- -------- --------
Income (loss) before
provision for income
taxes.................... (10.1) (51.3) (6.9) (12.3) 12.0
Provision for income
taxes.................... -- -- -- -- 0.5
------- ------- ------- -------- --------
Net income (loss).......... (10.1)% (51.3)% (6.9)% (12.3)% 11.5%
======= ======= ======= ======== ========
</TABLE>

Nine Month Periods Ended September 30, 1998 and 1997

Revenues. Total revenues for the nine months ended September 30, 1998 were
$30.5 million, an increase of 62.0% over the $18.8 million for the nine months
ended September 30, 1997. The increase in revenue in the nine-month period is
primarily attributable to the increase in sales of the SONET/SDH and ATM
product lines.

Foreign sales, primarily consisting of sales to customers in Europe, the
Middle East and the Far East, constituted 48% and 27% of the total revenues for
the nine-month periods ended September 30, 1998 and 1997, respectively.
TranSwitch anticipates that foreign sales will continue to represent a
significant portion of total revenues, particularly as TranSwitch opens direct
sales offices in foreign countries. TranSwitch maintains a sales support office
in Europe and one in the Far East. A significant portion of TranSwitch's total
revenues may be subject to risks associated with foreign sales, including
unexpected changes in legal and regulatory

21
<PAGE>

requirements and policy changes affecting the telecommunications and data
communications markets, changes in tariffs, exchange rates and other barriers,
political and economic instability, and potentially adverse tax consequences.
In particular, sales to Pacific Rim countries may be impacted by the current
financial instability plaguing these nations. The currency fluctuations and
difficulty of obtaining loans from unstable banking and other financial
institutions in the Far East may cause TranSwitch's customers in that region to
delay or reduce their orders.

Gross profit. Gross profit is derived from product sales. Cost of products
sold includes the cost of production of finished semiconductors produced by
third-party vendors, direct and indirect costs associated with procurement,
testing and other quality assurance procedures followed by TranSwitch, product
royalty fees and the amortization of product licenses. Gross profit for the
nine months ended September 30, 1998 was $18.9 million, compared to $10.7
million for the same period in 1997. Gross margin for the nine months ended
September 30, 1998 was 61.9%, compared to 57.3% for the same period in 1997.
The increase in gross profit and margin is principally the result of improved
costs from TranSwitch's vendors achieved as TranSwitch purchased higher volumes
of products.

Research and development. In the nine-month period ended September 30, 1998,
research and development expenses were 26.2% of total revenues, as compared to
36.5% for the same period in 1997; spending in the nine months ended September
30, 1998 was $8.0 million, representing a 16.5% increase over the $6.8 million
for the comparable period in 1997. The increases in period-over-period expense
were the result of TranSwitch's continued investment in research and
development activities. The decreases as a percentage of total revenues in the
nine-month period ended September 30, 1998 were attributable to the growth in
revenues from the comparable period in 1997. TranSwitch believes that the
continued introduction of new products is essential to its competitiveness and
is committed to continued investment in research and development. TranSwitch
believes that its research and development expenses will increase in absolute
dollars in the future as it continues to add products to all of its product
lines.

Marketing and sales. In the nine-month period ended September 30, 1998,
marketing and sales expenses were 20.2% of total revenues, compared to 26.5%
for the same period in 1997. Total spending increased 24.0% to $6.2 million for
the nine-month period ended September 30, 1998, as compared to $5.0 million in
the comparable period in 1997. The increases in spending were primarily the
result of the increase in marketing and sales personnel and expansion of
TranSwitch's distribution network as part of TranSwitch's continued investment
in its marketing and sales infrastructure. The decreases as a percentage of
total revenues in the nine-month period ended September 30, 1998 were
attributable to the growth in revenues from the comparable period in 1997.
TranSwitch anticipates that it will continue to incur higher marketing and
sales expenses in absolute dollars as it expands its marketing and sales
efforts.

General and administrative. The total spending for the nine-month period
ended September 30, 1998 increased 13.5% to $1.8 million, as compared to $1.6
million for the comparable period in 1997, and as a percentage of total
revenues, total spending decreased to 6.0% for the nine months ended September
30, 1998, as compared to the 8.6% for the comparable period in 1997. The
increases in period-over-period expense were the results of TranSwitch's
continued investment in the general and administrative area. The decreases as a
percentage of total revenues in the nine-month period ended September 30, 1998
were attributable to the growth in revenues from the comparable period in 1997.

Interest income, net of interest expense. For the nine-month period ending
September 30, 1998, interest income, net of interest expense, was $763,000, as
compared to $368,000 for the same period in 1997. The increase in interest
income, net of interest expense, was primarily the result of the increase in
cash balances between the two periods.

Income taxes. TranSwitch's effective tax rate was 4.5% in the first nine
months of 1998, which reflects the anticipated federal alternative minimum
taxes and states taxes estimated to be payable.

22
<PAGE>

Years Ended December 31, 1997, 1996 and 1995

Total revenues. In 1997, TranSwitch reported revenues of $27.1 million, an
increase of 38.0% over 1996. The increase was primarily in product revenues as
this was TranSwitch's focus. TranSwitch did not derive any revenue in 1997
attributable to product license and royalty fees. In December 1995, TranSwitch
repurchased from Texas Instruments its license agreement (the "TI License"),
which was the sole source of license and royalty fees in 1995. In 1996,
TranSwitch reported revenues of $19.7 million, an increase of 12.5% over 1995.
This increase was primarily due to the continued increase in product revenues,
which grew to 97.9% of total revenues in 1996.

In 1997, Insight Electronics, Inc. (a distributor selling to various end
users, none of which comprise more than 10% of TranSwitch's total revenues) and
Tellabs Operations, Inc. accounted for 41% and 16% of total revenues,
respectively. In 1996, ECI Telecom Ltd., Insight Electronics, Inc. and Tellabs
Operations, Inc. accounted for 22%, 16% and 14% of total revenues,
respectively. In 1995, Tellabs Operations, Inc. and Insight Electronics, Inc.
accounted for 17% and 16% of total revenues, respectively. No other customer
accounted for more than 10% of TranSwitch's total revenues during these
periods.

Foreign sales, primarily consisting of sales to customers in Europe, the
Middle East and the Far East, constituted 33%, 46% and 38% of total revenues in
1997, 1996 and 1995, respectively.

Product revenues, net. In 1997, product revenues grew 40.1% to $26.9 million
from $19.2 million in 1996. This growth was driven by a broad strength across
all of TranSwitch's product lines. In 1996, product revenues grew 16.8% to
$19.2 million from $16.5 million in 1995. This growth was primarily driven by
increased sales of SONET/SDH products. Revenues from ATM products as a portion
of total product revenues grew significantly both in absolute dollars and as a
percentage of total revenues during 1995 as systems manufacturers designed
products incorporating the new ATM standard and TranSwitch introduced new ATM
VLSI devices.

Gross profit. Gross margin in 1997 increased to 58.4%. The increase was due
to the lack of the TI License expense recognized in 1996 and the growth in
total volumes. Gross margin in 1996 decreased to 29.7% of total revenues from
57.7% in 1995 due primarily to the write down of the TI License in the fourth
quarter of 1996. The TI License was written down to its net realizable value as
the incremental revenue which was originally forecast did not materialize.

In 1997, gross profit increased to $15.8 million, a function of the increase
in overall volume and the lack of the TI License expense recognized in 1996. In
1996, gross profit decreased to $5.8 million from $10.1 million in 1995, as
TranSwitch recognized $3.1 million of the cost of repurchasing the TI License
in cost of sales. In the fourth quarter of 1996, TranSwitch reviewed the drop
in product revenue that occurred in the third and fourth quarters and as a
result determined that the originally forecasted revenues were not going to
materialize. Also included in the cost of sales was the write down of
approximately $600,000 of ATM product inventory, which was primarily related to
those specific products for which there was a significant decline in revenue
the last two quarters of the year.

Research and development. In 1997, research and development expenditures were
$9.2 million, or 33.9% of total revenues, an increase of 3.3% over 1996. In
1996, research and development expenditures were $8.9 million, or 45.4% of
total revenues, an increase of 34.1% over 1995. The increase was primarily
attributable to increases in staff and in non-recurring engineering charges
related to the introduction of new products during 1996.

Marketing and sales. In 1997, marketing and sales expense increased 22.5% to
$6.7 million, or 24.7% of total revenues, compared to 1996. The increase is the
result of the increase in variable commissions on the increased volume as well
as an increase in staff in this area. In 1996, marketing and sales expense
increased 26.0% to $5.5 million, or 27.8% of total revenues, from $4.3 million,
or 24.8% of total revenues, in 1995.

23
<PAGE>

During 1996, TranSwitch added new staff in this area, opened new sales offices
in San Jose, California and Taipei, Taiwan and expanded its sales
representative coverage.

General and administrative. In 1997, general and administrative expenses
increased 2.6% over 1996 to $2.3 million, or 8.4% of total revenues. In 1996,
general and administrative expenses increased 51.4% to $2.2 million, or 11.3%
of total revenues, from $1.5 million, or 8.4% of total revenues, in 1995.
Included in the 1997 and 1996 expense is $225,000 and $195,000, respectively,
of non-cash expense related to the recognition of compensation expense under
SFAS No. 123 using a fair value approach to non-employee stock option grants,
and the remaining increase is attributed to the legal and investor relations
expenses required by TranSwitch's being a public company for the full year in
1996 versus 1995, in which TranSwitch was a public company for approximately
six months.

Quarterly Results of Operations

The following table sets forth certain unaudited consolidated quarterly
statements of operations data for each of the seven quarters in the period
ended September 30, 1998. In the opinion of management, this information has
been prepared on the same basis as the audited consolidated financial
statements appearing elsewhere in this prospectus and includes all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of this information in accordance with generally accepted
accounting principles. Such quarterly results are not necessarily indicative of
future results of operations and should be read in conjunction with the audited
consolidated financial statements of TranSwitch and the notes thereto included
elsewhere in this prospectus.

<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30,
1997 1997 1997 1997 1998 1998 1998
-------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues.......... $ 5,056 $ 6,256 $7,438 $8,334 $8,606 $9,607 $12,264
Total cost of revenues.. 2,374 2,803 2,828 3,249 3,354 3,728 4,537
------- ------- ------ ------ ------ ------ -------
Gross profit............ 2,682 3,453 4,610 5,085 5,252 5,879 7,727
------- ------- ------ ------ ------ ------ -------
Operating expenses
Research and
development......... 2,398 2,216 2,227 2,353 2,543 2,537 2,887
Marketing and sales... 1,501 1,673 1,796 1,711 1,818 1,925 2,420
General and
administrative...... 518 567 523 680 564 589 672
------- ------- ------ ------ ------ ------ -------
Total operating
expenses......... 4,417 4,456 4,546 4,744 4,925 5,051 5,979
Operating income
(loss)................ (1,735) (1,003) 64 341 327 828 1,748
Interest income, net.... 143 111 114 92 234 264 265
Income (loss) before
provision for income
taxes................. (1,592) (892) 178 433 561 1,092 2,013
Provision for income
taxes ................ -- -- -- -- -- 72 92
------- ------- ------ ------ ------ ------ -------
Net income (loss)....... $(1,592) $ (892) $ 178 $ 433 $ 561 $1,020 $ 1,921
======= ======= ====== ====== ====== ====== =======
</TABLE>

24
<PAGE>

The following table sets forth certain unaudited consolidated quarterly
statements of operations data expressed as a percentage of total revenues for
each of the seven quarters in the period ended September 30, 1998.

<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30,
1997 1997 1997 1997 1998 1998 1998
-------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues.......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Total cost of revenues.. 47.0 44.8 38.0 39.0 39.0 38.8 37.0
----- ----- ----- ----- ----- ----- -----
Gross profit............ 53.0 55.2 62.0 61.0 61.0 61.2 63.0
----- ----- ----- ----- ----- ----- -----
Operating expenses
Research and
development......... 47.4 35.4 29.9 28.2 29.5 26.4 23.5
Marketing and sales... 29.7 26.7 24.2 20.5 21.1 20.0 19.7
General and
administrative...... 10.2 9.1 7.0 8.2 6.6 6.2 5.5
----- ----- ----- ----- ----- ----- -----
Total operating
expenses......... 87.3 71.2 61.1 56.9 57.2 52.6 48.7
Operating income
(loss)................ (34.3) (16.0) 0.9 4.1 3.8 8.6 14.3
Interest income, net.... 2.8 1.8 1.5 1.1 2.7 2.7 2.2
Income (loss) before
provision for income
taxes................. (31.5) (14.2) 2.4 5.2 6.5 11.3 16.5
Provision for income
taxes ................ -- -- -- -- -- 0.7 0.8
----- ----- ----- ----- ----- ----- -----
Net income (loss)....... (31.5)% (14.2)% 2.4% 5.2% 6.5% 10.6% 15.7%
===== ===== ===== ===== ===== ===== =====
</TABLE>

TranSwitch's operating results have in the past and may in the future
fluctuate on a quarterly and annual basis as a result of various factors. These
factors include, among others: the timing and cancellations of the Company's
customers' orders; market acceptance of the Company's products and those of its
customers; the level of orders received which can be shipped in a quarter; the
timing and provision of pricing protections and returns from the Company's
distributors; availability of foundry capacity and raw materials; fluctuations
in manufacturing yields; changes in product mix; TranSwitch's ability to
introduce new products and technologies on a timely basis; the introduction of
products and technologies by the Company's competitors; the timing of the
Company's investments in research and development; whether TranSwitch's
customers buy from a distributor or directly from the Company; competitive
pressure on selling prices; and general economic conditions.

Total revenues for the first three quarters of 1998 increased steadily as a
result of increased sales of all three of TranSwitch's product lines.
TranSwitch's gross profit as a percentage of total revenues increased in each
quarter of 1998, primarily as a result of lower unit costs. Over the past seven
quarters, TranSwitch has generally increased its investment in marketing and
sales and research and development. These expenses fluctuated as a percentage
of total revenues as TranSwitch's total revenues increased from period to
period.

Liquidity and Capital

TranSwitch has financed its operations and met its capital requirements since
it was incorporated in 1988 primarily through private placements of preferred
stock, borrowings from a working capital line and equipment financing from
Silicon Valley Bank, an initial public offering of its common stock in June
1995 and cash generated from its operations. In October 1997, TranSwitch
received net cash proceeds of $13.7 million in connection with a private
placement of its Series A Convertible Preferred Stock. All such shares had been
converted into shares of common stock as of September 30, 1998.

In the first nine months of 1998, TranSwitch generated $4.5 million of cash
from its operating activities, the result of net income of $3.5 million and
non-cash items of $1.8 million, offset by a net increase in working capital of
$0.8 million. Capital expenditures during the nine-month period ended September
30, 1998 totaled $2.6 million, including purchases of computer equipment,
tooling, software and product licenses.

TranSwitch's principal sources of liquidity as of September 30, 1998
consisted of cash and cash equivalents and short term investments of
approximately $24.3 million. In addition, in the quarter ended September 30,
1998,

25
<PAGE>

TranSwitch renewed its financing agreement with Silicon Valley Bank whereby
TranSwitch has a total credit facility of $10.0 million, consisting of a $2.0
million line of credit for capital equipment and a $8.0 million line of credit
for working capital purposes. As of September 30, 1998, TranSwitch had no
outstanding balances under these lines of credit. Pursuant to the working
capital and equipment financing agreements with Silicon Valley Bank, TranSwitch
is restricted from further pledging its assets or granting additional security
interests in such assets. TranSwitch believes its existing cash, cash flow from
operations, if any, cash from the proceeds of this offering and cash available
under its lines of credit will be sufficient to satisfy TranSwitch's working
capital and capital expenditure requirements for at least the next 12 months.

Year 2000

Many currently installed computer systems and software products are dependent
upon internal calendars coded to accept only two digit entries in the date code
field. These date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software used by many companies may need to be upgraded to comply
with such "Year 2000" requirements.

None of TranSwitch's current products utilize internal calendars that are
dependent upon the input of a specific date. As a result, all TranSwitch's
current products are inherently Year 2000 compliant.

In the fourth quarter of 1997, TranSwitch established a Year 2000 committee
(the "Committee"), chaired by the Senior Vice President and Chief Financial
Officer, to assess the effects of the Year 2000 issue on operations and to
remediate such effects as necessary. The Committee focuses on the Year 2000
readiness of both internal systems and key outside suppliers, financial
institutions and other business partners.

To assess TranSwitch's internal readiness, the Committee has examined and
tested the Company's current hardware and software to identify systems with
inherent Year 2000 problems. No hardware performing critical functions has been
found to have such problems. Although isolated hardware performing non-critical
functions has been found to have Year 2000 problems, these problems were not
judged likely to have a material impact on operations. As a result, such non-
critical hardware will not be replaced.

Moreover, the Committee has obtained certificates from its software vendors
to the effect that all of TranSwitch's key software systems, including its MRP,
order entry and customer service systems, are free of Year 2000 problems. The
Committee has tested certain key software systems independently for Year 2000
functionality as well.

To assess the Year 2000 readiness of TranSwitch's key outside suppliers,
financial institutions and other business partners, the Committee has requested
a certification from each that it has resolved any Year 2000 issues that might
have a material impact on operations. To date, approximately half of such
parties have so certified.

Currently, the Committee estimates that total expenditures to assess and
remedy Year 2000 issues will be less than $50,000, plus staff time. All
expenditures will be expensed when they occur and are not expected to have a
material impact on results of operations. The Committee does not believe that
other information technology projects will be delayed or otherwise materially
affected by our Year 2000 efforts.

Based on the Committee's assessment to date, TranSwitch believes that it will
not experience any material disruption in its operations as a result of Year
2000 issues. However, if certain critical vendors, service providers and
business partners, such as public utilities providing electricity, water or
telephone service, or financial institutions with which the Company maintains
accounts, or key suppliers of parts and materials to the Company, fail to
provide needed services to the Company or to its key outside suppliers or
customers, customer orders could decline or the Company's operations could shut
down for as long as the failure or failures persist. At present, the Committee
has not developed contingency plans, but the Committee will determine whether
to develop any such plans as its assessment is completed. Accordingly, the
Company cannot be certain that Year 2000 issues will not have a material
adverse effect on TranSwitch's business, results of operation or financial
results.

26
<PAGE>

BUSINESS

The following description of the Company's business should be read in
conjunction with the information included elsewhere in this prospectus. The
description contains certain forward-looking statements that involve risks and
uncertainties. When used in this prospectus, the words "intend," "anticipate,"
"believe," "estimate," "plan" and "expect" and similar expressions as they
related to us are included to identify forward-looking statements. The
Company's actual results could differ materially from the results discussed in
the forward-looking statements as a result of certain of the risk factors set
forth elsewhere in this prospectus.

Introduction

TranSwitch Corporation designs, develops, markets and supports highly
integrated digital and mixed-signal (analog and digital) semiconductor
solutions for the telecommunications and data communications markets. The
Company's products are Very Large Scale Integrated (VLSI) semiconductor devices
that provide core functionality for communications network equipment. The
Company's VLSI solutions are programmable to provide high levels of
functionality for high-speed broadband communication networks. These products
are incorporated into OEMs' networking equipment. TranSwitch's VLSI devices are
compliant with SONET/SDH (Synchronous Optical Network/Synchronous Digital
Hierarchy), asynchronous and ATM (Asynchronous Transfer Mode) standards. The
Company's mixed-signal and digital design capability, together with its
telecommunications systems expertise, enables it to determine and implement
optimal combinations of design elements for enhanced functionality. The Company
believes that this approach allows its customers to achieve faster time to
market and to introduce systems that offer greater functionality, improved
performance, lower power dissipation, reduced system size and cost and greater
reliability relative to discrete solutions.

TranSwitch's principal customers are OEMs which serve three fast-growing
market segments:

. the worldwide public network infrastructure that supports voice and
data communications;

. the Internet infrastructure that supports the World Wide Web and other
data services; and

. corporate wide area networks (WANs) that support voice and data
exchange within medium-sized and large enterprises.

The Company has sold its VLSI devices to more than 400 customers worldwide.
The Company's customers include Alcatel, Ascend Communications, Cisco, ECI
Telecom, Ericsson, IBM, Lucent, Newbridge Networks, Nortel, Siemens, and
Tellabs. The Company sells its products through a direct sales force and a
worldwide network of independent distributors and sales representatives located
in the United States and 15 other countries.

Industry Background

Due to deregulation and the resulting competition in the worldwide
telecommunications industry, service providers are required to be more
responsive to customer needs and offer new and enhanced communications services
at lower cost. Simultaneously, the bandwidth requirements of public networks
such as those used by local and long distance carriers, as well as specialized
networks such as those used by Internet service providers, are increasing due
to a variety of factors, including:

. the growth in the World Wide Web;

. the proliferation of wireless, e-mail and facsimile communications;

. the growth in size of WANs and LANs and the increase in data and other
traffic generated from these networks;

27
<PAGE>

. the need for higher speed communication between wide area networks
(WANs) and local area networks (LANs);

. the increase in demand for remote network access; and

. the emergence of new applications such as video conferencing.

Network service providers, including established and emerging competitive
local and long distance carriers, as well as Internet Service Providers, are
facing significant challenges to meet the demand for increased network capacity
and speed, as well as for new bandwidth-intensive services. Network
architectures and equipment must be upgraded to provide increased bandwidth and
data-oriented switching capability for high-speed data transmission services.
Similarly, the demand for new high bandwidth applications is placing an
increased burden on many private WANs and LANs, where current system
architectures are often inadequate. Suppliers of equipment to network service
providers of private WAN and LAN markets must provide equipment solutions that
enable enhanced network access, ease administrative burdens of current system
architectures and integrate data with voice, video and imaging applications.

Much of the public network's infrastructure was originally designed to
optimize voice communications utilizing copper wire as the primary transmission
medium. This copper wire-based infrastructure is not well-suited for high-speed
data transmission, due to bandwidth limitations and high maintenance and
administration costs. As a result, infrastructure improvements to public
networks have included a significant increase in the deployment of fiber optic
technology to replace conventional copper wire. Optical fiber offers
substantially greater capacity than copper wire and is less error-prone and, as
a result, has become the transmission medium of choice for both incumbent and
emerging public network service providers. Existing copper wire-based network
protocols for the transmission of information, based on asynchronous standards,
limit the simultaneous transmission of voice and data. Additionally, network
equipment based on asynchronous standards have only limited interoperability
because of ad hoc vendor-specific extensions. These standards are also
inadequate for accommodating additional bandwidth required for maintenance and
administration signals, resulting in higher network operating costs.

As a result of these limitations, the SONET standard in the United States and
the equivalent SDH standard in the rest of the world have emerged as the next
generation standards for high-speed transmission of voice and data through
optical fiber. The SONET/SDH standards facilitate high data integrity and
improved performance in terms of network reliability, reduce maintenance and
other operations costs by standardizing interoperability among different
vendors' equipment and allow remote maintenance and administration. The
adoption of the SONET/SDH standards and the increased bandwidth provided by the
use of optical fiber have enabled the deployment of a global, interoperable
public transmission network for voice and data communications.

SONET/SDH standards relate to the physical medium, optical fiber, and require
a higher level protocol to handle not only data traffic, but also applications
such as voice, images and video services. Asynchronous transfer mode (ATM) is a
higher level standard complementary to asynchronous and SONET/SDH standards
that enables public networks, Internet and WAN and LAN systems designers to
provide a mix of services to network users. ATM allows network service
providers to reduce the impact of bandwidth constraints and to provide mixed
high-speed and high-volume data communications, voice, video and imaging
services. This enables the network service providers to generate more revenue
as they can now carry and bill for a wide variety of transmission services.

In order to deploy new infrastructures and transmission protocols, network
service providers are demanding improved time to market of cost-effective,
differentiated products from network equipment vendors. The complexity of the
equipment, increasing cost pressures and the need for high reliability and
standards compliance mandate the use of very large scale integrated (VLSI)
semiconductor devices incorporating a high degree of functionality. Network
equipment vendors recognize that, similar to the trend experienced in the
computer industry, the functionality incorporated into integrated circuits is
contributing an increasing share of the added value in a network system.

28
<PAGE>

The design of integrated circuits contained in SONET/SDH, asynchronous and
ATM equipment requires specialized expertise in mixed-signal semiconductor
device design and implementation, in-depth knowledge of telecommunications and
data communications standards and systems engineering expertise. Expertise in
mixed-signal device design is relatively uncommon, and, as a result, equipment
vendors needing these capabilities often seek independent semiconductor
vendors. However, many semiconductor vendors lack the telecommunications
industry knowledge and experience, as well as familiarity with the standards,
to be able to contribute significant value to the equipment vendors' systems
designs. Consequently, equipment vendors require an integrated circuit vendor
that understands their markets and the applicable standards and is able to
provide a broad range of cost-effective semiconductor devices.

The TranSwitch Solution

TranSwitch provides network equipment OEMs with complete solutions including
high-speed, mixed-signal VLSI devices, microcode programs for configurable
devices, reference design models and multi-level product and applications
support. TranSwitch's VLSI devices are compliant with SONET/SDH, asynchronous
and ATM standards and are designed to transparently integrate these standards.
The Company's mixed-signal and digital design capability, in conjunction with
its telecommunications systems expertise, enables the Company to determine and
implement optimal combinations of design elements for desired analog and
digital functionality. The Company believes that this approach allows its
customers to achieve faster time to market and to introduce systems that offer
greater functionality, improved performance, lower power dissipation and
greater reliability relative to competing discrete or application-specific
integrated circuit solutions, while reducing system size and cost.

TranSwitch calls its VLSI devices Connectivity Engines because of their
ability to power the development of new-generation communication networks which
must be capable of addressing both physical and logical connectivity. The
Company is now developing a new class of programmable flexible network building
blocks, which will be multiple-purpose Connectivity Engines. These devices
include a fast, powerful, on-chip computer core, that can be programmed to
provide different functionality and performance characteristics to match the
needs of particular applications in communications networks.

Strategy

TranSwitch's goal is to be the leading supplier of innovative, complete VLSI
solutions to telecommunications and data communications OEMs worldwide. The key
elements of TranSwitch's business strategy include the following:

Provide Complete Solutions Within Target Markets

TranSwitch offers network equipment OEMs chip sets that represent complete
solutions for SONET/SDH, asynchronous and ATM applications. In addition to
providing its families of VLSI devices, the Company offers OEM customers the
following:

. software programs for its configurable devices;

. product reference design models for both hardware and software
applications;

. evaluation boards and reference software;

. OEM product design support;

. multi-tier applications support; and

. product technical and design documentation.

The Company's "chip-set" approach allows OEMs to optimally configure their
products while maintaining product compatibility over multiple generations.
This approach allows equipment vendors to

29
<PAGE>

selectively upgrade their products with next-generation higher functionality
VLSI devices. TranSwitch has extended this approach to provide seamless
integration of SONET/SDH, asynchronous and ATM applications.

Continue to Promote the Deployment of Programmable Devices

The Company intends to continue to develop and promote customer-programmable,
system-level building blocks the Company has defined as Connectivity Engines.
By providing core functionality in the form of dense, high-speed, programmable
packages, the Company believes these new devices offer greater power,
flexibility and functionality at a lower cost than the single-function, hard-
wired devices they are designed to replace. The Company believes that
Connectivity Engines represent a new and more versatile approach to
interconnecting communications systems and that these new devices have the
potential to play a significant role as product-building platforms in the
development of new generations of equipment by networking vendors.

Seek Early Market Penetration Through Customer Sponsorship

TranSwitch seeks to develop close sponsoring relationships with strategic
OEMs during product development in order to secure early adoption of its
solutions. TranSwitch believes that OEMs recognize the value of their early
involvement through sponsorship of the Company's products, as they can design
their system products in parallel with the Company's development, thereby
accelerating their time to market. In addition, TranSwitch believes that its
sponsoring relationships with leading OEMs help the Company obtain early design
wins and help reduce risks of market acceptance for its new products.

Focus on Mixed-Signal Applications

The Company seeks to identify applications requiring its mixed-signal VLSI
device design capabilities. By leveraging both its industry knowledge and the
special design skills required for mixed-signal devices, the Company believes
that it is able to identify and implement optimal combinations of design
elements for desired analog and digital functionality targeted toward the
specific needs of network equipment OEMs. TranSwitch believes that its
experience and expertise provides its customers accelerated time to market,
better performance and lower costs than combinations of separate digital and
analog solutions.

Partner With Selected Foundries

The Company works with selected third-party foundries to obtain semiconductor
devices. This approach allows the Company to avoid substantial capital
spending, obtain competitive pricing and technologies, and retain the ability
to migrate its products to new process technologies to reduce costs and
optimize performance. TranSwitch's design methodology enables the production of
its devices at multiple foundries using well-established and proven processes.
TranSwitch engages foundries that are ISO 9000 certified for quality and uses
only semiconductor processes and packages that are qualified by vendors under
industry-standard requirements.

Products and Applications

TranSwitch supplies high-speed, broadband VLSI semiconductor devices to
systems vendors who serve three fast-growing market segments: the worldwide
public network infrastructure that supports both voice and data communications,
the Internet infrastructure that supports the World Wide Web and other data
services and corporate WANs. The Company's core competencies as a systems-on-a-
chip innovation leader include:

. an in-depth understanding of SONET/SDH, asynchronous and ATM
standards;

. the ability to design complex mixed-signal high-speed VLSI devices;
and

. the capability to verify the design against customers' requirements
and industry standards through analysis, simulation and certification.

30
<PAGE>

The Company's three product lines consist of SONET/SDH, asynchronous and ATM
products. The Company believes that its chip-set approach and broad product
coverage in all three product lines position it as a "one-stop source" for
broadband communications VLSI products. Network equipment vendors can mix and
match TranSwitch's VLSI devices to optimally configure a specific system. The
Company's product lines can be combined to provide a cost-effective solution
with increased functional integration and features, while providing seamless
integration of SONET/SDH, asynchronous and ATM/Internet Protocol applications.

The prices for the Company's products typically range from approximately $20
to $300, depending on volume, complexity and functionality.

SONET/SDH Products

In the SONET/SDH area, the Company offers devices that provide a direct
interface for fiber optic transmission in North America, Europe and Asia. The
Company's mappers, which bridge the interconnections between SONET/SDH
equipment and asynchronous equipment, allow DS-series and E-series transmission
lines to be connected with SONET/SDH lines. In this way, these mappers
transparently transport asynchronous signals across the SONET/SDH network.

The Company's SONET/SDH products include:

<TABLE>
<CAPTION>
Product Description Key Applications
- ------- --------------------------------------- ------------------------------------
<S> <C> <C>
SYN155C.. STS-3/STS-3C Synchronizer SONET/SDH Multiplexer/Cross Connects
SOT-1/
SOT-1E.. STS-1 Overhead Terminator SONET Multiplexer/Cross Connects
SOT-3.... STM-1/STS-3/STS-3c Overhead Terminator SONET/SDH Multiplexer/Cross Connects
ADMA-E1.. Two Channel E1 Mapper-Desynchronizer SONET Multiplexer/Cross Connects
ADMA-T1.. Two Channel DS-1 Mapper-Desynchronizer SONET Multiplexer/Cross Connects
L3M...... DS-3/E-3 Mapper Desynchronizer SONET/SDH Multiplexer/Cross Connects
L4M...... E-4 Mapper-Desynchronizer SDH Multiplexer/Cross Connects
QT1M..... Four Channel DS-1 Mapper-Desynchronizer SONET Multiplexer/Cross Connects
QE1M..... Four Channel E1 Mapper-Desynchronizer SONET Multiplexer/Cross Connects
DS1MX7... Seven Channel DS-1 Async. & Sync.
Mapper & Desynchronizer SONET Multiplexer/Cross Connects/CPE
PHAST-1.. STS-1 Overhead Terminator (low power) SONET Multiplexer/Cross Connects
</TABLE>

TranSwitch's current SONET/SDH products are used to build add/drop
multiplexers, digital cross connects and other telecommunications and data
communications equipment. This equipment is configured for use in both domestic
and international fiber-based public networks. The Company's SONET/SDH products
also have applications in customer premise equipment, such as routers and hubs
and in central offices, adding integrated fiber optic transmission capability
to telephone switches.

Asynchronous Products

TranSwitch's asynchronous products provide high-bandwidth connections and are
used to configure transmission equipment for use in the public network. This
equipment is used to increase the capacity of the copper-based public network.
TranSwitch's asynchronous VLSI solutions also enable customer premise equipment
such as hubs and routers used in WANs and LANs to access the public network for
voice and data communications with similar products in other locations.

TranSwitch's asynchronous products provide high levels of integration, as
well as cost, power and performance advantages relative to discrete and
competing integrated circuit solutions. The Company's asynchronous VLSI
products include devices that provide solutions for DS-1 through DS-3 and E-1
through E-3 transmission lines. This product line includes multiplexers, which
are devices that combine multiple low-speed lines to form a higher speed line,
and demultiplexers, which perform the reverse function. In addition, the

31
<PAGE>

Company offers framers, which are devices that identify the starting points of
defined bit streams and enable systems to recognize the remaining bits.

The Company's asynchronous products include:

<TABLE>
<CAPTION>
Product Description Key Applications
- ------- ---------------------------------- -----------------------------------
<S> <C> <C>
ART/ARTE........ Advanced Receiver/Transmitter DS-3/STS-1 Multiplexer/DACS/CPE
DS3LIM-SN....... DS-3 Line Interface Module DS-3/STS-1 Multiplexer/DACS/CPE
E3LIM........... E-3 Line Interface Module E-3 Multiplexer/DACS/CPE
MRT............. Multi-Rate Line Interface European Multiplexer/DACS/CPE
E123MUX......... E1/E2/E3 Multiplexer/Demultiplexer E-3 Multiplexer/DACS/CPE
M13E............ DS1/DS3 Multiplexer/Demultiplexer DS-3 Multiplexer/DACS/CPE
DS3F............ DS3 Framer DS-3 Multiplexer/CEP
E2/E3F.......... E2/E3 Framer European Multiplexer/CPE
JTF2F........... JT2 Framer Japanese Multiplexer/CPE
HDLC............ High-Speed Data Link Controller High-Speed CPE
XBERT........... Bit Error Rate Generator/Analyzer Test Equipment
QDS1F/QT1FPlus.. Quad T1 Framer T1 Multiplexer/DACS/CPE
QE1F/QEIFPlus... Quad E1 Framer DS-1 Multiplexer/DACS/CPE
T1FX8........... 8-channel T1 Framer Remote Access Server/T1 Multiplexer
</TABLE>

ATM Products

TranSwitch's ATM family of products targets the core elements of ATM-based
multi-service access multiplexer systems. The Company's ATM products also
include VLSI semiconductor devices for line interfacing and service adaptation
functions.

The Company's ATM products include:

<TABLE>
<CAPTION>
Product Description Key Applications
- ------- ---------------------------------- ---------------------------------------
<S> <C> <C>
CDB..... Cell Delineation Block ATM Multiplexer/Hubs/Adaptor Cards
SARA-
S/R... AAL3/4/5 SAR Controllers ATM/Hubs/Adaptor Cards
COBRA... AAL1 SAR Controller ATM Multiplexer
CUBIT... CellBus Switch ATM Switch/Multiplexer/Hubs
CUBIT-
PRO... CellBus Switch Enhanced Multi-Server Access Switch/Concentrator
SALI-
25C... 6-Channel 25-mbit/s Cell Interface ATM Hub/Workgroup Switch
SARA-
Lite.. AAL0/5 SAR with STS-3C Framer ATM Server/Hub/Router
</TABLE>

TranSwitch's CellBus is a system architecture for implementing ATM access
multiplexers and ATM switching systems. The Company's first two products
incorporating CellBus, CUBIT and CUBIT-Pro, provide single-chip ATM switching
capability in access equipment. These products have been designed into many
system vendors' solutions since late 1995, thus establishing CellBus as a
significant technology in the global broadband network access market.

New Products

The Company expects to introduce a number of new products in 1999, extending
its product functionality to provide enhanced programmability and seamless
integration of relevant standards. The PHAST series of products will have a
significantly higher level of functionality and integration of peripheral
devices. These products are designed for traditional telephone traffic, which
is carried via asynchronous transmission infrastructure, and data traffic,
which is carried as ATM cells or frame relay/Internet Protocol packets. The

32
<PAGE>

PHAST series of products are developed for telecommunications equipment
vendors, but are equally attractive to high-speed data systems and
communications systems vendors. TranSwitch's PHAST series of products enables
OEM systems vendors to build hybrid voice/data transport systems with a wide
range of transmission rates.

The Company's new asynchronous Connectivity Engine products, such as the
McHDLC, will provide greater flexibility and further improve the throughput and
performance of data communications systems. OEM systems vendors can use these
new products to migrate external software functions into the Company's embedded
RISC (Reduced Instruction Set Computer) processor. This migration is designed
to result in reduced system size and power consumption, and increased speed of
execution.

TranSwitch is further enhancing CellBus capabilities in its new product,
ASPEN. ASPEN has three embedded specialized RISC processors, which can be
configured by downloading different software to function as cell engines,
packet engines or high-speed copper access controllers. Thus, using an ASPEN
device, OEM system vendors can develop multi-service broadband access platforms
that can deliver a wide variety of cell- and packet-based services in public
networks.

Technology

The Company believes that one of its core competencies is the
telecommunications and data communications knowledge and expertise of its key
executives and that of its systems engineering organization. The systems
engineering group possesses substantial telecommunications and data
communications design experience, as well as extensive knowledge of relevant
standards. This includes not only a thorough understanding of the actual
written standards, but also an awareness of and appreciation for the nuances
associated with these standards necessary for assuring that device designs are
fully compliant. The Company's telecommunications and data communications
experience and its participation in the standards development process provide
it with significant advantages in designing semiconductor devices meeting the
evolving needs of its customers.

Complementing the Company's accumulated communications industry expertise is
its VLSI design competence. The Company's VLSI design staff has extensive
experience in designing analog and mixed-signal devices for communications
applications, which require a sophisticated understanding of complex
technology, as well as the specifics of manufacturing processes and their
resulting impact on device performance. TranSwitch has also developed a large
number of VLSI blocks that operate under the demanding requirements of the
telecommunications and data communications industry. These blocks have been
designed using standard VLSI-oriented programming languages such as VHDL and M
(a C-like language) to create new devices that meet expanding customer
requirements. Availability of these blocks and ability to access higher density
manufacturing processes allow the Company to develop a device to execute
multiple functions that were previously available only from a combination of
discrete devices.

TranSwitch has also developed proprietary toolsets called "Test Benches,"
which facilitate on-time development of products and help assure that the
products meet customer and standards requirements. These Test Benches consist
of behavior models of all applicable functions in a high level design
environment. These Test Benches also include test signal generators and
analyzers such as models of SONET/SDH signals. Systems engineers use Test
Benches to test new architectural concepts, while VLSI designers use Test
Benches to ensure that the device conforms to product specifications. The
Company believes that the availablility of Test Benches provides it with a
competitive advantage.

The Company has invested significant resources in developing an architecture
which allows increased software programmability. Programmability provides
accelerated time to market by decoupling hardware and software verification. In
addition, programmability permits standards upgrades and fixes to be effected
more easily. Further, customers can have the flexibility to tailor their
products to their specific requirements.

The Company has also developed expertise and hardware/software tools to
certify products against customer and standards requirements. While the Test
Bench is used to test the software model of the VLSI

33
<PAGE>

device, these certification tools are used to verify operation of actual device
prototypes. The Company shares its certification board--the platform used to
certify a particular device--with sponsoring costumers, thereby accelerating
their time to market. The Company's certification approach and tools have been
recognized by customers as a key benefit.

Marketing, Sales and Customer Support

Marketing

The Company's marketing strategy focuses on key customer sponsorships to
promote early adoption of the Company's VLSI devices in the products of system
vendors who are market leaders. Through the Company's customer sponsorship
program, customers provide direct feedback on product specifications and
applications while participating in product testing in parallel with the
Company's certification process. This approach accelerates customers' time to
market while enabling the Company to achieve early design wins for its products
and derive non-recurring engineering expense support and volume commitments for
specific products from these sponsors.

As a distinct aspect of the Company's marketing strategy, the Company
organizes and sponsors technical seminars. These seminars address topical
industry issues, and the Company involves key customers and market leaders in
the discussions. The Company believes that these seminars provide timely
feedback on technology trends and help position the Company as an industry
leader. In addition, these seminars give these customers early product
information and foster a close working relationship between the key customers
and the Company.

The Company has established a number of additional marketing programs. The
Company participates at key industry conferences with exhibits and product
seminars. TranSwitch focuses on a strong public relations program including
press interviews, articles in industry trade publications and its quarterly
publication The Communicator.

Sales

TranSwitch's sales strategy focuses on worldwide suppliers of high-speed
communications and communications-oriented equipment. These customers are
easily identifiable and include telecommunications, Internet, data
communications and customer premise equipment vendors. The Company has
established a direct sales force and a worldwide network of independent
distributors and sales representatives. These independent entities are selected
for their ability to provide effective field sales, marketing communications
and technical support to the Company's customers.

TranSwitch has established foreign distributors and sales representative
relationships in Australia, Benelux, Canada, China, France, Germany, Great
Britain, Israel, Italy, Japan, Korea, Spain, Sweden, Switzerland and Taiwan.
The Company also sells its products through domestic distributors and a network
of domestic sales representatives. The Company has regional sales and technical
support capabilities in Boston, Massachusetts; San Jose, California;
Morristown, New Jersey; Atlanta, Georgia; Brussels, Belgium and Taipei, Taiwan,
as well as its headquarters facility in Shelton, Connecticut.

TranSwitch's direct sales force, technical support personnel and key
engineers work together in teams to support key customers. TranSwitch has
located technical support capabilities in key geographic locations including
Europe. These field sales engineers and independent distributors and
representatives support the rest of the customers.

Customer Support

From its inception, TranSwitch has sought to differentiate itself through
strong and dedicated customer support. The Company's customer support group has
extensive telecommunications and data communications

34
<PAGE>

knowledge and systems design experience. This group provides sales support,
customer application support and responses to customer and product inquiries.
In addition to its headquarter's technical support capability, the Company has
established several field applications support offices in strategic U.S.
locations and in Europe and the Pacific Rim.

The Company established a customer support laboratory in early 1993 to
provide superior support while reducing the Company's costs associated with
problem resolution. The laboratory develops a test configuration for every
major product, which permits customers to detect and replicate system problems.
The Company believes that it differentiates itself by the breadth and depth of
its customer support capability.

Customers

Since shipping its first product in 1990, the Company has sold its products
and services to over 400 customers. The Company's customers include: public
network systems suppliers that incorporate the Company's products into
telecommunications systems; WAN and LAN equipment suppliers; Internet-oriented
OEMs; communications test and performance measurement equipment suppliers; and
government, university and private laboratories that use the Company's products
in advanced public network and WAN/LAN development projects.

Systems applications of public network equipment include switching systems,
multiplexers, demultiplexers, digital access cross connect, channel banks,
remote terminals, and digital loop carriers. WAN and LAN applications comprise
systems and equipment such as multiplexers, demultiplexers, hubs, routers, and
switching systems. Internet-oriented systems include remote access servers and
backbone switchers and routers. Test and performance measurement equipment
includes signal generators, network analyzers, and network simulators.
Government, university and laboratories apply the Company's products in a wide
variety of high-speed broadband communications projects.

The following lists certain of the Company's customers. Many of these
customers purchase several of the Company's products from various product
lines.

<TABLE>
<S> <C>
ADC Telecommunications, Inc. Interphase Corporation
Alcatel Network Systems, Inc. Lucent Technologies Inc.
Ascend Communications, Inc. NEC Corporation
Cisco Systems, Inc. Newbridge Networks Corporation
ECI Telecom Ltd. Northern Telecom Limited
Ericsson Telecom AB Samsung Group
Hewlett-Packard Company Siemens AG
Hitachi, Ltd. Tadiran Telecommunications Ltd.
International Business Machines Corporation Tellabs Operations, Inc.
</TABLE>

The Company has no long-term volume purchase commitments from any of its
major customers. The Company's ability to maintain or increase its sales in the
future will depend upon its ability to obtain orders from existing and new
customers and maintain relationships with and provide support to existing and
new customers, as well as the financial condition and success of its customers.

Foreign sales represented 38%, 46%, 33% and 48% of total revenues during
1995, 1996 and 1997 and the nine months ended September 30, 1998, respectively.

35
<PAGE>

The following table sets forth, for the periods indicated, the percentage of
the Company's total revenues derived from its significant customers listed
below:

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
--------------------------- -----------------
Customer 1995 1996 1997 1998
-------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Columbia Technology(1)......... * * * 18%
Insight Electronics, Inc.(1)... 16% 16% 41% 22%
Tellabs Operations, Inc.(2).... 17% 14% 16% 20%
ECI Telecom Ltd................ * 22% * *
</TABLE>
- --------
* Below 10% of the Company's total revenues
(1) Columbia Technology and Insight Electronics are distributors of our
products to various end-users, none of which comprised more than 10% of the
Company's total revenues during the periods mentioned.
(2) The Company's sales to Tellabs during 1995, 1996 and 1997 were made through
Reptron Electronics, Inc., Tellabs' designated distributor. In the nine-
month period ended September 30, 1998, sales to Tellabs were made through
Reptron and Arrow Electronics, Inc., also Tellabs' designated distributor.
Sales to Tellabs through Arrow during this period represented 14% of the
Company's total revenues.

Research and Development

The Company believes that the continued introduction of new products in its
target markets is essential to its growth. As of September 30, 1998, the
Company had 69 full time employees engaged in its research and development
efforts. The Company believes that its research and development staffing will
only moderately increase in 1999. The Company employs designers who have the
necessary engineering and systems qualifications and are experienced in
software, mixed-signal, high-speed digital, telecommunications and data
communications technologies.

All developments are carried out using ISO 9001 certified design processes
and the design tools/environment are continuously enhanced for improvement in
design, fabrication and verification of its products. The Company invests in
establishing and enhancing its design process, tools, methodology and
proprietary Test Benches. From time to time, the Company acquires products from
third parties to enhance its product lines. The Company's internal research and
development organization thoroughly reviews the external development processes
and the design of these products as part of its quality assurance process.

Patents and Licenses

The Company has 24 patents issued and 10 patent applications pending in the
U.S. Of the 24 issued patents, one is co-owned by ECI Telecom Ltd. and one is
co-owned by Siemens Telecommunications Systems Ltd. The Company has five
patents issued and 15 patent applications pending in Canada. The Company has
six patents issued in Taiwan, with one patent being co-owned by Siemens
Telecommunications Systems Ltd. The Company has three patents issued and four
patents pending in the People's Republic of China. The Company has 16 patent
applications pending in selected countries in the European Patent Office (EPO),
and one patent issued in France, Germany, and the U.K. In addition, the Company
has seven patent applications pending in Japan and four patents issued and four
patents pending in Israel. Further, the Company has one patent application
pending under the Patent Cooperation Treaty (PCT) with the possibility of
filing in the EPO, Canada, Japan, China, Mexico, Norway and Israel. None of the
Company's domestic and foreign patents that have issued will expire in the near
future unless the Company chooses not to pay renewal fees. The Company's oldest
patent is not scheduled to expire for more than ten years.

The Company cannot guarantee that its patents will not be challenged or
circumvented by its competitors, nor can the Company be sure that pending
patent applications will ultimately issue as patents. Under current law, patent
applications in the United States are maintained in secrecy until patents are
issued, and the right to a patent in the United States is attributable to the
first to invent, not the first to file a patent application. In the process of
obtaining foreign patents, patent applications are published approximately 18
months after their priority (U.S.) filing date, and the right to a patent is
determined by the first to file an application. The

36
<PAGE>

Company cannot be sure that its product or technologies do not infringe patents
that may be granted in the future pursuant to pending patent applications or
that its products do not infringe any patents or proprietary rights of third
parties. From time to time, the Company receives communications from third
parties alleging patent infringement. In the event that any relevant claims of
third-party patents are upheld as valid and enforceable, the Company could be
prevented from selling its products or could be required to obtain licenses
from the owners of such patents or be required to redesign its products to
avoid infringement. The Company cannot assure that such licenses would be
available or, if available, would be on terms acceptable to the Company or that
the Company would be successful in any attempts to redesign its products or
processes to avoid infringement. The Company's failure to obtain these licenses
or to redesign its products would have a material adverse effect on the
Company's business, financial condition and results of operations.

The Company also has been granted registration of 10 trade or service marks
in the U.S., and it has seven more U.S. applications for trademarks awaiting
approval. The Company has also been granted three trademark registrations under
the European Trademark (ECT) procedure.

The Company's ability to compete depends upon its ability to protect its
proprietary information through various means, including ownership of patents,
copyrights, mask work registrations and trademarks. While no intellectual
property right of the Company has been invalidated or declared unenforceable,
the Company cannot assure that such rights will be upheld in the future. The
Company believes that, in view of the rapid pace of technological change in the
semiconductor industry, the technical experience and creative skills of its
engineers and other personnel are the most important factors in determining the
Company's future technological success.

TranSwitch has entered into various license agreements for product or
technology exchange. The purpose of these licenses has, in general, been to
obtain second sources for standard products or to convey or receive rights to
certain proprietary or patented cores, cells or other technology. In March
1995, the Company entered into an agreement with StrataCom, Inc., whereby the
Company obtained the right to use intellectual property covered by two
StrataCom, Inc. patents.

The Company sells its products into the telecommunications industry, an
industry whose products are subject to various standards, which are agreed upon
by recognized industry standards committees. Where applicable, the Company
designs its product to be in conformity with these standards. The Company has
received and expects to continue to receive, in the normal course of business,
communications from third parties stating that if certain of TranSwitch's
products meet a particular standard, these products may infringe one or more
patents of that third party. After a review of the circumstances of each
communication, the Company in its discretion and upon the advice of counsel has
taken or may take in the future one of the following courses of action: the
Company may negotiate payment for a license under the patent or patents that
may be infringed, the Company may use its technology and/or patents to
negotiate a cross-license with the third party or the Company may decline to
obtain a license on the basis that it does not infringe the claimant's patent
or patents, or that such patents are not valid, or other bases. The Company
cannot assure that licenses for any of these patents will be available to the
Company on reasonable terms, or that the Company would prevail in any
litigation seeking damages or expenses from the Company or to enjoin the
Company from selling its products on the basis of any of the alleged
infringements.

Manufacturing and Quality

TranSwitch's manufacturing objective is to produce reliable, high-quality
devices cost-competitively. To this end, the Company seeks to differentiate
itself by:

. maximizing the reliability and quality of its products;

. achieving on-time delivery of its products to its customers;

. minimizing capital and other resource requirements by subcontracting
capital-intensive manufacturing; and

. achieving a gross margin compatible with the value of its products.

37
<PAGE>

Effective June 25, 1997, the Company was registered by TUV Rheinland of North
America, Inc. as complying with the requirements of ISO 9001.

All of the Company's VLSI devices are manufactured by established independent
foundries. This approach permits the Company to focus on its design strengths,
minimize fixed costs and capital expenditures, and access diverse manufacturing
technologies. Currently, the Company utilizes four foundries, three of which
are located in the U.S. and the fourth in Taiwan, to process its wafers: Texas
Instruments Incorporated (TI), Symbios Logic Inc. and LSI Logic Corporation in
the U.S. and Taiwan Semiconductor Manufacturing Company Limited (TSMC) in
Taiwan. Foundries are required to have qualified and reliable processes. The
selection of a foundry for a specific device is based on availability of the
required process technology and the foundry's capability to support the
particular set of tools used by TranSwitch for that device.

Currently, TI manufactures all of the Company's BiCMOS devices. The Company
entered into a foundry agreement with TI in December 1995, pursuant to which
the Company received access to TI's process technology through 2000. The
Company also has an agreement with TSMC that guarantees the Company a minimum
capacity level through 1999, and in return the Company has agreed to purchase
unutilized commitment below an agreed minimum level.

There are certain significant risks associated with the Company's reliance on
outside foundries, including:

. the lack of assured wafer supply and control over delivery schedules;

. the unavailability of or delays in obtaining access to key process
technologies; and

. limited control over quality assurance, manufacturing yields and
production costs.

In addition, the manufacture of integrated circuits is a highly complex and
technologically demanding process. Although the Company has undertaken to
diversify its sources of semiconductor device supply and works closely with all
its foundries to minimize the likelihood of reduced manufacturing yields, the
Company's foundries have from time to time experienced lower than anticipated
manufacturing yields, particularly in connection with the introduction of new
products and the installation and start up of new process technologies. Reduced
yields have at times adversely affected the Company's operating results.

Competition

The semiconductor industry is intensely competitive and is characterized by
the following:

. price erosion;

. rapid technological change;

. shortage in fabrication capacity;

. heightened international competition in many markets; and

. unforeseen manufacturing yield problems.

The communications and data communications industries, which are the primary
target markets for TranSwitch, are also intensely competitive because of
deregulation and heightened international competition.

The Company's competition consists of suppliers of similar products from the
United States as well as other countries, including internal competition from
semiconductor divisions of vertically integrated companies such as IBM
Corporation, Lucent Technologies, NEC Corporation and Siemens AG. New entrants
are also likely to attempt to obtain a share of the market for the Company's
current and future products.

The Company's principal competitors in the asynchronous and SONET/SDH areas
are Applied Micro Circuits Corporation, Crystal Semiconductor Corporation,
Dallas Semiconductor Corporation, EXAR Corporation, Lucent Technologies Inc.,
National Semiconductor Corporation, PMC-Sierra Inc., Texas Instruments
Incorporated, TriQuint Semiconductor, Inc., Vitesse Semiconductor Corporation
and VLSI Technology, Inc. In addition, there are a number of ASIC vendors,
including AMI Industries, Inc., LSI Logic

38
<PAGE>

Corp. and STMicroelectronics Group, who compete with the Company by supplying
customer-specific products to OEMs. In the ATM area, the principal competitors
include all the vendors mentioned above and, in addition, Advanced Micro
Devices, Inc., Integrated Device Technology, Inc. and MMC Networks, Inc.
Numerous other domestic and international vendors have announced plans for
entering this market.

TranSwitch believes that the principal bases of competition include:

. product definition;

. product design;

. test capabilities;

. reliability;

. price;

. functionality;

. time-to-market; and

. reputation.

The Company believes that it competes favorably with respect to these
factors. TranSwitch also believes that its competitive strengths include the
distribution channels it has established, the Company's workforce of highly
experienced digital and mixed-signal circuit designers with strong system
architecture skills, and its proprietary design and development tools,
including its proprietary simulation and testing software and its library of
analog and digital blocks and cells.

The ability of the Company to compete successfully in the rapidly evolving
area of high performance integrated circuit technology depends on factors both
within and outside its control, including:

. success in designing and subcontracting the manufacture of new
products that implement new technologies;

. protection of our products by effective utilization of intellectual
property laws;

. product quality;

. reliability;

. price;

. efficiency of production;

. the pace at which customers incorporate our integrated circuits into
their products;

. success of competitors' products; and

. general economic conditions.

Backlog

As of September 30, 1998, the Company's backlog was approximately $12.5
million, as compared to $8.4 million as of September 30, 1997. Backlog
represents firm orders anticipated to be shipped within the next 12 months. The
Company's business and, to a large extent, that of the entire semiconductor
industry is characterized by short-term order and shipment schedules. Since
orders constituting the Company's current backlog are subject to changes in
delivery schedules or to cancellation at the option of the purchaser without
significant penalty, backlog is not necessarily an indication of future
revenue.

39
<PAGE>

Employees

At September 30, 1998, the Company employed approximately 135 full time
employees, as follows: 69 in research and development; 38 in marketing and
sales; 19 in operations; and 9 in administration. The Company's future success
depends upon its ability to attract, motivate and retain technical, marketing,
sales and management personnel who are in great demand in the
telecommunications industry. The Company is not party to any collective
bargaining agreements, and the Company believes that its employee relations are
good.

Facilities

The Company's headquarters are located in a suburban office park in Shelton,
Connecticut where it leases approximately 40,000 square feet in a four story
office building. Product development and all final inspection and shipping,
marketing and administration activities are located at this facility.
Approximately 90% of the existing space is fully utilized and the Company
expects to lease additional space in 1999. The lease is due to expire in
November, 2007. The Company also leases approximately 1,200 square feet in
Research Triangle Park, North Carolina where additional product development
efforts take place. In September 1997, the Company leased approximately 3,200
square feet in Stoneham, Massachusetts for product development and sales
support. The Company leases a 1,400 square foot sales and support facility in
San Jose, California. The Company also maintains a small sales office in
Brussels, Belgium. In January 1997, the Company opened a new leased facility of
2,000 square feet in Taipei, Taiwan for product development and sales support,
and in 1998, the Company opened a 2,500 square-foot facility in New Delhi,
India for product development.

40
<PAGE>

MANAGEMENT

The current directors and executive officers of TranSwitch are as follows:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Executive Officers and Directors
Santanu Das..................... 54 President, Chief Executive Officer and
Chairman of the Board of Directors
Michael F. Stauff............... 48 Senior Vice President, Chief Financial
Officer and Treasurer
Terrence S. Rogers.............. 43 Vice President, Worldwide Sales
Alfred R. Boschulte............. 56 Director
Steward S. Flaschen(1)(2)....... 72 Director
Erik H. van der Kaay(1)......... 58 Director
Charles Lee(1)(2)............... 58 Director
Ljubomir Micic(2)............... 68 Director
Albert E. Paladino(1)........... 66 Director
</TABLE>
- --------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.

Executive Officers and Directors

Santanu Das, a founder of TranSwitch, has been President, Chief Executive
Officer and a director of TranSwitch since its inception in 1988 and its
Chairman since May 1997. Prior to joining TranSwitch, 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.

Michael F. Stauff is Senior Vice President, Chief Financial Officer and
Treasurer of TranSwitch. Prior to joining TranSwitch in November 1994, Mr.
Stauff was the Vice President, Treasurer and Chief Financial Officer of I.M.
Holdings, Inc., 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 TranSwitch as Vice President, Worldwide Sales, in
February 1998 from Nippon Steel Semiconductor USA, a semiconductor company,
where he was Vice President, Marketing and Sales, from May 1996 through
February 1998. Prior to Nippon Steel, Mr. Rogers served as Senior Marketing
Manager at Siemens Microelectronics, Inc., a microelectronics company, from
August 1995 to May 1996; Strategic Accounts Manager at Hyundai Electronics
America, an electronics company, from May 1993 to August 1995; and as Strategic
Account and Regional Sales Manager at Oki Semiconductor, an integrated circuit
manufacturing company, from 1989 through May 1993. He holds a B.S.E.E. and a
B.A. in Psychology from the University of Notre Dame and an M.B.A. in Marketing
from the University of Arizona.

Alfred R. Boschulte became a director of TranSwitch in December 1998. Mr.
Boschulte has over 30 years of experience in the telecommunications industry,
and has served as Chairman and Chief Executive Officer of Independent Wireless
One, Inc., a new PCS service provider, since September 1998 and President and
Chief Executive Officer of SFB Consulting, Inc., a telecommunications
consulting business, since January 1998. From January 1996 through December
1997, he served as Managing Director of Exelcomindo, a national cellular
service in Indonesia. From December 1994 through December 1995, Mr. Boschulte
served as President of Tomcom, L.P., a wireless services company, and from
November 1990 through December 1994, he served as President and Chairman of
Nynex Mobile Communications, a cellular telecommunications company.

Steward S. Flaschen, a founder of TranSwitch, has been a director of
TranSwitch since its inception and served as Chairman of the Board from 1988
through May 1997. Dr. Flaschen has served as President of

41
<PAGE>

Flaschen and Davies, a consulting firm, since 1986; as Chairman of the Board of
Directors of Telco Systems, an electronics manufacturing company, since 1986;
and as a member of the Board of Directors of Sipex Corporation, a semiconductor
company, since 1996. In addition, he has been an Independent General Partner of
Merrill Lynch Capital Fund LP II, a venture capital investment fund, since
1986.

Erik H. van der Kaay became a director of TranSwitch in September 1997 and is
also a member of the Board of Directors of RF Micro Devices, Inc., a
manufacturer of RF components for wireless communications, and SSE Telecom,
Inc., a manufacturer of satellite earth station components and systems. Since
April 1998, he has been President and Chief Executive Officer of Datum, Inc.,
which manufactures time and frequency products used in telecommunications and
other fields. Mr. van der Kaay was Executive Vice President of Allen Telecom,
Inc., a telecommunications company, from March 1997 through April 1998 and
served as President of the Antennae Specialist Division of Allen Telecom from
June 1990 until March 1997. Prior to joining Allen Telecom, he was President
and Chief Executive Officer of Millitech Corporation, a manufacturer of
RF broadband wireless equipment.

Charles Lee became a director of TranSwitch in August 1989. He has 30 years
of experience in telecommunications and specializes in the emerging growth
markets of China and the Far East. Since September 1990, Dr. Lee has been
Chairman of Charles Lee Enterprise, a telecommunications business development
and consulting firm, and has been a director of BroadBand Technologies, Inc., a
telephone components manufacturer, since 1988. From February 1987 through
September 1997, Dr. Lee was a General Partner of Abacus Ventures, a telecom
specialty venture capital investment partnership. He holds two M.S. degrees and
a Ph.D. from the University of Minnesota.

Ljubomir Micic has been a director of TranSwitch since June 1994. Since 1990,
he has been 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 TranSwitch since December 1988. He
has served as the Chairman of Millitech Corporation, since 1992. Dr. Paladino
has also served on the Board of Directors of RF Micro Devices, Inc. since 1992
and as a partner of Advanced Technology Ventures, a venture capital investment
partnership, since 1981. Before joining Millitech, he held senior positions
with Raytheon Company, GTE Laboratories, the National Institute of Standards
and Technology and the Congressional Office of Technology Assessment.

42
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth as of December 9, 1998, certain information
regarding the ownership of shares of common stock of TranSwitch, and as
adjusted to reflect the sale of the common stock being offered hereby (assumes
no exercise of the underwriters' over-allotment option) by (i) each director of
TranSwitch, (ii) TranSwitch's Chief Executive Officer and the four other most
highly compensated officers of TranSwitch whose total salary and bonus for 1997
exceeded $100,000 and (iii) all directors and executive officers as a group. To
the knowledge of TranSwitch, no person beneficially owned more than 5% of the
outstanding common stock as of December 9, 1998. Unless otherwise indicated
below, each person listed below maintains a business address at c/o TranSwitch
Corporation, Three Enterprise Drive, Shelton, Connecticut 06484 and has sole
voting and investing power with respect to all shares of common stock owned by
them.

<TABLE>
<CAPTION>
Percent of Class(2)
-------------------
Shares
Beneficially Before After
Name and Address of Beneficial Owner Owned(1) Offering Offering
- ------------------------------------ ------------ --------- ---------
<S> <C> <C> <C>
Santanu Das(3).......................... 202,750 1.4% 1.2%
Steward S. Flaschen(4).................. 139,971 * *
Michael F. Stauff(5).................... 62,415 * *
Jitender Vij(6)......................... 48,418 * *
Francisco A. Middleton(7)............... 35,423 * *
Charles Lee(8).......................... 53,804 * *
Albert E. Paladino ..................... 17,000 * *
Terrence S. Rogers...................... 12,000 * *
Ljubomir Micic(9) ...................... 22,500 * *
Erik H. van der Kaay(10)................ 12,134 * *
Alfred R. Boschulte(11)................. 4,167 * *
All directors and executive officers as 526,741 3.5% 3.2%
a group (9 persons)(12)...............
</TABLE>
- --------
* Less than 1% of the outstanding common stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock subject
to options currently exercisable or exercisable within 60 days of December
9, 1998 ("Presently Exercisable Securities"), are deemed outstanding for
computing the percentage of the person or entity holding such securities,
but are not outstanding for computing the percentage of any other person or
entity. Except as indicated by footnote, and subject to community property
laws where applicable, the persons named in the table above have sole
voting and investment power with respect to all shares of common stock
shown as beneficially owned by them.
(2) Percentage of beneficial ownership is based on 14,629,371 shares of common
stock outstanding as of December 9, 1998 and 16,329,371 shares of common
stock outstanding after this offering.

(3) Includes 20,000 shares owned and 182,750 shares issuable upon exercise of
Presently Exercisable Securities held by Dr. Das.
(4) Includes 55,683 shares owned by the Joyce D. Flaschen Revocable Investment
Trust of which Joyce D. Flaschen is the trustee and 67,188 shares owned by
the Steward S. Flaschen Revocable Investment Trust of which Dr. Flaschen is
trustee. Dr. Flaschen disclaims beneficial ownership of the shares held by
the Joyce D. Flaschen Revocable Investment Trust. Also includes 17,100
shares issuable upon exercise of Presently Exercisable Securities.
(5) Consists of 27,344 shares owned and 35,071 shares issuable upon exercise of
Presently Exercisable Securities.

(6) Includes 6,495 shares owned and 33,923 shares issuable upon exercise of
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 12,000 shares owned and 23,423 shares issuable upon exercise of
Presently Exercisable Securities.
(8) Consists of 8,804 shares owned and 45,000 shares issuable upon exercise of
Presently Exercisable Securities.

(9) Consists of 22,500 shares issuable upon exercise of Presently Exercisable
Securities.

(10) Consists of 3,800 shares owned and 8,334 shares issuable upon exercise of
Presently Exercisable Securities.

(11) Consists of 4,167 shares issuable upon exercise of Presently Exercisable
Securities.

(12) Includes 314,922 shares issuable upon exercise of Presently Exercisable
Securities.

43
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 25,000,000 shares of
common stock, $.001 par value per share, and 1,000,000 shares of preferred
stock, $.01 par value per share.

Common Stock

As of December 9, 1998, there were 14,629,371 shares of common stock
outstanding that were held of record by approximately 166 shareholders.

Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights
of outstanding preferred stock. Upon the liquidation, dissolution or winding up
of TranSwitch, the holders of common stock are entitled to receive ratably the
net assets of TranSwitch available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding preferred stock.
Holders of the common stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of common stock are, and the shares
offered by TranSwitch in this offering will be, when issued and paid for, fully
paid and nonassessable. The rights, preferences and privileges of holders of
common stock are subject to, and may be adversely affected by, the rights of
the holders of shares of any series of preferred stock which TranSwitch may
designate and issue in the future. Upon the closing of this offering, there
will be no shares of preferred stock outstanding.

Preferred Stock

The Board of Directors is authorized, subject to certain limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of 1,000,000 shares of preferred stock in one or more
series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions of the shares of each such series
thereof, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption (including sinking fund provisions),
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of such series. The issuance of
preferred stock may have the effect of delaying, deferring or preventing a
change of control of TranSwitch. TranSwitch has no present plans to issue any
shares of preferred stock.

Delaware Law and Certain Charter and By-Law Provisions; Anti-Takeover Effects

TranSwitch is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "DGCL"). In general, Section 203 prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
the interested stockholder attained such status with the approval of the Board
of Directors or unless the business combination is approved in a prescribed
manner. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an "interested stockholder" is a person who,
together with affiliates and associates, owns, or within three years did own,
15% or more of a corporation's voting stock.

TranSwitch's Amended and Restated Certificate of Incorporation (the
"Charter") permits the Board of Directors, when considering a tender offer or
merger or acquisition proposal, to take into account factors in addition to the
price offered, including the long-term interests of the stockholders and the
social, legal and economic effects on our customers, employees and suppliers.
TranSwitch's by-laws provide that nominations for the Board of Directors or
other business to be brought before an annual meeting must be delivered to the
Company not less than 120 days nor more than 150 days before the one-year
anniversary of the date the most recent proxy statement was delivered. In
addition, the Charter and By-laws prohibit removal of a director without cause
unless stockholders holding two-thirds of eligible shares vote to do so.

44
<PAGE>

The foregoing provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring,
control of TranSwitch.

Transfer Agent and Registrar

The transfer agent and registrar for the common stock is State Street Bank
and Trust Company, Boston, Massachusetts.

45
<PAGE>

UNDERWRITING

The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., NationsBanc Montgomery Securities LLC and
Advest, Inc. (the "Representatives"), have severally agreed with TranSwitch
subject to the terms and conditions of the Underwriting Agreement, to purchase
from TranSwitch the number of shares of common stock set forth opposite their
respective names below. The underwriters are committed to purchase and pay for
all such shares if any are purchased.

<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
BancBoston Robertson Stephens Inc...........................
NationsBanc Montgomery Securities LLC.......................
Advest, Inc.................................................
---------
Total.................................................. 1,700,000
=========
</TABLE>

The Representatives have advised TranSwitch that the underwriters propose to
offer the shares of common stock to the public at the public offering price set
forth on the cover page of this prospectus and to certain dealers at such price
less a concession of not more than $ per share, of which $ may be
reallowed to other dealers. After the public offering, the public offering
price, concession and reallowance to dealers may be reduced by the
Representatives. No such reduction shall change the amount of proceeds to be
received by TranSwitch as set forth on the cover page of this prospectus.

Over-Allotment Option. TranSwitch has granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 255,000 additional shares of common stock at the same price per
share as TranSwitch will receive for the 1,700,000 shares that the underwriters
have agreed to purchase. To the extent that the underwriters exercise such
option, each of the underwriters will have a firm commitment to purchase
approximately the same percentage of such additional shares that the number of
shares of common stock to be purchased by it shown in the above tables
represents as a percentage of the 1,700,000 shares offered hereby. If
purchased, such additional shares will be sold by the underwriters on the same
terms as those on which the 1,700,000 shares are being sold.

Indemnity. The Underwriting Agreement contains covenants of indemnity between
the underwriters and TranSwitch against certain civil liabilities, including
liabilities under the Securities Act of 1933 and liability arising from
breaches of representations and warranties contained in the Underwriting
Agreement.

Lock-up Agreements. The directors and certain officers of TranSwitch have
agreed that until 90 days after the date of this prospectus (the "Lock-Up
Period") they will not offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any option to purchase any shares of common
stock, or any securities convertible into, or exchangeable for, or any rights
to purchase or acquire, shares of common stock, now owned or hereafter acquired
directly by such holders or with respect to which they have the power of
disposition, without the prior written consent of BancBoston Robertson Stephens
Inc., which may, in its sole discretion and at any time or from time to time,
without notice, release all or any portion of the shares subject to the lock-up
agreements.

Future Sales. TranSwitch has agreed that, during the Lock-Up Period, it will
not, without the prior written consent of BancBoston Robertson Stephens Inc.,
issue, sell, contract to sell or otherwise dispose of any shares of common
stock, any options or warrants to purchase any shares of common stock or any
securities convertible into, exercisable for or exchangeable for shares of
common stock other than the issuance of common stock upon the exercise of
outstanding options and TranSwitch's grant of options under existing stock
option plans.

The underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.

46
<PAGE>

Stabilization. The Representatives have advised TranSwitch that, pursuant to
Regulation M under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") certain persons participating in the offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or
the imposition of penalty bids which may have the effect of stabilizing or
maintaining the market price of the common stock at a level about that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of the common stock on behalf of the underwriters for the purpose
of fixing or maintaining the price of the common stock. A "syndicate covering
transaction" is the bid for or the purchase of the common stock on behalf of
the underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
Representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by such underwriter or syndicate member is purchased by
Representatives in a syndicate covering transaction and has therefore not been
effectively placed by such underwriter or syndicate member. The Representatives
have advised TranSwitch that such transactions may be effected on the Nasdaq
National Market or otherwise and, if commenced, may be discontinued at any
time.

Passive Market Making. In connection with this offering, certain underwriters
and selling group members (if any) who are qualified market makers on the
Nasdaq National Market may engage in passive market making transactions in the
common stock on the Nasdaq National Market in accordance with Rule 103 of
Regulation M under the Exchange Act, during the business day prior to the
pricing of the offering, before the commencement of offers or sales of the
common stock. Passive market makers must comply with applicable volume and
price limitations and must be identified as such. In general, a passive market
maker must display its bid at a price not in excess of the highest independent
bid for such security; if all independent bids are lowered below the passive
market maker's bid, however, such bid must then be lowered when certain
purchase limits are exceeded.

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed upon
for the Company by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
Richard J. Testa, a partner of the firm, beneficially owns 19,138 shares of
common stock of the Company. Certain legal matters will be passed upon for the
underwriters by Hale and Dorr LLP, Boston, Massachusetts.

EXPERTS

The consolidated financial statements and schedule of TranSwitch Corporation
and Subsidiary as of December 31, 1996 and 1997, and for each of the years in
the three-year period ended December 31, 1997, have been included and
incorporated by reference herein and in the registration statement, of which
this prospectus is a part, in reliance upon the reports of KPMG LLP,
independent certified public accountants, appearing elsewhere and incorporated
by reference herein, and upon authority of said firm as experts in accounting
and auditing.

47
<PAGE>

WHERE YOU CAN FIND MORE INFORMATION

TranSwitch files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference room. Our SEC filings are also available to the public from
the SEC's Website at "http://www.sec.gov."

The SEC allows TranSwitch to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information.
TranSwitch incorporates by reference the documents listed below and any future
filings we will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act (File No. 0-25996):

1. Annual Report on Form 10-K for the year ended December 31, 1997;

2. TranSwitch's Proxy Statement, filed on April 17, 1998, for the 1998
Annual Meeting of Shareholders;

3. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998;

4. TranSwitch's Current Reports on Form 8-K dated February 13, 1998 and
January 21, 1999; and

5. The "Description of Capital Stock" contained in TranSwitch's
Registration Statement No. 00025996 on Form 8-A, dated April 28, 1995.

You may request a copy of these filings, at no cost, by writing or
telephoning our Chief Financial Officer at the following address:

TranSwitch Corporation
3 Enterprise Drive
Shelton, Connecticut 06484
(203) 929-8810

This prospectus is part of a registration statement we filed with the SEC.
You should rely only on the information or representations provided in this
prospectus. We have authorized no one to provide you with different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of the
document.

48
<PAGE>

TRANSWITCH CORPORATION AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 and
(unaudited) as of September 30, 1998.................................... F-3
Consolidated Statements of Operations for each of the years in the three-
year period ended December 31, 1997 and (unaudited) for the nine months
ended September 30, 1997 and 1998....................................... F-4
Consolidated Statements of Stockholders' Equity for each of the years in
the three-year period ended December 31, 1997 and (unaudited) for the
nine months ended September 30, 1998.................................... F-5
Consolidated Statements of Cash Flows for each of the years in the three-
year period ended December 31, 1997 and (unaudited) for the nine months
ended September 30, 1997 and 1998....................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
TranSwitch Corporation:

We have audited the accompanying consolidated balance sheets of TranSwitch
Corporation and subsidiary as of December 31, 1996 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TranSwitch
Corporation and subsidiary as of December 31, 1996 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted
accounting principles.

/s/ KPMG LLP

Stamford, Connecticut
February 4, 1998

F-2
<PAGE>

TRANSWITCH CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

<TABLE>
<CAPTION>
December 31, September 30,
------------------ -------------
1996 1997 1998
-------- -------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 3,911 $ 20,508 $ 20,892
Short-term investments..................... 8,777 1,110 3,439
Accounts receivable, less allowance for
doubtful accounts of $140 in 1996 and
$218 in 1997............................. 2,893 4,528 5,732
Inventories, net........................... 3,524 4,812 6,166
Prepaid expenses and other current assets.... 305 815 870
-------- -------- --------
Total current assets......................... 19,410 31,773 37,099
Property and equipment, net.................. 2,647 3,816 4,928
Product licenses, net........................ 1,254 1,000 976
Other assets................................. -- -- 280
-------- -------- --------
Total assets................................. $ 23,311 $ 36,589 $ 43,283
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $ 1,805 $ 1,350 $ 3,440
Accrued expenses........................... 724 1,235 1,002
Accrued compensation....................... 535 993 1,039
Warranty reserve........................... 286 532 719
Sales allowance reserve.................... 356 649 854
Royalty payable............................ 209 299 50
Product license fee payable, current
portion.................................. 845 1,067 665
-------- -------- --------
Total current liabilities.................... 4,760 6,125 7,769
-------- -------- --------
Product license fee payable, less current
portion.................................... 1,252 303 --
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred Stock, $.01 par value; authorized
1,000,000 shares:
Convertible Preferred Stock, issued and
outstanding; none at December 31, 1996;
14,500 shares at December 31, 1997;
none at September 30, 1998............. -- 14,357 --
Common Stock $.001 par value; authorized
25,000,000 shares; issued and outstanding
11,912,486 shares in 1996; 12,318,271
shares in 1997; 14,315,104 shares at
September 30, 1998....................... 12 12 14
Additional paid-in capital................. 45,375 45,753 61,959
Accumulated deficit........................ (28,088) (29,961) (26,459)
-------- -------- --------
Total stockholders' equity................... 17,299 30,161 35,514
-------- -------- --------
Total liabilities and stockholders' equity... $ 23,311 $ 36,589 $ 43,283
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

TRANSWITCH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------- ------------------
1995 1996 1997 1997 1998
------- -------- ------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Product revenues, net........ $16,464 $ 19,236 $26,930 $ 18,596 $ 30,477
Research and development
contracts.................. 877 414 154 154 --
License and royalty fees..... 125 -- -- -- --
------- -------- ------- -------- --------
Total revenues............. 17,466 19,650 27,084 18,750 30,477
------- -------- ------- -------- --------
Cost of revenues:
Cost of products sold........ 6,913 10,615 11,254 8,005 11,619
Write-down of product
license.................... -- 3,128 -- -- --
Cost of research and
development contracts...... 482 63 -- -- --
------- -------- ------- -------- --------
Total cost of revenues..... 7,395 13,806 11,254 8,005 11,619
------- -------- ------- -------- --------
Gross profit................... 10,071 5,844 15,830 10,745 18,858
------- -------- ------- -------- --------
Operating expenses:
Research and development..... 6,660 8,928 9,194 6,841 7,967
Marketing and sales.......... 4,329 5,454 6,681 4,970 6,163
General and administrative... 1,472 2,229 2,288 1,608 1,825
------- -------- ------- -------- --------
Total operating expenses... 12,461 16,611 18,163 13,419 15,955
------- -------- ------- -------- --------
Operating income (loss)........ (2,390) (10,767) (2,333) (2,674) 2,903
------- -------- ------- -------- --------
Interest income (expense):
Interest income.............. 664 819 641 373 830
Interest expense............. (47) (129) (181) (5) (67)
------- -------- ------- -------- --------
Interest income, net....... 617 690 460 368 763
------- -------- ------- -------- --------
Income (loss) before income
taxes........................ (1,773) (10,077) (1,873) (2,306) 3,666
------- -------- ------- -------- --------
Provision for income taxes..... -- -- -- -- 164
------- -------- ------- -------- --------
Net income (loss).............. $(1,773) $(10,077) $(1,873) $ (2,306) $ 3,502
======= ======== ======= ======== ========
Basic earnings (loss) per
share........................ $ (.18) $ (.86) $ (.15) $ (.19) $ .26
======= ======== ======= ======== ========
Diluted earnings (loss) per
share........................ $ (.18) $ (.86) $ (.15) $ (.19) $ .24
======= ======== ======= ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

TRANSWITCH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except share data)

<TABLE>
<CAPTION>
Common Stock Convertible Additional
----------------- Preferred Paid-in Accumulated
Shares Amount Stock Capital Deficit Total
---------- ------ ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994.................. 1,071,992 $ 1 $ -- $ 913 $(16,238) $(15,324)
Shares of common stock
issued upon exercise
of stock options and
warrants............ 546,871 1 -- 288 -- 289
Common stock offered
by the company in
initial public
offering............ 2,875,000 3 -- 23,169 -- 23,172
Conversion of
preferred stock to
common stock........ 7,009,743 7 -- 20,235 -- 20,242
Compensation related
to issuance of stock
options............. -- -- -- 100 -- 100
Net loss.............. -- -- -- -- (1,773) (1,773)
---------- --- -------- ------- -------- --------
Balance at December 31,
1995.................. 11,503,606 12 -- 44,705 (18,011) 26,706
Shares of common stock
issued upon exercise
of stock options and
warrants............ 408,880 -- -- 319 -- 319
Compensation related
to issuance of stock
options............. -- -- -- 351 -- 351
Net loss.............. -- -- -- -- (10,077) (10,077)
---------- --- -------- ------- -------- --------
Balance at December 31,
1996.................. 11,912,486 12 -- 45,375 (28,088) 17,299
Shares of common stock
issued upon exercise
of stock options and
warrants............ 405,785 -- -- 699 -- 699
Issuance of
convertible
preferred stock, net
of issuance costs... -- -- 12,886 770 -- 13,656
Deemed dividend on
convertible
preferred stock..... -- -- 1,471 (1,471) -- --
Compensation related
to issuance of stock
options............. -- -- -- 380 -- 380
Net loss.............. -- -- -- -- (1,873) (1,873)
---------- --- -------- ------- -------- --------
Balance at December 31,
1997.................. 12,318,271 12 14,357 45,753 (29,961) 30,161
Shares of common stock
issued upon exercise
of stock options
(unaudited)......... 418,058 -- -- 1,592 -- 1,592
Deemed dividend on
convertible
preferred stock
(unaudited)......... -- -- 143 (143) -- --
Issuance cost for
convertible
preferred stock
(unaudited)......... -- -- -- (75) -- (75)
Shares of common stock
issued upon
conversion of
preferred stock
(unaudited)......... 1,578,775 2 (14,500) 14,498 -- --
Compensation related
to issuance of stock
options
(unaudited)......... -- -- -- 334 -- 334
Net income
(unaudited)......... -- -- -- -- 3,502 3,502
---------- --- -------- ------- -------- --------
Balance at September 30,
1998 (unaudited)...... 14,315,104 $14 $ -- $61,959 $(26,459) $ 35,514
========== === ======== ======= ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

TRANSWITCH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
-------------------------- ------------------
1995 1996 1997 1997 1998
------- -------- ------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............. $(1,773) $(10,077) $(1,873) $ (2,306) $ 3,502
------- -------- ------- -------- --------
Adjustments required to
reconcile net income (loss)
to cash flows from operating
activities:
Depreciation and
amortization............... 802 2,195 1,807 1,019 1,464
Write-down of product
license.................... -- 3,128 -- -- --
Stock compensation expense... 100 351 380 248 334
Changes in assets and
liabilities:
Decrease (increase) in
accounts receivable....... (3,084) 2,487 (1,635) (1,261) (1,204)
(Increase) in inventories... (1,440) (753) (1,288) (1,511) (1,354)
Decrease (increase) in
prepaids and other current
assets.................... (250) 194 (510) (484) (335)
Increase (decrease) in
accounts payable.......... 742 (216) (455) 1,225 2,090
Increase (decrease) in
accrued expenses and other
liabilities............... 13 516 1,598 1,411 (45)
------- -------- ------- -------- --------
Total adjustments.......... (3,117) 7,902 (103) 647 950
------- -------- ------- -------- --------
Net cash provided by (used
in) operating
activities............... (4,890) (2,175) (1,976) (1,659) 4,452
------- -------- ------- -------- --------
Cash flows from investing
activities:
Purchase of product licenses.. (2,176) (445) (3) (3) (300)
Proceeds from the sale of
property and equipment...... 3 -- -- -- --
Capital expenditures.......... (1,309) (1,892) (2,719) (1,475) (2,252)
Purchases of short-term
investments................. (5,620) (24,057) (8,615) (7,505) (4,424)
Proceeds from sale of short-
term investments............ 2,000 18,900 16,282 13,283 2,096
------- -------- ------- -------- --------
Net cash provided by (used
in) investing
activities............... (7,102) (7,494) 4,945 4,300 (4,880)
------- -------- ------- -------- --------
Cash flows from financing
activities:
Payments on borrowings........ (1,191) -- -- -- --
Payments on product license
obligations................. -- (369) (727) (691) (705)
Proceeds from the exercise of
stock options and warrants.. 289 319 699 473 1,592
Proceeds from the issuance of
common stock, net........... 23,172 -- -- -- --
Proceeds from the issuance of
convertible preferred stock,
net of issuance costs....... -- -- 13,656 -- --
Issuance cost for convertible
preferred stock............. -- -- -- -- (75)
------- -------- ------- -------- --------
Net cash provided by (used
in) financing
activities............... 22,270 (50) 13,628 (218) 812
------- -------- ------- -------- --------
Increase (decrease) in cash and
cash equivalents............. 10,278 (9,719) 16,597 2,423 384
Cash and cash equivalents at
beginning of period.......... 3,352 13,630 3,911 3,911 20,508
------- -------- ------- -------- --------
Cash and cash equivalents at
end of period................ $13,630 $ 3,911 $20,508 $ 6,334 $ 20,892
======= ======== ======= ======== ========
Supplemental disclosure of cash
flows information:
Cash paid for interest........ $ 47 $ 129 $ 181 $ 5 $ 68
Supplemental schedule of non-
cash financing activities:
Obligations for purchase of
product licenses............ $ 2,399 $ 134 $ -- $ -- $ --
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

TRANSWITCH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

(1) Summary of Significant Accounting Policies

Description of Business

TranSwitch Corporation (the "Company") was incorporated in Delaware on April
26, 1988. On January 28, 1994, the Company formed TranSwitch Europe N.V./S.A.,
a wholly-owned subsidiary located in Brussels, Belgium. In 1998, the Company
formed TranSwitch India Private Limited, a wholly-owned subsidiary located in
New Delhi, India. The Company designs, develops, markets and supports highly
integrated digital and mixed-signal (analog and digital) semiconductor
solutions for the telecommunications and data communications markets.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany accounts and transactions have
been eliminated in consolidation.

Reclassifications

Certain prior year amounts have been reclassified to conform with the current
year's presentation.

Cash Equivalents

Cash equivalents of $2,989, $18,668, and $15,658 at December 31, 1996 and
1997, and September 30, 1998 (unaudited), respectively, consist of certificates
of deposit, U.S. Treasury Bills, commercial paper and U.S. Agency notes. For
purposes of the statements of cash flows, the Company considers all
certificates of deposit, U.S. Treasury Bills, commercial paper and U.S. Agency
notes with original maturities of three months or less to be cash equivalents.

Investment Securities

The Company adopted Statement of Financial Accounting Standards (SFAS) No.
115 "Accounting for Certain Investments in Debt and Equity Securities." Under
SFAS No. 115, the Company's short-term investments were classified as
available-for-sale and were recorded at fair market value in the accompanying
balance sheet.

Inventories

Inventories are carried at the lower of cost (on a first-in, first-out basis)
or estimated net realizable value.

Property and Equipment

Property and equipment are carried at cost less accumulated depreciation.
Depreciation of property and equipment is provided on the half-year convention
method based on the related assets' estimated useful lives, ranging from three
to seven years. Depreciation of semiconductor tooling costs is provided on the
straight-line method using the lesser of three years or the life of the related
semiconductor it produces. Repairs and maintenance are charged to operations as
incurred.

Product Licenses

Product licenses are amortized over the lesser of the Company's estimated
product sales volume or the straight-line method over three to five years.

Subsequent to its acquisition, the Company continually evaluates whether
events and circumstances have occurred that indicate the remaining estimated
useful life of a product license may warrant revision or that the

F-7
<PAGE>

TRANSWITCH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(in thousands, except share and per share amounts)

remaining balance of a product license may not be recoverable. When factors
indicate that a product license should be evaluated for possible impairment,
the Company uses an estimate of the related product licenses' undiscounted
future cash flows over the remaining life of the asset in measuring whether the
product license is recoverable. Any impairment is measured against discounted
cash flows.

Revenue Recognition

Sales of product are recognized upon shipment to distributors and original
equipment manufacturers. Sales to certain distributors are made under
distributor agreements which provide the distributor with certain price
protection and return and allowance rights. Revenues are reduced for estimated
price protection and returns based upon historical experience.

Revenues from development contracts are derived from agreements with third
parties. These agreements provide for payments to the Company for the
development of new products and reimbursement for expenses incurred based on
the achievement of certain milestones. Revenues are recognized as the related
costs are incurred over the term of the agreement. The Company primarily
retains exclusive ownership of technology developed in connection with the
design of semiconductors. Technology developed in connection with customized
computer boards generally transfers to third parties.

The Company recognizes royalties and license fees when its obligations under
the license and royalty agreements are fulfilled and when payment has been
received or is reasonably assured.

Concentration of Credit Risk

The Company sells its products to customers in the United States and
overseas. Credit evaluations are done on all new customers and periodically
evaluated for existing customers. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information.

Product Warranties

The Company provides for expected costs that may be incurred under its
product warranties. Estimated warranty costs are accrued as products are sold
and charged to cost of revenues.

Research and Development Costs

Research and development costs are expensed as incurred.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

F-8
<PAGE>

TRANSWITCH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(in thousands, except share and per share amounts)

Earnings per Share

Basic earnings per share are based upon the weighted average common shares
outstanding during the period. Diluted earnings per share assume exercise of
in-the-money stock options outstanding and full conversion of convertible
preferred stock into common stock at the beginning of the year or the date of
issuance, unless they are antidilutive.

Use of Estimates

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates.

Accounting Changes

Effective December 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128--"Earnings per Share." SFAS No. 128
simplifies the calculation of earnings per share (EPS), replaces primary EPS
with basic EPS and replaces fully diluted EPS with diluted EPS.

Basic EPS is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding during the period. The
computation of diluted EPS is similar to the computation of basic EPS except
that it gives effect to all potentially dilutive instruments that were
outstanding during the period. In prior years, the Company has computed EPS
without consideration to potentially dilutive instruments due to the losses
incurred by the Company. Accordingly, the adoption of this standard has not
resulted in a change to the Company's previously reported EPS amounts.

Effective January 1, 1998, the Company adopted SFAS No. 130--"Reporting
Comprehensive Income." This Statement requires that companies disclose
comprehensive income, which includes net income, foreign currency translation
adjustments, minimum pension liability adjustments and unrealized gains and
losses on marketable securities classified as available for sale. For the
Company, comprehensive income is the same as net income (loss).

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires companies to
recognize all derivatives as assets or liabilities measured at their fair
market value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. This Statement is effective for
fiscal years beginning after June 15, 1999. The Company expects to adopt this
accounting standard beginning January 1, 2000. The Company does not expect the
adoption of this statement to have a material impact on its financial position
or results of operations.

Interim Results (Unaudited)

The accompanying Consolidated Balance Sheet at September 30, 1998, the
Consolidated Statements of Operations and Consolidated Statements of Cash Flows
for the nine months ended September 30, 1997 and 1998, and the Consolidated
Statement of Stockholders' Equity for the nine months ended September 30, 1998
are unaudited. In the opinion of management, these statements have been
prepared on the same basis as the audited consolidated financial statements and
include all adjustments, consisting only of normal recurring adjustments,
necessary for the fair statement of the results of interim periods. The results
for the nine months ended September 30, 1998 are not necessarily indicative of
the results to be expected for the entire year. The data disclosed in these
notes to the consolidated financial statements for these periods are unaudited.

F-9
<PAGE>

TRANSWITCH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(in thousands, except share and per share amounts)

(2) Short-term Investments

Short-term investments, classified as available-for-sale, consist of the
following at December 31, 1996 and 1997:

<TABLE>
<CAPTION>
1996 1997
---------------------------- ----------------------------
Amortized Unrealized Fair Amortized Unrealized Fair
Cost Gain (Loss) Value Cost Gain (Loss) Value
--------- ----------- ------ --------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Commercial paper and
corporate debt
securities (average
maturity of 4 months
in 1996 and 1997)..... $3,774 $ -- $3,774 $1,110 $ -- $1,110
Corporate bonds......... 1,004 -- 1,004 -- -- --
U.S. Treasury Bill...... 3,999 -- 3,999 -- -- --
------ ------ ------ ------ ------ ------
Total................. $8,777 $ -- $8,777 $1,110 $ -- $1,110
====== ====== ====== ====== ====== ======
</TABLE>

Gross realized gains and losses on sales of securities in 1996 and 1997 were
immaterial.

(3) Fair Value of Financial Instruments

The estimated fair values of our financial instruments at December 31, 1996
and 1997 follow:

<TABLE>
<CAPTION>
1996 1997
--------------- ----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ -------- -------
<S> <C> <C> <C> <C>
Cash and cash equivalents.................. $3,911 $3,911 $20,508 $20,508
Short-term investments..................... 8,777 8,777 1,110 1,110
Accounts receivable, net................... 2,893 2,893 4,528 4,528
</TABLE>

The carrying amounts for cash and accounts receivables, net, approximate fair
value because of the short maturities of these instruments.

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and trade accounts
receivable. The Company places its cash primarily in market interest rate
accounts. The Company, by policy, limits the amount of credit exposure to any
one financial institution or commercial issuer.

(4) Inventories

Inventories consist of:

<TABLE>
<CAPTION>
December 31, September 30,
------------- -------------
1996 1997 1998
------ ------ -------------
(Unaudited)
<S> <C> <C> <C>
Raw materials.................................... $ 600 $1,086 $1,191
Work in process.................................. 1,500 1,654 1,137
Finished goods................................... 1,424 2,072 3,838
------ ------ ------
Total.......................................... $3,524 $4,812 $6,166
====== ====== ======
</TABLE>

F-10
<PAGE>

TRANSWITCH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(in thousands, except share and per share amounts)

(5) Property and Equipment, Net

Property and equipment, net, consist of:

<TABLE>
<CAPTION>
Estimated December 31, September 30,
Useful ---------------- -------------
Lives 1996 1997 1998
---------- ------- ------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
Purchased computer software..... 3 years $ 2,756 $ 4,220 $ 4,406
Equipment....................... 3-7 years 2,356 3,171 3,782
Semiconductor tooling........... 3 years 771 879 879
Furniture....................... 3-7 years 351 967 1,110
Leasehold improvements.......... Lease term 158 186 196
Construction in progress........ 418 106 1,628
------- ------- -------
6,810 9,529 12,001
Less accumulated depreciation
and amortization.............. (4,163) (5,713) (7,073)
------- ------- -------
Property and equipment, net..... $ 2,647 $ 3,816 $ 4,928
======= ======= =======
</TABLE>

(6) Product Licenses, Net

Product licenses, net, amounted to $1,254, $1,000 and $976 at December 31,
1996 and 1997 and September 30, 1998 (unaudited), respectively.

On December 15, 1995 the Company entered into a new agreement with Texas
Instruments (TI) in which it repurchased its license agreement for a total of
$4,875 representing an upfront payment of $2,125 in cash and the discounted
present value of future minimum payments. The Company recorded the repurchased
license (TI license) in its consolidated balance sheet under the caption
product licenses and is amortizing the asset over a five year period based upon
the estimated related incremental product sales. Interest expense is being
accrued over the three year minimum payment period.

In the fourth quarter of 1996, the TI License was written down to its net
realizable value as the forecasted incremental revenues attributable to the TI
license were significantly less than originally anticipated.

The Company purchased other product licenses during the fiscal years ended
1996 and 1997 and during the first nine months of 1998 for $314, $3, and $300,
respectively, which are being amortized over a three year period.

Amortization of product licenses amounted to $0, $705, $257 and $324 in
fiscal years ended 1995, 1996 and 1997 and the nine months ended September 30,
1998 (unaudited), respectively.

F-11
<PAGE>

TRANSWITCH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(in thousands, except share and per share amounts)

(7) Income Taxes

The tax effect of temporary differences that give rise to deferred tax assets
and deferred tax liabilities at December 31, 1996 and 1997 are presented below:

<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Inventory obsolescence............................... $ 497 $ 532
Vacation accrual..................................... 79 137
Warranty reserve..................................... 119 221
Sales allowance reserve.............................. 148 270
Product license...................................... 267 --
Net operating losses................................. 10,637 12,244
Research and development credit...................... 1,739 1,860
Other................................................ 59 90
-------- --------
Total gross deferred tax assets........................ 13,545 15,354
Less valuation allowance............................... (13,384) (14,867)
Net deferred tax assets................................ 161 487
Deferred tax liabilities:
Property and equipment............................... (161) (487)
-------- --------
Total deferred taxes, net of valuation allowance.... $ -- $ --
======== ========
</TABLE>

The net change in the total valuation allowance for the year ended December
31, 1997 was an increase of $1,483. Due to the Company's prior operating
losses, there is uncertainty surrounding whether the Company will ultimately
realize its deferred tax assets. Accordingly, these assets have been fully
reserved. Of the total valuation allowance of $14,867, subsequently recognized
tax benefits, if any, in the amount of $1,611 will be applied directly to
contributed capital.

The difference between the statutory federal income tax rate and the
Company's effective tax rate for the years ended December 31, 1995, 1996 and
1997 is principally due to net operating losses.

At December 31, 1997, the Company had available, for federal income tax
purposes, net operating loss carryforwards of approximately $29,440 and
research and development tax credit carryforwards of approximately $1,860
expiring in varying amounts from 2003 through 2012. Certain transactions
involving beneficial ownership of the Company have occurred which resulted in a
stock ownership change for purposes of Section 382 of the Internal Revenue Code
of 1986, as amended. Consequently, approximately $24,000 of the Company's net
operating loss carryforward and $1,410 of the Company's research and
development tax credit carryforward are subject to these limitations.

(8) Convertible Preferred Stock

The Company has authorized 1,000,000 shares of preferred stock with a par
value of $.01. On October 10, 1997, the Company issued 14,500 shares of Series
A Convertible Preferred Stock (Series A Stock) for net proceeds, after issuance
costs, of $13,656. The Company allocated $1,614 of the net proceeds to
additional paid-in capital, representing the calculated value of a preferential
conversion feature on the date of issuance. This amount is being accreted
ratably to the Series A Stock as a deemed dividend through the earliest
conversion date (90 days from issuance).

F-12
<PAGE>

TRANSWITCH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(in thousands, except share and per share amounts)

Each share of Series A Stock is convertible into shares of Common Stock at
any time at the option of the holder, subject to certain limitations, at the
lesser of (i) $10.58 per share or (ii) ninety percent (90%) of the average of
the closing bid price of the Company's Common Stock, as reported by the NASDAQ
National Market, for the ten (10) trading days immediately preceding the date
written notice of conversion is received by the Company. Unless converted
sooner at the option of the holders of the Series A Stock, all shares of Series
A Stock will convert to Common Stock on October 10, 2002. No Series A Stock may
be converted until the earlier of (i) January 8, 1998 or (ii) the date upon
which a registration statement filed with the Securities and Exchange
Commission to register additional shares of Common Stock is declared effective.

As of December 31, 1997, the Series A Stock was not yet eligible for
conversion into Common Stock. Effective January 8, 1998, the Series A Stock was
eligible for conversion into Common Stock.

In the nine months ended September 30, 1998, all outstanding shares of Series
A Stock were converted into 1,578,775 shares of Common Stock.

(9) Stockholders' Equity

Common Stock

On June 19, 1995 and July 13, 1995 the Company completed its initial public
offering of 2,500,000 shares of Common Stock and 375,000 shares of Common
Stock, respectively, all of which were sold by the Company. Concurrent with
consummation of the offering, all outstanding shares of Mandatorily Redeemable
Convertible Preferred Stock were converted into 7,009,743 shares of Common
Stock.

Stock-Based Compensation

1989 Stock Option Plan

Effective January 12, 1989, the Company adopted a Stock Option Plan. Under
the Plan, the Board of Directors (or an appointed committee) grants to all new
employees, and to certain key employees and consultants, incentive stock
options ("qualified" options) and non-qualified stock options to purchase
Common Stock. In 1993, the Company amended the Stock Option Plan, increasing
the total number of shares of Common Stock reserved for issuance to 1,827,413.

The option price for incentive stock options shall not be less than 100% of
the fair market value (110% in the case of an employee owning more than 10% of
the combined voting power) on the date of grant; and the option price for non-
qualified stock options shall not be less than 85% of the fair market value on
the date of grant.

1995 Stock Plan

On April 11, 1995, the Company's Board of Directors adopted the 1995 Stock
Plan (the 1995 Plan) which was approved by the Company's stockholders on April
19, 1995. The 1995 Plan took effect upon the completion of the initial public
offering. In 1996, the Company increased the total number of shares of Common
Stock authorized under the 1995 Stock Plan and amended and restated the 1995
Stock Plan (as amended and restated, "The 1995 Plan"). At December 31, 1997,
2,469,019 shares of the Company's Common Stock are reserved for issuance
pursuant to the grant to employees of incentive stock options and the grant of
non-qualified stock options, awards or direct purchases of the Company's Common
Stock to employees, consultants, directors and officers of the Company. The
terms of the options granted will be subject to the provisions of the 1995 Plan
as determined by the Compensation Committee of the Board of Directors. The 1995
Plan will terminate ten years after its adoption unless earlier terminated by
the Board of Directors.

F-13
<PAGE>

TRANSWITCH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(in thousands, except share and per share amounts)

1995 Employee Stock Purchase Plan

On April 11, 1995, the Company's Board of Directors adopted the 1995 Employee
Stock Purchase Plan (the "1995 Purchase Plan") which was approved by the
Company's stockholders on April 19, 1995. Under the terms of the 1995 Purchase
Plan, all employees of the Company, except five percent or more stockholders,
may contribute to the plan, up to 5% of their annual compensation toward the
purchase of the Company's Common Stock. The Company has reserved 100,000 shares
for issuance under the 1995 Purchase Plan. The purchase price per share is the
lesser of (a) 85% of the fair market value of the Common Stock on the date of
the grant of the option, as defined, or (b) 85% of the fair market value of the
Common Stock on the date of exercise of the option, as defined.

Non-Employee Director Stock Option Plan

The 1995 Non-Employee Director Stock Option Plan (the "Director Plan") was
adopted by the Board of Directors on April 11, 1995 and approved by the
Company's stockholders on April 19, 1995. The Director Plan provides for the
automatic grant of options to purchase shares of Common Stock to non-employee
directors of the Company on the anniversary date of each individual board
member joining the Board of Directors. Upon joining the Company's Board,
Directors are granted 12,500 shares, one-third of which vest immediately, one-
third after the first year, and the remaining one-third after the second year.
Annually thereafter, Directors are granted 7,500 shares which vest fully after
one year.

The Director Plan is administered by the Compensation Committee of the Board
of Directors. No option granted under the Director Plan may be exercised after
the expiration of five years from the date of grant. The exercise price of
options under the Director Plan must be equal to the fair market value of the
Common Stock on the date of grant. Options granted under the Director Plan are
generally nontransferable.

Stock Option Information

Information regarding the Company's stock options are set forth as follows:

<TABLE>
<CAPTION>
Number Weighted Average
of Shares Option Price
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1994.................. 1,190,912 $ 0.51
Granted......................................... 556,225 10.34
Exercised....................................... (390,055) 0.43
Canceled........................................ (50,373) 2.00
--------- ------
Outstanding at December 31, 1995.................. 1,306,709 3.86
Granted......................................... 1,524,630 7.63
Exercised....................................... (296,954) 0.58
Canceled........................................ (778,968) 10.17
--------- ------
Outstanding at December 31, 1996.................. 1,755,417 4.81
Granted......................................... 1,277,300 7.26
Exercised....................................... (382,584) 1.48
Canceled........................................ (592,117) 8.38
--------- ------
Outstanding at December 31, 1997.................. 2,058,016 5.72
Granted (unaudited)............................. 965,300 11.83
Exercised (unaudited)........................... (404,007) 4.07
Canceled (unaudited)............................ (137,411) 7.05
--------- ------
Outstanding at September 30, 1998 (unaudited)..... 2,481,898 $ 7.65
========= ======
</TABLE>

F-14
<PAGE>

TRANSWITCH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(in thousands, except share and per share amounts)

Options outstanding and exercisable at December 31, 1997 are as follows:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.40 to 1.20 283,020 1.05 $0.73 248,928 $0.71
4.13 to 6.38 1,214,746 8.39 5.22 439,879 5.35
6.50 to 10.81 443,250 9.53 8.80 61,605 7.41
10.88 to 12.63 117,000 9.01 11.27 94,000 11.12
- --------------- --------- ---- ----- ------- -----
$ 0.40 to 12.63 2,058,016 7.66 $5.72 844,412 $4.77
=============== ========= ==== ===== ======= =====
</TABLE>

Stock options expire five or ten years from the date of grant and are
generally exercisable ratably over four years from the date of grant.

In connection with stock options granted in January 1995 through March 31,
1995, the Company recorded deferred compensation expense of $618 for the excess
of the deemed value for accounting purposes of the Common Stock issuable upon
exercise of such stock options over the aggregate exercise price of such
options. The Company is recording compensation expense over the applicable
vesting periods (primarily four years). For the years ended December 31, 1995,
1996 and 1997 and the nine months ended September 30, 1998 (unaudited), the
Company recorded compensation expense of $100, $156, $155, and $116,
respectively, for these options.

The Company does not recognize compensation expense relating to employee
stock options because the exercise price of the option equals the fair value of
the stock on the date of grant. If the Company had determined the compensation
based on the fair value of the options on the date of grant in accordance with
SFAS No. 123, the pro forma net loss and loss per share would be as follows:

<TABLE>
<CAPTION>
1995 1996 1997
------- -------- -------
<S> <C> <C> <C>
Net loss--as reported........................... $(1,773) $(10,077) $(1,873)
Net loss--pro forma............................. (2,189) (12,599) (2,054)
Basic loss per share--as reported............... (0.18) (0.86) (0.15)
Basic loss per share--pro forma................. (0.22) (1.07) (0.17)
</TABLE>

The effects of applying SFAS No. 123 in this pro forma disclosure are not
necessarily indicative of future amounts because it does not take into
consideration pro forma compensation expense related to grants made prior to
1995. Diluted loss per share amounts are not presented as they are the same as
basic.

As reflected in the pro forma amounts in the preceding table, the average
fair value of each option granted in 1995, 1996 and 1997 was $4.70, $3.00 and
$6.73, respectively. The fair value of each option granted was estimated on the
date of grant using the modified Black-Scholes option pricing model based on
the following weighted average assumptions:

<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate.................................... 5.5% 6.0% 5.7%
Expected life in years..................................... 6.0 6.0 4.0
Expected volatility........................................ 52.0% 52.0% 66.0%
Expected dividend yield.................................... -- -- --
</TABLE>

F-15
<PAGE>

TRANSWITCH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(in thousands, except share and per share amounts)

For the years ended December 31, 1996 and 1997 and the nine months ended
September 30, 1998 (unaudited), the Company recognized additional compensation
expense of $195, $225 and $218, respectively, as required by SFAS No. 123
relating to stock options granted to non-employees.

Warrants

Warrants to purchase Common Stock and Preferred Stock have been granted to
the original investors in consideration of additional financing and loans, and
for services performed by various other parties. The warrants presented in the
table below are convertible into Common Stock and Preferred Stock at a rate of
one share of Common Stock and Preferred Stock for each warrant to purchase
Common Stock and Preferred Stock, respectively. During 1995, 58,396 shares of
Preferred Stock warrants were converted into 29,198 shares of Common Stock at a
rate of one share of Common Stock for each two shares of Preferred Stock and
13,488 shares of Preferred Stock warrants were canceled.

<TABLE>
<CAPTION>
Warrants--Common Stock Warrants--Preferred Stock
------------------------------- -------------------------------
Price Per Expiration Price Per Expiration
Number Share Date Number Share Date
-------- --------- ----------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at December
31, 1994.............. 215,409 $.06-1.00 12/96-11/98 71,884 $1.00--1.30 8/90--7/00
Exercised............. (122,964) -- 12/96-11/98 (58,396) $1.00--1.30 8/99--7/00
Canceled.............. -- -- -- (13,488) $1.00--1.30 8/99--7/00
-------- --------- ----------- ------- ----------- ----------
Outstanding at December
31, 1995.............. 92,445 $.06-1.00 12/96-11/98 -- -- --
Exercised............. (82,011) -- 12/96-11/98 -- -- --
-------- --------- ----------- ------- ----------- ----------
Outstanding at December
31, 1996.............. 10,434 $.40-1.00 12/96-11/98 -- -- --
Exercised............. (8,038) -- 12/96-11/98 -- -- --
-------- --------- ----------- ------- ----------- ----------
Outstanding at December
31, 1997.............. 2,393 $.40-1.00 12/96-11/98 -- -- --
Expired............... (2,393) -- 9/98 -- -- --
-------- --------- ----------- ------- ----------- ----------
Outstanding at September
30, 1998 (unaudited).. -- -- -- -- -- --
======== ========= =========== ======= =========== ==========
</TABLE>

(10) Earnings Per Share

The basic earnings (loss) per share for the years ended December 31, 1995,
1996 and 1997 and for the nine months ended September 30, 1997 and 1998
(unaudited) follows:

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------- ------------------
1995 1996 1997 1997 1998
------- -------- ------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net income (loss)........... $(1,773) $(10,077) $(1,873) $ (2,306) $ 3,502
Average common shares
outstanding (in
thousands)................ 10,062 11,751 12,152 12,103 13,701
Basic earnings (loss) per
share..................... $ (.18) $ (.86) $ (.15) $ (.19) $ .26
</TABLE>

Diluted loss per share amounts are not presented for the years ended December
31, 1995, 1996, and 1997, or for the nine months ended September 30, 1997
(unaudited) as they are the same as basic.

F-16
<PAGE>

TRANSWITCH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(in thousands, except share and per share amounts)

The weighted average shares of dilutive securities that would have been used
to calculate diluted EPS had their effect not been anti-dilutive for the years
ended December 31, 1995, 1996, and 1997, and for the nine months ended
September 30, 1997 (unaudited) are as follows:

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------- -----------------
1995 1996 1997 1997
------- ------- --------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
Options......................... 541,490 281,460 634,867 681,811
Warrants........................ 52,691 5,153 1,954 1,388
Convertible Preferred Stock..... -- -- 380,697 --
------- ------- --------- -------
Total......................... 594,181 286,613 1,017,518 683,199
======= ======= ========= =======
</TABLE>

Diluted earnings per share for the nine month period ended September 30, 1998
(unaudited) follows:

<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1998
-----------------
(Unaudited)
<S> <C>
Net income............................................. $3,502
------
Average common shares outstanding for the period (in
thousands)........................................... 13,701
Stock options and warrants, net of assumed treasury
share repurchases (in thousands).................... 878
------
Adjusted average shares outstanding for the period (in
thousands)........................................... 14,579
------
Diluted earnings per share............................. $ 0.24
</TABLE>

(11) Employee Savings Plan

On November 21, 1988, the Company established a 401(k) retirement savings
plan. All employees are entitled to contribute from 1% to 15% of their pre-tax
income, not exceeding the IRS maximum for income deferrals, to the Plan, and
may elect to invest their contributions in various established funds, which
include fixed income, growth and equity funds. In 1997, the maximum
contribution was 20% of pre-tax income subject to IRS limitations. The Company
began providing matching contributions in 1996 for 50 percent of the employees
deferred compensation up to a maximum of 6 percent. The Company's contribution
expense amounted to $156 and $188 for 1996 and 1997, respectively.

(12) Concentration of Sales

The following table summarizes the percentage of total revenue attributable
to the Company's significant customers:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
----------------------- -----------------
Customer 1995 1996 1997 1998
- -------- ------- ------- ------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
Columbia Technologies(1)....... * * * 18%
Insight Electronics, Inc.(1)... 16% 16% 41% 22%
Tellabs Operations, Inc.(2).... 17% 14% 16% 20%
ECI Telecom Ltd................ * 22% * *
</TABLE>

F-17
<PAGE>

TRANSWITCH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(in thousands, except share and per share amounts)

- --------

* Revenue was less than 10% of the Company's total revenue in these years.

(1) Insight Electronics, Inc. and Columbia Technologies are distributors to
various end-users, none of which comprised more than 10% of the Company's
total revenue during the respective periods.

(2) The Company's sales to Tellabs during 1995, 1996 and 1997 were made through
Reptron Electronics, Inc., Tellabs' designated distributor. In the nine-
month period ended September 30, 1998, sales to Tellabs were made through
Reptron and Arrow Electronics, Inc., also Tellabs' designated distributor.
Sales to Tellabs through Arrow during this period represented 14% of the
Company's total revenues.

Foreign sales represented 38%, 46%, 33% and 48% of total revenue for fiscal
years 1995, 1996 and 1997 and for the nine month period ended September 30,
1998 (unaudited), respectively.

Revenues from customers located outside the United States were as follows:

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
----------------------- -----------------
1995 1996 1997 1998
------- ------- ------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
Europe................................ $ 3,084 $ 2,100 $ 3,902 $ 2,797
Middle East........................... -- 4,232 517 3,925
Far East.............................. 1,798 1,976 2,885 7,344
Canada and other...................... 1,626 592 1,721 482
------- ------- ------- -------
Total............................... $ 6,508 $ 8,900 $ 9,025 $14,548
======= ======= ======= =======
</TABLE>

(13) Commitments and Contingencies

Line of Credit

In June 1997, the Company entered into a new line of credit agreement with
Silicon Valley Bank whereby the Company has access to up to $6,000 for working
capital purposes, bearing interest at prime + 3/4% due on July 10, 1998, and
$2,000 for equipment purchases, bearing interest at prime +1% due on May 31,
2002. The lines are secured by all corporate assets except intellectual
property of the Company.

The agreement contains certain financial restrictions and covenants which,
among other things, include provisions for maintaining a minimum amount of
cash, net worth and profitability.

At December 31, 1997 and September 30, 1998 (unaudited), no amounts were
outstanding under this agreement.

Development Agreements

From time to time, the Company has entered into agreements with third parties
for the development and/or licensing of products for its manufacture and sale,
or the licensing of technology that the Company may use in the manufacture of
products, for which royalties are paid against actual sales of these products.
The Company recognized royalty expense of $829, $1,266 and $1,110 in 1995, 1996
and 1997, respectively, under these agreements; these amounts are included in
cost of products sold in the consolidated statements of operations.

F-18
<PAGE>

TRANSWITCH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(in thousands, except share and per share amounts)

Lease Agreements

Total rental expense under all operating lease agreements aggregated $586,
$446 and $745 during 1995, 1996 and 1997, respectively. Future minimum
operating lease commitments that have remaining, non-cancelable lease terms in
excess of one year at December 31, 1997 follow:

<TABLE>
<S> <C>
1998............................................................... $ 548
1999............................................................... 546
2000............................................................... 466
2001............................................................... 396
2002............................................................... 393
Thereafter......................................................... 1,865
------
$4,214
======
</TABLE>

Foundry Purchase Commitments

In April 1996, the Company entered into a foundry agreement with Taiwan
Semiconductor Manufacturing Co., Ltd. (TSMC) which includes future minimum
purchase commitments as follows:

F-19
<PAGE>

Diagrammatic graphics entitled "TranSwitch End Market Focus," showing
stylized block diagrams of applications in the public network (SONET/SDH Add
Drop Multiplexer) and in a data access network (Multi Service Access Platform)
using TranSwitch products.
<PAGE>

A magnified photograph of a TranSwitch integrated circuit, together with the
TranSwitch logo.
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution.

The following table sets forth an estimate of the expenses expected to be
incurred in connection with the issuance and distribution of the securities
being registered, other than underwriting compensation:

<TABLE>
<S> <C>
Registration Fee--Securities and Exchange Commission............... $ 16,101
Nasdaq National Market additional listing fee...................... 17,500
NASD filing fee.................................................... 6,292
Blue Sky fees and expenses......................................... 10,000
Printing and engraving expenses.................................... 100,000
Accounting fees and expenses....................................... 50,000
Legal fees and expenses............................................ 100,000
Transfer Agent fees and expenses................................... 10,000
Miscellaneous...................................................... 65,107
--------
TOTAL............................................................ $375,000
========
</TABLE>

Item 15. Indemnification of Directors and Officers.

Section 145 of the Delaware General Corporation Law ("DGCL") permits
TranSwitch to indemnify directors, officers, employees and agents of TranSwitch
against actual and reasonable expenses (including attorneys' fees) incurred by
them in connection with any action, suit or proceeding brought against them by
reason of their status or service as a director, officer, employee or agent by
or on behalf of TranSwitch and against expenses (including attorneys' fees),
judgments, fines and settlements actually and reasonably incurred by him or her
in connection with any such action, suit or proceeding, if (i) he or she acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of TranSwitch and (ii) in the case of a criminal
proceeding, he or she had no reasonable cause to believe his or her conduct was
unlawful. Except as ordered by a court, no indemnification shall be made in
connection with any proceeding brought by or in the right of the corporation
where the person involved is adjudged to be liable to TranSwitch.

Article TEN of TranSwitch's Amended and Restated Certificate of Incorporation
contains provisions that eliminate a director's personal liability for monetary
damages resulting from a breach of fiduciary duty, except in certain
circumstances involving certain wrongful acts, such as the breach of a
director's duty of loyalty or acts or omissions which involve intentional
misconduct or a knowing violation of law. These provisions do not limit or
eliminate the rights of TranSwitch or any stockholder to seek non-monetary
relief, such as an injunction or rescission, in the event of a breach of a
director's fiduciary duty. These provisions will not alter a director's
liability under Federal securities laws. TranSwitch's Charter also contains
provisions indemnifying the directors and officers of TranSwitch to the fullest
extent permitted by the DGCL.

TranSwitch maintains directors and officers liability insurance for the
benefit of its directors and certain of its officers.

TranSwitch's Amended and Restated By-laws contain no provisions relating to
the indemnification of officers and directors.

II-1
<PAGE>

Item 16. Exhibits.

The following exhibits, required by Item 601 of Regulation S-K, are filed as
a part of this Registration Statement. Exhibit numbers, where applicable, in
the left column correspond to those of Item 601 of Regulation S-K.

<TABLE>
<CAPTION>
Exhibit No. Item and Reference
----------- ------------------
<C> <S>
1* --Form of Underwriting Agreement
5* --Legal Opinion of Testa, Hurwitz & Thibeault, LLP
23 --Consent of KPMG LLP (filed herewith)
24* --Power of Attorney
</TABLE>
- --------

* Previously filed.

Item 17. Undertakings.

(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended (the
"Securities Act"), each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in this Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereto.

(b) Insofar as indemnification for liabilities under the Securities Act may
be permitted to directors, officers and controlling persons of the Registration
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registration of
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as a part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereto.

II-2
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Shelton, State of
Connecticut on January 21, 1999.

TranSwitch Corporation

By: /s/ Michael F. Stauff
---------------------------------

Michael F. Stauff

Senior Vice President, Chief
Financial

Officer & Treasurer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement on Form S-3 has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.

<TABLE>
<S> <C>
Name Capacity Date

/s/ Dr. Santanu Das* President, Chief January 21, 1999
- -------------------------- Executive Officer and
Dr. Santanu Das Chairman of the Board of
Directors

/s/ Michael F. Stauff Senior Vice President, January 21, 1999
- -------------------------- Chief Financial Officer
Michael F. Stauff and Treasurer

/s/ Alfred R. Boschulte* Director January 21, 1999
- --------------------------
Alfred R. Boschulte

/s/ Dr. Steward S. Director January 21, 1999
Flaschen*
- --------------------------
Dr. Steward S. Flaschen

/s/ Dr. Charles Lee* Director January 21, 1999
- --------------------------
Dr. Charles Lee

/s/ Dr. Ljubomir Micic* Director January 21, 1999
- --------------------------
Dr. Ljubomir Micic

/s/ Albert E. Paladino* Director January 21, 1999
- --------------------------
Dr. Albert E. Paladino

/s/ Erik van der Kaay* Director January 21, 1999
- --------------------------
Erik van der Kaay
</TABLE>

*By: /s/ Michael F.
Stauff
-----------------------

Michael F. Stauff

Attorney in Fact

II-3
<PAGE>

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
1* --Form of Underwriting Agreement
5* --Legal Opinion of Testa, Hurwitz & Thibeault, LLP
23 --Consent of KPMG LLP (filed herewith)
24* --Power of Attorney
</TABLE>
- --------

* Previously filed

<PAGE>

EXHIBIT 23

Consent of Independent Auditors

To the Board of Directors and Shareholders of TranSwitch Corporation:

We consent to the use of our reports included herein and incorporated by
reference and to the reference to our firm under the heading "Experts" in the
prospectus.

KPMG LLP

Stamford, Connecticut

January 21, 1999