<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant: [X]
Filed by a party other than the Registrant: [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential for Use of the
[_] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
TranSwitch Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
TRANSWITCH CORPORATION
THREE ENTERPRISE DRIVE
SHELTON, CONNECTICUT 06484
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 18, 2000
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of TranSwitch Corporation, a Delaware corporation (the "Corporation"),
will be held on Thursday, May 18, 2000, at 10:00 A.M., Eastern time, at the
Ramada Plaza Hotel, 780 Bridgeport Avenue, Shelton, Connecticut 06484 for the
following purposes:
1. To elect a Board of Directors for the ensuing year.
2. To consider and act upon a proposal to amend the Corporation's Amended
and Restated Certificate of Incorporation to increase the number of authorized
shares of Common Stock by an additional 200,000,000 shares.
3. To consider and act upon a proposal to approve an amendment to the
Corporation's Third Amended and Restated 1995 Stock Plan to (i) increase the
number of shares of Common Stock, par value $.001 per share, of the
Corporation (the "Common Stock") available for issuance thereunder by an
additional 4,000,000 shares; (ii) amend Section 7 thereof so that options
granted after the date of the 2000 Annual Meeting of Stockholders shall expire
no later than 7 years after the date of grant; and (iii) amend Section 13
thereof to prohibit the discretionary repricing of options without the consent
of at least a majority of the Corporation's stockholders.
4. To ratify the selection of the firm of KPMG LLP as auditors for the
fiscal year ending December 31, 2000.
5. To transact such other business as may properly come before the meeting
and any adjournments thereof.
Only stockholders of record at the close of business on March 29, 2000 are
entitled to notice of and to vote at the meeting and any adjournment thereof.
By Order of the Board of Directors
Michael C. McCoy
Secretary
Shelton, Connecticut
April 13, 2000
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN
THE ENCLOSED STAMPED ENVELOPE BY RETURN MAIL PRIOR TO THE DATE OF THE ANNUAL
MEETING OF STOCKHOLDERS IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES.
<PAGE>
TRANSWITCH CORPORATION
THREE ENTERPRISE DRIVE
SHELTON, CONNECTICUT 06484
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 18, 2000
APRIL 13, 2000
Proxies in the form enclosed with this proxy statement are solicited by the
Board of Directors of TranSwitch Corporation (the "Corporation") for use at the
Annual Meeting of Stockholders to be held on Thursday, May 18, 2000, at 10:00
A.M., Eastern time, at the Ramada Plaza Hotel, 780 Bridgeport Avenue, Shelton,
Connecticut 06484, or at any adjournments thereof (the "Annual Meeting").
An Annual Report to Stockholders containing financial statements for the
fiscal year ended December 31, 1999, and this proxy statement, are being mailed
to all stockholders entitled to vote. This proxy statement and the form of proxy
were first mailed to stockholders on or about April 13, 2000.
The Board of Directors has fixed the close of business on March 29, 2000 as
the record date (the "Record Date"). Only stockholders of record as of the close
of business on the Record Date will be entitled to notice of and to vote at the
Annual Meeting and any adjournments thereof. As of the Record Date, 40,110,552
shares of Common Stock, $.001 par value per share (the "Common Stock"), of the
Corporation were issued and outstanding. Stockholders are entitled to cast one
vote for each share of Common Stock held of record by them on each proposal
submitted to a vote at the Annual Meeting. Stockholders may vote in person or by
proxy. Execution of a proxy will not in any way affect a stockholder's right to
attend the Annual Meeting and vote in person. Any stockholder giving a proxy has
the right to revoke that proxy by (i) filing a later-dated proxy or a written
notice of revocation with the Secretary of the Corporation at any time before it
is exercised or (ii) voting in person at the Annual Meeting. The holders of a
majority of the outstanding shares of Common Stock entitled to vote at the
Annual Meeting will constitute a quorum for the transaction of business.
The persons named as attorneys in the proxies, Santanu Das and Michael F.
Stauff, were selected by the Board of Directors and are directors and/or
executive officers of the Corporation. All properly executed proxies returned in
time to be counted at the Annual Meeting will be voted as stated below under
"Voting Procedures." Any stockholder giving a proxy has the right to withhold
authority to vote for any individual nominee to the Board of Directors by so
marking the proxy in the space provided thereon.
In addition to the election of directors, the stockholders will consider and
vote upon proposals to (i) approve an amendment to the Corporation's Amended and
Restated Certificate of Incorporation to increase the number of authorized
shares of Common Stock by an additional 200,000,000 shares; (ii) approve an
amendment to the Corporation's Third Amended and Restated 1995 Stock Plan to (a)
increase the number of shares of Common Stock available for issuance thereunder
by an additional 4,000,000, shares; (b) amend Section 7 thereof so that options
granted after the date of the Annual Meeting shall expire no later than 7 years
from the date of grant; and (c) amend Section 13 thereof to prohibit the
discretionary repricing of options without the consent of at least a majority of
the Corporation's stockholders; and (iii) ratify the selection of the firm of
KPMG LLP as auditors for the fiscal year ending December 31, 2000, all as
further described in this proxy statement. Where a choice has been specified on
the proxy with respect to the foregoing matters, including the election of
directors, the shares represented by the proxy will be voted in accordance with
the specifications and will be voted FOR any such proposal if no specification
is indicated. See "Proposals for Consideration at the Annual Meeting of
Stockholders."
<PAGE>
-2-
The Board of Directors of the Corporation knows of no other matters to be
presented at the Annual Meeting. If any other matter should be presented at the
Annual Meeting upon which a vote properly may be taken, shares represented by
all proxies received by the Board of Directors will be voted with respect
thereto in accordance with the judgment of the persons named as attorneys in the
proxies.
MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth as of the Record Date certain information
regarding the ownership of outstanding shares of Common Stock by (i) each person
who, to the knowledge of the Corporation, beneficially owned more than 5% of the
outstanding shares of Common Stock, (ii) each director (or nominee for director)
of the Corporation, (iii) each Named Executive Officer (as defined under
"Compensation and Other Information Concerning Directors and Named Executive
Officers--Executive Compensation") and (iv) all directors and nominees for
directors and executive officers as a group. Unless otherwise indicated below,
each person listed below maintains a business address at c/o TranSwitch
Corporation, Three Enterprise Drive, Shelton, Connecticut 06484 and has sole
voting and investing power with respect to all shares of Common Stock owned.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) CLASS (2)
- ----------------------------------------------------------------- --------------- -----------
<S> <C> <C>
Capital Research and Management Company(3)....................... 2,610,000 6.5%
333 S. Hope Street
Los Angeles, CA 90071
Pilgrim Baxter & Associates, Ltd................................. 2,490,975 6.2%
825 Duportail Road
Wayne, PA 19087
Santanu Das(4)................................................... 570,547 1.4%
Steward S. Flaschen(5)........................................... 314,934 *
Michael F. Stauff(6)............................................. 99,071 *
Clifford H. Ficke................................................ 0 *
Ljubomir Micic................................................... 0 *
Erik H. van der Kaay(7).......................................... 49,725 *
Albert E. Paladino............................................... 34,000 *
James M. Pagos(8)................................................ 18,750 *
Alfred R. Boschulte(9)........................................... 13,750 *
All directors and executive officers as a group (9 persons)(10).. 1,100,777 2.7%
- --------------------
</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
the Record Date ("Presently Exercisable Securities") are deemed outstanding
for computing the percentage of the person or entity holding such
securities, but are not deemed outstanding for computing the percentage of
any other person or entity.
(2) Percentage of beneficial ownership is based on 40,110,552 shares of Common
Stock outstanding as of the Record Date.
(3) Consists of 1,680,000 shares owned by SMALLCAP World Fund, Inc., and 60,000
shares owned by other entities registered under Section 8 of the Investment
Company Act of 1940, all of which are advised by Capital Research and
Management Company.
(4) Consists of 76,875 shares owned and 493,422 shares issuable upon exercise
of Presently Exercisable Securities. Includes 250 shares owned by the Das
Family Foundation, of which Dr. Das is a Trustee. Dr. Das disclaims
beneficial ownership of the shares held by the Das Family Foundation.
(5) Includes 151,173 shares owned by the Steward S. Flaschen Revocable Trust,
of which Dr. Flaschen is a trustee and 163,761 shares owned by the Joyce D.
Flaschen Revocable Investment Trust of which Dr. Flaschen is a trustee .
Dr. Flaschen disclaims beneficial ownership of the shares held by the Joyce
D. Flaschen Revocable Investment Trust and the Steward S. Flaschen
Revocable Investment Trust.
(6) Consists of 75,357 shares owned and 23,714 shares issuable upon exercise of
Presently Exercisable Securities.
(7) Consists of 49,725 shares issuable upon exercise of Presently Exercisable
Securities.
(8) Consists of 18,750 shares issuable upon exercise of Presently Exercisable
Securities.
(9) Consists of 6,000 shares owned and 7,750 shares issuable upon exercise of
Presently Exercisable Securities.
(10) Includes 593,361 shares issuable upon exercise of Presently Exercisable
Securities.
<PAGE>
-3-
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The business and affairs of the Corporation are managed under the direction of
its Board of Directors. The Board of Directors met six times during the fiscal
year ended December 31, 1999. The Audit Committee of the Board of Directors,
currently consisting of Erik H. van der Kaay (Chairperson), Ljubomir Micic,
James M. Pagos and Steward S. Flaschen, reviews with the Corporation's
independent auditors the scope and timing of their audit services and any other
services the independent auditors are asked to perform, the independent
auditor's report on the Corporation's financial statements following completion
of their audit and the Corporation's policies and procedures with respect to
internal accounting and financial controls. In addition, the Audit Committee
makes annual recommendations to the Board of Directors for the appointment of
independent auditors for the ensuing year. The Audit Committee met three times
during the fiscal year ended December 31, 1999. The Compensation Committee of
the Board of Directors, currently consisting of Albert E. Paladino (Chairman),
Alfred R. Boschulte, Erik H. van der Kaay and Steward S. Flaschen, reviews and
evaluates the compensation and benefits of all officers of the Corporation,
reviews general policy matters relating to compensation and benefits of
employees of the Corporation and administers the Corporation's 1989 Stock Option
Plan, Third Amended and Restated 1995 Stock Plan, 1995 Non-Employee Director
Stock Option Plan and 1995 Employee Stock Purchase Plan. The Compensation
Committee met six times during the fiscal year ended December 31, 1999. The
Board of Directors does not currently have a standing nominating committee. Each
of the directors attended at least 75% of the aggregate of all meetings of the
Board of Directors and all committees on which he serves.
OCCUPATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the current directors and executive officers of
the Corporation and the nominees for director to be elected at the Annual
Meeting, their ages and the positions currently held by each such person with
the Corporation.
<TABLE>
<CAPTION>
Name AGE POSITION
- ------------------------------------------- ----------- ------------------------------------------------
<S> <C> <C>
Santanu Das 55 President, Chief Executive Officer and Chairman
of the Board of Directors
Clifford H. Ficke 48 Vice President, Worldwide Sales
Michael F. Stauff 50 Senior Vice President, Chief Financial Officer
and Treasurer
Alfred R. Boschulte(1) 57 Director
Steward S. Flaschen(1)(2) 73 Director
Erik H. van der Kaay(1)(2) 59 Director
Ljubomir Micic(2) 70 Director
James M. Pagos(2) 52 Director
Albert E. Paladino(1) 67 Director
</TABLE>
________________
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
NOMINEES FOR ELECTION OF DIRECTORS AT THE ANNUAL MEETING
Santanu Das, a founder of the Corporation, has been President, Chief Executive
Officer and a director of the Corporation since its inception in 1988 and its
Chairman since May 1997. Prior to joining the Corporation, Dr. Das held various
positions, including President, with Spectrum Digital Corporation, where he
worked from 1986 through August 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.
Alfred R. Boschulte became a director of the Corporation in December 1998.
Mr. Boschulte has over 30 years' 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 as President and
Chief Executive Officer of AFB Consulting, Inc., a telecommunications consulting
business, since January 1998. From January 1996 through
<PAGE>
-4-
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 Corporation,
and from November 1990 through December 1994, he served as President and
Chairman of Nynex Mobile Communications, a cellular telecommunications
corporation.
Steward S. Flaschen, a founder of the Corporation, has been a director of the
Corporation since its inception and served as Chairman of the Board from 1988
through May 1997. Dr. Flaschen has served as President of Flaschen and Davies,
a consulting firm, since 1986; as Chairman of the Board of Directors of Telco
Systems, an electronics manufacturing corporation, from 1986 through November
1998; and as a member of the Board of Directors of Sipex Corporation, a
semiconductor corporation, since 1996. In addition, he has been an Independent
General Partner of Merrill Lynch Capital Fund LP II, an investment fund, since
1986.
Erik H. van der Kaay became a director of the Corporation in September 1997
and is also a member of the Board of Directors of RF Micro Devices, Inc., a
manufacturer of radio frequency components for wireless communications. Since
April 1998, he has been President and Chief Executive Officer and in 2000 he
became Chairman 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 corporation, from
March 1997 through April 1998 and served as President of the Antenna Specialist
Division of Allen Telecom from June 1990 until March 1997. Prior to joining
Allen Telecom, he was President and Chief Executive Officer of Telaxis
Communications Corporation, a manufacturer of RF broadband wireless equipment.
Ljubomir Micic has been a director of the Corporation since June 1994. Since
1990, he has been the Chief Executive Officer of VEN-NET-A, a German consulting
Corporation. Prior to his retirement from ITT Corporation in 1990, he was a
Vice President of ITT Corporation and Chairman of its Semiconductor Division.
James M. Pagos became a director of the Corporation in April 1999. Since
November 1999, Mr. Pagos has become Chief Executive Officer of Global Bandwith
Solutions, a global infrastructure and services company for data networks. Mr.
Pagos previously served as Chief Operating Officer of AT&T Solutions, the
managed services division of AT&T Corporation, a telecommunications company. He
also served as Vice President AT&T Global Services from 1994 until June 1998 and
began his telecommunications career in 1972 with New England Telephone. Mr.
Pagos holds degrees in Electrical Engineering and Economics from Brown
University.
Albert E. Paladino has been a director of the Corporation since December 1988.
He is the Chairman of Telaxis Communication Corporation, a manufacturer of
broadband wireless equipment for network access applications, a position he has
held since 1992. Dr. Paladino is also a member of the Board of Directors of RF
Micro Devices, Inc., a manufacturer of radio frequency components for wireless
communications, and Helios Corporation, a developer of high capacity millimeter
wave communications equipment and is Chairman of Onex Communications
Corporation, a developer of semiconductor solutions for the emerging converged
communications networks. He was a general partner of Advanced Technology
Ventures, a venture capital investment partnership, from 1981 through December
1998, and is now a private investor. Prior to joining Advanced Technology
Ventures, Dr. Paladino held senior positions with Raytheon Corporation, GTE
Laboratories, the National Institute of Standards and Technology and the
Congressional Office of Technology Assessment.
EXECUTIVE OFFICERS
Michael F. Stauff is Senior Vice President, Chief Financial Officer and
Treasurer of the Corporation. Prior to joining the Corporation in November
1994, Mr. Stauff had been 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 M.B.A.
from Northeastern University.
Clifford H. Ficke is Vice President of Worldwide Sales for the Corporation.
Prior to joining the Corporation, Mr. Ficke spent five years at NEC Electronics
where he held various positions of increasing responsibility and most recently
was the Associate Vice President, Corporate Accounts. Previously, Mr. Ficke
held various positions in sales and sales management with Texas Instruments, NCR
Microelectronics and Sierra Semiconductor. Mr. Ficke graduated with honors
<PAGE>
-5-
from northern Illinois University with a Masters Degree in Business, with a
focus on Relationship Marketing and Sales Management.
<PAGE>
-6-
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND NAMED EXECUTIVE OFFICERS
Executive Compensation
Summary Compensation. The following table sets forth the compensation earned
by the Corporation's Chief Executive Officer and each of the four other most
highly compensated executive officers of the Corporation whose total salary and
bonus for 1999 exceeded $100,000 (collectively, the "Named Executive Officers")
for services rendered in all capacities to the Corporation for the fiscal years
ended December 31, 1999, 1998 and 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------------- -----------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- ---------------------------------------- ------- -------- --------- ----------------- ---------------------
<S> <C> <C> <C> <C> <C>
Santanu Das(1)........................... 1999 $275,000 $300,000 150,000 $6,982(2)
President, Chief Executive Officer 1998 218,256 265,000 501,750 6,188(3)
1997 194,862 62,525 247,500(4) 5,910(5)
Michael F. Stauff(6)(7).................. 1999 $150,000 $ 58,025 15,000 $5,511(8)
Senior Vice President, Chief Financial 1998 129,174 62,400 125,663 5,351(9)
Officer and Treasurer 1997 121,494 24,250 78,300(10) 4,650(11)
Terrence S. Rogers(12)................... 1999 $200,006 -- -- 5,262(13)
Vice President, Sales 1998 186,289 25,250 225,563 5,655(14)
1997(15) -- -- -- --
</TABLE>
____________________
(1) Dr. Das will receive a severance payment equal to his then current annual
base salary and the highest annual bonus paid to him over the preceding five
years if the Corporation terminates his employment other than for cause or
if Dr. Das resigns from his position due to a substantial reduction in his
responsibilities or authority.
(2) Includes $5,000 contributed to defined contributions plans and $1,982 in
premiums paid with respect to term life insurance on behalf of Dr. Das.
(3) Includes $5,000 contributed to defined contributions plans and $1,188 in
premiums paid with respect to term life insurance on behalf of Dr. Das.
(4) Consists of 247,500 securities underlying options that were repriced as of
May 30, 1997.
(5) Includes $4,750 contributed to defined contributions plans and $1,160 in
premiums paid with respect to term life insurance on behalf of Dr. Das.
(6) Mr. Stauff will receive a severance payment equal to three months' salary if
the Corporation terminates his employment for any reason.
(7) Mr. Stauff will receive a severance payment equal to six months' salary and
fifty percent of the highest annual bonus paid to him over the preceding
five years if the Corporation terminates his employment without cause within
12 months of a change of control.
(8) Includes $5,000 contributed to defined contributions plans and $511 paid
with respect to term life insurance on behalf of Mr. Stauff.
(9) Includes $4,603 contributed to defined contributions plan and $748 paid
with respect to term life insurance on behalf of Mr. Stauff.
(10) Includes 78,300 securities underlying options that were repriced as of May
30, 1997.
<PAGE>
-7-
(11) Includes $3,945 contributed to defined contributions plans and $705 paid
with respect to term life insurance on behalf of Mr. Stauff.
(12) Mr. Rogers joined the Corporation effective February 12, 1998 and
voluntarily terminated his employment with the Corporation on November 17,
1999.
(13) Includes $5,000 contributed to defined contributions plans and $262 paid
with respect to term life insurance on behalf of Mr. Rogers.
(14) Includes $4,764 contributed to defined contributions plans and $891 paid
with respect to term life insurance on behalf of Mr. Rogers.
(15) Information is not provided for 1997 because Mr. Rogers was not employed by
the Corporation during that year.
<PAGE>
-8-
Option Grants. The following table sets forth information concerning stock
options granted during the fiscal year ended December 31, 1999 under the
Corporation's Third Amended and Restated 1995 Stock Plan to the Named Executive
Officers. The Corporation did not grant any stock appreciation rights during
fiscal year 1999.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
-------------------------------------------------------- ----------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED(2) YEAR(3) ($/SHARE)(4) DATE 5% 10%
- ---------------------------------------- ---------- ---------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Santanu Das 150,000(5) 5.77% $18.83 6/3/06 $1,149,855 $2,679,651
Michael F. Stauff 15,000(5) .58% $18.83 6/3/06 $ 114,986 $ 267,965
Terrence S. Rogers -- -- -- -- -- --
</TABLE>
____________________
(1) The potential realizable value is calculated based on the term of the option
at the time of grant (10 years). Stock price appreciation of 5% and 10% is
based on the fair market value at the time of grant and assumes that the
option is exercised at the exercise price and sold on the last day of its
term at the appreciated price, pursuant to rules promulgated by the
Securities and Exchange Commission. The potential realizable value does not
represent the Corporation's prediction of its stock price performance. This
table does not take into account any appreciation or depreciation in the
fair value of the Common Stock from the date of grant to date. There can be
no assurance that the actual stock price appreciation over the 10-year
option term will be at the assumed 5% and 10% levels or at any other defined
level.
(2) These options have terms of 10 years from the date of grant and become
exercisable over four years at the rate of 25% on the date of grant, an
additional 12.5% six months thereafter, an additional 12.5% six months
thereafter and an additional 6.25% at the end of each three-month period
thereafter until such options are fully exercisable.
(3) Options to purchase a total of 2,597,400 shares were granted to employees
(including the Named Executive Officers) in fiscal year 1999 under the
Corporation's Third Amended and Restated 1995 Stock Plan.
(4) The exercise price was the fair market value of a share of the
Corporation's Common Stock at the time of grant as determined in accordance
with the Corporation's Third Amended and Restated 1995 Stock Plan, adjusted
to reflect a three-for-two stock split in the form of a dividend on June 3,
1999 and a three-for-two stock split in the form of a dividend on January
11, 2000. The exercise price may be paid in cash or in shares of the
Corporation's Common Stock valued at fair market value on the exercise
date.
(5) As adjusted to reflect a three-for-two stock split in the form of a
dividend on June 3, 1999 and a three-for-two stock split in the form of a
dividend on January 11, 2000.
<PAGE>
-9-
Option Exercises and Unexercised Option Holdings. The following table sets
forth certain information concerning option exercises and unexercised stock
options held as of December 31, 1999 by each of the Named Executive Officers:
AGGREGATED OPTION EXERCISES
AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
SHARES UNDERLYING UNEXERCISED OPTIONS AT
ACQUIRED OPTIONS AT YEAR-END YEAR-END(2)
ON EXERCISE VALUE ------------------------------ -----------------------------
NAME REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ----------- ---------------- ------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Santanu Das............... 204,375 $3,929,700 400,736 446,014 $17,649,879 $17,024,159
Michael F. Stauff......... 93,751 $2,699,278 36,421 88,791 $ 1,527,959 $ 3,574,921
Terrence S. Rogers........ 84,588 $2,372,631 0 0 $ 0.00 $ 0.00
</TABLE>
__________________
(1) Calculated as the difference between the fair market value of the underlying
securities at the exercise date of the underlying options and the aggregate
exercise price.
(2) Value is based on the difference between the option exercise price and the
fair market value of the Corporation's Common Stock on December 31, 1999,
multiplied by the number of shares underlying the options.
Employment Agreements and Severance Policy. None of the Named Executive
Officers has a long-term employment agreement with the Corporation. The
employment of each of the Named Executive Officers may be terminated by the
Corporation at any time. To help retain the continued services of Dr. Das, the
Corporation has entered into a Severance Agreement with Dr. Das providing for a
severance payment equal to his then-current annual base salary and the highest
annual bonus paid to him over the preceding five years if the Corporation
terminates his employment other than for cause or if Dr. Das resigns from his
position due to a substantial reduction in his responsibility or authority. The
Corporation has also entered into Executive Agreements with Dr. Das and each of
the other Named Executive Officers, which provide for severance payments equal
to, in the case of Dr. Das, his then-current annual base salary and the highest
annual bonus paid to him over the previous five years and, in the case of each
of the other Named Executive Officers, fifty percent (50%) of his then-current
annual base and fifty percent (50%) of the highest annual bonus paid to him over
the preceding five years in the event of a termination without cause within 12
months of a change in control of the Corporation. In the event that Dr. Das is
entitled to payments under both agreements, the maximum amount payable to him is
equal to the payment required under one of the agreements. Notwithstanding the
foregoing, the Corporation's policy is to pay a severance payment of three
months' base salary to any of the Named Executive Officers whose employment is
terminated by the Corporation for any reason. Letters sent by the Corporation to
Michael F. Stauff and Terrence S. Rogers, a Named Executive Officer until
November 17, 1999, offering them employment with the Corporation, expressly
contain this latter three-month severance provision.
<PAGE>
-10-
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During fiscal year 1999, the Compensation Committee of the Board of Directors
consisted of Albert E. Paladino (Chairperson), Alfred R. Boschulte, Steward S.
Flaschen, Charles Lee (who resigned from the Board of Directors effective April
8, 1999) and Erik H. van der Kaay, each of whom was an independent, non-employee
director. The Compensation Committee reviews and evaluates the compensation and
benefits of all executive officers of the Corporation, reviews general policy
matters relating to compensation and benefits of employees of the Corporation
and administers the Corporation's 1989 Stock Option Plan, Third Amended and
Restated 1995 Stock Plan, 1995 Non-Employee Director Stock Option Plan and 1995
Employee Stock Purchase Plan.
The Corporation's executive compensation program established by the
Compensation Committee is designed to provide levels of compensation in formats
that assist the Corporation in attracting, motivating and retaining qualified
executives by providing a competitive compensation package geared to individual
and corporate performance. The Compensation Committee strives to establish
performance criteria, evaluate performance and establish base salary, annual
bonuses and long-term incentives for the Corporation's key decision makers based
upon performance and designed to provide appropriate incentives for maximization
of the Corporation's short- and long-term financial results for the benefit of
the Corporation's stockholders.
To meet its objectives, the Compensation Committee has chosen three basic
components for the Corporation's executive compensation program to meet the
Corporation's compensation philosophy. Base salaries, the fixed regular
component of executive compensation, are based upon (i) base salary levels among
a competitive peer group, (ii) the Corporation's past financial performance and
future expectations, (iii) the general and industry-specific business
environment and (iv) individual performance. Annual bonuses, which are directly
linked to the Corporation's yearly performance, are designed to provide
additional cash compensation based on short-term performance of certain key
employees. Stock option grants, under the long-term component of executive
compensation, are designed to provide performance incentives to and reward
executive officers and key employees for delivering value to the Corporation's
stockholders over a longer, measurable period of time. Historically, the
Corporation has used the grant of stock options that vest over some measurable
period of time, currently four years, to accomplish this objective.
Santanu Das is the President, Chief Executive Officer and Chairman of the
Board of Directors of the Corporation. His fiscal year 1999 performance was
evaluated on the basis of the factors described above applicable to executive
officers generally. His base salary was based on a number of factors, including
the base salaries of executives performing similar functions for peer companies.
The annual bonus and stock option grant components of his compensation, as well
as his salary, reflect the Corporation's improved financial performance, the
continued introduction and commercialization of new products and progress toward
achieving business goals, as well as the achievement by Dr. Das of other non-
financial goals. In assessing Dr. Das' performance for fiscal year 1999, the
Compensation Committee took into account the degree to which the financial and
non-financial goals on which his compensation was based had been achieved.
In general, under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), the Corporation cannot deduct, for federal income tax
purposes, compensation in excess of $1,000,000 paid to certain executive
officers. This deduction limitation does not apply, however, to compensation
that constitutes "qualified performance-based compensation" within the meaning
of Section 162(m) of the Code and the regulations promulgated thereunder. The
Compensation Committee has considered the limitations on deductions imposed by
Section 162(m) of the Code, and it is the Compensation Committee's present
intention that, for so long as it is consistent with its overall compensation
objective, substantially all tax deductions attributable to executive
compensation will not be subject to the deduction limitations of Section 162(m)
of the Code.
MEMBERS OF THE COMPENSATION COMMITTEE:
Albert E. Paladino (Chairperson)
Alfred R. Boschulte
Steward S. Flaschen
Charles Lee (1)
<PAGE>
-11-
Erik H. van der Kaay
(1) Charles Lee resigned from the Board of Directors effective April 8, 1999.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Corporation receive a stipend of
$10,000 per year, payable quarterly, and a participation fee of $1,500 for each
meeting of the Board of Directors attended. Likewise, each non-employee director
receives a participation fee of $1,500 for each meeting of the Board of
Directors of any subsidiary of the Corporation. No employee of the Corporation
receives separate compensation for services rendered as a director. All
directors are reimbursed for expenses in connection with attending Board and
committee meetings.
Each non-employee director of the Corporation is also entitled to participate
in the Corporation's 1995 Non-Employee Director Stock Option Plan.
The Corporation has purchased directors' and officers' liability insurance
from General Star Indemnity and Virginia Surety covering all of the
Corporation's directors and executive officers. The aggregate premium for this
insurance policy in 1999 was $124,875.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 14, 1999, we announced a strategic technology agreement with Onex
Communications Corporation ("Onex"), through which we assigned joint ownership
rights in certain intellectual property to Onex. At the same time, we also
participated in a preferred round of financing of Onex through which we had a
net cash investment of $1,657,000.00. Other investors in the preferred round
of financing included institutional investors and six TranSwitch directors,
Alfred Boschulte, Steward S. Flaschen, Ljubomir Micic, James M. Pagos, Albert E.
Paladino and Erik van der Kaay. Each of the TranSwitch directors purchased
$30,000 worth of preferred stock of Onex, which amounts individually represent
approximately 0.2% of Onex's outstanding shares on an as-converted basis. In
addition, Albert E. Paladino and Santanu Das are directors of Onex and in their
positions as directors have received options to purchase 240,000 and 120,000
shares of the common stock of Onex, respectively.
<PAGE>
-12-
STOCK PERFORMANCE GRAPH
The following performance graph compares the percentage change in the
cumulative total stockholder return on the Corporation's Common Stock during the
period from the Corporation's initial public offering on June 14, 1995 through
December 31, 1999, with the cumulative total return on (i) a group consisting of
40 corporations in the Corporation's Standard Industrial Classification (SIC)
Code 3674--Semiconductors and Related Devices (the "SIC Code 3674 Index") and
(ii) the Nasdaq Composite Index (Total Return) (the "Nasdaq Composite Index").
The comparison assumes $100 was invested on June 14, 1995 in the Corporation's
Common Stock, the SIC Code 3674 Index and the Nasdaq Composite Index and assumes
reinvestment of dividends, if any.
COMPARISON OF FIVE YEAR* CUMULATIVE TOTAL RETURN AMONG TRANSWITCH
CORPORATION, THE SIC CODE 3674 INDEX AND THE NASDAQ COMPOSITE INDEX
ASSUMES $100 INVESTED ON JUNE 14, 1995
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
JUNE 14, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997 1998 1999
(%) (%) (%) (%) (%) (%)
---------- ----------------- ------------------- ------------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
TranSwitch Corporation
Common Stock ........ 100.00 121.92 57.53 82.19 426.71
SIC Code 3674 Index .. 100.00 100.77 162.23 169.06 254.53
Nasdaq Market Index .. 100.00 116.80 145.15 177.55 250.41
</TABLE>
* Prior to June 14, 1995, the Corporation's Common Stock was not publicly
traded. Comparative data is provided only for the period from that date
through December 31, 1999.
<PAGE>
-13-
SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Corporation's directors, executive officers and holders of more than 10% of the
Corporation's Common Stock (collectively, "Reporting Persons") to file with the
SEC initial reports of ownership and reports of changes in ownership of Common
Stock. Such persons are required by regulations of the SEC to furnish the
Corporation with copies of all such filings. Based on its review of the copies
of such filings received by it with respect to fiscal 1999 and written
representations from certain Reporting Persons, the Corporation believes that
all Reporting Persons complied with all Section 16(a) filing requirements in
1999.
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
At the Annual Meeting, the stockholders will be requested to consider and act
upon a proposal to approve an amendment to the Corporation's Amended and
Restated Certificate of Incorporation (the "Certificate of Incorporation") to
increase the number of authorized shares of Common Stock by an additional
200,000,000 shares. (See "Proposal to Amend the Amended and Restated
Certificate of Incorporation.")
Under the Certificate of Incorporation (and prior to the approval of this
amendment), the Corporation can issue up to 100,000,000 shares of Common Stock.
As of the Record Date, there were 40,110,552 shares of Common Stock issued and
outstanding and 59,889,448 shares of Common Stock available for future issuance.
If the amendment is approved, there will be 259,889,458 shares of Common Stock
available for future issuance. The Board of Directors does not intend to
solicit stockholder approval before issuing additional shares of Common Stock.
The Board of Directors believes that the authorized number of shares of Common
Stock should be increased to enable the Corporation to provide sufficient shares
for such additional corporate purposes as may be determined by the Board of
Directors to be necessary or desirable. These purposes may include, without
limitation, acquiring other businesses in exchange for shares of Common Stock,
raising capital or acquiring technology rights through the sale of Common Stock
and attracting or retaining valuable employees through the issuance of stock
options.
The issuance of additional shares of the Common Stock could have the effect of
diluting earnings per share and book value per share, which could adversely
affect the Corporation's existing stockholders. Issuance of shares of Common
Stock could be used to make a change in control of the Corporation more
difficult or costly by diluting the stock ownership of persons seeking to obtain
control of the Corporation. The Corporation is not aware, however, of any
pending or threatened efforts to obtain control of the Corporation.
THIRD AMENDED AND RESTATED 1995 STOCK PLAN
At the Annual Meeting, the stockholders will be requested to consider and act
upon a proposal to (i) approve an amendment to the Corporation's Third Amended
and Restated 1995 Stock Plan (the "Stock Plan") to increase the number of shares
of Common Stock available for issuance thereunder by an additional 4,000,000
shares, (ii) amend Section 7 thereof so that options granted after the date of
the Annual Meeting shall expire no later than 7 years after the date of grant;
and (iii) amend Section 13 thereof to prohibit the discretionary repricing of
options without the consent of a majority of the Corporation's stockholders.
(See "Proposal to Amend the Third Amended and Restated 1995 Stock Plan.") A
summary of the Stock Plan is set forth below.
THE STOCK PLAN
The Stock Plan was adopted by the Board of Directors on April 8, 1999 and was
approved by the Corporation's stockholders on June 24, 1999. The Stock Plan
currently provides for the issuance of a maximum of 11,800,000 shares of Common
Stock (as adjusted for a 3-for-2 stock split in the form of a stock dividend on
June 3, 1999 and a 3-for-2 stock split in the form of stock dividend on January
11, 2000) pursuant to the grant to employees of Incentive Stock Options ("ISOs")
within the meaning of Section 422 of the Code and the grant of Non-Qualified
Stock Options (the "NQSOs"), stock awards ("Awards") or opportunities to make
direct purchases of stock in the Corporation ("Purchases") to employees,
<PAGE>
-14-
consultants, directors and executive officers of the Corporation. Upon approval
of the amendment set forth herein, the Stock Plan will provide for the issuance
of a maximum of 15,800,000 shares of Common Stock. As of the Record Date, 221
employees (including directors who are also employees of the Corporation and
executive officers) and 6 non-employee directors are eligible to participate in
the Stock Plan.
The Stock Plan is administered by the Compensation Committee of the Board of
Directors. Subject to the provisions of the Stock Plan, the Compensation
Committee has the authority to select the optionees and determine the terms of
the options granted, including: (i) the number of shares subject to each option,
(ii) when the option becomes exercisable, (iii) the exercise price of the
option, (iv) the duration of the option and (v) the time, manner and form of
payment upon exercise of an option. The Compensation Committee determines the
exercise price per share for NQSOs, Awards and Purchases under the Stock Plan,
so long as such exercise price is no less than the minimum legal consideration
required therefor under the laws of any jurisdiction in which the Corporation
may be organized. Upon approval of the amendment set forth herein, the
Compensation Committee will not be able to change the exercise price of stock
options previously granted under the Plan on a discretionary basis. As provided
under the Plan, the number of shares of common stock underlying a stock option
and the exercise price thereof will continue to adjust when the Company effects
a stock split, stock dividend, merger or similar event. The exercise price per
share for each ISO to be granted under the Stock Plan may not be less than the
fair market value per share of Common Stock on the date of such grant. In the
case of an ISO to be granted to an employee owning stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Corporation, the price per share for such ISO shall not be less than one
hundred ten percent (110%) of the fair market value per share of Common Stock on
the date of grant. An option is not transferable by the option holder except by
will or by the laws of descent and distribution or, in the case of a NQSO only,
pursuant to a valid domestic relations order. Upon approval of the amendment set
forth herein, each option granted after the date of the Annual Meeting will
expire on the date specified by the Compensation Committee, but not more than
(i) seven years from the date of grant in the case of options generally and (ii)
five years from the date of grant in the case of ISOs granted to an employee
owning stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Corporation. Generally, no ISO may be
exercised more than 90 days following termination of employment. However, in the
event that termination is due to death or disability, the option is exercisable
for a maximum of 180 days after such termination.
On the Record Date, the market price, as reported by the Nasdaq National
Market, of Common Stock, the class of stock underlying all options, awards and
purchases subject to the Stock Plan was $111.63 per share. As of the Record
Date, options to purchase 7,119,412 shares of Common Stock at a weighted average
exercise price of $8.70 per share were outstanding under the Stock Plan (as
adjusted for a 3-for-2 stock split in the form of a stock dividend on June 3,
1999 and a 3-for-2 stock split in the form of a dividend on January 11, 2000).
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
NUMBER OF SHARES UNDERLYING
OPTIONS GRANTED UNDER
THE STOCK PLAN AS OF THE
NAME AND POSITION RECORD DATE
- ---------------------------------------------------------------------------------------------------
<S> <C>
Santanu Das........................................................ 964,750
President, Chief Executive Officer and Chairman of the Board of
Directors
Michael F. Stauff.................................................. 122,687
Senior Vice President, Chief Financial Officer and Treasurer
Clifford H. Ficke.................................................. 125,000
Vice President, Worldwide Sales
All current executive officers as a group (3 persons).............. 1,212,437
All current directors who are not executive officers as a group
(6 persons)....................................................... 202,976
All employees who are not executive officers as a group............ 5,704,000
</TABLE>
<PAGE>
-15-
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion of United States federal income tax consequences of
the issuance and exercise of options, Awards and Purchases granted under the
Stock Plan is based upon the provisions of the Code as in effect on the date of
this Proxy Statement, current regulations and existing administrative rulings of
the Internal Revenue Service. It is not intended to be a complete discussion of
all of the United States federal income tax consequences of these plans or of
the requirements that must be met in order to qualify for the described tax
treatment. In addition there may be foreign, state, and local tax consequences
that are not discussed herein.
Incentive Stock Options: The following general rules will be applicable under
current United States federal income tax law to ISOs granted under the Stock
Plan:
1. In general, no taxable income results to the optionee upon the grant of
an ISO or upon the issuance of shares to him or her upon the exercise of the
ISO, and the Corporation is not entitled to a federal income tax deduction
upon either the grant or exercise of an ISO.
2. If shares acquired upon exercise of an ISO are not disposed of within
(i) two years following the date the ISO was granted or (ii) one year
following the date the shares are issued to the optionee pursuant to the ISO
exercise (the "Holding Periods"), the difference between the amount realized
on any subsequent disposition of the shares and the exercise price will
generally be treated as capital gain or loss to the optionee.
3. If shares acquired upon exercise of an ISO are disposed of and the
optionee does not satisfy the requisite Holding Periods (a "Disqualifying
Disposition"), then in most cases the lesser of (i) any excess of the fair
market value of the shares at the time of exercise of the ISO over the
exercise price or (ii) the actual gain on disposition, will be treated as
compensation to the optionee and will be taxed as ordinary income in the year
of such disposition.
4. In any year that an optionee recognizes ordinary income on a
Disqualifying Disposition of stock acquired by exercising an ISO, the
Corporation generally will be entitled to a corresponding deduction for
federal income tax purposes.
5. The difference between the amount realized by the optionee as the result
of a Disqualifying Disposition and the sum of (i) the exercise price and (ii)
the amount of ordinary income recognized under the above rules will be treated
as capital gain or loss.
6. Capital gain or loss recognized by an optionee on a disposition of
shares will be long-term capital gain or loss if the optionee's holding period
for the shares exceeds 12 months.
7. An optionee may be entitled to exercise an ISO by delivering shares of
the Corporation's Common Stock to the Corporation in payment of the exercise
price, if the optionee's ISO agreement so provides. If an optionee exercises
an ISO in such fashion, special rules will apply.
8. In addition to the tax consequences described above, the exercise of
ISOs may result in a further "alternative minimum tax" under the Code. The
Code provides that an "alternative minimum tax" (at a maximum rate of 28%)
will be applied against a taxable base which is equal to "alternative minimum
taxable income," reduced by a statutory exemption. In general, the amount by
which the value of the Common Stock received upon exercise of the ISO exceeds
the exercise price is included in the optionee's alternative minimum taxable
income. A taxpayer is required to pay the higher of his regular tax liability
or the alternative minimum tax. A taxpayer who pays alternative minimum tax
attributable to the exercise of an ISO may be entitled to a tax credit against
his or her regular tax liability in later years.
9. Special rules apply if the Common Stock acquired through the exercise of
an ISO is subject to vesting, or is subject to certain restrictions on resale
under federal securities laws applicable to directors, officers or 10%
stockholders.
Non-Qualified Options: The following general rules are applicable under
current federal income tax law to NQSOs to be granted under the Stock Plan.
<PAGE>
-16-
1. The optionee generally does not recognize any taxable income upon the
grant of a NQSO, and the Corporation is not entitled to a federal income tax
deduction by reason of such grant.
2. The optionee generally will recognize ordinary compensation income at
the time of exercise of the NQSO in an amount equal to the excess, if any, of
the fair market value of the shares on the date of exercise over the exercise
price. The Corporation may be required to withhold income tax on this amount.
3. When the optionee sells the shares acquired through the exercise of a
NQSO, he or she generally will recognize a capital gain or loss in an amount
equal to the difference between the amount realized upon the sale of the
shares and his or her basis in the stock (generally, the exercise price plus
the amount taxed to the optionee as ordinary income). If the optionee's
holding period for the shares exceeds 12 months, such gain or loss will be a
long-term capital gain or loss.
4. The Corporation generally should be entitled to a federal income tax
deduction when ordinary income is recognized by the optionee pursuant to the
exercise of a NQSO.
5. An optionee may be entitled to exercise a NQSO by delivering shares of
the Corporation's Common Stock to the Corporation in payment of the exercise
price. If an optionee exercises a NQSO in such fashion, special rules will
apply.
6. Special rules apply if the Common Stock acquired through the exercise of
a NQSO is subject to vesting, or is subject to certain restrictions on resale
under federal securities laws applicable to directors, officers or 10%
stockholders.
Awards and Purchases: The following general rules are applicable under
current federal income tax law to the grant of Awards and Purchases under the
Stock Plan:
1. Persons receiving Common Stock pursuant to an award of Common Stock
("Award") or a grant of an opportunity to purchase Common Stock ("Purchase")
generally recognize ordinary income equal to the fair market value of the
shares received, reduced by any purchase price paid.
2. The Corporation generally will be entitled to a corresponding federal
income tax deduction. When such stock is sold, the seller generally will
recognize capital gain or loss.
Special rules apply if the stock acquired pursuant to an Award or Purchase is
subject to vesting, or is subject to certain restrictions on resale under
federal securities laws applicable to directors, officers or 10% stockholders.
<PAGE>
-17-
PROPOSALS FOR CONSIDERATION AT THE
ANNUAL MEETING OF STOCKHOLDERS
ITEM NO. 1:
PROPOSAL RELATING TO ELECTION OF DIRECTORS
The Board of Directors of the Corporation has nominated seven persons for
election as directors of the Corporation at the Annual Meeting (the "Nominees").
All of the Nominees are currently members of the Corporation's Board of
Directors. The Nominees and the year they first joined the Board of Directors
are:
<TABLE>
<CAPTION>
YEAR FIRST JOINED
NOMINEE BOARD
- ------------------------------------- ----------------------
<S> <C>
Santanu Das..................... 1988
Alfred R. Boschulte............. 1998
Steward S. Flaschen............. 1988
Erik H. van der Kaay............ 1997
Ljubomir Micic.................. 1994
James M. Pagos.................. 1999
Albert E. Paladino.............. 1988
</TABLE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ELECTION OF THE
NOMINEES AS DIRECTORS OF THE CORPORATION
The directors of the Corporation are elected annually and hold office until
the next annual meeting of stockholders and until their successors have been
elected and qualified or until their earlier death, resignation or removal.
Shares represented by all proxies received by the Board of Directors and not
marked so as to withhold authority to vote for any individual Nominee or for all
Nominees will be voted (unless one or more Nominees are unwilling or unable to
serve) FOR the election of the Nominees. The Board of Directors knows of no
reason why any Nominee should be unwilling or unable to serve, but if such
should be the case, proxies will be voted for the election of another person or
the Board of Directors may vote to fix the number of directors at a lesser
number. A plurality of the votes cast by the stockholders present or represented
by proxy and entitled to vote at the Annual Meeting is required for the election
of directors. (See "Voting Procedures.")
ITEM NO. 2:
PROPOSAL TO AMEND THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
The Corporation's Second Amended and Restated Certificate of Incorporation
(the "Certificate of Incorporation") was filed with the Secretary of State of
the State of Delaware on June 19, 1995 and was amended on May 27, 1999. On
March 16, 2000, the Board of Directors voted to recommend that the Corporation's
stockholders approve an amendment to the Certificate of Incorporation to
increase the number of authorized shares of the Corporation's Common Stock by an
additional 200,000,000 shares.
The stockholders will be requested at the Annual Meeting to consider and act
upon a proposal to approve the amendment. The Board of Directors believes that
it is in the best interests of the Corporation to facilitate broader ownership
of its Common Stock through stock splits, stock dividends or otherwise. The
Board of Directors believes that it is in the best interests of the Corporation
to have additional shares authorized and available for issuance for other
corporate purposes, including without limitation, acquiring other businesses in
exchange for shares of Common Stock, raising capital or acquiring technology
rights through the sale of Common Stock and attracting or retaining valuable
employees through
<PAGE>
-18-
the issuance of stock options. An affirmative majority of all shares entitled to
vote at the Annual Meeting is required to approve the proposed amendment to the
Certificate of Incorporation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR AMENDMENT OF THE CERTIFICATE OF INCORPORATION.
ITEM NO. 3:
PROPOSAL TO AMEND THE THIRD AMENDED AND RESTATED 1995 STOCK PLAN
The Corporation's Third Amended and Restated 1995 Stock Plan (the "Stock
Plan") was amended by the Board of Directors on April 8, 1999 and such amendment
was approved by the stockholders of the Corporation on June 24, 1999. On March
16, 2000, the Board of Directors approved, subject to stockholder approval at
the Annual Meeting, an amendment to the Stock Plan to (i) increase the number of
shares of Common Stock available for issuance thereunder by an additional
4,000,000 shares; (ii) amend Section 7 thereof so that options granted after the
date of the Annual Meeting shall expire no later than 7 years after the date of
grant; and (iii) amend Section 13 thereof to prohibit the discretionary
repricing of options without the consent of at least a majority of the
Corporation's stockholders.
The stockholders will be requested at the Annual Meeting to consider and act
upon a proposal to approve the amendment. The Board of Directors believes that
the Corporation's ability to continue to attract and retain qualified employment
candidates is in large part dependent upon the Corporation's ability to provide
such employment candidates long-term, equity-based incentives in the form of
stock options as part of their compensation. As of the Record Date, 1,168,663
(as adjusted for a 3-for-2 stock split in the form of a stock dividend on June
3, 1999 and a 3-for-2 stock split in the form of a dividend on January 11, 2000)
shares of Common Stock remained available for issuance under the Stock Plan. The
Board of Directors believes that the remaining shares available for issuance
under the Stock Plan are insufficient for such purposes, and that the approval
of the amendment, which provides for 4,000,000 additional shares available for
issuance, is therefore necessary. The Board of Directors believes that
prohibiting the discretionary repricing of options and limiting option terms to
seven years will be beneficial in motivating the Company's officers and employee
to maximize shareholder value over the short-and long-term. An affirmative
majority of the votes cast by the stockholders present or represented by proxy
and entitled to vote at the Annual Meeting is required to approve the amendment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR AMENDMENT OF THE STOCK PLAN
ITEM NO. 4:
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors, upon the recommendation of the Audit Committee, has
selected the firm of KPMG LLP, independent certified public accountants, to
serve as auditors for the fiscal year ending December 31, 2000. KPMG LLP has
served as the Corporation's auditors since fiscal year 1993. It is expected that
a member of KPMG LLP will be present at the Annual Meeting with the opportunity
to make a statement if so desired and will be available to respond to
appropriate questions. An affirmative majority of the votes cast by
stockholders present or represented by proxy and entitled to vote at the Annual
Meeting is required to ratify the selection of KPMG LLP as auditors.
<PAGE>
-19-
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
FOR RATIFICATION OF KPMG LLP AS AUDITORS
VOTING PROCEDURES
The presence, in person or by proxy, of at least a majority of the outstanding
shares of capital stock entitled to vote at the meeting is necessary to
constitute a quorum for the transaction of business. Votes withheld from any
nominee, abstentions and broker "non-votes" are counted as present or
represented for purposes of determining the presence or absence of a quorum for
the meeting. A "non-vote" occurs when a broker or other nominee holding shares
for a beneficial owner votes on one proposal, but does not vote on another
proposal because, in respect of such other proposal, the broker or other nominee
does not have discretionary voting power and has not received instructions from
the beneficial owner. In the election of directors, the seven nominees receiving
the highest number of affirmative votes of the shares present or represented and
entitled to vote at the meeting shall be elected as directors. For all other
matters being submitted to stockholders of this meeting except the Proposal to
Amend the Certificate of Incorporation, the affirmative majority vote of the
shares present, in person or represented by proxy, and voting on that matter is
required for approval. For the Proposal to Amend the Certificate of
Incorporation, the affirmative majority vote of all shares entitled to vote on
the matter is required for approval. An automated system administered by the
Corporation's transfer agent tabulates the votes. The vote on each matter
submitted to stockholders is tabulated separately. Shares voted to abstain,
because they are not affirmative votes for this matter, will have the same
effect as votes against the matter. Except for the Proposal to Amend the
Certificate of Incorporation, shares subject to broker "non-votes" are not
considered to have been voted for the particular matter and have the practical
effect of reducing the number of affirmative votes required to achieve a
majority for such matter by reducing the total number of shares from which the
majority is calculated. For the Proposal to Amend the Certificate of
Incorporation, shares subject to broker "non-votes" are not considered to have
voted for the particular matter and have the practical effect of being shares
voted against the matter.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the proxy statement to be
furnished to all stockholders entitled to vote at the next annual meeting of
stockholders of the Corporation must be received at the Corporation's principal
executive offices not later than December 14, 2000 and not before November 14,
2000. Notice should be sent to the attention of the Secretary of the
Corporation and must contain specified information concerning the matters to be
brought before such meeting and concerning the stockholder proposing such
matters. In order to curtail controversy as to the date on which a proposal was
received by the Corporation, it is suggested that proponents submit their
proposals by Certified Mail, Return Receipt Requested.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Corporation, and in
addition to soliciting stockholders by mail through its regular employees, the
Corporation may request banks, brokers and other custodians, nominees and
fiduciaries to solicit their customers who have stock of the Corporation
registered in the names of a nominee and, if so, will reimburse such banks,
brokers and other custodians, nominees and fiduciaries for their reasonable out-
of-pocket costs. Solicitation by officers and employees of the Corporation may
also be made of some stockholders in person or by mail, telephone or telegraph
following the original solicitation. The Corporation may, if appropriate,
retain an independent proxy solicitation firm to assist in soliciting proxies.
If the Corporation does so, it will pay such firm's customary fees and expenses.
<PAGE>
TRANSWITCH CORPORATION
Proxy for Annual Meeting of Stockholders
May 18, 2000
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
OF TRANSWITCH CORPORATION
The undersigned, revoking all prior proxies, hereby appoints Dr. Santanu
Das and Michael F. Stauff, and each of them alone, proxies, with full power of
substitution, to vote all shares of Common Stock (the "Common Stock") of
TranSwitch Corporation (the "Corporation"), par value $.001 per share, that the
undersigned is entitled to vote at the Annual Meeting of Stockholders of the
Corporation ("Annual Meeting") to be held on Thursday, May 18, 2000, at 10:00
a.m., Eastern time, at the Ramada Plaza Hotel, 780 Bridgeport Avenue, Shelton,
Connecticut 06484, and at any adjournments thereof, upon the matters set forth
in the Notice of Annual Meeting of Stockholders and related Proxy Statement
dated April 13, 2000, a copy of which has been received by the undersigned, AND
IN THEIR DISCRETION UPON ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENTS THEREOF. Attendance of the undersigned at the
meeting or at any adjourned session thereof will not be deemed to revoke this
proxy unless the undersigned shall affirmatively indicate thereat the intention
of the undersigned to vote said shares in person.
1. To elect a Board of Directors for the ensuing year.
[ ] FOR all nominees listed below
(except as marked to the contrary below)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below
Santanu Das
Alfred R. Boschulte
Steward S. Flaschen
Erik H. van der Kaay
Ljubomir Micic
James M. Pagos
Albert E. Paladino
INSTRUCTIONS: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below:
.
--------------------------------------------------------
2. To approve an amendment to the Corporation's Amended and
Restated Certificate of Incorporation to increase the number
of authorized shares of Common Stock by an additional
200,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve an amendment to Corporation's Third Amended and Restated
1995 Stock Plan to (i) increase the number of shares of Common
Stock available for issuance thereunder by an additional 1,700,000
shares, (ii) amend Section 7 thereof so that option granted after
the date of the 2000 Annual Meeting shall expire no later than
7 years after the grant and (iii) amend Section 13 thereof to
prohibit the discretionary repricing of options without the
consent of a majority of the Corporation's Stockholders.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To ratify the selection of the firm of KPMG LLP as
independent auditors of the Corporation for the fiscal
year ending December 31, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. To transact such other business as may properly come before
the meeting.
<PAGE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE
PROPOSALS IN ITEMS 2, 3 AND 4, AND DISCRETIONARY AUTHORITY WILL BE DEEMED
GRANTED UNDER ITEM 5.
Dated: , 2000
-------------------------
--------------------------------------
Signature(s) of Stockholder(s)
--------------------------------------
Please Print Name:
(If signing as attorney, executor, trustee
or guardian, please give your full title
as such. If stock is held jointly, each
owner should sign.)
<PAGE>
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TRANSWITCH CORPORATION
(INCORPORATED APRIL 26, 1988)
* * * * * *
TranSwitch Corporation (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation adopted
resolutions proposing and declaring advisable the following amendment to the
Amended and Restated Certificate of Incorporation of the Corporation:
RESOLVED: That the first paragraph of ARTICLE FOURTH of the Corporation's
Amended and Restated Certificate of Incorporation shall be amended to
read in its entirety as follows:
FOURTH. The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is 301,000,000 shares,
consisting of 300,000,000 shares of Common Stock with a par value of
$.001 per share (the "Common Stock") and 1,000,000 shares of Preferred
Stock with a par value of $.01 per share (the "Preferred Stock").
SECOND: That the foregoing amendment to the Amended and Restated
Certificate of Incorporation of the Corporation was duly adopted by the
stockholders of the Corporation in accordance with the applicable provisions of
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate of
Amendment to be executed by Dr. Santanu Das, its President, Chief Executive
Officer and Chairman of the Board of Directors, this ____th day of May, 2000.
______________________________________
Dr. Santanu Das
President, Chief Executive Officer and
Chairman of the Board of Directors
<PAGE>
TRANSWITCH CORPORATION
THIRD AMENDED AND RESTATED
1995 STOCK PLAN
---------------
1. PURPOSE. The purpose of the TranSwitch Corporation Third Amended and
Restated 1995 Stock Plan (the "Plan") is to encourage key employees of
TranSwitch Corporation (the "Company") and of any present or future parent or
subsidiary of the Company (collectively, "Related Corporations") and other
individuals who render services to the Company or a Related Corporation, by
providing opportunities to participate in the ownership of the Company and its
future growth through (a) the grant of options which qualify as "incentive stock
options" ("ISOs") under Section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code"); (b) the grant of options which do not qualify as ISOs
("Non-Qualified Options"); (c) awards of stock in the Company ("Awards"); and
(d) opportunities to make direct purchases of stock in the Company
("Purchases"). Both ISOs and Non-Qualified Options are referred to hereafter
individually as an "Option" and collectively as "Options." Options, Awards and
authorizations to make Purchases are referred to hereafter collectively as
"Stock Rights." As used herein, the terms "parent" and "subsidiary" mean
"parent corporation" and "subsidiary corporation," respectively, as those terms
are defined in Section 424 of the Code.
2. ADMINISTRATION OF THE PLAN.
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be administered by
the Board of Directors of the Company (the "Board") or by a committee appointed
by the Board (the "Committee"); provided that the Plan shall be administered:
(i) to the extent required by applicable regulations under Section 162(m) of the
Code, by two or more "outside directors" (as defined in applicable regulations
thereunder) and (ii) to the extent required by Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 or any successor provision ("Rule 16b-3"), by a
disinterested administrator or administrators within the meaning of Rule 16b-3.
Hereinafter, all references in this Plan to the "Committee" shall mean the Board
if no Committee has been appointed. Subject to ratification of the grant or
authorization of each Stock Right by the Board (if so required by applicable
state law), and subject to the terms of the Plan, the Committee shall have the
authority to (i) determine to whom (from among the class of employees eligible
under paragraph 3 to receive ISOs) ISOs shall be granted, and to whom (from
among the class of individuals and entities eligible under paragraph 3 to
receive Non-Qualified Options and Awards and to make Purchases) Non-Qualified
Options, Awards and authorizations to make Purchases may be granted; (ii)
determine the time or times at which Options or Awards shall be granted or
Purchases made; (iii) determine the purchase price of shares subject to each
Option or Purchase, which prices shall not be less than the minimum price
specified in paragraph 6; (iv) determine whether each Option granted shall be an
ISO or a Non-Qualified Option; (v) determine (subject to paragraph 7) the time
or times when each Option shall become exercisable and the duration of the
exercise period; (vi) extend the period during which outstanding Options may be
exercised; (vii) determine whether restrictions such
<PAGE>
- 2 -
as repurchase options are to be imposed on shares subject to Options, Awards and
Purchases and the nature of such restrictions, if any, and (viii) interpret the
Plan and prescribe and rescind rules and regulations relating to it. If the
Committee determines to issue a Non-Qualified Option, it shall take whatever
actions it deems necessary, under Section 422 of the Code and the regulations
promulgated thereunder, to ensure that such Option is not treated as an ISO. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Stock Right granted under it shall be final unless otherwise
determined by the Board. The Committee may from time to time adopt such rules
and regulations for carrying out the Plan as it may deem advisable. No member of
the Board or the Committee shall be liable for any action or determination made
in good faith with respect to the Plan or any Stock Right granted under it.
B. COMMITTEE ACTIONS. The Committee may select one of its members as
its chairman, and shall hold meetings at such time and places as it may
determine. A majority of the Committee shall constitute a quorum and acts of a
majority of the members of the Committee at a meeting at which a quorum is
present, or acts reduced to or approved in writing by all the members of the
Committee (if consistent with applicable state law), shall be the valid acts of
the Committee. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan.
C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Subject to the provisions of
the first sentence of paragraph 2(A) above, if applicable, Stock Rights may be
granted to members of the Board. All grants of Stock Rights to members of the
Board shall in all other respects be made in accordance with the provisions of
this Plan applicable to other eligible persons. Consistent with the provisions
of the first sentence of Paragraph 2(A) above, members of the Board who either
(i) are eligible to receive grants of Stock Rights pursuant to the Plan or (ii)
have been granted Stock Rights may vote on any matters affecting the
administration of the Plan or the grant of any Stock Rights pursuant to the
Plan, except that no such member shall act upon the granting to himself or
herself of Stock Rights, but any such member may be counted in determining the
existence of a quorum at any meeting of the Board during which action is taken
with respect to the granting to such member of Stock Rights.
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted only to employees
of the Company or any Related Corporation. Non-Qualified Options, Awards and
authorizations to make Purchases may be granted to any employee, officer or
director (whether or not also an employee) or consultant of the Company or any
Related Corporation. The Committee may take into consideration a recipient's
individual circumstances in determining whether to grant a Stock Right. The
granting of any Stock Right to any individual or entity shall neither entitle
that individual or entity to, nor disqualify such individual or entity from,
participation in any other grant of Stock Rights.
4. STOCK. The stock subject to Stock Rights shall be authorized but
unissued shares of Common Stock of the Company, par value $.001 per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company in any
manner. The aggregate number of shares which may be issued pursuant to the Plan
is 9,200,000, subject to adjustment as provided in paragraph 13. If any Stock
Right granted under the Plan shall expire or terminate for any
<PAGE>
- 3 -
reason without having been exercised in full or shall cease for any reason to be
exercisable in whole or in part or shall be repurchased by the Company, the
shares of Common Stock subject to such Stock Right shall again be available for
grants of Stock Rights under the Plan.
No employee of the Company or any Related Corporation may be granted
Options to acquire, in the aggregate, more than 1,048,800 of shares of Common
Stock under the Plan. If any Option granted under the Plan shall expire or
terminate for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part or shall be repurchased by
the Company, the shares subject to such Option shall be included in the
determination of the aggregate number of shares of Common Stock deemed to have
been granted to such employee under the Plan.
5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan
at any time on or after April 11, 1995 and prior to April 11, 2005. The date of
grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant. Options granted under the Plan are intended to qualify as performance-
based compensation to the extent required under Proposed Treasury Regulation
Section 1.162-27.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
A. PRICE FOR NON-QUALIFIED OPTIONS, AWARDS AND PURCHASES. The exercise
price per share specified in the agreement relating to each Non-Qualified Option
granted, and the purchase price per share of stock granted in any Award or
authorized as a Purchase, under the Plan shall in no event be less than the
minimum legal consideration required therefor under the laws of any jurisdiction
in which the Company or its successors in interest may be organized. Non-
Qualified Options granted under the Plan, with an exercise price less than the
fair market value per share of Common Stock on the date of grant, and Awards and
Purchases under the Plan with a purchase price per share less than the fair
market value per share of Common Stock on the date of grant or authorization, as
applicable, are intended to qualify as performance-based compensation under
Section 162(m) of the Code and any applicable regulations thereunder. Any such
Non-Qualified Options granted under the Plan or Awards made or Purchases
authorized under the Plan shall be exercisable or issued, as the case may be,
only upon the attainment of a pre-established, objective performance goal
established by the Committee. If the Committee grants Non-Qualified Options with
an exercise price less than the fair market value per share of Common Stock on
the date of grant, or makes Awards or authorizes Purchases under the Plan with a
purchase price per share less than the fair market value per share of Common
Stock on the date of grant or authorization, as applicable, such grant or
authorization will be submitted for, and will be contingent upon, shareholder
approval.
B. PRICE FOR ISOS. The exercise price per share specified in the
agreement relating to each ISO granted under the Plan shall not be less than the
fair market value per share of Common Stock on the date of such grant. In the
case of an ISO to be granted to an employee owning stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or any Related Corporation, the price per share
<PAGE>
- 4 -
specified in the agreement relating to such ISO shall not be less than one
hundred ten percent (110%) of the fair market value per share of Common Stock on
the date of grant. For purposes of determining stock ownership under this
paragraph, the rules of Section 424(d) of the Code shall apply.
C. $100,000 ANNUAL LIMITATION ON ISO VESTING. Each eligible employee
may be granted Options treated as ISOs only to the extent that, in the aggregate
under this Plan and all incentive stock option plans of the Company and any
Related Corporation, ISOs do not become exercisable for the first time by such
employee during any calendar year with respect to stock having a fair market
value (determined at the time the ISOs were granted) in excess of $100,000. The
Company intends to designate any Options granted in excess of such limitation as
Non-Qualified Options.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an Option is
granted under the Plan, the Company's Common Stock is publicly traded, "fair
market value" shall be determined as of the date of grant or, if the prices or
quotes discussed in this sentence are unavailable for such date, the last
business day for which such prices or quotes are available prior to the date of
grant and shall mean (i) the average (on that date) of the high and low prices
of the Common Stock on the principal national securities exchange on which the
Common Stock is traded, if the Common Stock is then traded on a national
securities exchange; or (ii) the last reported sale price (on that date) of the
Common Stock on the Nasdaq National Market, if the Common Stock is not then
traded on a national securities exchange; or (iii) the closing bid price (or
average of bid prices) last quoted (on that date) by an established quotation
service for over-the-counter securities, if the Common Stock is not reported on
the Nasdaq National Market. If the Common Stock is not publicly traded at the
time an Option is granted under the Plan, "fair market value" shall mean the
fair value of the Common Stock as determined by the Committee after taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years from the date of grant in the case of Options generally and (ii) five
years from the date of grant in the case of ISOs granted to an employee owning
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, as determined
under paragraph 6(B). Subject to earlier termination as provided in paragraphs
9 and 10, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a Non-Qualified Option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9 through
12, each Option granted under the Plan shall be exercisable as follows:
A. VESTING. The Option shall either be fully exercisable on the date of
grant or shall become exercisable thereafter in such installments as the
Committee may specify.
<PAGE>
- 5 -
B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination of the
Option, unless otherwise specified by the Committee.
C. PARTIAL EXERCISE. Each Option or installment may be exercised at any
time or from time to time, in whole or in part, for up to the total number of
shares with respect to which it is then exercisable.
D. ACCELERATION OF VESTING. The Committee shall have the right to
accelerate the date that any installment of any Option becomes exercisable;
provided that the Committee shall not, without the consent of an optionee,
accelerate the permitted exercise date of any installment of any Option granted
to any employee as an ISO (and not previously converted into a Non-Qualified
Option pursuant to paragraph 16) if such acceleration would violate the annual
vesting limitation contained in Section 422(d) of the Code, as described in
paragraph 6(C).
9. TERMINATION OF EMPLOYMENT. Unless otherwise specified in the agreement
relating to such ISO, if an ISO optionee ceases to be employed by the Company
and all Related Corporations other than by reason of death or disability as
defined in paragraph 10, no further installments of his or her ISOs shall become
exercisable, and his or her ISOs shall terminate on the earlier of (a) ninety
(90) days after the date of termination of his or her employment, or (b) their
specified expiration dates, except to the extent that such ISOs (or unexercised
installments thereof) have been converted into Non-Qualified Options pursuant to
paragraph 16. For purposes of this paragraph 9, employment shall be considered
as continuing uninterrupted during any bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service) provided
that the period of such leave does not exceed 90 days or, if longer, any period
during which such optionee's right to reemployment is guaranteed by statute. A
bona fide leave of absence with the written approval of the Committee shall not
be considered an interruption of employment under this paragraph 9, provided
that such written approval contractually obligates the Company or any Related
Corporation to continue the employment of the optionee after the approved period
of absence. ISOs granted under the Plan shall not be affected by any change of
employment within or among the Company and Related Corporations, so long as the
optionee continues to be an employee of the Company or any Related Corporation.
Nothing in the Plan shall be deemed to give any grantee of any Stock Right the
right to be retained in employment or other service by the Company or any
Related Corporation for any period of time.
10. DEATH; DISABILITY.
A. DEATH. If an ISO optionee ceases to be employed by the Company and
all Related Corporations by reason of his or her death, any ISO owned by such
optionee may be exercised, to the extent otherwise exercisable on the date of
death, by the estate, personal representative or beneficiary who has acquired
the ISO by will or by the laws of descent and distribution, until the earlier of
(i) the specified expiration date of the ISO or (ii) 180 days from the date of
the optionee's death.
<PAGE>
- 6 -
B. DISABILITY. If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of his or her disability, such optionee
shall have the right to exercise any ISO held by him or her on the date of
termination of employment, for the number of shares for which he or she could
have exercised it on that date, until the earlier of (i) the specified
expiration date of the ISO or (ii) 180 days from the date of the termination of
the optionee's employment. For the purposes of the Plan, the term "disability"
shall mean "permanent and total disability" as defined in Section 22(e)(3) of
the Code or any successor statute.
11. ASSIGNABILITY. No Stock Right shall be assignable or transferable by
the grantee except by will, by the laws of descent and distribution or, in the
case of Non-Qualified Options only, pursuant to a valid domestic relations
order. Except as set forth in the previous sentence, during the lifetime of a
grantee each Stock Right shall be exercisable only by such grantee.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. The Committee may specify that any Non-
Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination and cancellation provisions as the
Committee may determine. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one or more officers
of the Company to execute and deliver such instruments. The proper officers of
the Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to such optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of Options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
B. CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated
with or acquired by another entity in a merger, sale of all or substantially all
of the Company's assets or otherwise (an "Acquisition"), the Committee or the
board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to outstanding Options, either (i)
make appropriate provision for the continuation of such Options by substituting
on an equitable basis for the shares then subject to such Options either (a) the
consideration payable with respect to the outstanding shares of Common Stock in
connection
<PAGE>
- 7 -
with the Acquisition, (b) shares of stock of the surviving corporation or (c)
such other securities as the Successor Board deems appropriate, the fair market
value of which shall not materially exceed the fair market value of the shares
of Common Stock subject to such Options immediately preceding the Acquisition;
or (ii) upon written notice to the optionees, provide that all Options must be
exercised, to the extent then exercisable, within a specified number of days of
the date of such notice, at the end of which period the Options shall terminate;
or (iii) terminate all Options in exchange for a cash payment equal to the
excess of the fair market value of the shares subject to such Options (to the
extent then exercisable) over the exercise price thereof.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding shares of
Common Stock, an optionee upon exercising an Option shall be entitled to receive
for the purchase price paid upon such exercise the securities he or she would
have received if he or she had exercised such Option prior to such
recapitalization or reorganization.
D. MODIFICATION OF ISOS. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs A, B or C with respect to ISOs shall
be made only after the Committee, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424 of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs or would cause adverse tax consequences to the
holders, it may refrain from making such adjustments.
E. DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such other
time and subject to such other conditions as shall be determined by the
Committee.
F. ISSUANCES OF SECURITIES. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to Options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.
G. FRACTIONAL SHARES. No fractional shares shall be issued under the
Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.
H. ADJUSTMENTS. Upon the happening of any of the events described in
subparagraphs A, B or C above, the class and aggregate number of shares set
forth in paragraph 4 hereof that are subject to Stock Rights which previously
have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine the
<PAGE>
- 8 -
specific adjustments to be made under this paragraph 13 and, subject to
paragraph 2, its determination shall be conclusive.
14. MEANS OF EXERCISING OPTIONS. An Option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify
the number of shares as to which such Option is being exercised, accompanied by
full payment of the purchase price therefor either (a) in United States dollars
in cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) at the discretion of the
Committee, by delivery of the grantee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, (d) at the discretion
of the Committee and consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise, or (e) at the
discretion of the Committee, by any combination of (a), (b), (c) and (d) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (b), (c), (d) or
(e) of the preceding sentence, such discretion shall be exercised in writing at
the time of the grant of the ISO in question. The holder of an Option shall not
have the rights of a shareholder with respect to the shares covered by such
Option until the date of issuance of a stock certificate to such holder for such
shares. Except as expressly provided above in paragraph 13 with respect to
changes in capitalization and stock dividends, no adjustment shall be made for
dividends or similar rights for which the record date is before the date such
stock certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on
April 11, 1995, subject, with respect to the validation of ISOs granted under
the Plan, to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written consent. If the
approval of stockholders is not obtained prior to April 11, 1996, any grants of
ISOs under the Plan made prior to that date will be rescinded. The Plan shall
expire at the end of the day on April 10, 2005 (except as to Options outstanding
on that date). Subject to the provisions of paragraph 5 above, Options may be
granted under the Plan prior to the date of stockholder approval of the Plan.
The Board may terminate or amend the Plan in any respect at any time, except
that, without the approval of the stockholders obtained within 12 months before
or after the Board adopts a resolution authorizing any of the following actions:
(a) the total number of shares that may be issued under the Plan may not be
increased (except by adjustment pursuant to paragraph 13); (b) the benefits
accruing to participants under the Plan may not be materially increased; (c) the
requirements as to eligibility for participation in the Plan may not be
materially modified; (d) the provisions of paragraph 3 regarding eligibility for
grants of ISOs may not be modified; (e) the provisions of paragraph 6(B)
regarding the exercise price at which shares may be offered pursuant to ISOs may
not be modified (except by adjustment pursuant to paragraph 13); (f) the
expiration date of the Plan may not be extended; and (g) the Board may not take
any action which would cause the Plan to fail to comply with Rule 16b-3. Except
as otherwise provided in this paragraph 15, in no event may action of the
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Board or stockholders alter or impair the rights of a grantee, without such
grantee's consent, under any Option previously granted to such grantee.
16. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS. The Committee, at the
written request or with the written consent of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's ISOs
(or any installments or portions of installments thereof) that have not been
exercised on the date of conversion into Non-Qualified Options at any time prior
to the expiration of such ISOs, regardless of whether the optionee is an
employee of the Company or a Related Corporation at the time of such conversion.
Such actions may include, but shall not be limited to, extending the exercise
period or reducing the exercise price of the appropriate installments of such
ISOs. At the time of such conversion, the Committee (with the consent of the
optionee) may impose such conditions on the exercise of the resulting Non-
Qualified Options as the Committee in its discretion may determine, provided
that such conditions shall not be inconsistent with this Plan. Nothing in the
Plan shall be deemed to give any optionee the right to have such optionee's ISOs
converted into Non-Qualified Options, and no such conversion shall occur until
and unless the Committee takes appropriate action.
17. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By accepting an ISO
granted under the Plan, each optionee agrees to notify the Company in writing
immediately after such optionee makes a Disqualifying Disposition (as described
in Sections 421, 422 and 424 of the Code and regulations thereunder) of any
stock acquired pursuant to the exercise of ISOs granted under the Plan. A
Disqualifying Disposition is generally any disposition occurring on or before
the later of (a) the date two years following the date the ISO was granted or
(b) the date one year following the date the ISO was exercised.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a Non-
Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 18), the vesting or transfer of restricted
stock or securities acquired on the exercise of an Option hereunder, or the
making of a distribution or other payment with respect to such stock or
securities, the Company may withhold taxes in respect of amounts that constitute
compensation includable in gross income. The Committee in its discretion may
condition (i) the exercise of an Option, (ii) the grant of an Award, (iii) the
making of a Purchase of Common Stock for less than its fair market value, or
(iv) the vesting or transferability of restricted stock or securities acquired
by exercising an Option, on the grantee's making satisfactory arrangement for
such withholding. Such arrangement may include payment by the grantee in cash
or by check of the amount of the withholding taxes or, at the discretion of the
Committee, by the grantee's delivery of previously held shares of Common Stock
or the withholding from the shares of Common Stock otherwise deliverable upon
exercise of a Option shares having an aggregate fair market value equal to the
amount of such withholding taxes.
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20. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
send tax information statements to employees and former employees that exercise
ISOs under the Plan, and the Company may be required to file tax information
returns reporting the income received by grantees of Options in connection with
the Plan.
21. GOVERNING LAW. The validity and construction of the Plan and the
instruments evidencing Options shall be governed by the laws of the State of
Delaware, or the laws of any jurisdiction in which the Company or its successors
in interest may be organized.
Date Approved by the Board of Directors of the Company: April 11, 1995
Date Approved by the Stockholders of the Company: April 19, 1995
Amended and restated by the Board of Directors of the Company: January 25,
1996.
Amended and restated by the Board of Directors of the Company: March 6, 1997.
Amended and restated by the Stockholders of the Company: May 29, 1997.
Amended and restated by the Board of Directors of the Company: March 5, 1998.
Amended and restated by the Stockholders of the Company: May 28, 1998.
Amended and restated by the Board of Directors of the Company: April 8, 1999.
Amended and restated by the Stockholders of the Company: June 24, 1999.
