<PAGE>
As filed with the Securities and Exchange Commission on November 15, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TRANSWITCH CORPORATION
(Exact name of Registrant as specified in its charter)
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Delaware 06-1236189
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
Three Enterprise Drive
Shelton, Connecticut 06484
(203) 929-8810
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
--------------
Dr. Santanu Das
President and Chief Executive Officer
TranSwitch Corporation
Three Enterprise Drive
Shelton, Connecticut 06484
(203) 929-8810
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------
Copies of all communications, including all communications sent to the agent
for service, should be sent to:
TIMOTHY C. MAGUIRE, ESQ.
Testa, Hurwitz & Thibeault, LLP
125 High Street
Boston, Massachusetts 02110
(617) 248-7000
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Title of Each Class of Amount Maximum Aggregate Amount of
Securities to be to be Offering Price Offering Price Registration
Registered Registered Per Unit (1) (1) Fee (1)
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<S> <C> <C> <C> <C>
4 1/2% Convertible Notes
due 2005 $460,000,000 100% $460,000,000 $121,440
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Common Stock, par value
$.001 per share 7,428,640(2) N/A N/A N/A
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</TABLE>
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(1) The shares of common stock registered hereunder are issuable upon
conversion of the 4 1/2% Convertible Notes due 2005 registered hereunder.
Pursuant to Rule 457(i) under the Securities Act, there is no filing fee
with respect to the shares of common stock issuable upon conversion of the
exercise of the conversion privilege.
(2) Plus such additional shares as may be required to be registered in the
event of a stock dividend, recapitalization or other similar change in
common stock.
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TranSwitch hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until TranSwitch shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Summary.................................................................... 2
Risk Factors............................................................... 5
Risks Related to this Offering............................................. 13
Disclosure Regarding Forward-Looking Statements............................ 16
Ratio of Earnings to Fixed Charges......................................... 16
Use of Proceeds............................................................ 17
Description of Notes....................................................... 17
Certain United States Federal Income Tax Considerations.................... 32
Selling Securityholders.................................................... 36
Plan of Distribution....................................................... 38
Legal Matters.............................................................. 39
Experts.................................................................... 39
Where You Can Find More Information........................................ 39
</TABLE>
You should rely only on the information contained in this prospectus. We
have not authorized any other person to provide you with different information.
If anyone provides you with different or inconsistent information, you should
not rely on it. We are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed since that date.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this offering memorandum is truthful or complete. Any representation to the
contrary is a criminal offense.
---------------
In this prospectus, references to the "Company," "TranSwitch," "we," "us"
and "our" refer to TranSwitch Corporation, a Delaware corporation, and its
subsidiaries.
---------------
We own or have rights to trademarks or tradenames that we use in
conjunction with the sale of our products. TXC, TRANSWITCH, XBERT, SARA, COBRA,
CUBIT, CELLBUS and SALI-25C are among the registered trademarks that are owned
by us. PHAME, ASPEN, McHDLC, PHAST and Engines for Global Connectivity are
among the presently unregistered trademarks of TranSwitch. All other trademarks
are the property of their respective owners.
1
<PAGE>
SUMMARY
Our Company
We design, develop, market and support highly integrated digital and
mixed-signal (analog and digital) semiconductor system-on-a-chip solutions for
building emerging networks for telecommunications and data communications
applications. Our products are high-speed very large scale integrated (VLSI)
semiconductor solutions that provide core functionality for equipment used in
communications network equipment. Our product lines are designed to be
compliant with SONET/SDH, asynchronous/PDH and ATM/IP telecommunications and
data communications standards. We also offer products that combine multi-
protocol capabilities on a single chip that can be programmed for multi-service
applications.
We target our products to telecommunications and data communications
equipment suppliers who serve three fast-growing market segments: the worldwide
public network infrastructure for data and voice communications, the Internet
infrastructure and corporate wide area networks (WANs) used by Fortune 2000
companies. The current public networks that serve voice and data communications
applications around the world are undergoing dramatic change. Global
deregulation has increased competition among service providers, and bandwidth
needs have increased to accommodate rapidly expanding volumes of diverse
network traffic. These changes have created significant opportunities for
communications equipment suppliers. Innovative network equipment is being
designed to ease bandwidth bottlenecks and to lower network operating costs. To
meet time-to-market and product cost expectations, communications equipment
manufacturers are increasingly employing highly integrated semiconductor
devices for their products' core functionality.
Our expertise in digital and mixed-signal design, together with our
telecommunications and data communications experience, enables us to determine
and implement optimal semiconductor solutions to meet equipment suppliers'
needs. We believe our approach permits our customers to achieve faster time-to-
market and to introduce systems that offer greater functionality and improved
performance, while reducing system size and cost.
We have sold our VLSI semiconductor devices to more than 400 customers
worldwide. We sell our products through a direct sales force and worldwide
network of independent distributors and sales representatives located in the
United States and 16 other countries. Our customers are primarily original
equipment manufacturers (OEMs) who incorporate our products into the networking
equipment they sell to the telecommunications and data communications markets.
Our customers include Alcatel, Cisco, Ericsson, GEC Marconi, Lucent, Nortel,
Redback Networks, Siemens and Tellabs.
In May 2000, we exchanged 505,382 TranSwitch shares for all of the shares
of Easics NV, a Belgian semiconductor design services provider. In August 2000,
we acquired Alacrity Communications, Inc., a California communications
semiconductor company, in exchange for 266,836 of our shares.
We are a Delaware corporation. Our executive office is located at 3
Enterprise Drive, Shelton, Connecticut, 06484, and our telephone number is
(203) 929-8810. Our web site is located at www.transwitch.com. Information
contained on our web site is not part of this offering memorandum.
2
<PAGE>
The Offering
The following is a brief summary description of some of the terms of this
offering. For a more complete description of the terms of the notes, see
"Description of Notes" in this prospectus.
Issuer..................
TranSwitch Corporation
Notes offered........... $460,000,000 principal amount of 4 1/2% Convertible
Notes due 2005.
Maturity................ September 12, 2005.
Interest................
4 1/2% per annum on the principal amount, payable
semiannually on March 12 and September 12, beginning
on March 12, 2001.
Conversion rights....... The notes are convertible, at the option of the
holder, at any time on or prior to maturity into
shares of our common stock at a conversion price of
$61.9225 per share, which is equal to a conversion
rate of approximately 16.1492 shares per $1,000
principal amount of notes. The conversion rate is
subject to adjustment.
Ranking.................
The notes will be unsecured and unsubordinated
obligations and will rank on a parity in right of
payment with all our existing and future unsecured
and unsubordinated indebtedness. The indenture under
which the notes will be issued will not prevent us or
our subsidiaries from incurring additional
indebtedness, which may be secured by some or all of
our assets, or other obligations.
Provisional We may redeem the notes, in whole or in part, at any
redemption.............. time on or prior to September 12, 2003 at a
redemption price equal to 100% of the principal
amount of notes to be redeemed plus accrued and
unpaid interest, if any, to the date of redemption if
(i) the closing price of our common stock has
exceeded 150% of the conversion price then in effect
for at least 20 trading days within a period of 30
consecutive trading days ending on the trading day
before the date of mailing of the provisional
redemption notice and (ii) the shelf registration
statement covering resales of the notes and the
common stock issuable upon conversion of the notes is
effective and available for use and is expected to
remain effective and available for use for the 30
days following the provisional redemption date.
Upon any provisional redemption, we will make an
additional "make- whole" payment with respect to the
notes called for redemption in an amount equal to
$135 per $1,000 principal amount of notes, less the
amount of any interest actually paid on the notes
before the provisional redemption date. We will make
these "make-whole" payments, at each holder's option,
either in cash or our common stock (or a combination
of both).
3
<PAGE>
WE WILL BE OBLIGATED TO MAKE THIS ADDITIONAL PAYMENT
ON ALL NOTES CALLED FOR PROVISIONAL REDEMPTION,
INCLUDING ANY NOTES CONVERTED AFTER THE NOTICE DATE
AND BEFORE THE PROVISIONAL REDEMPTION DATE.
Optional redemption.....
We may redeem all or a portion of the notes at any
time after September 12, 2003 at the redemption
prices listed in this offering memorandum, plus
accrued and unpaid interest.
Change in control....... Upon a change in control event, each holder of the
notes may require us to repurchase some or all of its
notes at a cash purchase price equal to 100% of the
principal amount of the notes plus accrued and unpaid
interest.
Use of proceeds.........
We will not receive any of the proceeds from the sale
of the notes or the underlying common stock by any
selling securityholders.
Registration rights..... We have filed with the Securities and Exchange
Commission a shelf registration statement for the
resale of the notes and the common stock issuable
upon conversion. We have agreed to keep the shelf
registration statement effective until two years
after the latest date on which we issue notes in this
offering. If we do not comply with these registration
obligations, we will be required to pay liquidated
damages to the holders of the notes or the common
stock issuable upon conversion.
Trading.................
The notes are eligible for trading on the PORTAL
Market. Our common stock is traded on the Nasdaq
National Market under the symbol "TXCC."
Risk Factors............ See "Risk Factors" and the other information in this
offering memorandum for a discussion of the factors
you should carefully consider before deciding to
invest in the notes.
4
<PAGE>
RISK FACTORS
You should carefully consider the following risks before making an
investment decision. Our business, operating results and financial condition
could be adversely affected by any of the following risks. The risks described
below are not the only ones that we face. Additional risks that are not yet
identified or that we currently think are immaterial may also impair our
business operations. You should also refer to the other information set forth
in this offering memorandum, including our consolidated financial statements
and the related notes.
We experience fluctuations in our operating results due to a number of
frequently changing business conditions, which may cause our stock price to
decline
Our quarterly and annual operating revenues, expenses and operating
results may fluctuate due to a number of factors, including the following:
. the timing and cancellation . our ability to introduce new
of customer orders; products and technologies on
a timely basis;
. market acceptance of our and
our customers' products; . introduction of products and
technologies by our competitors;
. the level of orders received
that can be shipped in a . the timing of our investments in
quarter; research and development, including
tooling expenses associated with
product development and pre-
production;
. the timing and provisions of
pricing protections and
returns from our
distributors;
. our customers' practice of buying from
a distributor or directly from us;
. availability of foundry
capacity and raw materials; . competitive pressures on selling
prices;
. seasonality of customer buying
patterns;
. fluctuations in manufacturing
yields;
. cyclicality of the semiconductor
industry; and
. changes in product mix;
. general economic conditions.
Sudden shortages of raw materials or production capacity constraints can
lead producers to allocate available supplies or capacity to larger customers
than us, which could interrupt our ability to meet our production obligations.
Historically, average selling prices in the semiconductor industry have
decreased over the life of a product, and, as a result, the average selling
prices of our products may decrease in the future. Decreases in the price of
our products would adversely affect our operating results.
Our business is characterized by short-term orders and shipment
schedules, and customer orders typically can be canceled or rescheduled without
significant penalty to our customer. Because we do not have substantial
noncancellable backlog, we typically plan our production and inventory levels
based on internal forecasts of customer demand, which are highly unpredictable
and can fluctuate substantially.
Because we are continuing to increase our operating expenses for
personnel and new product development and for inventory in anticipation of
increasing sales levels, we must continue to generate increased sales to offset
these increased expenses. In addition, we are limited in our ability to reduce
costs quickly in response to any revenue shortfalls. In response to anticipated
long lead times to obtain inventory and materials from our foundries, we may
order in advance of anticipated customer demand, which might result in excess
inventory levels if the expected orders fail to materialize. As a result, we
can not predict the timing and amount of sales to our customers, and any
significant downturn in customer demand for our products would reduce our
quarterly and our annual operating results.
5
<PAGE>
Our rapid growth may strain our resources, and we may not be able to manage
future growth
Due to the level of technical and marketing expertise necessary to
support our existing and new customers, we must attract highly qualified and
well-trained personnel. There may be only a limited number of persons with the
requisite skills to serve in these positions, and it may become increasingly
difficult for us to hire such personnel. As we expand, we may also
significantly strain our management, manufacturing, financial systems and other
resources. We can not be certain that our systems, procedures, controls and
existing space will be adequate to support our operations.
We rely on outside fabrication facilities, and our business could be hurt if
our relationships with our foundry suppliers are damaged
We do not own or operate a VLSI circuit fabrication facility. Seven
foundries currently supply us with most of our semiconductor device
requirements. While we have had good relations with these foundries, we can not
be certain that we will be able to renew or maintain contracts with them or
negotiate new contracts to replace those that expire. In addition, we can not
be certain that renewed or new contracts will contain terms as favorable as our
current terms. There are other significant risks associated with our reliance
on outside foundries, including the following:
. the lack of assured semiconductor wafer supply and control over
delivery schedules;
. the unavailability of, or delays in obtaining access to, key process
technologies; and
. limited control over quality assurance, manufacturing yields and
production costs.
Reliance on third-party fabrication facilities limits our control of the
manufacturing process
Manufacturing integrated circuits is a highly complex and technology-
intensive process. Although we try to diversify our sources of semiconductor
device supply and work closely with our foundries to minimize the likelihood of
reduced manufacturing yields, our foundries occasionally experience lower than
anticipated manufacturing yields, particularly in connection with the
introduction of new products and the installation and start-up of new process
technologies. Such reduced manufacturing yields have at times reduced our
operating results. A manufacturing disruption at one or more of our outside
foundries, including as a result of natural occurrences, could impact
production for an extended period of time.
Our dependence on a small number of fabrication facilities exposes us to risks
of interruptions in deliveries of semiconductor devices
We purchase semiconductor devices from outside foundries pursuant to
purchase orders, and we do not have a guaranteed level of production capacity
at any of our foundries. We provide the foundries with rolling forecasts of our
production requirements. However, the ability of each foundry to provide wafers
to us is limited by the foundry's available capacity. Therefore, our foundry
suppliers could choose to prioritize capacity for other customers or reduce or
eliminate deliveries to us on short notice. Accordingly, we can not be certain
that our foundries will allocate sufficient capacity to satisfy our
requirements.
We have been, and expect in the future to be, particularly dependent upon
a limited number of foundries for our VLSI device requirements. In particular,
as of the date of this offering memorandum, a single foundry manufactures all
of our BiCMOS devices. As a result, we expect that we could experience
substantial delays or interruptions in the shipment of our products due to the
following:
. sudden demand for an increased amount of semiconductor devices or
sudden reduction or elimination of any existing source or sources of
semiconductor devices;
6
<PAGE>
. time required to qualify alternative manufacturing sources for
existing or new products could be substantial; and
. failure to find alternative manufacturing sources to produce VLSI
devices with acceptable manufacturing yields.
We must successfully transition to new process technologies to remain
competitive
Our future success depends upon our ability to do the following:
. to develop products that utilize new process technologies;
. to introduce new process technologies to the marketplace ahead of
competitors; and
. to have new process technologies selected to be designed into
products of leading systems manufacturers.
Semiconductor design and process methodologies are subject to rapid
technological change and require large expenditures for research and
development. We currently manufacture our products using 0.8, 0.5, 0.35 and
0.25 micron CMOS processes and a 1.0 micron BiCMOS process. We continuously
evaluate the benefits, on a product-by-product basis, of migrating to smaller
geometry process technologies. We are migrating to a 0.18 micron CMOS process,
and we anticipate that we will need to migrate to smaller CMOS processes. Other
companies in the industry have experienced difficulty in transitioning to new
manufacturing processes and, consequently, have suffered reduced yields or
delays in product deliveries. We believe that transitioning our products to
smaller geometry process technologies will be important for us to remain
competitive, and we can not be certain that we can make such a transition
successfully, if at all, without delay or inefficiencies.
Our success depends on the timely development of new products, and we face
risks of product development delays
Our success depends upon our ability to develop new VLSI devices and
software for existing and new markets. The development of these new devices and
software is highly complex, and from time to time we have experienced delays in
completing the development of new products. Successful product development and
introduction depends on a number of factors, including the following:
. accurate new product definition;
. timely completion and introduction of new product designs;
. availability of foundry capacity;
. achievement of manufacturing yields; and
. market acceptance of our products and our customers' products.
Our success also depends upon our ability to do the following:
. build products to applicable standards;
. develop products that meet customer requirements;
. adjust to changing market conditions as quickly and cost-effectively
as necessary to compete successfully;
. introduce new products that achieve market acceptance; and
. develop reliable software to meet our customers' application needs in
a timely fashion.
In addition, we can not ensure that the systems manufactured by our
customers will be introduced in a timely manner or that such systems will
achieve market acceptance.
7
<PAGE>
Our revenues depend on the success of our customers' products
Our customers generally incorporate our new products into their products
or systems at the design stage. However, customer decisions to use our products
(design wins), which can often require significant expenditures by us without
any assurance of success, often precede the generation of volume sales, if any,
by a year or more. Moreover, the value of any design win largely will depend
upon the commercial success of the customer's product and on the extent to
which the design of the customer's systems accommodates components manufactured
by our competitors. We can not ensure that we will continue to achieve design
wins in customer products that achieve market acceptance.
Our revenues and profits may decrease if we lose any of our significant
customers
Historically, a relatively small number of customers has accounted for a
significant portion of our total revenues in any particular period. We have no
long-term volume purchase commitments from any of our significant customers.
The following table sets forth, for the periods indicated, the percentage of
our total revenues derived from our significant distributors and customers:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
Nine Months Ended
September
30, 2000 1999 1998 1997
----------------- ------- ------- -------
<S> <C> <C> <C> <C>
Distributors:
Insight Electronics Inc.(1)... 40% 33% 19% 39%
Reptron Electronics, Inc.(2).. * * * 15%
Arrow Electronics, Inc.(2).... * 18% 16% *
Coltek Technology(1).......... * * 14% *
Unique Memec(1)............... 14% * * *
Customers:
Tellabs Operations,
Inc.(1)(2)(3)................ 13% 13% 20% 15%
Lucent Technologies,
Inc.(1)(3)(4)................ 13% 16% * *
Nortel Networks
Corporation(2)(3)............ * 13% * *
Ericsson Telecommunications,
Inc.(1)(3)................... 10% * * *
</TABLE>
--------
* Below 10% of our total revenues.
(1) Insight Electronics, Coltek Technology (formerly Columbia Technology) and
Unique Memec are distributors of our products to various end-users, none of
which comprised more than 10% of our total revenues during 1997 and 1998.
In 1999 and the nine months ended September 30, 2000, a portion of Lucent
Technologies' purchases were shipped through Insight Electronics. In the
nine months ended September 30, 2000, a portion of Ericsson
Telecommunications' purchases were shipped through Unique Memec and a
portion of Tellabs Operations' purchases were shipped through Insight
Electronics.
(2) Our sales to Tellabs Operations during 1999 and the nine months ended
September 30, 2000 were made through Arrow Electronics, which also shipped
products to Nortel Networks. Sales to Tellabs Operations through Arrow
Electronics during 1998 represented 16% of our total revenues. During 1998,
sales to Tellabs Operations were made through Reptron Electronics and Arrow
Electronics, both Tellabs Operations' designated distributors. Our sales to
Tellabs Operations during 1997 were made through Reptron Electronics,
Tellabs Operations' designated distributor.
(3) Represents total shipments, including those made directly and those made
through distributors.
(4) Includes sales to Ascend Communications, which was acquired by Lucent
Technologies during 1999. This percentage represents total shipments,
including those made directly and those made through distributors.
8
<PAGE>
We anticipate that sales of our products to relatively few customers will
continue to account for a significant portion of our total revenues. Due to
these factors, some of the following may reduce our operating results:
. reduction, delay or cancellation of orders from one or more of our
significant customers;
. development by one or more of our significant customers of other
sources of supply for current or future products;
. loss of one or more of our current customers or a disruption in our
sales and distribution channels; and
. failure of one or more of our significant customers to make timely
payment of our invoices.
We can not be certain that our current customers will continue to place
orders with us, that orders by existing customers will continue at the levels
of previous periods or that we will be able to obtain orders from new
customers.
Our failure to protect our proprietary rights, or the costs of protecting these
rights, may harm our ability to compete
Our success depends in part on our ability to obtain patents and licenses
and to preserve other intellectual property rights covering our products and
development and testing tools. To that end, we have obtained certain domestic
and foreign patents and intend to continue to seek patents on our inventions
when appropriate. The process of seeking patent protection can be time
consuming and expensive. We can not ensure the following:
. that patents will issue from currently pending or future
applications;
. that our existing patents or any new patents will be sufficient in
scope or strength to provide meaningful protection or any commercial
advantage to us;
. that foreign intellectual property laws will protect our intellectual
property rights; and
. that others will not independently develop similar products,
duplicate our products or design around any patents issued to us.
Intellectual property rights are uncertain and involve complex legal and
factual questions. We may be unknowingly infringing on the proprietary rights
of others and may be liable for that infringement, which could result in
significant liability for us. For example, we are not aware of any third-party
intellectual property rights that would prevent our use and sale of our
products, although we have received correspondence from others alleging
infringement. If we do infringe the proprietary rights of others, we could be
forced to either seek a license to intellectual property rights of others or
alter our products so that they no longer infringe the proprietary rights of
others. A license could be very expensive to obtain or may not be available at
all. Similarly, changing our products or processes to avoid infringing the
rights of others may be costly or impractical.
We are responsible for any patent litigation costs. If we were to become
involved in a dispute regarding intellectual property, whether ours or that of
another company, we may have to participate in legal proceedings in the United
States Patent and Trademark office or in the United States Courts to determine
one or more of patent validity, patent infringement, patent ownership or
inventorship. These types of proceedings may be costly and time consuming for
us, even if we eventually prevail. If we do not prevail, we might be forced to
pay significant damages, obtain a license, if available, or stop making a
certain product.
We also rely on trade secrets, proprietary know-how and confidentiality
provisions in agreements with employees and consultants to protect our
intellectual property. Other parties may not comply with the terms of their
agreements with us, and we may not be able to adequately enforce our rights
against these people.
9
<PAGE>
Our business could be harmed if we fail to integrate the operations of Easics
NV and Alacrity Communications, Inc. adequately
Our management must devote substantial time and resources to the
integration of the operations of Easics NV, with which we completed a share-
for-share exchange in May 2000, and Alacrity Communications, Inc., which we
acquired in August 2000. The process of integrating research and development
initiatives, computer and accounting systems and other aspects of the
operations of Easics and Alacrity presents a significant challenge to our
management. This is compounded by the challenge of simultaneously managing a
larger entity. In addition, the operations and personnel of Easics are located
in Belgium, and the operations and personnel of Alacrity are located in
California, thus requiring management from a considerable distance. The
transactions with Easics and Alacrity present a number of additional
difficulties of integration, including:
. difficulties in integrating personnel with disparate business
backgrounds and cultures;
. difficulties in defining and executing a comprehensive product
strategy; and
. difficulties in minimizing the loss of key employees of Easics and
Alacrity.
If we delay integrating or fail to integrate the Easics and Alacrity
operations or experience other unforeseen difficulties, the integration process
may require a disproportionate amount of our management's attention and
financial and other resources. Our failure to address these difficulties
adequately could harm our business or financial results, and we could fail to
realize the anticipated benefits of the transactions.
We may engage in acquisitions that may harm our operating results, dilute our
stockholders and cause us to incur debt or assume contingent liabilities
We may pursue acquisitions that could provide new technologies, products
or service offerings. Future acquisitions by us may involve the following:
. use of significant amounts of cash;
. potentially dilutive issuances of equity securities; and
. incurrence of debt or amortization expenses related to goodwill and
other intangible assets.
In addition, acquisitions involve numerous risks, including:
. difficulties in the integration of the operations, technologies,
products and personnel of the acquired company;
. diversion of management's attention from other business concerns;
. risks of entering markets in which we have no or limited prior
experience; and
. potential loss of key employees of the acquired company.
From time to time, we have engaged in discussions with third parties
concerning potential acquisitions of product lines, technologies and
businesses. However, we currently have no commitments or agreements with
respect to any such acquisition. If such an acquisition does occur, we can not
be certain that our business, operating results and financial condition will
not be materially adversely affected.
We face intense competition in the semiconductor market
The semiconductor industry is intensely competitive and is characterized
by the following:
. rapid technological change;
. shortage in fabrication capacity;
10
<PAGE>
. price erosion;
. unforeseen manufacturing yield problems; and
. heightened international competition in many markets.
These factors are likely to result in pricing pressures on our products,
thus potentially affecting our margins.
Our ability to compete successfully in the rapidly evolving area of high
performance integrated circuit technology depends on factors both within and
outside our control, including:
. success in designing and subcontracting the manufacture of new
products that implement new technologies;
. protection of our products by effective use of intellectual property
laws;
. product quality;
. reliability;
. price;
. efficiency of production;
. the pace at which customers incorporate our integrated circuits into
their products;
. success of competitors' products; and
. general economic conditions.
The telecommunications and data communications industries, which are our
primary target markets, have become intensely competitive because of
deregulation and heightened international competition.
The loss of key management could affect our ability to run our business
Our success depends largely upon the continued service of our executive
officers, including Dr. Santanu Das, President, Chief Executive Officer and
Chairman of the Board of Directors, and other key management and technical
personnel and on our ability to continue to attract, retain and motivate other
qualified personnel. The competition for such employees is intense.
Our international business operations expose us to a variety of business risks
Foreign sales are a significant part of our total revenues. The table
below sets forth, for the periods indicated, the dollar amount in millions of
our total revenues derived from our primary geographic markets:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
Nine Months Ended
September 30,
2000 1999 1998 1997
Country: ----------------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
United States..................... $ 60.0 $ 50.3 $ 23.8 $ 18.1
Israel............................ 5.6 2.9 6.0 0.5
China............................. 9.2 2.4 7.2 1.8
Other countries................... 29.3 17.9 9.0 8.4
------- ------- ------- -------
$ 104.0 $ 73.5 $ 46.0 $ 28.8
======= ======= ======= =======
</TABLE>
We expect foreign sales to continue to account for a significant
percentage of our total revenues. A significant portion of our total revenues
will, therefore, be subject to risks associated with foreign sales, including
the following:
11
<PAGE>
. unexpected changes in legal and regulatory requirements and policy
changes affecting the telecommunications and data communications
markets;
.changes in tariffs;
.exchange rates and other barriers;
.political and economic instability;
.difficulties in accounts receivable collection;
.difficulties in managing distributors and representatives;
.difficulties in staffing and managing foreign operations;
.difficulties in protecting our intellectual property overseas;
.seasonality of customer buying patterns; and
.potentially adverse tax consequences.
Although substantially all of our sales to date have been denominated in
U.S. dollars, the value of the U.S. dollar in relation to foreign currencies
also may reduce our sales to foreign customers. To the extent that we expand
our international operations or change our pricing practices to denominate
prices in foreign currencies, we will expose our margins to increased risks of
currency fluctuations.
Our success depends on the continued growth of the global communications
infrastructure
We derive virtually all of our product revenues from sales of products
for telecommunications and data communications applications. These markets are
characterized by the following:
.susceptibility to seasonality of customer buying patterns;
.intense competition;
.rapid technological change; and
.short product life cycles.
In addition, although the telecommunications and data communications
equipment markets have grown rapidly in the last few years, we can not be
certain that these markets will continue to grow or that a significant slowdown
in these markets will not occur.
Products for telecommunications and data communications applications are
based on industry standards, which are continually evolving. Our future success
will depend, in part, upon our ability to successfully develop and introduce
new products based on emerging industry standards, which could render our
existing products unmarketable or obsolete. If the telecommunications or data
communications markets evolve to new standards, we can not be certain that we
will be able to design and manufacture new products successfully that address
the needs of our customers or that such new products will meet with substantial
market acceptance.
The cyclicality of the semiconductor industry affects our business
We provide semiconductor devices to the telecommunications and data
communications markets. The semiconductor industry is highly cyclical and has
been subject to significant economic downturns at various times, characterized
by:
.diminished product demand;
12
<PAGE>
.accelerated erosion of average selling prices; and
.production over-capacity.
We may experience substantial fluctuations in future operating results
due to general semiconductor industry conditions, overall economic conditions,
seasonality of customers' buying patterns and other factors.
RISKS RELATED TO THIS OFFERING
Provisions of our certificate of incorporation, by-laws and Delaware law may
discourage takeover offers and may limit the price investors would be willing
to pay for our common stock
Delaware corporate law contains, and our certificate of incorporation and
by-laws contain, certain provisions that could have the effect of delaying,
deferring or preventing a change in control of our Company. These provisions
could limit the price that certain investors might be willing to pay in the
future for shares of our common stock. Certain of these provisions:
. authorize the issuance of "blank check" preferred stock (preferred
stock that our board of directors can create and issue without prior
stockholder approval) with rights senior to those of common stock;
.prohibit stockholder action by written consent; and
. establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can
be acted upon by stockholders at a meeting.
We may incur additional indebtedness, including secured indebtedness, which may
have rights to payment superior to the notes
The notes are unsecured obligations. The terms of the notes do not limit
the amount of additional indebtedness, including secured indebtedness, that we
can create, incur, assume or guarantee. Upon any distribution of our assets
upon any insolvency, dissolution or reorganization, the payment of the
principal of and interest on our secured indebtedness will be subject to
payment out of our assets, which represent the security for such indebtedness,
and there may not be sufficient assets remaining to pay amounts due on any or
all of the notes then outstanding.
The notes are effectively subordinated to all existing and future
liabilities of our subsidiaries. Any right of ours to receive assets of any
subsidiary upon its liquidation or reorganization, and the consequent right of
the holders of the notes to participate in the assets will be subject to the
claims of that subsidiary's creditors.
We may not be able to satisfy a change in control offer
The indenture governing the notes contains provisions that apply to a
change in our control. If someone triggers a change in control as defined in
the indenture, we must offer to purchase the notes with cash. If we have to
make that offer, we can not be sure that we will have enough funds to pay for
all the notes that the holders could tender.
We have substantially increased our indebtedness
In the third quarter of 2000, we sold $460 million of 4 1/2% convertible
notes due 2005 in a private placement. As a result, we incurred $460 million of
additional indebtedness, substantially increasing our ratio of debt to total
capitalization. We may incur substantial additional indebtedness in the future.
The level of our indebtedness, among other things, could:
.make it difficult for us to make payments on the notes;
13
<PAGE>
. make it difficult for us to obtain any necessary future financing for
working capital, capital expenditures, debt service requirements or
other purposes;
.limit our flexibility in planning for, or reacting to changes in, our
business; and
.make us more vulnerable in the event of a downturn in our business.
There can be no assurance that we will be able to meet our debt service
obligations, including our obligations under the notes.
We may not be able to pay our debt and other obligations
If our cash flow is inadequate to meet our obligations, we could face
substantial liquidity problems. If we are unable to generate sufficient cash
flow or otherwise obtain funds necessary to make required payments on the notes
or our other obligations, we would be in default under the terms thereof, which
would permit the holders of the notes to accelerate the maturity of the notes
and also could cause defaults under future indebtedness we may incur. Any such
default could have a material adverse effect on our business, prospects,
financial condition and operating results. In addition, we can not assure you
that we would be able to repay amounts due in respect of the notes if payment
of the notes were to be accelerated following the occurrence of an event of
default as defined in the indenture.
There is a limited market for the notes and you may not be able to sell the
notes at price acceptable to you
There is no public market for the notes. We cannot assure you of the
liquidity of any markets that may develop for the notes, your ability to sell
your notes or the price at which you may be able to sell your notes. If a
market for the notes were to develop, the notes could trade at prices that may
be higher or lower than the principal amount or purchase price. Future trading
prices of the notes will depend on many factors, including:
. prevailing interest rates;
. our operating results;
. the price of our common stock; and
. the market for similar securities.
The notes are eligible for trading on the PORTAL Market; however we do
not intent to apply for listing on the notes on any national exchange.
Any adverse rating of the notes may cause their trading price to fall
Certain rating agencies have rated the notes. Rating agencies may lower
ratings on the notes in the future. If the rating agencies reduce their ratings
in the future, the trading price of the notes could decline.
Our notes and stock price may be volatile, and you may not be able to resell
your notes or shares at or above the offering price
The market for securities of high technology companies, including our
company, has been highly volatile. The market sale price of our common stock,
adjusted for stock splits, has fluctuated between $0.80 and $74.69 from June
19, 1995 to November 10, 2000, and the last sale price was $37.44 on November
10, 2000. It is likely that the price of the notes and the common stock will
continue to fluctuate widely in the future. Factors affecting the trading price
of our notes and common stock include:
14
<PAGE>
. responses to quarter-to-quarter variations in operating results;
. announcements of technological innovations or new products by us or
our competitors;
. general conditions in the telecommunications and data communications
equipment markets; and
. changes in earnings estimates by analysts.
We could be subject to class action litigation due to securities price
volatility, which if it occurs, will distract our management and could result
in substantial costs or large judgments against us
In the past, securities and class action litigation has often been
brought against companies following periods of volatility in the market prices
of their securities. We may be the target of similar litigation in the future.
Securities litigation could result in substantial costs and divert our
management's attention and resources, which could cause serious harm to our
business, operating results and financial condition or dilution to our
stockholders.
15
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This offering memorandum contains forward-looking statements including,
without limitation, statements concerning the future of the industry, product
development, business strategy (including the possibility of future
acquisitions), continued acceptance and growth of our products and dependence
on significant customers. These statements can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "anticipate,"
"estimate," "continue" or other similar words. These statements discuss future
expectations, contain projections of results of operations or of financial
condition or state other forward-looking information. When considering forward-
looking statements, you should keep in mind the risk factors and other
cautionary statements in this offering memorandum. The risk factors noted above
and other factors noted throughout this offering memorandum could cause our
actual results to differ significantly from those contained in any forward-
looking statement.
RATIO OF EARNINGS TO FIXED CHARGES
The following summary represents the Company's Computation of Ratio of
Earnings to Fixed Charges (unaudited) for the respective periods:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
----------------- ---------------------------------
2000 1999 1999 1998 1997(a) 1996(a) 1995(a)
-------- -------- ---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges.................. 22.6 23.5 60.3 17.6 (2.7) (35.6) (6.5)
======== ======== ==== ==== ==== ===== ====
</TABLE>
--------
(a) The deficiency in earnings in relation to fixed charges for the year ended
December 31, 1997, 1996 and 1995 is $2.1 million, $9.9 million and $1.9
million, respectively.
16
<PAGE>
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the notes or the
underlying common stock by any selling securityholders.
DESCRIPTION OF NOTES
The notes will be issued under the indenture between us and State Street
Bank and Trust Company, as trustee.
We have summarized portions of the indenture below. This summary is not
complete. We urge you to read the indenture because it defines your rights as a
holder of the notes. We will provide you a copy, at no charge, if you contact
us. The indenture is also an exhibit to the quarterly report on Form 10-Q for
the fiscal quarter ended September 30, 2000, which is incorporated by reference
in this prospectus. Please read "Where You Can Find More Information" on page
37. Terms not defined in this description have the meanings given them in the
indenture. In this section, "TranSwitch," "we," "our," and "us" each refers
only to TranSwitch Corporation and not to any of our subsidiaries.
General
The notes are unsecured, unsubordinated obligations of TranSwitch in an
aggregate principal amount of $460,000,000, and will mature on September 12,
2005. The principal amount of each note is $1,000 and is payable at the office
of the Paying Agent, which initially will be the trustee, or an office or
agency maintained by us for that purpose in the Borough of Manhattan, The City
of New York.
The notes bear interest at the rate of 4 1/2% per annum on the principal
amount from September 12, 2000, or from the most recent date to which interest
has been paid or provided for until the notes are paid in full, converted or
funds are made available for payment in full of the notes in accordance with
the Indenture. Interest is payable at the date of maturity (or earlier
purchase, redemption or, in some circumstances, conversion) and semiannually on
an "Interest Payment Date," which is March 12 and September 12 of each year,
commencing on March 12, 2001, to holders of record at the close of business on
the "Regular Record Date," which is each February 25 and August 28 (whether or
not a business day), respectively, immediately preceding each Interest Payment
Date. Each payment of interest on the notes will include interest accrued
through the day before the applicable Interest Payment Date or the date of
maturity (or earlier purchase, redemption or, in some circumstances,
conversion), as the case may be. Any payment of principal and cash interest
required to be made on any day that is not a business day will be made on the
next succeeding business day. Interest will be computed on the basis of a 360-
day year composed of twelve 30-day months.
In the event of the maturity, conversion, purchase by us at the option of
a holder or redemption of a note, interest will cease to accrue on that note
under the terms and subject to the conditions of the indenture. We may not
reissue a note that has matured or has been converted, redeemed or otherwise
cancelled, except for registration of transfer, exchange or replacement of that
note.
You may present the notes for conversion at the office of the Conversion
Agent and for exchange or registration of transfer at the office of the
Registrar. Each of these agents will initially be the Trustee. The indenture
does not contain any financial covenants or restrictions on the payment of
dividends, the incurrence of additional indebtedness (including additional
secured indebtedness) or the issuance or repurchase of securities by us. The
indenture contains no covenants or other provisions to protect holders of the
notes in the event of a highly leveraged transaction or a change in control,
except to the extent described below under "--Change in Control Permits
Purchase of Notes at the Option of the Holder."
17
<PAGE>
Ranking
The notes are unsecured and unsubordinated obligations. The notes rank on
a parity in right of payment with all of our existing and future unsecured and
unsubordinated indebtedness. However, the notes will be subordinated to our
existing and future secured indebtedness as to the assets securing such
indebtedness.
In addition, the notes are effectively subordinated to all existing and
future liabilities of our subsidiaries. Any rights of ours to receive assets of
any subsidiary upon its liquidation or reorganization and the consequent right
of the holders of the notes to participate in those assets will be subject to
the claims of that subsidiary's creditors, including trade creditors, except to
the extent that we ourselves are recognized as a creditor of that subsidiary,
in which case our claims would still be subordinate to any security interests
in the assets of that subsidiary.
Conversion Rights
A holder of a note is entitled to convert it into shares of common stock
at any time on or prior to maturity, provided that if a note is called for
redemption, the holder is entitled to convert it at any time before the close
of business on the last business day prior to the redemption date. A note in
respect of which a holder has delivered a Change in Control Purchase Notice (as
defined below) exercising that holder's option to require us to purchase that
holder's note may be converted only if the Change in Control Purchase Notice is
withdrawn by a written notice of withdrawal delivered by the holder to the
Paying Agent prior to the close of business on the Change in Control Purchase
Date, in accordance with the terms of the indenture.
The initial conversion price for the notes is $61.9225 per share of
common stock, which is equal to a Conversion Rate of approximately 16.1492
shares per $1,000 principal amount of notes. The Conversion Rate is subject to
adjustment upon the occurrence of some events described below. A holder
otherwise entitled to a fractional share of common stock will receive cash in
an amount equal to the market value of that fractional share based on the
closing sale price on the trading day immediately preceding the Conversion
Date. A holder may convert a portion of that holder's notes so long as that
portion is $1,000 principal amount or an integral multiple of $1,000.
To convert a note, a holder must:
. complete and manually sign the conversion notice on the back of the
note, or complete and manually sign a facsimile of the note, and
deliver the conversion notice to the Conversion Agent, initially the
trustee, at the office maintained by the Conversion Agent for that
purpose;
.surrender the note to the Conversion Agent;
.if required, furnish appropriate endorsements and transfer documents;
and
.if required, pay all transfer or similar taxes.
Under the indenture, the date on which all of these requirements have
been satisfied is the Conversion Date.
Upon conversion of a note, except as provided below, a holder will not
receive any cash payment representing accrued interest on the note. Our
delivery to the holder of the fixed number of shares of common stock into which
the note is convertible, together with any cash payment to be made instead of
any fractional shares, will satisfy our obligation to pay the principal amount
of the note and the accrued and unpaid interest to the Conversion Date. Thus,
the accrued but unpaid interest to the Conversion Date will be deemed to be
paid in full rather than cancelled, extinguished or forfeited. Notwithstanding
the foregoing, accrued but unpaid cash interest will be payable upon any
conversion of notes at the option of the holder made concurrently with or after
acceleration of the notes following an Event of Default described under "--
Events of Default" below.
18
<PAGE>
Notes surrendered for conversion during the period from the close of business
on any Regular Record Date next preceding any Interest Payment Date to the
opening of business on that Interest Payment Date, except notes to be redeemed
on a date within that period, must be accompanied by payment of an amount equal
to the interest on the surrendered notes that the registered holder is to
receive. Except where notes surrendered for conversion must be accompanied by
payment as described above, no interest on converted notes will be payable by
us on any Interest Payment Date subsequent to the date of conversion. The
Conversion Rate will not be adjusted at any time during the term of the notes
for accrued interest.
A certificate for the number of full shares of common stock into which
any note is converted and any cash payment to be made instead of any fractional
shares will be delivered as soon as practicable, but in any event no later than
the seventh business day following the Conversion Date. For a summary of the
U.S. federal income tax treatment of a holder receiving common stock upon
conversion, see "Certain United States Federal Income Tax Considerations--
Conversion of Notes."
The Conversion Rate is subject to adjustment in some events, including:
. the issuance of shares of our common stock as a dividend or a
distribution with respect to common stock;
.some subdivisions and combinations of our common stock;
. the issuance to all holders of common stock of rights or warrants
entitling them, for a period not exceeding 45 days, to subscribe for
shares of our common stock at less than the current market price as
defined in the Indenture;
. the distribution to holders of common stock of evidences of our
indebtedness, securities or capital stock, cash or assets, including
securities, but excluding common stock distributions covered above,
those rights, warrants, dividends and distributions referred to
above, dividends and distributions paid exclusively in cash and
distributions upon mergers or consolidations resulting in a
reclassification, conversion, exchange or cancellation of common
stock covered in a Transaction (as defined below) adjustment
described below;
. the payment of dividends and other distributions on common stock paid
exclusively in cash, if the aggregate amount of these dividends and
other distributions, when taken together with:
. other all-cash distributions made within the preceding 12 months
not triggering a Conversion Rate adjustment, and
. any cash and the fair market value, as of the expiration of the
tender or exchange offer referred to below, of consideration
payable in respect of any tender or exchange offer by us or one of
our subsidiaries for the common stock concluded within the
preceding 12 months not triggering a Conversion Rate adjustment,
exceeds 10% of our aggregate market capitalization on the date of
the payment of those dividends and other distributions. The
aggregate market capitalization is the product of the current
market price of our common stock as of the trading day immediately
preceding the date of declaration of the applicable dividend
multiplied by the number of shares of common stock then
outstanding; and
. payment to holders of common stock in respect of a tender or exchange
offer, other than an odd-lot offer, by us or one of our subsidiaries
for common stock as of the trading day next succeeding the last date
tenders or exchanges may be made pursuant to a tender or exchange
offer by us or one of our subsidiaries, which involves an aggregate
consideration that, together with:
. any cash and the fair market value of other consideration payable
in respect of any tender or exchange offer by us or one of our
subsidiaries for the common stock concluded within the preceding
12 months not triggering a Conversion Rate adjustment, and
. the aggregate amount of any all-cash distributions to all holders
of our common stock made within the preceding 12 months not
triggering a Conversion Rate adjustment,
exceeds 10% of our aggregate market capitalization.
19
<PAGE>
However, adjustment is not necessary if holders may participate in the
transactions otherwise giving rise to an adjustment on a basis and with notice
that our Board of Directors determines to be fair and appropriate, or in some
other cases as specified in the Indenture. In cases where the fair market value
of the portion of assets, debt securities or rights, warrants or options to
purchase our securities applicable to one share of common stock distributed to
stockholders exceeds the Average Sale Price (as defined in the indenture) per
share of common stock, or the Average Sale Price per share of common stock
exceeds the fair market value of that portion of assets, debt securities or
rights, warrants or options so distributed by less than $1.00, rather than
being entitled to an adjustment in the Conversion Rate, the holder of a note
upon conversion of the note will be entitled to receive, in addition to the
shares of common stock into which that note is convertible, the kind and
amounts of assets, debt securities or rights, options or warrants comprising
the distribution that the holder of that note would have received if that
holder had converted that note immediately prior to the record date for
determining the stockholders entitled to receive the distribution.
We may, from time to time, increase the Conversion Rate by any amount for
any period of at least 20 days if our Board of Directors has determined that
such increase would be in our best interests. If our Board of Directors makes
such a determination, it will be conclusive. We will give holders of notes at
least 15 days' notice of such an increase in the conversion rate.
In the event that we become a party to any transaction, including, and
with some exceptions:
. any recapitalization or reclassification of the common stock;
. any consolidation of us with, or merger of us into, any other Person,
or any merger of another Person into us;
. any sale, transfer or lease of all or substantially all of our
assets; or
. any compulsory share exchange
pursuant to which the common stock is converted into the right to receive other
securities, cash or other property (each of the above being referred to as a
"Transaction"), then the holders of notes then outstanding will have the right
to convert the notes only into the kind and amount of securities, cash or other
property receivable upon the consummation of that Transaction by a holder of
the number of shares of common stock issuable upon conversion of those notes
immediately prior to that Transaction.
In the case of a Transaction, each note will become convertible into the
securities, cash or property receivable by a holder of the number of shares of
the common stock into which the note was convertible immediately prior to that
Transaction. This change could substantially lessen or eliminate the value of
the conversion privilege associated with the notes in the future. For example,
if we were acquired in a cash merger each note would become convertible solely
into cash and would no longer be convertible into securities whose value would
vary depending on our future prospects and other factors.
In the event of a taxable distribution to holders of common stock that
results in an adjustment of the Conversion Rate, or in which holders otherwise
participate, or in the event the Conversion Rate is increased at our
discretion, the holders of the notes may, in some circumstances, be deemed to
have received a distribution subject to United States federal income tax as a
dividend. Moreover, in some other circumstances, the absence of an adjustment
to the Conversion Rate may result in a taxable dividend to holders of common
stock. See "United States Federal Income Tax Considerations--Constructive
Dividends."
Provisional Redemption
We may redeem the notes, in whole or in part, at any time on or prior to
September 12, 2003, at a redemption price equal to $1,000 per $1,000 principal
amount of notes to be redeemed plus accrued and unpaid interest, if any, to the
provisional redemption date if (i) the closing price of our common stock has
exceeded
20
<PAGE>
150% of the conversion price then in effect (as determined based on the then
effective Conversion Rate) for at least 20 trading days within a period of 30
consecutive trading days ending on the trading day prior to the date of mailing
of the provisional redemption notice (which date shall be not less than 30 nor
more than 60 days prior to the provisional redemption date) and (ii) the shelf
registration statement covering resales of the notes and the common stock
issuable upon conversion of the notes is effective and available for use and is
expected to remain effective for the 30 days following the provisional
redemption date.
Upon any provisional redemption, we will make an additional "make-whole"
payment with respect to the notes called for redemption to holders on the
notice date in an amount equal to $135 per $1,000 principal amount of notes,
less the amount of any interest actually paid on the notes prior to the
provisional redemption date. We will make these "make-whole" payments, at the
option of each holder of the notes, either in cash or in our common stock or in
a combination of cash and stock. Holders of notes may elect the form of
consideration for their "make-whole" payment at least 15 days prior to the
provisional redemption date. Holders that do not make any specific election
will receive their "make-whole" payment in cash. Payments made in our common
stock will be valued at 97% of the average of the closing sales prices of our
common stock for the five trading days ending on the day prior to the
provisional redemption date.
We will be obligated to make this additional payment on all notes called
for provisional redemption, including any notes converted after the notice date
and before the provisional redemption date.
Redemption of Notes at Our Option
There is no sinking fund for the notes. At any time after September 12,
2003, we will be entitled to redeem the notes for cash as a whole at any time,
or from time to time in part, upon not less than 30-days' nor more than 60-
days' notice of redemption given by mail to holders of notes, unless a shorter
notice is satisfactory to the trustee, at the redemption prices set out below
plus accrued cash interest to the redemption date. Any redemption of the notes
must be in integral multiples of $1,000 principal amount. The table below shows
redemption prices of a note per $1,000 principal amount if redeemed during the
periods described below.
<TABLE>
<CAPTION>
Period Redemption Price
------ ----------------
<S> <C>
September 13, 2003 through September 12, 2004.................. 101.8%
Thereafter..................................................... 100.9%
</TABLE>
If fewer than all of the notes are to be redeemed, the trustee will
select the notes to be redeemed in principal amounts at maturity of $1,000 or
integral multiples of $1,000 by lot, pro rata or by another method that
complies with the requirements of any exchange on which the notes are listed or
quoted and that the trustee shall deem fair and appropriate. If a portion of a
holder's notes is selected for partial redemption and that holder converts a
portion of those notes prior to the redemption, the converted portion will be
deemed, solely for purposes of determining the aggregate principal amount of
the notes to be redeemed by us, to be of the portion selected for redemption.
Change in Control Permits Purchase of Notes at the Option of the Holder
In the event of any Change in Control (as defined below) of TranSwitch,
each holder of notes will have the right, at the holder's option, subject to
the terms and conditions of the Indenture, to require us to purchase all or any
part of the holder's notes, provided that the principal amount must be $1,000
or an integral multiple of $1,000. Each holder of notes will have the right to
require us to make that purchase on the date that is 45 business days after the
occurrence of the Change in Control (the "Change in Control Purchase Date") at
a cash price equal to 100% of the principal amount of that holder's notes plus
accrued interest to the Change in Control Purchase Date (the "Change in Control
Purchase Price").
21
<PAGE>
Within 30 business days after the Change in Control, we will mail to the
trustee, each holder, and beneficial owners as required by applicable law, a
notice regarding the Change in Control, which will state, among other things:
. the date of the Change in Control and, briefly, the events causing
the Change in Control;
. the date by which the Change in Control Purchase Notice must be
given;
. the Change in Control Purchase Date;
. the Change in Control Purchase Price;
. the name and address of the Paying Agent and the Conversion Agent;
. the Conversion Rate and any adjustments to the Conversion Rate;
. the procedures that holders must follow to exercise these rights;
. the procedures for withdrawing a Change in Control Purchase Notice;
. that holders who want to convert notes must satisfy the requirements
provided in the notes; and
. briefly, the conversion rights of holders of notes.
If we do not mail the notice within 30 business days after the Change in
Control, an Event of Default will occur under the indenture without the lapse
of additional time. We will cause a copy of the notice regarding the Change in
Control to be published in The Wall Street Journal or another daily newspaper
of national circulation.
To exercise the purchase right, the holder must deliver written notice of
the exercise of the purchase right (a "Change in Control Purchase Notice") to
the Paying Agent or an office or agency maintained by us for that purpose in
the Borough of Manhattan, The City of New York, prior to the close of business,
on the Change in Control Purchase Date. Any Change in Control Purchase Notice
must state:
. the name of the holder;
. the certificate numbers of the notes to be delivered by the holder of
those notes for purchase by us;
. the portion of the principal amount of notes to be purchased, which
portion must be $1,000 or an integral multiple of $1,000; and
. that the notes are to be purchased by us pursuant to the applicable
provisions of the notes.
A holder may withdraw any Change in Control Purchase Notice by a written
notice of withdrawal delivered to the Paying Agent prior to the close of
business on the Change in Control Purchase Date. The notice of withdrawal must
state the principal amount and the certificate numbers of the notes as to which
the withdrawal notice relates and the principal amount, if any, which remains
subject to a Change in Control Purchase Notice.
Payment of the Change in Control Purchase Price for a note for which a
Change in Control Purchase Notice has been delivered and not withdrawn is
conditioned upon delivery of the note, together with necessary endorsements, to
the Paying Agent or an office or agency maintained by us for that purpose in
the Borough of Manhattan, The City of New York, at any time, whether prior to,
on or after the Change in Control Purchase Date, after the delivery of the
Change in Control Purchase Notice. Payment of the Change in Control Purchase
Price for the note will be made promptly following the later of the business
day following the Change in Control Purchase Date and the time of delivery of
the note. If the Paying Agent holds, in accordance with the terms of the
Indenture, money sufficient to pay the Change in Control Purchase Price of that
note on the business day following the Change in Control Purchase Date, then,
immediately after the Change in Control
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Purchase Date, that note will cease to be outstanding and interest on that note
will cease to accrue and will be deemed paid, whether or not that note is
delivered to the Paying Agent, and all other rights of the holder will
terminate, other than the right to receive the Change in Control Purchase Price
upon delivery of that note.
Under the indenture, "Change in Control" of TranSwitch is deemed to have
occurred upon the occurrence of any of the following events:
. any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), acquires the beneficial ownership (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of all securities that
such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly
or indirectly, through a purchase, merger or other acquisition
transaction, of more than 50% of the total voting power of our total
outstanding voting stock other than an acquisition by us, any of our
subsidiaries or any of our employee benefit plans;
. we consolidate with, or merge with or into, another Person or convey,
transfer, lease or otherwise dispose of all or substantially all of
our assets to any Person, or any Person consolidates with or merges
with or into us, in any such event pursuant to a transaction in which
our outstanding voting stock is converted into or exchanged for cash,
securities or other property, other than where:
. our voting stock is not converted or exchanged at all, except to
the extent necessary to reflect a change in our jurisdiction of
incorporation, or is converted into or exchanged for voting stock,
other than Redeemable Capital Stock, of the surviving or
transferee corporation, and
. immediately after such transaction, no "person" or "group" (as
such terms are used in Sections 13(d) and 14(d) of the Exchange
Act), is the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a Person will be deemed
to have "beneficial ownership" of all securities that such Person
has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total outstanding voting stock
of the surviving or transferee corporation, unless such person or
group was the beneficial owner, directly or indirectly, of more
than 50% of the total outstanding voting stock of TranSwitch on
the date of the Indenture;
. during any consecutive two-year period, individuals who at the
beginning of that two-year period constituted our Board of Directors
(together with any new directors whose election to such Board of
Directors, or whose nomination for election by our stockholders, was
approved by a vote of a majority of the directors then still in
office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority our Board of Directors
then in office; or
. our stockholders pass a special resolution approving a plan of
liquidation or dissolution and no additional approvals of our
stockholders are required under applicable law to cause a liquidation
or dissolution.
"Redeemable Capital Stock" means any class or series of capital stock
that, either by its terms, by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise, is, or upon the
happening of an event or passage of time would be, required to be redeemed
prior to the final stated maturity of the notes or is redeemable at the option
of the holder of the notes at any time prior to such final stated maturity, or
is convertible into or exchangeable for debt securities at any time prior to
such final stated maturity. Redeemable Capital Stock will not include any
common stock the holder of which has a right to put to us upon some
terminations of employment.
The definition of Change in Control includes a phrase relating to the
lease, transfer, conveyance or other disposition of "all or substantially all"
of our assets. There is no precise established definition of the
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phrase "substantially all" under applicable law. Accordingly, the ability of a
holder of notes to require us to repurchase such notes as a result of a lease,
transfer, conveyance or other disposition of less than all of our assets may be
uncertain.
The indenture does not permit our Board of Directors to waive our
obligation to purchase notes at the option of the holder in the event of a
Change in Control of TranSwitch.
We will comply with the provisions of any tender offer rules under the
Exchange Act which may then be applicable, and will file any schedule required
under the Exchange Act in connection with any offer by us to purchase notes at
the option of the holders of notes upon a Change in Control. In some
circumstances, the Change in Control purchase feature of the notes may make
more difficult or discourage a takeover of us and thus the removal of incumbent
management. The Change in Control purchase feature, however, is not the result
of management's knowledge of any specific effort to accumulate shares of common
stock or to obtain control of us by means of a merger, tender offer,
solicitation or otherwise, or part of a plan by management to adopt a series of
anti-takeover provisions. Instead, the Change in Control purchase feature is
the result of negotiations between us and the initial purchasers.
If a Change in Control were to occur, we can not assure you that we would
have funds sufficient to pay the Change in Control Purchase Price for all of
the notes that might be delivered by holders seeking to exercise the purchase
right, because we or our subsidiaries might also be required to prepay some
indebtedness or obligations having financial covenants with change of control
provisions in favor of the holders of that indebtedness or those obligations.
In addition, our other indebtedness or obligations may have cross-default
provisions that could be triggered by a default under the Change in Control
provisions, thereby possibly resulting in acceleration of the maturity of that
other indebtedness or those obligations. In addition, our ability to purchase
the notes with cash may be limited by the terms of our then-existing borrowing
agreements. No notes may be purchased pursuant to the provisions described
above if there has occurred and is continuing an Event of Default described
under "--Events of Default" below (other than a default in the payment of the
Change in Control Purchase Price with respect to those notes).
Consolidation, Merger and Sale of Assets
We, without the consent of any holders of outstanding notes, are entitled
to consolidate with or merge into, or transfer or lease our assets
substantially as an entirety to, any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof (each a "Person"), and any Person is entitled to
consolidate with or merge into, or transfer or lease its assets substantially
as an entirety to, us, provided that:
. the Person, if other than us, formed by a consolidation or into which
we are merged, or the Person, if other than one of our subsidiaries,
which receives the transfer of our assets substantially as an
entirety, is a corporation, partnership, limited liability company or
trust organized and existing under the laws of any United States
jurisdiction and expressly assumes our obligations on the notes and
under the Indenture;
. immediately after giving effect to the consolidation, merger,
transfer or lease, no Event of Default (as defined above), and no
event which, after notice or lapse of time or both, would become an
Event of Default, has happened and is continuing; and
. an officer's certificate and an opinion of counsel, each stating that
the consolidation, merger, transfer or lease complies with the
provisions of the Indenture, have been delivered by us to the
trustee.
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Events of Default
The Indenture provides that if an Event of Default specified in the
Indenture occurs and is continuing, either the Trustee or the holders of not
less than 25% in aggregate principal amount of the notes then outstanding may
declare the principal amount of and accrued interest to the date of that
declaration on all the notes to be immediately due and payable. In the case of
some events of bankruptcy or insolvency, the principal of and accrued interest
on all the notes to the date of the occurrence of that event automatically will
become and immediately be due and payable.
Under some circumstances, the holders of a majority in aggregate
principal amount of the notes may rescind any acceleration with respect to the
notes and its consequences. Interest will continue to accrue and be payable on
demand upon a default in:
. the payment of:
. principal and interest when due,
. redemption amounts, or
. Change in Control Purchase Price;
. the delivery of shares of common stock to be delivered on conversion
of notes; or
. the payment of cash instead of fractional shares to be paid on
conversion of notes,
in each case to the extent that the payment of interest that is due is
legally enforceable.
Under the indenture, Events of Default include:
. default in payment of the principal amount, interest when due (if
that default in payment of interest continues for 30 days), any
redemption amounts or the Change in Control Purchase Price with
respect to any note, when that principal amount, interest, redemption
amount or Change in Control Purchase Price becomes due and payable;
. failure by us to deliver shares of common stock, together with cash
instead of fractional shares, when those shares of common stock, or
cash instead of fractional shares, are required to be delivered
following conversion of a note, and that default continues for 10
days;
. failure by us to give the notice regarding a Change in Control within
30 business days of the occurrence of the Change in Control;
. failure by us to comply with any of our other agreements in the notes
or the Indenture, the receipt by us of notice of that default from
the Trustee or from holders of not less than 25% in aggregate
principal amount of the notes then outstanding and our failure to
cure that default within 60 days after our receipt of that notice;
. default under any bond, note or other evidence of indebtedness for
money borrowed by us having an aggregate outstanding principal amount
in excess of $10 million, which default shall have resulted in that
indebtedness being accelerated, without that indebtedness being
discharged or that acceleration having been rescinded or annulled
within 60 days after our receipt of the notice of default from the
trustee or receipt by us and the trustee of the notice of default
from the holders of not less than 25% in aggregate principal amount
of the notes then outstanding, unless that default has been cured or
waived; or
. some events of bankruptcy or insolvency.
The trustee will, within 90 days after the occurrence of any continuing
default known to the trustee, mail to all holders of the notes notice of all
defaults of which the trustee is aware, unless those defaults have
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been cured or waived before the giving of that notice. The trustee may withhold
notice as to any default other than a payment default, if it determines in good
faith that withholding the notice is in the interests of the holders. The term
default for the purpose of this provision means any event that is, or after
notice or lapse of time or both would become, an Event of Default with respect
to the notes.
The holders of a majority in aggregate principal amount of the
outstanding notes may direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising any trust or
power conferred on the Trustee, provided that the direction must not be in
conflict with any law or the Indenture and the direction is subject to some
other limitations. The trustee may refuse to perform any duty or exercise any
right or power or extend or risk its own funds or otherwise incur any financial
liability unless it receives indemnity satisfactory to it against any loss,
liability or expense. No holder of any note will have any right to pursue any
remedy with respect to the Indenture or the notes, unless:
. that holder has previously given the trustee written notice of a
continuing Event of Default;
. the holders of at least 25% in aggregate principal amount of the
outstanding notes have made a written request to the trustee to
pursue the relevant remedy;
. the holder giving that written notice has, or the holders making that
written request have, offered to the trustee reasonable security or
indemnity against any loss, liability or expense satisfactory to it;
. the trustee has failed to comply with the request within 60 days
after receipt of that notice, request and offer of security or
indemnity; and
. the holders of a majority in aggregate principal amount of the
outstanding notes have not given the trustee a direction inconsistent
with that request within 60 days after receipt of that request.
The right of any holder:
. to receive payment of principal, any redemption amounts, the Change
in Control Purchase Price or interest in respect of the notes held by
that holder on or after the respective due dates expressed in the
notes;
. to convert those notes; or
. to bring suit for the enforcement of any payment of principal, any
redemption amounts, the Change in Control Purchase Price or interest
in respect of those notes held by that holder on or after the
respective due dates expressed in the notes, or the right to convert
will not be impaired or adversely affected without that holder's consent.
The holders of a majority in aggregate principal amount of notes at the
time outstanding may waive any existing default and its consequences except:
. any default in any payment on the notes;
. any default with respect to the conversion rights of the notes; or
. any default in respect of the covenants or provisions in the
Indenture that may not be modified without the consent of the holder
of each note as described in "--Modification, Waiver and Meetings"
below.
When a default is waived, it is deemed cured and will cease to exist, but
that waiver does not extend to any subsequent or other default or impair any
consequent right. We will be required to furnish to the Trustee annually a
statement as to any default by us in the performance and observance of our
obligations under the Indenture. In addition, we will be required to file with
the trustee written notice of the occurrence of any default or Event of Default
within five business days of our becoming aware of the occurrence of any
default or Event of Default.
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Modification, Waiver and Meetings
The indenture or the notes may be modified or amended by us and the
trustee with the consent of the holders of not less than a majority in
aggregate principal amount of the notes then outstanding. The indenture or the
notes may not be modified or amended by us without the consent of each holder
affected thereby to, among other things:
. reduce the principal amount, Change in Control Purchase Price or any
redemption amounts with respect to any note, or extend the stated
maturity of any note or alter the manner of payment or rate of
interest on any note or make any note payable in money or securities
other than that stated in the note;
. make any reduction in the principal amount of notes whose holders
must consent to an amendment or any waiver under the Indenture or
modify the Indenture provisions relating to those amendments or
waivers;
. make any change that adversely affects the right of a holder to
convert any note;
. modify the provisions of the Indenture relating to the ranking of the
notes in a manner adverse to the holders of the notes; or
. impair the right to institute suit for the enforcement of any payment
with respect to, or conversion of, the notes.
Without the consent of any holder of notes, we and the trustee may amend
the Indenture to:
. cure any ambiguity, defect or inconsistency, provided, however, that
the amendment to cure any ambiguity, defect or inconsistency does not
materially adversely affect the rights of any holder of notes;
. provide for the assumption by a successor of our obligations under
the Indenture;
. provide for uncertificated notes in addition to certificated notes,
as long as those uncertificated notes are in registered form for
United States federal income tax purposes;
. make any change that does not adversely affect the rights of any
holder of notes;
. make any change to comply with any requirement of the Securities and
Exchange Commission in connection with the qualification of the
Indenture under the Trust Indenture Act of 1939, as amended;
. add to our covenants or our obligations under the Indenture for the
protection of holders of the notes; or
. surrender any right, power or option conferred by the Indenture on
us.
Form, Denomination, Exchange, Transfer and Payment
We initially issued the notes in the form of one or more global notes.
The global notes are deposited with, or on behalf of, The Depository Trust
Company ("DTC") and registered in the name of DTC or its nominee. The notes
have been issued in denominations of $1,000 and $1,000 multiples.
The principal, any premium and any interest on the notes will be payable,
without coupons, and the exchange of and the transfer of the notes will be
registrable, at our office or agency maintained for that purpose in the Borough
of Manhattan, The City of New York and at any other office or agency maintained
for that purpose.
Holders may present the notes for exchange, and for registration of
transfer, with the form of transfer endorsed on those notes, or with a
satisfactory written instrument of transfer, duly executed, at the office of
the
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appropriate securities registrar or at the office of any transfer agent
designated by us for that purpose, without service charge and upon payment of
any taxes and other governmental charges as described in the indenture. We
appointed the trustee of the notes as securities registrar under the Indenture.
We may at any time rescind designation of any transfer agent or approve a
change in the location through which any transfer agent acts, provided that we
maintain a transfer agent in each place of payment for the notes. We may at any
time designate additional transfer agents for the notes.
All monies paid by us to a paying agent for the payment of principal, any
premium or any interest, on any note which remains unclaimed for two years
after the principal, premium or interest has become due and payable may be
repaid to us, and after the two-year period, the holder of that note may look
only to us for payment.
In the event of any redemption, we will not be required to:
. issue, register the transfer of or exchange notes during a period
beginning at the opening of business 15 days before the day of the
mailing of a notice of redemption of notes to be redeemed and ending
at the close of business on the day of that mailing; or
. register the transfer of or exchange any note called for redemption,
except, in the case of any notes being redeemed in part, any portion
not being redeemed.
Book-Entry System
Upon the issuance of the global notes, DTC credited, on its book-entry
registration and transfer system, the respective principal amounts of the notes
represented by that global note to the accounts of institutions or persons,
commonly known as participants, that have accounts with DTC or its nominee. The
accounts credited were designated by the initial purchasers, dealers or agents.
Ownership of beneficial interests in a global note is limited to participants
or persons that may hold interests through participants. Ownership of interests
in a global note are shown on, and the transfer of those ownership interests
will be effected only through, records maintained by DTC (with respect to
participants' interests) and the participants (with respect to the owners of
beneficial interests in that global note). The laws of some jurisdictions may
require that some purchasers of securities take physical delivery of the
securities in definitive form. These limits and laws may impair the ability to
transfer beneficial interests in a global note.
So long as DTC or its nominee is the registered holder and owner of the
global note, DTC or its nominee, as the case may be, will be considered the
sole owner and holder for all purposes of the notes and for all purposes under
the Indenture. Except as described below, owners of beneficial interests in a
global note will not be entitled to have the notes represented by that global
note registered in their names, will not receive or be entitled to receive
physical delivery of notes in definitive form and will not be considered to be
the owners or holders of any notes under the Indenture or that global note.
Accordingly, each person owning a beneficial interest in a global note must
rely on the procedures of DTC and, if that person is not a participant, on the
procedures of the participant through which that person owns its interest, to
exercise any rights of a holder of notes under the Indenture of that global
note. We understand that under existing industry practice, in the event we
request any action of holders of notes or if an owner of a beneficial interest
in a global note desires to take any action that DTC, as the holder of that
global note, is entitled to take, DTC would authorize the participants to take
that action, and that the participants would authorize beneficial owners owning
through them to take those actions or would otherwise act upon the instructions
of beneficial owners owning through them.
Payments of principal of and any premium and any interest on the notes
represented by a global note will be made to DTC or its nominee, as the case
may be, as the registered owner and holder of that global note, against
surrender of the notes at the principal corporate trust office of the trustee.
Interest payments will be made at the principal corporate trust office of the
trustee or by a check mailed to the holder at its registered address.
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We expect that DTC, upon receipt of any payment of principal, and any
premium and any interest, in respect of a global note, will immediately credit
the participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of that global note as
shown on the records of DTC. We expect that payments by participants to owners
of beneficial interests in a global note held through those participants will
be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of those
participants. We, our agent, the trustee and its agent will not have any
responsibility or liability for any aspect of the records relating to, or
payments made on account of, beneficial ownership interests in a global note or
for maintaining, supervising or reviewing any records relating to those
beneficial ownership interests or for any other aspect of the relationship
between DTC and its participants or the relationship between those participants
and the owners of beneficial interests in that global note owning through those
participants.
Unless and until it is exchanged in whole or in part for notes in
definitive form, a global note may not be transferred except as a whole by DTC
to a nominee of DTC or by a nominee of DTC to DTC or a successor to DTC
selected or approved by us or to a nominee of that successor to DTC.
The notes represented by a global note will be exchangeable for notes in
definitive form of like tenor as that global note in denominations of $1,000
and in any greater amount that is an integral multiple of $1,000 if:
. DTC notifies us and the trustee that it is unwilling or unable to
continue as depositary for that global note or if at any time DTC
ceases to be a clearing agency registered under the Exchange Act and
a successor depositary is not appointed by us within 90 days;
. we, in our sole discretion, determine not to have all of the notes
represented by a global note and notify the trustee of that
determination; or
. there is, or continues to be, an Event of Default and the beneficial
holders representing a majority in principal amount of the notes
represented by such global note advise DTC to cease acting as
depositary for such global note.
Any note that is exchangeable pursuant to the preceding sentence is
exchangeable for notes registered in the names which DTC will instruct the
trustee. It is expected that DTC's instructions may be based upon directions
received by DTC from its participants with respect to ownership of beneficial
interests in that global note. Subject to the foregoing, a global note is not
exchangeable except for a global note or global notes of the same aggregate
denominations to be registered in the name of DTC or its nominee.
Notices
Except as otherwise provided in the indenture, notices to holders of
notes will be given by mail to the addresses of holders of the notes as they
appear in the Security Register.
Replacement of Notes
Any mutilated note will be replaced by us at the expense of the holder
upon surrender of that note to the trustee. Notes that become destroyed, stolen
or lost will be replaced by us at the expense of the holder upon delivery to
the trustee of notes or evidence of the destruction, loss or theft of the notes
satisfactory to us and the trustee. In the case of a destroyed, lost or stolen
note, an indemnity satisfactory to the trustee and us may be required at the
expense of the holder of that note before a replacement note will be issued.
Governing Law
The indenture, the notes and the registration rights agreement will be
governed by, and construed in accordance with, the laws of the State of New
York.
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Information Regarding the Trustee
State Street Bank and Trust Company is the Trustee, Securities Registrar,
Paying Agent and Conversion Agent under the Indenture.
Registration Rights of Holders of the Notes
We and the initial purchasers entered into the registration rights
agreement at the closing of this offering.
Under the registration rights agreement, we generally are required to:
. file, within 60 days after the closing date for this offering, a
shelf registration statement covering the notes and the common stock
issuable upon conversion of the notes;
. use our best efforts to cause the shelf registration to become
effective as promptly as practicable; and
. use our best efforts to keep the shelf registration statement
effective until the earlier of the sale of all the transfer
restricted securities or two years after the latest date of original
issuance.
When we use the term "transfer restricted securities" in this section, we
mean notes and the common stock issued upon conversion of the notes until the
earlier of the following events:
. the date the note or common stock issued upon conversion has been
effectively registered under the Securities Act of 1933, as amended,
and sold or transferred pursuant to the shelf registration statement;
. the date on which the note or common stock issued upon conversion is
distributed to the public pursuant to Rule 144 under the Securities
Act of 1933, as amended, or is available for sale pursuant to Rule
144(k) under the Securities Act of 1933, as amended; or
. the date the note or common stock issued upon conversion ceases to be
outstanding.
We will be required to pay predetermined liquidated damages if one of the
following "registration defaults" occurs:
. we do not file the shelf registration statement within 60 days after
the closing date for this offering;
. the Securities and Exchange Commission does not declare the shelf
registration statement effective within 120 days after the closing
date of this offering; or
. after it has been declared effective, the shelf registration
statement ceases to be effective or available for more than 90 days
in any period of 365 consecutive days.
If a registration default occurs, liquidated damages initially will
accrue (a) for the notes that are transfer restricted securities, at the rate
of $0.05 per week per $1,000 principal amount of the notes, and (b) for any
common stock issued on conversion of the notes that are transfer restricted
securities, at an equivalent rate based on the conversion price. If the
registration default has not been cured within 90 days, the liquidated damages
rate will increase by $0.05 per week per $1,000 principal amount of the notes
that are transfer restricted securities (and an equivalent amount for any
common stock issued upon conversion that are transfer restricted securities)
for each subsequent 90-day non-compliance period, up to a maximum rate of $0.25
per week per $1,000 principal amount of the notes that are transfer restricted
securities. Liquidated damages, as calculated by us, generally will be payable
at the same time as interest payments on the notes.
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We may suspend the use of the shelf registration statement in certain
circumstances described in the registration rights agreement upon notice to the
holders of the transfer restricted securities, subject to the rights of the
holders of transfer restricted securities to receive liquidated damages in
accordance with the registration rights agreement. We will provide copies of
the prospectus and notify holders of notes and common stock issued upon
conversion when the shelf registration statement is filed and when it becomes
effective.
We will give notice to all holders of the filing and effectiveness of the
shelf registration statement. You will need to complete the notice and
questionnaire attached as Annex A to this offering memorandum prior to any
intended distribution of your transfer restricted securities pursuant to the
shelf registration statement. We refer to this form of notice and questionnaire
as the "questionnaire." You are required to complete and deliver the
questionnaire prior to the effectiveness of the shelf registration statement so
that you can be named as selling stockholders in the prospectus. Upon receipt
of your completed questionnaire after the effectiveness of the shelf
registration statement, we will, as promptly as practicable but in any event
within five business days of receipt, file any amendments or supplements to the
shelf registration statement so that you may use the prospectus, subject to our
right to suspend as set forth above. We will pay liquidated damages to you if
we fail to make this filing in the required time. If this filing requires a
post-effective amendment to the shelf registration statement, we will pay
liquidated damages if this amendment is not declared effective within 45
business days of the filing of the post-effective amendment. Under the
registration rights agreement, you will be required to deliver a prospectus to
purchasers and will be bound by the provisions of the agreement.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain United States federal
income tax consequences that may be relevant to an investment in the notes but
does not purport to be a complete analysis of all of the potential tax
considerations that you may need to consider before investing based on your
particular circumstances. This discussion is based on existing provisions of
the Internal Revenue Code of 1986, as amended which we call the "Code,"
Treasury Regulations promulgated thereunder, judicial decisions and
administrative rulings and practice, all of which are subject to change with
possible retroactive effect. This summary applies to you only if you hold the
notes and common stock as capital assets within the meaning of the Code. This
summary does not discuss any estate, gift, state, local or foreign tax
considerations and does not address all federal income tax consequences
applicable to all categories of investors, some of which may be subject to
special rules, such as life insurance companies, tax-exempt organizations,
dealers in securities or currency, regulated investment companies, banks or
other financial institutions, partnerships, S corporations and other flow-
through entities for federal income tax purposes, holders subject to the
alternative minimum tax, expatriates, investors whose functional currency is
not the U.S. dollar, and investors who hold the notes as part of a hedge,
straddle or conversion transaction. In addition, this summary deals only with
notes acquired in this offering at their original issue price within the
meaning of Section 1273 of the Code and does not discuss the tax considerations
applicable to subsequent purchasers of the notes, including the "market
discount" and "acquisition premium" rules of the Code. We have not obtained,
nor do we intend to obtain, any ruling from the Internal Revenue Service with
respect to the statements made and the conclusions reached in the following
summary, and we can not assure you that the IRS will agree with these
statements and conclusions. The summary assumes that the notes will be treated
as indebtedness and as securities for federal tax purposes. This summary does
not discuss the consequences to you of any transaction that would constitute a
Change in Control, as defined in "Description of Notes" above, including but
not limited to the tax consequences of adjustments to the notes in the event of
a consolidation, merger or other corporate transaction. In addition, you should
be aware that this summary does not address the tax consequences of your
receipt of the "make-whole" payments on a provisional redemption.
IF YOU ARE CONSIDERING THE PURCHASE OF CONVERTIBLE NOTES, YOU SHOULD
CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE APPLICATION OF THE UNITED
STATES FEDERAL TAX LAWS TO YOUR PARTICULAR SITUATION AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
This summary applies to you if you are a U.S. Holder. For purposes of
this summary, the term "U.S. Holder" means a beneficial owner of notes or
common stock that is:
. a citizen or resident of the United States;
. a corporation, partnership or other entity created or organized in or
under the laws of the United States or any State thereof (including
the District of Columbia) or a partnership otherwise treated as a
United States person under applicable Treasury Regulations;
. an estate the income of which is subject to United States federal
income taxation regardless of its source; and
. a trust if (a) a court within the United States is able to exercise
primary supervision over the administration of the trust and (b) one
or more persons have the authority to control all substantial
decisions of the trust; or an electing trust in existence on August
20, 1996 to the extent provided in Treasury Regulations.
If a partnership holds notes or common stock, the tax treatment of a
partner will generally depend upon the status of the partner and upon the
activities of the partnership. If you are a partner in that partnership, you
should consult your tax advisor.
32
<PAGE>
Interest on Notes. You generally will be required to recognize ordinary
income when interest on the notes is paid or accrued, in accordance with your
regular method of tax accounting, for United States federal income tax
purposes. In certain circumstances, we may be obligated to pay you amounts in
excess of stated interest or principal on the notes. For example, we would have
to pay liquidated damages to you in certain circumstances described in
"Description of Notes--Registration Rights of Holders of the Notes." In
addition, in certain cases we will be able to call the notes for redemption at
a price that will include an additional amount in excess of the principal
amount of the notes. According to Treasury Regulations, the possibility of
liquidated damages being paid to you will not affect the amount of interest
income you recognize, in advance of the payment of any liquidated damages, if
there is only a remote chance as of the date the notes were issued that you
will receive liquidated damages. We believe that the likelihood that we will
pay liquidated damages is remote. Therefore, we do not intend to treat the
potential payment of liquidated damages as part of the yield to maturity of any
notes. Similarly, we intend to take the position that the likelihood of a
redemption or repurchase of the notes is remote and likewise do not intend to
treat the possibility of any premium payable on a redemption or repurchase as
affecting the yield to maturity of any notes. Our determination that these
contingencies are incidental or remote is binding on you unless you disclose
your contrary position in the manner required by applicable Treasury
Regulations. Our determination is not, however, binding on the IRS. In the
event a contingency occurs, it would affect the amount and timing of the income
that you must recognize. If we pay liquidated damages on the notes, you will be
required to recognize additional interest income. If we pay a redemption
premium, the premium could be treated as capital gain under the rules described
under "--Sale or Exchange of Notes or Shares of Common Stock," unless the
amount of that premium is treated under the Code as unaccrued original issue
discount not previously included in your income.
Constructive Dividends. Certain corporate transactions, such as
distributions of assets to holders of our common stock, may be treated as
deemed distributions to you if the conversion price of the notes is adjusted to
reflect those transactions. Other adjustments to the conversion price of the
notes may also be treated as deemed distributions to you. Such deemed
distributions will be taxable as a dividend, return of capital or capital gain
in accordance with the rules discussed below under "Dividends on Common Stock"
and you may recognize income as a result even though you receive no cash or
property.
Sale or Exchange of Notes or Shares of Common Stock. You generally will
recognize gain or loss upon the sale, exchange, redemption, retirement or other
disposition of notes (other than a conversion) measured by the difference
between (i) the amount of cash proceeds and the fair market value of any
property you receive (except to the extent attributable to accrued interest,
which will generally be taxable as ordinary income), and (ii) your adjusted tax
basis in the notes. In general, if you hold common stock into which the notes
have been converted, you will recognize gain or loss upon the sale, exchange,
or other disposition of the common stock measured by the difference between (i)
the amount of cash and the fair market value of any property you receive, and
(ii) your adjusted basis in the common stock. (For a discussion of the basis
and holding period of shares of common stock, see "--Conversion of Notes,"
below.) Gain or loss on the disposition of notes or common stock will generally
be capital gain or loss and will be long-term gain or loss if the notes or
shares of common stock have been held for more than one year at the time of
such disposition.
Conversion of Notes. You generally will not recognize gain or loss on the
conversion of the notes solely into common stock, except with respect to cash
received in lieu of fractional shares and except for common stock attributable
to accrued interest which may be taxable as interest as discussed above. Except
for common stock attributable to any accrued interest, your tax basis in the
shares of common stock received upon conversion of the notes will be equal to
your adjusted tax basis in the notes exchanged therefor (less any portion
thereof allocable to cash received in lieu of a fractional share of common
stock). Except for common stock attributable to any accrued interest, the
holding period of the common stock will generally include the period during
which you held the notes prior to conversion. Under the current ruling policy
of the IRS, cash received in lieu of a fractional share of common stock should
generally be treated as a payment in exchange for such fractional share rather
than as a dividend. You generally will recognize gain or loss on the receipt of
cash
33
<PAGE>
paid in lieu of such fractional shares equal to the difference between the
amount of cash received and the amount of tax basis allocable to the fractional
shares. To the extent that the common stock you receive on conversion is
attributable to accrued interest on the notes, you will recognize ordinary
income in accordance with your regular method of accounting for federal income
tax purposes. Your tax basis in the common stock attributable to accrued
interest generally should equal the value of the common stock on the date of
conversion and your holding period in the common stock will not include the
period during which you held the notes prior to conversion.
Dividends on Common Stock. Distributions on shares of our common stock
will constitute dividends and be taxed as ordinary income for United States
federal income tax purposes to the extent of our current or accumulated
earnings and profits as determined under United States federal income tax
principles. Dividends paid to those of you that are United States corporations
may qualify for the dividends-received deduction, subject to the limitations on
the dividends-received deduction generally. To the extent that you receive
distributions on shares of common stock that would otherwise constitute
dividends for United States federal income tax purposes but that exceed our
current and accumulated earnings and profits, such distributions will be
treated first as a non-taxable return of capital reducing your adjusted tax
basis in the shares of common stock. Any such distributions in excess of your
adjusted tax basis in the shares of common stock will generally be treated as
capital gain.
A failure to fully adjust the conversion price of the notes to reflect a
stock dividend or other event increasing the proportionate interest of holders
of our common stock in our earnings and profits or assets could, in some
circumstances, be deemed to result in the payment of a taxable dividend to the
holders of our common stock.
Our Deductions for Interest on the Notes. Under Section 279 of the Code,
deductions otherwise allowable to a corporation for interest expense may be
reduced or eliminated in the case of "corporate acquisition indebtedness." This
is defined generally to include subordinated convertible debt issued to provide
consideration for the acquisition of stock or a substantial portion of the
assets of another corporation, where the acquiring corporation does not meet
statutorily specified debt/equity ratio and earnings coverage tests. Our
deductions for interest on any notes could be reduced or eliminated if the
notes so issued meet the definition of corporate acquisition indebtedness in
the year of issuance. Also, the notes could become corporate acquisition
indebtedness in a subsequent year if we initially meet the debt/equity ratio
and earnings coverage tests, but later fail them in a year during which we
issue additional indebtedness for corporate acquisitions. Because, among other
things, the notes are not expressly subordinated to any of our unsecured debt
and because the notes have the same creditor priority as more than an
insubstantial amount of our trade debt, we believe the notes are not
subordinated within the meaning of section 279 of the Code and therefore do not
constitute corporate acquisition indebtedness. No assurance can be given in
this regard, however.
Under Section 163(l) of the Code, our deductions for interest on the
notes would be disallowed if they are found to be "disqualified debt
instruments." Disqualified debt instruments are debt instruments:
. where a substantial amount of the principal or interest is required
to be paid or converted, or at the option of the issuer or a related
party is payable in or convertible into, issuer equity; or
. which are part of an arrangement that is reasonably expected to
result in a transaction described in the preceding clause.
For these purposes, principal or interest on a debt instrument is treated
as required to be paid in or converted into issuer equity if the payment or
conversion may be required at the option of the holder and that option is
substantially certain to be exercised. We do not believe that principal or
interest on the notes is required to be paid in or converted into our equity
under section 163(l) of the Code because principal or interest on our notes
only may be exchanged for our common stock at the holder's option, and we do
not believe that this option is substantially certain to be exercised.
Furthermore, the legislative history of section
34
<PAGE>
163(l) of the Code indicates that the provision is not intended to apply to
debt instruments with a conversion feature where the conversion price is
significantly higher than the market price of the stock on the issue date of
the debt. We expect that the conversion price of the notes will be
significantly higher than the market price of our common stock on the date the
notes are issued. Accordingly, we anticipate that the notes will not be
disqualified debt instruments under section 163(l) of the Code. However, our
conclusions in this regard are based on factual judgments and we can not assure
you that the IRS or a court would agree with our conclusions.
Information Reporting and Backup Withholding
Information reporting and backup withholding may apply to payments of
interest or dividends on or the proceeds of the sale or other disposition of
the notes or shares of common stock made by us with respect to certain
noncorporate U.S. Holders. If you are a noncorporate U.S. Holder, you generally
will be subject to backup withholding at a rate of 31% unless you supply a
taxpayer identification number, certified under penalties of perjury, as well
as certain other information, or otherwise establish, in the manner prescribed
by law, an exemption from backup withholding. Any amount withheld under backup
withholding is allowable as a credit against federal income tax, upon
furnishing the required information.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS
INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON
YOUR PARTICULAR SITUATION. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR WITH RESPECT
TO THE TAX CONSEQUENCES TO YOU OF THE OWNERSHIP AND DISPOSITION OF THE NOTES
AND COMMON STOCK, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES OR
OTHER TAX LAWS.
35
<PAGE>
SELLING SECURITYHOLDERS
We originally sold the notes on September 6, 2000 to Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Robertson Stephens, Inc., and Banc of
America Securities LLC. The initial purchasers of the notes have advised us
that the notes were resold in transactions exempt from the registration
requirements of the Securities Act of 1933, as amended, to "qualified
institutional buyers," as defined in Rule 144A of the Securities Act. These
subsequent purchasers, or their transferees, pledgees, donees or successors,
may from time to time offer and sell any or all of the notes and/or shares of
the common stock issuable upon conversion of the notes pursuant to this
prospectus.
The notes and the shares of common stock issuable upon conversion of the
notes have been registered in accordance with the registration rights
agreement. Pursuant to the registration rights agreement, we are required to
file a registration statement with regard to the notes and the shares of our
common stock issuable upon conversion of the notes and to keep the registration
statement effective until the earlier of:
. the sale of all the securities registered pursuant to the
registration rights agreement and
. the expiration of the holding period applicable to these securities
under Rule 144(k) under the Securities Act or any successor
provision.
The selling securityholders may choose to sell notes and/or shares of
common stock issuable upon conversion of the notes from time to time. See "Plan
of Distribution."
The following table sets forth:
. the name of each selling securityholder who has provided us with
notice as of the date of this prospectus pursuant to the
registration rights agreement of their intent to sell or otherwise
dispose of notes and/or shares of common stock issuable upon
conversion of the notes pursuant to the registration statement,
. the principal amount of notes and the number of shares of our common
stock issuable upon conversion of the notes which they may sell from
time to time pursuant to the registration statement, and
. the amount of outstanding notes and our common stock beneficially
owned by the selling securityholder prior to the offering, assuming
no conversion of the notes.
36
<PAGE>
<TABLE>
<CAPTION>
NOTES OWNED SHARES OWNED
PRIOR TO THE NOTES OFFERED PRIOR TO SHARES THAT
SECURITYHOLDER OFFERING HEREBY OFFERING MAY BE SOLD
-------------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
Nomura Securities
International, Inc. ... $ 4,500,000 $ 4,500,000 9,144 72,671
Worldwide Transactions,
Ltd. .................. 164,000 164,000 -- 2,648
Deutsche Bank
Securities, Inc. ...... 22,000,000 22,000,000 -- 355,282
Argent Classic
Convertible Arbitrage
Fund L.P. ............. 1,000,000 1,000,000 -- 16,149
R2 Investments, LDC..... 3,000,000 3,000,000 -- 48,447
Black Diamond Offshore,
Ltd. .................. 750,000 750,000 -- 12,111
Double Black Diamond
Offshore, LDC.......... 3,086,000 3,086,000 -- 49,836
First Union
International Capital
Markets Inc. .......... 21,000,000 21,000,000 -- 339,133
Bear Stearns & Co.
Inc. .................. 500,000 500,000 -- 8,074
White River Securities
L.L.C. ................ 500,000 500,000 -- 8,074
Fuji U.S. Income Open... 500,000 500,000 -- 8,074
Lord Abbett Bond
Debenture Fund......... 6,000,000 6,000,000 -- 96,895
Cova Bond Debenture
Fund................... 500,000 500,000 -- 8,074
Argent Classic
Convertible Arbitrage
Fund L.P. ............. 1,000,000 1,000,000 -- 16,149
J.P. Morgan Securities,
Inc. .................. 195,000 195,000 -- 3,149
Chase Manhattan
International.......... 10,470,000 10,470,000 -- 169,082
Morgan Stanley Dean
Witter Convertible
Securities Trust....... 1,000,000 1,000,000 -- 16,149
Highbridge International
LLC.................... 14,000,000 14,000,000 -- 226,089
Unknown................. $369,835,000 $369,835,000 -- 5,972,546
</TABLE>
The name "Unknown" in the table above represents the remaining selling
securityholders. We are unable to provide the names of these holders at this
time because certain of these notes are evidenced by a global note that has
been deposited with DTC and registered in the name of Cede & Co. as DTC's
nominee.
If, after the date of this prospectus, a securityholder notifies us
pursuant to the registration rights agreement of its intent to dispose of notes
pursuant to the registration statement, we may supplement this prospectus to
include that information.
To our knowledge, no selling securityholder nor any of its affiliates has
held any position or office with, been employed by or otherwise has had any
material relationship with us or our affiliates, during the three years prior
to the date of this prospectus.
A selling securityholder may offer all or some portion of the notes and
shares of the common stock issuable upon conversion of the notes. Accordingly,
no estimate can be given as to the amount or percentage of notes or our common
stock that will be held by the selling securityholders upon termination of
sales pursuant to this prospectus. In addition, the selling securityholders
identified below may have sold, transferred or disposed of all or a portion of
their notes since the date on which they provided the information regarding
their holdings in transactions exempt from the registration requirements of the
Securities Act.
The information contained under the column heading "Shares That May Be
Sold" assumes conversion of full amount of the notes held by the holder at the
initial rate of $61.9225 in principal amount of the notes per share of the
common stock.
37
<PAGE>
PLAN OF DISTRIBUTION
The selling securityholders and their successors, including their
transferees, pledges or donees or their successors, may sell the notes and our
common stock into which the notes are convertible directly to purchasers or
through underwriters, broker-dealers or agents, who may receive compensation in
the form of discounts, concessions or commissions from the selling
securityholders or the purchasers. These discounts, concessions or commissions
as to any particular underwriter, broker-dealer or agent may be in excess of
those customary in the types of transactions involved.
The notes and common stock may be sold in one or more transactions at
fixed prices, at prevailing market prices at the time of sale, at prices
related to the prevailing market prices, at varying prices determined at the
time of sale, or at negotiated prices. These sales may be effected in
transactions, which may involve crosses or block transactions:
. on any national securities exchange or U.S. inter-dealer system of a
registered national securities association on which the notes or our
common stock may be listed or quoted at the time of sale;
. in the over-the-counter market;
. in transactions otherwise than on these exchanges or systems or in
the over-the-counter market;
. through the writing of options, whether the options are listed on an
options exchange or otherwise; or
. through the settlement of short sales.
In connection with the sales of the notes and common stock, the selling
securityholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
notes or common stock and deliver these securities to close out their short
positions, or loan or pledge the notes or common stock to broker-dealers that
in turn may sell these securities.
The aggregate proceeds to the selling securityholders from the sale of
the notes or common stock offered by them will be the purchase price of the
notes or common stock less discounts and commissions, if any. Each of the
selling securityholders reserves the right to accept and, together with their
agents from time to time, to reject, in whole or in part, any proposed purchase
of notes or common stock to be made directly or through agents. We will not
receive any of the proceeds from the offering.
Our common stock is quoted on The Nasdaq National Market. The notes are
currently designated for trading on the PORTAL Market.
In order to comply with the securities laws of some states, if
applicable, the notes and common stock may be sold in these jurisdictions only
through registered or licensed brokers or dealers. In addition, in some states
the notes and common stock may not be sold unless they have been registered or
qualified for sale or an exemption from registration or qualification
requirements is available and is complied with.
The selling securityholders and any underwriters, broker-dealers or
agents that participate in the sale of the notes and common stock may be
"underwriters" within the meaning of Section 2(11) of the Securities Act. Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Selling securityholders who are "underwriters" within the meaning of Section
2(11) of the Securities Act of 1934, as amended, will be subject to the
prospectus delivery requirements of the Securities Act. The selling
securityholders have acknowledged that they understand their obligations to
comply with the provisions of the Exchange Act and the rules thereunder
relating to stock manipulation, particularly Regulation M.
In addition, any securities covered by this prospectus that qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under
Rule 144 or Rule 144A rather than pursuant to this prospectus.
38
<PAGE>
To the extent required, the specific notes or shares of our common stock
to be sold, the names of the selling securityholders, the respective purchase
prices and public offering prices, the names of any agent, dealer or
underwriter, and any applicable commissions or discounts with respect to a
particular offer will be set forth in an accompanying prospectus supplement or,
if appropriate, a post-effective amendment to the registration statement of
which this prospectus is a part.
We entered into a registration rights agreement for the benefit of
holders of the notes to register their notes and our common stock under
applicable federal and state securities laws under specific circumstances and
at specific times. The registration rights agreement provides for cross-
indemnification of the selling holders and us and our respective directors,
officers and controlling persons against specific liabilities in connection
with the offer and sales of the notes and our common stock, including
liabilities under the Securities Act. We will pay substantially all of the
expenses incurred by the selling securityholders incident to the offering and
sales of the notes and our common stock. We estimate that our total expenses of
the offering of the notes and common stock will be approximately $16.1 million.
LEGAL MATTERS
The validity of the notes and our common stock will be passed upon for us
by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts. Richard J. Testa,
and Timothy C. Maguire, partners of the firm, beneficially own 5,476 and 1,800
shares of common stock, respectively.
EXPERTS
Our consolidated financial statements as of December 31, 1999 and 1998,
and for each of the years in the three-year period ended December 31, 1999 are
incorporated by reference in this prospectus and registration statement, have
been audited by KPMG LLP, independent auditors, as stated in their reports
incorporated by reference herein, and upon the authority of said firms as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read a copy of
any document we file at the SEC's public reference room located at Judiciary
Plaza, Room 1024, 450 Fifth Street, N.W., Washington, DC 20549.
You can request copies of these documents by writing to the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Washington, DC 20549 or
by calling the SEC at 1-800-SEC-0330. Our SEC filings are also available at the
SEC's web site at http://www.sec.gov. This website address is included in this
document as an inactive textual reference only.
Our common stock is quoted for trading on the Nasdaq National Market and
reports, proxy statements and other information concerning us also may be
inspected at the offices of the National Association of Securities Dealers at
9513 Key West Avenue, Rockville, Maryland 20850.
39
<PAGE>
The SEC allows us to incorporate by reference the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act (File No. 0-25996):
. Annual report on Form 10-K for the year ended December 31, 1999;
. Proxy Statement, filed on April 13, 2000, for the 2000 Annual Meeting
of Stockholders;
. Quarterly report on Form 10-Q for the quarter ended March 31, 2000;
. Quarterly report on Form 10-Q for the quarter ended June 30, 2000;
. Quarterly report on Form 10-Q/A for the quarter ended June 30, 2000;
. Quarterly report on Form 10-Q for the quarter ended September 30,
2000;
. Current report on Form 8-K dated May 23, 2000;
. Current report on Form 8-K dated September 1, 2000;
. Current report on Form 8-K dated September 11, 2000;
. Current report on Form 8-K dated September 13, 2000;
. Current report on Form 8-K dated September 25, 2000; and
. The "Description of Capital Stock" contained in our registration
statement No. 00025996 on Form 8-A dated April 28, 1995.
You may request a copy of these filings, at no cost, by writing or
telephoning our Chief Financial Officer at the following address:
3 Enterprise Drive
Shelton, Connecticut 06484
(203) 929-8810
This information is part of a registration statement we filed with the
SEC. You should rely only on the information or representations provided in
this prospectus. We have not authorized anyone to provide you with different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of the
document.
40
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth an estimate of the expenses we expect to
incur and pay in connection with the issuance and distribution of the
securities being registered, other than underwriting compensation:
<TABLE>
<S> <C>
Registration Fee--Securities and Exchange Commission.................. $121,400
Listing Fee--Nasdaq................................................... 17,500
Accounting Fees and Expenses.......................................... 10,000
Legal Fees and Expenses............................................... 10,000
Transfer Agent Fees and Expenses...................................... 5,000
Miscellaneous......................................................... 5,000
TOTAL............................................................. $168,900
</TABLE>
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law (DGCL) permits us to
indemnify our directors, officers, employees and agents against actual and
reasonable expenses (including attorneys' fees) incurred by them in connection
with any action, suit or proceeding brought against them by reason of their
status or service as a director, officer, employee or agent by or on our behalf
and against expenses (including attorneys' fees), judgments, fines and
settlements actually and reasonably incurred by him or her in connection with
any such action, suit or proceeding, if:
. he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of TranSwitch
and
. in the case of a criminal proceeding, he or she had no reasonable
cause to believe his or her conduct was unlawful.
Except as ordered by a court, no indemnification shall be made in
connection with any proceeding brought by or in the right of the corporation
where the person involved is adjudged to be liable to us.
Article Ten of our amended and restated certificate of incorporation, as
amended, contains provisions that eliminate a director's personal liability for
monetary damages resulting from a breach of fiduciary duty, except in certain
circumstances involving certain wrongful acts, such as the breach of a
director's duty of loyalty or acts or omissions which involve intentional
misconduct or a knowing violation of law. These provisions do not limit or
eliminate our rights or those of any stockholder to seek non-monetary relief,
such as an injunction or rescission, in the event of a breach of a director's
fiduciary duty. These provisions will not alter a director's liability under
federal securities laws. Our certificate of incorporation also contains
provisions indemnifying our directors and officers to the fullest extent
permitted by the DGCL.
We maintain directors and officers liability insurance for the benefit of
our directors and certain of our officers.
Our amended and restated by-laws contain no provisions relating to the
indemnification of officers and directors.
II-1
<PAGE>
Item 16. Exhibits.
The following exhibits, required by Item 601 of Regulation S-K, are filed
as a part of this Registration Statement. Exhibit numbers, where applicable, in
the left column correspond to those of Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
Exhibit
No. Item and Reference
------- --------------------
<C> <S> <C>
4.1 --Indenture dated September 12, 2000 by and between TranSwitch
and State Street Bank and Trust Company, including the forms
of the notes (filed as Exhibit 4.1 to TranSwitch's quarterly
report on Form 10-Q for the quarter ended September 30, 2000
and incorporated herein by reference)
4.2 --Registration Rights Agreement dated September 12, 2000, by
and among TranSwitch and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Robertson Stephens, Inc.
and Banc of America Securities LLC (filed as Exhibit 4.2 to
TranSwitch's quarterly report on Form
10-Q for the quarter ended September 30, 2000 and incorpo-
rated herein by reference)
5.1 --Legal Opinion of Testa, Hurwitz & Thibeault, LLP (filed
herewith)
12.1 --Statements regarding computation of ratios (filed herewith)
23.1 --Consent of KPMG LLP (filed herewith)
23.2 --Consent of Testa, Hurwitz & Thibeault, LLP (included in Ex-
hibit 5.1)
24.1 --Power of Attorney (contained on signature page)
Item 17. Undertakings.
25.1 --Statements of Eligibility of Trustee on Form T-1
</TABLE>
We hereby undertake:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) to include any material information with respect to the plan of
distribution not pervasively disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) that, for the purpose of determining liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to the
initial bona fide offering thereof.
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE>
(4) that, for purposes of determining any liability under the Securities
Act, each filing of our annual report pursuant to Section 13(a) or
15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(5) for purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as a part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by us pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(6) for the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereto.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
TranSwitch pursuant to the foregoing provisions, or otherwise, TranSwitch has
been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, TranSwitch will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, we certify
that we have reasonable grounds to believe that we meet all of the requirements
for filing on Form S-3 and have duly caused this registration statement to be
signed on our behalf by the undersigned, thereunto duly authorized in the City
of Shelton, State of Connecticut on November 15, 2000.
TRANSWITCH CORPORATION
/s/ Santanu Das
By: _________________________________
President, Chief Executive
Officer
and Chairman of the Board of
Directors
Power of Attorney
Each person whose signature appears below on this registration statement
hereby constitutes and appoints Dr. Santanu Das and Michael F. Stauff and each
of them, with full power to act without the other, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities (until
revoked in writing) to sign any and all amendments (including post-effective
amendments and amendments thereto) to this registration statement of TranSwitch
Corporation, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary fully to all intents and purposes as he might or could do in person
thereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Capacity Date
---- -------- ----
<S> <C> <C>
/s/ Santanu das President, Chief Executive November 15, 2000
____________________________________ Officer and Chairman of the
Dr. Santanu Das Board of Directors
/s/ Michael F. Stauff Senior Vice President, Chief November 15, 2000
____________________________________ Financial Officer and
Michael F. Stauff Treasurer
/s/ Alfred R. Boschulte Director November 15, 2000
____________________________________
Alfred R. Boschulte
/s/ Ljubomir Micic Director November 15, 2000
____________________________________
Dr. Ljubomir Micic
/s/ Gerald F. Montry Director November 15, 2000
____________________________________
Gerald F. Montry
/s/ James M. Pagos Director November 15, 2000
____________________________________
James M. Pagos
/s/ Albert E. Paladino Director November 15, 2000
____________________________________
Dr. Albert E. Paladino
/s/ Erik H. van der Kaay Director November 15, 2000
____________________________________
Erik H. van der Kaay
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S> <C>
4.1 --Indenture dated September 12, 2000 by and between TranSwitch
and State Street Bank and Trust Company, including the forms
of the notes (filed as Exhibit 4.1 to TranSwitch's quarterly
report in Form 10-Q for the quarter ended September 30, 2000
and incorporated herein by reference)
4.2 --Registration Rights Agreement dated September 12, 2000, by
and among TranSwitch and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Robertson Stephens, Inc.
and Banc of America Securities LLC (filed as Exhibit 4.2 to
TranSwitch's quarterly report on Form
10-Q for the quarter ended September 30, 2000 and incorpo-
rated herein by reference)
5.1 --Legal Opinion of Testa, Hurwitz & Thibeault, LLP (filed
herewith)
12.1 --Statements regarding computation of ratios (filed herewith)
23.1 --Consent of KPMG LLP (filed herewith)
23.2 --Consent of Testa, Hurwitz & Thibeault, LLP (included in Ex-
hibit 5.1)
24.1 --Power of Attorney (contained on signature page)
25.1 --Statements of Eligibility of Trustee on Form T-1 (filed
herewith)
</TABLE>
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