SUMMARY

This summary highlights selected information included in this proxy statement/prospectus and does not contain all of the information that may be important to you. You should read this entire proxy statement/prospectus and its appendices and the other documents to which we refer you before you decide how to vote with respect to the merger agreement. In addition, we incorporate by reference important business and financial information about TranSwitch and Centillium into this proxy statement/prospectus. For a description of this information, see “Incorporation of Certain Documents by Reference” beginning on page 112. You may obtain the information incorporated by reference into this proxy statement/prospectus without charge by following the instructions in “Where You Can Find More Information” on page 114. Each item in this summary includes a page reference directing you to a more complete description of that item.

Cautionary Statement about Forward-Looking Statements

This proxy statement/prospectus, including information included or incorporated by reference in this proxy statement/prospectus, contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements include, but are not limited to, statements about (i) the financial condition, results of operations and business of TranSwitch and Centillium; (ii) the benefits of the merger between TranSwitch and Centillium, including future financial and operating results, cost savings and accretion to reported earnings that may be realized from the merger; (iii) the expected tax consequences of the merger; (iv) TranSwitch’s intentions regarding the financing of the merger consideration and the terms of such financing; (v) TranSwitch’s and Centillium’s plans, objectives, expectations and intentions and other statements contained in this filing that are not historical facts; and (vi) other statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” or words of similar meaning. These forward looking statements are based on current beliefs and expectations of TranSwitch and Centillium and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond their control. In addition, these forward looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Actual results may differ materially from the anticipated results discussed in these forward looking statements. Factors that could cause actual results to differ materially from those expressed in such forward looking statements are discussed in the “Risk Factors” section beginning on page 24. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such statements. Centillium stockholders are cautioned not to place undue reliance on such statements, which speak only as of the date of this proxy statement/prospectus or the date of any document incorporated by reference.

Information about the Parties to the Merger

TranSwitch (see page 105)

TranSwitch Corporation

Three Enterprise Drive

Shelton, Connecticut 06484

(203) 929-8810

TranSwitch designs, develops and markets innovative semiconductor solutions that provide core functionality and complete solutions for voice, data and video communications network equipment. As a leading supplier to telecom, datacom, cable television and wireless markets, TranSwitch customers include the major original equipment manufactures (OEMs) that serve the worldwide public network, the internet, and corporate wide area networks (WANs). TranSwitch devices are inherently flexible, many incorporating embedded programmable microcontrollers to rapidly meet customers’ new requirements or evolving network standards by modifying a function via software instruction.

 

TranSwitch was incorporated on April 26, 1988 and is a Delaware corporation. TranSwitch’s common stock is listed on the Nasdaq Capital Market under the symbol “TXCC.”

TranSwitch maintains a site on the Internet at www.transwitch.com; however, information found on TranSwitch’s website is not part of this proxy statement/prospectus.

 

Centillium

(see page 105)

Centillium Communications, Inc.

255 Fourier Avenue

Fremont, California 94539

(510) 771-3500

Centillium delivers innovative communications processing technology for global systems vendors targeting the consumer, enterprise and service provider markets. Centillium’s products include integrated circuits and related hardware and software applications for Optical Networking equipment deployed in central offices and customer premises, and Voice over Internet Protocol (VoIP) products for carrier- and enterprise-class gateways and consumer telephony.

Centillium was incorporated in 1997 and is a Delaware corporation. Centillium’s common stock is listed on the Nasdaq Capital Market under the symbol “CTLM.”

Centillium maintains a site on the Internet at www.centillium.com; however, information found on Centillium’s website is not part of this proxy statement/prospectus.

Sonnet Acquisition Corporation

Sonnet Acquisition Corporation

c/o TranSwitch Corporation

Three Enterprise Drive

Shelton, Connecticut 06484

(203) 929-8810

Sonnet Acquisition Corporation, referred to herein as Sonnet, is a wholly-owned subsidiary of TranSwitch and was incorporated on July 7, 2008 in the State of Delaware. Sonnet has not engaged in any operations and was formed solely for the purpose of engaging in the transactions contemplated by the merger agreement. Sonnet will merge with and into Centillium in the first merger.

Haiku Acquisition Corporation

Haiku Acquisition Corporation

c/o TranSwitch Corporation

Three Enterprise Drive

Shelton, Connecticut 06484

(203) 929-8810

Haiku Acquisition Corporation, referred to herein as Haiku, is a wholly-owned subsidiary of TranSwitch and was formed on July 7, 2008 in the State of Delaware. Haiku has not engaged in any operations and was formed solely for the purpose of engaging in the transactions contemplated by the merger agreement. Haiku will be the surviving company following the second merger and will continue its existence as “Centillium Communications, Inc.”

 

Risk Factors (see page 24)

In evaluating the merger agreement and the merger, you should carefully read this proxy statement/prospectus and read the risk factors set forth in “Risk Factors” beginning on page 24.

Special Meeting of Centillium Stockholders (see page 56)

Centillium will hold a special meeting of its stockholders on October 24, 2008, at 9:00 a.m. local time, at Centillium’s corporate headquarters at 255 Fourier Avenue, Fremont, California 94539. At the special meeting, you will be asked to vote on a proposal to adopt and approve the merger agreement and the transactions contemplated thereby. You will also be asked to approve the adjournment, if necessary, of the special meeting for any purpose, including to solicit additional proxies in favor of the adoption and approval of the merger agreement and the transactions contemplated thereby.

You may vote at the special meeting if you owned shares of Centillium common stock at the close of business on the record date, August 25, 2008. On that date, there were 41,823,736 shares of Centillium common stock outstanding and entitled to vote at the special meeting. You may cast one vote for each share of Centillium common stock you own on the record date.

Stockholder Vote Required (see page 56)

The proposal to adopt and approve the merger agreement and the transactions contemplated thereby requires the affirmative vote of the holders of a majority of the shares of Centillium common stock outstanding on the record date. A failure to vote your shares or an abstention will have the same effect as a vote against the proposal to adopt and approve the merger agreement and the transactions contemplated thereby.

The proposal to adjourn the special meeting, if necessary, for any purpose, including to solicit additional proxies in favor of the adoption and approval of the merger agreement and the transactions contemplated thereby requires the affirmative vote of the holders of a majority of the shares of Centillium common stock represented in person or by proxy at the special meeting of the stockholders. Failure to vote your shares will not affect the outcome of the proposal to adjourn the special meeting, if necessary, for any purpose, including to solicit additional proxies in favor of approval of the merger agreement. If you abstain from voting, either in person or by proxy, it will count as a vote against such proposal to adjourn the special meeting.

The Merger (see page 60 and Appendix A)

The merger agreement is attached to this document as Appendix A. You should read this agreement carefully, as it is the legal document that governs the first merger, the merger of Sonnet with and into Centillium, followed immediately thereafter by the second merger, the merger of Centillium into Haiku, with Haiku as the surviving company of the second merger. Haiku will immediately change its name to Centillium Communications, Inc. and will be wholly-owned by TranSwitch.

Recommendation of Centillium’s Board of Directors (see page 56)

After careful consideration, the Centillium board of directors, on July 9, 2008, unanimously determined that the terms of the merger agreement and the transactions contemplated thereby are advisable and in the best interests of Centillium and its stockholders and adopted and approved the merger agreement and the transactions contemplated thereby. The Centillium board of directors recommends that the stockholders of Centillium vote “FOR” the adoption and approval of the merger agreement and the transactions contemplated thereby and vote “FOR” the adjournment, if necessary, of the special meeting for any purpose, including to solicit additional proxies in favor of the adoption and approval of the merger agreement and the transactions contemplated thereby.

 

In considering the recommendation of the Centillium board of directors with respect to the merger agreement and the transactions contemplated thereby, Centillium stockholders should be aware that some directors and officers of Centillium will receive benefits if the merger is completed that result in those persons having interests in the merger that are different from, or in addition to, the interests of Centillium stockholders.

Fairness Opinion of Pagemill Partners, LLC (see page 71 and Appendix C)

Pagemill Partners, LLC, referred to herein as Pagemill, has acted as exclusive financial advisor to Centillium in connection with the merger. At the July 9, 2008 meeting of Centillium’s board of directors, Pagemill delivered its oral opinion, subsequently confirmed in writing as of the same date, to Centillium’s board of directors to the effect that, as of the date of such opinion, based upon and subject to the assumptions made, matters considered and limits of the review undertaken by Pagemill, the aggregate merger consideration of $15 million in cash and 25 million shares of TranSwitch common stock was fair, from a financial point of view, to the holders of the outstanding shares of Centillium common stock as described below.

The full text of Pagemill’s written opinion, dated July 9, 2008, which sets forth, among other things, the assumptions made, matters considered and limits on the review undertaken by Pagemill, is attached as Appendix C to this proxy statement/prospectus and is incorporated herein by reference. The Pagemill opinion is not a recommendation as to how any holder of shares of Centillium common stock should vote with respect to the merger or any other matter. Centillium stockholders are urged to read the Pagemill opinion in its entirety.

Interests of Centillium’s Executive Officers and Directors in the Merger (see page 78)

Some of the directors and officers of Centillium have interests in the merger that are different from, or in addition to, your interests. Certain outstanding Centillium stock options, including those held by Centillium executive officers and directors, will be converted into options to acquire TranSwitch common stock. Similarly, all restricted stock units, including those issued to executive officers under Centillium’s various plans, will be converted into restricted stock units with respect to shares of TranSwitch common stock.

Upon consummation of the merger, outstanding restricted stock issued to executive officers that is unvested or subject to a repurchase option, risk of forfeiture or other condition under any applicable restricted stock purchase agreement will be exchanged for consideration that is unvested and subject to the same repurchase option, risk of forfeiture or other condition. All outstanding shares of restricted stock granted to non-employee members of the Centillium board of directors for their service as directors will be accelerated and become fully vested at the closing of the merger.

In addition to the foregoing, certain of Centillium’s officers may be offered positions with TranSwitch, including, without limitation, Faraj Aalaei, the co-founder and chief executive officer of Centillium, and Sam Srinivasan, a non-employee director of Centillium, who upon consummation of the merger will be designated to serve on the TranSwitch board of directors, although no employment agreements have been entered into and no terms, conditions or understandings have been finalized. Certain of Centillium’s officers and directors will also be entitled to payments and other benefits pursuant to change of control severance agreements entered into between those directors and officers and Centillium. Centillium officers and directors will also receive indemnification and liability insurance benefits from TranSwitch.

Material U.S. Federal Income Tax Consequences of the Mergers (see page 82)

The parties intend that the first merger and the second merger, taken together, will qualify as a “reorganization” pursuant to Section 368(a) of the Code. Completion of the mergers is conditioned upon the receipt by TranSwitch and Centillium of closing tax opinions from their respective tax counsels that the mergers, taken together, will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. The closing

 

tax opinions will be given in reliance on customary representations and assumptions as to factual matters. In the event that the representations or assumptions are incorrect and the ultimate facts do not support reorganization treatment, the closing tax opinions cannot be relied upon.

If the first and second merger, taken together, qualify as a “reorganization,” Centillium stockholders who do not perfect their appraisal rights generally will recognize gain (but not loss) equal to the lesser of the amount of cash received and the amount of gain realized in the first merger. The amount of gain realized in the first merger will equal the excess of the sum of the cash and the fair market value of the TranSwitch common stock received in the first merger over the tax basis of the shares of Centillium common stock surrendered in exchange therefor.

Centillium stockholders are urged to read the discussion in “The Merger—Material U.S. Federal Income Tax Consequences of the Mergers” beginning on page 82 of this proxy statement/prospectus and to consult their tax advisors as to the U.S. federal income tax consequences of the mergers, as well as the effects of state, local and foreign tax laws. Centillium stockholders also should consult their tax advisors with respect to other tax consequences of the mergers or any special circumstances that may affect the tax treatment to them of the cash and shares of TranSwitch common stock that they receive pursuant to the first merger.

Accounting Treatment (see page 85)

TranSwitch will account for the merger under the purchase method of accounting for business combinations.

Appraisal Rights (see page 86)

Under Delaware law, holders of Centillium common stock may have the right to receive an appraisal of the fair value of their shares of Centillium common stock in connection with the merger. To exercise appraisal rights, a Centillium stockholder must not vote for the proposal to adopt and approve the merger agreement and the transactions contemplated thereby, must deliver to Centillium a written appraisal demand before the stockholder vote on the merger agreement is taken at the special meeting, must not submit a letter of transmittal, and must strictly comply with all of the procedures required by Delaware law.

A copy of Section 262 of the Delaware General Corporation Law, referred to herein as the DGCL, is also included as Appendix D to this proxy statement/prospectus.

What Centillium Stockholders Will Receive in the Merger (see page 90)

Upon completion of the merger, each outstanding share of Centillium common stock, excluding any treasury shares and any shares held by TranSwitch, its subsidiaries, or any dissenting stockholder, will be converted into the right to receive a portion of $15 million in cash and 25 million shares of TranSwitch common stock. The exact amount that each holder would have the right to receive cannot be calculated until the closing of the merger as such calculation will be based on the number of shares of Centillium common stock outstanding at the time of the closing, including certain outstanding options. This is referred to as Centillium’s fully diluted capitalization. Based on Centillium’s fully diluted capitalization as of August 25, 2008, the record date, each outstanding share of common stock of Centillium, and certain outstanding options as further described below, would have the right to receive 0.5972 shares of TranSwitch common stock, which is referred to as the stock merger consideration, and $0.3583 in cash without interest, which is referred to as the cash merger consideration. The stock merger consideration, together with the cash merger consideration and any cash received in lieu of fractional shares, is referred to as the per share merger consideration. Centillium stockholders will receive cash in lieu of any fractional shares of TranSwitch common stock that would have otherwise been received in the merger. See “The Merger Agreement—Fractional Shares” beginning on page 92. Based on Centillium’s fully diluted capitalization on August 25, 2008 and TranSwitch’s average closing share price for the ten trading days ending on August 25, 2008, each recipient of merger consideration would receive approximately $0.79 of per

 

share merger consideration value. In the case of eligible holders of Centillium options that are eligible to receive merger consideration, the per share merger consideration value will be reduced by the applicable option’s exercise price as well as any required tax withholding amounts.

Treatment of Centillium Stock Options. As a result of the merger, outstanding Centillium stock options that have an exercise price below the per share merger consideration value, including stock options held by executive officers and directors of Centillium, will be entitled to receive a proportionate share of the merger consideration. The amount of merger consideration that each such Centillium optionholder will be entitled to is determined by the option exchange ratio set forth in the merger agreement.

Outstanding Centillium stock options that are (i) unvested and exercisable at a price per share that is greater than the per share merger consideration value or (ii) vested and exercisable at a price per share that is greater than the per share merger consideration value but less than $5.00, will be converted into the right to receive options to purchase shares of TranSwitch common stock. Such options are referred to as rollover options. Each rollover option will be converted into the right to receive the number of shares subject to the rollover option multiplied by the option exchange ratio, rounded down to the nearest whole share. The new exercise price per share for each replacement TranSwitch stock option will equal the aggregate exercise price of the rollover stock option, divided by the number of shares of TranSwitch common stock subject to the replacement option, rounded up to the nearest whole cent.

The option exchange ratio is equal to the per share merger consideration value minus the per share exercise price for the Centillium option, divided by the per share merger consideration value. The per share merger consideration value will be calculated using the average of the closing prices for a share of TranSwitch common stock on the Nasdaq Capital Market for the ten trading days ending on the third trading day prior to the closing, referred to herein as the TranSwitch closing average. As a result, the exchange ratio for determining the option exchange ratio will not be fixed until three days before closing. Stockholders as of the record date who are also optionholders may not know the option exchange ratio before submitting their vote on the proposal to adopt and approve the merger agreement and the transactions contemplated thereby. Because the market price of TranSwitch common stock fluctuates, the value of the stock options to purchase TranSwitch common stock that Centillium optionholders will receive in the merger may be greater or less than the value received by Centillium stockholders.

All other outstanding Centillium options will not be assumed or substituted by TranSwitch, and will be canceled.

Treatment of Centillium Restricted Stock Units. As a result of the merger, all unvested Centillium restricted stock units will be converted into TranSwitch restricted stock units. Such unvested restricted stock units are referred to as rollover restricted stock units. Each rollover restricted stock unit will be converted into the number of TranSwitch restricted stock units (rounded down to the nearest whole number) equal to (i) the number of shares subject to the rollover restricted stock unit multiplied by the per share stock consideration, plus (ii) the number of shares subject to the rollover restricted stock unit multiplied by the product of the per share cash consideration divided by the TranSwitch closing average, the product of which we refer to as the cash consideration exchange multiple. As a result, the cash consideration exchange multiple for determining the restricted stock unit exchange ratio will not be fixed until three days before closing. Stockholders as of the record date who are also holders of restricted stock units may not know the exchange ratio before submitting their vote on the proposal to adopt and approve the merger agreement and the transactions contemplated thereby. Because the market price of TranSwitch common stock fluctuates, the per share value of the replacement restricted stock units issued by TranSwitch may be greater or less than the per share value received by Centillium stockholders.

 

Treatment of Centillium Restricted Stock held by Directors. Immediately prior to the effective time of the merger, 20,000 shares of restricted stock held by the non-employee directors of Centillium will vest and the related restrictions will expire.

Procedures for Exchanging Centillium Common Stock Certificates (see page 91)

Promptly after the effective time of the merger, Computershare, Inc., as the exchange agent for the merger, will establish an exchange fund to hold the merger consideration to be paid to Centillium stockholders in connection with the merger. The exchange agent will mail to each record holder of Centillium common stock a letter of transmittal and instructions for surrendering the record holder’s stock certificates or book-entry shares in exchange for the cash consideration and shares of TranSwitch common stock. Upon proper surrender of Centillium stock certificates or book-entry shares in accordance with the exchange agent’s instructions, the holder of such Centillium stock certificates or book-entry shares will be entitled to receive book-entry shares representing the number of whole shares of TranSwitch common stock issuable to such holder pursuant to the merger, the cash portion of the merger consideration issuable to such holder pursuant to the merger and cash in lieu of any fractional share of TranSwitch common stock issuable to such holder.

Fractional Shares (see page 92)

No fractional shares of TranSwitch common stock will be issued in connection with the merger. Instead, each holder of shares of Centillium common stock who would otherwise have been entitled to receive a fraction of a share of TranSwitch common stock will receive an amount of cash (without interest) determined by multiplying the fractional share interest by the average of the closing prices of TranSwitch common stock, as reported on the Nasdaq Capital Market, for the ten trading days ending on the third trading day immediately preceding the closing, rounded to the nearest whole cent.

Representations and Warranties (see page 93)

The merger agreement contains customary representations and warranties made by TranSwitch, Sonnet and Haiku on the one hand, and Centillium on the other, relating to their respective businesses, as well as other facts pertinent to the merger. These representations and warranties are subject to materiality, knowledge and other similar qualifications in many respects and expire at the effective time of the merger or termination of the merger agreement, as further described below. The representations and warranties of each of TranSwitch, Sonnet, Haiku and Centillium have been made solely for the benefit of the other party and those representations and warranties should not be relied on by any other person. In addition, those representations and warranties may be intended not as statements of actual fact, but rather as a way of allocating risk between the parties, may have been modified by the disclosure schedules attached to the merger agreement, are subject to the materiality standard described in the merger agreement, which may differ from what may be viewed as material by you, will not survive consummation of the merger and therefore cannot be the basis for any claims under the merger agreement by the other party after termination of the merger agreement, and were made only as of the date of the merger agreement or another date as is specified in the merger agreement.

Acquisition Proposals by Third Parties (see page 98)

The merger agreement contains provisions prohibiting Centillium from seeking a competing transaction, subject to certain exceptions described below. Under these “no solicitation” provisions, Centillium has agreed that neither it nor its subsidiaries shall, nor shall they authorize or knowingly permit any of their officers, directors, employees or representatives to, directly or indirectly:

 

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Solicit, initiate or knowingly encourage the making of an acquisition proposal;

 

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Furnish any non-public information relating to Centillium or any of its subsidiaries, or afford access to the business, properties, assets, books or records of Centillium or any of its subsidiaries in connection with an acquisition proposal or knowingly take any other action to assist or facilitate any inquiries or the making of any proposal that constitutes or is reasonably likely to lead to an acquisition proposal;

 

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Participate or engage in discussions or negotiations with any person with respect to an acquisition proposal;

 

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Subject to the board of directors’ right to change its recommendation, approve, endorse or recommend an acquisition proposal; or

 

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Enter into any letter of intent, memorandum or understanding or other contract contemplating an acquisition transaction.

However, prior to the adoption and approval of the merger agreement and the transactions contemplated thereby at the special meeting, Centillium may engage or participate in discussions or negotiations with any person and/or furnish information relating to Centillium or its subsidiaries pursuant to a confidentiality agreement on terms that are no less restrictive in all material respects than the terms contained in Centillium’s confidentiality agreement with TranSwitch to any person that makes an unsolicited bona fide competing proposal that the Centillium board of directors in good faith, after consultation with its outside counsel and financial advisor, concludes is reasonably likely to lead to, or constitutes, a superior proposal. Centillium has agreed to provide TranSwitch with notice of any acquisition proposal it receives.

TranSwitch has agreed to be subject to similar “non-solicitation” provisions.

TranSwitch may terminate the merger agreement if the board of directors of Centillium has withdrawn or modified in a manner adverse to TranSwitch its approval and recommendation to adopt and approve the merger agreement and the transactions contemplated thereby. Likewise, Centillium may terminate the merger agreement if Centillium enters into a definitive agreement relating to a superior proposal. If either TranSwitch or Centillium terminates the merger agreement in connection with these provisions, or in the additional circumstances described in “The Merger Agreement—Termination of the Merger Agreement and Termination Fee” beginning on page 103, Centillium has agreed to promptly pay TranSwitch a fee of $1.23 million.

Conditions to Completion of the Merger (see page 100)

The respective obligations of TranSwitch and Centillium to complete the merger and the other transactions contemplated by the merger agreement are subject to the satisfaction or waiver of the following conditions:

 

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the merger agreement must be adopted and approved by the holders of a majority of the outstanding shares of Centillium common stock;

 

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no governmental entity shall have (i) enacted, issued, promulgated, entered or enforced any law, statute or regulation that is in effect and has the effect of making the merger illegal in any jurisdiction in which Centillium has material business or operations or prohibiting the merger or (ii) issued or granted any order that is in effect and that has the effect of making the merger illegal in any jurisdiction in which Centillium has material business or operations or prohibiting the merger;

 

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the Securities and Exchange Commission, referred to herein as the SEC, shall have declared the registration statement of which this document is a part effective under the Securities Act and no stop order suspending the effectiveness of the registration statement or this proxy statement/prospectus shall have been issued and no proceedings for such purpose shall have been initiated by the SEC; and

 

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the receipt by both parties of a tax opinion from their respective counsels to the effect that the first merger and the second merger, taken together, will constitute a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code.

 

The obligations of TranSwitch, Sonnet and Haiku to complete the merger are also subject to the following conditions:

 

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the representations and warranties of Centillium set forth in the merger agreement must be true and correct, except where a failure to be true and correct would not have a material adverse effect on Centillium (except with respect to Centillium’s representations regarding capitalization and authorization, which must be true and correct in all material respects);

 

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Centillium must have performed in all material respects all of its agreements and covenants required by the merger agreement;

 

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Centillium’s delivery to TranSwitch of a certificate regarding representations and warranties and the performance of Centillium’s obligations;

 

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there shall not have been written demands for appraisal delivered to Centillium before the special meeting of stockholders under Section 262(d) of the Delaware General Corporation Law with respect to more than 15% of the total outstanding shares of Centillium common stock (excluding shares of Centillium common stock held by Centillium stockholders who have failed to perfect or otherwise comply with Section 262(d) of the Delaware General Corporation Law, or who have withdrawn or otherwise lost such right to appraisal);

 

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a formal voluntary self-disclosure shall have been filed no later than September 17, 2008, with the Bureau of Industry and Security Office of Export Enforcement;

 

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all reasonably necessary filings shall have been made relating to compliance with French legislation on data protection; and

 

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all third party consents as agreed to by the parties shall have been obtained.

The obligations of Centillium to complete the merger are also subject to the following conditions:

 

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the representations and warranties of TranSwitch, Sonnet and Haiku set forth in the merger agreement must be true and correct, except where a failure to be true and correct would not have a material adverse effect on TranSwitch (except with respect to TranSwitch’s, Sonnet’s and Haiku’s representations regarding capitalization and authorization, which must be true and correct in all material respects);

 

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TranSwitch, Sonnet and Haiku must have performed in all material respects all of their agreements and covenants required by the merger agreement;

 

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TranSwitch’s, Sonnet’s and Haiku’s delivery to Centillium of a certificate regarding the performance of their obligations; and

 

 

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the shares of TranSwitch common stock to be issued at the effective time of the merger shall have been authorized for listing on the Nasdaq Capital Market.

TranSwitch and Centillium cannot be certain when, or if, the conditions to the merger will be satisfied or waived or whether or not the merger will be completed.

Termination of the Merger Agreement and Termination Fee (see page 103)

The merger agreement may be terminated at any time before the effective time of the merger in the following manner:

 

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by mutual written consent;

 

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by either TranSwitch or Centillium, if Centillium’s stockholder approval has not been obtained at the special meeting;

 

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by either TranSwitch or Centillium, if the merger has not been consummated by December 31, 2008;

 

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by either TranSwitch or Centillium, if any governmental entity shall have (i) enacted, issued, promulgated, entered or enforced any law, statute or regulation that is in effect and has the effect of

 

making the merger illegal in any jurisdiction in which Centillium has material business or operations or which has the effect of prohibiting the merger or (ii) issued or granted any order that is in effect and has the effect of making the merger illegal in any jurisdiction in which Centillium has material business or operations or which has the effect of prohibiting the merger, and such order has become final and non-appealable;

 

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by either TranSwitch or Centillium, if the other breaches its respective representations and warranties or fails to perform its respective obligations and such breach or failure results in a deemed failure of the applicable closing condition, and such breach is not cured within 30 days;

 

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by TranSwitch, if Centillium’s board of directors makes a change of recommendation with respect to the merger agreement, if Centillium fails to include the Centillium board of directors recommendation in this proxy statement/prospectus, or if Centillium fails to timely make a statement regarding an acquisition proposal recommending that the Centillium stockholders reject such acquisition proposal; or

 

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by Centillium, if it enters into a definitive agreement to effect a superior proposal.

If the merger agreement is terminated, under certain circumstances involving the acquisition or potential acquisition of Centillium or TranSwitch by another company, the party subject to the acquisition or potential acquisition would be required to pay a termination fee equal to $1.23 million to the other party.

Voting Agreements (see page 104)

In connection with the execution of the merger agreement, TranSwitch entered into voting agreements with the directors and chief financial officer of Centillium, whereby such stockholders agreed to vote their shares of Centillium common stock in favor of the proposal to adopt and approve the merger agreement and the transactions contemplated thereby. As of August 25, 2008, these stockholders collectively owned approximately 4.0% of the Centillium common stock outstanding (12.5% including vested stock options). If the merger agreement terminates in accordance with its terms, these voting agreements will also terminate.

 

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF TRANSWITCH

The following selected financial data of TranSwitch as of and for each of the five fiscal years in the period ended December 31, 2007 has been derived from TranSwitch’s audited historical consolidated financial statements. The selected historical financial data for the six months ended June 30, 2008 and 2007 has been derived from unaudited consolidated financial statements for TranSwitch. The data below is only a summary and should be read in conjunction with TranSwitch’s consolidated financial statements and accompanying notes, as well as management’s discussion and analysis of financial condition and results of operations, all of which can be found in publicly available documents, including those incorporated by reference into this proxy statement/prospectus. For a complete list of the documents incorporated by reference into this proxy statement/prospectus, please see “Where You Can Find More Information” beginning on page 114 of this proxy statement/prospectus.

 

		Six Months Ended June 30,								Years Ended December 31,
		2008				2007				2007				2006				2005				2004				2003
		(unaudited)
		(in thousands, except share and per share data)
Selected Statements of Operations Data:
Net revenues		$	16,411			$	18,161			$	32,565			$	38,920			$	32,900			$	33,687			$	23,820
Gross profit			9,927				11,466				20,171				28,174				23,984				23,347				15,903
Operating loss			(8,625	)			(9,160	)			(18,800	)			(11,136	)			(14,662	)			(43,049	)			(45,739	)
Loss before extraordinary loss and cumulative effect of adoption of and change in accounting principle			(9,814	)			(9,621	)			(19,712	)			(10,856	)			(23,754	)			(44,347	)			(37,692	)
Extraordinary loss upon consolidation of TeraOp (USA), Inc.			—				—				—				—				—				—				(83	)
Cumulative effect on prior years adoption of and retroactive application of FIN 46R and new depreciation method			—				—				—				—				—				(277	)			(805	)
Net loss(1)(2)		$	(9,814	)		$	(9,621	)		$	(19,712	)		$	(10,856	)		$	(23,754	)		$	(44,624	)		$	(38,580	)
Basic and diluted loss per common share before extraordinary loss and cumulative effect of a change in accounting principle		$	(0.07	)		$	(0.07	)		$	(0.15	)		$	(0.09	)		$	(0.23	)		$	(0.47	)		$	(0.42	)
Basic and diluted net loss per common share		$	(0.07	)		$	(0.07	)		$	(0.15	)		$	(0.09	)		$	(0.23	)		$	(0.47	)		$	(0.43	)
Shares used in calculation of basic and diluted net loss per common share			133,235				132,016				132,529				124,801				104,779				94,638				90,406

 

		June 30,						December 31,
		2008			2007			2007			2006			2005			2004			2003
		(unaudited)
		(in thousands, except per share data)
Selected Balance Sheet Data:
Cash, cash equivalents and short-term investments		$	26,565		$	50,384		$	34,098		$	57,723		$	72,702		$	102,504		$	152,051
Total current assets			39,098			61,623			45,527			68,236			80,822			112,475			161,485
Working capital			29,016			44,202			36,867			30,323			73,385			76,361			147,845
Long-term investments (marketable securities)			—			—			—			—			—			32,178			27,300
Total non-current assets			20,440			19,962			22,060			14,420			6,004			42,233			44,821
Total assets			59,538			81,585			67,587			82,656			86,826			154,708			206,306
Convertible Notes due within one year, net of discount			—			—			—			28,811			—			24,442			—
Derivative liability			205			595			—			980			—			—			—
Total current liabilities			10,082			17,421			8,660			37,913			7,437			36,114			13,640
4.50% Convertible Notes due 2005			—			—			—			—			—			—			24,442
5.45% Convertible Plus Cash Notes due 2007, net of debt discount			—			8,460			—			—			49,102			67,370			75,866
5.45% Convertible Notes due 2010			25,013			21,246			25,013			—			—			—			—
Long-term derivative liability			—			—			—			—			6,040			8,461			20,659
Total non-current liabilities			44,961			41,752			45,259			20,689			76,180			97,363			143,656
Total stockholders’ equity			4,495			22,412			13,668			24,054			3,209			21,231			49,010
Book value per share		$	0.03		$	0.17		$	0.10		$	0.19		$	0.03		$	0.21		$	0.54

 

(1)

Effective January 1, 2003, TranSwitch changed the method of depreciating property and equipment to the straight-line method. Depreciation of property and equipment in prior years was computed using the half-year convention method. The effect of the change in depreciation method as of January 1, 2003 was applied retroactively to property and equipment acquisitions of prior years. The cumulative effect of the change with respect to the retroactive application of the straight-line method was an approximately $0.8 million charge (or $0.01 loss per basic and diluted common share) recorded in 2003.

 

(2)	Effective January 1, 2006, TranSwitch adopted SFAS No. 123R. As such, the reported net loss for 2007 and 2006 reflects stock-based compensation expense of $2.0 million and $2.4 million, respectively.

 

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF CENTILLIUM

The following selected financial data of Centillium as of and for each of the five fiscal years in the period ended December 31, 2007 has been derived from Centillium’s audited historical consolidated financial statements. The selected historical financial data for the six months ended June 30, 2008 and 2007 have been derived from unaudited consolidated financial statements for Centillium. The data below is only a summary and should be read in conjunction with Centillium’s consolidated financial statements and accompanying notes, as well as management’s discussion and analysis of financial condition and results of operations, all of which can be found in publicly available documents, including those incorporated by reference into this proxy statement/prospectus. For a complete list of the documents incorporated by reference into this proxy statement/prospectus, please see “Where You Can Find More Information” beginning on page 114 of this proxy statement/prospectus.

 

		Six Months Ended June 30,								Years Ended December 31,
		2008(1)				2007(2)				2007(3)				2006				2005(4)				2004				2003
		(unaudited)
		(in thousands, except per share data)
Consolidated Statement of Operations Data:
Net revenues		$	12,459			$	20,556			$	39,175			$	64,563			$	76,127			$	71,151			$	124,976
Gross profit		$	7,117			$	11,007			$	31,693			$	35,172			$	40,972			$	33,472			$	53,823
Operating loss		$	(755	)		$	(15,699	)		$	(19,382	)		$	(13,389	)		$	(12,810	)		$	(43,977	)		$	(14,298	)
Net loss		$	(438	)		$	(14,760	)		$	(17,601	)		$	(10,749	)		$	(11,285	)		$	(43,062	)		$	(13,359	)
Basic and diluted net loss per share		$	(0.01	)		$	(0.36	)		$	(0.43	)		$	(0.27	)		$	(0.29	)		$	(1.13	)		$	(0.37	)
Shares used to compute basic and diluted net loss per share			41,693				41,189				41,369				40,574				39,312				38,210				36,433
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments		$	34,955			$	48,047			$	36,805			$	55,399			$	61,340			$	62,191			$	89,626
Restricted cash		$	1,800			$	—			$	—			$	—			$	—			$	—			$	—
Working capital		$	23,313			$	24,514			$	24,813			$	38,746			$	44,539			$	49,115			$	88,284
Total assets		$	44,527			$	62,330			$	48,626			$	72,898			$	78,347			$	81,945			$	125,624
Short-term bank borrowings		$	—			$	—			$	1,500			$	—			$	—			$	—			$	—
Other long-term liabilities		$	1,624			$	1,581			$	1,829			$	1,228			$	2,368			$	864			$	143
Total stockholders’ equity		$	24,986			$	26,546			$	24,855			$	40,798			$	46,612			$	55,332			$	96,037

 

(1)	Results of operations for the six months ended June 30, 2008 include $8.1 million gain on sale of DSL related assets, $1.8 million benefit from reversal of accrued royalties, $2.0 million in gain on settlement and $2.9 million in restructuring charges.

 

(2)	Results of operations for the six months ended June 30, 2007 include $2.5 million in charges for loss on settlement and $0.3 million in restructuring charges for surplus space at Centillium’s Fremont, California location.

 

(3)

Results of operations for the year ended December 31, 2007 include $8.9 million benefit from reversal of accrued royalties, $2.5 million in charges for loss on settlement, $1.4 million impairment of assets and $0.8 million in restructuring charges for surplus space at Centillium’s Fremont, California location.

 

(4)	Results of operations for the year ended December 31, 2005 include $2.2 million in restructuring charges for surplus space at Centillium’s Fremont, California location.

 

SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following table presents summary unaudited pro forma condensed combined financial data that reflects the proposed acquisition of Centillium by TranSwitch. This information is derived from and should be read in conjunction with unaudited pro forma condensed combined consolidated financial statements and related notes thereto included in this proxy statement/prospectus, see “Unaudited Pro Forma Condensed Combined Financial Data” on page 116, and the historical financial statements and notes thereto of Centillium and TranSwitch that are incorporated by reference in this proxy statement/prospectus.

The unaudited pro forma condensed combined balance sheet data assumes that the pending acquisition of Centillium occurred on June 30, 2008. The unaudited pro forma condensed combined statement of operations data assumes that the pending acquisition of Centillium occurred on January 1, 2007.

 

Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2008:		Pro Forma Combined
		(in thousands)
ASSETS
Current assets:
Cash and cash equivalents		$	23,921
Short-term investments in marketable securities			19,305
Accounts receivable, net			10,741
Inventories			5,609
Prepaid expenses and other current assets			3,741
Total current assets			63,317
Restricted cash			1,800
Property and equipment, net			4,756
Goodwill			16,450
Contracts and other intangible assets, net			11,872
Investments in non-publicly traded companies			2,911
Deferred financing costs, net			1,293
Other assets			1,630
Total assets		$	104,029
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	6,812
Accrued expenses and other current liabilities			14,152
Accrued compensation and benefits			5,018
Accrued stock rotation and sales allowances			21
Accrued interest			341
Restructuring liabilities			1,207
Obligation under deferred revenue			243
Derivative liability			205
Total current liabilities			27,999
Restructuring liabilities			20,846
5.45% Convertible Notes due 2010			25,013
Other long-term liabilities			726
Total liabilities		$	74,584
Commitments and Contingencies
Stockholders’ equity:
Common stock			158
Additional paid-in capital			380,520
Accumulated other comprehensive income			835
Common stock held in treasury, at cost			(118	)
Accumulated deficit			(351,950	)
Total stockholders’ equity			29,445
Total liabilities and stockholders’ equity		$	104,029

 

		Additional Information
Unaudited Pro Forma Condensed Combined Statement of Operations		Pro Forma Combined				DSL Divesture				Adjusted Pro Forma Combined
		Year Ended December 31, 2007
		(in thousands, except per share data)
Net revenues:
Product revenues		$	68,485			$	(23,313	)		$	45,172
Service revenues			3,255				—				3,255
Total Net Revenues			71,740				(23,313	)			48,427
Cost of revenues:
Cost of product revenues			27,523				(9,975	)			17,548
Reversal of Accrued Royalties			(8,887	)			—				(8,887	)
Provisions for excess and obsolete inventories			1,086				—				1,086
Cost of service revenues			1,437				—				1,437
Total cost of revenues			21,159				(9,975	)			11,184
Gross profit			50,581				(13,338	)			37,243
Operating expenses:
Research and development			50,978				(3,239	)			47,739
Selling, general and administrative			34,417				(309	)			34,108
Loss on settlement			2,500				(2,500	)			—
Impairment of assets			1,413				(1,413	)			—
Restructuring charges, net			2,255				—				2,255
Total operating expenses			91,563				(7,461	)			84,102
Operating loss			(40,982	)			(5,877	)			(46,859	)
Other (expense) income:
Change in fair value of derivative liability			980				—				980
Loss on extinguishment of debt			(351	)			—				(351	)
Impairment of investments in non publicly traded companies			(109	)			—				(109	)
Other (expense) income			(417	)			—				(417	)
Interest:
Interest income			3,810				—				3,810
Interest expense			(3,168	)			—				(3,168	)
Interest expense, net			642				—				642
Total other expense (income), net			745				—				745
Loss before income taxes			(40,237	)			(5,877	)			(46,114	)
Income taxes			831				—				831
Net loss		$	(41,068	)		$	(5,877	)		$	(46,945	)
Basic and diluted loss per common share:
Net loss		$	(0.26	)						$	(0.30	)
Basic and diluted average common shares outstanding			157,529								157,529