Exhibit 10.1

EXCHANGE AGREEMENT
 
This Exchange Agreement (this “Agreement”) is made and entered into as of this
20th day of October, 2009 by and among QVT Fund LP (“QVT”) and Quintessence Fund
LP (“Quintessence,” each of QVT and Quintessence, a “Holder” and together, the
“Holders”), and TranSwitch Corporation, a Delaware corporation (the “Company”).
 
RECITALS
 
WHEREAS, QVT currently holds $6,374,000 in principal amount (the “QVT
Outstanding Notes”) of the Company’s outstanding 5.45% Convertible Notes due
2010 (the “Outstanding Notes”) issued pursuant to that certain Indenture, dated
as of July 6, 2007 (the “Outstanding Notes Indenture”), between the Company and
U.S. Bank National Association, as trustee;

WHEREAS, Quintessence currently holds $1,326,000 in principal amount (the
“Quintessence Outstanding Notes,” and together with the QVT Outstanding Notes,
the “Holder Outstanding Notes”) of the Outstanding Notes issued pursuant to the
Outstanding Notes Indenture;

WHEREAS, each of the Holders desires to exchange its Holder Outstanding Notes
for an equal principal amount of the Company’s 5.45% Convertible Notes due
September 30, 2011 (the “New Notes”) to be issued pursuant to the Indenture (as
defined below) on the terms and conditions set forth in this Agreement (the
“Note Exchange”);

WHEREAS, upon the terms and conditions set forth herein, the Company desires to
issue (i) to QVT $6,374,000 in aggregate principal amount of New Notes (the “QVT
New Notes”) in exchange for the QVT Outstanding Notes, and (ii) to Quintessence
$1,326,000 in aggregate principal amount of New Notes (the “Quintessence New
Notes,” and together with the QVT New Notes, the “Holder New Notes”), each,
pursuant to the Note Exchange;

WHEREAS, contemporaneously with the execution and delivery of this Agreement,
the Company is entering into one or more agreements substantially identical to
this Agreement (the “Other Agreements” and, together with this Agreement, the
New Notes and the Indenture, the “Transaction Documents”), pursuant to which the
Company and all of the holders of Outstanding Notes other than the Holders (the
“Other Holders”) shall on the Closing Date (as defined below) exchange each of
the Outstanding Notes held by the Other Holders for New Notes, upon the same
terms and conditions set forth in this Agreement;

WHEREAS, the New Notes will be issued pursuant to the Indenture, to be entered
into by the Company and the Trustee named therein (the “Trustee”), in the form
of Exhibit A hereto (the “Indenture”); and

WHEREAS, the Note Exchange is being made in reliance upon the exemption from
registration provided by Section 3(a)(9) of the Securities Act of 1933, as
amended, and the rules and regulations thereunder (the “Securities Act”).

 
 

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NOW, THEREFORE, in consideration of the premises and the agreements set forth
below, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

ARTICLE I
Exchange
 
Section 1.1      Exchange and Sale of the Holder New Notes. Upon the terms and
subject to the conditions of this Agreement, at the Closing (as defined herein),
the Company shall issue to and exchange with each of the Holders, and each of
the Holders agrees to accept from the Company, such Holder’s Holder New Notes,
together with all accrued and unpaid interest paid in cash on such Holder’s
Holder Outstanding Notes to, but excluding, the Closing Date, for such Holder’s
Holder Outstanding Notes.
 
Section 1.2      Closing. Subject to the terms and conditions hereof, the
closing of the transactions contemplated by this Agreement (the “Closing”) shall
take place on the third business day after the date hereof at the offices of
Brown Rudnick LLP, One Financial Center, Boston, Massachusetts 02111, or on such
other date and at such other place as the parties may agree in writing (the
“Closing Date”). At the Closing, (i) each of the Holders shall deliver or cause
to be delivered to the Company all of such Holder’s right, title and interest in
and to all of such Holder’s Holder Outstanding Notes and whatever documents of
conveyance or transfer may be necessary or desirable to transfer to and confirm
in the Company all right, title and interest in and to such Holder’s Holder
Outstanding Notes, and (ii) the Company shall issue to each Holder such Holder’s
Holder New Notes and pay in cash by wire transfer or via DTC of immediately
available funds (x) to each Holder an amount equal to the accrued and unpaid
interest on such Holder’s Holder Outstanding Notes to, but excluding, the
Closing Date, and (y) to QVT an amount not to exceed $30,000 as reimbursement
for the reasonable fees, costs and expenses incurred by the Holders in
connection with the drafting, negotiation, preparation, execution and
performance of this Agreement, pursuant to Section 4.12 hereof; provided,
however, that the parties acknowledge that the issuance to each of the Holders
of such Holder’s Holder New Notes may be delayed due to procedures and mechanics
within the system of The Depository Trust Company (“DTC”) and that such delay
will not be a default under this Agreement so long as (i) the Company is using
its best efforts to effect the issuance of one or more global notes representing
such Holder’s Holder New Notes, (ii) such delay is no longer than three (3)
business days and (iii) interest shall accrue on such Holder’s Holder New Notes
from the date of the Indenture.
 
Section 1.3      Conditions to Closing. (i) The obligations of each Holder
hereunder to consummate the transactions contemplated hereby at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions; provided that these conditions are for each Holder’s sole
benefit and may be waived by such Holder at any time in its sole discretion by
providing the Company with prior written notice thereof:
 
(a)     The Company shall have executed and delivered this Agreement to such
Holder;

 
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(b)    The Company and the Trustee shall have executed and delivered the
Indenture and delivered an executed copy thereof to each of the Holders;
 
(c)     The Company shall have executed and delivered to each of the Holders
such Holder’s Holder New Notes in the principal amount set forth on Exhibit C;
 
(d)    The transactions contemplated by the Other Agreements, including the
exchange of all of the Outstanding Notes held by the Other Holders for New
Notes, shall be consummated contemporaneously with the Closing;
 
(e)     The Company shall have submitted an additional share listing
notification form (the “Nasdaq Application”) (along with any required supporting
documentation) for the shares of the Company’s Common Stock, $.001 par value per
share, (“Common Stock”) issuable upon conversion or redemption of the New Notes,
including the Holder New Notes, with the NASDAQ Capital Market and received
acceptance of such Nasdaq Application from the Nasdaq Listing Department;
 
(f)     The Company shall have delivered to each of the Holders a certificate of
the Company, dated the Closing Date, executed by the secretary of the Company
certifying in such capacity and on behalf of the Company (i) as to the
incumbency and signature of the officer of the Company who executed this
Agreement and the Holder New Notes; (ii) as to the adoption of resolutions of
the board of directors of the Company (the “Board of Directors”) which are in
full force and effect on the Closing Date, authorizing (x) the execution and
delivery of this Agreement, the Indenture and the New Notes, and (y) the
performance of the obligations of the Company hereunder and thereunder; (iii) as
to the Company’s Amended and Restated Certificate of Incorporation, as amended
and in effect as of the Closing Date (the “Certificate of Incorporation”); and
(iv) the Company’s Second Amended and Restated Bylaws, as in effect as of the
Closing Date (the “Bylaws”);
 
(g)    The representations and warranties of the Company in this Agreement shall
be true and correct on and as of the Closing Date with the same effect as if
made on the Closing Date and the Company shall have performed, satisfied and
complied with all of the covenants, agreements and conditions on its part to be
performed, satisfied or complied with at or prior to the Closing Date, and the
Company shall have delivered to each of the Holders a certificate of the Chief
Executive Officer or Chief Financial Officer of the Company, dated the Closing
Date, to the foregoing effect;
 
(h)    Simultaneously with the Closing, the Company shall have issued an
aggregate principal amount of New Notes that, including the Holder New Notes
together with the other New Notes issued to the Other Holders, equals
$10,013,000;
 
(i)      Subsequent to the execution and delivery of this Agreement and prior to
the Closing Date, there shall have been no suspension or material limitation of
trading in the Common Stock on the NASDAQ Capital Market;
 
(j)      The Company shall have obtained a Committee on Uniform Securities
Identification Procedures number (CUSIP number) for the New Notes; and

 
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(k)     The Company shall have delivered to each of the Holders the opinion of
Brown Rudnick LLP, dated as of the Closing Date, in substantially the form of
Exhibit B attached hereto.
 
(ii)           The obligation of the Company hereunder to consummate the
transactions contemplated hereby at the Closing is subject to the satisfaction,
at or before the Closing Date, of each of the following conditions, provided
that these conditions are for the Company’s sole benefit and may be waived by
the Company at any time in its sole discretion by providing each Holder with
prior written notice thereof:
 
(a)     Each of the Holders shall have executed and delivered to the Company
this Agreement; and
 
(b)    Each of the Holders shall have delivered, or caused to be delivered, to
the Company such Holder’s Holder Outstanding Notes being exchanged pursuant to
this Agreement.
 
ARTICLE II
Representations and Warranties of the Holder
 
Each of the Holders, severally and not jointly, does hereby make the following
representations and warranties, each of which is true and correct on the date
hereof and the Closing Date and shall survive the Closing Date and the
transactions contemplated hereby to the extent set forth herein.

Section 2.1      Existence and Power.
 
(a)     Such Holder is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization and has the power,
authority and capacity to execute and deliver this Agreement, to perform its
obligations hereunder, and to consummate the transactions contemplated hereby.
 
(b)    The execution of this Agreement by such Holder and the consummation by
such Holder of the transactions contemplated hereby do not and will not
constitute or result in a breach, violation, conflict or default under any note,
bond, mortgage, deed, indenture, lien, instrument, contract, agreement, lease or
license to which such Holder is a party, whether written or oral, express or
implied, or any statute, law, ordinance, decree, order, injunction, rule,
directive, judgment or regulation of any court, administrative or regulatory
body, governmental authority, arbitrator, mediator or similar body on the part
of such Holder or on the part of any other party thereto or cause the
acceleration or termination of any obligation or right of such Holder, except
for such breaches, conflicts, defaults, rights or violations which would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of such Holder to perform its obligations
hereunder.
 
Section 2.2      Valid and Enforceable Agreement; Authorization. This Agreement
has been duly executed and delivered by such Holder and constitutes a legal,
valid and binding obligation of such Holder, enforceable against such Holder in
accordance with its terms, except that such enforcement may be subject to
(a) bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors’ rights generally, and
(b) general principles of equity.

 
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Section 2.3      Title to Holder Outstanding Notes. Such Holder is a beneficial
owner of and has the investment power, including the power to dispose of, and
has good and valid title to, such Holder’s Holder Outstanding Notes being
exchanged by such Holder as set forth on Exhibit C attached hereto hereby, free
and clear of any mortgage, lien, pledge, charge, security interest, encumbrance,
title retention agreement, option, equity or other adverse claim thereto. Such
Holder has not, in whole or in part, (i) assigned, transferred, hypothecated,
pledged or otherwise disposed of such Holder’s Holder Outstanding Notes or its
rights in such Holder’s Holder Outstanding Notes being exchanged by such Holder
hereby, or (ii) given any person or entity any transfer order, power of attorney
or other authority of any nature whatsoever with respect to such Holder’s Holder
Outstanding Notes.
 
Section 2.4      No Public Market.  Such Holder understands that no public
market now exists for the New Notes, and that the Company has made no assurance
that a public market will ever exist for the New Notes.
 
Section 2.5      History of Holder Outstanding Notes; Non-Affiliate Status. 
Such Holder acquired such Holder’s Holder Outstanding Notes on July 6, 2007 and
has held such Holder’s Holder Outstanding Notes continuously since such
date.  Such Holder is not, and has not been during the preceding three months,
an “affiliate” of the Company (an “Affiliate”) as such term is defined in
Rule 144 under the Securities Act (or a successor rule thereto) (“Rule 144”).
 
ARTICLE III
Representations, Warranties and Covenants of the Company
 
The Company hereby makes the following representations, warranties and
covenants, each of which is true and correct on the date hereof and the Closing
Date and shall survive the Closing Date and the transactions contemplated hereby
to the extent set forth herein.

Section 3.1      Existence and Power.
 
(a)     The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the power,
authority and capacity to own its properties, to carry on its business as
currently conducted and proposed to be conducted, to execute and deliver this
Agreement and the other Transaction Documents, to perform the Company’s
obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby.

 
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(b)    The execution, delivery and performance of this Agreement and the other
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby, including the issuance of all of
the shares of Common Stock into which the New Notes, including the Holder New
Notes, may be converted upon conversion of the New Notes (the “Underlying Common
Stock”), (i) do not require the consent, approval, authorization, order,
registration or qualification of, or filing with, any governmental or
self-regulatory authority or court, or body or arbitrator having jurisdiction
over the Company other than the Company’s filings with the NASDAQ Capital Market
and DTC expressly contemplated hereby; and (ii) do not and will not constitute
or result in a breach, violation or default under any note, bond, mortgage,
deed, indenture, lien, instrument, contract, agreement, lease or license,
whether written or oral, express or implied, or with the Certificate of
Incorporation or the Bylaws, or any statute, law, ordinance, decree, order,
injunction, rule, directive, judgment or regulation of the NASDAQ Capital Market
(including the stockholder approval requirements thereof), any court,
administrative or regulatory body, governmental or self-regulatory authority,
arbitrator, mediator or similar body on the part of the Company or on the part
of any other party thereto or cause the acceleration or termination of any
obligation or right of the Company or any other party thereto.
 
Section 3.2      Valid and Enforceable Agreement; Authorization.  The execution,
delivery and performance of this Agreement and the other Transaction Documents
by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby, including the issuance of $10,013,000 in
principal amount of the New Notes, and the reservation for issuance and the
issuance of the Underlying Common Stock upon conversion of the New Notes, have
been duly authorized by the Board of Directors, and no further consent,
authorization or approval is required therefor by the Company or the Board of
Directors or the Company’s stockholders under the Certificate of Incorporation,
the Bylaws, applicable law, the rules of the NASDAQ Capital Market or
otherwise.  This Agreement has been duly executed and delivered by the Company
and constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except that such
enforcement may be subject to (a) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors’ rights generally, and (b) general principles of equity.  As of the
Closing Date, each of the other Transaction Documents will have been duly
executed and delivered by the Company and will constitute a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except that such enforcement may be subject to (a) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors’ rights generally, and (b) general
principles of equity.
 
Section 3.3      Capitalization. At the Closing, the authorized capital stock of
the Company will consist of 300,000,000 shares of Common Stock, par value $0.001
per share, and 1,000,000 shares of Preferred Stock, par value $0.01 per
share.  As of the close of business on October 14, 2009, there were 160,051,041
shares of Common Stock issued and outstanding.  All such issued and outstanding
shares have been duly authorized and validly issued, and are fully paid and
non-assessable, and were issued in compliance with all applicable state and
federal laws concerning the issuance of securities and all applicable
preemptive, participation, rights of first refusal and other similar
rights.  There are no shares of Preferred Stock of the Company issued or
outstanding.  Except as set forth in the SEC Documents (as defined below), no
Person has any right to subscribe for or to purchase (including conversion and
preemptive rights and rights of first refusal and similar rights), or any
options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, any calls, commitments or other claims of any
character relating to, any equity securities or any securities convertible into
or exchangeable for any equity securities of the Company.  Except for 25,196,436
shares of Common Stock reserved for issuance pursuant to the Company’s stock
option, restricted stock and employee stock purchase plans described in the SEC
Documents (the “Company Stock Award Plans”), including no more than 22,444,558
shares of Common Stock issuable pursuant to outstanding awards under the Company
Stock Award Plans as of the date of this Agreement, and 200,000 of shares of
Series A Junior Preferred Stock reserved for issuance pursuant to the Rights
Agreement, dated as of October 1, 2001, between TranSwitch Corporation, and
Computershare Trust Company, N.A. (formerly known as Equiserve Trust Company,
N.A) and amended by Amendment No. 1 to Rights Agreement, dated as of February
24, 2006, no shares of capital stock of the Company are reserved for issuance
under any plan, agreement or arrangement.

 
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Section 3.4      Valid Issuance of the Holder New Notes.  The New Notes, when
issued, sold and delivered in accordance with the terms and for the
consideration set forth in this Agreement and the Other Agreements, as
applicable, and the Indenture, will constitute legal and binding obligations of
the Company, be validly issued and free of restrictions on transfer other than
restrictions on transfer under this Agreement, applicable state and federal
securities laws and liens or encumbrances created by or imposed by the Holders,
and enforceable against the Company in accordance with their terms, except that
such enforcement may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors’ rights generally, and (b) general principles of equity. Assuming the
accuracy of the representations of each of the Holders in Section 2 of this
Agreement and of the representations of the Other Holders in Section 2 of each
of the Other Agreements, the New Notes will be issued in compliance in all
material respects with all applicable federal and state securities laws. The
Underlying Common Stock has been duly reserved for issuance, and upon issuance
in accordance with the terms of the Certificate of Incorporation, will be
validly issued, fully paid and nonassessable and free of restrictions on
transfer other than liens or encumbrances created by or imposed by the Holders
or the Other Holders (assuming for purposes only of restrictions under
applicable securities laws that neither of the Holders nor any of the Other
Holders is an Affiliate at the time of such issuance). Based in part upon the
representations of the Holders in Section 2 of this Agreement and the
representations of the Other Holders in Section 2 of each of the Other
Agreements, the Underlying Common Stock, when issued and delivered in accordance
with the terms of the New Notes and the Indenture, will be issued in compliance
in all material respects with all applicable federal and state securities laws.
Neither the Company, nor any of its subsidiaries or affiliates, nor, to the
Company’s knowledge, any Person acting on its or their behalf, has engaged in
any form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the New Notes or the Underlying Common Stock.  None of the Company, its
subsidiaries, any of their affiliates and any Persons acting on their behalf
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would require
registration of any of the New Notes or the Underlying Common Stock under the
Securities Act or cause this offering of the New Notes and the Underlying Common
Stock to be integrated with prior offerings by the Company for purposes of any
applicable stockholder approval provisions, including under the rules and
regulations of the NASDAQ Capital Market.  None of the Company, its
subsidiaries, their affiliates and any Persons acting on their behalf will take
any action or steps referred to in the preceding sentence that would require
registration of any of the New Notes or the Underlying Common Stock under the
Securities Act or cause the offering of the New Notes or the Underlying Common
Stock to be integrated with other offerings for purposes of any applicable
stockholder approval provisions.  For purposes hereof, “Person” means an
individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization or a government or any
department or agency thereof or any other legal entity.  Without limiting the
foregoing, the issuance by the Company of the New Notes is, and the issuance of
the Underlying Common Stock upon conversion of the New Notes will be, exempt
from registration under the Securities Act and state securities laws pursuant to
the exemption from registration set forth in Section 3(a)(9) of the Securities
Act and similar exemptions under state law.

 
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Section 3.5      SEC Documents; Financial Statements.  The Company timely filed
with the Securities and Exchange Commission (the “SEC”) each of the Company’s
Annual Report on Form 10-K filed on March 13, 2009, the Company’s Quarterly
Reports on Form 10-Q filed on May 11, 2009 and August 10, 2009, the Company’s
Definitive Proxy Statement filed on April 20, 2009, and the Company’s Current
Reports on Form 8-K filed on February 20, 2009, March 6, 2009, March 24, 2009,
April 8, 2009, April 9, 2009, May 18, 2009, May 27, 2009 and August 12, 2009
(all of such filings currently filed with the SEC referred to, collectively, as
the “SEC Documents”), and since October 20, 2008, has timely filed all other
reports, schedules, forms, statements and other documents required to be filed
by with the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder (the
“Exchange Act”). As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC thereunder
applicable to such SEC Documents.  As of their respective dates, the SEC
Documents did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.  The audited consolidated financial statements and unaudited
interim financial statements of the Company included in the SEC Documents comply
as to form in all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto.  The
financial statements and schedules included in the SEC Documents: have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as may be indicated therein or in the notes thereto);
present fairly, in all material respects, the consolidated financial position of
the Company and its subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flow for the periods then ended, subject,
in the case of the unaudited interim financial statements, to normal year-end
audit adjustments and any other adjustments described therein and the fact that
certain information and notes have been condensed or omitted in accordance with
the Exchange Act; and are in all material respects, in accordance with the books
of account and records of the Company.  The Company is eligible to use SEC Form
S-3 for a primary issuance of Common Stock.
 
Section 3.6      Legal Proceedings.  No legal or governmental proceedings or
investigations are pending or, to the knowledge of the Company, threatened to
which the Company or any of its subsidiaries is a party or to which the property
of the Company or any of its subsidiaries is subject that are not described in
the SEC Documents, except for such proceedings or investigations which would not
reasonably be expected to, singly or in the aggregate, result in a Material
Adverse Effect. As used in this Agreement, the term “Material Adverse Effect”
shall mean, when used in respect of any matter relating to the Company, a
material adverse effect (i) on the business, condition (financial or otherwise),
properties or results of operations of the Company and its subsidiaries,
considered as one enterprise, (ii) on the transactions contemplated by this
Agreement or the other Transaction Documents or (iii)  on the authority or
ability of the Company to enter into and perform its obligations under this
Agreement and the other Transaction Documents.

 
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Section 3.7      Compliance with Laws; Permits.  The Company and its
subsidiaries possess all certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary to
conduct their respective businesses, except where the failure to have such
certificates, authorizations and permits would not reasonably be expected to
have a Material Adverse Effect, and none of the Company and its subsidiaries has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit which would reasonably be expected
to, singly or in the aggregate, result in a Material Adverse Effect. The Company
and its subsidiaries are and have been in compliance with all applicable laws,
statutes, ordinances, rules, regulations, orders, judgments, decisions, decrees,
standards, and requirements relating to their respective businesses, except
where any such non-compliance would not reasonably be expected to have a
Material Adverse Effect.  Except as described in the SEC Documents, without
limiting the generality of the foregoing, the Company is not in violation of any
of the material rules, regulations or requirements of the NASDAQ Capital Market
and has no knowledge of any facts or circumstances that would reasonably lead to
delisting or suspension of the Common Stock by the NASDAQ Capital Market in the
foreseeable future.  Except as described in the SEC Documents, the Company has
not received any communication, written or oral, from the SEC or the NASDAQ
Capital Market regarding the suspension or delisting of the Common Stock from
the NASDAQ Capital Market.
 
Section 3.8      No Material Adverse Effect.  Since the respective dates as of
which information is given in the SEC Documents, there has not been any event,
development or occurrence having a Material Adverse Effect on the Company or its
subsidiaries, except as reflected or disclosed in a subsequent SEC Document.
 
Section 3.9      Disclosure.  On or before the first business day following the
date of this Agreement, the Company shall issue a press release and file a Form
8-K with the SEC disclosing all material terms of the transactions contemplated
hereby (and, in the case of such Form 8-K, including the Transaction Documents
as exhibits thereto) and any other material nonpublic information delivered by
the Company or its agents or counsel to any of the Holders or any agent acting
on its behalf.  Upon the filing of such press release and Form 8-K, no Holder
shall be in possession of any information that constitutes or could reasonably
be expected to constitute material, nonpublic information provided to such
Holder by the Company or any agent acting on its behalf.  The Company shall not,
and shall cause each of its subsidiaries and its and each of their respective
officers, directors, employees and agents not to, provide any Holder with any
material, nonpublic information regarding the Company or any of its subsidiaries
from and after the filing of such Form 8-K with the SEC without the express
written consent of each of the Holders. The Company understands and confirms
that each of the Holders will rely on the foregoing representations in effecting
the transactions contemplated hereby.

 
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Section 3.10    Dilution.  The Company hereby acknowledges that (a) either of
the Holders or one or more of the Other Holders may engage in hedging and/or
trading activities at various times during the period that the New Notes and the
Underlying Common Stock are outstanding, including during the periods that the
value of the shares of Underlying Common Stock deliverable with respect to
Securities are being determined and (b) such hedging and/or trading activities,
if any, can reduce the value of the existing stockholders’ equity interests in
the Company both at and after the times the hedging and/or trading activities
are being conducted.  The Company acknowledges that such aforementioned hedging
and/or trading activities do not constitute a breach of this Agreement, the New
Notes or any of the documents executed in connection herewith.  Notwithstanding
the forgoing, the Company assumes that all such activity by the Holders and each
of the Other Holders shall be in compliance with all applicable federal and
state securities laws and disclaims any liability for actions by the Holders or
any of the Other Holders that fail to comply with all applicable laws.
 
Section 3.11    Outstanding Obligations.  As of the date hereof, there are
$10,013,000 in aggregate principal amount of Outstanding Notes, including the
Holder Outstanding Notes.  Upon the consummation of the transactions
contemplated hereby and by the Other Agreements, there will be no Outstanding
Notes outstanding.  Immediately following the Closing, $10,013,000 in aggregate
principal amount of New Notes, including the Holder New Notes, will be
outstanding.
 
Section 3.12    Legend.  The Company acknowledges and agrees that, based on each
of the Holders’ representations made in Section 2 of this Agreement, as of the
Closing Date none of the Holder New Notes, nor any shares of Underlying Common
Stock issuable upon conversion of the Holder New Notes, shall bear any legend
regarding registration under the Securities Act or restrictions on transfer.
 
Section 3.13    Rule 144.  Assuming neither of the Holders becomes an affiliate
of the Company, the Company shall not, directly or indirectly, dispute or
otherwise interfere with any claim by the Holders that the holding period of any
Holder New Notes and Underlying Common Stock issued upon conversion of any
Holder New Notes (including any Underlying Common Stock issued to any Holders
pursuant to an Installment Conversion (as defined in the Indenture)) for
purposes of Rule 144 relates back (i.e., tacks) to the holding period for the
Holder Outstanding Notes.  The Company agrees and acknowledges that, assuming as
provided in this Section 3.13, under Rule 144, as currently in effect, such
tacking is permitted.
 
Section 3.14    Additional Securities-Related Covenants.    The Company shall
use all reasonable efforts to cause the Indenture to be qualified under the
Trust Indenture Act of 1939, as amended, and the rules and regulations
thereunder (the “TIA”), in a timely manner and, in connection therewith,
cooperate with the Trustee and the Holders of the New Notes or the Underlying
Common Stock to effect such changes to the Indenture, if any, as may be required
for such Indenture to be so qualified in accordance with the terms of the TIA,
and execute, and use all reasonable efforts to cause the Trustee to execute, all
customary documents as may be required to effect such changes, and all other
forms and documents (including Form T-1) required to be filed with the SEC to
enable the Indenture to be so qualified.  The Company shall (a) list the
Underlying Common Stock on any securities exchange on which the Common Stock is
then listed, (b) use its reasonable efforts to maintain the listing of the
Common Stock on the NASDAQ Capital Market or another national securities
exchange (including by using reasonable efforts to comply with the rules and
regulations thereof), and (c) use its reasonable efforts to file with the SEC in
a timely manner all annual reports on Form 10-K and quarterly reports on Form
10-Q required of the Company under the Exchange Act so long as the Company
remains subject to such requirements.

 
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Section 3.15    No Violation of Outstanding Notes or Outstanding Notes
Indenture.  The Company has not breached or violated any of the provisions of,
nor is there any continuing Default or Event of Default (each as defined in the
Outstanding Notes Indenture) under, any of the Outstanding Notes or the
Outstanding Notes Indenture.
 
Section 3.16    Acknowledgments.  The Company hereby irrevocably and
unconditionally acknowledges, affirms and covenants to each of the Holders that:
 
(a)     neither of the Holders is in default under such Holder’s Holder
Outstanding Notes, the Outstanding Notes Indenture or any of the agreements,
arrangements or understandings entered into or agreed upon by either of the
Holders in connection with, or otherwise relating to, the acquisition of the
Holder Outstanding Notes by the Holders (the “Outstanding Notes Documents”), as
applicable, and has not otherwise breached any obligations to the Company or any
of its subsidiaries.
 
(b)    there are no offsets, counterclaims or defenses to the obligations,
liabilities and indebtedness of every nature of the Company owed under or in
respect of either of the Holder Outstanding Notes or the Holder New Notes (the
“Obligations”), including the liabilities and obligations of the Company under
the Holder Outstanding Notes or the Holder New Notes or to the rights, remedies
or powers of either of the Holders in respect of any of the Obligations, any of
the Holder Outstanding Notes Documents, the Outstanding Notes Indenture or any
of the  Transaction Documents, as applicable, and the Company agrees not to, and
to cause each of its subsidiaries not to, interpose (and each does hereby waive
and release) any such defense, set-off or counterclaim in any action brought by
either of the Holders with respect thereto.
 
ARTICLE IV
Miscellaneous Provisions
 
Section 4.1      Notice.  Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed first class mail
(postage prepaid) with return receipt requested or sent by reputable overnight
courier service (charges prepaid) to such address and to the attention of such
person as the recipient party has specified by prior written notice to the
sending party. Notices will be deemed to have been given hereunder when
delivered personally, three (3) business days after deposit in the U.S. mail
postage prepaid with return receipt requested and two (2) business days after
deposit postage prepaid with a reputable overnight courier service for delivery
on the next business day.
 
Section 4.2      Entire Agreement.  This Agreement, the Holder New Notes, the
Indenture and the other documents and agreements executed in connection with the
transactions contemplated hereby embody the entire agreement and understanding
of the parties hereto with respect to the subject matter hereof and supersede
all prior and contemporaneous oral or written agreements, representations,
warranties, contracts, correspondence, conversations, memoranda and
understandings between or among the parties or any of their agents,
representatives or affiliates relative to such subject matter, including the
Outstanding Notes Documents, the Outstanding Notes Indenture and any term
sheets, emails or draft documents.
 
 
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Section 4.3      Assignment; Binding Agreement.  This Agreement and the various
rights and obligations arising hereunder shall inure to the benefit of and be
binding upon the parties hereto and their successors and assigns.
 
Section 4.4      Counterparts.  This Agreement may be executed in multiple
counterparts, and on separate counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument. Any counterpart or other signature hereupon delivered by facsimile
or other electronic transmission shall be deemed for all purposes as
constituting good and valid execution and delivery of this Agreement by such
party.
 
Section 4.5      Remedies Cumulative.  All rights and remedies of the parties
under this Agreement are cumulative and without prejudice to any other rights or
remedies available under this Agreement or at law or in equity (including a
decree of specific performance and/or other injunctive relief), and no remedy
contained herein shall be deemed a waiver of compliance with the provisions
giving rise to such remedy, and nothing herein shall limit any Holder’s right to
pursue actual damages for any failure by the Company to comply with the terms of
this Agreement.  The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holders and that the remedy at law
for any such breach may be inadequate.  The Company therefore agrees that, in
the event of any such breach or threatened breach, each Holder shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
 
Section 4.6      Governing Law.  This Agreement shall in all respects be
construed in accordance with and governed by the substantive laws of the State
of New York, without reference to its choice of law rules.  Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper.
 
Section 4.7      No Third Party Beneficiaries or Other Rights.  Except as
provided in Section 4.16, nothing herein shall grant to or create in any person
not a party hereto, or any such person’s dependents or heirs, any right to any
benefits hereunder, and no such party shall be entitled to sue any party to this
Agreement with respect thereto.
 
Section 4.8      Waiver; Consent.  This Agreement may not be changed, amended,
terminated, augmented, rescinded or discharged (other than in accordance with
its terms), in whole or in part, except by a writing executed by the parties
hereto. No waiver of any of the provisions or conditions of this Agreement or
any of the rights of a party hereto shall be effective or binding unless such
waiver shall be in writing and signed by the party claimed to have given or
consented thereto. Except to the extent otherwise agreed in writing, no waiver
of any term, condition or other provision of this Agreement, or any breach
thereof shall be deemed to be a waiver of any other term, condition or provision
or any breach thereof, or any subsequent breach of the same term, condition or
provision, nor shall any forbearance to seek a remedy for any noncompliance or
breach be deemed to be a waiver of a party’s rights and remedies with respect to
such noncompliance or breach.

 
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Section 4.9      Word Meanings.  The words such as “herein,” “hereinafter,”
“hereof,” and “hereunder” refer to this Agreement as a whole and not merely to a
subdivision in which such words appear unless the context otherwise requires.
The singular shall include the plural, and vice versa, unless the context
otherwise requires. The masculine shall include the feminine and neuter, and
vice versa, unless the context otherwise requires.  The use of the word
“including” in this Agreement shall be by way of example rather than limitation.
 
Section 4.10    No Broker.  Each party represents and warrants that it has not
engaged any third party as broker or finder or incurred or become obligated to
pay any broker’s commission or finder’s fee in connection with the transactions
contemplated by this Agreement other than such fees and expenses for which it
shall be solely responsible.
 
Section 4.11    Further Assurances.  Each of the Holders and the Company each
hereby agree to execute and deliver, or cause to be executed and delivered, such
other documents, instruments and agreements, and take such other actions, as
either party may reasonably request in connection with the transactions
contemplated by this Agreement.
 
Section 4.12    Costs and Expenses.  On the Closing Date, the Company shall
reimburse QVT for an amount not to exceed $30,000 as reimbursement for the
reasonable fees, costs and expenses incurred by the Holders in connection with
the drafting, negotiation, preparation, execution and performance of this
Agreement, including reasonable attorneys’ fees, against delivery to the Company
of invoices or other appropriate documentation in reasonable detail.  The
Company shall pay its own fees, costs and expenses incurred in connection with
the drafting, negotiation, preparation, execution and performance of this
Agreement, including attorneys’ fees.
 
Section 4.13    Headings.  The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
 
Section 4.14    Severability.  If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
 
Section 4.15    Reasonable Best Efforts.  Each party shall use its reasonable
best efforts to timely satisfy each of the conditions to be satisfied by it as
provided in Section 1.3 of this Agreement.

 
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Section 4.16    Indemnification.  In consideration of each Holder’s execution
and delivery of this Agreement and acquiring such Holder’s Holder New Notes in
exchange for such Holder’s Holder Outstanding Notes hereunder and in addition to
all of the Company’s other obligations under this Agreement and the other
Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless the Holders and each of the Holders’ respective stockholders, partners,
members, managers, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons’ agents or other representatives
(including those retained in connection with the transactions contemplated by
this Agreement) (collectively, the “Indemnitees”, who are the third party
beneficiaries of this Section 4.16), as incurred, from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys’ fees and disbursements
(the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in this Agreement or any of the
other Transaction Documents, or (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement or any of the other
Transaction Documents.  To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
 
Section 4.17    Independent Nature of Obligations and Rights.  The obligations
of each of the Holders and the Other Holders under any Transaction Documents are
several and not joint with the obligations of any other such Person, and no
Holder shall not be responsible in any way for the performance of the
obligations of the other Holder or any Other Holder under any of the Transaction
Documents.  Nothing contained herein or in any other Transaction Document, and
no action taken by any of the Holders or any of the Other Holders pursuant
hereto or thereto, shall be deemed to constitute any Holder and any of the Other
Holders as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that they are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by the
Transaction Documents, and the Company acknowledges that they are not acting in
concert or as a group, and the Company will not assert any such claim with
respect to such obligations or the transactions contemplated by the Transaction
Documents.  Each of the Holders and the Other Holders shall be entitled to
independently protect and enforce its rights, including the rights arising out
of this Agreement or out of any other Transaction Document, and it shall not be
necessary for any other Person to be joined as an additional party in any
proceeding for such purpose.

*  *  *  *  *  *

 
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed as of the date first above written.

 
HOLDERS:
       
QVT FUND LP
       
By:
QVT Associates GP LLC
 
Its:
General Partner
       
By:
/s/ Tracy Fu
 
Name:
  Tracy Fu
 
Title:
Managing Member
       
QUINTESSENCE FUND LP
       
By:
QVT Associates GP LLC
 
Its:
General Partner
       
By:
/s/ Tracy Fu
 
Name:
  Tracy Fu
 
Title:
Managing Member
       
THE COMPANY:
       
TRANSWITCH CORPORATION
       
By:
/s/ Santanu Das
 
Name:
Santanu Das
 
Title:
President and Chief Executive Officer

[Signature Page to Exchange Agreement]

 

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Exhibit A
 
Form of Indenture

 

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Exhibit B
 
Form of Opinion of Brown Rudnick LLP

 

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Exhibit C
 
ENTITY
 
AMOUNT OF HOLDER
OUTSTANDING NOTES TO
BE EXCHANGED
   
AMOUNT OF HOLDER
NEW NOTES TO BE
ISSUED
                   
QVT Fund LP
  $ 6,374,000     $ 6,374,000                    
Quintessence Fund LP
  $ 1,326,000     $ 1,326,000                    
Total
  $ 7,700,000     $ 7,700,000  

 

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