1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X}
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
TEKELEC
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------
(3) Filing party:
-----------------------------------------------------------
(4) Date filed:
-----------------------------------------------------------
2
TEKELEC
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 14, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders (the
"Annual Meeting") of Tekelec, a California corporation (the "Company"), will be
held Friday, May 14, 1999, at 9:00 a.m., California time, at the Company's
offices located at 26580 West Agoura Road, Calabasas, California 91302, for the
following purposes, each as more fully described in the attached Proxy
Statement:
1. To elect six directors to serve for the ensuing year.
The names of the nominees intended to be presented for election are: Robert V.
Adams, Jean-Claude Asscher, Daniel L. Brenner, Michael L. Margolis, Howard
Oringer and Jon F. Rager.
2. To approve an amendment to the Company's 1994 Stock Option
Plan to increase the number of shares of Common Stock authorized for issuance
thereunder from 14,000,000 to 19,000,000.
3. To ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants for the year ending December 31, 1999.
4. To transact such other business as may properly come before
the Annual Meeting or any adjournment(s) thereof.
Only record holders of Common Stock at the close of business on March
23, 1999 are entitled to notice of, and to vote at, the Annual Meeting and at
any adjournment(s) thereof.
All shareholders are cordially invited to attend the Annual Meeting in
person. Whether or not you expect to attend the Annual Meeting in person, in
order to ensure your representation at the Annual Meeting, please mark, sign,
date and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder of record
attending the Annual Meeting may vote in person even if such shareholder has
returned a proxy.
By Order of the Board of Directors
Ronald W. Buckly
Secretary
Calabasas, California
April 2, 1999
3
TEKELEC
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited by and on behalf of the Board of
Directors of Tekelec ("Tekelec" or the "Company") for use at the Annual Meeting
of Shareholders (the "Annual Meeting") to be held Friday, May 14, 1999, at 9:00
a.m., California time, or at any adjournment(s) thereof, for the purposes set
forth herein and in the accompanying Notice of Annual Meeting of Shareholders
(the "Notice"). The Annual Meeting will be held at the Company's offices located
at 26580 West Agoura Road, Calabasas, California 91302.
These proxy solicitation materials were first mailed on or about April
5, 1999 to all shareholders entitled to vote at the Annual Meeting.
Only shareholders of record at the close of business on March 23, 1999
(the "Record Date") are entitled to notice of, and to vote at, the Annual
Meeting. At the Record Date, 54,594,592 shares of the Company's Common Stock
were issued and outstanding.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Secretary of
the Company a written notice of revocation or a duly executed proxy bearing a
later date or by attending the Annual Meeting and voting in person.
VOTING AND SOLICITATION
Every shareholder voting in the election of directors may cumulate such
shareholder's votes and give one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of votes to which such
shareholder's shares are entitled (one vote per share of Common Stock), or
distribute such votes on the same principle among as many candidates as the
shareholder chooses, provided that votes cannot be cast for more than six
candidates. However, no shareholder may cumulate votes unless the name of the
candidate or candidates for whom such votes would be cast has been placed in
nomination prior to the voting and any shareholder has given notice, at the
Annual Meeting prior to the voting, of such shareholder's intention to cumulate
votes. The six candidates receiving the highest number of votes will be elected.
On all other matters, each share of Common Stock has one vote. Except as
otherwise required by law or the Company's Articles of Incorporation, the
affirmative vote of a majority of shares represented and voting at the Meeting
(which shares voting affirmatively must also constitute at least a majority of
the required quorum) is required for the approval of such other matters.
Abstentions are included in the determination of the number of shares present
and entitled to vote for purposes of determining the presence of a quorum.
Abstentions, however, do not constitute a vote "for" or "against" any matter and
thus will be disregarded in the calculation of a plurality or of "votes cast."
Shares represented by "broker non-votes" (i.e., shares held by brokers or
nominees that are represented at a meeting but with respect to which the brokers
or nominees are not empowered to vote on a particular proposal) will also be
counted for purposes of determining the presence of a quorum at the Annual
Meeting, but will not be treated as shares present and entitled to vote with
respect to that matter (even though such shares are considered present and
entitled to vote for quorum purposes and may be entitled to vote on other
matters).
-1-
4
The cost of this solicitation will be borne by the Company. The Company
has retained the services of Corporate Investor Communications, Inc. to assist
in distributing proxy materials to brokerage houses, banks, custodians and other
nominee holders. The estimated cost of such services is $1,000 plus
out-of-pocket expenses. Although there are no formal agreements to do so, the
Company may reimburse brokerage houses and other persons representing beneficial
owners of shares for their expenses in forwarding proxy materials to such
beneficial owners. Proxies may be solicited personally or by telephone or
telegram by certain of the Company's directors, officers and regular employees,
without additional compensation.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company which are intended to be
presented by such shareholders at the Company's annual meeting of shareholders
to be held in 2000 (the "2000 Annual Meeting") must be received by the Company
no later than December 6, 1999 in order that they may be included in the proxy
statement and form of proxy relating to that annual meeting. In addition,
proxies solicited by management may confer discretionary authority to vote on
matters which are not included in the proxy statement but which are raised at
the 2000 Annual Meeting, unless the Company receives written notice of such
matters on or before February 15, 2000; provided, however, that if the date of
the 2000 Annual Meeting is more than 30 days before or after the anniversary
date of the 1999 Annual Meeting, the Company must receive written notice of such
matters within a reasonable time before the Company begins to print and mail its
proxy materials. It is recommended that shareholders submitting proposals direct
them to the Secretary of the Company via certified mail, return receipt
requested, in order to ensure timely delivery. No such proposals were received
with respect to the Annual Meeting scheduled for May 14, 1999.
PROPOSAL 1 - ELECTION OF DIRECTORS
NOMINEES
A board of six directors will be elected at the Annual Meeting. Unless
otherwise instructed, proxy holders will vote the proxies received by them for
the Company's six nominees named below, all of whom are currently directors of
the Company. In the event that any nominee of the Company is unable or declines
to serve as a director at the time of the Annual Meeting, the proxies will be
voted for any nominee who is designated by the present Board of Directors to
fill the vacancy. In the event that additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received by
them in such a manner in accordance with cumulative voting as will assure the
election of as many of the nominees listed below as possible, and, in such
event, the specific nominees to be voted for will be determined by the proxy
holders. It is not expected that any nominee will be unable or will decline to
serve as a director. The term of office of each person elected as a director
will continue until the next annual meeting of shareholders and such time as his
successor is duly elected and qualified or until his earlier resignation,
removal or death.
The names of the nominees, and certain information about them, are set
forth below:
NAME AGE POSITION(S) WITH THE COMPANY DIRECTOR SINCE
- ---- --- -------------------------------------------- --------------
Jean-Claude Asscher 70 Chairman of the Board 1972
Robert V. Adams 67 Director 1991
Daniel L. Brenner 47 Director 1990
Michael L. Margolis 53 Director, Chief Executive Officer and 1998
President
Howard Oringer 56 Director 1992
Jon F. Rager 59 Director 1981
-2-
5
Mr. Asscher has been a director of the Company since July 1972 and
Chairman of the Board since June 1982. He served as President of the Company
from October 1975 to June 1982 and as Vice President from July 1972 to May 1973.
He has been the President and principal shareholder of Tekelec-Airtronic, S.A.
("Tekelec-Airtronic"), a French electronics company, since he founded that
company in 1961. See "Certain Relationships and Related Transactions" below.
Mr. Adams has been a director of the Company since December 1991. Since
March 1989, Mr. Adams has served as the Chief Executive Officer and President of
Xerox Technology Ventures, a venture capital company responsible for
identifying, developing and managing new business opportunities for Xerox
Corporation. Mr. Adams also serves as Chairman of the Board of Directors of
Documentum, Inc. and as a director of ENCAD, Inc. and Peerless Systems Corp.
Mr. Brenner has been a director of the Company since May 1990. Since
June 1992, Mr. Brenner has served as Vice President, Law and Regulatory Policy
for the National Cable Television Association.
Mr. Margolis joined the Company as its Chief Executive Officer and
President and as a director in February 1998. From 1977 until February 1998, Mr.
Margolis held various officer and management positions with the Ericsson Group,
a manufacturer of telecommunications equipment, where he most recently served as
Executive Vice President, Global Accounts from March 1997 until joining the
Company, as Executive Vice President and General Manager, Network Systems
Division from September 1994 until March 1997 and as Vice President, Marketing
of Ericsson Network Systems, Inc. from November 1992 until September 1994.
Mr. Oringer has been a director of the Company since January 1992. From
1987 until November 1994, he served as Chairman of the Board and Chief Executive
Officer of TeleSciences, Inc., a manufacturer of telecommunications equipment.
Since November 1994, Mr. Oringer has served as Managing Director of
Communications Capital Group, a consulting firm. From January 1994 until July
1994 and from August 1996 until December 1996, Mr. Oringer also served as a
consultant to the Company. Mr. Oringer also serves as a member of the Board of
Directors of Verilink Corporation, Digital Microwave Corporation and Vertel
Corp.
Mr. Rager became a director of the Company in October 1975, resigned in
September 1979 and was re-elected in January 1981. Since 1976, Mr. Rager has
been a practicing accountant with, and President of, Rager Bell Doskocil & Meyer
CPAs (and its predecessors).
There is no family relationship between any director or executive
officer of the Company and any other director or executive officer of the
Company except that Mr. Brenner and the spouse of Ronald W. Buckly, the
Company's Vice President and General Counsel, are first cousins.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held a total of 14 meetings during 1998 and acted
twice by unanimous written consent. During 1998, each director of the Company
attended at least 75% of the aggregate of the total number of meetings of the
Board of Directors held and the total number of meetings held by the Board
committees on which he served.
The Audit Committee, which during 1998 was comprised of Messrs. Adams,
Brenner, Oringer and Rager, met three times during 1998. The Audit Committee
recommends the engagement of independent auditors, reviews accounting policies,
internal accounting controls and results of audit engagements and generally
performs functions related to the financial condition and policies of the
Company. The Compensation Committee, which during 1998 was comprised of Messrs.
Adams,
-3-
6
Brenner, Oringer and Rager, met 11 times during 1998 and acted three times by
unanimous written consent. The Compensation Committee is responsible for
administering the Company's stock option plans, including determining the
persons to whom options are granted and the terms of such options, and the
Company's Employee Stock Purchase Plan. The Compensation Committee also advises
and makes recommendations to the Company's Board of Directors regarding the
compensation of the Company's executive officers. The Company does not have a
nominating committee or any committee performing the function thereof.
COMPENSATION OF DIRECTORS
The Company currently pays each non-employee director a quarterly
retainer of $4,000 (except the Chairman of the Board who is paid $6,500), plus
$2,000 for attending in person or telephonically a Board of Directors' meeting
in excess of four hours and $1,000 for attending in person or telephonically a
Board of Directors' meeting of four hours or less. In addition, each member of
the Compensation Committee receives $1,000 per quarter (except the Committee's
Chairman who is paid $1,750) and $250 for attending a Compensation Committee
meeting in person or telephonically. Each member of the Audit Committee receives
$1,500 per quarter (except the Committee's Chairman who is paid $2,500) and $500
for attending an Audit Committee meeting in person or telephonically. The total
amount of cash compensation paid to non-employee directors for 1998 was
approximately $245,000. The Company also reimburses all directors for reasonable
expenses incurred in connection with attending Board and Committee meetings.
Directors who are not employees of the Company are ineligible to
participate in the Company's 1994 Stock Option Plan and Employee Stock Purchase
Plan. Under the Company's Non-Employee Director Equity Incentive Plan (the
"Director Plan"), each non-employee director automatically receives an option to
purchase 120,000 shares of the Company's Common Stock every three years, subject
to there being sufficient shares available for issuance under such plan. If the
total number of shares to be granted on a specific grant date exceeds the number
of shares then available under the Director Plan, the shares remaining available
for grant are to be allocated pro rata among the non-employee directors. Each
non-employee director elected at the Annual Meeting in 1999 will receive an
option to purchase 50,401 shares of the Company's Common Stock (based on the
252,008 shares of Common Stock remaining available for grant under the Director
Plan and assuming that all five non-employee directors standing for election at
such meeting are elected). Such options will have an exercise price equal to the
fair market value of the Common Stock on the date of grant, vest in 12 equal
quarterly installments over three years as long as the holder remains a
non-employee director of the Company, and terminate upon the earlier of May 14,
2006 or seven months after the director ceases to serve as a non-employee
director of the Company.
In July 1997, the Company granted to each of Robert Adams, Jean-Claude
Asscher, Daniel Brenner, Howard Oringer and Jon Rager, all of whom are
non-employee directors of the Company, ten-year warrants to purchase 60,000
shares of the Company's Common Stock at an exercise price of $14.08 per share
(i.e., the closing sales price of the Company's Common Stock on The Nasdaq Stock
Market on the date of grant). Such warrants vest in 12 equal quarterly
installments over three years as long as the holder remains a director of the
Company.
In January 1998, the Company awarded to each of Messrs. Adams, Asscher,
Brenner, Oringer and Rager 3,000 shares of the Company's Common Stock as
additional compensation and principally in recognition of services rendered to
the Company in connection with the Company's search for a chief executive
officer to succeed Allan Toomer. The fair market value of each director's stock
award on the award date was approximately $48,000 based on the closing sales
price of the Company's Common Stock on The Nasdaq Stock Market on such date. All
such stock awards vested on the one-year anniversary of the award date.
-4-
7
COMMON STOCK OWNERSHIP OF
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 1, 1999 by (i) each person
who is known to own beneficially more than 5% of the outstanding shares of the
Company's Common Stock, (ii) each of the Company's directors, (iii) each of the
executive officers named in the Summary Compensation Table on page 9 and (iv)
all current directors and executive officers of the Company as a group:
NAME OF BENEFICIAL OWNER(1) SHARES BENEFICIALLY OWNED PERCENT OF CLASS
- ------------------------ ------------------------- ----------------
Jean-Claude Asscher 12,712,146(2)(3) 23.3%
Tekelec-Airtronic, S.A.
5, rue Carle Vernet
92315 Sevres Cedex, France
Edouard Givel 10,465,256(4) 19.2
Natinco, S.A.
8C, avenue de Champel
1206 Geneva, Switzerland
Franklin Resources, Inc. 3,375,208(5) 6.2
777 Mariners Island Boulevard
San Mateo, CA 94404
Putnam Investments, Inc. 2,729,930(6) 5.0
One Post Office Square
Boston, MA 02109
Daniel L. Brenner 178,000(3) *
Jon F. Rager 145,688(3)(7) *
Shigeru Suzuki 140,822(3) *
Michael L. Margolis 120,721(3)(8) *
David Frankie 96,394(3) *
Gilles C. Godin 92,445(3) *
Howard Oringer 78,000(3) *
Robert V. Adams 63,984(3) *
Gordon Werner 30,000(3) *
All current directors and executive officers 13,679,477(2)(3)(7) 24.7
as a group (13 persons)
- ----------------------------------------
* Less than one percent
(1) Such persons have sole voting and investment power with respect to all
shares of Common Stock shown as being beneficially owned by them, subject
to community property laws, where applicable, and the information contained
in the footnotes to this table.
(footnotes continue on next page)
-5-
8
(2) Includes 10,465,256 shares which are owned by Mr. Givel and of which Mr.
Asscher may be deemed a beneficial owner (see footnote 4 below), 376,792
shares owned by Tekelec F, a French corporation owned by Mr. Asscher, and
125,464 shares owned by Muriel Asscher, Mr. Asscher's wife.
(3) Includes 125,000, 145,000, 20,000, 131,418, 83,138, 93,975, 72,810, 45,000,
60,000 and 784,193 shares subject to options and/or warrants held by
Messrs. Asscher, Brenner, Rager, Suzuki, Margolis, Frankie, Godin, Oringer
and Adams and all current directors and executive officers as a group,
respectively, which are exercisable or become exercisable within 60 days
after March 1, 1999.
(4) These shares are held in the name of Natinco, S.A. ("Natinco"), a
Luxembourg investment company which holds minority interests in a number of
U.S. and Europe-based companies, including a minority interest in
Tekelec-Airtronic. Mr. Givel has advised the Company that he owns
substantially all of the equity interest in Natinco and holds the shares in
the Company for investment only. Mr. Asscher has from time to time acted as
the advisor to Mr. Givel with respect to his investment in the Company. Due
to Mr. Asscher's role as advisor, Mr. Asscher may be deemed to share voting
and investment power with respect to these shares and therefore to be a
beneficial owner thereof within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934. Mr. Asscher has advised the Company that he has no
beneficial or financial interest in Natinco and that he disclaims
beneficial ownership of these shares.
(5) Based on an Amendment No. 3 to Schedule 13G dated February 3, 1999 filed by
Franklin Resources, Inc., Charles B. Johnson, Rupert H. Johnson, Jr., and
Franklin Advisers, Inc. wherein Franklin Advisers, Inc. reported sole
voting and dispositive power as to 3,345,000 of such shares and Franklin
Management, Inc. reported sole dispositive power as to 30,208 of such
shares.
(6) Based on an Amendment No. 1 to Schedule 13G dated January 26, 1999 filed by
Putnam Investments, Inc. ("PI") on behalf of PI, Marsh & McLennan
Companies, Inc., Putnam Investment Management, Inc. ("PIM") and The Putnam
Advisory Company, Inc. ("PAC") wherein PI reported shared voting power as
to 29,600 shares and shared dispositive power as to 2,729,930 shares, PIM
reported shared dispositive power as to 2,585,130 shares, and PAC reported
shared voting power as to 29,600 shares and shared dispositive power as to
144,800 shares.
(7) 24,688 of these shares are held by TI Partners, a partnership of which Mr.
Rager is the managing general partner, as to which shares Mr. Rager has
sole voting and investment power. Mr. Rager, together with a trust of which
he is the trustee and a beneficiary, owns a majority interest in such
partnership.
(8) Includes 30,000 restricted shares awarded to Mr. Margolis in connection
with the commencement of his employment with the Company, which shares vest
in five equal annual installments commencing in February 1999 and of which
24,000 shares were unvested at March 1, 1999. See "Employment Agreements
and Termination of Employment and Change in Control Arrangements" below.
EXECUTIVE OFFICERS
The executive officers of the Company, and certain information about
them, are as follows:
NAME AGE TITLE
- ---- --- -----
Michael L. Margolis 53 Chief Executive Officer and President
Gilles C. Godin 40 Vice President, Finance and Chief Financial Officer
Cecil E. Boyd 49 Vice President and General Manager,
Network Switching Division
Danny L. Parker 40 Vice President and General Manager,
Intelligent Network Diagnostics Division
Ronald W. Buckly 47 Vice President and General Counsel
David Frankie 53 Vice President, Operations and Quality
Teresa Pippin 42 Vice President, Human Resources
Lee Smith 41 Vice President, Strategy and Business Development
Officers are appointed by and serve at the discretion of the Board of
Directors. For information concerning Mr. Margolis, see "Election of Directors -
Nominees" above.
Mr. Godin joined the Company as Controller in November 1986 and served
as Corporate Controller from October 1990 until July 1993 and as Treasurer from
October 1990 until February 1994.
-6-
9
Mr. Godin has served as Vice President, Finance since July 1993 and as Chief
Financial Officer since February 1994.
Mr. Boyd joined the Company as General Manager, Intelligent Network
Diagnostics Division in September 1996 and served as Vice President and General
Manager, Intelligent Network Diagnostics Division from November 1997 until
February 1999 at which time he became Vice President and General Manager,
Network Switching Division. From 1974 until joining the Company, Mr. Boyd was
employed by Northern Telecom, where he most recently served as Vice President,
Service Operations, North America from July 1994 until September 1996 and as
Vice President, Customer Satisfaction and Quality from May 1992 until July 1994.
Mr. Parker joined the Company as Senior Director, Customer Service for
the Network Switching Division in November 1994. He served as Assistant Vice
President, Customer Service for the Network Switching Division from April 1998
until May 1998 and Assistant Vice President, Marketing for the Network Switching
Division from May 1998 until February 1999 when he assumed his present position
as Vice President and General Manager, Intelligent Network Diagnostics Division.
From 1981 until joining the Company, Mr. Parker was employed by Northern
Telecom, where he most recently served as Director, Service Marketing from April
1994 until November 1994 and as Assistant Vice President, Global Product
Verification from February 1992 until April 1994.
Mr. Buckly joined the Company as Vice President and General Counsel in
April 1998 and has served as its Corporate Secretary since 1987. From March 1996
until joining the Company, Mr. Buckly was a partner in the international law
firm of Bryan Cave LLP and from 1986 until March 1996, he was a partner in the
international law firm of Coudert Brothers. Since April 1998, Mr. Buckly has
served as of counsel to Bryan Cave LLP.
Mr. Frankie joined the Company as Vice President, Operations in December
1996, became Vice President, Operations and Quality in March 1997 and became an
executive officer of the Company in November 1997 in his capacity as Vice
President, Operations and Quality. From April 1991 until December 1996, Mr.
Frankie was employed as Program Manager by the Thomas Group, a management
consulting firm.
Ms. Pippin joined the Company as Vice President, Human Resources in
February 1999. From September 1994 until joining the Company, Ms. Pippin held
various human resource positions with Ericsson Inc. where she most recently
served as its Vice President, Human Resources and Operational Development. From
1991 until September 1994, Ms. Pippin held various human resource positions with
DSC Communications Corporation where she most recently served as Director, Human
Resources.
Mr. Smith joined the Company as Director and Program Manager, Special
Projects in March 1988, and commencing in March 1989 he held various non-officer
sales and marketing positions until his appointment as Vice President, Strategy
and Business Development in May 1998. In February 1999, Mr. Smith became an
executive officer of the Company in his capacity as Vice President, Strategy and
Business Development.
-7-
10
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information for the three years
ended December 31, 1998 concerning compensation paid or accrued by the Company
and its subsidiaries to or on behalf of the Company's Chief Executive Officer,
the Company's former President and each of the Company's other four most highly
compensated executive officers for the year ended December 31, 1998:
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------------- --------------------------
OTHER SECURITIES
NAME AND ANNUAL RESTRICTED UNDERLYING ALL OTHER
PRINCIPAL POSITIONS(S) YEAR SALARY($)(1) (BONUS($)(2) (COMPENSATION($)(3) STOCK AWARDS($) OPTIONS(#) COMPENSATION($)(4)
- --------------------- ---- ------------ ------------ ------------------- -------------- --------- ------------------
Michael L. Margolis(5) 1998 $258,462 $105,000 $105,063(6) $606,564(7) 370,000 $ 3,574
Chief Executive Officer &
President
Allan J. Toomer(8) 1998 67,309 0 0 0 0 424,625(9)
Former President 1997 250,000 175,000 0 0 161,200 4,330
1996 208,000 25,000 0 0 81,600 2,951
Shigeru Suzuki(10) 1998 256,000 43,600 0 0 10,000 166,900(11)
Vice President, Japan 1997 244,117 49,428 0 0 41,200 0
Operations and 1996 253,278 15,000 0 0 39,200 0
President, Tekelec, Ltd.
Gilles C. Godin 1998 215,000 55,400 0 0 42,000 533
Vice President, Finance 1997 185,000 92,500 0 0 160,000 533
and Chief Financial 1996 162,000 15,000 0 0 33,600 467
Officer
Gordon Werner(12) 1998 185,000 72,000 0 0 6,000 3,571
Vice President and General 1997 39,135 15,000 0 0 120,000 520
Manager, Network
Switching Division
David Frankie(13) 1998 185,000 47,900 0 0 20,000 3,551
Vice President, Operations 1997 175,000 43,750 0 0 0 2,684
and Quality
- ----------------------------------
(1) Includes amounts, if any, deferred at the election of the named officer
pursuant to the Company's 401(k) Plan.
(2) Amounts shown for 1998 and 1997 were paid under the Company's Officer Bonus
Plan and based on Company performance; amounts shown for 1996 were paid as
discretionary bonuses.
(3) As permitted under the rules of the Securities and Exchange Commission, no
amounts are shown with respect to any perquisites paid to a named officer
unless the aggregate amount of such perquisites exceeds the lesser of (i)
$50,000 or (ii) 10% of the total annual salary and bonus of a named
officer.
(4) The amounts shown in this column include (i) Company matching contributions
allocated under the Company's 401(k) Plan to the accounts of the named
officers who elected to participate in the 401(k) Plan and/or (ii) the
dollar value of premiums paid by the Company for group term life insurance
for the benefit of the named officers. Amounts contributed by the Company
to the accounts of the named officers under the 401(k) Plan for 1998 were:
Mr. Margolis - $3,142; Mr. Toomer - $2,019; Mr. Werner - $3,038; and Mr.
Frankie - $3,047. Amounts paid by the Company during 1998 as insurance
premiums for the benefit of the named officers were: Mr. Margolis - $432;
Mr. Toomer - $144; Mr. Godin - $533; Mr. Werner - $533; and Mr. Frankie -
$504. In addition, the amount of all other compensation paid to Mr. Toomer
in 1998 also includes amounts paid to him in connection with the
termination of his employment with the Company. See footnote 9.
(5) Mr. Margolis became Chief Executive Officer and President of the Company in
February 1998.
(6) Represents aggregate amount paid as reimbursement for certain relocation,
temporary housing and moving expenses (including $27,109 paid as
reimbursement for related income taxes). See "Employment Agreements and
Termination of Employment and Change in Control Arrangements" below.
(footnotes continue on next page)
-8-
11
(7) Represents the value as of the date on which Mr. Margolis commenced his
employment with the Company of 30,000 restricted shares of the Company's
Common Stock awarded to Mr. Margolis in connection with the commencement of
his employment. Such shares vest in five equal annual installments
commencing in February 1999 provided that Mr. Margolis is an employee of
the Company on the vesting dates. At the end of 1998, the restricted shares
had an aggregate value of $496,875, based upon the closing sales price per
share of the Company's Common Stock on The Nasdaq Stock Market on December
31, 1998. The Company has not paid any dividends on its Common Stock and
does not anticipate paying any such dividends at any time in the
foreseeable future.
(8) Mr. Toomer became President of the Company in November 1996 and resigned as
an officer in February 1998.
(9) Of such amount, $400,000 was paid to Mr. Toomer as severance compensation
under the terms of an agreement with the Company and $22,462 was paid to
Mr. Toomer for accrued vacation. See "Employment Agreements and Termination
of Employment and Change in Control Arrangements" below.
(10) Mr. Suzuki resigned as Vice President, Japan Operations of the Company and
as President of Tekelec, Ltd. effective December 31, 1998, but remains
employed by Tekelec, Ltd. as a director and an advisor to its President.
(11) Represents accrued incentive compensation based on Tekelec Ltd.'s 1998
financial performance and payment of which has been deferred until earlier
of (i) 60 days following termination of Mr. Suzuki's employment with
Tekelec Ltd. or (ii) March 1, 2001. See "Employment Agreements and
Termination of Employment and Change in Control Arrangements" below.
(12) Mr. Werner became Vice President and General Manager, Network Switching
Division in November 1997 and resigned in February 1999.
(13) Mr. Frankie became an executive officer in November 1997. Pursuant to the
SEC's rules, no information is shown with respect to Mr. Frankie's
compensation during 1996.
OPTION GRANTS IN 1998
The following table sets forth certain information concerning stock
option grants in 1998 to the executive officers named in the Summary
Compensation Table:
INDIVIDUAL GRANTS(1)
-------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES PRICE EXPIRATION PRESENT
NAME GRANTED(#) IN 1998(2) ($/SHARE)(3) DATE VALUE(4)
---- --------- ---------- ------------ ---------- ----------
Michael L. Margolis 370,000 16.1% $20.22 2/17/2008 $2,590,664
Shigeru Suzuki 10,000 0.4 22.31 4/28/2008 76,930
Gilles C. Godin 42,000 1.8 20.88 2/11/2008 301,155
Gordon Werner 6,000 0.3 20.88 2/11/2008 43,022
David Frankie 20,000 0.9 20.88 2/11/2008 143,407
- -------------------------
(1) The options in this table were granted under the 1994 Plan, vest and become
exercisable over five years and were granted for terms of ten years subject
to earlier termination under certain circumstances relating to termination
of employment.
(2) In 1998, the Company granted options to employees to purchase an aggregate
of 2,298,500 shares.
(3) The exercise price per share of all such options was not less than 100% of
the reported closing sales price of the Company's Common Stock on The
Nasdaq Stock Market on the date of grant.
(4) The Grant Date Present Value is equal to the grant date option value
calculated using a modified Black-Scholes American Options Pricing Model
(the "Black-Scholes Model"), adjusted to reflect the risk that the options
may be forfeited prior to exercise. Black-Scholes Model input assumptions
included: (a) an expected time to exercise of five years for officers (such
periods are equal to the full vesting terms of the options); (b) an
interest rate equal to the interest rate on U.S. government debt
instruments with maturities approximately equal to the options' expected
time to exercise; (c) volatility equal to the standard deviation of the
Company's Common Stock, calculated using daily closing stock prices for the
period from January 1994 to December 1998; and (d) an expected dividend
yield of 0%. The risk of forfeiture was calculated by applying the
annualized weighted-average occurrence of cancellation of the Company's
options prior to exercise for the period during 1994-1998 (12.87%)
compounded over the expected years to exercise of five years for officers.
There can be no assurance that the value realized by an optionee will be at
or near the value estimated by the Black-Scholes Model.
-9-
12
AGGREGATED OPTION EXERCISES IN 1998 AND OPTION VALUES AT DECEMBER 31, 1998
The following table sets forth certain information concerning stock
option exercises during 1998 and unexercised options held as of December 31,
1998 by the executive officers named in the Summary Compensation Table:
NUMBER OF SECURITIES VALUE OF
SHARES UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT 12/31/98 OPTIONS AT 12/31/98($)(2)
ON VALUE -------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- ------------- ----------- -------------
Michael L. Margolis -- $ -- 0 370,000 $ 0 $ 0
Allan J. Toomer 116,854 1,961,763 0 0 0 0
Shigeru Suzuki 30,000 572,645 119,156 68,500 1,512,990 866,390
Gilles C. Godin 176,000 3,555,350 45,680 211,120 649,145 2,052,820
Gordon Werner -- -- 30,000 96,000 0 0
David Frankie -- -- 80,000 140,000 1,075,000 1,612,500
- -------------------
(1) Represents the difference between the closing sales price of the Company's
Common Stock on the option exercise date as reported on The Nasdaq Stock
Market and the exercise price of such options.
(2) Represents the difference between the closing sales price of the Company's
Common Stock on December 31, 1998 as reported on The Nasdaq Stock Market
(i.e., $16.5625) and the exercise price of such options.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In 1993, the Company implemented an officer severance plan (the
"Severance Plan") pursuant to which executive officers of the Company are
entitled to receive certain severance benefits following termination of
employment, if such termination is non-temporary, involuntary and without cause.
In addition, if there is a "change in control" of the Company, an officer will
receive benefits under the Severance Plan if such officer terminates his or her
employment with the Company either for any reason within one year following the
change in control or for "good reason" (which includes the assignment to the
officer of duties significantly inconsistent with his or her prior position or a
reduction in his or her compensation or benefits) within two years following
such change in control. In March 1999, the Board of Directors amended the
Severance Plan to provide that, in addition to the other benefits that an
executive officer may be entitled to receive upon termination of his or her
employment in connection with or following a change in control, an officer's
stock options will vest to the extent then unvested and will be exercisable for
one year following the termination of such officer's employment with the Company
or a surviving corporation, as the case may be, if, in connection with a change
in control (or within two years thereafter with respect to (ii) and (iii)
below), such officer (i) is not offered employment by the surviving corporation
on terms and conditions generally no less favorable to such officer than the
terms and conditions of his or her employment with the Company in effect
immediately prior to the change in control; (ii) is terminated without cause by
the Company or the surviving corporation; or (iii) terminates for good reason
his or her employment with the Company or the surviving corporation.
Each eligible officer is entitled to severance pay based on his or her
highest annual compensation (i.e., base salary plus bonus), the number of years
employed by the Company and the highest office attained prior to termination.
Based on such factors, the amounts that would be payable under the Severance
Plan to Messrs. Margolis, Godin and Frankie if their employment were terminated
as of April 1, 1999 and they were eligible for severance benefits under the
-10-
13
Severance Plan would be $364,500, $388,500 and $174,675, respectively. Mr.
Werner terminated his employment with the Company in February 1999 and is
entitled to receive payments aggregating $192,750 under the Severance Plan.
Severance benefits also include continuation, at the Company's expense, of
health care insurance and term life insurance for a period of 18 months
following termination of employment.
In accordance with the terms of an agreement entered into between Allan
Toomer and the Company in March 1997, the Company paid to Mr. Toomer in March
1998, in lieu of any benefits which might otherwise be payable to him under the
Severance Plan, the sum of $400,000 upon the termination of his employment with
the Company.
In connection with the commencement of Mr. Margolis' employment with the
Company in February 1998, Mr. Margolis entered into an agreement with the
Company pursuant to which the Company agreed to pay him an annual base salary of
$300,000 and a minimum bonus of $105,000 for 1998, awarded him 30,000 restricted
shares of the Company's Common Stock (the "Restricted Shares") and granted to
him stock options to purchase 370,000 shares of Common Stock. The Restricted
Shares vest in five equal annual installments commencing in February 1999 and
the stock options vest over five years commencing in February 1999 provided that
Mr. Margolis is an employee of the Company on the vesting dates. In the event
Mr. Margolis' employment with the Company terminates under circumstances
entitling him to benefits under the Severance Plan, then all unvested
installments of the Restricted Shares and the stock options will vest in full
upon such termination. As of March 1, 1999, 24,000 Restricted Shares and options
covering 296,000 shares were unvested. In addition, the Company reimbursed Mr.
Margolis for certain relocation expenses in the amount of approximately
$105,000.
In accordance with the terms of an agreement entered into between Mr.
Suzuki and the Company in May 1998, Mr. Suzuki resigned as an officer of Tekelec
and as President of Tekelec, Ltd., Tekelec's Japanese subsidiary, effective
December 31, 1998, and presently serves as advisor to the President and a
director of Tekelec, Ltd. In consideration for Mr. Suzuki waiving all benefits
that he otherwise would be entitled to receive under the Severance Plan, the
Company agreed that if Tekelec, Ltd. meets certain performance goals established
for 1998, 1999 and 2000, then Tekelec, Ltd. will pay to Mr. Suzuki as incentive
compensation the amounts of (Y)20,000,000, (Y)10,000,000 and (Y)10,000,000,
respectively (which amounts are equal to approximately $166,900, $83,450 and
$83,450 based on the exchange rate in effect as of March 1, 1999). Such amounts
will be payable upon the earlier of (i) 60 days following any termination of Mr.
Suzuki's employment with Tekelec, Ltd. or (ii) March 1, 2001. Tekelec, Ltd. met
the performance goals for 1998. The Company also agreed that if at any time
prior to January 1, 2001 Mr. Suzuki's employment is terminated by the Company
without "cause" (as such term is defined in the Severance Plan), the Company
will pay to Mr. Suzuki (Y)40,000,000 (which amount is equal to approximately
$333,800 based on the exchange rate in effect as of March 1, 1999) less the
amount of any incentive compensation earned by him under the agreement for any
calendar year prior to termination.
TEKELEC, LTD. RETIREMENT PLAN
In 1990, Tekelec, Ltd. adopted Retirement Pension Rules (the "Plan") to
provide retirement benefits to its employees, other than directors and certain
other specified categories of employees, who have completed at least three years
of service. Effective January 1994, the Plan was amended to provide retirement
benefits to directors as well as to employees. The benefit payable under the
Plan to a director is based on years of eligible service and a director's
highest monthly compensation during his or her service as a director. A director
who retires either voluntarily or at the request of Tekelec, Ltd. other than at
retirement age with at least three years of eligible service is entitled to
receive one lump sum payment
-11-
14
equal to a multiple (ranging from one to three for a director with three years
of eligible service to 47 for a director with 40 years of eligible service) of
his or her highest monthly compensation.
If a director of Tekelec, Ltd. retires at retirement age after at least
20 years of eligible service, in lieu of the lump sum payment described above,
he or she will receive a retirement benefit payable over ten years or, under
certain circumstances, in one lump sum payment equal to the present value of
future amounts otherwise payable. Such retirement benefit ranges from a monthly
amount of 26% (for a director with 20 years of eligible service) to 51% (for a
director with 40 or more years of eligible service) of a director's highest
monthly salary.
If a director dies before receiving all or any part of the benefit to
which he or she would be entitled under the Plan, such benefit would be paid to
his or her surviving spouse.
Mr. Suzuki is one of two current directors participating in the Plan. As
of April 1, 1999, Mr. Suzuki was credited with 13 years of eligible service
under the Plan and would be entitled to receive lump sum payments of
approximately $220,736 if he were to voluntarily terminate his employment with
Tekelec, Ltd. and $367,894 if his employment were to be terminated by Tekelec,
Ltd.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, the Compensation Committee consisted of Messrs. Adams,
Brenner, Oringer and Rager, all of whom are non-employee directors. No member of
the Compensation Committee is or was a current or former officer or an employee
of the Company or any of its subsidiaries other than Mr. Rager who served as the
Company's Treasurer from October 1975 to June 1985 and as its Secretary from
October 1975 to December 1985.
BOARD OF DIRECTORS AND COMPENSATION COMMITTEE
REPORTS ON EXECUTIVE COMPENSATION
The Board of Directors and the Compensation Committee of the Board of
Directors share responsibility for determining and administering the
compensation program for the Company's executive officers. The Company's
executive compensation program consists of both cash-based and stock-based
compensation. The Board of Directors is responsible for determining the annual
base salaries of the Company's executive officers and approving the terms of the
officer bonus plan, in each case taking into consideration recommendations of
the Compensation Committee, and the award of any discretionary bonuses. The
Board has delegated to the Compensation Committee the responsibility of
recommending to the Board for its approval salaries for the Company's executive
officers and the officer bonus plan and administering the Company's stock option
plans pursuant to which stock options are granted to key employees.
The reports on executive compensation by the Board of Directors and the
Compensation Committee and the Performance Graph on page 15 shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under the Securities Act of 1933 or under
the Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
The principal objectives of the Company's executive compensation program
are to attract, motivate and retain qualified, experienced individuals to serve
as officers of the Company and to provide incentives to attain the financial and
strategic objectives of the Company. The Company's executive
-12-
15
compensation program consists of three basic components -- annual base salaries,
cash bonuses and stock options.
Based on recommendations of the Compensation Committee, the Board of
Directors sets and approves the annual base salaries of all executive officers.
Annual salaries are based on consideration of a number of factors, including an
officer's responsibilities, experience and qualifications, an evaluation of such
officer's past performance and contributions to the Company, information (e.g.,
compensation surveys) concerning competitive compensation and the Company's
financial results and condition. For calendar year 1998, the Board increased the
annual base salaries of the Company's executive officers who had been executive
officers in 1997 by 0% to 16.2% over 1997 levels.
The Board believes that a significant portion of each officer's annual
compensation should be related to the Company's financial performance.
Accordingly, under the terms of the 1998 Officer Bonus Plan recommended by the
Compensation Committee and approved by the Board, each executive officer was
eligible to receive a cash bonus equal to a percentage of his annual base salary
if the Company achieved certain pre-established financial performance goals.
Bonuses under such Plan would only be paid if the Company's revenues and
operating income met or exceeded a threshold 100% of both the revenue goal and
the operating income goal set forth in the Company's business plan. Based on the
Company's financial results in 1998, bonuses in the aggregate amount of $392,000
were earned by the Company's executive officers under the Officer Bonus Plan.
Individual bonuses ranged from 12.5% to 38.9% of an officer's base salary.
The Board was also responsible for determining the terms and conditions
of Mr. Margolis' employment with the Company. In determining Mr. Margolis'
annual base salary of $300,000 for 1998, the Board took into consideration
essentially the same factors that were considered in setting the annual base
salaries of the Company's other executive officers. Under the terms of the 1998
Officer Bonus Plan, Mr. Margolis was eligible to receive a cash bonus equal to a
percentage (up to a maximum of 70%) of his annual base salary payable if the
Company achieved certain revenue and operating income goals set forth in the
Company's business plan. For 1998, the Company guaranteed Mr. Margolis a minimum
bonus of $105,000. For services rendered to the Company in 1998, Mr. Margolis'
cash compensation consisted of base salary in the amount of $258,462 (Mr.
Margolis commenced his employment on February 17, 1998) and a bonus of $105,000.
In addition, the Board granted to Mr. Margolis a stock award of 30,000 shares of
the Company's Common Stock, which shares vest in five equal annual installments
commencing in February 1999 as long as Mr. Margolis remains an employee of the
Company.
Under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), a publicly held corporation such as the Company will generally not
be allowed a federal income tax deduction for otherwise deductible compensation
paid to the executive officers named in the Summary Compensation Table to the
extent that compensation (including stock-based compensation) paid to a
particular officer exceeds $1 million in any fiscal year. Qualifying
performance-based compensation (including compensation attributable to the
exercise of stock options) will not be subject to the deductibility limitation
if certain conditions are met. Based upon the Company's current compensation
plans and policies and the regulations under Section 162(m), it appears unlikely
that the compensation to be paid to any of the Company's executive officers for
1999 would exceed the $1 million limitation per officer.
BOARD OF DIRECTORS
Jean-Claude Asscher, Chairman
Robert V. Adams
Daniel L. Brenner
Michael L. Margolis
Howard Oringer
Jon F. Rager
-13-
16
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for administering the
Company's employee stock option plans. Options to purchase the Company's Common
Stock are a key component of the Company's executive compensation program. The
Compensation Committee views the grant of stock options as a valuable incentive
to attract and retain key employees and to motivate them to maximize shareholder
value. The Compensation Committee reviews and considers recommendations by the
Company's Chief Executive Officer with regard to the grant of stock options to
executive officers (other than the Chief Executive Officer) and other key
employees whose contributions and skills are important to the long-term success
of the Company.
Each officer typically receives a stock option grant upon first joining
the Company and thereafter is eligible periodically to receive additional stock
options. In determining the size and other terms of an option grant to an
executive officer, the Compensation Committee considers a number of factors,
including such officer's position and responsibilities, individual job
performance, salary, previous stock option grants (if any) and length of service
to the Company. The exercise price of options is not less than the market price
of the Company's Common Stock on the date of grant. Options generally vest over
five years, typically in 20 equal quarterly installments following the date of
grant, as long as the optionee remains an employee of the Company and,
therefore, encourage an optionee to remain an employee of the Company.
In connection with the commencement of his employment with the Company,
the Compensation Committee granted to Mr. Margolis options to purchase 370,000
shares of the Company's Common Stock at an exercise price equal to the market
price of the Company's Common Stock on the date of grant (i.e., $20.22 per
share). The options vested as to 74,000 shares in February 1999 on the one-year
anniversary of Mr. Margolis' commencement of his employment with the Company,
and the remaining 296,000 shares vest and become exercisable in 16 equal
quarterly installments over four years provided Mr. Margolis remains an employee
of the Company.
In 1998, options to purchase an aggregate of 703,000 shares of Common
Stock were granted to all executive officers as a group (including options to
purchase an aggregate of 550,000 shares granted to Mr. Margolis and an executive
officer upon joining the Company) and represented 30.6% of all options granted
in 1998. Information concerning options granted during 1998 to the executive
officers named in the Summary Compensation Table is provided in the table
entitled "Executive Compensation and Other Information - Option Grants in 1998."
COMPENSATION COMMITTEE
Daniel L. Brenner, Chairman
Robert V. Adams
Howard Oringer
Jon F. Rager
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following are certain transactions entered into between the Company
and its officers, directors and principal shareholders and their affiliates
since January 1, 1998:
The Company sells products to Tekelec-Airtronic and its wholly owned
subsidiaries which serve as distributors of the Company's products in Europe.
During 1998, the aggregate sales of the Company's products to Tekelec-Airtronic
and its subsidiaries were approximately $4,269,000. As of December 31, 1998,
Tekelec-Airtronic and its subsidiaries owed the Company approximately $1,896,000
for purchases of the Company's products, of which approximately $1,518,000 was
owed as of March 1, 1999.
-14-
17
PERFORMANCE GRAPH
The following graph compares the cumulative total return on the
Company's Common Stock with the cumulative total return of the Total Return
Index for The Nasdaq Stock Market (U.S. Companies) and the Nasdaq Computer
Manufacturers Index for the five-year period commencing January 1, 1994. The
stock price performance shown on the graph below is not necessarily indicative
of future price performance.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG TEKELEC, TOTAL RETURN INDEX FOR THE NASDAQ STOCK MARKET
(U.S. COMPANIES) AND NASDAQ COMPUTER MANUFACTURERS INDEX
[PERFORMANCE GRAPH]
GRAPH
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- -------------------------------------------------------------------------------------------------
Tekelec 100 572 365 548 2,122 2,304
- -------------------------------------------------------------------------------------------------
Total Return Index
Nasdaq Market (U.S.) 100 105 136 169 207 292
- -------------------------------------------------------------------------------------------------
Nasdaq Computer
Manufacturers Index 100 110 173 232 281 610
- -------------------------------------------------------------------------------------------------
- ------------------
* Assumes (i) $100 invested on January 1, 1994 in Tekelec Common Stock, Total
Return Index for The Nasdaq Stock Market (U.S. Companies) and Nasdaq
Computer Manufacturers Index and (ii) immediate reinvestment of all
dividends.
-15-
18
PROPOSAL 2 - APPROVAL OF AMENDMENT
TO 1994 STOCK OPTION PLAN
In 1994, the Board of Directors of the Company adopted and the
shareholders of the Company approved the 1994 Stock Option Plan (the "1994
Plan") under which 3,200,000 shares of Common Stock were initially authorized
for issuance pursuant to the exercise of stock options granted thereunder. The
1994 Plan was amended in 1995, 1996, 1997 and 1998 to increase the number of
shares authorized for issuance thereunder by an aggregate of 10,800,000 shares.
In March 1999, the Board of Directors further amended the 1994 Plan,
subject to shareholder approval, to increase the number of shares authorized for
issuance thereunder by 5,000,000 shares. The Board of Directors approved such
increase in order to ensure the availability of sufficient shares of the
Company's Common Stock for option grants to new employees of the Company, annual
performance stock option grants in the first quarter of 2000 and periodic
incentive option grants to the Company's employees. If such amendment is
approved, a total of 19,000,000 shares will have been authorized for issuance
under the 1994 Plan. The Board of Directors believes that such authorized shares
should be sufficient to meet the Company's stock option grant needs under the
1994 Plan at least until the Company's Annual Meeting of Shareholders in 2000.
As of March 15, 1999, 3,216,865 shares had been issued upon the exercise
of options granted under the 1994 Plan, 8,870,363 shares were subject to
outstanding options, and there were 1,912,772 shares (not including the
5,000,000-share increase subject to shareholder approval) remaining available
for option grants under the 1994 Plan.
AT THE ANNUAL MEETING, THE SHAREHOLDERS WILL BE REQUESTED TO CONSIDER
AND APPROVE THE AMENDMENT TO THE 1994 PLAN INCREASING THE NUMBER OF SHARES
AUTHORIZED FOR ISSUANCE THEREUNDER BY 5,000,000 SHARES. THE AFFIRMATIVE VOTE OF
A MAJORITY OF THE SHARES OF THE COMPANY'S COMMON STOCK PRESENT OR REPRESENTED
AND ENTITLED TO VOTE AT THE ANNUAL MEETING WILL BE REQUIRED TO APPROVE THE
AMENDMENT TO THE 1994 PLAN. THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR APPROVAL OF THE AMENDMENT.
NEW PLAN BENEFITS
Grants under the 1994 Plan are made at the discretion of the
Compensation Committee to whom the Board of Directors has delegated the
administration of the 1994 Plan. Because future optionees, the number of shares
subject to option grants and exercise prices have not yet been determined,
future grants under the 1994 Plan are not yet determinable.
SUMMARY OF 1994 PLAN
A summary of the principal provisions of the 1994 Plan is set forth
below and is qualified in its entirety by reference to the 1994 Plan. A copy of
the 1994 Plan is available from the Company's Secretary upon request.
PURPOSE
The purposes of the 1994 Plan are to (i) attract and retain the services
of selected key employees who the Company believes are in a position to make a
material contribution to the successful operation of
-16-
19
the Company's business; (ii) motivate such persons, by means of
performance-related incentives, to achieve the Company's business goals; and
(iii) enable such persons to participate in the long-term growth and financial
success of the Company by providing them with an opportunity to purchase stock
of the Company.
ADMINISTRATION
The 1994 Plan is required to be administered by a committee designated
by the Board of Directors and comprised of not less than two disinterested
non-employee Board members. The 1994 Plan is currently administered by the
Compensation Committee of the Board, which is comprised of four disinterested
non-employee directors. The interpretation and construction of any provision of
the 1994 Plan is within the sole discretion of the members of the Compensation
Committee, whose determination is final and binding.
ELIGIBILITY
The 1994 Plan provides that nonstatutory stock options and incentive
stock options may be granted only to employees (including officers and directors
who are also employees) of the Company. As administrator of the 1994 Plan, the
Compensation Committee selects the optionees and determines the type of option
(i.e., incentive or nonstatutory) and the number of shares to be subject to each
option. In making such determination, there is taken into account a number of
factors, including the employee's position and responsibilities, individual job
performance, salary, previous stock option grants (if any), length of service to
the Company, and other relevant factors. As of March 15, 1999, approximately 580
persons were eligible to receive options under the 1999 Plan, all of whom were
holding options under such Plan.
TERMS OF OPTIONS
Options granted under the 1994 Plan may be either "incentive stock
options" as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code), or nonstatutory stock options. Each option is evidenced by
a written stock option agreement between the Company and the optionee and is
subject to the following additional terms and conditions:
(a) Number of Shares: The aggregate fair market value (determined as
of the grant date) of the stock for which an employee may be
granted incentive stock options that first become exercisable
during any one calendar year under all the Company's plans may
not exceed $100,000. In addition, the maximum number of shares
which may be awarded as options under the 1994 Plan during any
calendar year to any one optionee may not exceed 800,000 shares.
(b) Exercise of the Option: The optionee must earn the right to
exercise the option by continuing to work for the Company.
Options granted under the 1994 Plan will become exercisable at
such times and in such cumulative installments as the
Compensation Committee determines subject to earlier termination
of the option upon termination of the optionee's employment for
any reason. Options are typically exercisable in cumulative
installments (e.g., equal quarterly installments) over periods
ranging up to five years. An option is exercised by giving to the
Company written notice of exercise specifying the number of
shares of Common Stock as to which the option is being exercised
and by tendering payment to the Company of the purchase price.
The form of payment for shares to be issued upon the exercise of
an option is determined by the Compensation Committee and may
consist of cash, check, previously owned shares of Common Stock,
-17-
20
a combination thereof or such other consideration as is
determined by the Compensation Committee.
(c) Exercise Price: The exercise price per share for the shares to be
issued pursuant to the exercise of an option is determined by the
Committee and may not be less than 100% of the fair market value
of the Common Stock on the grant date. The fair market value of
the Common Stock on the date of an option grant will be equal to
the closing sales price of the Common Stock on The Nasdaq Stock
Market as reported in The Wall Street Journal on the date of the
option grant. On March 15, 1999, the closing sales price of the
Company's Common Stock on The Nasdaq Stock Market was $11.31 per
share.
(d) Termination of Employment: If an optionee's employment with the
Company is terminated for any reason, other than death or total
and permanent disability, the option may be exercised within
three months after such termination as to all or part of the
shares as to which the optionee was entitled to exercise the
option at the time of termination.
(e) Death or Disability: If an optionee should die or become
permanently and totally disabled while employed by the Company,
his or her options may be exercised at any time within six months
after such death or disability, but only to the extent the
optionee was entitled to exercise the options at the date of his
or her termination of employment due to such death or disability.
(f) Expiration of Options: Options may not have a term greater than
ten years from the grant date. No option may be exercised after
its expiration.
(g) Nontransferability of Option: An option is nontransferable by the
optionee, other than by will or the laws of descent and
distribution or transfers between spouses incident to a divorce,
and is exercisable only by the optionee during his or her
lifetime or, in the event of the death of the optionee, by the
estate of the optionee or by a person who acquires the right to
exercise the option by bequest or inheritance.
(h) Other Provisions: The option agreement may contain such other
terms, provisions and conditions not inconsistent with the 1994
Plan as may be determined by the Compensation Committee.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION OR CONTROL
In the event that a change, such as a stock split or stock dividend, is
made in the Company's capitalization which affects the stock for which options
are exercisable under the 1994 Plan, appropriate adjustment will be made in the
exercise price of and the number of shares covered by outstanding options and in
the number of shares available for issuance under the 1994 Plan. In general,
unless the terms of an option expressly provide otherwise, in the event of a
dissolution or liquidation of the Company, a sale of substantially all of the
assets of the Company, or the merger, consolidation or reorganization of the
Company with or into another corporation as a result of which the Company is not
the surviving corporation, outstanding options will be assumed by the successor
corporation or the Board of Directors will declare that any option will
terminate as of a date fixed by the Board which is at least 30 days after notice
thereof is given to optionees and permit each optionee to exercise all or a
portion of the shares covered by such option, including shares as to which the
option would not otherwise be exercisable.
-18-
21
AMENDMENT AND TERMINATION
The Compensation Committee may amend or terminate the 1994 Plan at any
time or from time to time without the approval of the Company's shareholders;
provided, however, that approval of the holders of voting shares represented and
entitled to vote at a valid meeting of shareholders is required for any
amendment to the 1994 Plan which would: (a) materially increase the number of
shares which may be issued thereunder other than in connection with an
adjustment upon changes in capitalization; (b) materially change the designation
of the class of employees eligible to participate; (c) remove the administration
of the 1994 Plan from the Board of Directors or its committee; (d) extend the
term of the 1994 Plan beyond its initial ten-year term; (e) materially increase
the benefits to participants under the 1994 Plan; or (f) materially modify the
requirements as to eligibility for participation. In any event, the 1994 Plan
will terminate on the tenth anniversary of its adoption by the Board of
Directors (i.e., April 3, 2004), provided that any options then outstanding will
remain outstanding until they expire by their terms.
TAX INFORMATION
The federal tax consequences of options are complex and subject to
change. The following discussion is only a brief summary of the general federal
income tax rules currently in effect which are applicable to stock options. A
taxpayer's particular situation may be such that some variation of the general
rules may apply. This summary does not cover the state, local or foreign tax
consequences of the grant or exercise of options under the 1994 Plan or the
disposition of shares acquired upon exercise of such options or federal estate
tax or state estate, inheritance or death taxes.
INCENTIVE STOCK OPTIONS
If an option granted under the 1994 Plan is treated as an "incentive
stock option" as defined in Section 422 of the Code, the optionee will not
recognize any income for regular income tax purposes upon either the grant or
the exercise of the option, and the Company will not be allowed a deduction for
federal tax purposes. As discussed below, the tax treatment to the optionee and
the Company upon an optionee's sale of the shares will depend primarily upon
whether the optionee has met certain holding period requirements at the time of
sale. In addition, the exercise of an incentive stock option may subject the
optionee to alternative minimum tax liability in the year of exercise.
If an optionee exercises an incentive stock option and does not dispose
of the shares received within the period ending on the later of (i) two years
from the date of the grant of such option or (ii) one year after the exercise of
the option, any gain realized upon disposition of the shares will be
characterized as long-term capital gain subject to a maximum federal income tax
rate of 20%. The amount of gain realized on the disposition of the shares will
be equal to the difference between the amount realized on the disposition and
the optionee's tax basis in the shares. If the optionee does not dispose of the
shares within the holding period specified above, the Company will not be
entitled to a federal income tax deduction at any time. If the optionee disposes
of the shares either within two years from the date the option is granted or
within one year after the exercise of the option, such disposition will be
treated as a "disqualifying disposition" for federal income tax purposes and an
amount equal to the difference between (i) the lesser of the fair market value
of the shares on the date of exercise and the amount realized on the
disposition, and (ii) the exercise price will be taxed as ordinary income
subject to a maximum marginal federal income tax rate of 39.6% in the taxable
year in which the disposition occurs. The excess, if any, of the amount realized
over the fair market value of the shares at the time of the exercise of the
option will be treated as short-term or long-term capital gain, as the case may
be. An optionee will be generally considered to have disposed of shares if he or
she sells, exchanges, makes a gift of or transfers legal title to such shares
(except by pledge, in certain non-taxable exchanges, in an
-19-
22
insolvency proceeding, incident to a divorce, or upon death). The exercise of an
incentive stock option may subject an optionee to alternative minimum tax
liability in the year of exercise because the excess of the fair market value of
the shares at the time an incentive stock option is exercised over the exercise
price is an adjustment in determining an optionee's alternative minimum taxable
income for such year. Consequently, an optionee may be obligated to pay
alternative minimum tax in the year he or she exercises an incentive stock
option. If a disqualifying disposition occurs in the same year as an option is
exercised, the amount of ordinary income resulting from such disposition would
generally offset any adjustment to alternative minimum taxable income for the
year of exercise. In the case of a disqualifying disposition which occurs after
the year of exercise, an individual would be required to recognize alternative
minimum taxable income in the year of exercise and ordinary income in the year
of such disqualifying disposition in an amount determined under the rules
described above. Optionees are urged to consult their tax advisors concerning
the applicability of the alternative minimum tax to their own circumstances.
In general, there will be no federal income tax consequences to the
Company upon the grant, exercise or termination of an incentive stock option.
However, in the event an optionee sells or disposes of stock received upon the
exercise of an incentive stock option prior to satisfying the two-year and
one-year holding periods described above, the Company will be entitled to a
deduction for federal income tax purposes in the year of such disposition in an
amount equal to the ordinary income, if any, recognized by the optionee upon
disposition of the shares, provided the Company has satisfied its reporting
obligations under the Code.
NONSTATUTORY STOCK OPTIONS
Nonstatutory stock options granted under the 1994 Plan do not qualify as
"incentive stock options" and, accordingly, do not qualify for any special tax
benefits to the optionee. An optionee will not recognize any income at the time
he or she is granted nonstatutory stock options because such options are not
actively traded on an established market and will have no readily ascertainable
fair market value at the time of grant. However, upon the exercise of a
nonstatutory stock option, the optionee will generally recognize ordinary income
for federal income tax purposes measured by the excess of the then fair market
value of the shares over the exercise price. The income realized by the optionee
will be treated as compensation income subject to income tax withholding by the
Company out of the other compensation paid to the optionee. If such earnings are
insufficient to pay the withholding tax, the optionee will be required to make a
direct payment to the Company to cover the withholding tax liability.
Upon a sale of any shares acquired pursuant to the exercise of a
nonstatutory stock option, the difference between the sale price and the
optionee's tax basis in the shares will be treated as a long-term or short-term
capital gain or loss, as the case may be, depending on the optionee's holding
period for the shares without "tacking on" any holding period for the option.
The optionee's tax basis for determination of such gain or loss will ordinarily
be the sum of (i) the amount paid for such shares (i.e., the exercise price),
plus (ii) any ordinary income recognized as a result of the exercise of such
option. If the optionee has held the shares for more than one year at the time
of sale, the capital gain will be subject to a maximum federal income tax rate
of 20%. If the holding period for the shares is shorter, the maximum marginal
federal income tax rate will be 39.6%. In general, there will be no federal tax
consequences to the Company upon the grant or termination of a nonstatutory
stock option or the sale or disposition of the shares acquired upon exercise of
a nonstatutory stock option. However, upon the exercise of a nonstatutory stock
option, the Company will be entitled to a deduction to the extent and in the
year that ordinary income from the exercise of the option is recognized by the
optionee, provided the Company has satisfied its withholding and reporting
obligations under the Code and Income Tax Regulations relating to the reporting
of the transaction to the Internal Revenue Service and the optionee.
-20-
23
PROPOSAL 3 - RATIFICATION OF APPOINTMENT
OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed PricewaterhouseCoopers LLP,
independent accountants, to audit the Company's consolidated financial
statements for the year ending December 31, 1999, and recommends that
shareholders vote for ratification of such appointment. In the event of a
negative vote on such ratification, the Board of Directors will reconsider its
selection. A representative of PricewaterhouseCoopers LLP is expected to be
present at the Annual Meeting, will have an opportunity to make a statement if
he or she desires to do so and is expected to be available to respond to
appropriate questions.
OTHER MATTERS
The Company currently knows of no matters to be submitted at the Annual
Meeting other than those described herein. If any other matters properly come
before the Annual Meeting, it is the intention of the persons named on the
enclosed proxy card to vote the shares they represent as the Board of Directors
may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
Ronald W. Buckly
Secretary
Calabasas, California
April 2, 1999
-21-
24
TEKELEC
1994 STOCK OPTION PLAN
1. ESTABLISHMENT AND PURPOSES OF THE PLAN.
Tekelec hereby establishes this 1994 Stock Option Plan to promote the
interests of the Company and its stockholders by (i) helping to attract and
retain the services of selected key employees of the Company who are in a
position to make a material contribution to the successful operation of the
Company's business, (ii) motivating such persons, by means of
performance-related incentives, to achieve the Company's business goals and
(iii) enabling such persons to participate in the long-term growth and financial
success of the Company by providing them with an opportunity to purchase stock
of the Company.
2. DEFINITIONS.
The following definitions shall apply throughout the Plan:
a. "AFFILIATE" shall mean any entity that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, the Company.
b. "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company.
c. "CODE" shall mean the Internal Revenue Code of 1986, as amended.
References in the Plan to any section of the Code shall be deemed to include any
amendment or successor provisions to such section and any regulations issued
under such section.
d. "COMMON STOCK" shall mean the common stock, without par value, of the
Company.
e. "COMPANY" shall mean Tekelec, a California corporation and any
"subsidiary" corporation, whether now or hereafter existing, as defined in
Sections 424(f) and (g) of the Code.
f. "COMMITTEE" shall mean the committee of the Board of Directors
appointed in accordance with Section 4(a) of the Plan or, if no such committee
shall be appointed or in office, the Board of Directors.
g. "CONTINUOUS EMPLOYMENT" shall mean the absence of any interruption or
termination of employment by the Company. Continuous Employment shall not be
considered interrupted in the case of sick leave, military leave or any other
leave of absence approved by the Committee or in the case of transfers between
locations of the Company.
h. "DISINTERESTED PERSON" shall mean an administrator of the Plan who
during the one year prior to service as an administrator of the Plan, has not
been granted or awarded, and during such service, is not granted or awarded
stock options or stock appreciation rights pursuant
25
to the Plan or any other plan of the Company or any of its Affiliates entitling
the participants therein to acquire stock, stock options or stock appreciation
rights of the Company or any Affiliates, except for any plan under which the
award of stock, stock options or stock appreciation rights is not subject to the
discretion of any person or persons.
i. "EMPLOYEE" shall mean any employee of the Company, including officers
and directors who are also employees.
j. "FAIR MARKET VALUE" shall mean, with respect to Shares, the fair
market value per Share on the date an option is granted and, so long as the
Shares are quoted on the National Association of Securities Dealers Automated
Quotations ("NASDAQ") System, the Fair Market Value per Share shall be the
closing price on the NASDAQ National Market System as of the date of grant of
the Option, as reported in The Wall Street Journal or, if there are no sales on
such date, on the immediately preceding day on which there were reported sales.
k. "INCENTIVE STOCK OPTION" shall mean an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
l. "NON-STATUTORY STOCK OPTION" shall mean an Option which is not an
Incentive Stock Option.
m. "OPTION" shall mean a stock option to purchase Common Stock granted
to an Optionee pursuant to the Plan.
n. "OPTION AGREEMENT" means a written agreement substantially in one of
the forms attached hereto as Exhibit A, or such other form or forms as the
Committee (subject to the terms and conditions of the Plan) may from time to
time approve, evidencing and reflecting the terms of an Option.
o. "OPTIONED STOCK" shall mean the Common Stock subject to an Option
granted pursuant to the Plan.
p. "OPTIONEE" shall mean any Employee who is granted an Option.
q. "PLAN" shall mean this Tekelec 1994 Stock Option Plan.
r. "SHARES" shall mean shares of the Common Stock or any shares into
which such Shares may be converted in accordance with Section 10 of the Plan.
3. SHARES RESERVED.
The maximum aggregate number of Shares reserved for issuance pursuant to
the Plan shall be Three Million Two Hundred Thousand (3,200,000) Shares* or the
number of shares of
- ------------------------
* Such number of shares has been adjusted to reflect the Company's two-for-one
stock splits effective on each of March 17, 1995, August 8, 1997 and June 19,
1998.
-2-
26
stock to which such Shares shall be adjusted as provided in Section 10 of the
Plan. Such number of Shares may be set aside out of authorized but unissued
Shares not reserved for any other purpose, or out of issued Shares acquired for
and held in the treasury of the Company from time to time.
Shares subject to, but not sold or issued under, any Option terminating,
expiring or canceled for any reason prior to its exercise in full, shall again
become available for Options thereafter granted under the Plan, and the same
shall not be deemed an increase in the number of Shares reserved for issuance
under the Plan.
4. ADMINISTRATION OF THE PLAN.
a. The Plan shall be administered by a Committee designated by the Board
of Directors to administer the Plan and comprised of not less than two
directors, each of whom is a Disinterested Person. In addition, each director
designated by the Board of Directors to administer the Plan shall be an "outside
director" as defined in the Treasury regulations issued pursuant to Section
162(m) of the Code. Members of the Committee shall serve for such period of time
as the Board of Directors may determine or until their resignation, retirement,
removal or death, if sooner. From time to time the Board of Directors may
increase the size of the Committee and appoint additional members thereto,
remove members (with or without cause) and appoint new members in substitution
therefor or fill vacancies however caused.
b. Subject to the provisions of the Plan, the Committee shall have the
authority, in its discretion: (i) to grant Incentive Stock Options, in
accordance with Section 422 of the Code, or Non-Statutory Stock Options; (ii) to
determine, upon review of relevant information, the Fair Market Value per Share;
(iii) to determine the exercise price of the Options to be granted to Employees
in accordance with Section 6(c) of the Plan; (iv) to determine the Employees to
whom, and the time or times at which, Options shall be granted, and the number
of Shares subject to each Option; (v) to prescribe, amend and rescind rules and
regulations relating to the Plan subject to the limitations set forth in Section
12 of the Plan; (vi) to determine the terms and provisions of each Option
granted to Optionees under the Plan and each Option Agreement (which need not be
identical with the terms of other Options and Option Agreements) and, with the
consent of the Optionee, to modify or amend an outstanding Option or Option
Agreement; (vii) to accelerate the exercise date of any Option; (viii) to
determine whether any Optionee will be required to execute a stock repurchase
agreement or other agreement as a condition to the exercise of an Option, and to
determine the terms and provisions of any such agreement (which need not be
identical with the terms of any other such agreement) and, with the consent of
the Optionee, to amend any such agreement; (ix) to interpret the Plan or any
agreement entered into with respect to the grant or exercise of Options, to
determine the eligibility of an Employee for benefits hereunder and the amount
thereof; (x) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted or
to take such other actions as may be necessary or appropriate with respect to
the Company's rights pursuant to Options or agreements relating to the grant or
exercise thereof; and (xi) to make such other determinations and establish such
other procedures as it deems necessary or advisable for the administration of
the Plan.
-3-
27
c. All decisions, determinations and interpretations of the Committee
shall be final and binding on all Optionees and any other holders of any Options
granted under the Plan.
d. The Committee shall keep minutes of its meetings and of the actions
taken by it without a meeting. A majority of the Committee shall constitute a
quorum, and the actions of a majority at a meeting, including a telephone
meeting, at which a quorum is present, or acts approved in writing by a majority
of the members of the Committee without a meeting, shall constitute acts of the
Committee.
e. The Company shall pay all original issue and transfer taxes with
respect to the grant of Options and/or the issue and transfer of Shares pursuant
to the exercise thereof, and all other fees and expenses necessarily incurred by
the Company in connection therewith; provided, however, that the person
exercising an Option shall be responsible for all payroll, withholding, income
and other taxes incurred by such person on the date of exercise of an Option or
transfer of Shares.
5. ELIGIBILITY.
Options may be granted under the Plan only to Employees. An Employee who
has been granted an Option may, if he or she is otherwise eligible, be granted
additional Options.
6. TERMS AND CONDITIONS OF OPTIONS.
Options granted pursuant to the Plan by the Committee shall be either
Incentive Stock Options or Non-Statutory Stock Options and shall be evidenced by
an Option Agreement providing, in addition to such other terms as the Committee
may deem advisable, the following terms and conditions:
a. Time of Granting Options. The date of grant of an Option shall for
all purposes, be the date on which the Committee makes the determination
granting such Option. Notice of the determination shall be given to each
Optionee within a reasonable time after the date of such grant.
b. Number of Shares. Each Option Agreement shall state the number of
Shares to which it pertains and whether such Option is intended to constitute an
Incentive Stock Option or a Non-Statutory Stock Option. The maximum number of
Shares which may be awarded as Options under the Plan during any calendar year
to any Optionee is Eight Hundred Thousand (800,000) Shares*. If an Option held
by an Employee of the Company is canceled, the canceled Option shall continue to
be counted against the maximum number of Shares for which Options may be granted
to such Employee and any replacement Option granted to such Employee shall also
count against such limit.
- ------------------------
* Such number of shares has been adjusted to reflect the Company's two-for-one
stock splits effective on each of March 17, 1995, August 8, 1997 and June 19,
1998.
-4-
28
c. Exercise Price. The exercise price per Share for the Shares to be
issued pursuant to the exercise of an Option, shall be such price as is
determined by the Committee; provided, however, such price shall in no event be
less than one-hundred percent (100%) with respect to Non-Statutory Stock
Options, and one hundred percent (100%) with respect to Incentive Stock Options,
of the Fair Market Value per Share on the date of grant.
In the case of an Incentive Stock Option granted to an Employee who,
at the time the Incentive Stock Option is granted, owns or is deemed to own (by
reason of the attribution rules applicable under Section 424(d) of the Code)
stock possessing more than ten percent (10%) of the combined voting power of all
classes of stock of the Company, the exercise price per Share shall be no less
than one-hundred-ten percent (110%) of the Fair Market Value per Share on the
date of grant.
d. Medium and Time of Payment. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Committee and may consist entirely of cash, check or
Shares having a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised, or any combination of such methods of payment, or such other
consideration and method of payment permitted under any laws to which the
Company is subject which is approved by the Committee; provided, however, that
the Optionee shall be required to pay in cash an amount necessary to satisfy the
Company's withholding obligations. In the case of an Incentive Stock Option,
such provision shall be determined on the date of the grant.
If the consideration for the exercise of an Option is the
surrender of previously acquired and owned Shares, the Optionee will be required
to make representations and warranties satisfactory to the Company regarding his
or her title to the Shares used to effect the purchase, including without
limitation representations and warranties that the Optionee has good and
marketable title to such Shares free and clear of any and all liens,
encumbrances, charges, equities, claims, security interests, options or
restrictions, and has full power to deliver such Shares without obtaining the
consent or approval of any person or governmental authority other than those
which have already given consent or approval in a manner satisfactory to the
Company. The value of the Shares used to effect the purchase shall be the Fair
Market Value of such Shares on the date of exercise as determined by the
Committee in its sole discretion, exercised in good faith.
e. Term of Options. The term of an Incentive Stock Option may be up to
ten (10) years from the date of grant thereof; provided, however, that the term
of an Incentive Stock Option granted to an Employee who, at the time the
Incentive Stock Option is granted, owns or is deemed to own (by reason of the
attribution rules of Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company, shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option.
The term of a Non-Statutory Stock Option may be up to ten (10) years
from the date such Employee first becomes vested in any portion of an Option
award.
-5-
29
The term of any Option may be less than the maximum term provided for
herein as specified by the Committee upon grant of the Option and as set forth
therein.
f. Maximum Amount of Incentive Stock Options. To the extent that the
aggregate Fair Market Value (determined at the time an Incentive Stock Option is
granted) of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by an Optionee during any calendar year under all
incentive stock option plans of the Company exceeds One Hundred Thousand Dollars
($100,000), the Options in excess of such limit shall be treated as
Non-Statutory Stock Options.
7. EXERCISE OF OPTION.
a. In General. Any Option granted hereunder to an Employee shall be
exercisable at such times and under such conditions as may be determined by the
Committee and as shall be permissible under the terms of the Plan, including any
performance criteria with respect to the Company and/or the Optionee as may be
determined by the Committee.
An Option may be exercised in accordance with the provisions of
the Plan as to all or any portion of the Shares then exercisable under an Option
from time to time during the term of the Option. However, an Option may not be
exercised for a fraction of a Share.
b. Procedure. An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company at its principal business
office in accordance with the terms of the Option Agreement by the person
entitled to exercise the Option and full payment for the Shares with respect to
which the Option is exercised has been received by the Company, accompanied by
any other agreements required by the terms of the Plan and/or Option Agreement
or as required by the Committee and payment by the Optionee of all payroll,
withholding or income taxes incurred in connection with such Option exercise (or
arrangements for the collection or payment of such tax satisfactory to the
Committee are made). Full payment may consist of such consideration and method
of payment allowable under Section 6(d) of the Plan.
c. Decrease in Available Shares. Exercise of an Option in any manner
shall result in a decrease in the number of Shares which thereafter may be
available, both for purposes of the Plan and for sale under the Option, by the
number of Shares as to which the Option is exercised.
d. Exercise of Stockholder Rights. Until the Option is properly
exercised in accordance with the terms of this section, no right to vote or
receive dividends or any other rights as a stockholder shall exist with respect
to the Optioned Stock. No adjustment shall be made for a dividend or other right
for which the record date is prior to the date the Option is exercised, except
as provided in Section 10 of the Plan.
e. Termination of Eligibility. If an Optionee ceases to serve as an
Employee for any reason other than death or permanent and total disability
(within the meaning of Section 22(e)(3) of the Code) and thereby terminates his
or her Continuous Status as an Employee he or she may, but only within three (3)
months following the date he or she ceases his or her Continuous Status
-6-
30
as an Employee (subject to any earlier termination of the Option as provided by
its terms), exercise his or her Option to the extent that he or she was entitled
to exercise it at the date of such termination. To the extent that he or she was
not entitled to exercise the Option at the date of such termination, or if he or
she does not exercise such Option (which he or she was entitled to exercise)
within the time specified herein, the Option shall terminate. Notwithstanding
anything to the contrary herein, the Committee may at any time and from time to
time prior to the termination of a Non-Statutory Stock Option, with the consent
of the Optionee, extend the period of time during which the Optionee may
exercise his or her Non-Statutory Stock Option following the date he or she
ceases his or her Continuous Status as an Employee; provided, however, that the
maximum period of time during which a Non-Statutory Stock Option shall be
exercisable following the date on which an Optionee terminates his or her
Continuous Status as an Employee shall not exceed an aggregate of six (6)
months, that the Non-Statutory Stock Option shall not be, or as a result of such
extension become, exercisable after the expiration of the term of such Option as
set forth in the Option Agreement and, notwithstanding any extension of time
during which the Non-Statutory Stock Option may be exercised, that such Option,
unless otherwise amended by the Committee, shall only be exercisable to the
extent the Optionee was entitled to exercise it on the date he or she ceased his
or her Continuous Status as an Employee.
f. Death or Disability Of Optionee. If an Optionee's Continuous Status
as an Employee ceases due to death or permanent and total disability (within the
meaning of Section 22(e)(3) of the Code) of the Optionee, the Option may be
exercised within six (6) months (or such other period of time not exceeding one
(1) year as is determined by the Committee at the time of granting the Option)
following the date of death or termination of employment due to permanent or
total disability (subject to any earlier termination of the Option as provided
by its terms), by the Optionee in the case of permanent or total disability, or
in the case of death by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but in any case (unless
otherwise determined by the Committee at the time of granting the Option) only
to the extent the Optionee was entitled to exercise the Option at the date of
his or her termination of employment by death or permanent and total disability.
To the extent that he or she was not entitled to exercise such Option at the
date of his or her termination of employment by death or permanent and total
disability, or if he or she does not exercise such Option (which he or she was
entitled to exercise) within the time specified herein, the Option shall
terminate.
g. Expiration of Option. Notwithstanding any provision in the Plan,
including but not limited to the provisions set forth in Sections 7(e) and 7(f),
an Option may not be exercised, under any circumstances, after the expiration of
its term.
h. Conditions on Exercise and Issuance. As soon as practicable after any
proper exercise of an Option in accordance with the provisions of the Plan, the
Company shall deliver to the Optionee at the principal executive office of the
Company or such other place as shall be mutually agreed upon between the Company
and the Optionee, a certificate or certificates representing the Shares for
which the Option shall have been exercised. The time of issuance and delivery of
the certificate or certificates representing the Shares for which the Option
shall have been exercised may be postponed by the Company for such period as may
be required by
-7-
31
the Company, with reasonable diligence, to comply with any law or regulation
applicable to the issuance or delivery of such Shares.
Options granted under the Plan are conditioned upon the Company
obtaining any required permit or order from appropriate governmental agencies,
authorizing the Company to issue such Options and Shares issuable upon exercise
thereof. Shares shall not be issued pursuant to the exercise of an Option unless
the exercise of such Option and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, applicable state law, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the Shares may then be listed, and may be further subject to the
approval of counsel for the Company with respect to such compliance.
i. Withholding or Deduction for Taxes. The grant of Options hereunder
and the issuance of Shares pursuant to the exercise thereof is conditioned upon
the Company's reservation of the right to withhold, in accordance with any
applicable law, from any compensation or other amounts payable to the Optionee
any taxes required to be withheld under Federal, state or local law as a result
of the grant or exercise of such Option or the sale of the Shares issued upon
exercise thereof. To the extent that compensation and other amounts, if any,
payable to the Optionee are insufficient to pay any taxes required to be so
withheld, the Company may, in its sole discretion, require the Optionee, as a
condition of the exercise of an Option, to pay in cash to the Company an amount
sufficient to cover such tax liability or otherwise to make adequate provision
for the delivery to the Company of cash necessary to satisfy the Company's
withholding obligations under Federal and state law.
8. NONTRANSFERABILITY OF OPTIONS.
Options granted under the Plan may not be sold, pledged, assigned,
hypothecated, gifted, transferred or disposed of in any manner, either
voluntarily or involuntarily by operation of law, other than by will or by the
laws of descent or distribution or transfers between spouses incident to a
divorce.
9. HOLDING PERIOD.
In the case of officers and directors of the Company, at least six (6)
months must elapse from the date of grant of the Option to the date of
disposition of the underlying Shares.
10. ADJUSTMENT UPON CHANGE IN CORPORATE STRUCTURE.
a. Subject to any required action by the stockholders of the Company,
the number of Shares covered by each outstanding Option, and the number of
Shares which have been authorized for issuance under the Plan but as to which no
Options have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, as well as the exercise or purchase
price per Share covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split or combination or the payment of a stock
dividend (but only on the Common
-8-
32
Stock) or any other increase or decrease in the number of issued Shares effected
without receipt of consideration by the Company (other than stock awards to
Employees); provided, however, that the conversion of any convertible securities
of the Company shall not be deemed to have been effected without the receipt of
consideration. Such adjustment shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of Shares subject to the Plan or an Option.
b. In the event of the proposed dissolution or liquidation of the
Company, or in the event of a proposed sale of all or substantially all of the
assets of the Company (other than in the ordinary course of business), or the
merger or consolidation of the Company with or into another corporation, as a
result of which the Company is not the surviving and controlling corporation,
the Board of Directors shall (i) make provision for the assumption of all
outstanding options by the successor corporation or (ii) declare that any Option
shall terminate as of a date fixed by the Board of Directors which is at least
thirty (30) days after the notice thereof to the Optionee and shall give each
Optionee the right to exercise his or her Option as to all or any part of the
Optioned Stock, including Shares as to which the Option would not otherwise be
exercisable provided such exercise does not violate Section 7(e) of the Plan.
c. No fractional shares of Common Stock shall be issuable on account of
any action aforesaid, and the aggregate number of shares into which Shares then
covered by the Option, when changed as the result of such action, shall be
reduced to the largest number of whole shares resulting from such action, unless
the Board of Directors, in its sole discretion, shall determine to issue scrip
certificates in respect to any fractional shares, which scrip certificates, in
such event shall be in a form and have such terms and conditions as the Board of
Directors in its discretion shall prescribe.
11. STOCKHOLDER APPROVAL.
Effectiveness of the Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months before or after the date
the Plan is adopted; provided, however, that Options may be granted pursuant to
the Plan subject to subsequent approval of the Plan by such stockholders.
Stockholder approval shall be obtained by the affirmative votes of the holders
of a majority of voting Shares present or represented and entitled to vote at a
meeting of stockholders duly held in accordance with the laws of the state of
California.
12. AMENDMENT AND TERMINATION OF THE PLAN.
a. Amendment and Termination. The Committee may amend or terminate the
Plan from time to time in such respects as the Committee may deem advisable and
shall make any amendments which may be required so that Options intended to be
Incentive Stock Options shall at all times continue to be Incentive Stock
Options for the purpose of Section 422 of the Code; provided, however, that
without approval of the holders of a majority of the voting Shares represented
or present and entitled to vote at a valid meeting of stockholders, no such
revision or amendment shall (i) materially increase the benefits accruing to
participants under the Plan; (ii)
-9-
33
materially increase the number of Shares which may be issued under the Plan,
other than in connection with an adjustment under Section 10 of the Plan; (iii)
materially modify the requirements as to eligibility for participation in the
Plan; (iv) materially change the designation of the class of Employees eligible
to be granted Options; (v) remove the administration of the Plan from the Board
of Directors or its Committee; or (vi) extend the term of the Plan beyond the
maximum term set forth in Section 15 hereunder.
b. Effect of Amendment or Termination. Except as otherwise provided in
Section 10 of the Plan, any amendment or termination of the Plan shall not
affect Options already granted and such Options shall remain in full force and
effect as if the Plan had not been amended or terminated, unless mutually agreed
otherwise between the Optionee and the Company, which agreement must be in
writing and signed by the Optionee and the Company. Notwithstanding anything to
the contrary herein, this 1994 Stock Option Plan shall not adversely affect,
unless mutually agreed in writing by the Company and an Optionee, the terms and
provisions of any Option granted prior to the date the Plan was approved by
stockholders as provided in Section 11 of the Plan.
13. INDEMNIFICATION.
No member of the Committee or of the Board of Directors shall be liable
for any act or action taken, whether of commission or omission, except in
circumstances involving willful misconduct, or for any act or action taken,
whether of commission or omission, by any other member or by any officer, agent,
or Employee. In addition to such other rights of indemnification they may have
as members of the Board of Directors, or as members of the Committee, the
Committee shall be indemnified by the Company against reasonable expenses,
including attorneys' fees actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken, by commission or omission, in connection with the Plan or any Option
taken thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any action, suit
or proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such Committee member is liable for willful
misconduct in the performance of his or her duties; provided that within sixty
(60) days after institution of any such action, suit or proceeding, a Committee
member shall in writing offer the Company the opportunity, at its own expense,
to handle and defend the same.
14. GENERAL PROVISIONS.
a. Other Plans. Nothing contained in the Plan shall prohibit the Company
from establishing additional incentive compensation arrangements.
b. No Enlargement of Rights. Neither the Plan, nor the granting of
Shares, nor any other action taken pursuant to the Plan shall constitute or be
evidence of any agreement or understanding, express or implied, that the Company
will retain an Employee for any period of time, or at any particular rate of
compensation. Nothing in the Plan shall be deemed to limit or
-10-
34
affect the right of the Company or any such corporations to discharge any
Employee thereof at any time for any reason or no reason.
No Employee shall have any right to or interest in Options
authorized hereunder prior to the grant thereof to such eligible person, and
upon such grant he or she shall have only such rights and interests as are
expressly provided herein and in the related Option Agreement, subject, however,
to all applicable provisions of the Company's Certificate of Incorporation, as
the same may be amended from time to time.
c. Notice. Any notice to be given to the Company pursuant to the
provisions of the Plan shall be addressed to the Company in care of its
Secretary (or such other person as the Company may designate from time to time)
at its principal office, and any notice to be given to an Optionee whom an
Option is granted hereunder shall be delivered personally or addressed to him or
her at the address given beneath his or her signature on his or her Stock Option
Agreement, or at such other address as such Optionee or his or her transferee
(upon the transfer of the Optioned Stock) may hereafter designate in writing to
the Company. Any such notice shall be deemed duly given when enclosed in a
properly sealed envelope or wrapper addressed as aforesaid, registered or
certified, and deposited, postage and registry or certification fee prepaid, in
a post office or branch post office regularly maintained by the United States
Postal Service. It shall be the obligation of each Optionee holding Shares
purchased upon exercise of an Option to provide the Secretary of the Company, by
letter mailed as provided hereinabove, with written notice of his or her direct
mailing address.
d. Applicable Law. To the extent that Federal laws do not otherwise
control, the Plan shall be governed by and construed in accordance with the laws
of the state of California, without regard to the conflict of laws rules
thereof.
e. Incentive Stock Options. The Company shall not be liable to an
Optionee or other person if it is determined for any reason by the Internal
Revenue Service or any court having jurisdiction that any Incentive Stock
Options are not incentive stock options as defined in Section 422 of the Code.
f. Information to Optionees. The Company shall provide without charge to
each Optionee copies of such annual and periodic reports as are provided by the
Company to its stockholders generally.
g. Availability of Plan. A copy of the Plan shall be delivered to the
Secretary of the Company and shall be shown by him or her to any eligible person
making reasonable inquiry concerning it.
h. Severability. In the event that any provision of the Plan is found to
be invalid or otherwise unenforceable under any applicable law, such invalidity
or unenforceability shall not be construed as rendering any other provisions
contained herein as invalid or unenforceable, and all such other provisions
shall be given full force and effect to the same extent as though the invalid or
unenforceable provision was not contained herein.
-11-
35
15. EFFECTIVE DATE AND TERM OF PLAN.
The Plan shall become effective upon stockholder approval as provided in
Section 11 of the Plan. The Plan shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 12 of the Plan.
-12-
36
EXHIBIT A-1
TEKELEC
1994 STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
Tekelec, a California corporation (the "Company"), hereby enters into
this agreement (the "Option Agreement") with ______________________________ (the
"Optionee") on this _____ day of _______________, __________, whereby the
Company grants to the Optionee the right and option to purchase an aggregate of
__________ shares of Common Stock (the "Shares") of the Company. This Option is
in all respects subject to the terms, definitions and provisions of the Tekelec
1994 Stock Option Plan (the "Plan") adopted by the Company and incorporated
herein by reference. The terms defined in the Plan shall have the same meanings
herein.
1. NATURE OF THE OPTION. This Option is intended by the Company and the
Optionee to qualify as an Incentive Stock Option, as defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code").
2. EXERCISE PRICE. The exercise price is $ __________ per Share, which
price is not less than one hundred percent (100%) of the Fair Market Value
thereof on the date of the grant.
3. METHOD OF PAYMENT. The consideration to be paid for the Shares to be
issued upon the exercise of this Option may consist entirely of cash, check,
Shares already owned by the Optionee which have a Fair Market Value on the date
of surrender equal to the aggregate exercise price of the Shares as to which
this Option is exercised, or any combination of such methods of payment, subject
to the provisions of Section 6(d) of the Plan; provided, however, that the
Optionee shall be required to pay in cash an amount necessary to satisfy the
Company's withholding obligations.
4. EXERCISE OF OPTION. This Option shall be exercisable during its term
only in accordance with the terms and provisions of the Plan and this Option as
follows:
(a) This Option shall vest and be exercisable cumulatively in
____________________ ( ) equal quarterly installments commencing [e.g., with the
first installment vesting on ________________ and one additional installment
vesting on the last day of each calendar quarter thereafter, as long as the
Optionee continues to serve as an Employee]. An Optionee who has been in
continuous employment with the Company since the grant of this Option may
exercise the exercisable portion of his or her Option in whole or in part at any
time during his or her employment. However, an Option may not be exercised for a
fraction of a Share. In the event of the Optionee's termination of employment
with the Company or disability or death, the provisions of Sections 6 or 7 below
shall apply to the right of the Optionee to exercise the Option.
37
(b) This Option shall be exercisable by written notice which
shall state the election to exercise this Option, the number of Shares with
respect to which this Option is being exercised and such other representations
and agreements as may be required by the Company hereunder or pursuant to the
provisions of the Plan. Such written notice shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company or such other person as may be designated by the Company. The written
notice shall be accompanied by payment of the purchase price and an executed
Notice of Exercise of Stock Option in the form attached hereto. The certificate
or certificates for the Shares as to which this Option is exercised shall be
registered in the name of the Optionee.
(c) No rights of a stockholder shall exist with respect to the
Shares under this Option as a result of the mere grant of this Option or the
exercise of this Option. Such rights shall exist only after issuance of a stock
certificate in accordance with Section 7(h) of the Plan.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised until such
time as the Plan has been approved by the stockholders of the Company as set
forth in Section 11 of the Plan, or if the issuance of Shares upon Optionee's
exercise or the method of payment of consideration for such Shares would
constitute a violation of any applicable Federal or state securities law or
other applicable law or regulation. As a condition to the exercise of the
Option, the Company may take such steps as in its judgment are reasonably
required to prevent any such violation and may require the Optionee to make any
representations, warranties or acknowledgments to the Company as may be required
by any applicable law or regulation.
6. TERMINATION OF EMPLOYMENT. If the Optionee ceases to serve as an
Employee for any reason other than death or permanent and total disability
(within the meaning of Section 22(e)(3) of the Code) and thereby terminates his
or her Continuous Status as an Employee, the Optionee shall have the right to
exercise this Option at any time within three (3) months after the date of such
termination to the extent that the Optionee was entitled to exercise this Option
at the date of such termination. To the extent that the Optionee was not
entitled to exercise this Option at the date of termination, or to the extent
this Option is not exercised within the time specified herein, this Option shall
terminate. Notwithstanding the foregoing, this Option shall not be exercisable
after the expiration of the term set forth in Section 8 hereof.
7. DEATH OR DISABILITY. If the Optionee ceases to serve as an Employee
due to death or permanent and total disability (within the meaning of Section
22(e)(3) of the Code), this Option may be exercised at any time within six (6)
months after the date of death or termination of employment due to disability,
in the case of death, by the Optionee's estate or by a person who acquired the
right to exercise this Option by bequest or inheritance, or, in the case of
disability, by the Optionee, but in any case only to the extent the Optionee was
entitled to exercise this Option at the date of such termination. To the extent
that the Optionee was not entitled to exercise this Option at the date of
termination, or to the extent this Option is not exercised within the time
specified herein, this Option shall terminate. Notwithstanding the foregoing,
this Option shall not be exercisable after the expiration of the terms set forth
in Section 8 hereof.
2
38
8. TERM OF OPTION. This Option may not be exercised more than ________
( ) years from the date of the grant of this Option and may be exercised during
such term only in accordance with the Plan and the terms of this Option
Agreement. Notwithstanding any provision in the Plan with respect to the
post-employment exercise of this Option, this Option may not be exercised after
the expiration of its term.
9. WITHHOLDING UPON EXERCISE OF OPTION. The Company reserves the right
to withhold, in accordance with any applicable laws, from any consideration
payable to Optionee any taxes required to be withheld by Federal, state or local
law as a result of the grant or exercise of this Option or the sale or other
disposition of the Shares issued upon exercise of this Option. If the amount of
any consideration payable to the Optionee is insufficient to pay such taxes or
if no consideration is payable to the Optionee, upon the request of the Company,
the Optionee shall pay to the Company in cash an amount sufficient for the
Company to satisfy any Federal, state or local tax withholding requirements it
may incur, as a result of the grant or exercise of this Option or the sale or
other disposition of the Shares issued upon the exercise of this Option.
10. NONTRANSFERABILITY OF OPTION. This Option may not be sold, pledged,
assigned, hypothecated, gifted, transferred or disposed of in any manner either
voluntarily or involuntarily by operation of law or otherwise, other than by
will or by the laws of descent or distribution or transfer between spouses
incident to a divorce. Subject to the foregoing and the terms of the Plan, the
terms of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
11. NO RIGHT OF EMPLOYMENT. Neither this Plan nor any Option granted
hereunder shall confer upon any Optionee any right to continue in the employment
of the Company or limit in any respect the right of the Company to discharge the
Optionee at any time, with or without cause and with or without notice.
12. MISCELLANEOUS.
(a) Successors and Assigns. This Option Agreement shall bind and
inure only to the benefit of the parties to this Option Agreement (the
"Parties") and their respective successors and assigns.
(b) No Third-Party Beneficiaries. Nothing in this Option
Agreement is intended to confer any rights or remedies on any persons other than
the Parties and their respective successors or assigns. Nothing in this Option
Agreement is intended to relieve or discharge the obligation or liability of
third persons to any Party. No provision of this Option Agreement shall give any
third person any right of subrogation or action over or against any Party.
(c) Amendments. (i) The Committee reserves the right to amend the
terms and provisions of this Option Agreement without the Optionee's consent to
comply with any Federal or state securities law.
3
39
(ii) Except as specifically provided in subsection (i)
above, this Option Agreement shall not be changed or modified, in whole or in
part, except by supplemental agreement signed by the Parties. Any Party may
waive compliance by any other Party with any of the covenants or conditions of
this Option Agreement, but no waiver shall be binding unless executed in writing
by the Party making the waiver. No waiver or any provision of this Option
Agreement shall be deemed, or shall constitute, a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing waiver. Any
consent under this Option Agreement shall be in writing and shall be effective
only to the extent specifically set forth in such writing. For the protection of
the Parties, amendments, waivers and consents that are not in writing and
executed by the Party to be bound may be enforced only if they are detrimentally
relied upon and proved by clear and convincing evidence. Such evidence shall not
include any alleged reliance.
(d) Notice. Any notice, instruction or communication required or
permitted to be given under this Option Agreement to any Party shall be in
writing and shall be deemed given when actually received or, if earlier, five
days after deposit in the United States mail by certified or express mail,
return receipt requested, first class postage prepaid, addressed to the
principal office of such Party or to such other address as such Party may
request by written notice.
(e) Governing Law. To the extent that Federal laws do not
otherwise control, the Plan and all determinations made or actions taken
pursuant hereto shall be governed by the laws of the state of California,
without regard to the conflict of laws rules thereof.
(f) Entire Agreement. This Option Agreement and the Plan
constitute the entire agreement between the Parties with regard to the subject
matter hereof. This Option Agreement supersedes all previous agreements between
the Parties, and there are now no agreements, representations, or warranties
between the Parties, other than those set forth herein.
(g) Severability. If any provision of this Option Agreement or
the application of such provision to any person or circumstances is held invalid
or unenforceable, the remainder of this Option Agreement, or the application of
such provision to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby.
(h) Optionee Representation. Optionee acknowledges receipt of the
Plan, a copy of which is attached hereto, and hereby accepts the grant of this
Option subject to all the terms and provisions thereof.
4
40
IN WITNESS WHEREOF, this Option Agreement has been duly executed on
behalf of the Company by an authorized representative of the Company and by the
Optionee on the date and year first written above.
DATE OF GRANT:
---------------------------
Tekelec
By:
-----------------------------------
Title:
--------------------------------
Dated:
--------------------------------
Optionee
--------------------------------
Dated:
--------------------------------
5
41
EXHIBIT A-2
TEKELEC
1994 STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
Tekelec, a California corporation (the "Company"), hereby enters into
this agreement (the "Option Agreement") with ______________________________ (the
"Optionee") on this _____ day of _______________, __________, whereby the
Company grants to the Optionee the right and option to purchase an aggregate of
__________ shares of Common Stock (the "Shares") of the Company. This Option is
in all respects subject to the terms, definitions and provisions of the Tekelec
1994 Stock Option Plan (the "Plan") adopted by the Company and incorporated
herein by reference. The terms defined in the Plan shall have the same meanings
herein.
1. NATURE OF THE OPTION. This Option is intended to be a nonstatutory
stock option and is not intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or to otherwise qualify for any special tax benefits to the Optionee.
2. EXERCISE PRICE. The exercise price is $ __________ per Share, which
price is not less than one-hundred percent (100%) of the Fair Market Value
thereof on the date of the grant.
3. METHOD OF PAYMENT. The consideration to be paid for the Shares to be
issued upon exercise of this Option may consist entirely of cash, check, Shares
already owned by the Optionee which have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which this
Option is exercised, or any combination of such methods of payment, subject to
the provisions of Section 6(d) of the Plan; provided, however, that the Optionee
shall be required to pay in cash an amount necessary to satisfy the Company's
withholding obligations.
4. EXERCISE OF OPTION. This Option shall be exercisable during its term
only in accordance with the terms and provisions of the Plan and this Option as
follows:
(a) This Option shall vest and be exercisable cumulatively in
____________________ ( ) equal quarterly installments commencing on the last day
of the calendar quarter which follows the first full calendar quarter after
commencement of the Optionee's service as an Employee of the Company. An
Optionee who has been in continuous service with the Company since the grant of
this Option may exercise the exercisable portion of his or her Option in whole
or in part at any time during his or her employment. However, an Option may not
be exercised for a fraction of a Share. In the event of the Optionee's
termination of employment with the Company, or disability or death, the
provisions of Sections 6 or 7 below shall apply to the right of the Optionee to
exercise this Option.
42
(b) This Option shall be exercisable by written notice which
shall state the election to exercise this Option, the number of Shares in
respect to which this Option is being exercised and such other representations
and agreements as may be required by the Company hereunder or pursuant to the
provisions of the Plan. Such written notice shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company or such other person as may be designated by the Company. The written
notice shall be accompanied by payment of the purchase price and an executed
Notice of Exercise of Stock Option in the form attached hereto (as may be
amended from time to time). The certificate or certificates for the Shares as to
which this Option is exercised shall be registered in the name of the Optionee.
(c) No rights of a stockholder shall exist with respect to the
Shares under this Option as a result of the mere grant of this Option or the
exercise of this Option. Such rights shall exist only after issuance of a stock
certificate in accordance with Section 7(h) of the Plan.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised until such
time as the Plan has been approved by the stockholders of the Company as set
forth in Section 11 of the Plan, or if the issuance of Shares upon Optionee's
exercise or the method of payment of consideration for such Shares would
constitute a violation of any applicable Federal or state securities law or
other applicable law or regulation. As a condition to the exercise of this
Option, the Company may require the Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
6. TERMINATION OF EMPLOYMENT. If the Optionee ceases to serve as an
Employee for any reason other than death or permanent and total disability
(within the meaning of Section 22(e)(3) of the Code) and thereby terminates his
or her Continuous Status as an Employee, the Optionee shall have the right to
exercise this Option at any time within three (3) months after the date of such
termination to the extent that the Optionee was entitled to exercise this Option
at the date of such termination. The Committee may at any time and from
time-to-time prior to the termination of this Option, with the consent of
Optionee, extend the period of time during which the Optionee may exercise this
Option following the date the Optionee ceases to serve as an Employee for a
period which shall not exceed an aggregate of six (6) months; provided, however,
that this Option shall remain exercisable only to the extent that the Optionee
was entitled to exercise this Option at the date of such termination. To the
extent that the Optionee was not entitled to exercise this Option at the date of
termination, or to the extent this Option is not exercised within the time
specified herein, this Option shall terminate. Notwithstanding the foregoing,
this Option shall not be exercisable after the expiration of the term set forth
in Section 8 hereof.
7. DEATH OR DISABILITY. If the Optionee ceases to serve as an Employee
due to death or permanent and total disability (within the meaning of Section
22(e)(3) of the Code), this Option may be exercised at any time within six (6)
months after the date of death or termination of employment due to disability,
in the case of death, by the Optionee's estate or by a person who acquired the
right to exercise this Option by bequest or inheritance, or, in the case of
disability, by the Optionee, but in any case only to the extent the Optionee was
entitled to exercise this
2
43
Option at the date of such termination. To the extent that the Optionee was not
entitled to exercise this Option at the date of termination, or to the extent
this Option is not exercised within the time specified herein, this Option shall
terminate. Notwithstanding the foregoing, this Option shall not be exercisable
after the expiration of the term set forth in Section 8 hereof.
8. TERM OF OPTION. This Option may not be exercised more than ten (10)
years from the date of grant of this Option and may be exercised during such
term only in accordance with the Plan and the terms of this Option Agreement.
Notwithstanding any provision in the Plan with respect to the post-employment
exercise of an Option, an Option may not be exercised after the expiration of
its term.
9. WITHHOLDING UPON EXERCISE OF OPTION. The Company reserves the right
to withhold, in accordance with any applicable laws, from any consideration
payable to Optionee any taxes required to be withheld by Federal, state or local
law as a result of the grant or exercise of this Option or the sale or other
disposition of the Shares issued upon exercise of this Option. If the amount of
any consideration payable to the Optionee is insufficient to pay such taxes or
if no consideration is payable to the Optionee, upon the request of the Company,
the Optionee shall pay to the Company in cash an amount sufficient for the
Company to satisfy any Federal, state or local tax withholding requirements it
may incur, as a result of the grant or exercise of this Option or the sale or
other disposition of the Shares issued upon the exercise of this Option.
10. NONTRANSFERABILITY OF OPTION. This Option may not be sold, pledged,
assigned, hypothecated, gifted, transferred or disposed of in any manner either
voluntarily or involuntarily by operation of law, other than by will or by the
laws of descent or distribution or transfer between spouses incident to a
divorce. Subject to the foregoing and the terms of the Plan, the terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
11. NO RIGHT OF EMPLOYMENT. Neither the Plan nor this Option shall
confer upon the Optionee any right to continue in the employment of the Company
or limit in any respect the right of the Company to discharge the Optionee at
any time, with or without cause and with or without notice.
12. MISCELLANEOUS.
(a) Successors and Assigns. This Option Agreement shall bind and
inure only to the benefit of the parties to this Option Agreement (the
"Parties") and their respective successors and assigns.
(b) No Third-Party Beneficiaries. Nothing in this Option
Agreement is intended to confer any rights or remedies on any persons other than
the Parties and their respective successors or assigns. Nothing in this Option
Agreement is intended to relieve or discharge the obligation or liability of
third persons to any Party. No provision of this Option Agreement shall give any
third person any right of subrogation or action over or against any Party.
3
44
(c) Amendments. (i) The Committee reserves the right to amend the
terms and provisions of this Option without the Optionee's consent to comply
with any Federal or state securities law.
(ii) Except as specifically provided in subsection (i)
above, this Option Agreement shall not be changed or modified, in whole or in
part, except by supplemental agreement signed by the Parties. Any Party may
waive compliance by any other Party with any of the covenants or conditions of
this Option Agreement, but no waiver shall be binding unless executed in writing
by the Party making the waiver. No waiver or any provision of this Option
Agreement shall be deemed, or shall constitute, a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing waiver. Any
consent under this Option Agreement shall be in writing and shall be effective
only to the extent specifically set forth in such writing. For the protection of
the Parties, amendments, waivers and consents that are not in writing and
executed by the Party to be bound may be enforced only if they are detrimentally
relied upon and proved by clear and convincing evidence. Such evidence shall not
include any alleged reliance.
(d) Notice. Any notice, instruction or communication required or
permitted to be given under this Option Agreement to any Party shall be in
writing and shall be deemed given when actually received or, if earlier, five
days after deposit in the United States mail by certified or express mail,
return receipt requested, first class postage prepaid, addressed to the
principal office of such Party or to such other address as such Party may
request by written notice.
(e) Governing Law. To the extent that Federal laws do not
otherwise control, the Plan and all determinations made or actions taken
pursuant hereto shall be governed by the laws of the state of California,
without regard to the conflict of laws rules thereof.
(f) Entire Agreement. This Option Agreement and the Plan
constitute the entire agreement between the Parties with regard to the subject
matter hereof. This Option Agreement supersedes all previous agreements between
the Parties, and there are now no agreements, representations, or warranties
between the Parties, other than those set forth herein.
(g) Severability. If any provision of this Option Agreement or
the application of such provision to any person or circumstances is held invalid
or unenforceable, the remainder of this Option Agreement, or the application of
such provision to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby.
(h) Optionee Representation. Optionee acknowledges receipt of the
Plan, a copy of which is attached hereto, and hereby accepts the grant of this
Option subject to all the terms and provisions thereof.
4
45
IN WITNESS WHEREOF, this Option Agreement has been duly executed on
behalf of the Company by an authorized representative of the Company and by the
Optionee on the date and year first written above.
DATE OF GRANT:
----------------------------
Tekelec
By:
--------------------------------
Title:
------------------------------
Optionee
- --------------------------------
5
46
AMENDMENT NO. 1 TO
TEKELEC
1994 STOCK OPTION PLAN*
Section 3 of the Tekelec 1994 Stock Option Plan is hereby amended
to read in its entirety as follows:
"3. SHARES RESERVED.
The maximum aggregate number of Shares reserved for
issuance pursuant to the Plan shall be Three Million Six Hundred
Thousand (3,600,000) Shares or the number of shares of stock to
which such Shares shall be adjusted as provided in Section 10 of
the Plan. Such number of Shares may be set aside out of
authorized but unissued Shares not reserved for any other
purpose, or out of issued Shares acquired for and held in the
treasury of the Company from time to time.
Shares subject to, but not sold or issued under, any
Option terminating, expiring or canceled for any reason prior to
its exercise in full, shall again become available for Options
thereafter granted under the Plan, and the same shall not be
deemed an increase in the number of Shares reserved for issuance
under the Plan."
Dated: February 4, 1995
- ------------------------
* Such number of shares has been adjusted to reflect the Company's two-for-one
stock splits effective on each of March 17, 1995, August 8, 1997 and June 19,
1998.
47
AMENDMENT NO. 2 TO
TEKELEC
1994 STOCK OPTION PLAN*
Section 3 of the Tekelec 1994 Stock Option Plan is hereby amended
to read in its entirety as follows:
"3. SHARES RESERVED.
The maximum aggregate number of Shares reserved for
issuance pursuant to the Plan shall be Five Million Six Hundred
Thousand (5,600,000) Shares or the number of shares of stock to
which such Shares shall be adjusted as provided in Section 10 of
the Plan. Such number of Shares may be set aside out of
authorized but unissued Shares not reserved for any other
purpose, or out of issued Shares acquired for and held in the
treasury of the Company from time to time.
Shares subject to, but not sold or issued under,
any Option terminating, expiring or canceled for any reason prior
to its exercise in full, shall again become available for Options
thereafter granted under the Plan, and the same shall not be
deemed an increase in the number of Shares reserved for issuance
under the Plan."
Dated: March 3, 1995
- ------------------------
* Such number of shares has been adjusted to reflect the Company's two-for-one
stock splits effective on each of March 17, 1995, August 8, 1997 and June 19,
1998.
48
AMENDMENT NO. 3 TO
TEKELEC
1994 STOCK OPTION PLAN*
Section 3 of the Tekelec 1994 Stock Option Plan is hereby amended
to read in its entirety as follows:
"3. SHARES RESERVED.
The maximum aggregate number of Shares reserved for
issuance pursuant to the Plan shall be Eight Million (8,000,000)
Shares or the number of shares of stock to which such Shares
shall be adjusted as provided in Section 10 of the Plan. Such
number of Shares may be set aside out of authorized but unissued
Shares not reserved for any other purpose, or out of issued
Shares acquired for and held in the treasury of the Company from
time to time.
Shares subject to, but not sold or issued under, any
Option terminating, expiring or canceled for any reason prior to
its exercise in full, shall again become available for Options
thereafter granted under the Plan, and the same shall not be
deemed an increase in the number of Shares reserved for issuance
under the Plan."
Dated: January 27, 1996
- ------------------------
* The number of shares set forth herein has been adjusted to reflect Tekelec's
two-for-one stock splits effective on each of August 8, 1997 and June 19,
1998.
49
AMENDMENT NO. 4 TO
TEKELEC
1994 STOCK OPTION PLAN*
Section 3 of the Tekelec 1994 Stock Option Plan is hereby amended
to read in its entirety as follows:
"3. SHARES RESERVED.
The maximum aggregate number of Shares reserved for
issuance pursuant to the Plan shall be Eight Million Four Hundred
Thousand (8,400,000) Shares or the number of shares of stock to
which such Shares shall be adjusted as provided in Section 10 of
the Plan. Such number of Shares may be set aside out of
authorized but unissued Shares not reserved for any other
purpose, or out of issued Shares acquired for and held in the
treasury of the Company from time to time.
Shares subject to, but not sold or issued under, any
Option terminating, expiring or canceled for any reason prior to
its exercise in full, shall again become available for Options
thereafter granted under the Plan, and the same shall not be
deemed an increase in the number of Shares reserved for issuance
under the Plan."
Dated: February 26, 1997
- ------------------------
* The number of shares set forth herein has been adjusted to reflect Tekelec's
two-for-one stock splits effective on each of August 8, 1997 and June 19,
1998.
50
AMENDMENT NO. 5 TO
TEKELEC
1994 STOCK OPTION PLAN*
Section 3 of the Tekelec 1994 Stock Option Plan is hereby amended
to read in its entirety as follows:
"3. SHARES RESERVED.
The maximum aggregate number of Shares reserved for
issuance pursuant to the Plan shall be Twelve Million
(12,000,000) Shares or the number of shares of stock to which
such Shares shall be adjusted as provided in Section 10 of the
Plan. Such number of Shares may be set aside out of authorized
but unissued Shares not reserved for any other purpose, or out of
issued Shares acquired for and held in the treasury of the
Company from time to time.
Shares subject to, but not sold or issued under, any
Option terminating, expiring or canceled for any reason prior to
its exercise in full, shall again become available for Options
thereafter granted under the Plan, and the same shall not be
deemed an increase in the number of Shares reserved for issuance
under the Plan."
Dated: March 19, 1997
- ------------------------
* The number of shares set forth herein has been adjusted to reflect Tekelec's
two-for-one stock splits effective on each of August 8, 1997 and June 19,
1998.
51
AMENDMENT NO. 6 TO
TEKELEC
1994 STOCK OPTION PLAN*
Section 3 of the Tekelec 1994 Stock Option Plan is hereby amended
to read in its entirety as follows:
"3. SHARES RESERVED.
The maximum aggregate number of Shares reserved for
issuance pursuant to the Plan shall be Fourteen Million
(14,000,000) Shares or the number of shares of stock to which
such Shares shall be adjusted as provided in Section 10 of the
Plan. Such number of Shares may be set aside out of authorized
but unissued Shares not reserved for any other purpose, or out of
issued Shares acquired for and held in the treasury of the
Company from time to time.
Shares subject to, but not sold or issued under, any
Option terminating, expiring or canceled for any reason prior to
its exercise in full, shall again become available for Options
thereafter granted under the Plan, and the same shall not be
deemed an increase in the number of Shares reserved for issuance
under the Plan."
Dated: March 20, 1998
- ------------------------
* The number of shares set forth herein has been adjusted to reflect Tekelec's
two-for-one stock split effective June 19, 1998.
52
AMENDMENT NO. 7 TO
TEKELEC
1994 STOCK OPTION PLAN
Section 3 of the Tekelec 1994 Stock Option Plan is hereby amended
to read in its entirety as follows:
"3. SHARES RESERVED.
The maximum aggregate number of Shares reserved for
issuance pursuant to the Plan shall be Fourteen Million
(19,000,000) Shares or the number of shares of stock to which
such Shares shall be adjusted as provided in Section 10 of the
Plan. Such number of Shares may be set aside out of authorized
but unissued Shares not reserved for any other purpose, or out of
issued Shares acquired for and held in the treasury of the
Company from time to time.
Shares subject to, but not sold or issued under, any
Option terminating, expiring or canceled for any reason prior to
its exercise in full, shall again become available for Options
thereafter granted under the Plan, and the same shall not be
deemed an increase in the number of Shares reserved for issuance
under the Plan."
Dated: March 19, 1999
53
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
TEKELEC
1999 ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of Tekelec, a California corporation (the
"Company"), hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated April 2, 1999, and Annual Report to
Shareholders for the year ended December 31, 1998, and hereby appoints Michael
L. Margolis and Gilles C. Godin, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the Annual Meeting of
Shareholders of the Company to be held May 14, 1999, at 9:00 a.m., California
time, at the Company's offices located at 26580 West Agoura Road, Calabasas,
California 91302, and at any adjournment(s) thereof, and to vote all shares of
Common Stock which the undersigned would be entitled to vote, if then and there
personally present, on the matters set forth below:
1. ELECTION OF DIRECTORS:
[ ] FOR all nominees listed below [ ] WITHHOLD authority
(except as marked to the contrary below). to vote for ALL nominees listed below.
(Instruction: To WITHHOLD the authority to vote for any individual
nominee, mark the box next to the nominee's name below.)
NAME OF NOMINEE:
[ ] Robert V. Adams [ ] Jean-Claude Asscher [ ] Daniel L. Brenner
[ ] Michael L. Margolis [ ] Howard Oringer [ ] Jon F. Rager
2. APPROVAL OF AMENDMENT TO 1994 STOCK OPTION PLAN: To approve an amendment
to the Company's 1994 Stock Option Plan to increase the aggregate number of
shares of Common Stock authorized for issuance thereunder from 14,000,000 to
19,000,000 shares, as described in the Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. APPOINTMENT OF INDEPENDENT ACCOUNTANTS: To ratify the appointment of
PricewaterhouseCoopers LLP as independent accountants of the Company for the
year ending December 31, 1999, as described in the Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. OTHER BUSINESS: In their discretion, the Proxies are authorized to vote
upon such other business as may properly come before the Annual Meeting or any
adjournment(s) thereof.
Any one of such attorneys-in-fact or substitutes as shall be present and
shall act at said meeting or any adjournment(s) thereof shall have and may
exercise all powers of said attorneys-in-fact hereunder.
54
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR PROPOSALS 1, 2 AND 3 AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
Dated: , 1999
-------------
-------------------------
(Signature)
-------------------------
(Signature)
(This Proxy should be
marked, dated and signed
by the shareholder(s)
EXACTLY as his or her
name appears hereon and
returned promptly in the
enclosed envelope.
Persons signing in a
fiduciary capacity should
so indicate. If shares
are held by joint tenants
or as community property,
both should sign.)
DO NOT FOLD, STAPLE OR MUTILATE