<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Exchange Act Rules 14a-11(c) or 14a-12
TEKELEC
-------------------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
TEKELEC
-------------------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3).
[ ] 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:(1)
______________________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
______________________________________________________________________________________
[X] 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: $125
---------------------------------------------------------------
(2) Form, schedule or registration statement no.: Preliminary Proxy Statement
-----------------------------------------
(3) Filing party: Tekelec
-------------------------------------------------------------------------
(4) Date filed: March 17, 1995
---------------------------------------------------------------------------
</TABLE>
- - ------------------
(1) Set forth the amount on which the filing fee is calculated and state
how it was determined.
<PAGE> 2
TEKELEC
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 12, 1995
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 12, 1995, at 9:30 a.m., California time, at the
Company's corporate headquarters located at 26580 W. Agoura Road, Calabasas,
California 91302, for the following purposes, each as more fully described in
the attached Proxy Statement:
1. To elect seven directors to serve for the ensuing
year. The names of the nominees intended to be presented for election are:
Robert V. Adams, Philip J. Alford, Jean-Claude Asscher, Philip Black, Daniel L.
Brenner, Howard Oringer and Jon F. Rager.
2. To approve amendments to the Company's 1994 Stock
Option Plan to increase the aggregate number of shares of Common Stock
authorized for issuance thereunder from 800,000 to 1,400,000.
3. To approve an amendment to the Company's Employee
Stock Purchase Plan to increase the aggregate number of shares of Common Stock
authorized for issuance thereunder from 450,000 to 600,000.
4. To approve an amendment to the Company's Bylaws to
authorize the Company's Board of Directors to approve loans to, and guarantees
of the obligations of, the Company's officers.
5. To ratify the appointment of Coopers & Lybrand L.L.P.
as independent accountants of the Company for the year ending December 31,
1995.
6. 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, 1995 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 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 11, 1995
<PAGE> 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 12, 1995 at 9:30
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 corporate
headquarters located at 26580 W. Agoura Road, Calabasas, California 91302.
These proxy solicitation materials were first mailed on or about April
11, 1995 to all shareholders entitled to vote at the Annual Meeting.
Only shareholders of record at the close of business on March 23, 1995
(the "Record Date") are entitled to notice of, and to vote at, the Annual
Meeting. At the Record Date, 9,311,422 shares of 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.
IN MARCH 1995, THE COMPANY EFFECTED A TWO-FOR-ONE STOCK SPLIT PURSUANT
TO WHICH EACH SHAREHOLDER OF THE COMPANY RECEIVED ONE ADDITIONAL SHARE FOR EACH
SHARE OF THE COMPANY'S COMMON STOCK HELD OF RECORD ON MARCH 17, 1995. ALL
REFERENCES TO NUMBERS OF SHARES AND PER SHARE PRICES SET FORTH HEREIN, IN THE
NOTICE AND IN THE ENCLOSED PROXY CARD HAVE BEEN ADJUSTED TO REFLECT THE STOCK
SPLIT.
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 seven
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 candidates receiving the highest number of votes up to the number
of directors to be elected 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." Broker non-votes are
counted as shares that are present and entitled to vote for purposes of
determining a quorum. If a broker indicates on the
-1-
<PAGE> 4
proxy that it does not have discretionary authority to vote on a particular
matter as to certain shares, those shares will be counted for purposes of
determining the presence of a quorum but will not be treated as 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).
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 1996 must be received by the Company no later than December 6,
1995 in order that they may be included in the proxy statement and form of
proxy relating to that annual meeting. 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
12, 1995.
PROPOSAL 1 - ELECTION OF DIRECTORS
NOMINEES
A board of seven directors will be elected at the Annual Meeting.
Unless otherwise instructed, proxy holders will vote the proxies received by
them for the Company's seven 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 shall be 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 the earlier of his resignation, removal or death.
The names of the nominees, and certain information about them, are set
forth below:
<TABLE>
<CAPTION>
Name Age Position(s) with the Company Director Since
- - ---- --- ---------------------------- --------------
<S> <C> <C> <C>
Jean-Claude Asscher 66 Chairman of the Board 1972
Robert V. Adams 63 Director 1991
Philip J. Alford 41 Director and President 1994
Philip Black 40 Director 1994
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
Name Age Position(s) with the Company Director Since
- - ---- --- ---------------------------- --------------
<S> <C> <C> <C>
Daniel L. Brenner 43 Director 1990
Howard Oringer 52 Director 1992
Jon F. Rager 55 Director 1981
</TABLE>
There is no family relationship between any director or executive
officer of the Company and any other director or executive officer of the
Company.
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, he has been the Chief Executive Officer and President of
Xerox Technology Ventures, a venture capital company which identifies, develops
and manages new business opportunities for Xerox Corporation.
Mr. Alford has been a director and President of the Company since
January 1994. He served as the Company's Chief Financial Officer from June
1985 until February 1994, as Vice President, Finance from May 1986 until
October 1990, as Senior Vice President from October 1990 until July 1993, and
as Senior Vice President and General Manager, International Division from July
1993 until January 1994.
Mr. Black became a director of the Company in 1981, resigned in
October 1991 and was re-elected in February 1994. He also served as the
Company's Vice President from September 1979 until June 1982, as President from
June 1982 until August 1987, as Chief Executive Officer from December 1985
until August 1987 and as Vice Chairman of the Board from August 1987 until
October 1991. From March 1990 until August 1991, Mr. Black served as Managing
Director of Echelon Europe, Ltd., a sense and control networking company. In
September 1991, Mr. Black became Chief Executive Officer, Treasurer and a
director of Avalon Control Technologies, a private consulting firm for
industrial networks, and served in those capacities until June 1994 when that
company ceased operations. Since April 1994, Mr. Black has served as President
and Chief Executive Officer of Chevry, a software marketing company.
Mr. Brenner has been a director of the Company since May 1990. From
September 1986 to June 1992, he was an Adjunct Professor of Law and the
Director of the Communications Law Program at the University of California, Los
Angeles. In June 1992, Mr. Brenner assumed his present position as Vice
President, Law and Regulatory Policy for the National Cable Television
Association. Mr. Brenner served on the Board of Directors of the Corporation
for Public Broadcasting from November 1986 to March 1991, and served as its
Vice Chairman from 1989 to March 1991.
Mr. Oringer has been a director of the Company since January 1992.
From February 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, Mr. Oringer also served as a consultant to the
Company. See "Compensation of Directors" below.
-3-
<PAGE> 6
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).
INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held a total of ten meetings during 1994.
During 1994, each director of the Company attended at least 80% of the
aggregate of all meetings of the Board of Directors held during the period for
which he was a director and all meetings held by the committees of the Board on
which he served.
The Audit Committee, which during 1994 was comprised of Messrs. Adams,
Brenner and Rager (Chairman) until July 1994, and of Messrs. Adams, Brenner,
Rager and Black thereafter, met four times during 1994. 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 1994 was comprised of
Messrs. Brenner and Rager (Chairman) until July 1994, and of Messrs. Brenner,
Rager and Adams thereafter, met once during 1994 and acted eleven times by
unanimous written consent. The Compensation Committee is responsible for
administering the Company's Amended and Restated 1984 Stock Option Plan and
1994 Stock Option Plan, including determining the persons to whom options are
granted and the terms of such options. 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 fee
of $2,500, plus $1,000 for attending a Board of Directors' meeting in excess of
four hours, $500 for attending a Board of Directors' meeting of four hours or
less and reimbursement for reasonable expenses for attending a Board of
Directors' meeting. In addition, each member of the Compensation Committee
receives $500 per quarter, each member of the Audit Committee receives $500 for
attending a committee meeting and the Chairman of the Audit Committee receives
$500 per quarter. Committee members also receive reimbursement for reasonable
expenses for attending a committee meeting.
Directors who are not employees of the Company are ineligible to
participate in the Company's Amended and Restated 1984 Stock Option Plan, 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 as of July 24, 1993 automatically received, and each
non-employee director elected at the Company's annual shareholder meetings in
1996 and 1999 will automatically be granted, a nonstatutory stock option to
purchase 30,000 shares of the Company's Common Stock (the dates of such grants
are hereinafter referred to as "Regular Grant Dates"). A non-employee director
elected or appointed to the Board after July 24, 1993 other than on a Regular
Grant Date automatically receives a nonstatutory stock option covering a pro
rata number of shares. All options granted under the Director Plan have an
exercise price equal to the fair market value of the Common Stock on the date
of grant and a term of seven years and terminate seven months after a director
ceases to serve as a non-employee director of the Company. Options granted on
a Regular Grant Date vest in 12 equal quarterly installments as long as the
holder remains a non-employee director of the Company; options granted on dates
other than Regular Grant Dates vest in the same number of quarterly
installments as would be remaining with respect to the unvested portion of the
options granted under the Director Plan as of the last Regular Grant Date.
-4-
<PAGE> 7
In January 1994, the Company entered into a six-month Consulting
Agreement with Mr. Oringer pursuant to which Mr. Oringer performed consulting
services for the Company in consideration for $1,000 per day of services
performed and the issuance to him of five-year warrants to purchase 20,000
shares of the Company's Common Stock at an exercise price of $3.4375 per share
(i.e., the closing price of the Company's Common Stock on the Nasdaq National
Market on the date of grant). The warrants vested in five equal monthly
installments over the term of the Consulting Agreement and Mr. Oringer was paid
a total of $52,000 under the Consulting Agreement.
In accordance with the terms of the Director Plan, upon his election
to the Board in February 1994, Mr. Black was granted an option to purchase
22,500 shares of the Company's Common Stock at an exercise price of $4.3125 per
share. Such options vest and become exercisable in nine equal quarterly
installments commencing March 31, 1994. In April 1994, in connection with Mr.
Black's election to the Board, the Company granted to him seven-year warrants
to purchase 10,000 shares of the Company's Common Stock at an exercise price of
$3.375 per share (i.e., the closing price of the Company's Common Stock on the
Nasdaq National Market on the date of grant). Such warrants vest in 20 equal
quarterly installments commencing April 19, 1994 and continuing as long as Mr.
Black remains a director of the Company.
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<PAGE> 8
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, 1995 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 officers of the Company as a group:
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER(1) SHARES BENEFICIALLY OWNED PERCENT OF CLASS
- - -------------------------- ------------------------- ----------------
<S> <C> <C>
Jean-Claude Asscher 3,868,520(2)(3) 42.1%
Tekelec-Airtronic, S.A.
5, rue Carle Vernet
92315 Sevres Cedex, France
Edouard Givel 2,767,064(4) 30.1
Natinco, S.A.
26, rue de l'Athenee
1206 Geneva, Switzerland
Kopp Investment Advisors, Inc. 1,317,320(5) 14.4
6600 France Ave. S., Suite 672
Edina, MN 55435
Bentley Capital Management, Inc. 542,000(6) 5.9
520 Madison Avenue
New York, NY 10022
Philip J. Alford 179,260(3) 1.9
Robert V. Adams 49,746(3) *
Shigeru Suzuki 48,538(3) *
Howard Oringer 37,688(3) *
Gilles C. Godin 34,700(3) *
Daniel L. Brenner 22,772(3) *
Philip Black 15,000(3) *
William C. Shaw 9,770(3) *
Jon F. Rager 9,672(3)(7) *
Allan J. Toomer 8,000(3) *
Peter N. Vicars 0(8) 0
All current directors and officers
as a group (12 persons) 4,292,666(2(3)(7) 45.2
</TABLE>
- - -------------------------
* Less than one percent.
(footnotes continued on following page)
-6-
<PAGE> 9
(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.
(2) Includes 2,767,064 shares which are owned by Mr. Givel and of which Mr.
Asscher may be deemed a beneficial owner (see footnote 4 below), and
975,292 shares owned by Tekelec-Airtronic, a French corporation of which
Mr. Asscher is the President and majority shareholder.
(3) Includes 116,000, 11,500, 20,000, 27,702, 36,500, 34,700, 2,500, 21,000,
15,000, 8,000, 8,000 and 309,902 shares subject to options and/or warrants
held by Messrs. Alford, Adams, Asscher, Suzuki, Oringer, Godin, Rager,
Brenner, Black, Shaw and Toomer and all current directors and officers as a
group, respectively, which are exercisable or become exercisable within 60
days after March 1, 1995.
(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
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 for, and is the
advisor to, Mr. Givel with respect to his investment in the Company. Due
to Mr. Asscher's relationship with Mr. Givel and his 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 a Schedule 13G dated February 10, 1995, wherein Kopp Investment
Advisors, Inc. reported shared dispositive power as to 1,317,320 shares.
(6) Based on a Schedule 13D dated March 3, 1995.
(7) 7,172 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) Based on the records of the Company's transfer agent.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Under Section 16(a) of the Securities Exchange Act of 1934, the
Company's directors and officers and persons holding more than ten percent of
the Company's Common Stock are required to report their ownership of the
Company's Common Stock and any changes in that ownership to the Securities and
Exchange Commission ("SEC"). The specific due dates for these reports have
been established by the SEC, and the Company is required to report in this
Proxy Statement any failure to file by the established dates during 1994.
Based on the written representations of the Company's directors, officers and
ten percent shareholders and copies of the reports they have filed with the
SEC, the Company believes that during 1994 all directors, officers and ten
percent shareholders of the Company filed on a timely basis all reports
required to be filed under Section 16(a).
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<PAGE> 10
EXECUTIVE OFFICERS
The executive officers of the Company, and certain information about
them, are as follows:
<TABLE>
<CAPTION>
Name Age Title
- - ---- --- -----
<S> <C> <C>
Philip J. Alford 41 President
Allan J. Toomer 52 Senior Vice President and General Manager, Network Switching Division
William C. Shaw 47 Senior Vice President and General Manager, Network Diagnostic Division
Shigeru Suzuki 45 Vice President, Japan Operations and President, Tekelec, Ltd.
Gilles C. Godin 36 Vice President, Finance and Chief Financial Officer
William J. Minchin 58 Vice President, Operations
</TABLE>
Officers are appointed by and serve at the discretion of the Board of
Directors. For information concerning Mr. Alford, see "Election of Directors -
Nominees" above.
Mr. Toomer joined the Company in October 1992 as Senior Vice
President, Network Products and became Senior Vice President and General
Manager, Network Switching Division in July 1993. From 1973 until June 1992,
he held various officer positions at Northern Telecom, Inc., a
telecom-munications equipment manufacturer, where he most recently served as
Vice President, Customer Service.
Mr. Shaw joined the Company in November 1993 as Senior Vice President
and General Manager, Network Diagnostic Division. He was employed by
Hewlett-Packard from April 1990 until November 1993 as a Business Unit Manager
at its Colorado Telecommunications Division, and from 1983 until April 1990, as
the Marketing and Research and Development Manager for its Roseville Personal
Computer Division.
Mr. Suzuki joined the Company in September 1985 as President of
Tekelec, Ltd., the Company's wholly owned Japanese subsidiary, and has also
served as the Company's Vice President, Japan Operations since May 1988.
Mr. Godin joined the Company in November 1986 as Controller and served
as Corporate Controller from October 1990 until July 1993 and as Treasurer from
October 1990 until February 1994. Mr. Godin has served as Vice President,
Finance since July 1993 and as Chief Financial Officer since February 1994.
Mr. Minchin joined the Company in April 1988 as Vice President,
Operations.
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<PAGE> 11
[B EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information for the three years
ended December 31, 1994 concerning compensation paid or accrued by the Company
and its subsidiaries to or on behalf of the Company's President, the Company's
former Chief Executive Officer and each of the Company's four most highly
compensated executive officers other than its President for the year ended
December 31, 1994:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
-------------------------------------------------- COMPENSATION
OTHER AWARDS
NAME AND ANNUAL ------------- ALL OTHER
PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(2) COMPENSATION($)(3) OPTIONS(#) COMPENSATION($)(4)
- - ------------------ ---- ------------ ----------- ------------------ ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Philip J. Alford(5) 1994 $210,000 $80,000(6) $ -- 50,000 $ 530
President 1993 150,328 0 -- 100,000(7) 0
1992 148,000 0 -- 20,000 1,366
Peter N. Vicars(8) 1994 19,182 0 -- 0 485,515(9)
Former Chief Executive 1993 237,548 0 -- 150,000(7) 0
Officer and President 1992 250,000 0 -- 30,000 865
Shigeru Suzuki 1994 227,945 49,423 -- 20,000 0
Vice President, Japan 1993 215,918 0 -- 82,000(7) 0
Operations and 1992 198,627 0 -- 10,000 0
President, Tekelec, Ltd.
Allan J. Toomer(10) 1994 168,270 55,500 -- 80,000 2,310
Senior Vice President and 1993 155,000 0 -- 80,000(7) 0
General Manager, 1992 32,308 0 -- 80,000 0
Network Switching Division
William C. Shaw(11) 1994 165,000 50,063 136,240(12) 120,000(14) 1,306
Senior Vice President and 1993 21,575 2,286(13) 158,997(12) 80,000 0
General Manager,
Network Diagnostic Division
Gilles C. Godin 1994 128,847 60,000(6) -- 50,000 0
Vice President, Finance 1993 92,789 0 -- 50,200(15) 0
and Chief Financial Officer 1992 85,118 0 -- 8,000 0
</TABLE>
- - ----------------------------------
(1) Includes amounts, if any, deferred by the named officer pursuant to
the Company's 401(k) Plan.
(2) Bonuses are based on Company performance and, except as otherwise
noted in footnotes 6 and 13 below, were paid under the Company's
Officer Bonus Plan. No bonuses were paid to the named officers for
services performed in 1992 or 1993 except for the bonus paid to
Mr. Shaw for 1993 as noted in footnote 13 below.
(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 amounts 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 for 1992 and 1994 (except for
Mr. Vicars for 1994) represent Company matching contributions
allocated under the Company's 401(k) Plan to the accounts of the
named officers.
(5) Mr. Alford became President of the Company in January 1994.
(6) Amounts shown for 1994 with respect to Messrs. Alford and Godin
include $16,400 and $21,000, respectively, paid to them as
discretionary bonuses.
(7) Such options were granted in May 1993 under the Company's Amended and
Restated 1984 Stock Option Plan (the "1984 Plan") in exchange for
certain existing options.
(footnotes continued on following page)
-9-
<PAGE> 12
(8) Mr. Vicars resigned in January 1994.
(9) Of such amount, $41,765 was paid to Mr. Vicars for accrued but unused
vacation and $443,750 was paid to Mr. Vicars as severance compensation
during 1994 under the terms of the Company's Officer Severance Plan.
See "Employment Agreements and Termination of Employment and
Change-in-Control Arrangements" and "Certain Transactions" below.
(10) Mr. Toomer's employment with the Company commenced in October 1992.
(11) Mr. Shaw's employment with the Company commenced in November 1993.
(12) These amounts were paid or accrued as reimbursement for certain
relocation and moving expenses (including $1,742 and $59,688 paid in
1993 and 1994, respectively, as reimbursement for related income
taxes). See "Employment Agreements and Termination of Employment and
Change-in-Control Arrangements" below.
(13) Mr. Shaw was paid this amount as a guaranteed bonus for 1994 in
connection with the commencement of his employment with the Company.
See "Employment Agreements and Termination of Employment and
Change-in-Control Arrangements" below.
(14) Includes an option to purchase 80,000 shares which was originally
granted to Mr. Shaw in November 1993 under the 1984 Plan and was
subsequently amended in March 1994 solely to reduce the exercise price
thereof. See "Option Grants in 1994," "Repricing of Options" and
"Board of Directors and Compensation Committee Reports on Executive
Compensation-Compensation Committee Report on Executive Compensation"
below.
(15) Includes options to purchase an aggregate of 20,200 shares granted to
Mr. Godin in May 1993 under the 1984 Plan in exchange for certain
previously granted options.
OPTION GRANTS IN 1994
The following table sets forth certain information concerning stock
option grants in 1994 to the executive officers named in the Summary
Compensation Table:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------
PERCENT
NUMBER OF OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES PRICE EXPIRATION PRESENT
NAME GRANTED(#)(1) IN 1994(2) ($/SHARE)(3) DATE VALUE(4)
---- ------------ ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Philip J. Alford 50,000(5) 3.9% $3.375 2/01/04 $33,015
Shigeru Suzuki 20,000(5) 1.6 3.00 3/31/04 11,972
Allan J. Toomer 40,000(5) 3.2 3.25 3/04/04 25,756
40,000(6) 3.2 4.00 9/14/04 32,456
William C. Shaw 40,000(5) 3.2 3.25 3/04/04 25,756
80,000(7) 6.3 3.595 11/02/03 49,700
Gilles C. Godin 50,000(5) 3.9 3.375 2/01/04 33,015
</TABLE>
- - ----------------------------------
(1) Such options vest and become exercisable in 20 equal quarterly installments
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 1994, the Company granted options to employees to purchase an aggregate
of 1,269,640 shares, of which options covering 743,360 shares were granted
under the Company's 1984 Plan and options covering 526,280 shares were
granted under the Company's 1994 Stock Option Plan (the "1994 Plan").
(footnotes continued on following page)
-10-
<PAGE> 13
(3) The exercise price per share of all such options was not less than 100% of
the reported closing price of the Company's Common Stock on the Nasdaq
National 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
will be forfeited prior to exercise. Black-Scholes Model input assumptions
included: (a) an option term of 5.039 years equal to the average vesting
period of options granted plus 2.539 years (the average time between
vesting and exercise for the Company's optionholders during 1990-1994);
(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 Tekelec
Common Stock, calculated using monthly closing stock prices for the period
from May 1989 to April 1994; 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 1990-1994 (20.18%) compounded over the
expected 5.039-year option term. 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.
(5) Such options were granted under the 1984 Plan.
(6) Such options were granted under the 1994 Plan.
(7) Such options were originally granted under the 1984 Plan in November 1993
and were amended in March 1994 solely to reduce the exercise price thereof
to $3.595 per share. See "Repricing of Options" below.
AGGREGATED OPTION EXERCISES IN 1994 AND OPTION VALUES AT DECEMBER 31, 1994
The following table sets forth certain information concerning stock
option exercises during 1994 and unexercised options held as of December 31,
1994 by the executive officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
SHARES UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT 12/31/94(#) OPTIONS AT 12/31/94($)*
ON VALUE ---------------------------- ------------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Philip J. Alford 0 $ 0 130,500 99,500 $1,658,936 $1,280,939
Peter N. Vicars 68,800 120,400 0 0 0 0
Shigeru Suzuki 36,000 244,590 22,584 51,416 291,633 670,612
Allan J. Toomer 0 0 40,000 120,000 514,840 1,537,560
William C. Shaw 18,000 162,360 6,000 96,000 77,745 1,243,920
Gilles C. Godin 0 0 29,550 73,050 390,286 960,332
</TABLE>
- - --------------------------------
* Represents the difference between the closing price of the Company's Common
Stock on December 30, 1994 as reported on the Nasdaq National Market (i.e.,
$16.4375) and the exercise price of such options.
TEKELEC, LTD. RETIREMENT PLAN
In January 1990, Tekelec, Ltd., the Company's wholly owned Japanese
subsidiary, 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
-11-
<PAGE> 14
director's highest monthly compensation during his or her service as a
director. A director who retires other than at retirement age with at least
three years of eligible service is entitled to receive one lump sum payment
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% of a director's highest monthly salary, for a director
with 20 years of eligible service, to 51% of such salary for a director with 40
or more years of eligible service.
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 or other relative.
Mr. Suzuki currently participates in the Plan. As of April 1, 1995,
Mr. Suzuki was credited with nine years of eligible service and would be
entitled to receive approximately $239,000 as a lump sum payment under
the Plan if his employment were terminated by Tekelec Ltd.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In May 1993, the Company implemented an officer severance plan (the
"Severance Plan") pursuant to which 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.
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. Alford, Suzuki, Toomer, Shaw and Godin if their employment were
terminated as of April 1, 1995 and they were eligible for severance benefits
under the Severance Plan would be $457,500, $389,025, $192,400, $188,050 and
$262,500, respectively. Mr. Vicars, whose employment relationship with the
Company was terminated as of January 31, 1994, received severance compensation
under the Severance Plan totalling $532,500. See "Summary Compensation Table"
above and "Certain Relationships and Related Transactions" below.
In October 1993, Mr. Shaw accepted an offer of employment with the
Company pursuant to which he became Senior Vice President and General Manager,
Network Diagnostic Division. Under the terms of his employment, as amended to
date, Mr. Shaw received a guaranteed bonus of $14,850 during his first year of
employment with the Company and certain relocation benefits in the aggregate
amount of $295,237 in connection with the relocation of his primary residence
to California. See "Summary Compensation Table" above.
In February 1994, the Company agreed that in the event either Mr.
Alford's or Mr. Godin's employment with the Company is terminated under
circumstances entitling such officer to severance benefits under the Severance
Plan, then the options to purchase 50,000 shares of the Company's Common
-12-
<PAGE> 15
Stock granted to each of them in February 1994 will vest and become exercisable
in full upon such termination.
In September 1994, Mr. Toomer entered into an early retirement
agreement with the Company pursuant to which, upon the termination of his
employment with the Company at either his or the Company's election and
provided he has met certain performance objectives, Mr. Toomer would be
entitled to receive in lieu of any benefits which might otherwise be payable to
him under the Severance Plan (i) a payment equal to 130% of the sum of his then
current salary and the highest annual bonus paid to him by the Company and (ii)
the accelerated vesting of all incentive stock options then held by him. If
such performance objectives are not met, Mr. Toomer would remain eligible to
receive severance benefits under the Severance Plan.
REPRICING OF OPTIONS
In March 1994, the Company amended options previously granted under
the 1984 Plan in October 1993 and November 1993 to purchase an aggregate of
87,000 shares and 80,000 shares, respectively, with exercise prices of $5.50
and $5.625 per share, respectively, solely to provide for a new exercise price
equal to $3.595 per share, which amended exercise price exceeded the then
current market price of $3.25 per share. See "Board of Directors and
Compensation Committee Reports on Executive Compensation - Compensation
Committee Report on Executive Compensation" below.
The following table sets forth, for the period commencing May 19, 1986
(i.e., the date of the Company's initial public offering) and ending December
31, 1994, certain information concerning the repricing of options held by the
executive officers named in the Summary Compensation Table and any person who
was an executive officer of the Company at the time of such repricing:
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
SECURITIES MARKET PRICE EXERCISE ORIGINAL OPTION
UNDERLYING OF STOCK AT PRICE AT NEW TERM REMAINING
OPTIONS TIME OF TIME OF EXERCISE AT DATE OF
NAME DATE REPRICED (#) REPRICING ($) REPRICING ($) PRICE ($) REPRICING
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Philip J. Alford 5/14/93 57,552 3.125 8.6875 3.595 93 months
President 5/14/93 22,448 3.125 8.6875 3.595 93 months
5/14/93 20,000 3.125 7.375 3.595 104 months
Peter N. Vicars 12/5/87 222,220 1.875 2.25 1.875 80 months
Former Chief 12/5/87 27,780 1.875 2.25 1.875 80 months
Executive Officer 5/14/93 57,552 3.125 8.6875 3.595 93 months
and President 5/14/93 62,448 3.125 8.6875 3.595 93 months
5/14/93 30,000 3.125 7.375 3.595 104 months
Shigeru Suzuki 12/5/87 10,000 1.875 3.5625 1.875 71 months
Vice President, 10/28/89 12,000 4.375 6.75 4.375 114 months
Japan Operations 5/14/93 12,000 3.125 4.375 3.595 72 months
and President, 5/14/93 57,552 3.125 8.6875 3.595 93 months
Tekelec, Ltd. 5/14/93 2,448 3.125 8.6875 3.595 93 months
5/14/93 10,000 3.125 7.375 3.595 104 months
</TABLE>
(table continued on following page)
-13-
<PAGE> 16
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
SECURITIES MARKET PRICE EXERCISE ORIGINAL OPTION
UNDERLYING OF STOCK AT PRICE AT NEW TERM REMAINING
OPTIONS TIME OF TIME OF EXERCISE AT DATE OF
NAME DATE REPRICED (#) REPRICING ($) REPRICING ($) PRICE ($) REPRICING
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Allen J. Toomer 5/14/93 80,000 3.125 6.25 3.595 113 months
Senior Vice
President and
General Manager,
Network Switching
Division
William C. Shaw 3/04/94 80,000 3.25 5.625 3.595 116 months
Senior Vice
President and
General Manager,
Network Diagnostic
Division
Gilles C. Godin 5/14/93 4,200 3.125 4.375 3.595 81 months
Vice President, 5/14/93 8,000 3.125 8.6875 3.595 93 months
Finance and 5/14/93 8,000 3.125 8.25 3.595 107 months
Chief Financial
Officer
William J. Minchin 5/14/93 50,000 3.125 8.6875 3.595 93 months
Vice President, 5/14/93 12,000 3.125 7.375 3.595 104 months
Operations
William Atkinson 5/14/93 70,000 3.125 9.25 3.595 98 months
Former Vice 5/14/93 16,000 3.125 7.375 3.595 104 months
President and
General Manager,
Network Monitoring
Division
Joseph A. Noble 12/5/87 22,455 1.875 3.5625 1.875 71 months
Former Vice 12/5/87 22,344 1.875 3.5625 1.875 71 months
President, Sales
Fred Tinch 10/28/89 10,000 4.375 6.75 4.375 114 months
Former Vice 5/14/93 16,000 3.125 7.375 3.595 104 months
President, 5/14/93 10,000 3.125 4.375 3.595 72 months
Engineering-
Network
Products
Janice Waterman 5/14/93 30,000 3.125 9.25 3.595 98 months
Former Vice 5/14/93 10,000 3.125 7.375 3.595 104 months
President, Human
Resources
</TABLE>
-14-
<PAGE> 17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1994, the Compensation Committee consisted of Jon F. Rager and
Daniel L. Brenner until July 1994, and of Messrs. Rager, Brenner and Adams
thereafter, 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 Company's
compensation program for its 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 and has delegated to the Compensation Committee the responsibility
of administering the Company's stock option plans pursuant to which stock
options are granted as an additional incentive to key employees.
The reports on executive compensation by the Board of Directors and
the Compensation Committee and the Performance Graph on page 19 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
compensation program consists of three basic components -- annual base
salaries, cash bonuses and stock options.
The Board of Directors reviews and approves the 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 concerning competitive compensation
and the Company's operating results and financial condition. Due to the
Company's net losses in 1992 and 1993 and its financial condition at December
31, 1993, salaries of its executive officers were increased during 1994 only in
connection with an officer's promotion or assumption of additional
responsibilities.
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 Officer Bonus Plan for 1994, each executive
officer was eligible to receive a cash bonus equal to a percentage of his or
her annual base salary if the Company achieved certain pre-established
financial performance goals. Bonuses would only be paid if the Company's
revenues and operating income met or exceeded both a threshold 105% of the
revenue goal and the operating income goal set forth in the Company's business
plan.
-15-
<PAGE> 18
Based on the Company's financial results in 1994, an aggregate of
$279,586 in bonuses was earned by the Company's executive officers under the
Officer Bonus Plan. Individual bonuses ranged from 20% to 30% of an officer's
base salary. In addition to such bonuses received under the Officer Bonus Plan
and in recognition of the Company's improvement in 1994 in its financial
results and financial condition, the Board awarded discretionary bonuses to
Messrs. Alford and Godin in the amounts of $16,400 and $21,000, respectively.
The Board was also responsible for determining the annual base salary
of Philip Alford, the Company's President since January 15, 1994. In
determining Mr. Alford's base salary, the Board took into consideration the
same factors that were considered in setting the base salaries of the Company's
other executive officers. Under the terms of the Officer Bonus Plan for 1994,
Mr. Alford was eligible to receive a cash bonus equal to a percentage (a
minimum of 15% and a maximum of 30%) of his annual base salary if the Company
achieved a specified threshold percentage (at least 105%) of the revenue and
operating income goals set forth in the Company's business plan. Although Mr.
Alford is a member of the Board of Directors, he did not participate in any
discussions or decisions of the Board or the Compensation Committee regarding
the setting of his salary or the awarding of any bonus. For services rendered
in 1994, Mr. Alford's cash compensation consisted of base salary in the amount
of $210,000 and a bonus of $80,000.
Under recently enacted Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), a publicly-held corporation such as the Company
will not be allowed a federal income tax deduction for 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 unless such compensation was based on
performance goals or paid under a written contract that was in effect on
February 17, 1993. Proposed regulations to implement the new limitation were
published in December 1993. Although the $1 million limitation became
effective with the 1994 fiscal year, certain provisions will not apply to the
Company until future years, and qualifying performance-based compensation 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
proposed regulations under Section 162(m), it appears that the compensation to
be paid to the Company's executive officers for 1995 will not exceed the $1
million limitation per officer.
BOARD OF DIRECTORS
Jean-Claude Asscher, Chairman
Robert V. Adams
Philip J. Alford
Philip Black
Daniel L. Brenner
Howard Oringer
Jon F. Rager
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Stock Options. 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 President with regard to the grant of stock
options to executive officers (other than the
-16-
<PAGE> 19
President) 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 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, 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 in 20 equal quarterly, or five equal annual, installments following the
date of grant as long as the optionee remains an employee of the Company and,
therefore, encourage an optionee to remain in the employ of the Company. In
1994, options to purchase an aggregate of 320,000 shares of Common Stock were
granted to all executive officers as a group and represented 25.2% of all
options granted in 1994. Information concerning options granted during 1994 to
the executive officers named in the Summary Compensation Table is provided in
the table entitled "Executive Compensation and Other Information - Option
Grants in 1994."
Option Repricing. In March 1994, the Compensation Committee repriced
options previously granted to an executive officer and certain key employees
under the 1984 Plan in October 1993 and November 1993 to purchase an aggregate
of 87,000 and 80,000 shares, respectively, with exercise prices of $5.50 and
$5.625 per share, respectively. The exercise prices of such options were
amended to $3.595 per share (which amended price exceeded the then current
market price of $3.25 per share and was equal to the exercise price of the
Company's option repricing in May 1993). The market price of such stock
options had declined following their grant and the Committee believed that such
decline was undermining the Company's ability to retain and motivate the
holders of such options. Accordingly, in order to enhance the retentional and
motivational value of such options, the Committee approved the repricing of
such options solely to amend the exercise prices thereof.
COMPENSATION COMMITTEE
Jon F. Rager, Chairman
Robert V. Adams
Daniel L. Brenner
-17-
<PAGE> 20
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, 1994:
The Company sells products to Tekelec-Airtronic and its wholly owned
subsidiaries which serve as distributors of the Company's products in Europe.
During 1994, the aggregate sales of the Company's products to Tekelec-Airtronic
and its subsidiaries were approximately $3,809,000. As of December 31, 1994,
Tekelec-Airtronic and its subsidiaries owed the Company approximately
$1,538,000 for purchases of the Company's products, of which approximately
$576,000 was owed as of March 1, 1995. The Company anticipates that during
1995 it will sell products to Tekelec-Airtronic and its subsidiaries in an
aggregate amount exceeding the aggregate amount of sales to such parties during
1994.
The Company also purchases certain telecommunications test equipment
and components from Tekelec-Airtronic and certain of its subsidiaries. During
1994, the Company purchased such equipment and components from
Tekelec-Airtronic and its subsidiaries at an aggregate cost of approximately
$49,000. As of December 31, 1994, the Company owed approximately $41,000 for
purchases of such equipment and components, none of which was outstanding as of
March 1, 1995. The Company anticipates that during 1995 it will continue to
purchase telecommunications test equipment and components from, and may from
time to time provide consulting services to, Tekelec-Airtronic and its
subsidiaries, and expects that the aggregate amount of such transactions will
not be significantly greater than the aggregate amount of such transactions
during 1994.
In satisfaction of the Company's obligations under the Company's
Officer Severance Plan, the Company entered into an Employment Separation
Agreement with each of Peter Vicars, William Atkinson and Janice Waterman
pursuant to which such former officers of the Company were entitled to receive
severance compensation of $532,500, $120,000 and $86,250, respectively, arising
out of the termination of their respective employments with the Company in
January 1994, December 1993 and December 1993, respectively. See "Executive
Compensation and Other Information - Employment Agreements and Termination of
Employment and Change-in-Control Arrangements" above.
-18-
<PAGE> 21
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 National Market (U.S. Companies) and the Nasdaq Computer
Manufacturers Index for the five-year period commencing January 1, 1990. 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 NATIONAL MARKET
(U.S. COMPANIES) AND NASDAQ COMPUTER MANUFACTURERS INDEX
[CHART]
<TABLE>
<CAPTION> 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
TEKELEC 100 162 150 106 85 387
Nasdaq National Market (U.S.) 100 85 136 159 181 177
Nasdaq Computer Mfrs. 100 107 149 200 190 209
</TABLE>
- - ----------------------
* Assumes (i) $100 invested on January 1, 1990 in Tekelec Common Stock,
Total Return Index for the Nasdaq National Market (U.S. Companies),
and Nasdaq Computer Manufacturers Index and (ii) immediate
reinvestment of all dividends.
-19-
<PAGE> 22
PROPOSAL 2 - APPROVAL OF AMENDMENTS TO
THE COMPANY'S 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 800,000 shares of Common Stock were authorized for issuance
pursuant to the exercise of stock options granted thereunder.
In February 1995 and March 1995, the Board of Directors amended the
1994 Plan, subject to shareholder approval, to increase the number of shares
authorized for issuance thereunder by 100,000 and 500,000 shares, respectively.
If such amendments are approved, a total of 1,400,000 shares will have been
authorized for issuance under the 1994 Plan. As of March 1, 1995, a total of
10,870 shares had been issued upon the exercise of options under the 1994 Plan,
a total of 761,760 shares was subject to outstanding options, and 27,370 shares
(not including the 600,000-share increase subject to shareholder approval)
remained available for option grants under the 1994 Plan. To the extent
options have been or will be granted to purchase any of such additional 600,000
shares prior to obtaining shareholder approval of such amendments, such options
are or will be expressly conditioned upon obtaining such approval. See "New
Plan Benefits" below.
AT THE ANNUAL MEETING, THE SHAREHOLDERS WILL BE REQUESTED TO CONSIDER
AND APPROVE THE AMENDMENTS TO THE 1994 PLAN INCREASING THE NUMBER OF SHARES
AUTHORIZED FOR ISSUANCE THEREUNDER BY AN AGGREGATE OF 600,000 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 AMENDMENTS TO THE 1994 PLAN. THE BOARD OF DIRECTORS
RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF THE AMENDMENTS.
NEW PLAN BENEFITS
The following table sets forth certain information as of March 1, 1995
concerning stock options granted in 1995 by the Compensation Committee to key
employees of the Company under the 1994 Plan, which grants are subject to and
expressly conditioned upon shareholder approval of the amendments to the 1994
Plan increasing the number of shares authorized for issuance thereunder by an
aggregate of 600,000 shares.
<TABLE>
<CAPTION>
Number of
Shares Underlying
Name and Position Options(#)(1)
----------------- -----------------
<S> <C>
Philip J. Alford 70,000
President
Gilles C. Godin 50,000
Vice President, Finance and Chief Financial Officer
Executive Group (6 persons) 120,000
Non-Executive Director Group (6 persons) 0(2)
Non-Executive Officer Employee Group 0
</TABLE>
- - -----------------------------
(1) Such options are granted at an exercise price per share equal to the
closing price of the Company's Common Stock on the date of grant.
(2) Only employees of the Company are eligible to participate in the 1994 Plan.
-20-
<PAGE> 23
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 of the Company who are in a position to make
a material contribution to the successful operation of 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 composed 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 three 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 committee
of the Board, 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, previous stock option grants (if
any), length of service to the Company, and other relevant factors. As of
March 1, 1995, approximately 310 persons were eligible to receive options and
144 optionees were holding options under the 1994 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 person to whom
such option is granted 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 200,000 shares.
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(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., 20 equal quarterly
installments) over 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, 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 price of the Common
Stock on the Nasdaq National Market as reported in The Wall
Street Journal on the date of the option grant. On March 31,
1995, the closing price of the Company's Common Stock on the
Nasdaq National Market was $21.50 per share.
(d) Termination of Employment: If the 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, the options granted to him or her 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
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 the event of a dissolution or
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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.
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, 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, then 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. Upon a sale of the shares, the tax treatment to the
optionee and the Company will depend primarily upon whether the optionee has
met certain holding period requirements at the time of sale. In addition, as
discussed below, 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 two years of the date of the grant of
such option and within one year after the exercise of the option, whichever
ends later, any gain realized upon disposition will be characterized as
long-term capital gain, and any loss will be long-term capital loss. In either
such case, the Company will not be entitled to a federal income tax deduction.
If the optionee disposes of the shares either within two years after
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 and an
amount equal to the lesser of (1) the fair market value of the shares on the
date of exercise less the purchase price or (2) the amount realized on the
disposition less the purchase price will
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be taxed as ordinary income in the taxable year in which the disposition
occurs. Any such ordinary income will increase the optionee's tax basis for
purposes of determining gain or loss on the sale or exchange of such shares.
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, and any loss realized upon the
disposition will be treated as a capital loss. 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, a transfer in insolvency proceedings, incident to a
divorce, or upon death). If the amount realized is less than the purchase
price, generally the optionee will not recognize income.
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 option 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 disqualifying disposition is included in 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 an adjustment to alternative minimum taxable income in the year of
exercise and ordinary income resulting from such disqualifying disposition in
the year of such disposition. An optionee's regular tax liability is affected
by the availability of a credit for prior year alternative minimum tax, a basis
adjustment for alternative minimum tax and other complex rules. 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 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 an amount equal to the ordinary income, if
any, recognized by the optionee upon disposition of the shares.
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 a nonstatutory option. However, upon its exercise,
the optionee will generally recognize ordinary income for federal tax purposes
measured by the excess of the then fair market value of the shares over the
option price. The income realized by the optionee will be subject to income
tax withholding by the Company out of the 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 basis in the shares will be treated as a long-term or short-term
capital gain or loss, as the case may be. The optionee's basis for
determination of gain or loss upon any subsequent disposition of shares
acquired upon the exercise of a nonstatutory stock option will ordinarily be
the sum of the amount paid for such shares plus any ordinary income recognized
as a result of the exercise of such option.
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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 obligations under the Code.
PROPOSAL 3 - APPROVAL OF AMENDMENT TO
THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN
In 1986, the Board of Directors of the Company adopted, and in 1987
the shareholders of the Company approved, the Company's Employee Stock Purchase
Plan (the "Purchase Plan") under which 100,000 shares of Common Stock were
initially reserved for issuance thereunder. The Purchase Plan was amended in
1989, 1991, 1992 and 1993 to increase the number of shares authorized for
issuance thereunder by 80,000, 70,000, 100,000 and 100,000 shares,
respectively.
In October 1994, the Board of Directors amended the Purchase Plan,
subject to shareholder approval, to increase the number of shares authorized
for issuance under the Purchase Plan by an additional 150,000 shares. If the
amendment is approved, a total of 600,000 shares will have been authorized for
issuance under the Purchase Plan since its inception (of which 450,000 shares
had been issued as of March 1, 1995).
Purchases of the Company's Common Stock under the Purchase Plan are
made at the discretion of the participants therein. Accordingly, future
purchases under the Purchase Plan are not yet determinable.
AT THE ANNUAL MEETING, THE SHAREHOLDERS WILL BE REQUESTED TO CONSIDER
AND APPROVE THE AMENDMENT TO THE PURCHASE PLAN INCREASING THE NUMBER OF SHARES
AUTHORIZED FOR ISSUANCE THEREUNDER BY 150,000 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 SUCH
AMENDMENT. THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
APPROVAL OF THE AMENDMENT.
A summary of the principal provisions of the Purchase Plan is set
forth below and is qualified in its entirety by reference to the Purchase Plan.
PURPOSE
The purpose of the Purchase Plan is to provide employees of the
Company and its subsidiaries with an opportunity to purchase Common Stock of
the Company through payroll deductions.
ADMINISTRATION
The Purchase Plan may be administered by the Board of Directors or a
committee appointed by the Board of Directors and is currently being
administered by the Board of Directors. All questions of interpretation or
application of the Purchase Plan are determined in the sole discretion of the
Board of
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Directors and its decisions are final, conclusive and binding upon all
participants. Members of the Board of Directors who are eligible employees are
permitted to participate in the Purchase Plan.
OFFERING DATES
The Purchase Plan is implemented by one offering during each six-month
period in which such plan remains in effect. The offering periods commence on
January 1 and July 1 of each year. The first offering period began on January
1, 1987.
ELIGIBILITY
Employees (including officers and directors) are eligible to
participate in the Purchase Plan if they are employed more than 20 hours per
week and have completed six months of continuous employment with the Company or
its subsidiaries as of the first day of an offering period. Of 256 employees
eligible to participate in the offering which commenced January 1, 1995, 93
employees were participating as of March 1, 1995.
PARTICIPATION IN THE PLAN
Eligible employees become participants in the Purchase Plan by
delivering to the Company, prior to the commencement of an offering, a
completed subscription agreement authorizing payroll deductions. By executing
such subscription agreement, an employee becomes entitled to have shares placed
under option to him or her, but does not become obligated to purchase such
shares. An employee's participation in the Purchase Plan continues from
offering period to offering period at the deduction rate authorized in the
subscription agreement unless the participant files a new subscription
agreement specifying a different rate or withdraws from the Purchase Plan. An
employee who first becomes eligible to participate in the Purchase Plan after
the commencement of an offering may not participate until the commencement of
the next offering.
No employee will be permitted to participate in the Purchase Plan if,
immediately after the grant of an option thereunder, the employee would own 5%
or more of the voting stock or value of all classes of stock of the Company or
its subsidiaries (including stock which may be purchased through subscriptions
under the Purchase Plan or pursuant to any other options), nor will any
employee be granted an option which would permit the employee to buy more than
$25,000 worth of stock (determined at the fair market value of the shares at
the time the option is granted) pursuant to the Purchase Plan in any calendar
year. Furthermore, if the number of shares which would otherwise be placed
under option at the beginning of an offering period exceeds the number of
shares then available under the Purchase Plan, a pro rata allocation of the
shares remaining will be made among all participants in as equitable a manner
as is practicable.
PURCHASE PRICE
The purchase price per share under the Purchase Plan is 85% of the
lesser of the fair market value of a share of Common Stock on the date the
offering period commences or on the date the offering period terminates. The
fair market value of the Common Stock on a given date will be equal to the
closing sales price of the Common Stock on such date on the Nasdaq National
Market as reported in The Wall Street Journal.
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PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions
over the offering period. The rate of deductions may not exceed 10%, or such
other rate as may be determined from time to time by the Board of Directors, of
a participant's compensation. A participant may discontinue his or her
participation in the Purchase Plan at any time, but may not increase or
decrease the rate of payroll deductions for an offering period after it
commences.
All payroll deductions are credited to the participant's account under
the Purchase Plan and are deposited with the general funds of the Company. All
payroll deductions received or held by the Company may be used by the Company
for any corporate purpose.
PURCHASE OF STOCK; EXERCISE OF OPTION
The maximum number of shares placed under option to a participant in
the Purchase Plan at the commencement of an offering period is the number of
whole shares of Common Stock determined by dividing 10% of the participant's
total compensation for the six months preceding an offering period by 85% of
the fair market value of a share of Common Stock at the beginning of such
offering period.
Unless an employee discontinues his or her participation in the
Purchase Plan, his or her option will be exercised automatically to purchase
the shares subject thereto using accumulated payroll deductions on the last day
of the offering period at the applicable price. The shares purchased for an
employee will be delivered to him or her as promptly as practicable after the
end of the applicable offering period, together with any cash remaining to the
credit of his or her account under the Purchase Plan after the purchase of such
shares, other than any amount representing a fractional share. Any amount
representing a fractional share will be credited to a participant's account for
the next offering or returned to the participant.
WITHDRAWAL
A participant's interest in an offering may be terminated in whole,
but not in part, by signing and delivering to the Company a notice of
withdrawal from the Purchase Plan at any time prior to the end of an offering
period. Promptly after such withdrawal, the payroll deductions credited to a
participant's account will be returned to him or her without interest. A
participant's withdrawal from an offering or an employee's decision not to
participate in an offering does not have any effect upon such participant's or
employee's eligibility to participate in subsequent offerings under the
Purchase Plan; provided, however, that an employee who is an officer or
director of the Company who ceases participation in the Purchase Plan may not
participate again for at least six months following such cessation of
participation.
TERMINATION OF EMPLOYMENT
If a participant terminates his or her employment for any reason,
including retirement or death, or fails to remain employed by the Company for
more than 20 hours per week during an offering period, his or her participation
in the Purchase Plan will automatically be terminated. In such event, the
payroll deductions credited to the participant's account will be refunded
without interest.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
Subject to any required action by the shareholders of the Company, the
number of shares of Common Stock covered by an option under the Purchase Plan
and the number of shares which are
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available for issuance, as well as the option price per share of an unexercised
option, will be proportionately adjusted for any change in the number of shares
of Common Stock resulting from a stock split, stock dividend, spin-off,
reorganization, recapitalization, merger, consolidation, exchange of shares or
the like. 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 or
consolidation of the Company with or into another corporation, outstanding
options will be assumed by the successor corporation or the Board will declare
that any option will terminate as of a date fixed by the Board of Directors or
its committee which is at least 30 days after the notice thereof and, unless a
participant terminates his or her participation in the Purchase Plan prior to
such date, his or her option for the purchase of shares will be automatically
exercised on such date and the accumulated payroll deductions credited to a
participant's account on such date will be applied to purchase whole shares of
the Company's Common Stock (up to the maximum number of shares subject to his
or her option).
NONASSIGNABILITY
No rights or accumulated payroll deductions of a participant in the
Purchase Plan may be pledged, assigned or transferred for any reason (other
than upon the death of a participant as provided in the Purchase Plan), and any
such attempt may be treated by the Company as an election by the participant to
withdraw from the Purchase Plan.
AMENDMENT AND TERMINATION OF THE PURCHASE PLAN
The Board of Directors may at any time amend or terminate the Purchase
Plan, except that termination of the Purchase Plan may not affect options
previously granted thereunder nor may any amendment make any change in an
option granted prior thereto which adversely affects the rights of any
participant without the prior written consent of the participant. No amendment
may be made to the Purchase Plan without prior approval of the shareholders of
the Company if such amendment would increase the number of shares reserved
under the Purchase Plan, materially modify the eligibility requirements or
materially increase the benefits which may accrue to participants under the
Purchase Plan. In any event, the Purchase Plan will terminate on November 6,
1996, provided that such termination shall not affect options then outstanding.
TAX INFORMATION
The Purchase Plan and the right of participants to make purchases
thereunder are intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be taxable to a
participant at the time of an option grant or purchase of shares. As
summarized below, a participant may become liable for tax upon disposition of
the shares acquired under the Purchase Plan.
If shares are not disposed of by a participant within two years after
the date of the beginning of the offering period in which such shares were
acquired or within one year after the transfer of the shares to the
participant, the lesser of (i) the excess of the fair market value of the
shares at the time of such disposition over the purchase price of the shares or
(ii) the excess of the fair market value of the shares at the beginning of the
offering period in which such shares were acquired over the purchase price of
the shares (computed as of the commencement of such offering period) will be
treated as ordinary income to the participant. Any further gain upon such
disposition will be treated as long-term capital gain. If shares are disposed
of in a transaction in which the sales price is less than the purchase price,
the participant would not recognize any ordinary income and would have a
long-term capital loss equal to the difference.
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If shares are disposed of by a participant (including by way of gift)
before the expiration of the two-year and one-year holding periods described
above, the excess of the fair market value of the shares on the date the option
is exercised (i.e., the last day of an offering period) over the purchase price
of the shares will be treated as ordinary income to the participant. This
excess will constitute ordinary income in the year of sale or other disposition
even if no additional gain is realized on the sale. The balance of any gain
realized on such disposition will be treated as a short-term or long-term
capital gain, as the case may be. Even if the shares are sold for less than
their fair market value on the date the option was exercised, ordinary income
will be recognized equal to the difference between the sales price and the
value of the shares on the option exercise date.
Any amount taxed to a participant as ordinary income under the rules
described above would be added to the actual purchase price of the shares in
determining the tax basis of the shares for the purpose of determining capital
gain or loss on a sale or other disposition of the shares.
The Company is entitled to a deduction for amounts taxed as ordinary
income to a participant only to the extent that (i) ordinary income is
recognized upon disposition of shares by a participant before the expiration of
the two-year and one-year holding periods described above and (ii) the Company
has satisfied its withholding obligations under the Code.
PROPOSAL 4 - APPROVAL OF AMENDMENT TO
THE COMPANY'S BYLAWS
The California General Corporation Law permits a corporation with 100
or more shareholders of record to make loans to, and to guarantee the
obligations of, its corporate officers, or to implement an employee benefit
plan authorizing such loans or guarantees, upon approval of the corporation's
Board of Directors alone after the Board has determined that such a loan,
guarantee or employee benefit plan may reasonably be expected to benefit the
corporation. Before a corporation may act pursuant to such law, however, the
corporation's shareholders are required to approve a bylaw authorizing the
corporation's Board of Directors to approve such loans, guarantees and employee
benefit plans without further shareholder approval.
The Board of Directors regards the Company's ability to make loans to
its officers to be important in ensuring that the Company is able to attract
and retain personnel of high caliber to serve as its officers, which personnel
are in great demand. If the proposed amendment to the Bylaws is approved by
the shareholders, any future loans to officers could be authorized by the Board
of Directors, without further shareholder approval. The Company proposes to
authorize loans under the proposed amendment to the Bylaws to, among other
things, provide to officers funds needed in connection with relocations. The
terms of such loans would be established by the Board of Directors and matters
such as the terms of loans, interest rates and collateral would be determined
by the Board on a case-by-case basis. The Company does not currently have an
employee benefit plan that authorizes loans to or guarantees of the obligations
of its officers, nor does it anticipate adopting such a plan. The proposed
amendment to the Bylaws would, however, authorize the Board of Directors to
adopt such a plan and to provide for the use of the Company's assets to fund
loans to and to support guarantees of the obligations of its officers pursuant
to such a plan.
Section 3.11(b) of the Company's Bylaws currently authorizes the
Company to make loans to its officers, to guarantee their obligations and to
adopt employee benefit plans providing for such loans or guarantees. Each such
loan, guarantee or employee benefit plan requires shareholder approval,
however, because the Section has not been approved by the Company's
shareholders. In February 1995, the
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Company's Board of Directors authorized an amendment to the Company's Bylaws
which would replace Section 3.11(b) of the Bylaws with the following provision:
"(b) The Board of Directors alone may approve
loans of money or property to, or the guarantee of obligations
of, any officer of the corporation, whether or not a director,
or an employee benefit plan authorizing such a loan or
guaranty to an officer provided that (1) the Board of
Directors determines that such a loan or guaranty or plan may
reasonably be expected to benefit the corporation, (2) the
corporation has outstanding shares held of record by 100 or
more persons (determined as provided in Section 605 of the
California General Corporation Law) on the date of approval by
the Board of Directors, and (3) the approval of the Board of
Directors is by a vote sufficient without counting the vote of
any interested director or directors."
The principal purpose of the proposed amendment to the Bylaws is to
permit the Board of Directors, upon its approval alone, to authorize the making
of loans to, and the guarantee of obligations of, the officers of the Company
without the delay and expense of having to seek the approval of the Company's
shareholders in each individual case. If the proposed amendment is approved by
the Company's shareholders, the Board of Directors will have the power, without
further shareholder approval, to authorize such loans or guarantees, or
employee benefits plans providing for such loans or guarantees, after the Board
has determined that such loans, guarantees or employee benefit plans may
reasonably be expected to benefit the Company. If the proposed amendment is
not so approved, such loans, guarantees or employee benefit plans involving
officers will continue to require approval by the shareholders on a
case-by-case basis. Loans and guarantees to employees who are not officers or
directors of the Company do not require shareholder approval under present
California corporate law.
AT THE ANNUAL MEETING, THE SHAREHOLDERS WILL BE REQUESTED TO CONSIDER
AND APPROVE THE PROPOSED AMENDMENT TO THE BYLAWS. SUCH AMENDMENT REQUIRES THE
AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING SHARES OF THE COMPANY'S
COMMON STOCK ENTITLED TO VOTE. THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR APPROVAL OF THE AMENDMENT.
PROPOSAL 5 - RATIFICATION OF APPOINTMENT
OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed Coopers & Lybrand L.L.P.,
independent accountants, to audit the Company's consolidated financial
statements for the year ending December 31, 1995, 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 Coopers & Lybrand L.L.P. 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.
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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 11, 1995
-31-
<PAGE> 34
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
TEKELEC
1995 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 11, 1995, and Annual Report
to Shareholders for the year ended December 31, 1994, and hereby appoints
Philip J. Alford 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 12, 1995, at 9:30 a.m.,
California time, at the Company's corporate headquarters located at 26580 W.
Agoura Road, Calabasas, California 91302, and at any adjournment(s) thereof,
and to vote all shares of Common Stock to which the undersigned would be
entitled, if then and there personally present, on the matters set forth below:
1. ELECTION OF DIRECTORS:
[ ] FOR ALL nominees listed below (except as marked to the contrary below).
[ ] WITHHOLD AUTHORITY 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 [ ] Philip J. Alford [ ] Jean-Claude Asscher
[ ] Philip Black [ ] Daniel L. Brenner [ ] Howard Oringer
[ ] Jon F. Rager
2. APPROVAL OF AMENDMENTS TO THE 1994 STOCK OPTION PLAN:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
To approve amendments to the Company's 1994 Stock Option Plan to increase the
aggregate number of shares of Common Stock authorized for issuance thereunder
from 800,000 to 1,400,000.
3. APPROVAL OF AMENDMENT TO THE EMPLOYEE STOCK PURCHASE
PLAN:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
To approve an amendment to the Company's Employee Stock Purchase Plan to
increase the aggregate number of shares of Common Stock authorized for issuance
thereunder from 450,000 to 600,000.
<PAGE> 35
4. APPROVAL OF AMENDMENT TO THE BYLAWS:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued on other side)
(Continued from other side)
To approve an amendment to the Company's Bylaws to authorize the Company's
Board of Directors to approve loans to, and guarantees of the obligations of,
the Company's officers.
5. APPOINTMENT OF INDEPENDENT ACCOUNTANTS:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
To ratify the appointment of Coopers & Lybrand L.L.P. as independent
accountants of the Company for the year ending December 31, 1995, as described
in the Proxy Statement.
6. OTHER BUSINESS:
In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the 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.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4 AND 5 AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
Dated:________________________, 1995
______________________________________
(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
