<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-15135
TEKELEC
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
CALIFORNIA 95-2746131
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
26580 W. AGOURA ROAD, CALABASAS, CALIFORNIA 91302
(Address and zip code of principal executive offices)
(818) 880-5656
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of November 1, 1996 there were 11,891,664 shares of the
registrant's common stock, without par value, outstanding.
<PAGE> 2
TEKELEC
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION PAGE
- ------------------------------- ----
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at September 30, 1996
and December 31, 1995 3
Consolidated Statements of Operations for the three
and nine months ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flow for the
nine months ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II -- OTHER INFORMATION
- ----------------------------
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
TEKELEC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(THOUSANDS, EXCEPT SHARE DATA)
ASSETS (UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . $12,318 $43,609
Short-term investments, at fair value . . . . . . 14,825 ---
Accounts and notes receivable, less
allowances of $347 and $391, respectively . . . 19,326 19,167
Inventories . . . . . . . . . . . . . . . . . . . 7,165 6,423
Amounts due from related parties . . . . . . . . . 1,860 3,053
Prepaid expenses and other current assets . . . . 1,837 1,232
------- -------
Total current assets . . . . . . . . . . . . . 57,331 73,484
Long-term investments, at fair value . . . . . . . . . 9,143 ---
Property and equipment, net . . . . . . . . . . . . . . 7,393 6,107
Other assets . . . . . . . . . . . . . . . . . . . . . 668 897
------- -------
Total assets . . . . . . . . . . . . . . . . . $74,535 $80,488
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion
of long-term debt . . . . . . . . . . . . . . . . $ --- $ 570
Trade accounts payable . . . . . . . . . . . . . . 3,675 3,960
Accrued expenses . . . . . . . . . . . . . . . . . 3,820 4,404
Accrued payroll and related expenses . . . . . . . 2,967 3,294
Deferred revenues . . . . . . . . . . . . . . . . 4,531 2,908
Current portion of other obligations . . . . . . . --- 31
Income taxes payable . . . . . . . . . . . . . . . 652 1,334
------- -------
Total current liabilities . . . . . . . . . . 15,645 16,501
Long-term debt . . . . . . . . . . . . . . . . . . . . --- 380
------- -------
Total liabilities . . . . . . . . . . . . . . 15,645 16,881
------- -------
SHAREHOLDERS' EQUITY:
Common stock, without par value,
50,000,000 shares authorized; 11,869,860 and
11,599,073 shares issued and outstanding,
respectively . . . . . . . . . . . . . . . . . . 56,181 54,936
Retained earnings . . . . . . . . . . . . . . . . 1,285 6,390
Cumulative translation adjustment . . . . . . . . 1,424 2,281
------- -------
Total shareholders' equity . . . . . . . . . . 58,890 63,607
------- -------
Total liabilities and shareholders' equity . . $74,535 $80,488
======= =======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
TEKELEC
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -----------------------
1996 1995 1996 1995
---- ---- ---- ----
(THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUES:
Sales to third parties . . . . . . . . . $18,288 $18,967 $45,321 $53,834
Sales to related parties . . . . . . . 1,108 980 2,799 4,243
------- ------- ------- -------
Total revenues . . . . . . . . . . . 19,396 19,947 48,120 58,077
COSTS AND EXPENSES:
Cost of goods sold . . . . . . . . . . . 7,410 6,151 18,746 19,015
Research and development . . . . . . . . 4,420 3,892 13,107 10,726
Selling, general and administrative . . 6,834 7,160 21,004 20,535
Restructuring . . . . . . . . . . . . . 327 --- 327 ---
------- ------- ------- -------
Total costs and expenses . . . . . . 18,991 17,203 53,184 50,276
------- ------- ------- -------
Income (Loss) from operations . . . . . . . 405 2,744 (5,064) 7,801
Other income (expense):
Interest, net . . . . . . . . . . . . . 422 511 1,262 617
Other, net . . . . . . . . . . . . . . . (8) (3) (70) (226)
------- ------- ------- -------
Total other income . . . . . . . . . 414 508 1,192 391
------- ------- ------- -------
Income (Loss) before provision for income taxes 819 3,252 (3,872) 8,192
Provision for income taxes . . . . . . . 544 692 1,233 2,114
------- ------- ------- -------
NET INCOME (LOSS) . . . . . . . . . . . $ 275 $ 2,560 $(5,105) $ 6,078
======= ======= ======= =======
EARNINGS (LOSS) PER SHARE:
Primary . . . . . . . . . . . . . . . . $ 0.02 $ 0.20 $ (0.44) $ 0.52
Fully diluted . . . . . . . . . . . . . 0.02 0.20 (0.44) 0.51
WEIGHTED AVERAGE NUMBER OF SHARES:
Primary . . . . . . . . . . . . . . . . 12,636 13,053 11,733 11,799
Fully diluted . . . . . . . . . . . . . 12,846 13,054 11,733 11,855
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
TEKELEC
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1996 1995
---- ----
(THOUSANDS)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . $ (5,105) $ 6,078
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 2,835 2,826
Changes in current assets and liabilities:
Accounts and notes receivable . . . . . . . . . . . . (366) (4,115)
Inventories . . . . . . . . . . . . . . . . . . . . . (817) (2,364)
Amounts due from related parties . . . . . . . . . . . 1,193 (1,060)
Prepaid expenses and other current assets . . . . . . (629) (286)
Trade accounts payable . . . . . . . . . . . . . . . . (224) 404
Accrued expenses . . . . . . . . . . . . . . . . . . . (559) 1,158
Accrued payroll and related expenses . . . . . . . . . (309) (1,428)
Deferred revenues . . . . . . . . . . . . . . . . . . 1,623 1,076
Income taxes payable . . . . . . . . . . . . . . . . . (630) 788
-------- --------
Total adjustments . . . . . . . . . . . . . . . . 2,117 (3,001)
-------- --------
Net cash provided by (used in) operating activities (2,988) 3,077
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of available-for-sale securities . . . . . . . . (35,968) ---
Proceeds from maturity of available-for-sale securities . 12,000 ---
Purchase of property and equipment . . . . . . . . . . . . (4,179) (3,150)
Decrease in other assets . . . . . . . . . . . . . . . . . 173 36
-------- --------
Net cash (used in) investing activities . . . . . . . (27,974) (3,114)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Decrease in restricted cash . . . . . . . . . . . . . . . --- 1,000
Payments of short-term borrowings . . . . . . . . . . . . (570) (797)
Repayment of long-term debt . . . . . . . . . . . . . . . (380) (180)
Repayment of other obligations . . . . . . . . . . . . . . (28) (292)
Proceeds from issuance of common stock . . . . . . . . . . 1,245 38,597
-------- --------
Net cash provided by financing activities . . . . . . 267 38,328
-------- --------
Effect of exchange rate changes on cash . . . . . . . . . . . . (596) 2
-------- --------
Net increase (decrease) in cash and cash equivalents . . . (31,291) 38,293
Cash and cash equivalents at beginning of period . . . . . . . 43,609 6,653
-------- --------
Cash and cash equivalents at end of period . . . . . . . . . . $ 12,318 $ 44,946
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 95 $ 201
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 1,878 1,426
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
TEKELEC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. BASIS OF PRESENTATION
The consolidated financial statements are unaudited, other than the
consolidated balance sheet at December 31, 1995, and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
Management, necessary for a fair presentation of the Company's financial
condition and operating results for the interim periods.
The results of operations for the current interim periods are not
necessarily indicative of results to be expected for the current year. Certain
items shown in the prior financial statements have been reclassified to conform
with the presentation of the current period.
The Company operates under a thirteen-week calendar quarter; however,
for financial statement presentation purposes, the reporting periods are
referred to as ended on the last calendar day of the quarter. The accompanying
financial statements for the three and nine months ended September 30, 1996 and
1995 are for the thirteen and thirty-nine weeks ended September 27, 1996 and
September 29, 1995, respectively.
Earnings per share are computed using the weighted average number of
shares outstanding and dilutive common stock equivalents (options and
warrants).
These consolidated financial statements should be read in conjunction
with the consolidated financial statements for the year ended December 31, 1995
and the notes thereto in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
B. FAIR VALUE OF INVESTMENTS
The Company has short-term investments in corporate debt securities
with maturities of less than 90 days whose carrying amounts approximate their
fair values because of their short maturities. These short-term investments
are included in cash and cash equivalents, are classified as held-to-maturity
securities and amounted to $5.3 million and $35.9 million at September 30, 1996
and December 31, 1995, respectively. At September 30, 1996, the Company also
had investments classified as available-for-sale securities included in
short-term and long-term investments, consisting of $6.0 million of United
States Treasury Notes with maturities of less than one year, $9.2 million of
United States Treasury Notes with maturities of between one and two years, and
$8.8 million of corporate debt securities with maturities of less than one
year. These available-for-sale securities are accounted for at their fair
value, and unrealized gains and losses on these securities are reported as a
separate component of shareholders' equity. At September 30, 1996 unrealized
gains or losses on available-for-sale securities were not significant.
6
<PAGE> 7
TEKELEC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
C. CERTAIN BALANCE SHEET ITEMS
The components of inventories are:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- ------------
(THOUSANDS)
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . . . . . $ 1,736 $ 3,109
Work in process . . . . . . . . . . . . . . . . . . 1,507 1,653
Finished goods . . . . . . . . . . . . . . . . . . . 3,922 1,661
-------- --------
$ 7,165 $ 6,423
======== ========
Property and equipment consist of the following:
Manufacturing and development equipment . . . . . . $ 12,373 $ 10,823
Furniture and office equipment . . . . . . . . . . . 7,058 5,651
Demonstration equipment . . . . . . . . . . . . . . 3,951 3,406
Leasehold improvements . . . . . . . . . . . . . . . 1,126 1,232
-------- --------
24,508 21,112
Less, accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . . . . (17,115) (15,005)
------- --------
Property and Equipment, net . . . . . . . . . . . $ 7,393 $ 6,107
======== ========
</TABLE>
D. RELATED PARTY TRANSACTIONS
Sales to related parties consist of, and amounts due from related
parties are, the result of transactions between the Company and foreign
affiliates controlled by the Company's Chairman of the Board.
E. RESTRUCTURING
During the third quarter of 1996, the Company recorded restructuring
charges amounting to $327,000 which represent severance pay and benefit costs
for eight terminated employees in research and development and support
functions, and other costs related to the consolidation of the Company's Ohio
research facility into the Company's North Carolina facility.
7
<PAGE> 8
TEKELEC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
F. INCOME TAXES
For the three-month period ended September 30, 1996, the Company had
an effective tax rate of 66% compared to 21% for the three-month period ended
September 30, 1995. Although the Company's pre-tax results showed a loss for
the nine-month period ended September 30, 1996, the Company had a tax provision
of $1.2 million, compared to $2.1 million, or an effective tax rate of 26%, for
the comparable period in 1995. The provisions for all periods were principally
foreign taxes on the income of the Company's Japanese subsidiary. The
provisions for the three and nine month periods ended September 30, 1996 were
impacted by the Company's inability to currently recognize a benefit for its
U.S. loss and credits carryforwards, which remain available to reduce future
U.S. taxes. In 1995, the Company was able to utilize a portion of its prior
years' U.S. loss carryforwards, and consequently provided for taxes on its U.S.
taxable income at the federal alternative minimum tax rate and applicable state
tax rates.
G. BORROWINGS
In September 1996, the Company repaid all of the outstanding
borrowings on its $7.5 million line of credit, and terminated the credit
facility. In October 1996, the Company agreed to terms for a $10 million line
of credit with a U.S. bank, collateralized by substantially all of the
Company's assets and bearing interest at, or in some cases below, the U.S.
prime rate (8.25% at September 30, 1996). This credit facility expires June
30, 1998 if not renewed.
The Company's Japanese subsidiary has collateralized yen-denominated
lines of credit with Japan-based banks, primarily available for use in Japan,
amounting to the equivalent of $3.1 million with interest at the Japanese prime
rate (1.625% at September 30, 1996) plus 0.125% per annum which expire between
March 31, 1997, and August 5, 1997, if not renewed. There have been no
borrowings under these lines of credit.
H. MAJOR CUSTOMERS
Sales to Nippon Telegraph & Telephone amounted to 13% of revenues for
the third quarter of 1995. There were no customers accounting for 10% or more
of third quarter 1996 revenues.
Sales to Nippon Telegraph & Telephone amounted to 10% and 16% of
revenues for the first nine months of 1996 and 1995, respectively. Sales to
AT&T amounted to 10% of revenues for the first nine months of 1995.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the consolidated financial statements and the
notes thereto included in Item 1 of this Quarterly Report and by the
consolidated financial statements and notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
Historical results and percentage relationships among any amounts in the
financial statements are not necessarily indicative of trends in operating
results for any future periods.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentages that certain statement of operations items bear to total revenues:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
----------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of goods sold . . . . . . . . . . . 38.2 30.8 39.0 32.7
----- ----- ----- -----
Gross profit . . . . . . . . . . . . . . 61.8 69.2 61.0 67.3
Research and development . . . . . . . . 22.8 19.5 27.2 18.5
Selling, general and administrative . . . 35.2 35.9 43.6 35.4
Restructuring . . . . . . . . . . . . . . 1.7 --- 0.7 ---
----- ----- ----- -----
Total operating expenses . . . . . . . . 59.7 55.4 71.5 53.9
----- ----- ----- -----
Income (Loss) from operations . . . . . . 2.1 13.8 (10.5) 13.4
Interest and other income, net . . . . . 2.1 2.6 2.5 0.7
----- ----- ----- -----
Income (Loss) before provision for income
taxes . . . . . . . . . . . . . . . . . . 4.2 16.4 (8.0) 14.1
Provision for income taxes . . . . . . . 2.8 3.5 2.6 3.6
----- ----- ----- -----
Net income (loss) . . . . . . . . . . . . 1.4% 12.9% (10.6)% 10.5%
===== ===== ===== =====
</TABLE>
9
<PAGE> 10
The following table sets forth, for the periods indicated, the
revenues by principal product line as a percentage of total revenues:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
----------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Network diagnostic products . . . . . . 57% 68% 62% 72%
Network switching products . . . . . . 43 32 38 28
--- --- --- ---
Total . . . . . . . . . . . . 100% 100% 100% 100%
==== ==== ==== ====
</TABLE>
The following table sets forth, for the periods indicated, the
revenues by geographic territories as a percentage of total revenues:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
----------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ---------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
North America . . . . . . . . . . . . . 59% 48% 58% 55%
Japan . . . . . . . . . . . . . . . . . 21 27 22 24
Europe . . . . . . . . . . . . . . . . 10 7 9 9
Rest of the World . . . . . . . . . . . 10 18 11 12
--- --- --- ---
Total . . . . . . . . . . . . . 100% 100% 100% 100%
=== === === ===
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THE
THREE MONTHS ENDED SEPTEMBER 30, 1995
Revenues. The Company's revenues decreased by $551,000, or 3%, during
the third quarter of 1996 due to lower diagnostic product sales partially
offset by higher switching product sales.
Revenues from switching products increased by $2.0 million, or 31%, in
the third quarter of 1996 primarily due to increased EAGLE STP sales in North
America and the first EAGLE STP sale in Europe. Revenues from diagnostic
products decreased by $2.5 million, or 19%, due to lower Chameleon Open sales
in Japan, and lower sales of the Company's older diagnostic and
signalling/wireless products in the Rest of the World.
10
<PAGE> 11
Revenues in North America increased by $1.7 million, or 18%, as a
result of higher sales of both switching and diagnostic products. Sales in
Japan decreased by $1.3 million, or 24%, primarily due to lower Chameleon Open
sales and the impact of exchange rate fluctuations on foreign currency
translations which decreased revenues by approximately $670,000. Other
international revenues decreased by $1.0 million due primarily to lower sales
of signalling/wireless products in the Rest of the World.
The impact of exchange rate fluctuations on currency translations
decreased revenues by approximately $670,000, or 3%, and decreased net income
by $57,000, or 17%, in the third quarter of 1996.
Gross Profit. Gross profit as a percentage of revenues decreased from
69% in the third quarter of 1995 to 62% in the third quarter of 1996, primarily
due to lower margins on sales of switching products as a result of increased
price competition in the EAGLE product market, and lower margins on sales of
diagnostic products as a result of higher per-unit manufacturing costs and the
impact of trade-in programs for the Company's customers to upgrade to the
Company's newer products. Gross profit was also adversely impacted by a lower
proportion of diagnostic product sales, which typically carry higher margins
than switching products. Changes in the following factors, among others, may
affect gross profit: product and distribution channel mix, competition,
customer discounts, supply and demand conditions in the electronic components
industry, internal manufacturing capabilities and efficiencies, foreign
currency fluctuations and general economic conditions.
Research and Development. Research and development expenses increased
by $528,000, or 14%, in the third quarter of 1996 and increased as a percentage
of revenues from 20% to 23% due to the hiring of additional personnel in the
switching business and to relocation expenses incurred in connection with the
consolidation of the Company's Ohio research facility into the Company's North
Carolina facility.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $326,000, or 5%, in the third quarter of
1996 principally as a result of lower sales commission expenses.
Income Taxes. For the three-month period ended September 30, 1996,
the Company had an effective tax rate of 66% compared to 21% for the
three-month period ended September 30, 1995. The provisions for both periods
were principally foreign taxes on the income of the Company's Japanese
subsidiary. The provision for the three-month period ended September 30, 1996
was impacted by the Company's inability to currently recognize a benefit for
its U.S. loss and credits carryforwards, which remain available to reduce
future U.S. taxes. In 1995, the Company was able to utilize a portion of its
prior years' U.S. loss carryforwards, and consequently provided for taxes on
its U.S. taxable income at the federal alternative minimum tax rate and
applicable state tax rates.
11
<PAGE> 12
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THE
NINE MONTHS ENDED SEPTEMBER 30, 1995
Revenues. The Company's revenues decreased by $10.0 million, or 17%,
during the first nine months of 1996 due to lower diagnostic product sales,
partially offset by higher switching product sales.
In the first nine months of 1996, revenues from diagnostic products
decreased by $11.8 million, or 28%, due to lower sales of all diagnostic
products worldwide, while revenues from switching products increased by $1.8
million, or 11%, due to increased EAGLE STP sales.
Revenues in North America decreased by $3.6 million, or 11%, as a
result of lower sales of diagnostic products. Sales in Japan decreased by $3.5
million, or 25%, of which $1.9 million was the result of exchange rate
fluctuations on currency translations. Other international revenues decreased
by $2.9 million, or 23%, due to lower diagnostic product sales.
The impact of exchange rate fluctuations on currency translations
decreased revenues by $1.9 million, or 4%, and increased net loss by $163,000,
or 3%, in the first nine months of 1996.
Gross Profit. Gross profit as a percentage of revenues decreased from
67% in 1995 to 61% in 1996 primarily due to lower sales of the Company's higher
margin diagnostic products, certain non-recurring costs associated with the
Company's EAGLE product in the first half of 1996 and increased price
competition in the EAGLE product market.
Research and Development. Research and development expenses increased
by $2.4 million, or 22%, in the first nine months of 1996 and increased as a
percentage of revenues from 19% in the first nine months of 1995 to 27% in the
first nine months of 1996. The dollar increase in such expenses was primarily
attributable to the hiring of additional personnel and contractors in the
switching business, expenses incurred in connection with the Bellcore technical
audit of the Company's EAGLE product and relocation expenses relating to the
consolidation of the Company's Ohio research facility into the Company's North
Carolina facility.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $469,000, or 2%, in the first nine months
of 1996 and increased as a percentage of revenues from 35% in the first nine
months of 1995 to 44% in the first nine months of 1996. The dollar increase in
such expenses was primarily attributable to increased personnel expenses,
partially offset by lower commissions as a result of lower sales levels.
Income Taxes. Although the Company's pre-tax results showed a loss
for the nine months ended September 30, 1996, the Company had a tax provision
of $1.2 million, compared to $2.1 million, for an effective tax rate of 26%, in
1995. The provisions for both periods were principally foreign taxes on the
income of the Company's Japanese subsidiary. The provision for the nine months
ended September 30, 1996 was impacted by the Company's inability to currently
recognize a benefit for its U.S. loss and credits carryforwards, which remain
available to reduce
12
<PAGE> 13
future U.S. taxes. In 1995, the Company was able to utilize a portion of its
prior years' U.S. loss carryforwards, and consequently provided for taxes on
its U.S. taxable income at the federal alternative minimum tax rate and
applicable state tax rates.
LIQUIDITY AND CAPITAL RESOURCES
During the nine-month period ended September 30, 1996, cash and cash
equivalents decreased by $31.3 million to $12.3 million, primarily due to a net
transfer of approximately $24.0 million from cash and cash equivalents to
short-term and long-term investments. In addition, other investing activities
used $4.0 million primarily for capital expenditures, operating activities used
$3.0 million, and financing activities provided $267,000.
Accounts receivable, including amounts due from related parties,
decreased by 5% during the first nine months of 1996 despite sales levels in
the third quarter of 1996 which were 13% higher than the fourth quarter of
1995. The decrease in accounts receivable was primarily due to the collection
of certain 1995 receivables which carried extended payment terms. Inventories
increased by 12% during the first nine months of 1996 primarily to meet
anticipated higher sales levels than were achieved.
Capital expenditures amounted to $4.2 million during the first nine
months of 1996 and represented the planned replacement and addition of
equipment principally for research and development, the Company's new facility
in North Carolina and sales demonstration.
Of the $267,000 net cash provided by financing activities in the
first nine months of 1996, Common Stock issuances upon the exercise of stock
options provided $1.2 million while debt repayments used $950,000.
In September 1996, the Company repaid all of the outstanding
borrowings on its $7.5 million line of credit, and terminated the credit
facility. In October 1996, the Company agreed to terms for a $10 million line
of credit with a U.S. bank, collateralized by substantially all of the
Company's assets and bearing interest at, or in some cases below, the U.S.
prime rate (8.25% at September 30, 1996). This credit facility expires June
30, 1998 if not renewed.
The Company's Japanese subsidiary has collateralized yen-denominated
lines of credit with Japan-based banks, primarily available for use in Japan,
amounting to the equivalent of $3.1 million with interest at the Japanese prime
rate (1.625% at September 30, 1996) plus 0.125% per annum which expire between
March 31, 1997, and August 5, 1997, if not renewed. There have been no
borrowings under these lines of credit. Upon the expiration of the
above-described credit facilities, the Company believes that, if necessary, it
would be able to arrange for credit facilities on terms generally no less
favorable than those described above.
The Company believes that existing working capital, funds generated from
operations, and its current bank lines of credit should be sufficient to
satisfy anticipated operating requirements at least through 1996.
13
<PAGE> 14
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
The statements which are not historical facts contained in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations are forward-looking statements that involve certain risks and
uncertainties including, but not limited to, competition in the network
diagnostic and network switching markets, capital spending patterns of the
Company's customers, foreign currency fluctuations, general economic and
political conditions, announcements of new products by Tekelec or its
competitors, and other risks described in the Company's Annual Report on Form
10-K and in the Company's other Securities and Exchange Commission filings.
14
<PAGE> 15
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Consulting Agreement dated August 1, 1996 between the
Registrant and Howard Oringer, including form of Warrant and
Confidentiality Agreement
11.1 Statement of Computation of Earnings Per Share for the Three
and Nine Months Ended September 30, 1996 and 1995
27.1 Financial Data Schedule
(b) Reports
No reports on Form 8-K were filed by the Company during the
three months ended September 30, 1996
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEKELEC
November 13, 1996 /s/ Philip J. Alford
--------------------------
Philip J. Alford
Chief Executive Officer
(Duly authorized officer)
/s/ Gilles C. Godin
--------------------------
Gilles C. Godin
Chief Financial Officer and
Vice President, Finance
(Principal financial and chief
accounting officer)
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ----
<S> <C> <C>
10.1 Consulting Agreement dated August 1, 1996 between
the Registrant and Howard Oringer, including form
of Warrant and Confidentiality Agreement 18
11.1 Statement of Computation of Earnings Per Share
for the Three and Nine Months Ended September 30,
1996 and 1995 19
27.1 Financial Data Schedule 20
</TABLE>
17
<PAGE> 1
EXHIBIT 10.1
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement"), which includes Exhibits A
and B hereto which are incorporated herein by this reference, is entered into by
and between TEKELEC, a California corporation (the "Company"), and HOWARD
ORINGER, a California resident ("Consultant"), and shall become effective as of
August 1, 1996 (the "Effective Date").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the receipt and sufficiency of which are hereby acknowledged,
the Company and Consultant agree as follows:
1. CONSULTANCY. The Company hereby retains Consultant, and Consultant
hereby accepts such retention, to consult for the Company upon the terms and
subject to the conditions set forth herein, commencing as of the Effective Date
and continuing until December 1, 1996 or until this Agreement is sooner
terminated in accordance with Section 5 hereof (the "Term"). Consultant shall
render such consulting services to the Company as an independent contractor and
not as an employee, agent, joint venturer or otherwise.
2. DUTIES. Consultant's primary duty and responsibility under this
Agreement shall be to provide consultation and advice to the Company concerning
strategic business planning and related matters as well as such other duties and
responsibilities upon which such parties mutually agree. Consultant agrees (a)
to perform such services diligently and to the best of his abilities and (b) to
make himself available for one to two days per week (as Consultant deems
appropriate or necessary) during the Term (not to exceed a maximum aggregate of
24 days during the Term) to perform such services. Time devoted to Consultant's
duties as a member of the Company's Board of Directors shall not be considered
to be consulting services under this Agreement.
3. COMPENSATION.
3.1 In consideration for his agreement herein to render
consulting services to the Company, the Company agrees (a) to issue to
Consultant as of the Effective Date warrants in the form attached hereto as
Exhibit A and to use reasonable efforts to cause the securities issuable upon
exercise thereof to be registered under the Securities Act of 1933 during the
period they are exercisable; and (b) to compensate Consultant at the rate of
$1,250 per day for each full day during the Term during which Consultant
performs services hereunder.
3.2 No later than 20 days following the last day of each
calendar month during the Term, Consultant shall submit to the President of the
Company a statement of services rendered by Consultant hereunder during the
preceding calendar month, which statement shall set forth the number of days of
consulting services performed, the nature of such services and the amount owed.
The Company agrees to pay to Consultant the full amount due pursuant to each
such statement no later than 10 business days after the Company's receipt of
such statement.
<PAGE> 2
3.3 Consultant shall not be entitled to receive any
compensation or benefits in connection with his performance of services
hereunder except as expressly provided in Sections 3.1 and 4 hereof.
4. EXPENSES. The Company shall reimburse Consultant for any and all
reasonable out-of-pocket expenses incurred by Consultant in rendering consulting
services hereunder. Such expenses shall include, without limitation, travel,
telephone and telecopy expenses incurred by Consultant in connection with his
performance of services hereunder. All claims for expenses shall be accompanied
by receipts and documented in writing in accordance with the Company's standard
procedures as they may exist from time to time. The Company agrees to reimburse
Consultant for such expenses no later than 10 business days after the Company's
receipt of proper documentation therefor.
5. TERMINATION. This Agreement and Consultant's retention hereunder
shall continue until the earlier to occur of (a) December 1, 1996 or (b) the
death or disability of Consultant.
6. CONFIDENTIALITY. Consultant shall execute on the date hereof and
send to the Company the Confidentiality Agreement attached hereto as Exhibit B.
7. MISCELLANEOUS.
7.1 Notices. Except as otherwise noted herein, all notices
pursuant to this Agreement shall be in writing, shall specifically reference
this Agreement and shall be deemed duly sent and given upon actual delivery to
and receipt by the relevant party (which in the case of the Company shall be the
President).
7.2 Taxes. Consultant is solely responsible for paying when
due all income and other taxes incurred as a result of the compensation paid by
the Company to Consultant for services rendered under this Agreement. Consultant
agrees to defend, indemnify and hold the Company harmless from and against any
and all claims, costs, losses, fees, penalties, interest or damages suffered by
the Company as a result of Consultant's failure to comply with this Section 7.2.
7.3 Legal Advice and Construction of Agreement. Both parties
hereto have received independent legal advice with respect to, and neither has
relied upon the other (or his or its advisors) in entering into, this Agreement.
7.4 Entire Agreement. This Agreement constitutes a single
integrated contract expressing the entire agreement of the parties with respect
to the subject matter hereof and supersedes all prior and contemporaneous oral
and written agreements and discussions with respect to the subject matter
hereof.
7.5 Amendment and Waiver. This Agreement and each provision
hereof may be amended, modified, supplemented or waived only by a written
document specifically identifying this Agreement and signed by both parties
hereto.
-2-
<PAGE> 3
7.6 Specific Performance. Each party hereto may obtain
specific performance to enforce its/his rights hereunder and each party
acknowledges that failure to fulfill its/his obligations to the other party
hereto would result in irreparable harm.
7.7 California Law. This Agreement was negotiated and
delivered within the State of California and the rights and obligations of the
parties hereto shall be construed and enforced in accordance with and governed
by the internal (and not the conflict of laws) laws of California applicable to
the construction and enforcement of contracts between parties resident in
California which are entered into and fully performed in California. Any action
or proceeding arising out of, relating to or concerning this Agreement shall be
filed in the state courts of the County of Los Angeles, State of California or
in a United States District Court in the Central District of California. The
parties hereby waive the right to object to such location on the basis of venue.
7.8 Attorneys' Fees. In the event a lawsuit is instituted by
either party concerning a dispute under this Agreement, the prevailing party in
such lawsuit shall be entitled to recover from the losing party all reasonable
attorneys' fees, costs of suit and expenses (including the reasonable fees,
costs and expenses of appeals), in addition to whatever damages or other relief
the injured party is otherwise entitled to under law or equity.
7.9 Force Majeure. Neither party hereto shall be deemed in
default if its/his performance of obligations hereunder is delayed or becomes
impossible or impracticable by reason of any act of God, war, fire, earthquake,
strike, civil commotion, epidemic or any other cause beyond such party's
reasonable control.
7.10 Successors and Assigns. Neither party may assign this
Agreement or any of its/his rights or obligations hereunder to any third party
or entity, and this Agreement may not be involuntarily assigned or assigned by
operation of law, without the prior written consent of the nonassigning party,
which consent may be given or withheld by such nonassigning party in the sole
exercise of its/his discretion, except that the Company may assign this
Agreement to a corporation acquiring: (1) 50% or more of the Company's capital
stock in a merger or acquisition; or (2) all or substantially all of the assets
of the Company in a single transaction; and except that Consultant may transfer
or assign his rights under this Agreement voluntarily, involuntarily or by
operation of law upon or as a result of his death to his heirs, estate and/or
personal representative(s). Any prohibited assignment or attempted assigned
shall be null and void. This Agreement shall be binding upon and inure to the
benefit of each of the parties hereto and their respective lawful successors and
permitted assigns.
7.11 Limitation of Damages. Except as expressly set forth
herein, in any action or proceeding arising out of, relating to or concerning
this Agreement, including any claim of breach of contract, liability shall be
limited to compensatory damages proximately caused by the breach, and neither
party shall, under any circumstances, be liable to the other party for
consequential, incidental, indirect or special damages, including but not
limited to lost profits or income, even if such party has been apprised of the
likelihood of such damages occurring.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
TEKELEC HOWARD ORINGER
By: /s/ Philip J. Alford Signature: /s/ Howard Oringer
-------------------------------------- -----------------------
Philip J. Alford, Chief Executive
Officer and President
-4-
<PAGE> 5
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH
SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
Warrants to Purchase
30,000 Shares of Common Stock
TEKELEC
INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA
Void after August 1, 2001
The Warrants evidenced by this certificate have been issued for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged.
This Certificate evidences the right of Howard Oringer (the "Holder")
to purchase 30,000 shares of Common Stock, without par value (the "Shares"), of
Tekelec, a California corporation (the "Company"), at a price of $9.50 per
Share; subject, however, to the terms and conditions hereinafter set forth.
1. Term of Warrants. The Warrants may not be exercised after the close
of business on August 1, 2001 (the "Warrant Term"), and may be exercised only to
the extent such Warrants are vested and only in accordance with the terms and
conditions hereinafter set forth.
2. Exercise of Warrants. The Warrants shall be exercisable as follows:
(a) Right to Exercise. The Warrants shall vest and become
exercisable cumulatively in 24 equal installments of 1,250 Shares each with one
installment vesting for each full day of consulting services rendered by the
Holder under that certain Consulting Agreement dated as of August 1, 1996
between the Company and the Holder.
(b) Method of Exercise; Payment; Issuance of New Warrants;
Transfer and Exchange. The Warrants may be exercised by the Holder, in whole or
in part, by the surrender of this Certificate, properly endorsed, at the
principal office of the Company, and by the payment to the Company by check of
the then applicable Warrant Price (as such term is hereinafter defined). In the
event of any exercise of the Warrants, certificates for the Shares so purchased
shall be delivered to the Holder within a reasonable time after the Warrants
shall have been so exercised, and unless the Warrants have expired, a new
certificate representing the right to purchase the number of Shares, if any,
with respect to which this Certificate shall not then
<PAGE> 6
have been exercised shall also be issued to the Holder within such time. All
such new certificates shall be dated the date hereof and shall be identical to
this Certificate except as to the number of Shares issuable pursuant thereto.
(c) Restrictions on Exercise. The Warrants may not be
exercised if the issuance of the Shares upon such exercise would constitute a
violation of any applicable federal or state securities laws or other laws or
regulations. As a condition to the exercise of the Warrants, the Company may
require the Holder to make such representations and warranties to the Company as
may be required by applicable law or regulation.
3. Stock Fully Paid; Reservation of Shares. The Company covenants and
agrees that all Shares will, upon issuance and payment in accordance herewith,
be fully paid, validly issued and nonassessable. The Company further covenants
and agrees that during the Warrant Term the Company will at all times have
authorized and reserved for the purpose of the issue upon exercise of the
Warrants at least the maximum number of Shares as are issuable upon the exercise
of the Warrants.
4. Adjustment of Purchase Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of the Warrants and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
(a) Consolidation, Merger or Reclassification. If the Company
at any time while the Warrants remain outstanding and unexpired shall
consolidate with or merge into any other corporation, or sell all or
substantially all of its assets to another corporation, or reclassify or in any
manner change the securities then purchasable upon the exercise of the Warrants
(any of which shall constitute a "Reorganization"), then lawful and adequate
provision shall be made whereby this Certificate shall thereafter evidence the
right to purchase such number and kind of securities and other property as would
have been issuable or distributable on account of such Reorganization upon or
with respect to the securities which were purchasable or would have become
purchasable under the Warrants immediately prior to the Reorganization. The
Company shall not effect any such Reorganization unless prior to or
simultaneously with the consummation thereof the successor corporation (if other
than the Company) resulting from such Reorganization shall assume by written
instrument executed and mailed or delivered to the Holder, at the last address
of the Holder appearing on the books of the Company, the obligation to deliver
to the Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, the Holder may be entitled to purchase.
Notwithstanding anything in this Section 4(a) to the contrary, the prior two
sentences shall be inoperative and of no force and effect if upon the completion
of any such Reorganization the shareholders of the Company immediately prior to
such event do not own at least 50% of the equity interest of the corporation
resulting from such Reorganization, and those Warrants which are unexercised
shall expire on the completion of such Reorganization, if the notice required by
Section 4(e) hereof has been duly given.
(b) Subdivision or Combination of Shares. If the Company at
any time while the Warrants remain outstanding and unexpired shall subdivide or
combine its Common Stock, the Warrant Price shall be adjusted to a price
determined by multiplying the Warrant Price in effect immediately prior to such
subdivision or combination by a fraction (i) the numerator of
-2-
<PAGE> 7
which shall be the total number of shares of Common Stock outstanding
immediately prior to such subdivision or combination and (ii) the denominator of
which shall be the total number of shares of Common Stock outstanding
immediately after such subdivision or combination.
(c) Certain Dividends and Distributions. If the Company at any
time while the Warrants are outstanding and unexpired shall take a record of the
holders of its Common Stock for the purpose of:
(i) Stock Dividends. Entitling them to receive a
dividend payable in, or other distribution without consideration of, Common
Stock, then the Warrant Price shall be adjusted to that price determined by
multiplying the Warrant Price in effect immediately prior to each dividend or
distribution by a fraction (A) the numerator of which shall be the total number
of shares of Common Stock outstanding immediately prior to such dividend or
distribution, and (B) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution; or
(ii) Distribution of Assets, Securities, etc. Making
any distribution without consideration with respect to its Common Stock (other
than a cash dividend) payable otherwise than in its Common Stock, the Holder
shall, upon the exercise thereof, be entitled to receive, in addition to the
number of Shares receivable thereupon, and without payment of any additional
consideration therefor, such assets or securities as would have been payable to
him as owner of that number of Shares receivable by exercise of the Warrants had
he been the holder of record of such Shares on the record date for such
distribution; and an appropriate provision therefor shall be made a part of any
such distribution.
(d) Adjustment of Number of Shares. Upon each adjustment in
the Warrant Price pursuant to Subsections (b) or (c) (i) of this Section 4, the
number of Shares purchasable hereunder shall be adjusted to that number
determined by multiplying the number of Shares purchasable upon the exercise of
the Warrants immediately prior to such adjustment by a fraction, the numerator
of which shall be the Warrant Price immediately prior to such adjustment and the
denominator of which shall be the Warrant Price immediately following such
adjustment.
(e) Notice. In case at any time:
(i) The Company shall pay any dividend payable in
stock upon its Common Stock or make any distribution, excluding a cash dividend,
to the holders of its Common Stock;
(ii) The Company shall offer for subscription pro rata
to the holders of its Common Stock any additional shares of stock of any class
or other rights;
(iii) There shall be any reclassification of the Common
Stock of the Company, or consolidation or merger of the Company with, or sale of
all or substantially all of its assets to, another corporation; or
-3-
<PAGE> 8
(iv) There shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to the holder of
the Warrants at least 10 days' prior written notice (or, in the event of notice
pursuant to Section 4 (e) (iii), at least 30 days' prior written notice) of the
date on which the books of the Company shall close or a record shall be taken
for such dividend, distribution or subscription rights or for determining rights
to vote in respect to any such reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up. Such notice in accordance with the
foregoing clause shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Common
Stock shall be entitled thereto, and such notice in accordance with the
foregoing clause shall also specify the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be. Each such written
notice shall be given by first-class mail, postage prepaid, addressed to the
Holder at the address of the Holder as shown on the books of the Company.
(f) No Change in Certificate. The form of this Certificate
need not be changed because of any adjustment in the Warrant Price or in the
number of Shares purchasable on its exercise. The Warrant Price or the number of
Shares shall be considered to have been so changed as of the close of business
on the date of adjustment.
5. Fractional Shares. No fractional Shares will be issued in connection
with any subscription hereunder but, in lieu of such fractional Shares, the
Company shall make a cash payment therefor upon the basis of the fair market
value of the Shares.
6. Nontransferability of Warrants. The Warrants may be exercised during
the lifetime of the Holder only by the Holder, and may not be sold, pledged,
assigned, hypothecated, gifted, transferred or disposed of in any manner, in
whole or in part, either voluntarily or involuntarily by operation of law, other
than by will or the laws of descent or distribution, without the prior written
consent of the Company, which consent may be granted or withheld by the Company
in its sole discretion.
7. No Rights as Shareholder. The Holder of the Warrants, as such, shall
not be entitled to vote or receive dividends or be considered a shareholder of
the Company for any purpose, nor shall anything in this Certificate be construed
to confer on the Holder, as such, any rights of a shareholder of the Company or
any right to vote, give or withhold consent to any corporate action, to receive
notice of meetings of shareholders, to receive dividends or subscription rights
or otherwise.
8. Definitions. As used in this Certificate:
(a) "Warrants" shall mean the rights evidenced by this
Certificate.
-4-
<PAGE> 9
(b) "Warrant Price" shall mean $9.50, as adjusted in accordance with
Section 4 hereof.
Dated as of August 1, 1996.
TEKELEC
By:
------------------------------------------
Philip J. Alford, Chief Executive
Officer and President
Attest:
- ---------------------------------------------
Ronald W. Buckly, Secretary
-5-
<PAGE> 10
TEKELEC
SUBSCRIPTION FORM
(To be completed and signed only upon exercise of the Warrants)
TO: Tekelec
26580 West Agoura Road
Calabasas, California 91302
Attention: Secretary
The undersigned, the holder and registered owner of the attached
Warrants, hereby irrevocably and unconditionally elects to exercise such
Warrants and to purchase * shares of Tekelec Common Stock pursuant to the
terms and conditions thereof, and herewith tenders a check in the amount of
$___________ in full payment of the purchase price for such shares, and requests
that the certificate(s) for such shares be issued in the name of and delivered
to:
(Please print name and address)
------------------------------------
------------------------------------
------------------------------------
------------------------------------
Dated: Signature:
------------------------ ---------------------------
- ---------------------
*Insert here the number of shares called for on the face of the
Warrants (or in the case of partial exercise, that portion as to which the
Warrants is being exercised), without making any adjustment for additional
Common Stock or any other securities or property which, under the adjustment
provisions of the Warrants, may be deliverable upon exercise.
<PAGE> 11
EXHIBIT B
CONFIDENTIALITY AGREEMENT
AGREEMENT, dated and made effective as of this 1st day of August, 1996,
by and between Tekelec, a California corporation ("Discloser"), and Howard
Oringer, a California resident ("Disclosee");
WHEREAS, Discloser intends to provide Disclosee with certain data and
other information of a confidential or proprietary nature to Discloser; and
WHEREAS, Discloser considers certain of this information confidential
but is willing to provide such information to Disclosee on a confidential basis;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. For purposes of this Agreement, the term "Confidential Information"
shall mean that information of Discloser which is disclosed to Disclosee under
the Consulting Agreement, dated the date hereof by and between Discloser and
Disclosee (the "Confidentiality Agreement") and which is in written, graphic,
recorded, photographic or any machine readable form, and which is conspicuously
marked as "confidential," "proprietary" or "sensitive" or in another manner
indicating its confidential and/or proprietary nature or which, in the case of
oral information, is specifically identified as being confidential, proprietary
or sensitive.
2. (a) Disclosee shall use all Confidential Information for purposes in
furtherance of the business objectives of Discloser and shall hold in confidence
and not disclose such Confidential Information in any manner to, or permit the
use thereof by, any person or persons other than persons inside Discloser who
have a legitimate need to know or have access to such Confidential Information
and who are first informed by Disclosee of the confidential nature of the
Confidential Information and agree to maintain the confidentiality thereof.
Disclosee shall use the same degree of care he uses to protect and safeguard the
confidentiality of his own proprietary information to not disclose the
Confidential Information. Disclosee covenants that such degree of care is
reasonably designed to protect the confidentiality of Disclosee's proprietary
and confidential information.
(b) Disclosee shall not be liable for disclosure of any such
Confidential Information if the same:
(i) was in the public domain at the time it was
disclosed;
(ii) was known to Disclosee prior to the time of
disclosure;
(iii) is disclosed with the prior written approval
of Discloser;
(iv) is or becomes publicly known through no
wrongful act of Disclosee;
<PAGE> 12
(v) was or is independently developed by
Disclosee without any use of the
Confidential Information;
(vi) becomes known to Disclosee from a source
other than Discloser without breach of this
Agreement by Disclosee;
(vii) is or has been furnished by Discloser to
others not in a confidential relationship
with Discloser without restrictions similar
or stricter to those herein on the right of
the receiving party to use or disclose; or
(viii) is disclosed pursuant to the order or
requirement of a court, administrative
agency, or other governmental body.
(c) In the event of a disclosure under subsection (b)(viii)
above, Disclosee shall give Discloser written notice of such order or
requirement as soon as practicable prior to disclosure of the Confidential
Information.
3. The provisions of this Agreement shall supersede the provisions of
any legends which may be affixed to any Confidential Information provided by
Discloser to Disclosee.
4. This document contains the entire agreement between the parties as
to the subject matter hereof and supersedes any previous or contemporaneous
understandings, commitments or agreements, oral or written, as to such subject
matter. This Agreement can only be amended by a written document executed by the
parties hereto.
5. This Agreement shall be governed by the laws of the State of
California.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
"Discloser" "Disclosee"
TEKELEC HOWARD ORINGER
By: Signature:
------------------------------------- -------------------------
Philip J. Alford, Chief Executive
Officer and President
-2-
<PAGE> 1
EXHIBIT 11.1
TEKELEC
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
PRIMARY SEPTEMBER 30, SEPTEMBER 30,
-------------------- -----------------
(thousands, except per share data)
1996 1995 1996 1995
---- ---- ---- ----
<S> <C>
Net income (loss) . . . . . . . . . . . $ 275 $ 2,560 $(5,105) $ 6,078
======= ======= ======= =======
Basis for computation of primary earnings
per common and common equivalent share:
Weighted average number of shares
outstanding during period . . . . . . . 11,844 11,457 11,733 10,180
Weighted average (incremental) common
share equivalent after considering the
effects of options exercised and canceled
during the period and after assumed
repurchase of treasury shares--treasury
stock method . . . . . . . . . . . . . . 792 1,596 --- 1,619
------- ------- ------- -------
12,636 13,053 11,733 11,799
======= ======= ======= =======
Earnings (Loss) per share . . . . . . . $ 0.02 $ 0.20 $ (0.44) $ 0.52
======= ======= ======= =======
THREE MONTHS ENDED NINE MONTHS ENDED
FULLY DILUTED SEPTEMBER 30, SEPTEMBER 30,
-------------------- -----------------
(thousands, except per share data)
1996 1995 1996 1995
---- ---- ---- ----
Net income (loss) . . . . . . . . . . . $ 275 $ 2,560 $(5,105) $ 6,078
======= ======== ======= =======
Basis for computation of fully diluted earnings
per common and common equivalent share:
Weighted average number of shares
outstanding during period . . . . . . . 11,844 11,457 11,733 10,180
Weighted average (incremental) common
share equivalent after considering the
effects of options exercised and canceled
during the period and after assumed
repurchase of treasury shares -- treasury
stock method . . . . . . . . . . . . . . 1,002 1,597 --- 1,675
------- -------- ------- -------
12,846 13,054 11,733 11,855
======= ======== ======= =======
Earnings (Loss) per share . . . . . . . $ 0.02 $ 0.20 $ (0.44) $ 0.51
======= ======== ======== =======
</TABLE>
TEKELEC
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 12,318
<SECURITIES> 14,825
<RECEIVABLES> 21,533
<ALLOWANCES> 347
<INVENTORY> 7,165
<CURRENT-ASSETS> 57,331
<PP&E> 24,508
<DEPRECIATION> 17,115
<TOTAL-ASSETS> 74,535
<CURRENT-LIABILITIES> 15,645
<BONDS> 0
0
0
<COMMON> 56,181
<OTHER-SE> 2,709
<TOTAL-LIABILITY-AND-EQUITY> 74,535
<SALES> 19,396
<TOTAL-REVENUES> 19,396
<CGS> 7,410
<TOTAL-COSTS> 7,410
<OTHER-EXPENSES> 11,581
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95
<INCOME-PRETAX> 819
<INCOME-TAX> 544
<INCOME-CONTINUING> 275
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 275
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
