8-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 26, 2005

TEKELEC

(Exact name of registrant as specified in its charter)

California	0-15135	95-2746131
(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	Identification No.)

5200 Paramount Parkway, Morrisville, North Carolina	27560
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (919) 460-5500

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):

o Written Communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

Item 1.01	Entry into a Material Definitive Agreement	1
Item 2.02	Results of Operations and Financial Condition	1
Item 5.02	Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers	3
Item 9.01	Financial Statements and Exhibits	3
Exhibit 10.1
Exhibit 99.1

Item 1.01 Entry into a Material Definitive Agreement

     On October 26, 2005, Tekelec (the “Company”) and Frederick M. Lax, Chief Executive Officer and President of the Company, entered into an Employment Separation Agreement (the “Agreement”) in connection with Mr. Lax’s resignation as an executive officer and employee of the Company, effective January 1, 2006 (the “Termination Date”).

     Pursuant to the Agreement, the Company has agreed to pay to Mr. Lax a severance allowance equal to 1.5 times the sum of $525,000 plus the aggregate amount of Mr. Lax’s bonus payments for services rendered in 2005. Although the aggregate amount of Mr. Lax’s bonus payments for 2005 is not yet determinable, the Company estimates that the severance allowance will total approximately $1,700,000 to $1,800,000. The severance allowance will be paid in monthly installments during 2006 in such amounts and on such dates as are specified in the Agreement.

     Under the Agreement, Mr. Lax will also be eligible to be receive any additional bonuses that become payable to him for 2005 under the Company’s bonus plans, and the Company has waived any requirement that he remain in active status through the bonus payment date. The Company will also continue, at its expense and for a period of 18 months after the Termination Date, term life insurance coverage for Mr. Lax and health benefits coverage for Mr. Lax and his family members.

     The Company has agreed to extend, from April 1, 2006 until June 30, 2006, the expiration date for options held by Mr. Lax to purchase an aggregate of 575,000 shares of the Company’s Common Stock. The expiration date for options to purchase an additional 146,875 shares of the Company’s Common Stock will not be extended, and those options will expire on April 1, 2006. All other options currently held by Mr. Lax will be unvested as of the Termination Date and will expire on that date.

     In exchange for the benefits under the Agreement, Mr. Lax has agreed to certain covenants prohibiting (i) competition and solicitation of customers and employees during the period from the Termination Date until December 15, 2006 and (ii) non-disparagement during the two-year period following the Termination Date. Mr. Lax has also agreed to provide the Company with customary releases and acknowledgements. He has agreed to perform up to 50 hours of litigation-related and other consulting services for the Company for no additional consideration during the period from January 2, 2006 through June 30, 2006, and to assist the Company for a period of five years after the Termination Date in connection with litigation matters for a per diem fee which will not apply with respect to the agreed services to be performed during the six months following the Termination Date.

     Mr. Lax’s benefits under the Agreement are greater than the benefits that he would be entitled to receive under the Company’s Officer Severance Plan (the “Severance Plan”). The Severance Plan is described under the heading “Employment Agreements and Termination of Employment and Change-in-Control Arrangements” in the Company’s Proxy Statement for its Annual Meeting of Shareholders held on May 13, 2005, as filed with the Securities and Exchange Commission on April 14, 2005. The Severance Plan is filed as an exhibit to the Company’s Form 10-K for the fiscal year ended December 31, 1987, and amendments to the Severance Plan are filed as exhibits to the Company’s Annual Reports on Form 10-K for the years ended December 31, 1998 and December 31, 1999.

     By law, Mr. Lax has the right to revoke the Agreement within seven days after signing the Agreement, and the Agreement does not become binding until that time has elapsed.

     The foregoing description of the Agreement is qualified in its entirety by reference to the Employment Separation Agreement which is filed as Exhibit 10.1 to this Current Report on Form 8-K.

Item 2.02 Results of Operations and Financial Condition

     On October 27, 2005, Tekelec issued a press release announcing its financial results for the fiscal third quarter ended September 30, 2005. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

     The information in this Item 2.02 of this Form 8-K and in Exhibit 99.1 furnished herewith shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act.

Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers

     On October 26, 2005, Frederick M. Lax, the Company’s Chief Executive Officer and President, resigned as an executive officer and employee of the Company, effective January 1, 2006. As described in Item 1.01 of this Current Report, the Company and Mr. Lax have entered into an Employment Separation Agreement dated as of October 26, 2005 in connection with Mr. Lax’s resignation.

Item 9.01. Financial Statements and Exhibits

(c) Exhibits

            The following exhibits are furnished as a part of this Current Report on Form 8-K:

Exhibit No.	Description
10.1	Employment Separation Agreement effective as of October 26, 2005 between the Company and Frederick M. Lax
99.1	Press Release dated October 27, 2005 of the Company

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 hereunto duly authorized.

	Tekelec
Dated: October 27, 2005	By:	/s/ Ronald W. Buckly
		Ronald W. Buckly
		Senior Vice President, Corporate Affairs and General Counsel

EXHIBIT INDEX

Exhibit No.	Description
10.1	Employment Separation Agreement effective as of October 26, 2005 between the Company and Frederick M. Lax
99.1	Press Release dated October 27, 2005 of the Company

EX-10.1

EXHIBIT 10.1

EMPLOYMENT SEPARATION AGREEMENT

     THIS EMPLOYMENT SEPARATION AGREEMENT (the “Agreement”), which includes Exhibits A, B and C hereto which are incorporated herein by this reference, is entered into by and between TEKELEC, a California corporation (sometimes referred to herein as “Tekelec” or “Company”), and FRED LAX (sometimes referred to herein as “Employee” or “Employee”), and shall become effective when executed by both parties hereto (the “Effective Date”).

RECITALS

     A. Employee will cease to be an employee and officer of Tekelec at 5:00 p.m., California time, on January 1, 2006, (the “Termination Date”).

     B. Employee desires to receive severance benefits under Tekelec’s Officer Severance Plan dated May 14, 1993, as amended to date (the “Severance Plan”), which benefits are stated in the Severance Plan to be contingent upon, among other things, Employee’s entering into this Agreement and undertaking the obligations set forth herein.

     C. Tekelec and Employee desire to set forth their respective rights and obligations with respect to Employee’s separation from Tekelec and to finally and forever settle and resolve all matters concerning Employee’s past services to Tekelec.

AGREEMENT

     NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and conditions set forth herein, the receipt and sufficiency of which are hereby acknowledged, Tekelec and Employee hereby agree as follows:

1. DEFINITIONS

     As used herein, the following terms shall have the meanings set forth below:

     1.1 “Includes;” “Including.” Except where followed directly by the word “only,” the terms “includes” or “including” shall mean “includes, but is not limited to,” and “including, but not limited to,” respectively.

     1.2 “Severance Covered Period.” The term “Severance Covered Period” shall mean a period of time commencing upon January 2, 2006 and ending on the date on which the last installment of the Severance Allowance is due and payable pursuant to Section 5.1 of this Agreement.

     1.3 Other Capitalized Terms. Capitalized terms (other than those specifically defined herein) shall have the same meanings ascribed to them in the Severance Plan.

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2. MUTUAL REPRESENTATIONS, WARRANTIES AND COVENANTS

     Each party hereto represents, warrants and covenants (with respect to itself/himself only) to the other party hereto that, to its/his respective best knowledge and belief as of the date of each party’s respective signature below:

     2.1 Full Power and Authority. It/he has full power and authority to execute, enter into and perform its/his obligations under this Agreement; this Agreement, after execution by both parties hereto, will be a legal, valid and binding obligation of such party enforceable against it/him in accordance with its terms; it/he will not act or omit to act in any way which would materially interfere with or prohibit the performance of any of its/his obligations hereunder, and no approval or consent other than as has been obtained of any other party is necessary in connection with the execution and performance of this Agreement.

     2.2 Effect of Agreement. The execution, delivery and performance of this Agreement and the consummation of the transactions hereby contemplated:

          (a) will not interfere or conflict with, result in a breach of, constitute a default under or violation of any of the terms, provisions, covenants or conditions of any contract, agreement or understanding, whether written or oral, to which it/he is a party (including, in the case of Tekelec, its bylaws and articles of incorporation each as amended to date) or to which it/he is bound;

          (b) will not conflict with or violate any applicable law, rule, regulation, judgment, order or decree of any government, governmental agency or court having jurisdiction over such party; and

          (c) has not heretofore been assigned, transferred or granted to another party, or purported to assign, transfer or grant to another party, any rights, obligations, claims, entitlements, matters, demands or causes of actions relating to the matters covered herein.

3. CONFIDENTIALITY OBLIGATIONS

     Employee acknowledges that any confidentiality, proprietary rights or nondisclosure agreement(s) in favor of Tekelec which he may have entered into in connection with his employment (collectively, the “Nondisclosure Agreement”) with Tekelec is understood to be intended to survive, and does survive, any termination of such employment, and accordingly nothing in this Agreement shall be construed as terminating, limiting or otherwise affecting any such Nondisclosure Agreement or Employee’s obligations thereunder. Without limiting the generality of the foregoing, no time period set forth in this Agreement shall be construed as shortening or limiting the term of any such Nondisclosure Agreement, which term shall continue as set forth therein.

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4. ANNOUNCEMENT; SERVICE AND PAYMENTS UNTIL TERMINATION

     4.1 Announcement of Resignation; Service through Termination Date. At a time to be determined by the Board, Employee’s resignation will be announced and an appropriate press statement

will be issued. Through the Termination Date, Employee shall continue to perform his duties and responsibilities subject to the direction and control of the Board of Directors, faithfully comply with the Board of Director’s directions and instructions, strictly adhere to all Tekelec policies, and cooperate fully with the Board of Directors and the other officers and employees of Tekelec to ensure a smooth, positive and non-disruptive transition. Employee will voluntarily take at least five days of accrued vacation at a time of his choosing between the date of this Agreement and December 31, 2005, but he shall not be obligated to use more than five such accrued vacation days during the remaining term of his employment.

     4.2 Payments to Employee. Tekelec will pay any and all salary and accrued but unpaid vacation owed by Tekelec to Employee up to and including the Termination Date. Employee will be eligible for the 2005 Q4 bonus which shall be calculated and paid in accordance with the terms and conditions of the Company’s 2005 Executive Officer Bonus Plan (“2005 Bonus Plan”). Tekelec agrees to waive the requirement that Employee must remain in active status through the bonus payment date. Employee shall receive 100% of his 2005 MBO bonus, which shall be calculated and paid in accordance with the Company’s 2005 Bonus Plan.

     4.3 Post-Employment Consulting. In consideration for the Severance Allowance and Benefits described in Section 5 below, which Employee acknowledges are more than he is entitled to receive under the terms of the Tekelec Officer Severance Plan, Employee agrees that during the period from January 2 through June 30, 2006, upon Tekelec’s request he will provide litigation-related consulting or other work (including work that is subject to the provisions of Section 11 (Cooperation) below), for up to fifty (50) hours, for which he will not be eligible to receive any per diem compensation, bonus, employee benefits, stock options or other emolument except for reimbursement for pre-approved, reasonable expenses, which expenses shall be charged and paid in accordance with Tekelec expense reimbursement policy.

5. SEVERANCE ALLOWANCE AND BENEFITS

     In consideration for the release by Employee set forth herein (including the release of any and all claims Employee has or may have under the Age Discrimination in Employment Act (“ADEA”) and Older Workers Benefit Protection Act (“OWBPA”)) and Employee’s performance of his obligations under this Agreement (including but not limited to Employee’s obligations under Section 7 hereof), Employee is entitled to receive, and Tekelec shall pay to Employee the severance benefits set forth below:

     5.1 Severance Allowance. Tekelec will pay to Employee a Severance Allowance calculated in accordance with the following formula: 1.5 times the sum of $525,000 plus Employee’s actual bonus payments earned and paid for services rendered in 2005 under the 2005 Bonus Plan, as shown on the Company’s payroll records. The Severance Allowance shall be payable in 12 monthly installments, less all applicable withholding taxes, as follows: (1) an

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installment of $300,000 shall be payable on January 15, 2006; (2) an installment of $300,000 shall be payable on February 15, 2006; (3) an installment of $300,000 shall be payable on March 15, 2006; and (4) the remaining balance due shall be payable in nine (9) equal monthly installments commencing on April 15, 2006 with the final installment payable on December 15, 2006. All payments shall be made in accordance with the terms and conditions of the Severance Plan (except as specifically modified by this Section 5.1).

     5.2 Life Insurance Continuation. Tekelec (at its expense) will continue, for a period of 18 months following the Termination Date and provided that Employee remains insurable (under the same underwriting criteria and at a premium not exceeding 110% of the premium being paid at such Termination Date) during such 18 months, such term life insurance in like amount and on the same terms and conditions as is in effect for such officer immediately prior to his Termination Date.

     5.3 Health Care Insurance Continuation. Tekelec (at its expense) will continue, for a period of 18 months following the Termination Date, health care coverage for Employee and his family members who are “qualified beneficiaries” (as such term is defined in the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”)) under Tekelec’s group health plan(s) generally available during such period to employees participating in such plan(s) and at levels and with coverage no greater than those provided to such Employee as of the Termination Date. Thereafter, Employee (at his expense) may elect coverage under a conversion health plan available under Tekelec’s group health plan(s) from the Company’s health insurance carrier if and to the extent he is entitled to do so as a matter of right under federal or state law.

     5.4 Other Benefit Plans. Except as otherwise expressly provided in this Section 5 or as required by applicable law, Employee shall have no right to continue his participation in any Tekelec benefit plan following his termination on January 1, 2006.

6. STOCK OPTIONS

     Exhibit A hereto sets forth any and all outstanding stock options, warrants and other rights to purchase capital stock or other securities of Tekelec which have been previously issued to Employee and which are outstanding as of the date hereof. The parties understand and agree that Employee’s option installments that are scheduled to vest prior to January 1, 2006, shall vest in accordance with the vesting schedules for such options. The time period through which Employee may exercise his vested stock options as of the Termination Date shall expire in accordance with the terms of the stock option plans under which Employee’s options were granted; provided, however, that Tekelec agrees that the time period through which Employee may to extend the exercise period to June 30, 2006, with respect to all options described in Exhibit A other than the 146,875 options granted on January 31, 2003, Except as expressly set forth herein, nothing in this Agreement shall alter or affect any of such outstanding stock options, warrants or rights or Employee’s rights or responsibilities with respect thereto, including but not limited to Employee’s rights to exercise any of his options, warrants or rights following the Termination Date.

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7. NON-COMPETITION AND NON-SOLICITATION

     7.1 Subject and in addition to Employee’s existing fiduciary duties as a former officer and employee of Tekelec to the extent such continues under applicable law after Employee’s Termination Date, provided that Tekelec has not breached any of the terms of this Agreement or any other currently existing written agreements between Tekelec and Employee, Employee agrees until the earlier of (i) the completion of the Severance Covered Period or (ii) such date as Tekelec may terminate this Agreement for default hereunder:

          (a) Not to engage, either directly or indirectly, in any Competing Business Activity (as defined below) or be associated with a Competing Business Entity (as defined below) as an officer, director, employee, principal, consultant, lender, creditor, investor, agent or otherwise for any corporation, partnership, company, agency, person, association or any other entity; provided, however, that nothing contained herein shall prevent Employee from owning not more than 5% of the common equity and not more than 5% of the voting power of, or lending not more than $25,000 to, any Competing Business Entity or any business engaged in a Competing Business Activity; provided, further, that for purposes of this agreement, any equity ownership, voting control or lending activity of Employee shall be deemed to include that of (i) any family member or (ii) person or entity controlled by Employee;

          (b) Not to call upon or cause to be called upon, or solicit or assist in the solicitation of, in connection with any Competing Business Entity or Competing Business Activity, any entity, agency, person, firm, association, partnership or corporation that is a customer or account of Tekelec, currently and/or during the Severance Covered Period, for the purpose of selling, renting, leasing, licensing or supplying any product or service that is the same as, similar to or competitive with the products or services then being sold or developed by Tekelec;

          (c) Not to enter into an employment or agency relationship with a Competing Business Entity or involving a Competing Business Activity with any person who, at the time of such entry, is an officer, director, employee, principal or agent of or with respect to Tekelec; and

          (d) Not to induce or attempt to induce any person described in Section 7.1(c) to leave his employment, agency, directorship or office with Tekelec.

     7.2 For purposes of this Section 7, a “Competing Business Activity” shall mean any business activity of a person or entity (other than Tekelec) involving the development, design, manufacture, distribution, marketing, licensing, renting, leasing or selling within the Territory (as defined below) of products and services which are the same as, similar to or competitive with products or services of Tekelec then in existence or under development. For purposes hereof, the Territory shall include the United States of America, Canada, Central America, South America, Europe, Japan, Australia, Singapore, China, India and such other countries in which Tekelec then distributes, markets, licenses, rents, leases or sells its products or services. An entity as a whole shall be deemed to be a Competing Business Entity if it has one or more business activities involving the development, design, manufacture, distribution, marketing, licensing, renting,

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leasing or selling directly or indirectly within the Territory of products or services which are the same as, similar to or competitive with products or services of Tekelec then being sold or under development and if and only if the revenues derived directly or indirectly from engaging in such business activities by such entity represent either more than 3% of the entity’s revenues or at least $5 million in aggregate sales, or both, for the then-preceding 12-month period.

     7.3 The parties acknowledge that the provisions and obligations set forth in this Section 7 are an integral part of this Agreement and that in the event Employee breaches any of the provisions or obligations of this Section 7 or if he materially breaches any other term, provision or obligation of this Agreement, then Tekelec, in addition to any other rights or remedy it may have at law, in equity, by statute or otherwise, shall be excused from its payment obligations to Employee under the Severance Plan and this Agreement.

8. CONFIDENTIAL INFORMATION AND TRADE SECRETS

     8.1 Employee hereby recognizes, acknowledges and agrees that Tekelec is the owner of proprietary rights in certain confidential sales and marketing information, programs, tactics, systems, methods, processes, compilations of technical and non-technical information, records and other business, financial, sales, marketing and other information and things of value. To the extent that any or all of the foregoing constitute valuable trade secrets and/or confidential and/or privileged information of Tekelec, Employee hereby further agrees as follows:

          (a) That, except with prior written authorization from Tekelec’s CEO, for purposes related to Tekelec’s best interests, he will not directly or indirectly duplicate, remove, transfer, disclose or utilize, nor knowingly allow any other person to duplicate, remove, transfer, disclose or utilize, any property, assets, trade secrets or other things of value, including, but not limited to, records, techniques, procedures, systems, methods, market research, new product plans and ideas, distribution arrangements, advertising and promotional materials, forms, patterns, lists of past, present or prospective customers, and data prepared for, stored in, processed by or obtained from, an automated information system belonging to or in the possession of Tekelec which are not intended for and have not been the subject of public disclosure. Employee agrees to safeguard all Tekelec trade secrets in his possession or known to him at all times so that they are not exposed to, or taken by, unauthorized persons and to exercise his reasonable efforts to assure their safekeeping. This subsection shall not apply to information that as of the date hereof is, or as of the date of such duplication, removal, transfer, disclosure or utilization (or the knowing allowing thereof) by Employee has (i) become generally known to the public or competitors of Tekelec (other than as a result of a breach of this Agreement); (ii) been lawfully obtained by Employee from any third party who has lawfully obtained such information without breaching any obligation of confidentiality; or (iii) been published or generally disclosed to the public by Tekelec. Employee shall bear the burden of showing that any of the foregoing exclusions applies to any information or materials.

          (b) That all improvements, discoveries, systems, techniques, ideas, processes, programs and other things of value made or conceived in whole or in part by Employee with respect to any aspects of Tekelec’s current or anticipated business while an employee of Tekelec are and remain the sole and exclusive property of Tekelec, and

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Employee has disclosed all such things of value to Tekelec and will cooperate with Tekelec to insure that the ownership by Tekelec of such property is protected. All of such property of Tekelec in Employee’s possession or control, including, but not limited to, all personal notes, documents and reproductions thereof, relating to the business and the trade secrets or confidential or privileged information of Tekelec has already been, or shall be immediately, delivered to Tekelec.

     8.2 Employee further acknowledges that as the result of his prior service as an officer and employee of Tekelec, he has had access to, and is in possession of, information and documents protected by the attorney-client privilege and by the attorney work product doctrine. Employee understands that the privilege to hold such information and documents confidential is Tekelec’s, not his personally, and that he will not disclose the information or documents to any person or entity without the express prior written consent of the CEO or Board of Tekelec unless he is required to do so by law.

     8.3 Employee’s obligations set forth in this Section 8 shall be in addition to, and not instead of, Employee’s obligations under any written Nondisclosure Agreement.

9. ENFORCEMENT OF SECTIONS 7 AND 8

     Employee hereby acknowledges and agrees that the services rendered by him to Tekelec in the course of his prior employment were of a special and unique character, and that breach by him of any provision of the covenants set forth in Sections 7 and 8 of this Agreement will cause Tekelec irreparable injury and damages. Employee expressly agrees that Tekelec shall be entitled, in addition to all other remedies available to it whether at law or in equity, to injunctive or other equitable relief to secure their enforcement.

     The parties hereto expressly agree that the covenants contained in Sections 7 and 8 hereof are reasonable in scope, duration and otherwise; however, if any of the restraints provided in said covenants are adjudicated to be excessively broad as to geographic area or time or otherwise, said restraint shall be reduced to whatever extent is reasonable and the restraint shall be fully enforced in such modified form. Any provisions of said covenants not so reduced shall remain in full force and effect.

10. PROHIBITION AGAINST DISPARAGEMENT

     10.1 Employee agrees that for a period of two years following the Termination Date any communication, whether oral or written, occurring on or off the premises of Tekelec, made by him or on his behalf to any person or entity (including, without limitation, any Tekelec employee, customer, vendor, supplier, any competitor, any media entity and any person associated with any media) which in any way relates to Tekelec (or any of its subsidiaries) or to Tekelec’s or any of its subsidiaries’ directors, officers, management or employees: (a) will be truthful; and (b) will not, directly or indirectly, criticize, disparage, or in any manner undermine the reputation or business practices of Tekelec or its directors, officers, management or employees.

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     10.2 The only exceptions to Section 10.1 shall be: (a) truthful statements privately made to (i) the CEO of Tekelec, (ii) any member of Tekelec’s Board, (iii) Tekelec’s auditors, (iv) inside or outside counsel of Tekelec, (v) Employee’s counsel or (vi) Employee’s spouse; (b) truthful statements lawfully compelled and made under oath in connection with a court or government administrative proceeding; and (c) truthful statements made to specified persons upon and in compliance with prior written authorization from Tekelec’s CEO or Board to Employee directing him to respond to inquiries from such specified persons.

11. COOPERATION

     Employee agrees that for a period of five years commencing on January 2, 2006, he will cooperate fully and reasonably with Tekelec in connection with any future or currently pending matter, proceeding, litigation or threatened litigation: (1) directly or indirectly involving Tekelec (which, for purposes of this section, shall include Tekelec and each of its current and future subsidiaries, successors or permitted assigns); or (2) directly or indirectly involving any director, officer or employee of Tekelec (with regard to matters relating to such person(s) acting in such capacities with regard to Tekelec business). Such cooperation shall include making himself available upon reasonable notice at reasonable times and places for consultation and to testify truthfully (at Tekelec’s expense for reasonable, pre-approved out-of-pocket travel costs plus a daily fee equal to $4,000 for each full or partial day during which Employee makes himself so available, provided, however, that Employee shall not be entitled to receive the daily fee of $4,000 with respect to any work covered by this Section 11 and performed during the period January 2, 2006 through June 30, 2006, until Employee has first completed fifty (50) hours of consulting work in accordance with Section 4.3 above) in any action as reasonably requested by the CEO or the Board of Directors. Employee further agrees to immediately notify Tekelec’s CEO in writing in the event that he receives any legal process or other communication purporting to require or request him to produce testimony, documents, information or things in any manner related to Tekelec, its directors, officers or employees, and that he will not produce testimony, documents, information or other things with regard to any pending or threatened lawsuit or proceeding regarding Tekelec without giving Tekelec prior written notice of the same and reasonable time to protect its interests with respect thereto. Employee further promises that when so directed by the CEO or the Board of Directors, he will make himself available to attend any such legal proceeding and will truthfully respond to any questions in any manner concerning or relating to Tekelec and will produce all documents and things in his possession or under his control which in any manner concern or relate to Tekelec. Employee covenants and agrees that he will immediately notify Tekelec’s CEO in writing in the event that he breaches any of the provisions of Sections 7, 8, 10 or 11 hereof.

12. SOLE ENTITLEMENT

     Employee acknowledges and agrees that his sole entitlement to compensation, payments of any kind, monetary and nonmonetary benefits and perquisites with respect to his prior Tekelec relationship (as a member of the Board of Directors and an officer and employee) is as set forth in the Severance Plan, this Agreement, the Company’s bonus plan for officers as in effect from time to time, stock option and warrant agreements, COBRA, and such other written agreements and securities between Tekelec and Employee as may exist or as may be set forth on Exhibit B

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hereto. If there is any inconsistency or conflict between this Agreement and the Officer Severance Plan, the 2005 Executive Officer Bonus Plan, the 1994 Stock Option Plan, the 2003 Stock Option Plan or any other stock option agreement for the stock options listed on Exhibit A, the terms of this Agreement shall control.

13. RELEASE OF CLAIMS

     13.1 General. Effective as of the Effective Date and as of the Termination Date, Employee does hereby and forever release and discharge Tekelec and the predecessor corporation of Tekelec as well as the successors, current, prior or future shareholders of record, officers, directors, heirs, predecessors, assigns, agents, employees, attorneys, insurers and representatives of each of them, past, present or future, from any and all cause or causes of action, actions, judgments, liens, indebtedness, damages, losses, claims, liabilities and demands of any kind or character whatsoever, whether known or unknown, suspected to exist or not suspected to exist, anticipated or not anticipated, whether or not heretofore brought before any state or federal agency, court or other governmental entity (“Claims”) which are existing on or arising prior to the date of this Agreement and the Termination Date and including any Claims which, directly or indirectly, in whole or in part, relate or are attributable to, connected with, or incidental to the employment of Employee by Tekelec, the separation of that employment, and any dealings between the parties concerning Employee’s employment, excepting only those obligations expressly recited herein or to be performed hereunder. Nothing contained in this Section 13 shall affect any rights, claims or causes of action which Employee may have (1) with respect to his outstanding stock options, warrants or other stock subscription rights to purchase Tekelec Common Stock or other securities under the terms and conditions thereof; (2) as a shareholder of Tekelec; (3) to indemnification by Tekelec, to the extent required under the provisions of Tekelec’s Articles of Incorporation, Tekelec’s Bylaws, the California General Corporation Law, insurance or contracts, with respect to matters relating to Employee’s prior service as a director, an officer, employee and agent of Tekelec; (4) with respect to his eligibility for severance payments under the Severance Plan or any other written agreement listed on Exhibit B hereto; and (5) to make claims against or seek indemnification or contribution from anyone not released by the first sentence of this Section 13 with respect to any matter or anyone released by the first sentence of this Section 13 with respect to any matter not released thereby; or (6) with respect to Tekelec’s performance of this Agreement. Further, Employee waives specifically any and all rights or claims Employee has or may have under the ADEA and/or the OWBPA, and acknowledges that such waiver is given voluntarily in exchange for certain consideration included in the severance benefits being paid pursuant to this Agreement.

     13.2 Waiver of Unknown Claims. Employee acknowledges that he is aware that he may hereafter discover claims or facts different from or in addition to those he now knows or believes to be true with respect to the matters herein released, and he agrees that this release shall be and remain in effect in all respects a complete general release as to the matters released and all claims relative thereto which may exist or may heretofore have existed, notwithstanding any such different or additional facts. Employee acknowledges that he has been informed of Section 1542 of the Civil Code of the State of California, and does hereby expressly waive and relinquish all rights and benefits which he has or may have under said Section, which reads as follows:

Page 9

“A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”

     13.3 Covenant Not to Sue on Matters Released. Employee covenants that he will not make, assert or maintain against any person or entity that Employee has released in this Agreement, any claim, demand, action, cause of action, suit or proceeding arising out of or in connection with the matters herein released, including but not limited to any claim or right under the ADEA, the OWBPA, or any other federal or state statute or regulation. Employee represents and warrants that he has not assigned or transferred, purported to assign or transfer, and will not assign or transfer, any matter or claim herein released. Employee represents and warrants that he knows of no other person or entity which claims an interest in the matters or claims herein released. Employee agrees to, and shall at all times, indemnify and hold harmless each person and entity that Employee has released in this Agreement against any claim, demand, damage, debt, liability, account, action or cause of action, or cost or expense, including attorneys’ fees, resulting or arising from any breach of the representations, warranties and covenants made herein.

14. ASSIGNMENT

     Employee represents and warrants that he has not heretofore assigned, transferred or granted or purported to assign, transfer or grant any claims, entitlement, matters, demands or causes of action herein released, disclaimed, discharged or terminated, and agrees to indemnify and hold harmless Tekelec from and against any and all costs, expense, loss or liability incurred by Tekelec as a consequence of any such assignment, transfer or grant.

15. EMPLOYEE REPRESENTATIONS

     Except as listed by Employee on Exhibit C, from the period beginning on October 24, 2005, to the Effective Date, Employee represents and warrants that he has not acted or omitted to act in any respect which directly or indirectly would have constituted a violation of Sections 7, 8, 10 or 11 herein had this Agreement then been in effect.

16. MISCELLANEOUS

     16.1 Notices. All notices and demands referred to or required herein or pursuant hereto shall be in writing, shall specifically reference this Agreement and shall be deemed to be duly sent and given upon actual delivery to and receipt by the relevant party (which notice, in the case of Tekelec, must be from an officer of Tekelec) or five days after deposit in the U.S. mail by certified or registered mail, return receipt requested, with postage prepaid, addressed as follows (if, however, a party has given the other party due notice of another address for the sending of notices, then future notices shall be sent to such new address):

Page 10

(a) If to Tekelec:	Tekelec
	5200 Paramount Parkway
	Morrisville, North Carolina 27560
	Attn: Ron Buckly, Esq.
With a copy to:	Lynn K. Thompson, Esq.
	Bryan Cave LLP
	120 Broadway, Suite 300
	Santa Monica, CA 90401
(b) If to Employee:	Fred Lax
with a copy to:	Sheldon H. Lytton
	Kelly Lytton & Vann LLP
	1900 Avenue of the Stars, Suite 1450
	Los Angeles, California 90067-4405

     16.2 Legal Advice and Construction of Agreement. Both Tekelec and Employee have received (or have voluntarily and knowingly elected not to receive) independent legal and tax advice with respect to the advisability of entering into this Agreement and with respect to all matters covered by this Agreement, and neither has been entitled to rely upon or has in fact relied upon the legal or other advice of the other party or such other party’s counsel (or employees) in entering into this Agreement. Without limiting the generality of the foregoing, Employee has not relied upon the legal or other advice of the General Counsel of Tekelec.

     16.3 Parties’ Understanding. Tekelec and Employee state that each has carefully read this Agreement, that it has been fully explained to it/him by its/his attorney (or that it/he has voluntarily and knowingly elected not to receive such explanation), that it/he fully understands its final and binding effect, that the only promises made to it/him to sign the Agreement are those stated herein, and that it/he is signing this Agreement voluntarily.

     16.4 Recitals and Section Headings. Each term of this Agreement is contractual and not merely a recital. All recitals are incorporated by reference into this Agreement. Captions and section headings are used herein for convenience only, are not part of this Agreement and shall not be used in interpreting or construing it.

     16.5 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. Notwithstanding the foregoing, the parties understand and agree that any Nondisclosure Agreement and all other written agreements between Employee and Tekelec are separate from this Agreement and, subject to the terms and conditions of each such agreement, shall survive the execution of this Agreement, and nothing contained in this

Page 11

Agreement shall be construed as affecting the rights or obligations of either party set forth in such agreements.

     16.6 Severability. In the event any provision of this Agreement or the application thereof to any circumstance shall be determined by arbitration pursuant to Section 16.10 of this Agreement or held by a court of competent jurisdiction to be invalid, illegal or unenforceable, or to be excessively broad as to time, duration, geographical scope, activity, subject or otherwise, it shall be construed to be limited or reduced so as to be enforceable to the maximum extent allowed by applicable law as it shall then be in force, and if such construction shall not be feasible, then such provision shall be deemed to be deleted herefrom in any action before that court, and all other provisions of this Agreement shall remain in full force and effect.

     16.7 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 each party hereto. Except as expressly provided in this Agreement, no course of dealing between the parties hereto and no delay in exercising any right, power or remedy conferred hereby or now or hereafter existing at law, in equity, by statute or otherwise, shall operate as a waiver of, or otherwise prejudice, any such rights, power or remedy.

     16.8 Cumulative Remedies. None of the rights, powers or remedies conferred herein shall be mutually exclusive, and each such right, power or remedy shall be cumulative and in addition to every other right, power or remedy, whether conferred herein or now or hereafter available at law, in equity, by statute or otherwise.

     16.9 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.

     16.10 Arbitration. Except for the right of either party to apply to a court of competent jurisdiction for a Temporary Restraining Order to preserve the status quo or prevent irreparable harm, any dispute or controversy between Tekelec and Employee under this Agreement involving its interpretation or the obligations of a party hereto shall be determined by binding arbitration in accordance with the commercial arbitration rules of the American Arbitration Association, in the County of Los Angeles, State of California.

     Arbitration may be conducted by one impartial arbitrator by mutual agreement. In the event that the parties are unable to agree on a single arbitrator within 30 days of first demand for arbitration, the arbitration shall proceed before a panel of three arbitrators, one of whom shall be selected by Tekelec and one of whom shall be selected by Employee, and the third of whom shall be selected by the two arbitrators selected. All arbitrators are to be selected from a panel provided by the American Arbitration Association. The arbitrators shall have the authority to permit discovery, to the extent deemed appropriate by the arbitrators, upon request of a party. The arbitrators shall have no power or authority to add to or, except as otherwise provided by Section 16.6 hereof, to detract from the agreements of the parties, and the prevailing party shall recover costs and attorneys’ fees incurred in arbitration. The arbitrators shall have the authority to grant injunctive relief in a form substantially similar to that which would otherwise be granted

Page 12

by a court of law. The arbitrators shall have no authority to award punitive or consequential damages. The resulting arbitration award may be enforced, or injunctive relief may be sought, in any court of competent jurisdiction. Any action arising out of or relating to this Agreement may be filed only in the Superior Court of the County of Los Angeles, California or the United States District Court for the Central District of California.

     16.11 California Law and Location. This Agreement was negotiated, executed 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 the State 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 that is not subject to the arbitration provisions set forth in Section 16.10 above 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 and in no other location. The parties hereby waive the right to object to such location on the basis of venue.

     16.12 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 in connection with such dispute.

     16.13 Force Majeure. Neither Tekelec nor Employee shall be deemed in default if its/his performance of obligations hereunder is delayed or become 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.

     16.14 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

     16.15 Successors and Assigns. Neither party may assign this Agreement or any of its rights or obligations hereunder (including, without limitation, rights and duties of performance) 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 non-assigning party, which consent may be given or withheld by such non-assigning party in the sole exercise of its discretion, except that Tekelec may assign this Agreement to a corporation acquiring: (1) 50% or more of Tekelec’s capital stock in a merger or acquisition; or (2) all or substantially all of the assets of Tekelec in a single transaction; and except that Employee 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 shall be null and void, and any attempted assignment of this Agreement in violation of this section shall constitute a material breach of this Agreement and cause for its termination by and at the election of the other party hereto by notice. This Agreement shall be binding upon and inure to the benefit of each of

Page 13

the parties hereto and each person or entity released pursuant to Section 12 hereof and, except as otherwise provided herein, their respective legal successors and permitted assigns.

     16.16 Payment Procedure. Except as otherwise explicitly provided herein or in the Severance Plan, all payments by Tekelec to Employee or by Employee to Tekelec due hereunder may be by, at the paying party’s election, cash, wire transfer or check. Except as explicitly provided herein or in the Severance Plan, neither party may reduce any payment or obligation

Page 14

due hereunder by any amount owed or believed owed to the other party under any other agreement, whether oral or written, now in effect or hereafter entered into.

     16.17 Survival. The definitions, representations and warranties herein as well as obligations set forth in Sections 7 8 and 10 through 16 shall survive any termination of this Agreement for any reason whatsoever.

     16.18 No Admission. Neither the entry into this Agreement nor the giving of consideration hereunder shall constitute an admission of any wrongdoing by Tekelec or Employee.

     16.19 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.

     16.20 Pronouns. As used herein, the words “he”, “him”, “his” and “himself” shall be deemed to refer to the feminine as the identity of the person referred to and the context may require.

     16.21 Effectiveness. This Agreement shall become effective upon execution by the later of the parties hereto to execute this Agreement.

17. 21 DAY REVIEW PERIOD; RIGHT TO REVOKE

     Employee acknowledges that he was advised in writing to consult with an attorney prior to executing this Agreement and represents and warrants to Tekelec that he has done so, and further acknowledges that he has been given a period of 21 days within which to consider the terms and provisions of this Agreement with his attorney. If Employee has executed and delivered to Tekelec this Agreement prior to the expiration of such 21-day period, then in doing so, Employee acknowledges that he has unconditionally and irrevocably waived his right to that unexpired portion of such 21-day period. In addition, Employee shall have the right to revoke this Agreement for a period of seven days following the date on which this Agreement is signed by sending written notification of such revocation directly to Ronald W. Buckly at the Calabasas offices of Tekelec, via hand delivery.

TEKELEC		FRED LAX
By:	/s/ Ronald W. Buckly	Signature:	/s/ Fred Lax
Name:	Ronald W. Buckly
Title:	Senior Vice President, Corporate Affairs and General Counsel	Date:  October 26, 2005
Date:	October 26, 2005

Page 15

EXHIBIT A

OUTSTANDING STOCK PURCHASE RIGHTS

			Maximum
			Number of
			Shares		Purchase
			Currently		Price		Termination
Type of Security	Date Issued		Purchasable (1)		Per Share		Date (2)
NSO		03/05/04		131,250	$	18.80		06/30/06
NSO		01/31/03		146,875		8.54		04/01/06
NSO		01/18/02		93,750		19.21		06/30/06
NSO		02/01/01		350,000		27.56		06/30/06

(1)	As of the close of business on December 31, 2005 after giving effect to the options scheduled to vest on such date.
(2)	The applicable termination date after giving effect to the termination of Mr. Lax’s employment on January 1, 2006 and the amendment of Mr. Lax’s options in accordance with the terms of Mr. Lax’s Separation Agreement.

Page 16

EXHIBIT B

LIST OF OTHER AGREEMENTS (Pursuant to §§12 and 13)

NONE

EXHIBIT C

EXCEPTIONS (Pursuant to §15)

NONE

EX-99.1

EXHIBIT 99.1

Contact: Michael Attar
Investor Relations
(818) 880-7821

Tekelec Announces Q3 Results:
Achieves Orders of $150.7 M and Record Revenue of $148.1 M;
International Sales Reach 41% of Revenue

MORRISVILLE, NC (October 27, 2005)... Tekelec (Nasdaq: TKLC) today reported financial results for its 2005 third quarter.

     Revenue for the third quarter of 2005 was $148.1 million, compared to $106.6 million in the third quarter of 2004. On a GAAP basis, Tekelec’s net income was $8.7 million, or $0.12 per diluted share, for the third quarter of 2005, compared to net income of $18.7 million, or $0.27 per diluted share, in the third quarter of 2004. Non-GAAP net income for the third quarter of 2005, which excludes the effects of acquisition-related amortization, non-cash stock-based deferred compensation, a one-time, non-cash charge for the write-off of acquired in-process research and development related to the iptelorg acquisition and restructuring and other charges related to the relocation of corporate headquarters, was $13.4 million, or $0.19 per diluted share, compared to non-GAAP net income of $14.9 million, or $0.21 per diluted share, in the third quarter of 2004. Non-GAAP net income for the third quarter of 2004 excludes the effects of acquisition-related amortization, the write-off of in-process research and development, the restructuring charge related to the relocation of manufacturing operations, the write-off of certain acquired intangibles as a result of rebranding activities, the gain on Tekelec’s investment in Telica and the gain on the settlement of the Catapult convertible notes. Orders received in the third quarter for Tekelec products and services were $150.7 million, compared to $150.8 million in the third quarter in 2004.

     Tekelec President and CEO Fred Lax commented, “Tekelec’s results were strong in the third quarter, with revenue increasing 39% year-over-year, as well as up 11% sequentially. And, for the twelfth consecutive quarter, our order volumes provided us with a book-to-bill ratio greater than one, with a Q3 book-to-bill of 1.02.

     “Network Signaling Group revenue increased to $88.2 million, up 13%, compared to $78.0 million in Q3 ’04, and increased 8% sequentially, marking the highest quarterly signaling revenue in the history of the Company. As one example contributing to this success, we are pleased to announce that Mobinil, a leading Egyptian wireless operator, is significantly expanding the signaling capacity of its existing Eagle 5 platform and is also expanding its deployment of Tekelec’s network-wide monitoring solution. Mobinil is part of the Orange Group, a subsidiary of France Telecom and one of the world’s largest mobile operators.

     “Switching Solutions Group revenue increased to $37.6 million, up 149%, compared to $15.1 million in Q3 ’04, and increased 13% sequentially, as we added 16 new switching customers during the quarter. As was announced recently, we are pleased that the Tekelec 8000 wireless multimedia gateway has been successfully deployed by Zhejiang Mobile, a subsidiary of China Mobile, the world’s largest wireless operator. This represents the first deployment of the Tekelec-Alcatel mobile next-gen solution in China and will allow the operator to improve its quality of service and reduce network operation and maintenance costs.

     “Communications Software Solutions Group revenue increased to $9.8 million, up 216%, compared to $3.1 million in Q3 ‘04, and increased 38% sequentially. As part of a bundled Tekelec implementation, Mobinil is also expanding its deployment of our network-wide monitoring solution. This solution will feed the critical business intelligence data required for the applications that run the carrier’s customer care, call center operations and customer settlements processes.

     “Finally, regarding global expansion, approximately 41% of revenues were generated outside the U.S. during the quarter. This international percentage treats all revenue associated with the Alcatel channel as U.S. sourced revenue, although some of the products are destined for international deployment. As one example of this success, we are pleased to announce today that Mobilink, part of Orascom Telecom’s operations in Pakistan, with more than 8 million subscribers, or approximately 61% of all mobile phone users in Pakistan, has selected Tekelec’s Eagle 5 Signaling platform to increase its network capacity and support the operator’s rapid growth.”

COMPARATIVE TEKELEC GROUP REVENUES

	Revenue ($ in Millions)
	Q3 2005		Q3 2004
Switching Solutions Group	$	37.6	$	15.1
Network Signaling Group	$	88.2	$	78.0
Communications Software Solutions Group (1)	$	9.8	$	3.1
IEX Contact Center Group	$	12.5	$	10.4

(1) As a result of the Steleus acquisition, a new operating group, the Communications Software Solutions Group, was created in Q4 2004. This Group’s products consist of the Steleus solutions and Tekelec’s business intelligence applications and other network element independent solutions that were previously reported as part of the Network Signaling Group. The revenue related to these Network Signaling Group solutions was reclassified from the Network Signaling Group to the Communications Software Solutions Group for 2004. The Communications Software Solutions Group revenue for Q3 2004 does not include any Steleus revenue.

Q4 FINANCIAL GUIDANCE

	Q4 2005 Guidance	Q4 2004 Actual Results
Total Revenue:	$150.0 million - $156.0 million	$115.9 million
GAAP Net Income	$0.12 - $0.16 per diluted share(1)	$0.17 per diluted share(2)

(1)

For the fourth quarter of 2005, Tekelec expects expenses to include amortization of acquired intangibles, amortization of non-cash stock-based deferred compensation, and restructuring and other charges related to our Corporate and Hyannis relocations in the aggregate amount of approximately $5.8 million, pre-tax. This guidance excludes any potential one-time, non-cash charge for the write-off of acquired in-process research and development related to the acquisition of Santera’s Minority Interest on October 3, 2005.

(2)

Fourth quarter 2004 net income includes a $3.8 million one-time, non-cash charge for the write-off of acquired in-process research and development related to the Steleus acquisition, a $20.3 million gain on Santera’s warrants in Spatial Wireless common stock, and an adjustment made in Q4 2004 to reduce the gain on sale of investment in privately held company previously recorded in Q3 2004, by $1.3 million, net of tax.

Lax concluded, “The record quarterly revenues for all of our operating groups highlight the progress we are making executing on our strategy focused on next-gen switching, signaling, value-added applications,

and global expansion. I believe Tekelec is well positioned as a market leader in signaling and continues to strengthen its position globally in next-gen switching and communications software solutions.”

Employment Inducement Stock Options

     On October 26, 2005, 82 new Tekelec employees hired during the third quarter of 2005 and through the date of this earnings release were granted options to purchase a total of 619,550 shares of Tekelec common stock. The total number of shares subject to such options amounts to less than 1% of the outstanding shares of Tekelec common stock. The option grants were made under Tekelec’s 2004 Equity Incentive Plan for New Employees and met the “employment inducement” exception to the Nasdaq rules requiring shareholder approval of equity-based incentive plans.

About Tekelec

     Tekelec is a leading developer of now and next-generation switching and signaling telecommunications solutions, network performance management technology, and value-added applications. Tekelec’s innovative solutions are widely deployed in traditional and next-generation wireline and wireless networks and contact centers worldwide. Corporate headquarters are located in Morrisville, NC with research and development facilities and sales offices throughout the world. For more information, please visit www.tekelec.com.

Non-GAAP Information

     Certain non-GAAP financial measures are included in this press release. In the calculation of these measures, Tekelec generally excludes certain items such as amortization of acquired intangibles, restructuring and other charges, non-cash stock-based compensation charges, and unusual, non-recurring gains and charges. Tekelec believes that excluding such items provides investors and management with a representation of the Company’s core operating performance and with information useful in assessing our prospects for the future and underlying trends in Tekelec’s operating expenditures and continuing operations. Management uses such non-GAAP measures to evaluate financial results and to establish operational goals. In addition, since the Company has historically reported non-GAAP measures to the investment community, we believe the inclusion of this information provides consistency in our financial reporting. The attachments to this release provide a reconciliation of non-GAAP net income referred to in this release to the most directly comparable GAAP measure, GAAP net income from continuing

operations. The non-GAAP financial measures are not meant to be considered a substitute for the corresponding GAAP financial measures.

Forward-Looking Statements

Certain statements made in this news release are forward looking, reflect the Company’s current intent, belief or expectations and involve certain risks and uncertainties. There can be no assurance that the Company’s actual future performance will meet the Company’s expectations. As discussed in the Company’s 2004 Annual Report on Form 10-K and other filings with the SEC, the Company’s future operating results are difficult to predict and subject to significant fluctuations. Factors that may cause future results to differ materially from the Company’s current expectations include, among others: overall telecommunications spending, changes in general economic conditions, unexpected changes in economic, social, or political conditions in the countries in which the Company operates, the timing of significant orders and shipments, the lengthy sales cycle for the Company’s products, the timing of revenue recognition of multiple elements in an arrangement sold as part of a bundled solution, the timing of the convergence of voice and data networks, the success or failure of strategic alliances or acquisitions including the success or failure of the integration of Santera, Taqua, Steleus, VocalData, and iptelorg’s operations with those of the Company, litigation or regulatory matters such as the litigation described in Tekelec’s SEC reports and the costs and expenses associated therewith, the ability of carriers to utilize excess capacity of signaling infrastructure and related products in their networks, the capital spending patterns of customers, the dependence on wireless customers for a significant percentage and growth of the Company’s revenues, the timely development and introduction of new products and services, product mix, the geographic mix of the Company’s revenues and the associated impact on gross margins, market acceptance of new products and technologies, carrier deployment of intelligent network services, the ability of our customers to obtain financing, the level and timing of research and development expenditures, and sales, marketing, and compensation expenses, regulatory changes, and the expansion of the Company’s marketing and support organizations, both domestically and internationally. The Company undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.

Webcast

Tekelec will host a live webcast of the conference call on October 27 at 4:45 p.m. ET. To access the webcast, visit Tekelec’s web site located at www.tekelec.com, enter the Investor Relations section and click on the webcast icon.

Telephone Replay

A telephone replay of the call will also be available for one week after the live call by calling (719) 457-0820, and entering the reservation number, 4663095.

TEKELEC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2005		2004		2005			2004
	(thousands, except earnings per share data)
Revenues	$	148,103	$	106,636	$	400,522		$	281,124
Costs and expenses:
Cost of goods sold		49,166		25,684		120,460			69,022
Amortization of purchased technology		1,963		1,497		5,715			6,953
Research and development		31,262		25,461		92,234			70,249
Selling, general and administrative		50,061		37,603		148,391			108,039
Acquired in-process research and development		1,210		2,400		1,210			10,400
Amortization of intangibles		701		763		2,282			1,704
Restructuring and other charges (1)		1,589		275		4,349			1,327
Income from operations		12,151		12,953		25,881			13,430
Interest and other income (expense), net		592		37		(500	)		152
Gain on notes receivable		—		2,186		—			2,186
Gain on investment in privately-held company		—		9,869		—			9,869
Income before provision for income taxes		12,743		25,045		25,381			25,637
Provision for income taxes (2)		6,021		13,873		15,652			27,078
Income (Loss) before minority interest		6,722		11,172		9,729			(1,441	)
Minority interest		2,014		7,565		11,239			25,723
Net income	$	8,736	$	18,737	$	20,968		$	24,282
Earnings per share
Basic	$	0.13	$	0.30	$	0.32		$	0.39
Diluted		0.12		0.27		0.31			0.36
Weighted average number of shares outstanding:
Basic		66,113		63,172		65,811			62,554
Diluted (3)		75,183		72,332		74,403			71,801

	Notes to Condensed Consolidated Statements of Operations (000’s):
(1)	This amount represents restructuring and other costs (e.g., costs associated with duplicate staff during the transition, recruiting fees, etc.) related to the relocation of our Corporate headquarters and Hyannis facilities.
(2)	For the three and nine months ended September 30, 2005, the consolidated provision for income taxes excludes any benefit relating to the expense recognized for acquired in-process research and development as this is non-deductible for income tax purposes. For the three and nine months ended September 30, 2005 and 2004, Santera, a majority-owned company, is included in the consolidated results of operations of Tekelec. The consolidated provision for income taxes does not include any benefit from the losses generated by Santera due to the following:
-	Santera’s losses cannot be included on Tekelec’s consolidated federal tax return because its ownership interest in Santera does not meet the threshold to consolidate under income tax rules and regulations.
-	A full valuation allowance has been established on the income tax benefits generated by Santera as a result of Santera’s historical operating losses.
(3)	For the three and nine months ended September 30, 2005 and 2004, the calculation of earnings per share includes the add-back to net income of $581 and $1,743, respectively for assumed after-tax interest cost related to the convertible debt using the “if-converted” method of accounting for diluted earnings per share. The weighted average number of shares outstanding for both the three and nine months ended September 30, 2005 and September 30, 2004 includes 6,361 shares related to the convertible debt using the “if-converted” method.

TEKELEC
NON-GAAP ⁽¹⁾ STATEMENTS OF OPERATIONS
(unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2005		2004		2005		2004
	(thousands, except earnings per share data)
Revenues	$	148,103	$	106,636	$	400,522	$	281,124
Costs and expenses:
Cost of goods sold		48,978		25,868		119,882		69,627
Research and development		31,233		25,325		92,059		70,017
Selling, general and administrative		48,992		37,273		145,641		107,476
Income from operations		18,900		18,170		42,940		34,004
Interest and other income, net		592		37		844		152
Income before provision for income taxes		19,492		18,207		43,784		34,156
Provision for income taxes (2)		7,738		10,321		20,558		25,127
Income before minority interest		11,754		7,886		23,226		9,029
Minority interest		1,622		7,001		9,271		23,338
Non-GAAP net income	$	13,376	$	14,887	$	32,497	$	32,367
Non-GAAP earnings per share
Basic	$	0.20	$	0.24	$	0.49	$	0.52
Diluted		0.19		0.21		0.46		0.48
Non-GAAP earnings per share weighted average number of shares outstanding:
Basic		66,113		63,172		65,811		62,554
Diluted (3)		75,183		72,332		74,403		71,801

	Notes to Condensed Consolidated Statements of Operations (000’s):
(1)	The above Non-GAAP Statements of Operations exclude the effects of the following:
-	For the three and nine months ended September 30, 2005, restructuring and other costs related to the relocation of our Corporate headquarters and Hyannis facilities amounting to $1,589 and $4,349, respectively. The related income tax benefits for the three and nine months ended September 30, 2005 were $556 and $1,522 respectively.
-	For the three and nine months ended September 30, 2005, amortization of deferred stock-based compensation related to stock options and restricted stock units granted amounting to $1,301 and $3,196, respectively. The related income tax benefits for the three and nine months ended September 30, 2005 were $455 and $1,118 respectively.
-	For the three and nine months ended September 30, 2005 the amortization of purchased technology and other intangibles related to the acquisition of Taqua, VocalData, Steleus, iptelorg and the majority interest in Santera amounting to $2,649 and $8,304, respectively. The related income tax benefits for the three and nine months ended September 30, 2005 were $706 and $2,266 respectively. The minority interest impact of the amortization and write-off for the three and nine months ended September 30, 2004 was $392 and $1,968, respectively.
-	For the three and nine months ended September 30, 2005, the write-off of in-process research and development relating to the acquisition of iptelorg amounting to $1,210.
-	For the nine months ended September 30, 2005, the loss on sale of investments amounting to $1,344 relates to the sale of Santera’s holdings of Alcatel shares received in conjunction with warrants exercised in December 2004.
-	For the three and nine months ended September 30, 2004, restructuring costs related to the relocation of our manufacturing operations amounted to $275 and $1,327, respectively.

-	For the three and nine months ended September 30, 2004, amortization of deferred stock compensation related to the unvested portion of stock options granted as part of the Taqua acquisition amounted to $469 and $800, respectively.
-	For three and nine months ended September 30, 2004 the amortization of purchased technology and other intangibles related to the acquisitions of Santera, Taqua and VocalData amounted to $763 and $6,737, respectively. The related income tax benefits for the three and nine months ended September 30, 2004 were $551 and $1,666, respectively.
-	For the three and nine months ended September 30, 2004, a gain of $2,186 on the settlement of our convertible notes receivable from Catapult.
-	For the three and nine months ended September 30, 2004, a gain of $9,869 on the sale of our investment in Telica.
(2)	The above Non-GAAP Statements of Operations assume an effective income tax rate of 35% for the Tekelec business excluding Santera for the three and nine months ended September 30, 2005 and 2004. There were no income tax benefits associated with the losses generated by Santera.
(3)	For the three and nine months ended September 30, 2005 and 2004, the calculation of earnings per share includes the add- back to net income of $581 and $1,743, respectively for assumed after-tax interest cost related to the convertible debt using the “if-converted” method of accounting for diluted earnings per share. The weighted average number of shares outstanding for both the three and nine months ended September, 2005 and September 30, 2004 includes 6,361 shares related to the convertible debt using the “if-converted” method.

TEKELEC
CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,		December 31,
	2005		2004
	(unaudited)		(unaudited)
	(thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	103,042	$	48,925
Short-term investments, at fair value		138,701		134,435
Accounts receivable, net		90,404		107,850
Inventories		53,007		33,654
Deferred income taxes, net		16,163		15,804
Prepaid expenses and other current assets		55,633		44,639
Total current assets		456,950		385,307
Long-term investments, at fair value		50,852		93,622
Property and equipment, net		38,578		30,617
Investments in privately-held companies		7,322		7,322
Deferred income taxes		41,671		45,748
Other assets		5,239		6,757
Goodwill		135,664		128,732
Intangible assets, net		81,853		83,538
Total assets	$	818,129	$	781,643
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of deferred revenues	$	103,272	$	92,182
Other current liabilities		94,130		93,123
Total current liabilities		197,402		185,305
Long-term convertible debt		125,000		125,000
Long-term portion of notes payable		—		78
Long-term portion of deferred revenues		4,218		2,187
Deferred income taxes		19,076		19,586
Total liabilities		345,696		332,156
Minority interest(1)		9,250		20,489
Total shareholders’ equity		463,183		428,998
Total liabilities and shareholders’ equity	$	818,129	$	781,643

(1) On October 3, 2005, Tekelec completed the purchase of the minority interest of Santera for $75.6 million in cash.

TEKELEC
IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME
(unaudited)

	Three Months Ended September 30, 2005
	(thousands, except for earnings per share data)
								Non-
	GAAP				Adjustments			GAAP
Revenues	$	148,103			$	—		$	148,103
Costs and expenses:
Cost of goods sold		49,166				(391	)(1)(2)		48,775
Amortization of purchased technology		1,963				(1,760	)(2)		203
Total cost of sales		51,129				(2,151	)		48,978
Gross profit		96,974	65.5	%		2,151			99,125	66.9	%
Research and development		31,262				(29	)(1)		31,233
Selling, general and administrative		50,061				(1,069	)(1)		48,992
Acquired in-process research and development		1,210				(1,210	)(4)		—
Amortization of intangibles		701				(701	)(2)		—
Restructuring and other charges		1,589				(1,589	)(3)		—
Total operating expenses		84,823				(4,598	)		80,225
Income from operations		12,151				6,749			18,900
Interest and other income, net		592				—			592
Income before provision for income taxes		12,743				6,749			19,492
Provision for income taxes		6,021				1,717	(5)		7,738
Income before minority interest		6,722				5,032			11,754
Minority interest		2,014				(392	)(6)		1,622
Net income	$	8,736			$	4,640		$	13,376
Earnings per share
Basic	$	0.13						$	0.20
Diluted (7)		0.12							0.19
Earnings per share weighted average number of shares outstanding:
Basic		66,113							66,113
Diluted (7)		75,183							75,183

(1)	The adjustments represent the amortization of deferred stock-based compensation related to stock options and restricted stock units assumed or granted.
(2)	The adjustments represent the amortization of purchased technology and other intangibles related to the acquisition Taqua, VocalData, Steleus, iptelorg and the majority interest in Santera.
(3)	The adjustment represents restructuring and other costs related to the relocation of our Corporate headquarters and Hyannis facilities.
(4)	The adjustment represents acquired in-process research and development relating to the acquisition of iptelorg.
(5)	The adjustments represents the income tax effect of footnotes (1), (2), (3) and (4) in order to reflect our non-GAAP effective tax rate at 35% for the Tekelec business, excluding Santera.

(6)

The adjustment represents the minority interest impact of footnote (2).

(7)

For the three months ended September 30, 2005, calculations of earnings per share include the add-back to net income of $581 for assumed after-tax interest cost related to the convertible debt using the “if-converted” method of accounting for diluted earnings per share. The weighted average number of shares outstanding for the three months ended September 30, 2005 includes 6,361 shares related to the convertible debt using the “if-converted” method.

TEKELEC
IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME
(unaudited)

	Three Months Ended September 30, 2004
	(thousands, except earnings per share data)
								Non-
	GAAP				Adjustments			GAAP
Revenues	$	106,636			$	—		$	106,636
Costs and expenses:
Cost of goods sold		25,684				(7	)(1)(2)		25,677
Amortization of purchased technology		1,497				(1,306	)(2)		191
Total cost of sales		27,181				(1,313	)		25,868
Gross profit		79,455	74.5	%		1,313			80,768	75.7	%
Research and development		25,461				(136	)(1)		25,325
Selling, general and administrative		37,603				(330	)(1)		37,273
Acquired in-process research and development		2,400				(2,400	)(2)		—
Amortization of intangibles		763				(763	)(2)		—
Restructuring		275				(275	)(3)		—
Total operating expenses		66,502				(3,904	)		62,598
Income from operations		12,953				5,217			18,170
Interest and other income, net		37				—			37
Gain on notes receivable		2,186				(2,186	)(4)		—
Gain on investment in privately-held company		9,869				(9,869	)(5)		—
Income (Loss) before provision for income taxes		25,045				(6,838	)		18,207
Provision for income taxes		13,873				(3,552	)(6)		10,321
Income (Loss) before minority interest		11,172				(3,286	)		7,886
Minority Interest		7,565				(564	)(7)		7,001
Net income (loss)	$	18,737			$	(3,850	)	$	14,887
Earnings per share
Basic	$	0.30						$	0.24
Diluted (8)		0.27							0.21
Earnings per share weighted average number of shares outstanding:
Basic		63,172							63,172
Diluted (8)		72,332							72,332

(1)	The adjustments represent the amortization of deferred stock compensation related to the unvested portion of stock options granted as part of the Taqua acquisition.
(2)	The adjustments represent the amortization of purchased technology and other intangibles related to the acquisition of Santera, Taqua and VocalData and the write-off of acquired in-process research and development related to the acquisition of VocalData.
(3)	The adjustment represents restructuring costs related to the relocation of our manufacturing operation.
(4)	The adjustment represents a gain on the settlement of our convertible notes receivable from Catapult.
(5)	The adjustment represents a gain on the sale of our investment in Telica.

(6)	The adjustments represent the income tax effect of footnotes (1), (2), (3), (4) and (5) in order to reflect our non- GAAP effective tax rate at 35% for the Tekelec business, excluding Santera.
(7)	The adjustment represents the minority interest impact of footnote (2).
(8)	For the three months ended September 30, 2004, calculations of earnings per share include the add-back to net income of $581 for assumed after-tax interest cost related to the convertible debt using the “if-converted” method of accounting for diluted earnings per share. The weighted average number of shares outstanding for the three months ended September 30, 2004 includes 6,361 shares related to the convertible debt using the “if-converted” method.

TEKELEC
IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME
(unaudited)

	Nine Months Ended September 30, 2005
	(thousands, except for earnings per share data)
									Non-
	GAAP					Adjustments			GAAP
Revenues	$	400,522				$	—		$	400,522
Costs and expenses:
Cost of goods sold		120,460					(1,254	)(1)(2)		119,206
Amortization of purchased technology		5,715					(5,039	)(2)		676
Total cost of sales		126,175					(6,293	)		119,882
Gross profit		274,347		68.5	%		6,293			280,640	70.1	%
Research and development		92,234					(175	)(1)		92,059
Selling, general and administrative		148,391					(2,750	)(1)		145,641
Acquired of in-process research and development		1,210					(1,210	)(4)		—
Amortization of intangibles		2,282					(2,282	)(2)		—
Restructuring and other charges		4,349					(4,349	)(3)		—
Total operating expenses		248,466					(10,766	)		237,700
Income from operations		25,881					17,059			42,940
Interest and other (expense) income, net		(500	)				1,344	(5)		844
Income before provision for income taxes		25,381					18,403			43,784
Provision for income taxes		15,652					4,906	(6)		20,558
Income before minority interest		9,729					13,497			23,226
Minority interest		11,239					(1,968	)(7)		9,271
Net income	$	20,968				$	11,529		$	32,497
Earnings per share
Basic	$	0.32							$	0.49
Diluted (8)		0.31								0.46
Earnings per share weighted average number of shares outstanding:
Basic		65,811								65,811
Diluted (8)		74,403								74,403

(1)	The adjustments represent the amortization of deferred stock compensation related to stock options and restricted stock units assumed or granted.
(2)	The adjustments represent the amortization of purchased technology and other intangibles related to the acquisition Taqua, VocalData, Steleus and majority interest in Santera.
(3)	The adjustment represents restructuring and other costs related to the relocation of our Corporate headquarters and Hyannis facilities.
(4)	The adjustment represents acquired in-process research and development relating to the acquisition of iptelorg.
(5)	The adjustment represents the a realized loss on the sale of Santera’s holdings of Alcatel shares received in conjunction with warrants exercised in December 2004.

(6)	The adjustments represent the income tax effect of footnotes (1), (2), (3), (4) and (5) in order to reflect our non-GAAP effective tax rate at 35% for the Tekelec business, excluding Santera.
(7)	The adjustment represents the minority interest impact of footnote (2) and (4).
(8)	For the nine months ended September 30, 2005, calculations of earnings per share include the add-back to net income of $1,743 for assumed after-tax interest cost related to the convertible debt using the “if-converted” method of accounting for diluted earnings per share. The weighted average number of shares outstanding for the nine months ended September 30, 2005 includes 6,361 shares related to the convertible debt using the “if-converted” method.

TEKELEC
IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME
(unaudited)

	Nine Months Ended September 30, 2004
	(thousands, except earnings per share data)
									Non-
	GAAP					Adjustments			GAAP
Revenues	$	281,124				$	—		$	281,124
Costs and expenses:
Cost of goods sold		69,022					(9	)(1) (2)		69,013
Amortization of purchased technology		6,953					(6,339	)(2)		614
Total cost of sales		75,975					(6,348	)		69,627
Gross profit		205,149		73.0	%		6,348			211,497	75.2	%
Research and development		70,249					(232	)(1)		70,017
Selling, general and administrative		108,039					(563	)(1)		107,476
Acquired in-process research and development		10,400					(10,400	)(2)		—
Amortization of intangibles		1,704					(1,704	)(2)		—
Restructuring		1,327					(1,327	)(3)		—
Total operating expenses		191,719					(14,226	)		177,493
Income from operations		13,430					20,574			34,004
Interest and other income, net		152					—			152
Gain on note receivable		2,186					(2,186	)(4)		—
Gain on investment in privately-held company		9,869					(9,869	)(5)		—
Income before provision for income taxes		25,637					8,519			34,156
Provision for income taxes		27,078					(1,951	) (6)		25,127
Income (Loss) before minority interest		(1,441	)				10,470			9,029
Minority Interest		25,723					(2,385	)(7)		23,338
Net Income	$	24,282					8,085		$	32,367
Earnings per share
Basic	$	0.39							$	0.52
Diluted (8)		0.36								0.48
Earnings per share weighted average number of shares outstanding:
Basic		62,554								62,554
Diluted (8)		71,801								71,801

(1)	The adjustments represent the amortization of deferred stock compensation related to the unvested portion of stock options granted as part of the Taqua acquisition.
(2)	The adjustments represent the amortization of purchased technology and other intangibles related to the acquisition of IEX, Santera, Taqua and VocalData and the write-off of in-process research and development related to the acquisition of Taqua and VocalData.
(3)	The adjustment represents restructuring costs related to the relocation of our manufacturing operation.
(4)	The adjustment represents a gain on the settlement of our convertible notes receivable from Catapult.
(5)	The adjustment represents a gain on the sale of our investment in Telica.

(6)	The adjustments represent the income tax effects of footnotes (1), (2), (3), (4) and (5) in order to reflect our non-GAAP effective tax rate at 35% for the Tekelec business, excluding Santera.
(7)	The adjustment represents the minority interest impact of footnote (2).
(8)	For the nine months ended September 30, 2004, calculations of earnings per share include the add-back to net income of $1,743 for assumed after-tax interest cost related to the convertible debt using the “if-converted” method of accounting for diluted earnings per share. The weighted average number of shares outstanding for the nine months ended September 30, 2004 includes 6,361 shares related to the convertible debt using the “if-converted” method.