TEKELEC
AGREEMENT TO  MEDICAL STOCK OPTION BENEFITS
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>6
<FILENAME>d50618_ex10-4.txt
<DESCRIPTION>AGREEMENT TO  MEDICAL STOCK OPTION BENEFITS
<TEXT>

                                                                    EXHIBIT 10.4

                  AGREEMENT TO PROVIDE RETIREE MEDICAL BENEFITS
                            AND STOCK OPTION BENEFITS

      THIS AGREEMENT, made as of January 3, 2002, by and between Tekelec, a
California corporation ("Company"), and its successors and assigns and Michael L
Margolis;

      WHEREAS, the Company has established a plan that provides group health
coverage (the "Tekelec Health Plan") to employees of the Company;

      WHEREAS, Mr. Margolis is the Chief Executive Officer and President of the
Company ("CEO");

      WHEREAS, Mr. Margolis is a participant in the Tekelec Health Plan;

      WHEREAS, the Company intends to provide medical, dental, and vision
benefits to Mr. Margolis and his family in accordance with the terms of this
Agreement after he is no longer employed by the Company and to continue such
coverage for Mr. Margolis' life;

      WHEREAS, the Company may grant Mr. Margolis additional stock options from
time to time after the date of this Agreement; and

      WHEREAS, the Company wants to ensure that all future stock option
agreements granting Mr. Margolis stock options will provide that such options
will, upon a Qualifying Retirement (as defined herein), immediately vest and be
exercisable for the full term of the option.

      NOW, THEREFORE, in consideration of these premises and the mutual promises
and agreements set forth in this Agreement, the parties agree as follows:

                           ARTICLE I. HEALTH BENEFITS.

A. Eligibility. Mr. Margolis, his lawful spouse at the time of Mr. Margolis'
termination of employment with the Company ("Mr. Margolis' Spouse") and his
dependants, if any, eligible for coverage and benefits under the Tekelec Health
Plan at that time of Mr. Margolis' termination of employment with the Company
(the "Dependents") (collectively "Mr. Margolis' Family") will receive medical,
dental and vision benefits under Article I of this Agreement (the "Health
Benefits") upon Mr. Margolis' termination of employment with the Company for any
reason, so long as Mr. Margolis' termination of employment with the Company
occurs after February 16, 2003. If such termination of employment occurs on or
before February 16, 2003, Mr. Margolis, Mr. Margolis' Spouse and his Dependents
will receive no benefits under Article I of this Agreement.

<PAGE>

                                                                    EXHIBIT 10.4

      1. Duration of Mr. Margolis' Coverage. Health Benefits for Mr. Margolis
      shall continue until Mr. Margolis' death.

      2. Duration of Mr. Margolis' Spouse's Coverage. Health Benefits for Mr.
      Margolis' Spouse shall continue until the earliest of (a) the death of Mr.
      Margolis, (b) the legal separation or divorce of Mr. Margolis and Mr.
      Margolis' Spouse, or (c) the death of Mr. Margolis' Spouse.

      3. Duration of Mr. Margolis' Dependents' Coverage. Health Benefits for the
      Dependents will continue until the earlier of: (a) such Dependent no
      longer meets the eligibility requirements under the Tekelec Health Plan as
      those eligibility requirements are in effect from time to time following
      Mr. Margolis' qualifying termination of employment from the Company, or
      (b) the death of Mr. Margolis.

B. Health Benefits. For purposes of this Agreement, the Company will provide, as
the Health Benefits provided under Article I.A. of this Agreement, the medical,
dental, and vision benefits and coverage provided under the Tekelec Health Plan
to the CEO of the Company. If the Company stops providing such benefits to its
employees, the Company is required to obtain and provide an arrangement that
will provide similar Health Benefits, and in no circumstances less Health
Benefits, to Mr. Margolis' Family as those that were provided immediately before
the Company stopped providing such benefits to its employees.

The Company will purchase benefits provided under this Article through a health
coverage provider, as long as the Company determines (1) the cost of such
coverage is reasonable to fulfill the requirements under this Agreement and (2)
the coverage provided complies with the requirements of this Agreement. If the
Company does not provide coverage through a health coverage provider, the
Company will self-insure such coverage.

C. Funding. Mr. Margolis will contribute to the cost of Health Benefits under
this Article at the same rate and on the same terms and conditions as the CEO
and other senior executives of the Company contribute for similar health
coverage under the Tekelec Health Plan. The Company shall contribute any
additional amounts, as necessary, to cover the cost of the Health Benefits
provided under this Agreement.

D. Election for Health Benefits. Mr. Margolis will have the opportunity to make
elections for Health Benefits for Mr. Margolis' Family in the same manner and
frequency as the CEO and other senior executives of the Company may under the
Tekelec Health Plan. In the event the Company stops providing medical, dental
and vision benefits for its employees, Mr. Margolis shall be able to change
elections for the Health Benefits no less frequently than annually.

<PAGE>

                                                                    EXHIBIT 10.4

E. Coordination of Benefits. For purposes of Article I.F., the following
definitions shall be used.

      1. "Group Plan" means any group or group-type arrangement of coverage,
      including benefits associated with this Article I, whether insured or
      uninsured, which provides health benefits or services to a member of Mr.
      Margolis' Family, either by indemnity or prepaid services, by means of (i)
      group or blanket insurance, (ii) franchise insurance that terminates upon
      cessation of employment, (iii) group hospital or medical service plans and
      other group prepayment coverage, or (iv) any coverage under
      labor-management trusteed arrangements, union medical arrangements,
      employer organization arrangements, government benefit arrangements or
      government programs (excluding Medicare).

      2. "Allowable Expenses" means any necessary, reasonable, and customary
      item of expense for health care when the item of expense is covered at
      least in part by one or more Group Plans covering a member of Mr.
      Margolis' Family for whom claim is made. An Allowable Expense does not
      include (i) differences between the cost of an average semiprivate
      hospital room and a private hospital room unless the private hospital room
      is medically necessary (as defined in the insurance policy), or (ii) the
      amount of any reduction in benefits because a member of Mr. Margolis'
      Family does not comply with the Group Plan provisions.

      3. "Primary Plan" means the Group Plan whose medical, dental and vision
      benefits for a member of Mr. Margolis' Family must be determined without
      consideration of the existence of any other plan.

      4. "Secondary Plan" means a Group Plan which is not a Primary Plan. If a
      member of Mr. Margolis' Family is covered by more than one Secondary Plan,
      the order of benefit determination rules decide the order in which their
      benefits are determined in relation to each other.

F. Coordination with Other Group Plans. If Mr. Margolis or Mr. Margolis' Family
are eligible for benefits under this Article and under one or more Group Plans,
the benefits of this Agreement shall be coordinated and determined by the
provisions of this Section. This Section is intended to prevent the payment of
benefits that exceed Allowable Expenses. Coordination of benefits under this
Agreement will normally be controlled by the insurance policy providing such
coverage, but notwithstanding any other provisions of the Agreement or any
associated insurance policy, Article I.F.1. and 2. shall control determinations
of coordination of benefits to the extent applicable.

      1. If Mr. Margolis is covered under a Group Plan as an employee, benefits
      under the Group Plan shall be treated as the Primary Plan, and benefits
      provided under this Article shall be treated as the Secondary Plan.

<PAGE>

                                                                    EXHIBIT 10.4

      2. If Mr. Margolis is (i) covered by a Group Plan, other than as a result
      of this Agreement, as a retiree (the "Retiree Group Plan") and (ii)
      coverage under the Retiree Group Plan provides equivalent or greater
      benefits than benefits under this Article, the Retiree Group Plan shall be
      treated as the Primary Plan, and benefits provided under this Article
      shall be treated as the Secondary Plan. If the Retiree Group Plan does not
      provide equivalent or greater benefits than the benefits provided under
      this Article, the benefits under this Article shall be treated as the
      Primary Plan, and the Retiree Group Plan shall be treated as the Secondary
      Plan.

                            ARTICLE II. STOCK OPTIONS

A. Accelerated Vesting. Any stock option agreement between the Company and Mr.
Margolis executed after the effective date of this Agreement shall provide to
the effect that:

            Upon Mr. Margolis' "Qualifying Retirement" (as such term is defined
            below) for any reason other than a termination by the Company for
            "Cause" (as such term is defined in Section 2(d)(ii) through (xi) of
            the Company's Officer Severance Plan, as amended), the options, to
            the extent unvested as of the effective date of Mr. Margolis'
            Qualifying Retirement, shall immediately vest and become exercisable
            in full. For purposes hereof, the term "Qualifying Retirement" shall
            mean the termination of the Mr. Margolis' employment with the
            Company at or after age 55 with not less than five years of
            continuous employment as an employee of the Company.

B. Extension of Exercise Period. Any stock option agreement between the Company
and Mr. Margolis executed after the effective date of this Agreement shall
provide to the effect that:

            Upon Mr. Margolis' Qualifying Retirement for any reason other than a
            termination by the Company for "Cause" (as such term is defined in
            Section 2(d)(ii) through (xi) of the Company's Officer Severance
            Plan, as amended), an option, exercisable on such Qualifying
            Retirement date or as a result of his Qualifying Retirement, that
            would otherwise subsequently cease to be exercisable pursuant to the
            terms of the stock option agreement before the expiration of the
            option's full term, shall continue to be exercisable until the
            expiration of the option's full term.

                           ARTICLE III. MISCELLANEOUS

A. Information to be Furnished. Mr. Margolis shall provide the Company with such
information and evidence as may reasonably be requested from time to time for
the purpose of complying with the Agreement.

<PAGE>

                                                                    EXHIBIT 10.4

B. Limitation of Rights. Neither the establishment of this Agreement, nor any
amendment of the Agreement, nor the payment of any benefits shall be construed
as giving to Mr. Margolis or other person any legal or equitable right against
the Company or its respective officers and directors, as an employee or
otherwise, except as expressly provided in this Agreement, and in no event will
the terms of employment or service of Mr. Margolis be modified or in any way
affected by this Agreement.

C. Benefits Not Solely from Policy. Except as required by law, applicable
regulation or elsewhere in this Agreement, the benefits provided under Article I
of this Agreement shall be paid first from an insurance policy (or an
arrangement having the effect of an insurance policy). If there is no such
policy or other arrangement, benefits payable under this Agreement shall be paid
from the general assets of the Company. Nothing in this Agreement shall be
construed to require (except as required by law and applicable regulation) the
Company to maintain any fund or segregate any amount for the benefit of Mr.
Margolis or Mr. Margolis' Family.

D. Nonassignability of Rights. The right of a member of Mr. Margolis' Family to
receive any reimbursement under the Agreement shall not be alienable by such
member by assignment or any other method and shall not be subject to being taken
by the member's creditors by any process whatsoever, and any attempt to cause
such right to be so subjected will not be recognized, except to such extent as
may be required by law.

E. Severability. If any provision of this Agreement is held invalid,
unenforceable or inconsistent with any law, regulation or requirement, its
invalidity, unenforceability or inconsistency shall not affect any other
provision of the Agreement, and the Agreement shall be construed and enforced as
if such provision were not a part of the Agreement.

F. Construction of Terms. Words of gender shall include persons and entities of
any gender, the plural shall include the singular and the singular shall include
the plural. Section headings exist for reference purposes only and shall not be
construed as part of the Agreement.

G. Choice of Law/Jurisdiction and Venue. THIS AGREEMENT SHALL BE CONSTRUED,
ADMINISTERED, AND GOVERNED IN ALL RESPECTS (i) UNDER APPLICABLE FEDERAL LAW,
INCLUDING, WITHOUT LIMITATION, THE PROVISIONS OF ERISA AND THE INTERNAL REVENUE
CODE OF 1986 (AS AMENDED) AND RELEVANT INTERPRETATIONS OF BOTH, AND (ii) TO THE
EXTENT NOT PREEMPTED BY FEDERAL LAW, UNDER THE LAWS OF THE STATE OF CALIFORNIA.
EXCLUSIVE JURISDICTION AND VENUE OF ALL DISPUTES ARISING OUT OF OR RELATING TO
THIS PLAN SHALL BE IN ANY COURT OF APPROPRIATE JURISDICTION IN LOS ANGELES
COUNTY, CALIFORNIA. THE PROVISIONS OF THIS SECTION SHALL SURVIVE AND REMAIN IN
EFFECT UNTIL ALL OBLIGATIONS ARE SATISFIED, NOTWITHSTANDING ANY TERMINATION OF
THE PLAN.

<PAGE>

                                                                    EXHIBIT 10.4

H. No Vested Interest. Except for the right to receive any benefit payable under
this Agreement in regard to a previously incurred claim, no person shall have
any right, title, or interest in or to the assets of the Company because of this
Agreement.

I. No Guarantee of Employment. Nothing in this Plan shall be construed as a (i)
contract of employment between the Company and Mr. Margolis, (ii) guarantee that
Mr. Margolis will be continued in the employment or service of the Company, or
(iii) limitation on the right of the Company to discharge any of its employees
with or without cause.

All employment with the Company is "at-will," which means that Mr. Margolis may
resign at any time with or without notice and that the Company reserves the
right to terminate Mr. Margolis' employment or alter his position, duties, or
title, with or without notice, for any or no particular reason or cause. While
the terms of Mr. Margolis' employment and compensation may be subject to review
and will change from time to time, the at-will nature of his employment with the
Company is not changed by this Agreement and may only be changed by a resolution
duly approved by the Company's Board of Directors.

J. Adoption by Successor Employer or Affiliates. In the event of the
reorganization, purchase, merger, dissolution, or reconstitution, whether direct
or indirect, of the Company, any successor entity shall be required to adopt and
continue this Agreement; in which event, the Agreement shall continue without
any gap or lapse in coverage or benefits. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle Mr. Margolis, Mr. Margolis'
Spouse and Dependents at that time to pursue all remedies that they may be
entitled to at law or in equity.

      The Company shall pay to each member of Mr. Margolis' Family all legal
fees and expenses incurred by that individual, if any, in successfully seeking
to obtain or enforce any right, coverage or benefit provided under this
Agreement.

K. Entire Agreement. This Agreement constitutes the entire agreement existing
between or among the parties respecting the subject matter addressed and
supercedes any and all prior agreements, arrangements and understandings
relating to the matters provided for herein, and no party shall be entitled to
benefits other than those specified in this Agreement. As between or among the
parties, no oral statements or prior written material not specifically
incorporated in this Agreement shall be of any force and effect. The parties
specifically acknowledge that in entering into and executing this Agreement, the
parties rely solely upon the representations and agreements contained in this
Agreement and no others. All prior representations or agreements, whether
written or verbal, not expressly incorporated in this Agreement are superseded,
and no changes in or additions to this Agreement shall be recognized unless and
until made in writing and signed by all parties to the Agreement.


<PAGE>

                                                                    EXHIBIT 10.4

L. Legal Advice. Both the Company and Mr. Margolis have received (or have
voluntarily and knowingly elected not to receive) independent legal 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.

      IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.


                  TEKELEC


By: /s/ Ronald W. Buckly                         By: /s/ Michael L. Margolis
    ------------------------------               -------------------------------
    Ronald W. Buckly                             Michael L. Margolis
    Vice President and General Counsel

<PAGE>

                                                                    EXHIBIT 10.4

                             AMENDMENT NO. 1 TO THE
                  AGREEMENT TO PROVIDE RETIREE MEDICAL BENEFITS
                            AND STOCK OPTION BENEFITS

      This Amendment No. 1 to the Agreement to Provide Retiree Medical Benefits
and Stock Option Benefits is entered into effective as of February 1, 2002 (the
"Effective Date") by and between TEKELEC, a California corporation (the
"Company"), and Michael L. Margolis (Mr. Margolis").

                                    Recitals

A.    The Company and Mr. Margolis have entered into that certain Agreement to
      Provide Retiree Medical Benefits and Stock Option Benefits (the
      "Agreement") in January 2002, to provide, among other things, certain
      stock option benefits to Mr. Margolis upon a Qualifying Retirement (as
      such term is defined in the Agreement) by Mr. Margolis.

B.    The Company and Mr. Margolis wish to amend Article II.A. of the Agreement
      to modify the Company's obligations to accelerate the vesting of certain
      of Mr. Margolis' stock options upon his Qualifying Retirement.

                                    Amendment

            NOW, THEREFORE, for valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follows:

1.    Effective the Effective Date, Article II.A. of the Agreement shall be
      amended to read in its entirety as follows:

      "A. Accelerated Vesting. Any stock option agreement between the Company
      and Mr. Margolis evidencing a stock option granted by the Company to Mr.
      Margolis on or after February 1, 2002, shall provide to the effect that:

            Upon Mr. Margolis' "Qualifying Retirement" (as such term is defined
            below) for any reason other than a termination by the Company for
            "Cause" (as such term is defined in Section 2(d)(ii) through (xi) of
            the Company's Officer Severance Plan, as amended), the first four
            vesting installments of the options (or such other number of vesting
            installments as is expressly set forth in a resolution duly adopted
            by the Board of Directors or the Compensation Committee of such
            Board) covering at least 25% of the shares subject to such options,
            to the extent unvested as of the effective date of Mr. Margolis'
            Qualifying Retirement, shall immediately vest and become exercisable
            in full.

<PAGE>

                                                                    EXHIBIT 10.4

            For purposes hereof, the term "Qualifying Retirement" shall mean the
            termination of the Mr. Margolis' employment with the Company at or
            after age 55 with not less than five years of continuous employment
            as an employee of the Company."

2.    Both the Company and Mr. Margolis have received (or have voluntarily and
      knowingly elected not to receive) independent legal 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.

3.    Except as otherwise expressly amended herein, all other terms and
      provisions of the Agreement shall remain in full force and effect.

            IN WITNESS WHEREOF, this Amendment is executed effective as of the
Effective Date.

TEKELEC


By: /s/ Ronald W. Buckly                            /s/ Michael L. Margolis
    ---------------------------------------         --------------------------
        Ronald W. Buckly                                Michael L. Margolis
        Vice President and General Counsel


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