Document:

EXHIBIT 10.3

                                     TEKELEC

                       NONSTATUTORY STOCK OPTION AGREEMENT

      Tekelec, a California corporation (the "Company"), hereby enters into this
Nonstatutory Stock Option Agreement (this "Option Agreement") with Daniel B.
Walters (the "Optionee") effective as of the 18th day of January, 2002, whereby
the Company grants to the Optionee the right and option to purchase an aggregate
of 180,000 shares of Common Stock (the "Shares") of the Company.

      1. Nature of the Option. This Option is intended to be a nonstatutory
stock option and is not intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or to otherwise qualify for any special tax benefits to the Optionee.

      2. Exercise Price. The exercise price is $19.21 per Share, which price is
not less than 100% of the fair market value thereof on the date of the grant.

      3. Method of Payment. The consideration to be paid for the Shares to be
issued upon exercise of this Option shall consist entirely of cash or check
payable to the Company.

      4. Exercise of Option. This Option shall be exercisable during its term
only in accordance with the terms and provisions of this Option Agreement as
follows:

            (a) This Option shall vest and become exercisable cumulatively as to
45,000 Shares on January 7, 2003 and as to the remaining 135,000 Shares in 12
equal quarterly installments of 11,250 shares each, with the first of such
installments vesting on June 30, 2003 and one additional installment vesting on
the last day of each calendar quarter thereafter, as long as the Optionee
continues to serve as an employee of the Company. The Optionee may exercise the
exercisable portion of this Option in whole or in part at any time during his
employment provided he has been in continuous employment with the Company since
the grant of this Option; provided, however, that the Option may not be
exercised for a fraction of a Share. In the event of the Optionee's termination
of employment with the Company or disability or death, the provisions of
Sections 6 or 7 below, as applicable, shall apply to the right of the Optionee
to exercise this Option.

            (b) This Option shall be exercisable by written notice which shall
state the election to exercise this Option, the number of Shares in respect to
which this Option is being exercised and such other representations and
agreements as may be required by the Company. Such written notice shall be
signed by the Optionee and shall be delivered in person or by certified mail to
the Secretary of the Company or such other person as may be designated by the
Company. The written notice shall be accompanied by payment of the purchase
price and an executed Notice of Exercise of Stock Option in the form attached
hereto. As soon as practicable after any proper exercise of this Option in
accordance with the provisions hereof, the Company shall deliver to the Optionee
at the principal executive office of the Company or such other place

<PAGE>

                                                                    EXHIBIT 10.3

as shall be mutually agreed upon between the Company and the Optionee, a
certificate or certificates representing the Shares for which the Option shall
have been exercised. The certificate or certificates for the Shares as to which
this Option is exercised shall be registered in the name of the Optionee.

            (c) No rights of a shareholder shall exist with respect to the
Shares under this Option as a result of the mere grant of this Option or the
exercise of this Option. Such rights shall exist only after issuance of a stock
certificate in accordance with Section 4(b) hereof.

      5. Restrictions on Exercise. This Option may not be exercised if the
issuance of Shares upon the Optionee's exercise or the method of payment of
consideration for such Shares would constitute a violation of any applicable
Federal or state securities law or other applicable law or regulation. As a
condition to the exercise of this Option, the Company may require the Optionee
to make any representation and warranty to the Company as may be required by any
applicable law or regulation.

      6. Termination of Employment. If the Optionee ceases to serve as an
employee of the Company for any reason other than death or permanent and total
disability (within the meaning of Section 22(e)(3) of the Code) and thereby
terminates his continuous status as an employee of the Company, the Optionee
shall have the right to exercise this Option at any time within three months
after the date of such termination to the extent that the Optionee was entitled
to exercise this Option at the date of such termination. To the extent that the
Optionee was not entitled to exercise this Option at the date of termination, or
to the extent this Option is not exercised within the time specified herein,
this Option shall terminate. Notwithstanding the foregoing, this Option shall
not be exercisable after the expiration of the term set forth in Section 8
hereof.

      7. Death or Disability. If the Optionee ceases to serve as an employee of
the Company due to death or permanent and total disability (within the meaning
of Section 22(e)(3) of the Code), this Option may be exercised at any time
within six months after the date of death or termination of employment due to
disability, in the case of death, by the Optionee's estate or by a person who
acquired the right to exercise this Option by bequest or inheritance, or, in the
case of disability, by the Optionee, but in any case only to the extent the
Optionee was entitled to exercise this Option at the date of such termination.
To the extent that the Optionee was not entitled to exercise this Option at the
date of termination, or to the extent this Option is not exercised within the
time specified herein, this Option shall terminate. Notwithstanding the
foregoing, this Option shall not be exercisable after the expiration of the term
set forth in Section 8 hereof.

      8. Term of Option. This Option may not be exercised more than ten years
from the date of grant of this Option and may be exercised during such term only
in accordance with the terms of this Option Agreement. Notwithstanding any
provision herein with respect to the post-employment exercise of this Option,
this Option may not be exercised after the expiration of its term.

<PAGE>

                                                                    EXHIBIT 10.3

      9. Reservation of Shares. The Company covenants and agrees that all Shares
will, upon issuance and payment in accordance herewith, be fully paid, validly
issued and nonassessable. The Company further covenants and agrees that during
the term of this Option, the Company will at all times have authorized and
reserved for the purpose of issuance upon exercise of this Option at least the
maximum number of Shares as are issuable upon such exercise.

      10. Dissolution; Liquidation, Consolidation, Merger or Reclassification.
In the event that while the Optionee is an employee of the Company, the Company
proposes to dissolve or liquidate or to sell all or substantially all of its
assets (other than in the ordinary course of business), or to merge or
consolidate with or into another corporation as a result of which the Company is
not the surviving and controlling corporation, the Board of Directors shall (i)
make provision for the assumption of this Option by the successor corporation or
(ii) declare that this Option shall terminate as of a date fixed by the Board of
Directors which is at least 30 days after the notice thereof to the Optionee and
shall give the Optionee the right to exercise this Option as to all or any part
of the Shares, including Shares as to which this Option would not otherwise be
exercisable provided such exercise does not violate Section 8 hereof.

      11. Adjustment of Exercise Price and Number of Shares.

            (a) The number of Shares subject to this Option, as well as the
exercise price per Share hereunder shall be proportionately adjusted for any
increase or decrease in the number of issued shares of the Company's Common
Stock resulting from a stock split or combination or the payment of a stock
dividend (but only on the Company's Common Stock) or any other increase or
decrease in the number of issued shares of the Company's Common Stock effected
without receipt of consideration by the Company (other than stock awards to
employees or directors of the Company); provided, however, that the conversion
of any convertible securities of the Company shall not be deemed to have been
effected without the receipt of consideration. Such adjustment shall be
automatic and the form of this Agreement need not be changed because of any such
adjustment in the exercise price or in the number of Shares purchasable upon
exercise of all or any portion of this Option. Except as expressly provided
herein, no issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to this Option.

            (b) No fractional shares of Common Stock shall be issuable on
account of any action contemplated by Section 10 or Section 11(a) hereof, and
the aggregate number of shares into which Shares then covered by this Option,
when changed as the result of any such action, shall be reduced to the largest
number of whole shares resulting from such action, unless the Company's Board of
Directors, in its sole discretion, shall determine to issue scrip certificates
in respect to any fractional shares, which scrip certificates shall be in a form
and have such terms and conditions as the Board of Directors in its discretion
shall prescribe.

      12. Withholding upon Exercise of Option. The Company reserves the right to
withhold, in accordance with any applicable laws, from any consideration payable
to the

<PAGE>

                                                                    EXHIBIT 10.3

Optionee any taxes required to be withheld by Federal, state or local law as a
result of the grant or exercise of this Option or the sale or other disposition
of the Shares issued upon exercise of this Option. If the amount of any
consideration payable to the Optionee is insufficient to pay such taxes or if no
consideration is payable to the Optionee, upon the request of the Company, the
Optionee shall pay to the Company in cash an amount sufficient for the Company
to satisfy any Federal, state or local tax withholding requirements it may incur
as a result of the grant or exercise of this Option or the sale or other
disposition of the Shares issued upon the exercise of this Option.

      13. Nontransferability of Option. This Option may not be sold, pledged,
assigned, hypothecated, gifted, transferred or disposed of in any manner either
voluntarily or involuntarily by operation of law, other than by will or by the
laws of descent or distribution or transfer between spouses incident to a
divorce. Subject to the foregoing, the terms of this Option shall be binding
upon the executors, administrators, heirs, successors and assigns of the
Optionee.

      14. No Right of Employment. This Option shall not confer upon the Optionee
any right to continue in the employment of the Company or limit in any respect
the right of the Company to discharge the Optionee at any time, with or without
cause and with or without notice.

      15. Miscellaneous.

            (a) Successors and Assigns. This Option Agreement shall bind and
      inure only to the benefit of the parties to this Option Agreement (the
      "Parties") and their respective successors and assigns.

            (b) No Third-Party Beneficiaries. Nothing in this Option Agreement
      is intended to confer any rights or remedies on any persons other than the
      Parties and their respective successors or assigns. Nothing in this Option
      Agreement is intended to relieve or discharge the obligation or liability
      of third persons to any Party. No provision of this Option Agreement shall
      give any third person any right of subrogation or action over or against
      any Party.

            (c) Amendments.

                  (i) The Company reserves the right to amend the terms and
            provisions of this Option without the Optionee's consent to comply
            with any Federal or state securities law.

                  (ii) Except as specifically provided in subsection (i) above,
            this Option Agreement shall not be changed or modified, in whole or
            in part, except by supplemental agreement signed by the Parties.
            Either Party may waive compliance by the other Party with any of the
            covenants or conditions of this Option Agreement, but no waiver
            shall be binding unless executed in writing by the Party making the
            waiver. No waiver or any provision of this Option Agreement shall be
            deemed, or shall constitute, a waiver of any other provision,
            whether or not similar, nor shall any waiver constitute a continuing
            waiver. Any consent under this Option Agreement shall be in writing
            and shall be effective only to the extent specifically set forth in

<PAGE>

                                                                    EXHIBIT 10.3

            such writing. For the protection of the Parties, amendments, waivers
            and consents that are not in writing and executed by the Party to be
            bound may be enforced only if they are detrimentally relied upon and
            proved by clear and convincing evidence. Such evidence shall not
            include any alleged reliance.

            (d) Notice. Any notice, instruction or communication required or
      permitted to be given under this Option Agreement to either Party shall be
      in writing and shall be deemed given when actually received or, if
      earlier, five days after deposit in the United States mail by certified or
      express mail, return receipt requested, first class postage prepaid,
      addressed to the principal office of such Party or to such other address
      as such Party may request by written notice.

            (e) Governing Law. To the extent that Federal laws do not otherwise
      control, all determinations made or actions taken pursuant hereto shall be
      governed by the laws of the State of California, without regard to the
      conflict of laws rules thereof.

            (f) Entire Agreement. This Option Agreement constitutes the entire
      agreement between the Parties with regard to the subject matter hereof.
      This Option Agreement supersedes all previous agreements between the
      Parties, and there are now no agreements, representations, or warranties
      between the Parties, other than those set forth herein.

            (g) Severability. If any provision of this Option Agreement or the
      application of such provision to any person or circumstances is held
      invalid or unenforceable, the remainder of this Option Agreement, or the
      application of such provision to persons or circumstances other than those
      as to which it is held invalid or unenforceable, shall not be affected
      thereby.

         IN WITNESS WHEREOF, this Option Agreement has been duly executed on
behalf of the Company by an authorized representative of the Company and by the
Optionee as of the date and year first written above.

DATE OF GRANT: January 18, 2002        Tekelec

                                       By: /s/ Michael L. Margolis
                                           -------------------------------------
                                           Michael L. Margolis
                                           President and Chief Executive Officer

                                       /s/ Daniel B. Walters
                                           -------------------------------------
                                           Daniel B. Walters

<PAGE>

                                                                    EXHIBIT 10.3

      THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXECUTION OF
THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE,
TRANSFER OR DISTRIBUTION THEREOF. NO SUCH SALE, TRANSFER OR DISTRIBUTION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.

<PAGE>

                                                                    EXHIBIT 10.3

                                     TEKELEC

                 NOTICE OF EXERCISE OF NONSTATUTORY STOCK OPTION
                 -----------------------------------------------

      I, Daniel B. Walters ("Optionee"), hereby agree, represent and warrant to
Tekelec (the "Company") as follows:

      1.    I was granted a Nonstatutory Stock Option (the "Option") on January
            18, 2002.

      2.    Pursuant to the Option, I was granted the right to purchase 180,000
            shares of the Company's Common Stock (the "Optioned Shares").

      3.    I am eligible to exercise the Option.

      4.    I hereby elect to exercise the Option to purchase _________ of such
            Optioned Shares (the "Shares") at U.S.$19.21 per share, for an
            aggregate purchase price of U.S.$_________.

      5.    Payment of Purchase Price (please check applicable box):

            |_|   This Notice of Exercise is accompanied by a check representing
                  payment in full of the purchase price for the Shares plus all
                  applicable withholding taxes.

                  OR

            |_|   This exercise is a "cashless exercise" effected through my
                  broker. Payment in full for the Shares (including all
                  applicable withholding taxes) in the form of a check will be
                  transmitted by my broker to the Company.

      6.    In connection with my exercise of the Option, I have received a copy
            of any Prospectus of the Company's relating to the shares of the
            Company's Common Stock issuable under the Option.

Dated: _______, 200__                           OPTIONEE

                                            Signature:
----------------------                                 -------------------------
Social Security Number                                 Daniel B. Walters

                                            Address:
                                                     ---------------------------

                                            ------------------------------------

                                            ------------------------------------

================================================================================

Received on behalf of Tekelec on ____________________, 200__.

                                            Signature:
                                                      --------------------------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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