TANDEM COMPUTERS INC /DE/, DEF 14A, 1995-12-08

TANDEM COMPUTERS INC /DE/
DEF 14A, 1995-12-08
ELECTRONIC COMPUTERS

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<PAGE> 1
SCHEDULE 14A

(Paragraph 40,151) Information Required in Proxy Statement
Reg. Section 240.14a-101.

SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )

Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12

Tandem Computers Incorporated
---------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

---------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
[x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.

[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

1) Title of each class of securities to which transaction applies:

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

2) Aggregate number of securities to which transaction applies:

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

3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):

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

4) Proposed maximum aggregate value of transaction:

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

5) Total fee paid:

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

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.

1) Amount Previously Paid:
<PAGE> 2

[TANDEM LOGO]

December 15, 1995

Dear Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders
which will be held on Tuesday, January 30, 1996, at 10:00 A.M., at the offices
of the Company at 10435 N. Tantau Avenue, Cupertino, California.

The Notice of the Annual Meeting and the Proxy Statement have been made a
part of this invitation.

After reading the Proxy Statement, please mark, date, sign, and return, at
an early date, the enclosed proxy in the prepaid envelope, to assure that your
shares will be represented. YOUR SHARES CANNOT BE VOTED UNLESS YOU DATE, SIGN,
AND RETURN THE ENCLOSED PROXY OR ATTEND THE ANNUAL MEETING IN PERSON.

A copy of the Company's Annual Report to Stockholders is also enclosed.

The Board of Directors and Management look forward to seeing you at the
Annual Meeting.

Sincerely yours,

THOMAS J. PERKINS JAMES G. TREYBIG
Chairman of the Board President and Chief Executive Officer

<PAGE> 3

TANDEM COMPUTERS INCORPORATED
------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 30, 1996
------------------

The Annual Meeting of Stockholders of Tandem Computers Incorporated (the
"Company") will be held at the offices of the Company at 10435 N. Tantau Avenue,
Cupertino, California, on January 30, 1996, at 10:00 A.M., for the following
purposes:

1. To elect one Class I Director to hold office until 1999.

2. To consider and vote upon a proposal to amend the Tandem Computers
Incorporated Employee Stock Purchase Plan to increase the number of
shares of Common Stock available for issuance under the Plan.

3. To consider and vote upon a stockholder proposal that recommends the
Board of Directors redeem the Common Stock Purchase Rights held by
stockholders under the Company's First Amended and Restated Rights
Agreement.

4. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors.

5. To transact such other business as may properly come before the
Meeting and any adjournment or postponement of the Meeting.

The Board of Directors has fixed the close of business on December 4, 1995,
as the record date for determining the stockholders entitled to notice of and to
vote at the Meeting and any adjournment or postponement of the Meeting. A
complete list of stockholders entitled to vote will be available at the
Secretary's office, 10435 N. Tantau Avenue, Cupertino, California, for 10 days
before the Meeting.

IF YOU DO NOT EXPECT TO ATTEND IN PERSON, PLEASE PROMPTLY MARK, DATE, SIGN,
AND RETURN THE ENCLOSED PROXY.

JOSEPHINE T. PARRY
Secretary

December 15, 1995
<PAGE> 4

TANDEM COMPUTERS INCORPORATED

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

PROXY STATEMENT

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

This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Tandem Computers Incorporated, a Delaware corporation
(the "Company"), with principal executive offices at 19333 Vallco Parkway,
Cupertino, California 95014, of proxies in the accompanying form to be used at
the Annual Meeting of Stockholders to be held on January 30, 1996, and any
adjournment or postponement of the Annual Meeting. The shares represented by the
proxies received in response to this solicitation and not revoked will be voted
at the Annual Meeting. A proxy may be revoked at any time before it is exercised
by submitting a later-dated proxy or by voting in person at the Annual Meeting.
On the matters coming before the Annual Meeting for which a choice has been
specified by a stockholder by means of the ballot on the proxy, the shares will
be voted accordingly. If no choice is specified, the shares will be voted FOR
the election of the one nominee for director listed in this Proxy Statement, FOR
approval of the proposal to amend the Employee Stock Purchase Plan to increase
the number of shares available under the Plan, AGAINST approval of a stockholder
proposal to redeem the Common Stock Purchase Rights, and FOR ratification of the
appointment of Ernst & Young LLP as the Company's independent auditors.

Stockholders of record at the close of business on December 4, 1995, are
entitled to notice of and to vote at the Annual Meeting. On December 4, 1995,
the Company had 117,003,559 shares of Common Stock outstanding. Each holder of
Common Stock is entitled to one vote for each share held as of the record date,
except that in voting for directors, each stockholder is entitled to cumulate
votes for the election of directors whose names have been placed in nomination;
that is, a stockholder may cast as many votes as there are directors to be
elected multiplied by the number of shares which the stockholder holds. All such
votes may be cast for one candidate or distributed among the nominees for
director as the stockholder sees fit. The persons authorized to vote shares
represented by executed proxies in the enclosed form (if authority to vote for
the election of directors is not withheld) will have full discretion and
authority to vote cumulatively and to allocate votes among any or all of the
nominees for election to the Board of Directors as they may determine or, if
authority to vote for a specified candidate or candidates has been withheld,
among those nominees for whom authority to vote has not been withheld. A
majority of the outstanding shares will constitute a quorum at the meeting.
Abstentions and broker non-votes are counted for purposes of determining the
presence or absence of a quorum for the transaction of business. Abstentions are
counted in tabulations of the votes cast on proposals presented to stockholders,
whereas broker non-votes are not counted for the purposes of determining whether
a proposal has been approved.

The expense of printing and mailing proxy materials will be borne by the
Company. In addition to the solicitation of proxies by mail, solicitation may be
made by certain directors, officers, and other employees of the Company by
personal interview, telephone, or telegraph. No additional compensation will be
paid to such persons for such solicitation. The Company has also engaged Morrow
& Co., Inc., to assist in the solicitation of proxies and will pay this firm a
fee of approximately $6,000.00 plus expenses. The Company will reimburse
brokerage firms and others for their reasonable expenses in forwarding
solicitation materials to beneficial owners of the Company's Common Stock.

This Proxy Statement and the accompanying form of proxy are being mailed to
stockholders on or about December 15, 1995.

IMPORTANT

PLEASE MARK, DATE, AND SIGN THE ENCLOSED PROXY, AND RETURN IT AT AN EARLY DATE
IN THE ENCLOSED POSTAGE-PREPAID RETURN ENVELOPE SO THAT, IF YOU ARE UNABLE TO
ATTEND THE ANNUAL MEETING, YOUR SHARES MAY BE VOTED.
<PAGE> 5

ELECTION OF DIRECTORS

The Company has three classes of directors serving staggered three-year
terms. One Class I director is to be elected at the Annual Meeting for a
three-year term expiring on the date of the Annual Meeting in 1999 or until such
director shall resign or until his successor shall have been duly elected or
appointed.

On October 26, 1995, Mr. Robert C. Marshall, Director and Senior Vice
President and Chief Operating Officer of the Company, announced he would be
retiring on December 31, 1995, and that he would not be running for re-election
as a Class I director. Sir Campbell Fraser announced to the Board of Directors
on November 13, 1995, that he would not be standing for re-election as a Class I
director. On November 6, 1995, Mr. Thomas I. Unterberg submitted his resignation
as a Class II director effective immediately. In accordance with the Company's
Restated Certificate of Incorporation and By-Laws, on November 14, 1995, the
Board of Directors reduced the authorized number of directors from 11 to nine
pending identifying qualified candidates to fill the vacancies left by the
recent retirement and resignations. Currently there are eight directors and one
vacancy.

Unless authority to vote for directors is withheld, it is intended that the
shares represented by the enclosed proxy will be voted for the election of Mr.
Morton Collins as a Class I director. Mr. Collins is currently a member of the
Board of Directors of the Company. In the event Mr. Collins becomes unable or
unwilling to serve, the shares represented by the enclosed proxy (unless
otherwise indicated on such proxy) will be voted for such other person as the
Board of Directors may select. The Board of Directors has no reason to believe
that Mr. Collins will be unable or unwilling to serve.

Set forth below are the names and ages of the nominee and directors, the
class to which each has been elected or nominated for election, their principal
occupations at present and for the past five years, certain directorships held
by each, and the year in which each became a director of the Company.
Information with respect to the Company includes the Company's predecessor
California corporation.

2
<PAGE> 6

<TABLE>
<CAPTION>
NAME AND PRINCIPAL OCCUPATION AT PRESENT AND DIRECTOR
FOR THE PAST FIVE YEARS; DIRECTORSHIPS SINCE AGE
- ----------------------------------------------------------------------------- -------- ---
<S> <C> <C>
Thomas J. Perkins(2)(3)...................................................... 1974 63
Chairman of the Board of the Company since 1974; General Partner of Kleiner
& Perkins, Kleiner Perkins Caufield & Byers, Kleiner Perkins Caufield &
Byers II, Kleiner Perkins Caufield & Byers III, and Kleiner Perkins
Caufield & Byers IV, San Francisco, California, private investment
partnerships, since 1972, 1978, 1980, 1982, and 1986, respectively.
CLASS III
Vera Stephanie Shirley(2).................................................... 1992 62
Life President of F.I. Group, PLC, a computer services, training and
recruitment company, since 1962; Master of the Worshipful Company of
Information Technologist, 1992 through 1993; Director of AEA Technology
and UK Atomic Energy Authority; Chair, The Kingwood Trust.
Robert G. Stone, Jr.(3)...................................................... 1978 72
Chairman Emeritus and Director of the Board of Kirby Corporation, a
diversified corporation engaged, through its subsidiaries, in inland and
offshore transportation and diesel repairs, since 1983; Director of BHP
Petroleum Company, The Chubb Corporation, Core Industries, Inc., Corning
Incorporated, First Boston Investment Funds, Inc., The Japan Fund, Inc.,
The Pittston Company, Russell Reynolds Associates, Inc., Scudder Gold
Fund, Inc., Scudder International Fund, Inc., Scudder New Asia Fund,
Inc., and various other Scudder funds, and Tejas Gas Corporation.
James G. Treybig............................................................. 1974 55
President and Chief Executive Officer of the Company since 1974; Director
of Silicon Graphics, Inc.
Walter B. Wriston(3)......................................................... 1986 76
Chairman and Chief Executive Officer of Citicorp and Citibank, N.A., from
1970 to 1984; President and Chief Executive Officer of Citicorp from
1968 to 1970; President and Chief Executive Officer of Citibank, N.A.,
from 1967 to 1970; Director of AEA Investors, Inc., Bio-Research
Laboratories, Ltd., Cygnus, Inc., OncoRx, Inc., United Meridian
Corporation, York International Corporation, and WMNB Acquisition Corp.
</TABLE>

- ---------------
(1) Member of Audit Committee.

(2) Member of Compensation/Option Committee.

(3) Member of Nominating Committee.

3
<PAGE> 7

STOCK OWNERSHIP

The following table sets forth information as of September 30, 1995, as to
shares of Common Stock beneficially owned by each director and nominee for
director named under "Election of Directors", each executive officer named in
the table under "Compensation of Executive Officers and Directors", each
stockholder known to the Company to own more than 5% of the Company's
outstanding stock and the directors and executive officers of the Company as a
group. Except as otherwise indicated, each person has sole investment and voting
power with respect to the shares shown. Ownership information is based upon
information furnished by the respective individuals.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF COMMON STOCK
----------------------
NUMBER OF PERCENT
SHARES(1) OF CLASS
--------- --------
<S> <C> <C>
Dodge & Cox, One Sansome Street, San Francisco, CA................. 6,297,000 5.39
Capital Research and Management, 333 Hope Street, Los Angeles,
CA............................................................... 5,923,000 5.08
Thomas J. Perkins(2)............................................... 2,204,972 1.89
James G. Treybig(3)(4)............................................. 908,944 .78
Franklin P. Johnson, Jr.(5)........................................ 429,036 .37
Robert C. Marshall(4).............................................. 277,051 .24
Gerald L. Peterson(4)(6)........................................... 155,647 .13
Donald E. Fowler(4)................................................ 131,510 .11
Robert G. Stone, Jr.(7)............................................ 84,286 (8)
Walter B. Wriston.................................................. 49,036 (8)
Morton Collins(9).................................................. 46,264 (8)
Jack F. Bennett.................................................... 22,536 (8)
Vera Stephanie Shirley............................................. 20,324 (8)
Roel Pieper........................................................ 18,449 (8)
Kurt L. Friedrich.................................................. 18,234 (8)
Sir Campbell Fraser................................................ 17,250 (8)
All executive officers and directors as a group (20 persons
including the 10 directors named above).......................... 4,844,762 4.15
</TABLE>

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

(1) Includes shares which may be acquired within 60 days pursuant to the
exercise of options as follows: Mr. Perkins, 29,036 shares; Mr. Treybig,
204,436 shares; Mr. Johnson, 29,036 shares; Mr. Marshall, 122,586 shares;
Mr. Peterson, 130,131 shares; Mr. Fowler, 120,127 shares; Mr. Stone, 29,036
shares; Mr. Wriston, 47,036 shares; Mr. Collins, 29,036 shares; Mr. Bennett,
16,036 shares; Mrs. Shirley, 15,324 shares; Mr. Pieper, 18,449 shares; Mr.
Friedrich, 18,234 shares; Sir Campbell Fraser, 15,750 shares; and all
executive officers and directors as a group, 1,205,047 shares.

(2) Includes 77,000 shares held by Thomas J. Perkins, Inc., in a corporate
retirement plan for the benefit of Mr. Perkins.

(3) Includes 1,800 shares held by one of Mr. Treybig's children, and as to which
Mr. Treybig disclaims any beneficial interest, and 263 shares owned by Mr.
Treybig's wife.

(4) Includes shares held indirectly by trust as follows: Mr. Treybig, 803
shares; Mr. Marshall, 975 shares; Mr. Peterson, 1,010 shares; and Mr.
Fowler, 993 shares.

4
<PAGE> 8

(5) Includes 400,000 shares held by Asset Management Partners, a partnership of
which Mr. Johnson is general partner.

(6) Includes 700 shares owned by Mr. Peterson's wife.

(7) Includes 8,000 shares held by a trust for the benefit of Mr. Stone's wife,
3,600 shares held by a SEP IRA for the benefit of Mr. Stone, and 2,000
shares held directly by Mr. Stone's wife.

(8) Less than one-tenth of one percent.

(9) Includes 2,800 shares held by a trust for the benefit of Mr. Collins'
children and as to which Mr. Collins disclaims any beneficial interest.

Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
and the rules of the Securities and Exchange Commission (the "Commission")
thereunder require the Company's directors and executive officers to file
reports of their ownership and changes in ownership of Common Stock with the
Commission. Personnel of the Company generally prepare these reports on the
basis of information obtained from each director and officer. Based on such
information, the Company believes that all reports required by Section 16(a) of
the Exchange Act to be filed by its directors and executive officers during the
last fiscal year were filed on time.

5
<PAGE> 9

COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS

SUMMARY COMPENSATION TABLE

The following table sets forth the cash and equity compensation paid or
accrued during the three fiscal years ended September 30, 1995, by the Company
and its subsidiaries to the Chief Executive Officer and each of the four other
most highly compensated executive officers of the Company determined at the end
of the fiscal year.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
ANNUAL COMPENSATION ------------
-------------------------------------------------- SECURITIES
NAME AND FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION(2)
- ------------------------------ ------ -------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
James G. Treybig.............. 1995 $629,835 -- -- 37,500 $ 3,750
President and Chief 1994 622,902 $310,155 -- -- 3,750
Executive Officer 1993 661,810 136,785 -- 130,001 9,197

Kurt L. Friedrich............. 1995 $316,250 $ 60,859 $ 3,577 20,000 $ 3,750
Sr. Vice President and 1994 310,918 125,984 -- -- 5,418
General Manager, Systems 1993(3) 63,668 200,000(4) -- 90,000 69,294
Development
Group
Donald E. Fowler.............. 1995 $297,082 $ 73,048 5,129 20,000 $ 13,315
Sr. Vice President and 1994 291,986 116,012 8,040 -- 6,111
General Manager, Solutions 1993 309,155 49,817 -- 65,001 9,810
Products
Group
Gerald L. Peterson............ 1995 $309,530 $ 60,270 $ 5,481 20,000 $ 7,500
Sr. Vice President and 1994 289,866 118,088 -- -- 600
General Manager, Sales and 1993 308,249 58,671 -- 53,400 3,563
Support
Group
Roel Pieper................... 1995 $336,520 -- -- -- $ 34,772
Sr. Vice President, 1994 330,012 $139,486 -- 246,000 129,289
President and Chief 1993(5) 22,635 100,000(4) -- 160,000 29,840
Executive Officer UB
Networks, Inc.
</TABLE>

- ---------------
(1) "Other Annual Compensation" includes for fiscal 1995 a payment for vacation
accrued prior to fiscal 1995 to Messrs. Friedrich, Fowler and Peterson in
the amounts of $3,577, $5,129 and $5,481, respectively.

(2) "All Other Compensation" includes for fiscal 1995 the following: (i)
contributions by the Company of $3,750, $3,750, $3,671 and $7,500,
respectively, to the 401(k) Plan on behalf of Messrs. Treybig, Friedrich,
Fowler and Peterson to match 1995 pre-tax elective deferral contributions
(included under Salary) made by each such officer to the 401(k) Plan; (ii)
$9,644 of accrued interest in excess of 120% of the applicable federal
long-term rate on the account balance (which includes compensation listed
under Salary and/or Bonus for fiscal 1995), deferred by Mr. Fowler under the
Company's Deferred Compensation Plan; and (iii) $34,772 of interest forgiven
on Mr. Pieper's indebtedness to the Company.

(3) Mr. Friedrich joined the Company on July 19, 1993.

(4) Includes for fiscal 1993 hire-on bonuses paid to Messrs. Pieper and
Friedrich in the amounts of $100,000 and $200,000, respectively.

(5) Mr. Pieper joined the Company on September 7, 1993.

6
<PAGE> 10

OPTION GRANTS IN FISCAL 1995

The following table provides details regarding stock options granted to the
named executive officers in fiscal 1995.

OPTION GRANTS IN FISCAL 1995

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
PERCENT
NUMBER OF OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED(1) FISCAL YEAR ($/SHARE) DATE 5% 10%
- -------------------------------- ----------- ------------ ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
James G. Treybig................ 37,500 1.15% $17.50 11/15/04 $412,712 $1,045,893
Kurt L. Friedrich............... 20,000 0.61 17.50 11/15/04 220,113 557,810
Donald E. Fowler................ 20,000 0.61 17.50 11/15/04 220,113 557,810
Gerald L. Peterson.............. 20,000 0.61 17.50 11/15/04 220,113 557,810
Roel Pieper..................... -- -- -- -- -- --
</TABLE>

- ---------------
(1) In general, options to purchase shares of the Company's Common Stock vest
daily over a period of four years, are not exercisable for a period of six
months from the effective date, and expire ten years from the effective
date.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

The following table shows stock options exercised by the named executive
officers during fiscal 1995, including the aggregate net value realized upon
exercise of an option. In addition, this table includes the number of shares
covered by unexercised stock options (both exercisable and unexercisable) as of
fiscal year-end, and the value of unexercised in-the-money options (both
exercisable and unexercisable) based on the year-end price of the Company's
Common Stock.

AGGREGATED OPTION EXERCISES IN FISCAL 1995
AND
FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT 9/30/95 AT 9/30/95(2)
UPON VALUE ------------------------------ ---------------------------
EXERCISE REALIZED EXERCISABLE(1) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------- -------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James G. Treybig............. -- -- 199,525 77,976 $ 126,381 $ 104,869
Kurt L. Friedrich............ 39,528 $306,442 14,890 55,582 21,043 96,151
Donald E. Fowler............. -- -- 117,369 45,631 76,313 65,562
Gerald L. Peterson........... 100 759 128,251 35,149 70,447 43,303
Roel Pieper(Tandem).......... 35,500 289,000 18,449 -- 48,429 --
(UB)(3).......... -- -- -- 246,000 -- 184,500
</TABLE>

- ---------------
(1) The amounts in this column represent the number of vested unexercised
options at September 30, 1995.

(2) The amounts in this column represent the difference between the exercise
price and the closing market price of $12.25 on September 30, 1995, for the
Common Stock. The actual value of unexercised options fluctuates with market
activity.

(3) The values stated are based on the fair market value of $11.25 of the UB
Networks common stock as determined by the Compensation/Option Committee of
the UB Networks Board of Directors on October 16, 1995.

7
<PAGE> 11

REPORT OF THE COMPENSATION/OPTION COMMITTEE ON EXECUTIVE COMPENSATION

The Compensation/Option Committee reviews and approves the Company's
executive compensation policies and sets the compensation of the Company's
senior management. In addition, the Committee supervises and manages the
Company's stock option programs as they apply to all employees.

EXECUTIVE COMPENSATION

Philosophy. The Company's executive compensation philosophy is to
establish total compensation plans that will attract, motivate, and retain
executive officers who are capable of developing and executing the Company's
short- and long-term business plans. The principal components of the Company's
executive compensation are base salary, annual incentives and stock options. The
Company believes that an effective compensation plan should place a significant
portion of an executive's total targeted income at risk; therefore, a
substantial portion of any executive's total compensation opportunity is defined
under the incentive and stock option programs.

The total compensation plans for all executives are reviewed annually.
Targets for each component (base salary, incentive and stock options) are
adjusted as appropriate based on market data and on both objective and
subjective evaluations of each executive's contribution and value to the
Company.

Discussion of Compensation in Excess of $1 Million a Year. In 1993, the
Internal Revenue Code of 1986, as amended (the "Code"), was amended to add
Section 162(m). Section 162(m) places a limit of $1,000,000 on the amount of
compensation that may be deducted by the Company in any year with respect to
certain of the Company's highest paid executives. Certain performance-based
compensation that has been approved by stockholders is not subject to the
deduction limit. At the January 1995 Annual Meeting, the stockholders approved
the Senior Executive Incentive Plan (the "SEIP") and amended the Company's 1989
Stock Plan (the "1989 Plan") to qualify certain performance-based compensation
paid to executive officers for deductibility under the Code. However, the
Company may from time to time pay compensation to its executive officers that
may not be deductible.

Compensation Programs and Practices. The total compensation levels are
assessed through participation in and review of independent published surveys
focusing on competitive executive pay practices, primarily in the computer
industry. The surveys provide salary, incentive, and option grant data for
executive positions on both an industry-wide and selected peer group basis. The
published surveys used for fiscal 1995 were: The TriComp Survey of Executive
Compensation; The SC/CHiPS Executive and Senior Management Total Compensation
Survey; and The Radford Associates Management Total Compensation Report. The
peer group consists of approximately 20 companies in the computer networking
industry which are commonly recognized as those which compete with the Company
in the market place and for talent; which offer jobs similar to those offered by
the Company in complexity, scope or responsibility; and which share similar
financial characteristics. The selected peer group with which the Company
compares its compensation is not necessarily made up of the same companies used
to compare stockholder return in the Stock Performance Chart, which is comprised
of the S&P 500 and the S&P Computer Systems indices. Sixty-three percent of the
companies in the selected peer group are included in the S&P 500 Index, and
thirty-eight percent of these companies are included in the S&P Computer Systems
Index. The selected peer group may vary from year to year based upon market
conditions and changes in both the Company's and the other companies' businesses
over time.

Market comparisons are one means of establishing the Company's target
compensation levels for executives. These levels are also determined on
subjective assessments of each executive's contribution and value to the
Company, as well as internal pay equity comparisons.

8
<PAGE> 12

Targeted Cash Compensation, Base Salary, and Annual Incentives. The
Company's base pay and annual incentive targets are set at levels to provide
total cash compensation that is intended to be at the median targeted total cash
compensation of the representative company peer group. If the Company exceeds
its annual business plans and performs better than the representative company
peer group, the annual incentive targets are designed to provide total cash
compensation that is greater than the targeted cash compensation of the select
peer group. Conversely, if the Company falls short of its business plans and
performance is less than the competitive company peer group, the annual
incentive targets are designed to provide total cash compensation that is less
than the targeted cash compensation of the select peer group.

Annual Incentive Plans. The Company has two incentive plans which provide
for incentive bonuses to eligible employees based upon the Company's financial
performance. Under the plans, a minimum financial performance must be achieved
for any payout to occur. If Company performance exceeds the pre-established
financial measurements, the incentive paid will be larger than the target. In
fiscal 1996, the Company's executive incentive plans will be focused primarily
on operating profit and secondarily on quality targets. As in fiscal 1995,
targets have been established at both the corporate and division levels. The
typical weighting of these factors for fiscal 1996 is 80% on operating profit
and 20% on quality measurements.

Tandem Incentive Plan (the "TIP"). Vice Presidents, Directors and Senior
Managers are eligible to participate in the TIP. The percentage of target
compensation paid is determined by financial performance and by division
financial and quality measures. The CEO and Senior Vice Presidents are eligible
to participate in the quality measures of the TIP. Annual incentives are tied to
specific and quantifiable measures. In fiscal 1995, targets were established for
executives based on operating profit, excluding UB Networks' operating profit,
and performance against corporate or division quality measures. The typical
weighting of these factors was 70% to 80% on operating profit and 20% to 30% on
quality measurements. End of year annual incentive payments were made to a
number of the TIP participants for achievement of operating profit, division
financial and quality targets.

Senior Executive Incentive Plan. The Chief Executive Officer and all
Senior Vice Presidents are eligible to participate in the SEIP. Target
compensation as a percentage of base pay is established for senior executives by
the date required under the Code or regulations thereunder. Incentive payout
criteria consists of one or more of the following: profit, operating profit,
earnings per share, divisional profit, divisional operating profit, revenue,
revenue growth, expenses and headcount control; including or excluding
subsidiary results and including or excluding nonrecurring items such as
extraordinary financial events. In no instance, however, will any annual
incentive payment to a single executive be greater than $1,000,000. Mr. Treybig,
Mr. David J. Rynne, Senior Vice President and Chief Financial Officer, Mr.
Marshall, and Mr. Pieper are measured on operating profit including UB Networks'
operating profit. The remaining participants are measured on operating profit
excluding UB Networks' operating profit. End of year annual incentive payments
were made to some of the SEIP participants for achievement of the operating
profit target excluding UB Networks' operating profit.

Stock Options. The Company believes that employee stock ownership aligns
employee and stockholder interests by focusing employees on the creation of
stockholder value in the short- and long-term. From the Company's inception,
stock options have been granted as a tool for both motivating and retaining
outstanding contributors at all levels of the Company. In determining the total
number of options granted each year, the Company evaluates competitive grant
levels and the impact of option grants on the Company's weighted shares
outstanding. The Company considers published survey data and objective and
subjective contribution assessments in determining the number of options granted
to its officers.

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<PAGE> 13

Executive option grants are typically made on an annual basis in the fall.
Tandem options were granted to executive officers during fiscal 1995.

COMPENSATION OF THE CHIEF EXECUTIVE OFFICER

The Committee conducts an annual review of the total compensation plan for
Mr. Treybig. The executive philosophy as described above applies equally to Mr.
Treybig's compensation plan.

In fiscal 1995, Tandem's operating profit was $125,304,000 against a
predetermined minimum target. Because operating profit did not reach the
predetermined minimum target, Mr. Treybig did not achieve his annual incentive
target for fiscal 1995. In comparison, Mr. Treybig's total 1994 incentive
payment was 100% of his incentive target for 1994. The decline in Mr. Treybig's
incentive payments from fiscal 1994 to 1995 is directly attributable to the
Company's fiscal 1995 performance.

Mr. Treybig's targeted total cash compensation for fiscal 1996 over 1995
did not change. For fiscal 1996, the Committee approved maintaining Mr.
Treybig's base salary and annual incentive target at current levels.

MANAGEMENT CHANGES

In October 1995, the Company announced major changes in its executive
management structure. The changes will be implemented during fiscal 1996. The
Company expects to hire new executive officers during the 1996 fiscal year which
may impact traditional compensation levels.

COMPENSATION/OPTION COMMITTEE

Thomas J. Perkins (Chair)
Morton Collins
Vera Stephanie Shirley

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<PAGE> 14

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*

AMONG TANDEM COMPUTERS INCORPORATED, THE S&P 500 INDEX
AND THE S&P COMPUTER SYSTEMS INDEX

<TABLE>
<CAPTION>
TANDEM S&P
MEASUREMENT PERIOD COMPUTERS S&P 500 COMPUTER
(FISCAL YEAR COVERED) INCORPORATED INDEX SYSTEMS
<S> <C> <C> <C>
1991 121 131 110
1992 110 146 91
1993 114 165 61
1994 153 171 89
1995 114 221 128

* $100 invested on 9/30/90 in stock or index--including reinvestment of
dividends. Fiscal year ending September 30.
</TABLE>

COMPENSATION OF DIRECTORS

For the 1995 fiscal year, directors who were not officers of the Company
were paid an annual retainer of $32,500, plus expenses, payable quarterly. For
the same period, the Chairman of the Board was paid an additional annual
retainer of $9,500.

Directors are eligible to participate in the Company's Charitable
Contribution Program (the "Program"). The Program is designed to acknowledge the
service of Company directors and to benefit and recognize the mutual interest of
directors and the Company in supporting worthy charitable and educational
institutions. In addition, it enhances the Company's ability to attract and
retain directors of the highest caliber and experience. Pursuant to this
program, the Company has purchased life insurance policies on the directors with
the Company named as the beneficiary. Not later than five years after the death
of any director, the Company will donate $1,000,000 to one or more charitable
organizations in the name of the deceased director. Directors

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<PAGE> 15

may make recommendations as to the recipient organizations. Because all
charitable deductions accrue solely to the Company, the individual directors
derive no financial benefit from the Program.

In addition, under the Stock Option Plan for Non-Employee Directors of
Tandem Computers Incorporated (the "Directors' Plan"), each director who is not
also an employee of the Company or a subsidiary is automatically granted on the
date of the Annual Stockholders Meeting an option to purchase 3,000 shares of
the Company's Common Stock, at an exercise price equal to the fair market value
on such date. The options vest daily over a four-year period. Vested options
become exercisable six months after grant. If a director ceases to be a director
within six months of the option grant date, the option is forfeited. A director
who ceases to be a director for any reason after six months from the grant date
may exercise the vested portion within 12 months following such termination to
the extent not previously exercised. All options granted under the Directors'
Plan expire ten years following the date of grant.

CERTAIN TRANSACTIONS AND EMPLOYMENT AGREEMENTS

Certain Transactions. During the 1995 fiscal year, the Company guaranteed
bank loans under a $5,000,000 bank line of credit to Mr. Lawrence A. Laurich
(Vice President, Systems Development), Mr. Anthony H. Lewis, Jr. (Vice President
and Corporate Controller through October 2, 1995), Mr. Marshall, Mr. Peterson,
and Mr. Gerd Stoecker (Vice President and Treasurer) in the aggregate principal
amounts of $514,452, $53,462, $1,285,685, $1,597,504, and $371,543,
respectively, plus interest, which were the largest aggregate principal amounts
outstanding under such guarantees in fiscal 1995, of which an aggregate of
$3,607,395 was outstanding at September 30, 1995. On December 9, 1994, Mr.
Peterson paid $200,000 toward the reduction of principal on his loans. On
October 2, 1995, Mr. Lewis paid his loan in full. The Company has not had to
perform under the guarantees.

On August 29, 1994, the Company renewed a loan to Mr. Marshall of $75,000,
bearing interest at 8.25%. The principal and interest on the loan were due
January 29, 1995, and were paid in full on November 28, 1994. During fiscal
1995, the largest aggregate principal amount outstanding under this loan and the
bank loan guarantee discussed above was $1,361,196 of which $1,285,685 was
outstanding at September 30, 1995.

On August 28, 1994, the Company renewed a loan to Mr. Peterson for $48,319,
bearing interest at 8.75%. The loan replaced an earlier loan of the same amount
issued in February 1994 bearing interest at 7.00%. The principal and interest on
the loan were due on February 28, 1995. On August 26, 1994, the Company loaned
Mr. Peterson $15,000 bearing interest at 8.75%. On October 30, 1994, the Company
loaned Mr. Peterson $47,531 at an interest rate of 8.75%. All three loans were
paid in full on December 9, 1994. On February 28, 1995, the Company loaned Mr.
Peterson $58,972 bearing interest at 10.00% for a term of six months. On August
28, 1995, the Company renewed the February 28, 1995, loan for the same amount
bearing interest at 9.75%. The principal and interest on the loan is due
February 28, 1996. On June 19, 1995, the Company loaned Mr. Peterson $25,000
bearing interest at 9.75%. The principal and interest on this loan is due
December 19, 1995. On August 28, 1995, the Company loaned Mr. Peterson $32,583
bearing interest at 9.75%. The principal and interest on this loan is due
February 28, 1996. During fiscal 1995, the largest aggregate principal amount
outstanding under these loans and the bank loan guarantee discussed above was
$1,708,354 of which $1,514,059 was outstanding as of September 30, 1995.

On October 12, 1993, the Company loaned Mr. Pieper $350,000 and $150,000,
bearing interest of 7.00% and 8.25%, respectively. Interest payments on each
loan begin two (2) years from the date of the loan. Interest accrued during the
initial two (2) years of the loans has been forgiven by the Company and will be
included in Mr. Pieper's earnings for tax purposes. These loans are due on
October 16, 1997. On October 12, 1995, the

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<PAGE> 16

Company adjusted the interest rates on these loans to 9.75%. All of the other
terms of the loans remain the same. During fiscal 1995, Mr. Pieper paid $14,064
and $8,880, respectively, on the loans. On June 14, 1994, the Company loaned Mr.
Pieper $150,000, bearing interest of 8.25% due on June 16, 1998. During fiscal
1995, Mr. Pieper paid $5,642 towards payment of this loan. The interest rates on
all three loans are adjusted annually. During fiscal 1995, the largest aggregate
principal amount outstanding under these loans was $631,195 of which $602,609
was outstanding as of September 30, 1995.

Employment Agreements. During the third quarter of fiscal 1995, the
Company entered into employment agreements with a number of its executive
officers, including each of the executive officers named in the Summary
Compensation Table. The employment agreements are for a term of 18 months and
may be renewed for successive 12 month terms at the sole discretion of the
Company.

The agreements provide each executive with specified payments and benefits
if, during the term of the agreement, the executive's employment is terminated
by the Company without cause or constructively (collectively referred to as
"involuntary termination"). Upon involuntary termination, an executive will
receive: (i) his/her base salary through the date of termination of employment;
(ii) his/her prorated annual bonus; (iii) a lump sum payment equal to three
times the executive's annual base salary and 100% of the executive's potential
annual incentive target bonus; (iv) benefits under the Company's employee
benefits plan for a period of three years from date of termination; (v) a
Company contribution to the Company's Deferred Compensation Plan on executive's
behalf in the amount of $1,500,000 for the President, from $750,000 to $500,000
for Senior Vice Presidents and $300,000 for Vice Presidents who receive
employment agreements; (vi) outplacement services in the amount of $50,000; and
(vii) a three year extension of executive's Company loans or loan guarantees.

Special provisions apply in the event of a Change in Control which is
publicly announced during the term of the employment agreement. For purposes of
the agreement, a Change in Control is defined as the acquisition of 85% or more
of the Company's outstanding voting securities by a third party or a majority
change in the composition of the board of directors. Upon involuntary
termination of employment after a Change in Control, an executive will be
entitled to the payments described above except that executive will be entitled
to a lump sum payment equal to two and one-half rather than three times his/her
salary and potential annual incentive target bonus and executive will be
entitled to his/her full rather than pro-rated annual bonus. In connection with
a Change in Control an executive will be entitled to two special bonuses: (i)
$1,000,000 for the President and $300,000 for each other executive upon
announcement of a letter of intent or definitive agreement with respect to a
Change in Control, and (ii) an amount equal to one times the sum of an
executive's annual base salary plus 100% of an executive's target incentive
bonus payable upon closing when a Change in Control occurs.

The employment agreements provide for an executive to be retained by the
Company after the Change in Control for an additional year. In the event of a
Change in Control, an executive will also be entitled to a full gross-up payment
for any excise taxes incurred under Section 2808 of the Code.

No payments are payable under the agreements in the event of an executive's
termination for cause or an executive's voluntary termination of employment,
except that Mr. Treybig will be entitled to receive a contribution to the
Company's Deferred Compensation Plan in the amount of $1,500,000.

In recognition of Mr. Fowler's numerous contributions to the Company, Mr.
Fowler's employment agreement was amended on October 20, 1995. The amendment
allows Mr. Fowler to receive upon retirement, the payments and benefits he would
have received if he had been involuntarily terminated. In addition, the
amendment provides for a special lump sum bonus of $300,000 to be paid to Mr.
Fowler in lieu of any other bonus for the period October 1 through December 31,
1995, and extends the period during which Mr. Fowler may exercise his Company
stock options vested as of December 31, 1995, for a period of three years from
such date.

13
<PAGE> 17

APPROVAL OF AMENDMENT TO THE TANDEM COMPUTERS
INCORPORATED EMPLOYEE STOCK PURCHASE PLAN

On July 24, 1995, the Board of Directors adopted an amendment to the Tandem
Computers Incorporated Employee Stock Purchase Plan (the "Plan") to increase the
number of shares of Common Stock available for purchase under the Plan from
22,200,000 to 25,800,000 shares. On the same date, the Board of Directors
approved a Company stock repurchase program which allows the Company to make
open market purchases of shares of its Common Stock, thus reducing the dilutive
effect of additional shares made available for purchase under the Plan. As of
September 30, 1995, 1,238,161 shares remained available for purchase under the
Plan, before giving effect to the amendment, and a total of 20,961,839 shares
had been purchased by optionees under the Plan.

The purpose of the Plan is to attract, retain and motivate qualified
employees by providing them with the opportunity to subscribe for and purchase
Common Stock from the Company at a price lower than its market value at the time
of purchase and to pay for such stock through payroll deductions. The Board of
Directors believes that employee stock ownership is an effective means of
securing to the Company and its stockholders the advantages of the incentive
inherent in stock ownership by participating employees, upon whose judgment,
initiative and efforts the Company is largely dependent for the successful
conduct of its business. Consequently, the Board of Directors believes that the
use of the Plan as a supplement to other forms of compensation paid by the
Company is desirable. The following is a general summary of the principal
provisions of the Plan, as amended.

ADMINISTRATION

The Plan is administered by the Compensation/Option Committee (the
"Committee") of the Board of Directors, no member of which is eligible to
participate in the Plan. The Committee may interpret the Plan, adopt rules and
regulations for its administration, and prescribe additional terms and
limitations on the options.

ELIGIBILITY

Each regular employee of the Company and any participating 50% or more
owned subsidiary, including officers, who is customarily employed for more than
five months in a calendar year is eligible to participate in the Plan. Directors
of the Company are not eligible to participate in the Plan. As of September 30,
1995, 8,378 employees were eligible to participate in the Plan. No employee may
be granted a right to purchase Common Stock under the Plan which, if exercised,
would result in (i) his or her owning stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company, or (ii)
his or her ability to purchase stock under the Plan or similar plans of the
Company and any participating subsidiary in any one calendar year with a fair
market value in excess of $25,000 (determined as of the time such rights are
granted).

PURCHASE PRICE AND TERMS

The Plan has two segments, a Payroll Withholding Accumulation Program and a
Stock Option Grant Program.

Under the Payroll Withholding Accumulation Program, an eligible employee
may authorize the Company to withhold any whole percentage from 1% to 10% of his
or her compensation. "Compensation" means, for this purpose, a participant's
total annual compensation including bonuses and commissions but

14
<PAGE> 18

excluding special payments (such as moving expenses) and income with respect to
stock options or other stock purchases. A participant is deemed to have elected
to purchase the maximum number of whole shares of the Company's Common Stock
which can be purchased with the amount withheld during a Participation Period.
The present Participation Period commenced on October 1, 1995 and will end on
January 31, 1996; thereafter, subject to change by the Board of Directors or
Committee, the Participation Periods will be three-month periods beginning on
each February 1, May 1, August 1 and November 1. A participant may not purchase
more than 500 shares in any one Participation Period. At the end of each
Participation Period, the participant's accumulated payroll withholdings are
divided by the purchase price for that Participation Period, which is the lesser
of (i) 85% of the fair market value of a share of Common Stock on the first
trading day of the Participation Period or (ii) 85% of the fair market value of
a share of Common Stock on the last trading day of the Participation Period. On
October 1, 1995, the closing price of the Company's Common Stock on the New York
Stock Exchange was $12.25. "Fair market value" means the closing transaction
price of the stock on the New York Stock Exchange on the applicable dates (or if
no shares are traded on an applicable date, on the next preceding date on which
trading occurs). If the aggregate number of shares subscribed for a
Participation Period exceeds the number of shares which remain available for
issuance under the Plan, then the number of shares each participant may purchase
is proportionately reduced. Any amount remaining in a participant's Plan Account
after deducting the amount of the purchase price for the number of shares issued
to such participant that represents a fractional share shall be applied to the
purchase of shares in the succeeding Participation Period. Any amount remaining
in a participant's Plan Account after a Participation Period for any other
reason shall be refunded to the participant in cash, without interest.

Currently, certificates representing shares acquired under the Plan are
distributed to participants as soon as reasonably practicable after the close of
a Participation Period. Effective with the Participation Period beginning
February 1, 1996, the appropriate number of whole shares will be credited
electronically to the individual brokerage account opened by each participant at
a broker designated by the Committee (a "Brokerage Account"). Initially, the
Committee has designated Smith Barney Inc. as the broker. During the
Participation Period beginning October 1, 1995 (the "Transition Period"),
participants may elect to either receive certificates representing the shares of
Common Stock purchased during such Transition Period or have their respective
Brokerage Accounts electronically credited for such shares. No physical
certificate will be issued for stock electronically credited to the Brokerage
Account of a participant. All present participants or eligible employees who
wish to participate in Participation Periods starting on or after February 1,
1996, must establish a Brokerage Account with the broker designated by the
Committee.

A participant will receive a report at the end of each Participation
Period, which sets forth the cash balance in the participant's Plan Account at
the beginning of the Participation Period, the aggregate payroll deductions
credited to the participant's Plan Account during the Participation Period, the
number of shares purchased for the account of the participant at the end of the
Participation Period and the purchase price thereof, any other disbursements of
cash from the participant's Plan Account during the Participation Period, and
the cash balance in the participant's Plan Account at the end of the
Participation Period.

If a participant's employment terminates for any reason (including death),
his or her participation in the Payroll Withholding Accumulation Program will
terminate immediately and the entire amount credited to his or her Plan account
will be refunded to the participant in cash, without interest.

Under the Stock Option Grant Program, options for an identical number of
shares of Common Stock (subject to applicable Plan limitations) are granted
periodically at the discretion of the Committee to every participant who is
eligible on the date of grant. The Committee specifies the option price (which
cannot be less than 85% of the fair market value of a share of Common Stock on
the date of grant) and the period during

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<PAGE> 19

which the option may be exercised (which may not be more than 27 months after
the date of grant). Shares purchased upon the exercise of an option must be paid
for in full at the time of exercise. Payment may be by personal check or by
delivery of an irrevocable direction to a securities broker, approved by the
Company, to sell shares and deliver all or a portion of the proceeds to the
Company in payment for the shares. In addition, with the Committee's approval
given at the time the option is granted, payment may be by delivery of a full
recourse, interest-bearing promissory note.

Upon termination of employment, an optionee may exercise an outstanding
option granted under the Stock Option Grant Program (to the extent it was
exercisable on the date of termination) within 30 days following the date of
termination (but in no event later than the expiration date of such option),
unless termination of employment is because of permanent disability, in which
case the option may be exercised within three months following the date of
termination. In the case of the death of an optionee while an eligible employee,
the optionee's heirs or legal representative may exercise the option within one
year after the date of death.

ADJUSTMENT UPON RECAPITALIZATION

The Plan provides for appropriate adjustment by the Board of Directors of
the number and price of shares subject to outstanding rights and the number of
shares and option price of any outstanding options and of the aggregate number
of shares available for issuance under the Plan in the event of a
reorganization, stock split, combination of shares, stock dividend or other
recapitalization of the Company.

TERM OF THE PLAN, AMENDMENT AND TERMINATION

The Board of Directors may at any time amend, modify or terminate the Plan.
Any increase in the aggregate number of shares to be issued under the Plan will
not be effective until approved by the stockholders of the Company. Unless
earlier terminated by the Board of Directors, the Plan will be in effect until
June 30, 1998.

TRANSFERABILITY

The Plan is intended to qualify as an "employee stock purchase plan" under
the provisions of Section 423 of the Code. No taxable income is recognized by a
participant at the time a right or an option to purchase Common Stock is granted
under the Plan or at the time the shares are purchased thereunder.

For federal income tax purposes, a participant must recognize taxable
income upon a disposition of Common Stock acquired under the Plan. The tax
treatment may be more favorable if the disposition occurs after the holding
period requirements of Section 423 have been satisfied (a "qualifying
disposition"). If no disposition of the Common Stock is made within two years
from the date of grant nor within one year after the day that the Common Stock
was transferred to the participant, upon subsequent disposition of the Common
Stock, ordinary income will be realized to the extent of the lesser of (1) the
excess of the fair market value of the Common Stock at the time of disposition
over the actual purchase price, or (2) 15% of the fair market value at the date
of grant. Any further gain is treated as longterm capital gain. No income tax
deduction will be allowed the Company for shares transferred to an employee,
provided such shares are held for the periods described above. If the shares are
disposed of within the periods described above, the participant will recognize
ordinary income for the taxable year of the disposition equal to the excess of
the fair market value of the shares on the date of purchase over the price paid.
In this case, the Company will generally be entitled to a deduction equal to the
amount of ordinary income recognized by the participant.

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<PAGE> 20

REQUIRED VOTE

The approval of the amendment to the Employee Stock Purchase Plan requires
the affirmative vote of a majority of the outstanding shares of Common Stock.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT OF
THE TANDEM COMPUTERS INCORPORATED EMPLOYEE STOCK PURCHASE PLAN TO INCREASE THE
NUMBER OF SHARES OF COMMON STOCK AVAILABLE UNDER THE PLAN.

STOCKHOLDER PROPOSAL

The following proposal was submitted to the Company by an individual
stockholder for presentation at the 1996 Annual Meeting of Stockholders. The
name and address of the proponent and the number of shares of the Company's
Common Stock held by the proponent will be furnished to any person, orally or in
writing as requested, promptly upon the receipt of any oral or written request
therefor. The stockholder did not timely submit a statement in support of
approval of the proposal.

"Recommend the Board of Directors redeem the "poison pill" stock rights by
purchasing said rights for the $.05 required under the Stock Rights Plan
upon an affirmative vote to redeem said rights by a majority of
stockholders."

RECOMMENDATION OF THE BOARD AGAINST STOCKHOLDER PROPOSAL

The Board of Directors recommends a vote AGAINST the Stockholder Proposal.
The proposal recommends that the Company's Board of Directors redeem the Common
Stock Purchase Rights that all stockholders possess under the Company's First
Amended and Restated Rights Agreement (the "Rights Plan") upon an affirmative
vote of the stockholders. Although the Rights Plan cannot prevent a takeover of
the Company, the Board believes the Rights Plan protects the economic interests
of the stockholders by enabling the Board to negotiate for higher stockholder
value in the event of a takeover attempt. The Board believes redemption of the
Rights at this time would remove valuable protections for stockholders and
eliminate an important tool designed to protect your interests, and could
deprive you of substantial economic benefits in the future.

WHAT RIGHTS PLANS DO

Stockholder rights plans were developed in the 1980s to counter a wide
range of coercive tactics which had become common in hostile takeovers. A key
function of a rights plan is to encourage bidders to negotiate with the board of
the target company, resulting in better offers for all stockholders. Rights
plans give boards time to evaluate offers, investigate alternatives and take
steps necessary to maximize value for all stockholders.

A consensus has gradually emerged among major United States corporations
that rights plans help inhibit abusive conduct and assist directors in
fulfilling their fiduciary duty to all stockholders. The Company believes that
more than half of the 200 largest companies on the Fortune 500 list have adopted
rights plans. Thus, many of these companies found adoption of a rights plan to
be a prudent step to take to protect stockholder interests even though they were
not the subject of current takeover bids.

Rights plans do not preclude corporate takeovers. Many corporations which
adopted rights plans were later acquired by others. Two studies seem to indicate
that the premiums received in these takeovers were higher than those received by
stockholders of corporations that did not have rights plans in place. One study
titled "Poison Pill Impact Study" (March 31, 1988) was conducted by the proxy
solicitor and investor

17
<PAGE> 21

relations firm Georgeson & Company Inc., and the other titled "Poison or
Placebo" (March 11, 1993) was conducted by Professors Robert Comment and G.
William Schwert. In the Company's case, there is no evidence that the adoption
of the Rights Plan has depressed the Company's stock price.

The Company's Rights Plan encourages any individual or group seeking to
acquire at least 20% of the Company's stock (representing more than a
$250,000,000 investment at current market prices) to negotiate with the Company
to obtain its approval of the acquisition. This permits the Board of Directors
to ensure that the acquisition is fair to and in the best interests of all other
stockholders.

RESPONSIBILITY AND ACCOUNTABILITY

The Board of Directors, elected by and answerable to the stockholders, is
charged with the responsibility of protecting your interests. You have the
right, with your fellow stockholders, to elect the directors you want to manage
your investment in the Company.

The law requires your directors to exercise their independent judgment in
directing the Company's management. In deciding to adopt the Rights Plan in
1988, your directors sought, received and carefully weighed information and
advice from experienced, independent legal and financial advisors. The Board
also drew on its collective experience with many other corporations and
situations and its intimate knowledge of the Company's own business, prospects
and circumstances.

The Board of Directors believes the Rights Plan is serving its purpose to
protect against abusive tactics and increase the Board's ability to ensure that
stockholders receive maximum value for their Company stock.

HOW RIGHTS PLANS ARE REDEEMED

The Company would be required to pay $.05 per Right, or approximately
$6,000,000, to redeem the Rights. The Board believes such an action would remove
a valuable right and preclude the Company from spending the money on the
Company's business and future.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE PROPOSAL WHICH
RECOMMENDS THE BOARD OF DIRECTORS REDEEM THE COMMON STOCK PURCHASE RIGHTS HELD
BY STOCKHOLDERS UNDER THE COMPANY'S FIRST AMENDED AND RESTATED RIGHTS AGREEMENT.

RATIFICATION OF INDEPENDENT AUDITORS

Upon the recommendation of the Audit Committee, the Board of Directors has
appointed the firm of Ernst & Young LLP as the Company's independent auditors
for the 1996 fiscal year effective November 14, 1995, subject to ratification by
the stockholders. Representatives of Ernst & Young LLP are expected to be
present at the Company's Annual Meeting. They will have an opportunity to make a
statement, if they desire to do so, and will be available to respond to
appropriate questions.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP.

BOARD OF DIRECTORS MEETINGS AND COMMITTEES

The Company's Board of Directors held six meetings during the 1995 fiscal
year. All directors attended at least 75% of the aggregate number of meetings of
the Board and of the committees on which such directors serve, except for Mrs.
Shirley who was unable to attend certain meetings due to other commitments.

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<PAGE> 22

The Board of Directors of the Company has appointed an Audit Committee,
Nominating Committee and Compensation/Option Committee of the Board.

The current members of the Audit Committee are Messrs. Bennett, Collins and
Johnson. The Audit Committee held five meetings during the 1995 fiscal year. Its
functions are to monitor the effectiveness of the audit effort, to supervise the
Company's financial and accounting organization and financial reporting, and to
select a firm of certified public accountants whose duty it is to audit the
books and accounts of the Company for the fiscal year for which they are
appointed. The Audit Committee also reviews non-audit services to be performed
on the Company's behalf by the selected public accounting firm.

The current members of the Nominating Committee are Messrs. Johnson,
Perkins, Stone and Wriston. The Nominating Committee held no meetings during the
1995 fiscal year. The Nominating Committee's function is to select nominees for
election as directors. The Nominating Committee will consider nominees
recommended by stockholders. Such recommendations should be submitted in writing
to the Nominating Committee in care of the Secretary of the Company at its
address set forth on the front page of this Proxy Statement. Each recommendation
must include a statement setting forth information as to the proposed nominee as
required under the Company's By-Laws.

The current members of the Compensation/Option Committee are Messrs.
Collins and Perkins and Mrs. Shirley. The Compensation/Option Committee held
five meetings during the 1995 fiscal year. The Compensation/Option Committee's
functions are to determine and supervise compensation to be paid to officers and
directors of the Company and to supervise and manage the Company's Employee
Stock Purchase Plan and stock option plans.

STOCKHOLDER PROPOSALS

To be considered for presentation at the Annual Meeting of Stockholders to
be held in 1997, a stockholder proposal must be received at the offices of the
Company, 19333 Vallco Parkway, Cupertino, California 95014, not later than
August 17, 1996.

OTHER MATTERS

The Board of Directors knows of no other business which will be presented
at the Annual Meeting. If any other business is properly brought before the
Annual Meeting, it is intended that proxies in the enclosed form will be voted
in accordance with the judgment of the persons voting the proxies.

Whether you intend to be present at the Annual Meeting or not, we urge you
to return your signed proxy promptly.

By order of the Board of Directors,

JOSEPHINE T. PARRY
Secretary

19
<PAGE> 23

PROXY
TANDEM COMPUTERS INCORPORATED

Proxy Solicited By Trustee of the Tandem Computers Incorporated

Employee Stock Ownership Plan
For Annual Meeting January 30, 1996

The Trustee of the Tandem Computers Incorporated Employee Stock
Ownership Plan is hereby authorized to represent and vote as designated on the
reverse side the shares of the undersigned that (i) have been allocated to
the account of the undersigned or (ii) have not been allocated to the account
of the undersigned but for which the undersigned is entitled to give voting
direction, at the Annual Meeting of Stockholders of Tandem Computers
Incorporated to be held on Tuesday, January 30, 1996, or at any adjournment or
postponement of the Annual Meeting.

Listed on the reverse of this card are the number of shares of Tandem
Computers Incorporated Common Stock allocated to your account in the Tandem
Computers Incorporated Employee Stock Ownership Plan. You may direct the
Trustee to vote such shares and your pro rata portion of the unallocated shares
represented by this proxy at the Annual Meeting. If a vote is not specified,
the Trustee shall vote your shares in the same proportion as the shares held in
the Plan for which voting direction has been received.

CONTINUED AND TO BE SIGNED ON REVERSE SIDE

SEE REVERSE SIDE
<PAGE> 24

[ X ] PLEASE MARK
VOTES AS IN
THIS EXAMPLE

PLEASE MARK, DATE, SIGN, AND RETURN

The Board of Directors recommends a vote FOR the election of one Class 1
director, FOR Items 2 and 4 and AGAINST Item 3.

1. Election of Director:
Nominee: Morton Collins FOR [ ] WITHHELD [ ]

2. To consider and vote upon a proposal to amend the Tandem Computers
Incorporated Employee Stock Purchase Plan to increase the number of shares
of Common Stock available for issuance under the Plan.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

The Board of Directors recommends a vote AGAINST Item 3.

3. To consider and vote upon a stockholder proposal that recommends the Board
of Directors redeem the Common Stock Purchase Rights held by stockholders
under the Company's First Amended and Restated Rights Agreement.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

4. To ratify the appointment of Ernst & Young LLP as the Company's independent
auditors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]

5. Upon any other matters which might properly come before the meeting.

The shares represented by this proxy are not held in nominee name, and
duplicate annual reports are being sent to the address listed. Please do not
send annual reports to the account listed on this proxy. [ ]

Mark here for address change and note at left [ ]

Signature:___________________________________________ Date_____________________

Please sign exactly as your name appears on this proxy. If signing for estates
or trusts, capacity should be stated. If shares are held jointly, each holder
should sign.

<PAGE> 25

PROXY
TANDEM COMPUTERS INCORPORATED

Proxy Solicited By Board of Directors

For Annual Meeting January 30, 1996

Thomas J. Perkins and James G. Treybig, or either of them, each with
the power of substitution, are hereby authorized to represent and vote as
designated on the reverse side the shares of the undersigned at the Annual
Meeting of Stockholders of Tandem Computers Incorporated to be held on
Tuesday, January 30, 1996, or at any adjournment or postponement of the Annual
Meeting.

Shares represented by this proxy will be voted as directed by the
stockholder. If no such directions are indicated, the proxies will have
authority to vote FOR the election of one Class 1 director, FOR Items 2 and 4,
and AGAINST Item 3, and as said proxies deem advisable or such other matters
as may properly come before the meeting.

CONTINUED AND TO BE SIGNED ON REVERSE SIDE

SEE REVERSE SIDE
<PAGE> 26

[ X ] PLEASE MARK
VOTES AS IN
THIS EXAMPLE

PLEASE MARK, DATE, SIGN, AND RETURN

The Board of Directors recommends a vote FOR the election of one Class 1
director, FOR Items 2 and 4 and AGAINST Item 3.

1. Election of Director:
Nominee: Morton Collins FOR [ ] WITHHELD [ ]

2. To consider and vote upon a proposal to amend the Tandem Computers
Incorporated Employee Stock Purchase Plan to increase the number of shares
of Common Stock available for issuance under the Plan.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

The Board of Directors recommends a vote AGAINST Item 3.

3. To consider and vote upon a stockholder proposal that recommends the Board
of Directors redeem the Common Stock Purchase Rights held by stockholders
under the Company's First Amended and Restated Rights Agreement.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

4. To ratify the appointment of Ernst & Young LLP as the Company's independent
auditors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]

5. Upon any other matters which might properly come before the meeting.

Mark here for address change and note at left [ ]

Signature:___________________________________________ Date_____________________

Please sign exactly as your name appears on this proxy. If signing for estates,
trusts, or corporations, title or capacity should be stated. If shares are held
jointly, each holder should sign.

<PAGE> 27

TANDEM COMPUTERS INCORPORATED

EMPLOYEE STOCK PURCHASE PLAN

As Amended and Restated
Effective September 25, 1995

SECTION 1. ESTABLISHMENT OF THE PLAN

The Tandem Computers Incorporated Employee Stock Purchase
Plan (the "Plan") is established to provide Eligible Employees
with an opportunity to purchase common stock of Tandem Computers
Incorporated (the "Company") so that they may increase their
proprietary interest in the success of the Company. The Plan,
which provides for the purchase of Stock through regular payroll
withholding or by the exercise of options granted under the Plan
by the Committee, is intended to qualify under section 423 of the
Code. The Plan was last amended and restated effective August
31, 1995.

SECTION 2. DEFINITIONS

(a) "Authorized Broker" means a securities broker selected
by the Committee for purposes of the Plan.

(b) "Board of Directors" means the Board of Directors of
the Company.

(d) "Committee" means the Compensation/Option Committee of
the Board of Directors.

(e) "Compensation" means the total compensation earned by a
Participant during a Participation Period, including bonuses and
commissions but excluding special payments (such as moving
expenses) and income with respect to stock options or other stock
purchases.

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<PAGE> 28

(f) "Date of Grant" means the first day of a Participation
Period.

(g) "Effective Date" means the date on which the Plan was
last approved by the stockholders of the Company.

(h) "Eligible Employee" means any regular employee of a
Participating Company who is customarily employed for more than
five months in any calendar year, excluding any employee who is a
director of the Company.

(i) "Fair Market Value" of a share of Stock means the
closing price on the applicable date. In the event the Stock is
not traded on the date as of which the Fair Market Value is to be
determined, Fair Market Value shall be determined as of the next
preceding date on which Stock is traded.

(j) "Participant" means an Eligible Employee who elects to
participate in the Plan, as provided in Section 5, or to whom an
option is granted pursuant to Section 6.

(k) "Participating Company" means the Company, and such
present or future Subsidiaries of the Company as the Board of
Directors shall from time to time designate.

(l) "Participation Period" means a period during which
contributions may be made toward the purchase of Stock under the
Plan, as determined pursuant to Section 5(b).

(m) "Plan Account" means the account established for each
Participant pursuant to Section 5(e).

(n) "Purchase Price" means the price at which Participants
may purchase Stock under Section 5 of the Plan, as determined
pursuant to Section 5(c).

(o) "Stock" means the common stock of the Company, $.025
par value.

(p) "Subsidiary" means a subsidiary corporation as defined
in section 424 of the Code.

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<PAGE> 29

SECTION 3. ADMINISTRATION

The Plan shall be administered by the Committee. The inter-
pretation and construction by the Committee of any provisions of
the Plan or of any right to purchase Stock granted under it shall
be conclusive and binding on all persons.

SECTION 4. NUMBER OF SHARES TO BE OFFERED AND TO BE
PURCHASED

The maximum aggregate number of shares which shall be
offered under the Plan shall be 25,800,000 shares of Stock,
subject to the approval of the Company's stockholders as provided
in Section 15 and subject to adjustment as provided in Section 9.
In the event that the aggregate number of shares which all
Participants elect to purchase during a Participation Period or
which are subject to outstanding options granted pursuant to
Section 6 shall exceed the number of shares remaining available
for issuance under the Plan, then the number of shares to which
each Participant shall become entitled shall be determined by
multiplying the number of shares available for issuance by a
fraction, the numerator of which is the sum of the number of
shares the Participant has elected to purchase pursuant to
Section 5 and the number of shares which are subject to an
outstanding option granted to the Participant pursuant to
Section 6 and the denominator of which is the sum of the number
of shares which all employees have elected to purchase pursuant
to Section 5 and the number of shares which are subject to
outstanding options granted pursuant to Section 6.

SECTION 5. PAYROLL WITHHOLDING ACCUMULATION PROGRAM

(a) Eligibility and Participation. Any person who quali-
fies as an Eligible Employee on the Date of Grant with respect to
a Participation Period may elect to become a Participant in this
Section 5 of the Plan for such Participation Period. An Eligible
Employee may elect to participate by executing the enrollment
form prescribed for such purpose by the Committee and complying
with the requirements of Section 12(a). The enrollment form
shall be filed with the Committee no later than the first day of
the Participation Period. The Eligible Employee shall designate
on the enrollment form the percentage of his or her Compensation
which he or she elects to have withheld for the purchase of
Stock, which may be any whole percentage from 1% to 10%.

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<PAGE> 30

By enrolling in the payroll withholding accumulation program
established pursuant to this Section 5, a Participant shall be
deemed to have elected to purchase the maximum number of whole
shares of Stock which can be purchased with the amount of the
Participant's Compensation which is withheld during the
Participation Period; provided, however, that with respect to any
Participation Period, no Participant may purchase more than 500
shares of Stock or shares of Stock in excess of the amounts set
forth in Section 10.

Once enrolled, a Participant shall continue to participate
in the Plan for each succeeding Participation Period until he or
she terminates participation or ceases to qualify as an Eligible
Employee. If a Participant desires to change the rate of payroll
withholding, he or she may do so effective for the next
Participation Period by filing a new enrollment form with the
Committee no later than the first day of the Participation Period
for which such change is to be effective.

(b) Participation Periods. The Plan shall be in effect
from July 1, 1978 to June 30, 1998. While the Plan is in effect,
Participation Periods shall be established by the Committee,
which Participation Periods shall not exceed 27 months.

(c) Purchase Price. The Purchase Price for each share of
Stock to be purchased pursuant to this Section 5 shall be the
lesser of (i) 85% of the Fair Market Value of such share on the
Date of Grant or (ii) 85% of the Fair Market Value of such share
on the last day of the Participation Period.

(d) Contributions. The Purchase Price for each share of
Stock to be purchased pursuant to this Section 5 shall be payable
by each Participant by means of payroll deduction. Payroll
deductions for the amount of Compensation designated by the Par-
ticipant pursuant to Section 5(a) shall commence with the first
paycheck issued during the Participation Period and shall be
deducted from each subsequent paycheck throughout the Partici-
pation Period.

- 4 -
<PAGE> 31

(e) Purchase of Shares. The Company shall maintain a Plan
Account on its books in the name of each Participant. At the
close of each pay period, the amount deducted from the Partici-
pant's Compensation shall be credited to the Participant's Plan
Account. As of the last day of each Participation Period, the
amount then in the Participant's Plan Account shall be divided by
the Purchase Price, and the amount in the Participant's Plan
Account shall be used to purchase the number of whole shares of
Stock which results. The number of shares of Stock so purchased
shall be issued to the Participant pursuant to Section 12 as soon
as reasonably practicable after the close of the Participation
Period. Any amount remaining in the Participant's Plan Account
after a Participation Period that represents a fractional share
shall be carried over in the Participant's Plan Account and
applied to the Purchase Price for the succeeding Participation
Period. Any amount remaining in the Participant's Plan Account
after a Participation Period for any other reason shall be
refunded to the Participant in cash, without interest.

(f) Withdrawal. A Participant may elect to withdraw from
participation in this Section 5 by filing the prescribed form
with the Committee. Such form may be filed at any time up to the
last day of a Participation Period, except that such form shall
be filed not later than ten days before the last day of a
Participation Period once the Internal Revenue Service has issued
a ruling satisfactory to the Committee that approves this change.
At the time of withdrawal, the amount credited to the Partici-
pant's Plan Account shall be refunded in cash, without interest.

SECTION 6. STOCK OPTION GRANT PROGRAM

(a) Grant of Option. The Committee may in its discretion
grant options to purchase Stock if the terms of the offering
comply with the following requirements:

(i) An option for the same number of shares of Stock
is granted to every person who qualifies as an Eligible
Employee on the date selected by the Committee; provided,
however, that no option may be granted to an Eligible
Employee which would exceed the limitations set forth in
Section 10;

- 5 -
<PAGE> 32

(ii) The option price is not less than 85% of the Fair
Market Value of the Stock on the date the option is granted
by the Committee;

(iii) The option is not exercisable after 27 months
from the date the option is granted by the Committee; and

(iv) The option is not granted more than ten years
after the Effective Date.

In granting such options the Committee may include such addi-
tional terms not inconsistent with the foregoing as it deems
advisable, including (without limitation) restrictions with
respect to the period during which such options shall be
exercisable.

(b) Method of Exercise. Options granted under this Sec-
tion 6 may be exercised by the optionee giving written notice to
the Company stating the number of shares with respect to which
the option is being exercised. No exercise may be for fewer than
all shares issuable under an option to an Eligible Employee. The
notice shall be accompanied by payment in full for the Stock to
be acquired, which payment may be by personal check or by
delivery (on a form prescribed by the Company) of an irrevocable
direction to a securities broker approved by the Company to sell
shares of Stock and deliver all or a portion of the proceeds to
the Company in payment for the Stock. Notwithstanding the
foregoing, if the Committee makes an advance blanket
authorization applicable to all options granted in connection
with an offering under this Section 6, any optionee (or his or
her legal representative or the person entitled to the option
under his or her will or the applicable laws of descent and
distribution, in the event of the exercise of an option upon the
death of the employee, as provided in Section 7) may purchase
such shares upon exercise of an option by delivery of a full-
recourse promissory note payable to the Company. In such case,
such note must bear interest at a rate specified by the Company
and provide for repayment in periodic installments over a period
not to exceed ten years from the date of exercise. No share
shall be issued until full payment therefor has been made
(whether in cash, by delivery of an irrevocable direction to a
broker, or by delivery of a promissory note, as provided above,
or in any combination of the foregoing).

- 6 -
<PAGE> 33

SECTION 7. EFFECT OF TERMINATION OF EMPLOYMENT

Termination of employment for any reason, including death,
shall be treated as an automatic withdrawal pursuant to Sec-
tion 5(f). All unexercised options granted pursuant to Section 6
shall be cancelled, except those options granted pursuant to
Section 6 which are unexercised and which an Eligible Employee
would be entitled to exercise. If employment is terminated for
any reason other than death or permanent disability, these
options may be exercised at any time within 30 days following the
date of termination, but in no event later than the expiration
date of such option. If employment is terminated by death, these
options may be exercised at any time within one year following
death by the person to whom the option is transferred by will or
the applicable laws of descent and distribution. If employment
is terminated because of permanent disability, these options may
be exercised at any time within three months following the date
of termination. With respect to options granted pursuant to
Section 6 that are held by an Eligible Employee on his or her
date of death, all such options shall become exercisable as of
the date of death. A transfer from the Company to a Subsidiary,
from one Subsidiary to another, or from a Subsidiary to the
Company shall not be treated as a termination of employment.

SECTION 8. RIGHTS NOT TRANSFERABLE

The rights or interests of any Participant in the Plan, in
any option granted under the Plan, or in any Stock or moneys to
which he or she may be entitled under the Plan, shall not be
transferable by voluntary or involuntary assignment or by opera-
tion of law, or by any other manner otherwise than by will or the
applicable laws of descent and distribution. If the Participant
shall in any manner attempt to transfer, assign or otherwise
encumber his or her rights or interest under the Plan, other than
by will, such act shall be treated as an automatic withdrawal
under Section 5(f) and shall cause all unexercised options
granted pursuant to Section 6 to be automatically cancelled.

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<PAGE> 34

SECTION 9. RECAPITALIZATION, ETC.

The aggregate number of shares of Stock offered under the
Plan and the number and price of shares which any Participant has
elected to purchase pursuant to Section 5 and the number of
shares and option price of any outstanding options granted pur-
suant to Section 6 shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Stock
resulting from a subdivision or consolidation of shares or any
other capital adjustment, the payment of a stock dividend, or
other increase or decrease in such shares effected without
receipt of consideration by the Company. In the event of a dis-
solution or liquidation of the Company, or a merger or consolida-
tion to which the Company is a constituent corporation, this Plan
shall terminate, unless the plan of merger, consolidation or
reorganization provides otherwise, and all amounts which each
Participant has paid towards the Purchase Price of Stock pursuant
to Section 5 shall be refunded, without interest, and all
outstanding options granted pursuant to Section 6 shall be
cancelled.

SECTION 10. LIMITATION OF STOCK OWNERSHIP

Notwithstanding any provision herein to the contrary, no
Participant shall be granted a right to purchase Stock pursuant
to Section 5, or any option pursuant to Section 6, (i) if such
Participant, immediately after his or her election to purchase
such Stock or the grant of such option, would own stock pos-
sessing more than five percent of the total combined voting power
or value of all classes of stock of the Company or any parent or
Subsidiary of the Company, or (ii) if under the terms of the Plan
the rights of the employee to purchase stock under this and all
other qualified employee stock purchase plans of the Company or
its Subsidiaries would accrue at a rate that exceeds $25,000 of
fair market value of such stock (determined at the time such
right or option is granted) for each calendar year for which such
right or option is outstanding at any time. For purposes of this
Section 10, ownership of stock shall be determined by the
attribution rules of section 424(d) of the Code, and Participants
shall be considered to own any stock which they have a right or
option to purchase under this or any other plan.

- 8 -
<PAGE> 35

SECTION 11. RIGHTS AS AN EMPLOYEE

Nothing in the Plan shall be construed to give any person
the right to remain in the employ of the Company or a Subsidiary
or to affect the right of the Company and its Subsidiaries to
terminate the employment of any person at any time, with or
without cause.

SECTION 12. BROKERAGE ACCOUNT AND RIGHTS AS A
STOCKHOLDER

(a) Brokerage Account. Effective February 1, 1996, each
Participant shall be required to maintain an account with the
Authorized Broker and to execute such agreements and forms as the
Committee or the Authorized Broker may require in connection with
such account. With respect to any Participation Period
commencing on or after February 1, 1996, no amount shall be
withheld under Section 5 on behalf of a Participant who fails to
open or maintain such an account as of the first day of the
Participation Period.

(b) Electronic Deposits. With respect to the Participation
Period commencing October 1, 1995, and ending January 31, 1996,
shares of Stock may be issued to a Participant under Section 5
either in certificated form or through electronic deposits in an
account maintained by such Participant with the Authorized
Broker, as such Participant may elect. With respect to
Participation Periods commencing on or after February 1, 1996,
shares of Stock may be issued to a Participant under Section 5
only through electronic deposits in the account maintained by
such Participant with the Authorized Broker.

- 9 -
<PAGE> 36

(c) Mandatory Retention. Effective for shares of Stock
purchased under Section 5 through electronic deposits in an
account maintained by the Authorized Broker, a share of Stock
purchased under the Plan shall remain in such Participant#s
account at least until the earlier of the following dates:

(i) The date of the disposition (within the meaning of
section 424(c) of the Code) of such share; or

(ii) The date when each of the holding periods
described in section 423(a)(1) of the Code has been
satisfied with respect to such share.

(d) Stockholder Rights. A Participant shall have no rights
as a stockholder with respect to any shares of Stock that he or
she may have a right to purchase under the Plan until the date
when such shares are issued to such Participant pursuant to this
Section 12.

SECTION 13. RESTRICTION ON SALES OF SHARES ACQUIRED
THROUGH OPTION EXERCISE

As a condition of an option grant pursuant to Section 6, the
Participant agrees that he or she will refrain from selling any
share of Stock acquired through the exercise of such option
during the period beginning on the 20th calendar day of the last
month of each calendar quarter and ending on the third business
day after such quarter's revenues and earnings information has
been publicly released. Notwithstanding the foregoing, if a
Participant is a Company officer or an employee who has access to
material inside information, then as a condition of such option
grant the Participant agrees that he or she will refrain from
selling any share of Stock acquired through the exercise of the
option during the following periods:

(a) Periods of Unannounced Revenue and Earnings
Information. From the tenth calendar day of the last month
of each calendar quarter until the third business day after
such quarter's revenues and earnings information has been
publicly released; or

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<PAGE> 37

(b) Periods of Other Material Inside Information.
Until the third business day after such information has been
publicly released.

The above restrictions on the sale of Stock acquired through the
exercise of an option shall apply until such date as the Partici-
pant terminates Company employment and possesses no unreleased
material inside information about the Company.

SECTION 14. AMENDMENT OR TERMINATION OF THE PLAN

The Committee shall have the right to amend, modify or
terminate the Plan at any time without notice, provided that no
Participant's existing rights are adversely affected thereby, and
provided further that, except as provided in Section 9, no
increase in the aggregate number of shares of Stock to be issued
under the Plan shall be effective until such increase is approved
by a vote of the stockholders of the Company. The Plan shall
terminate on June 30, 1998, if it has not been earlier terminated
pursuant to this Section 14.

SECTION 15. APPROVAL OF INCREASE IN NUMBER OF SHARES TO
BE OFFERED

The increase in the number of shares of Stock offered under
the Plan from 22,200,000 to 25,800,000 shares, as reflected in
Section 4, shall be void unless such increase is approved by the
vote of the stockholders of the Company within 12 months before
or after the date upon which such increase was approved by the
Board of Directors.

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