TANDEM COMPUTERS INC /DE/, DEF 14A, 1996-12-10

TANDEM COMPUTERS INC /DE/
DEF 14A, 1996-12-10
ELECTRONIC COMPUTERS

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<PAGE> 1

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:

<TABLE>
<S> <C>
/ / 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 sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
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):

/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 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:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:

_
<PAGE> 2

LOGO

December 10, 1996
Dear Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders
which will be held on Tuesday, January 28, 1997, 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,

<TABLE>
<S> <C>
THOMAS J. PERKINS ROEL PIEPER
Chairman of the
Board Vice Chairman and Chief Executive Officer
</TABLE>
<PAGE> 3

TANDEM COMPUTERS INCORPORATED
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 28, 1997
------------------

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 28, 1997, at 10:00 A.M. for the following
purposes:

1. To elect two Class II Directors to hold office until 2000.

2. To consider and vote upon a proposal to adopt the Tandem Computers
Incorporated 1997 Stock Plan.

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

4. 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 2, 1996,
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 10, 1996
<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 28, 1997, 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 two nominees for director listed in this Proxy Statement,
FOR approval of the proposal to adopt the Tandem Computers Incorporated 1997
Stock Plan 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 2, 1996, are
entitled to notice of and to vote at the Annual Meeting. On December 2, 1996,
the Company had 118,667,378 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 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 10, 1996.

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. Two Class II directors are to be elected at the Annual Meeting for a
three-year term expiring on the date of the Annual Meeting in 2000 or until such
director shall resign or until his successor shall have been duly elected or
appointed.

Following James G. Treybig's resignation as President and Chief Executive
Officer of the Company after serving in such capacity for 22 years for the
Company, on January 8, 1996 Roel Pieper became President and Chief Executive
Officer and was appointed to the Board of Directors. On April 29, 1996, Robert
M. Kavner became a director. On June 30, 1996, Mr. Treybig resigned from the
Board of Directors. The Board was expanded in July 1996 and Alex S. Vieux and
Washington SyCip were appointed to the Board. On October 22, 1996, Enrico L.
Pesatori became the Company's President and Chief Operating Officer and was
appointed to the Board of Directors and Mr. Pieper was appointed Vice Chairman
of the Board.

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
Franklin P. Johnson, Jr. and Thomas J. Perkins as Class II directors. Both such
persons are currently members of the Board of Directors of the Company. Jack F.
Bennett and Washington SyCip, who are each currently Class II directors, will
not be standing for reelection. In the event that any such person 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 any of the nominees will be unable or unwilling to serve.

Set forth below are the names and ages of the nominees 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.

<TABLE>
<CAPTION>
NAME AND PRINCIPAL OCCUPATION AT PRESENT AND DIRECTOR
FOR THE PAST FIVE YEARS; DIRECTORSHIPS SINCE AGE
- ------------------------------------------------------------------------------- -------- ---
<S> <C> <C>
CLASS I
Morton Collins(1)(2)........................................................... 1975 60
General Partner of DSV Partners III, DSV Management, Ltd., and DSV Partners
IV, Princeton, New Jersey, private investment partnerships, since 1981, 1982,
and 1985, respectively; General Partner, DSV Associates, private investment
partnership, from 1974 to 1986; Director of Kopin Corporation, The Liposome
Company and ThermoTrex Corporation.
Robert M. Kavner............................................................... 1996 53
President and Chief Executive Officer of On Command Corp. since September
1996; independent internet, entertainment and telecommunications consultant
from August 1995 to September 1996; head of Business Advisory Group of
Creative Artists Agency from June 1994 to August 1995; Executive Vice
President of AT&T, Chief Executive Officer of Multimedia Products and
Services Group and member of Executive Committee of AT&T from 1992 to June
1994 and held various other positions with AT&T from 1984 to 1992; Director
of Fleet Financial Group and Ascent Entertainment Inc.
</TABLE>

2
<PAGE> 6

<TABLE>
<CAPTION>
NAME AND PRINCIPAL OCCUPATION AT PRESENT AND DIRECTOR AGE
FOR THE PAST FIVE YEARS; DIRECTORSHIPS SINCE --
- ------------------------------------------------------------------------------- ----
<S> <C> <C>
Roel Pieper.................................................................... 1996 40
Chief Executive Officer since January 8, 1996 and Vice Chairman since October
22, 1996; President from January 8, 1996 to October 22, 1996; Senior Vice
President, President and Chief Executive Officer of UB Networks, Inc. from
1993 to January 1996; President and Chief Executive Officer from 1991 to 1993
of UNIX Systems Laboratories, Inc; Chief Technical Officer and Senior Vice
President of Software AG from 1981 to 1991; Director of Smart Valley Inc.,
Veritas Software Corporation, Lincoln National Corporation and General Magic
Inc.
Alex S. Vieux.................................................................. 1996 39
Chairman of DASAR Inc., a company providing strategic and marketing support
for technology companies and organizing international tradeshows and industry
conferences, since 1989; Special Advisor to the French Ministry of Industry
since 1990; U.S. business correspondent for French daily, LeMonde, from 1986
to 1992; Consultant for Andersen Consulting from 1982 to 1985; taught
economics at Universite de Paris-La Sorbonne from 1981 to 1984; Director of
NetSource Communications and AI Tech International Corp.
CLASS II
Franklin P. Johnson, Jr.(1)(2)(3).............................................. 1975 68
General Partner of Asset Management Partners, a Palo Alto, California,
private investment partnership, since 1982; Owner of Asset Management
Company, a Palo Alto, California, investment management proprietorship, since
1967; Member of the Advisory Board of the Center for Economic Policy
Research, Stanford University; Director of AMGen, Boole & Babbage, and Idec
Pharmaceuticals Corporation.
Thomas J. Perkins(3)........................................................... 1974 64
Chairman of the Board of the Company since 1974; General Partner of Kleiner &
Perkins and Kleiner Perkins Caufield & Byers, San Francisco, California,
private investment partnerships, since 1972 and a general or limited partner
of the ensuing Kleiner Perkins Caufield & Byers funds; Director of Philips
Electronics N.V.
CLASS III
Vera Stephanie Shirley(2)...................................................... 1992 63
Life President of F.I. Group, PLC, a computer services, training and
recruitment company, since 1962; Master of the Worshipful Company of
Information Technologists, 1992 through 1993; Director of AEA Technology plc
and UK Atomic Energy Authority; Chair, The Kingwood Trust.
Enrico L. Pesatori............................................................. 1996 56
President and Chief Operating Officer of the Company since October 22, 1996;
Vice President and General Manager, Computer Systems Division of Digital
Equipment Corporation from February 1993 to July 1996; President and Chief
Executive Officer of Zenith Data Systems from January 1991 to January 1993;
various management positions with Ing. C. Olivetti & C., S.p.A., including
President and Chief Executive Officer of Olivetti North America, Chief
Executive Officer of Docutel-Olivetti, Vice President of Corporate Product
Strategy and head of Olivetti Systems Group from August 1969 to December
1990.
</TABLE>

3
<PAGE> 7

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

(2) Member of Compensation/Option Committee.

(3) Member of Nominating Committee.

4
<PAGE> 8

STOCK OWNERSHIP

The following table sets forth information as of September 30, 1996, 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 Summary Compensation 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>
PRIMECAP Management Company, 225 S. Lake Ave., #400,
Pasadena, CA 91101.......................................................... 9,722,400 8.2%(2)
Dodge & Cox
One Sansome Street, San Francisco, CA 94104................................. 7,096,625 6.0%(2)
Merrill Lynch & Co., Inc. and Merrill Lynch Group, Inc.,
World Financial Center, N. Tower, 250 Vesey Street,
New York, NY 10281 and Princeton Services, Inc.,
800 Scudders Mill Road, Plainsboro, NJ 08536................................ 6,060,207 5.1%(2)
The Capital Group Companies, Inc., and
Capital Research and Management Company
333 S. Hope Street, Los Angeles, CA 90017................................... 5,923,900 5.0%(2)
Thomas J. Perkins(3).......................................................... 2,107,965 1.8%
James G. Treybig(4)........................................................... 672,996 *
Franklin P. Johnson, Jr.(5)................................................... 432,029 *
Roel Pieper................................................................... 240,969 *
Gerald L. Peterson (6)........................................................ 202,490 *
David J. Rynne(7)............................................................. 197,694 *
Robert G. Stone, Jr.(8)....................................................... 87,279 *
Kurt L. Friedrich............................................................. 85,699 *
John T. Losier................................................................ 63,771 *
Morton Collins (9)............................................................ 52,057 *
Walter B. Wriston............................................................. 52,029 *
Washington SyCip.............................................................. 31,346 *
Vera Stephanie Shirley........................................................ 26,948 *
Jack F. Bennett............................................................... 25,529 *
Robert M. Kavner.............................................................. 10,000 *
Alex S. Vieux................................................................. 0 *
All executive officers and directors as a group
(21 persons including the 11 directors named above)......................... 4,111,937 3.5%
</TABLE>

- ---------------
* Less than one percent.

(1) Includes shares which may be acquired within 60 days pursuant to the
exercise of options as follows: Mr. Perkins, 32,029 shares; Mr. Treybig,
219,994 shares; Mr. Johnson, 32,029 shares; Mr. Pieper, 240,969 shares; Mr.
Peterson,

5
<PAGE> 9

176,974 shares; Mr. Rynne, 188,560 shares; Mr. Stone, 32,029 shares; Mr.
Friedrich, 85,699 shares; Mr. Losier, 63,771 shares; Mr. Collins, 32,029
shares; Mr. Wriston, 50,029 shares; Mr. SyCip, 31,346 shares; Ms. Shirley,
21,948 shares; Mr. Bennett, 19,029 shares; and all executive officers and
directors as a group, 1,429,181 shares.

(2) As represented in Schedule 13G filings for: (a) PRIMECAP Management Company
on June 12, 1996; (b) Dodge & Cox on February 13, 1996; (c) Merrill Lynch &
Co., Inc., Merrill Lynch Group, Inc. and Princeton Services, Inc. on January
30, 1996; and (d) The Capital Group Companies, Inc. and Capital Research and
Management Company on February 8, 1995, respectively.

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

(4) Includes 263 shares owned by Mr. Treybig's wife and 1,097 shares held in a
401(k) plan for Mr. Treybig's benefit.

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

(6) Includes 1,010 shares held indirectly by a trust for Mr. Peterson, and 700
shares owned by Mr. Peterson's wife.

(7) Includes 998 shares held in a 401(k) plan for Mr. Rynne's benefit.

(8) 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.

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

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.

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.

6
<PAGE> 10

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, 1996, by the Company
and its subsidiaries to the Vice Chairman and Chief Executive Officer, the
former President and 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
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
YEAR SALARY BONUS(1) COMPENSATION OPTIONS COMPENSATION(2)
------ -------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Roel Pieper................... 1996 $523,868 $ 56,559 -- 1,200,000(3)(4) $ 42,003
Vice Chairman and 200,000
Chief Executive Officer 1995 336,520 -- -- -- 34,772
1994 330,012 139,486 -- 246,000 129,289
James G. Treybig.............. 1996 $155,078 $ 42,081 -- 87,500(5) $ 4,841,393(6)
Former President and 1995 629,835 -- -- 37,500 3,750
Chief Executive Officer 1994 622,902 310,155 -- -- 3,750
Kurt L. Friedrich............. 1996 $340,000 $187,617 -- 247,000(7) $ 3,805
Senior Vice President, 1995 316,250 60,859 $3,577 20,000 3,750
General Manager and Chief 1994 310,918 125,984 -- -- 5,418
Technology Officer, Parallel
Systems Business Unit
John T. Losier................ 1996(8) $201,250 $298,493(9) -- 350,000 $ 27,408
Senior Vice President, 50,000
Worldwide
Sales and Services Group
Gerald L. Peterson............ 1996 $350,000 $214,596 -- 210,500(10) $ 3,568
Senior Vice President and 1995 309,530 60,270 $5,481 20,000 7,500
General Manager, 1994 289,866 118,088 -- -- 600
ServerNet Business Unit
David J. Rynne................ 1996 $350,000 $ 26,380 -- 260,000(11) $ 3,156
Senior Vice President and 110,000
Chief Financial Officer 1995 310,000 -- -- 20,000 --
1994 290,892 118,780 -- -- 5,727
</TABLE>

- ---------------
(1) For Messrs. Pieper, Losier and Rynne, the fiscal 1996 bonus on the first
line was paid pursuant to the SEIP (defined herein on page 14) and the
bonus on the second line was paid on the basis of individual performance.

(2) "All Other Compensation" includes for fiscal 1996 the following: (i)
contributions by the Company of $2,656, $3,750, $3,805, $2,672, $3,568 and
$3,156, respectively, to the 401(k) Plan on behalf of Messrs. Pieper,
Treybig, Friedrich, Losier, Peterson and Rynne to match 1996 pre-tax
elective deferral contributions (included under Salary) made by each such
officer to the 401(k) Plan; (ii) $25,238 of interest forgiven on Mr.
Pieper's indebtedness to the Company; and (iii) reimbursement of relocation
expenses of $14,109 for Mr. Pieper and $24,736 for Mr. Losier.

(3) Includes an option to purchase 700,000 shares granted pursuant to the
Company's 1997 Plan, as defined below, subject to stockholder approval.

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<PAGE> 11

(4) Includes an option to purchase 247,651 shares in consideration for which
Mr. Pieper surrendered 246,000 options to purchase UB Networks stock.

(5) Includes an option granted on December 18, 1995 for 37,500 shares upon
cancellation of a previous option granted on November 15, 1994 and three
options granted for an aggregate of 50,000 shares upon cancellation of a
previous option granted on December 21, 1988.

(6) Mr. Treybig received compensation of $4,837,643 at his retirement pursuant
to the terms of his employment agreement, as amended.

(7) Includes an option granted for 20,000 shares upon cancellation of a
previous option granted on November 15, 1994.

(8) Mr. Losier entered into employment with the Company on March 1, 1996.

(9) Includes a hire-on bonus of $150,000 for Mr. Losier.

(10) Includes an option granted for 20,000 shares upon cancellation of a
previous option granted on November 15, 1994.

(11) Includes an option granted for 20,000 shares upon cancellation of a
previous option granted on November 15, 1994.

8
<PAGE> 12

OPTION GRANTS IN FISCAL 1996

The following table provides details regarding stock options granted to the
named executive officers in fiscal 1996.

OPTIONS GRANTS IN FISCAL 1996

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES IN EXERCISE FOR OPTION TERM
OPTIONS FISCAL PRICE EXPIRATION --------------------------
NAME GRANTED(1)(2) YEAR(3) ($/SHARE) DATE 5% 10%
- ---------------------------- ------------- ------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Roel Pieper................. 252,349 3.23% $10.625 1/8/06 $ 1,686,197 $ 4,273,155
247,651(4) 3.17% 9.880 1/8/06 1,538,774 3,899,556
200,000(5)(6) 2.56% 10.625 8/15/06 1,336,401 3,386,703
250,000(6) 3.20% 18.750 8/15/06 2,947,944 7,470,668
250,000(6) 3.20% 23.500 8/15/06 3,694,756 9,363,237
--------- ----------- -----------
1,200,000 $11,204,072 $28,393,319
James G. Treybig............ 37,500 0.48% $11.250 6/30/99 $ 264,750 $ 672,000
50,000 0.64% 16.500 12/21/98 519,000 1,312,500
--------- ----------- -----------
87,500 $ 783,750 $ 1,984,500
Kurt L. Friedrich........... 7,000 0.09% $11.500 11/13/05 $ 50,626 $ 128,296
120,000 1.53% 11.250 12/18/05 849,008 2,151,552
40,000 0.51% 15.000 3/8/06 377,337 956,245
40,000 0.51% 18.750 3/8/06 471,671 1,195,307
40,000 0.51% 23.500 3/8/06 591,161 1,498,118
--------- ----------- -----------
247,000 $ 2,339,803 $ 5,929,518
John T. Losier.............. 230,000 2.94% $ 9.000 3/8/06 $ 1,301,812 $ 3,299,047
40,000 0.51% 15.000 3/8/06 377,337 956,245
40,000 0.51% 18.750 3/8/06 471,671 1,195,307
40,000 0.51% 23.500 3/8/06 591,161 1,498,118
--------- ----------- -----------
350,000 $ 2,741,981 $ 6,948,717
Gerald L. Peterson.......... 10,500 0.13% $11.500 11/13/05 $ 75,939 $ 192,444
80,000 1.02% 11.250 12/18/05 566,005 1,434,368
40,000 0.51% 15.000 3/8/06 377,337 956,245
40,000 0.51% 18.750 3/8/06 471,671 1,195,307
40,000 0.51% 23.500 3/8/06 591,161 1,498,118
--------- ----------- -----------
210,500 $ 2,082,113 $ 5,276,482
David J. Rynne.............. 20,000 0.26% $11.500 11/13/05 $ 144,646 $ 366,561
120,000 1.53% 11.250 12/18/05 849,008 2,151,552
40,000 0.51% 15.000 3/8/06 377,337 956,245
40,000 0.51% 18.750 3/8/06 471,671 1,195,307
40,000 0.51% 23.500 3/8/06 591,161 1,498,118
--------- ----------- -----------
260,000 $ 2,433,823 $ 6,167,783
</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.

(2) Includes options granted on December 18, 1995 to Messrs. Treybig, Peterson,
Friedrich and Rynne of 37,500, 20,000, 20,000 and 20,000 shares respectively
upon cancellation of previous options granted on November 15, 1994 for the
same numbers of shares respectively and includes for Mr. Treybig options for
50,000 shares regranted upon

9
<PAGE> 13

cancellation of a previous option granted on December 21, 1988; see Ten-Year
Option Repricing table on pages 11 and 12.

(3) Total number of options granted in fiscal year 1996 was 7,818,764.

(4) Upon his appointment as President and Chief Executive Officer, Mr. Pieper
was granted an option to purchase 247,651 shares, 110,945 shares of which
were immediately vested, in consideration for which he surrendered 246,000
options to purchase UB Networks stock.

(5) This option will become 100% vested on the date the closing price of the
Company's stock reaches $15 per share or more as reported by the New York
Stock Exchange.

(6) Mr. Pieper's 200,000, 250,000 and 250,000 share options are granted pursuant
to the 1997 Plan, as defined below, which is subject to stockholder
approval.

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 1996, 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 1996
AND
FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT 9/30/96 OPTIONS AT 9/30/96(2)
UPON VALUE ----------------------------- -----------------------------
EXERCISE REALIZED EXERCISABLE(1) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Roel Pieper................. -- -- 220,433 998,016(3) $ 217,335 $ 255,032
James G. Treybig............ -- -- 219,994 0 64,196 0
Kurt L. Friedrich........... -- -- 73,081 224,391 19,174 21,806
John T. Losier.............. -- -- 49,386 300,614 64,908 395,092
Gerald L. Peterson.......... -- -- 168,116 185,784 23,842 21,158
David J. Rynne.............. -- -- 177,051 232,450 40,373 29,627
</TABLE>

- ---------------
(1) The amounts in this column represent the number of vested unexercised
options at September 30, 1996.

(2) The amounts in this column represent the difference between the exercise
price and the closing market price of $11.00 on September 30, 1996, for the
Common Stock. The actual value of unexercised options fluctuates with market
activity.

(3) Includes 700,000 share options granted pursuant to the 1997 Plan, as defined
below, which is subject to stockholder approval.

10
<PAGE> 14

TEN-YEAR OPTION REPRICING TABLE

REPRICING OF STOCK OPTIONS

As discussed in the "Report of the Compensation/Option Committee on
Executive Compensation," in December 1995, the Company offered employees who
participated in the FY95 Tandem Incentive Plan an opportunity to surrender
unexercised stock options granted on November 15, 1994 with an exercise price of
$17.50 in exchange for new options for an equal number of shares with an
exercise price equal to the then current fair market value of $11.25 per share.
The new options retained the same vesting status and expiration date as the
options surrendered. Certain named executive officers participated in the
"trade-in" program, and the following table sets forth the repricing of options
held by the named executive officers and any other executive officers during the
last ten completed fiscal years.

TEN-YEAR OPTION REPRICINGS

<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF ORIGINAL
SECURITIES MARKET PRICE OPTION
UNDERLYING NUMBER OF OF STOCK AT TERM REMAINING
OPTIONS NEW TIME OF EXERCISE NEW AT DATE OF
REPRICED OPTIONS REPRICING OR PRICE AT TIME EXERCISE REPRICING
NAME AND POSITION DATE OR AMENDED(1) GRANTED AMENDMENT($) OF REPRICING($) PRICE($) (IN YEARS)
- ---------------------------------- -------- ------------- --------- --------------- --------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS
Kurt Friedrich.................... 12/18/95 20,000 20,000 11.250 17.500 11.250 8.9
Senior Vice President, General
Manager and Chief Technology
Officer, Parallel Systems
Business Unit
Gerald L. Peterson................ 12/18/95 20,000 20,000 11.250 17.500 11.250 8.9
Senior Vice President 12/18/92 23,000 18,400 14.625 19.000 14.625 4.8
and General Manager, 3/4/91 10,000 5,000 13.250 27.250 13.250 8.9
ServerNet Business Unit 8/24/88 100 100 13.375 18.700 13.375 1.4
12/9/88 23,000 23,000 16.750 29.687 19.000 8.8
David J. Rynne.................... 12/18/95 20,000 20,000 11.250 17.500 11.250 8.9
Senior Vice President and 12/18/92 20,000 16,000 14.625 19.000 14.625 4.8
Chief Financial Officer 3/4/91 13,000 6,501 13.250 27.250 13.250 8.9
8/24/88 100 100 13.375 18.700 13.375 1.4
12/9/88 20,000 20,000 16.750 29.687 19.000 8.8
William W. Heil, Jr............... 12/18/95 15,000 15,000 11.250 17.500 11.250 8.9
Senior Vice President 12/18/92 5,250 4,200 14.625 19.000 14.625 4.8
and General Manager, 3/4/91 15,500 11,751 13.250 27.250 13.250 8.9
ServerWare Business Unit
Jack W. Chapman................... 12/18/95 5,000 5,000 11.250 17.500 11.250 8.9
Vice President and Chairman, 3/4/91 7,000 3,501 13.250 27.250 13.250 8.9
Tandem Europe 8/24/88 100 100 13.375 18.700 13.375 1.4
12/9/88 12,000 12,000 16.750 29.687 19.000 8.8
Lawrence A. Laurich............... 12/18/95 11,500 11,500 11.250 17.500 11.250 8.9
Vice President, Systems 12/18/92 20,000 16,000 14.625 19.000 14.625 4.8
Development 3/4/91 5,000 2,501 13.250 27.250 13.250 8.9
12/9/88 20,000 20,000 16.750 29.687 19.000 8.8
8/24/88 100 100 13.375 18.700 13.375 1.4
Josephine T. Parry................ 12/18/95 10,000 10,000 11.250 17.500 11.250 8.9
Vice President, General 12/18/92 4,000 3,200 14.625 19.000 14.625 4.3
Counsel and Secretary 3/4/91 7,500 3,751 13.250 27.250 13.250 8.9
12/9/88 4,000 4,000 16.750 35.750 19.000 8.8
8/24/88 100 100 13.375 18.700 13.375 1.4
John T. Reece..................... 12/18/95 6,500 6,500 11.250 17.500 11.250 8.9
Vice President and Controller
Gerd Stoecker..................... 12/18/95 7,000 7,000 11.250 17.500 11.250 8.9
Vice President and 12/18/92 1,356 1,085 14.625 19.000 14.625 4.8
Treasurer 3/4/91 9,000 4,501 13.250 27.250 13.250 8.9
8/24/88 100 100 13.375 18.700 13.375 1.4
12/9/88 5,000 5,000 16.750 29.687 19.000 8.8
</TABLE>

11
<PAGE> 15

<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF ORIGINAL
SECURITIES MARKET PRICE OPTION
UNDERLYING NUMBER OF OF STOCK AT TERM REMAINING
OPTIONS NEW TIME OF EXERCISE NEW AT DATE OF
REPRICED OPTIONS REPRICING OR PRICE AT TIME EXERCISE REPRICING
NAME AND POSITION DATE OR AMENDED(1) GRANTED AMENDMENT($) OF REPRICING($) PRICE($) (IN YEARS)
- ---------------------------------- -------- ------ ------ ------ ------ ------ ---
<S> <C> <C> <C> <C> <C> <C> <C>
FORMER EXECUTIVE OFFICERS
James G. Treybig.................. 12/18/95 37,500 37,500 11.250 17.500 11.250 8.9
Chief Executive Officer 12/18/92 60,000 30,001 14.625 27.875 14.625 7.2
Donald E. Fowler.................. 12/18/95 20,000 20,000 11.250 17.500 11.250 8.9
Senior Vice President 12/18/92 10,000 5,001 14.625 27.250 14.625 7.1
12/9/88 12,000 12,000 16.750 29.687 19.000 8.8
Robert G. Gargus.................. 12/18/95 10,000 10,000 11.250 17.500 11.250 8.9
Vice President and 12/18/92 8,624 6,899 14.625 19.000 14.625 4.0
Corporate Controller 3/4/91 10,000 5,001 13.250 27.250 13.250 8.9
8/24/88 100 100 13.375 18.700 13.375 1.4
12/9/88 8,624 8,624 16.750 32.500 19.000 8.1
Gerald D. Held.................... 12/18/92 15,000 12,000 14.625 19.000 14.625 4.8
Senior Vice President, Strategy 3/4/91 10,000 5,001 13.250 27.250 13.250 8.9
and Corporate Development 8/24/88 100 100 13.375 18.700 13.375 1.4
12/9/88 15,000 15,000 16.750 29.687 19.000 8.8
Anthony Lewis..................... 3/4/91 2,250 1,125 13.250 27.250 13.250 8.9
Vice President and Controller 8/24/88 100 100 13.375 18.700 13.375 1.4
Robert C. Marshall................ 12/18/95 17,500 17,500 11.250 17.500 11.250 8.9
Senior Vice President and 12/18/92 25,000 20,000 14.625 19.000 14.625 4.8
Chief Operating Officer 3/12/91 12,000 6,001 14.375 27.875 14.375 9.0
12/21/88 25,000 25,000 16.500 29.687 19.000 8.8
Stephen C. Schmidt................ 12/18/92 20,000 16,000 14.625 19.000 14.625 4.8
Senior Vice President and 12/18/92 40,000 32,000 14.625 16.750 14.625 6.0
General Manager, Tandem 3/27/91 5,000 2,501 13.750 27.250 13.750 8.9
Systems Products Group 8/24/88 100 100 13.375 18.700 13.375 1.4
12/9/88 20,000 20,000 16.750 29.687 19.000 8.8
Ralph K. Ungermann................ 3/12/91 12,000 6,001 14.375 27.875 14.375 9.0
Senior Vice President, 8/24/88 100 100 13.375 18.750 13.375 9.6
Ungermann-Bass Group
Thomas J. Klitgaard............... 12/9/88 10,000 10,000 16.750 29.687 19.000 8.8
Senior Vice President, General 8/24/88 100 100 13.375 18.700 13.375 1.4
Counsel and Secretary
Thomas L. Chun.................... 8/24/88 100 100 13.375 18.700 13.375 1.4
Vice President, Legal Affairs
and Secretary
George C. Eckert.................. 8/24/88 100 100 13.375 18.700 13.375 1.4
Vice President and Division
Manager
Jan E. Jensen..................... 8/24/88 100 100 13.375 18.700 13.375 1.4
Vice President, Human Resources
Richard A. Lamb................... 8/24/88 100 100 13.375 18.700 13.375 1.4
Treasurer
Lawrence W. McGraw................ 8/24/88 100 100 13.375 18.700 13.375 1.4
Vice President, Marketing and
Service Support
Michael Moore..................... 12/18/95 5,000 5,000 11.250 17.500 11.250 8.9
Vice President Division Manager 8/24/88 100 100 13.375 18.700 13.375 1.4
</TABLE>

- ---------------
(1) On August 24, 1988, the Company repriced options for 100 shares each granted
to all eligible employees under the Stock Option Grant Program of the
Company's Employee Stock Purchase Plan (the "ESPP").

12
<PAGE> 16

REPORT OF THE COMPENSATION/OPTION COMMITTEE
ON EXECUTIVE COMPENSATION

The Compensation/Option Committee (the "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 program.

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 1996 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 marketplace 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.

13
<PAGE> 17

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.

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 1997, the Company's executive incentive plans will be focused primarily
on operating profit and individual contribution to achieving corporate goals.
Operating profit at the corporate and Business Unit levels will fund bonus pools
for corporate and Business Unit employee groups. For groups with overall
corporate responsibilities, the bonus pool will be funded 100% on corporate
performance. Business Unit bonus pools will be funded 30% on corporate results
and 70% on Business Unit performance. A minimum level of corporate performance
will be necessary for any payment under this plan. Payment to individuals will
be based on the pool of funds available and the individual contribution as
assessed against pre-established goals and objectives.

Tandem Incentive Plan (the "TIP"). Vice Presidents, Directors and Senior
Managers are eligible to participate in the TIP with payments made based on
business success and individual achievement. In fiscal 1996, targets were
established for executives based on operating profit, excluding UB Networks'
operating profit. End of year annual incentive payments were made to a number of
the TIP participants for achievement of operating profit 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, 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 an annual incentive payment to a single
executive be greater than $1,000,000. Generally, participants are measured on
operating profits excluding UB Networks' operating profit. End of year annual
incentive payments were made to all SEIP participants for achievement of
operating profit targets including and excluding UB Networks' operating profit.

Stock Options. The Committee determined that a need existed to provide
additional incentives to employees identified as key to the success of the
Company. On December 18, 1995, the Committee approved stock option grants to key
employees to provide a needed incentive to them to remain in the employ of the
Company and to continue to contribute to the Company's success. Options granted
are subject to the Company's standard option terms under which the options vest
on a daily basis over a four-year period and expire after a ten-year period. In
determining the total number of options granted each year, the Company evaluated
competitive grant levels and the impact of option grants on the Company's
weighted shares

14
<PAGE> 18

outstanding. The Committee considered published survey data and objective and
subjective contribution assessments in determining the number of options granted
to its officers.

Option Repricing. In addition, in December 1995, the Committee agreed that
additional incentives were in order due to changing circumstances at the Company
and the fact that many of the Company's key employees hold stock options with
option prices significantly higher than the current fair market value of the
Company's stock. In response, the Company implemented a program under which the
management team could exchange a number of higher priced options for the same
number of lower priced options. These employees could elect to turn in
unexercised options granted on November 15, 1994 priced at $17.50 per share and
receive the same number of shares priced at fair market value on December 18,
1995 at $11.25 per share in return. Executive officers elected to participate in
this program as shown in the table entitled "Ten-Year Option Repricings" on
pages 11 and 12.

COMPENSATION OF THE CHIEF EXECUTIVE OFFICER

On January 8, 1996, Mr. Pieper became the Company's President and Chief
Executive Officer. On October 22, 1996, he became the Company's Vice Chairman of
the Board and continued his role as Chief Executive Officer. The Committee will
conduct annual reviews of the total compensation plan for Mr. Pieper. The
executive philosophy as described above applies equally to Mr. Pieper's
compensation plan.

Because operating profit exceeded a predetermined minimum target, Mr.
Pieper received an incentive payment of $56,559 for fiscal 1996 and an
additional $200,000 cash bonus for individual performance. Mr. Pieper received
stock option grants of 1,200,000 shares, 700,000 of which were granted under the
1997 Plan, which is subject to stockholder approval.

COMPENSATION/OPTION COMMITTEE

FRANKLIN P. JOHNSON, JR. (CHAIR)
MORTON COLLINS
VERA STEPHANIE SHIRLEY

15
<PAGE> 19

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG TANDEM COMPUTERS INCORPORATED, THE S & P 500 INDEX
AND THE S & P COMPUTERS (HARDWARE) INDEX

<TABLE>
<CAPTION>
MEASUREMENT PERIOD TANDEM COMPUTERS S & P COMPUTERS
(FISCAL YEAR COVERED) INCORPORATED S & P 500 (HARDWARE)
<S> <C> <C> <C>
9/91 100 100 100
9/92 91 111 83
9/93 94 125 56
9/94 127 130 81
9/95 94 169 117
9/96 85 203 142
</TABLE>

* $100 invested on 9/30/91 in stock or index -- including reinvestment of
dividends. Fiscal year ending September 30.

16
<PAGE> 20

COMPENSATION OF DIRECTORS

For the 1996 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 also paid an additional annual
retainer of $9,500, which was increased to $50,000 for a period of four years,
effective June 1, 1996.

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 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 10 years following the date of grant.

As part of a reconfiguration of the compensation package for the Chairman
of the Board, the Board approved an option grant to purchase 90,000 shares of
the Company Common Stock at a price equal to the closing price of such shares on
August 15, 1996, as reported by the New York Stock Exchange, to Thomas J.
Perkins, in his capacity as Chairman of the Board, under the Company's 1997
Plan, as defined below, subject to stockholder approval. 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 10 years from the effective date. In addition, on February 15, 1996,
each person who was a non-employee director as of February 15, 1996
automatically received an option for 15,000 shares of Common Stock subject to
stockholder approval. Persons first becoming Non-Employee Directors after such
date (other than a person who previously had been an employee) will receive an
option for 15,000 shares of Common Stock at that time. In addition, on February
15, 1996, each person who was both a non-employee director and the chairman of
the Audit Committee, the Committee and/or the Nominating Committee as of
February 15, 1996 automatically received an option for 10,000 shares of Common
Stock with respect to each chairmanship. Persons first becoming chairmen of
these committees after such date shall receive an option for 10,000 shares of
Common Stock with respect to each chairmanship at that time.

Upon the appointment of Messrs. Kavner and Vieux to the Board of Directors,
they each received an automatic non-discretionary option to purchase 15,000
shares, to be granted from the 1997 Plan, as defined below, subject to
stockholder approval.

17
<PAGE> 21

CERTAIN TRANSACTIONS AND EMPLOYMENT AGREEMENTS

Certain Transactions. During the 1996 fiscal year, the Company guaranteed
bank loans under a $5,000,000 bank line of credit to Lawrence A. Laurich (Vice
President, Systems Development), Robert C. Marshall (former Senior Vice
President and Chief Operating Officer), Gerald L. Peterson (Senior Vice
President and General Manager, ServerNet Business Unit), and Gerd Stoecker (Vice
President and Treasurer) in the aggregate principal amounts of $514,449,
$1,285,685, $1,397,504, $371,543, respectively, plus interest, which were the
largest aggregate principal amounts outstanding under such guarantees in fiscal
1996, of which $2,271,998 was outstanding on September 30, 1996. Mr. Laurich
paid $129,447, which was applied against the balance on November 13, 1996. Mr.
Marshall paid his loan in full on January 5, 1996. Mr. Peterson paid $120,000,
which was applied against the balance on December 9, 1996. The Company has not
had to perform under the guarantees.

On January 5, 1996, the Company loaned Mr. Robert C. Marshall $1,335,307,
bearing interest at 8.25% for a term of one year. On January 8, 1996, Mr.
Marshall paid $400,000 of the January 5, 1996 loan. On May 14, 1996, Mr.
Marshall paid in full the January 5, 1996 loan. During fiscal 1996, the largest
aggregate principal amount outstanding under this loan and the bank loan
guarantee discussed above was $1,335,307 of which none was outstanding as of
September 30, 1996.

On October 12, 1993, the Company loaned Mr. Roel Pieper $350,000 and
$150,000, bearing interest of 7.00% and 8.25%, both due on October 16, 1997. On
June 14, 1994, the Company loaned Mr. Pieper an additional $150,000, bearing
interest of 8.25% due on June 16, 1998. On October 12, 1995, the Company
adjusted the interest rates on the first two loans. The new interest rate for
these loans was 9.75% with all other terms of the loans to remain the same. On
February 6, 1996, Mr. Pieper paid the above mentioned loans in full. During
fiscal 1996, the largest aggregate principal amount outstanding under these
loans was $602,386 of which none was outstanding as of September 30, 1996.

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%. On February 28, 1996, the Company renewed the loan for one year for the
same amount bearing interest at 9.25%. The principal and interest on the loan is
due February 28, 1997. On December 9, 1996, Mr. Peterson paid the loan in full.

On June 19, 1995, the Company loaned Mr. Peterson $25,000 bearing interest
at 9.75% for a term of six months. On December 19, 1995, the Company renewed the
June 19, 1995 loan for the same amount bearing interest at 9.25%. On June 19,
1996, the Company renewed the December 19, 1995 loan for the same amount bearing
the same interest rate at 9.25%. The principal and interest on this loan is due
December 19, 1996. On December 9, 1996, Mr. Peterson paid the loan in full.

On August 28, 1995, the Company loaned Mr. Peterson $32,583 bearing
interest at 9.75% for a term of six months. On February 28, 1996, the Company
renewed the August 28, 1995 loan for the same amount bearing interest at 9.25%.
On August 28, 1996, the Company renewed the February 28, 1996 loan for the same
amount bearing the same interest rate at 9.25%. The principal and interest on
this loan is due February 28, 1997. On December 9, 1996, Mr. Peterson paid the
loan in full.

On November 28, 1995, the Company loaned Mr. Peterson $32,583 bearing
interest at 9.75% for a term of six months. Mr. Peterson is making semi-monthly
principal payments of five hundred dollars for the term of the loan. On May 28,
1996, the Company renewed the November 28, 1995 loan under the same terms
bearing

18
<PAGE> 22

the same interest at 9.25% The principal and interest on this loan is due
November 28, 1996. On December 9, 1996, Mr. Peterson paid the loan in full.

On February 28, 1996, the Company loaned Mr. Peterson $32,583 bearing
interest at 9.25% for a term of six months. On August 28, 1996, the Company
renewed the February 28, 1996 loan for the same amount at the same interest at
9.25%. The principal and interest on this loan is due February 28, 1997. On
December 9, 1996, Mr. Peterson paid the loan in full.

On August 28, 1996, the company loaned Mr. Peterson $28,180 bearing
interest at 9.25% for a term of six months. The principal and interest on this
loan is due February 28, 1997. On December 9, 1996, Mr. Peterson paid the loan
in full.

During fiscal 1996, the largest aggregate principal amount outstanding
under the loans discussed above and the bank loan guarantee discussed above was
$1,607,405 of which $1,598,405 was outstanding as of September 30, 1996. As of
December 10, 1996, all of Mr. Peterson's Tandem short-term loans had been paid
in full and the balance of his indebtedness under the Company's guaranteed bank
line of credit was $1,280,864.

Employment Agreements. On May 19, 1995, the Company entered into
employment agreements with a number of its executive officers, including Messrs.
Pieper, Friedrich, Peterson and Rynne. Mr. Pieper's employment agreement was
superseded by a new employment agreement dated January 8, 1996. Mr. Friedrich's
employment agreement was amended on January 1, 1996 and again on May 2, 1996
upon assumption of new duties. The agreements for Peterson and Rynne were
amended on January 1, 1996. The Company entered into an employment agreement
with Mr. Losier on February 21, 1996. The employment agreements, as amended,
will expire on September 30, 1998 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 and fringe benefits for a period of three years from date of
termination; (v) a Company contribution to the Company's Deferred Compensation
Plan on the executive's behalf in the amount of $750,000 for the Chief Executive
Officer, 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 the 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 a lump sum payment equal to two and one-half rather than three times
his/her salary and potential annual incentive target bonus and will also receive
benefits under the Company's employee benefits plan and fringe benefits for a
period of three years from date of termination and outplacement services in the
amount of $50,000, and the 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) $750,000 for the Chief
Executive Officer and $300,000 for each other executive upon

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<PAGE> 23

announcement of a letter of intent or definitive agreement with respect to a
Change in Control ("Change in Control Announcement"), and (ii) an amount equal
to the sum of an executive's annual base salary plus 100% of an executive's
incentive target bonus payable upon closing when a Change in Control occurs or
the executive in question is involuntarily terminated upon a Change in Control
Announcement.

Mr. Treybig's employment agreement was amended on January 10, 1996,
concurrently with his resignation from the Company, to provide that he would
receive the same payments and benefits he would be entitled to if he was
terminated for "Good Reason." See the Summary Compensation Table on page 7.

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.

APPROVAL OF ADOPTION OF THE TANDEM COMPUTERS INCORPORATED
1997 STOCK PLAN

In February 1996, the Board of Directors adopted the Tandem Computers
Incorporated 1997 Stock Plan (the "1997 Plan"), subject to approval by the
stockholders.

The Board of Directors believes that stock options and stock issuances are
invaluable tools for the recruitment, retention, and motivation of qualified
employees, including officers, and other persons who can contribute materially
to the Company's success. The Company has used stock options for such purposes
since its inception under various plans. The Tandem Computers Incorporated 1989
Stock Plan (the "1989 Plan") had, as of November 22, 1996, only 3,796,542 shares
remaining available for issuance pursuant to new option grants. The Board of
Directors believes that it is important to have additional shares available to
provide adequate flexibility to meet future needs. The Board of Directors
therefore adopted the 1997 Plan to increase the number of shares available by
1,115,000 shares to be effective immediately, subject to the approval of the
Company's stockholders.

An explanation of the 1997 Plan and a summary of its significant provisions
are set forth below. Provisions applicable only to optionees in certain European
countries are not discussed. A copy of the full 1997 Plan may be reviewed by
stockholders by contacting Michelle LaVally at the offices of the Company at
10435 N. Tantau Avenue, Cupertino, California 95104, during normal business
hours. The following summary is qualified in its entirety by reference to the
1997 Plan document itself.

ADMINISTRATION

The 1997 Plan is administered by the Committee consisting of two or more
members of the Board of Directors. The composition of the Committee shall
satisfy such requirements as the Securities and Exchange Commission may
establish for administrators acting under plans intended to qualify for
exemption under Rule 16b-3 (or its successor) under the Exchange Act and such
requirements as the Internal Revenue Service may establish for outside directors
acting under plans intended to qualify for exemption under Section 162(m)(4)(C)
of the Code. The Committee has the authority to (i) select persons to be granted
options, or granted or sold stock; (ii) determine the number of shares for each
such option, stock grant, or sale; (iii) fix the terms and conditions of
options, stock grants, and stock sales; (iv) designate options as incentive
stock options ("ISOs"), for the purpose of qualifying under Section 422 of the
Code, or as nonstatutory stock

20
<PAGE> 24

options; (v) amend the terms of any outstanding option, but any amendment which
would adversely affect the optionee's rights shall not be made without the
optionee's written consent; (vi) cancel any outstanding option or accept any
outstanding option in exchange for a new option; and (vii) adopt, amend and
rescind rules and regulations regarding the 1997 Plan and interpret the 1997
Plan and any option or stock agreement entered into pursuant to the 1997 Plan.

AGGREGATE SHARES SUBJECT TO THE 1997 PLAN

The aggregate number of shares which may be issued under the 1997 Plan,
whether pursuant to the exercise of options or otherwise, may not exceed (i)
1,115,000 shares, plus (ii) the total number of shares that remain available for
issuance under the Company's 1989 Stock Plan on the 1997 Annual Meeting date. As
of November 22, 1996, there were 3,796,542 shares available under the Company's
1989 Stock Plan. Upon approval of the 1997 Plan, there will be no shares
available for new grants under the Company's 1989 Stock Plan since such shares
will have been transferred to the 1997 Plan. All shares issued under the 1997
Plan will be authorized but unissued or reacquired shares of Common Stock of the
Company. Shares for which options were granted under either the 1989 Plan or
1997 Plan that have ceased to be exercisable may again be issued under the 1997
Plan. Shares of Common Stock repurchased by the Company pursuant to repurchase
rights retained under the 1989 Plan or 1997 Plan or withheld by the Company to
satisfy applicable tax obligations shall not be available for subsequent option
grants or stock issuances under the 1997 Plan. In the event that the Company is
a party to a merger or other reorganization, outstanding options and shares
subject to a restricted stock agreement shall be subject to the agreement of
merger or reorganization.

ELIGIBILITY

Such regular employees (including officers and directors who are bona fide
employees), non-employee directors, independent contractors, and consultants of
the Company or an affiliate of the Company as the Committee, in its discretion,
shall designate from time to time, are eligible to have granted to them the
options or Common Stock provided for by the 1997 Plan. Only employees of the
Company or a subsidiary shall be eligible to receive ISOs. As of September 30,
1996, the Company had 7,938 full-time equivalent employees, including 1,070
full-time equivalent employees of UB Networks.

PURCHASE PRICE AND TERMS

An individual receiving an option grant shall enter into a stock option
agreement which may contain such terms, provisions, and conditions as may be
determined by the Committee. If an option, or any part thereof, is intended to
qualify as an ISO, the stock option agreement shall contain those terms and
conditions which are necessary to so qualify it. If Common Stock is sold or
transferred subject to restrictions, the Committee shall enter into an agreement
with the recipient evidencing such restrictions.

The exercise price of the Common Stock covered by each ISO shall not be
less than the per share fair market value of such Common Stock on the date the
option is granted. The exercise price of the Common Stock covered by each
nonqualified stock option shall be as determined by the Committee, but not less
than fifty percent (50%) of the per share fair market value of such Common Stock
on the date the option is granted. In the case of a nonqualified stock option
intended to be exempt from the deduction limitation of Section 162(m) of the
Code, the exercise price shall not be less than one hundred percent (100%) of
market value. In the case of an ISO granted to a person possessing more than ten
percent (10%) of the combined voting power of the Company or a subsidiary, the
exercise price shall not be less than 110 percent (110%) of

21
<PAGE> 25

the fair market value of such Common Stock on the date the option is granted. On
December 2, 1996, the closing price for the Company's Common Stock on the New
York Stock Exchange was $14 per share.

The Committee shall determine the term of each option granted under the
1997 Plan, which shall not be more than ten years; provided, however, that in
the case of an option granted to a person possessing more than ten percent (10%)
of the combined voting power of the Company or a subsidiary, the term of each
ISO shall be no more than five years.

Options granted to any employee in a single fiscal year shall in no event
cover more than 700,000 shares of stock, subject to adjustment upon a
recapitalization, stock split, or similar event.

Payment of the purchase price upon exercise of any option granted under the
1997 Plan shall be made (i) in cash, (ii) with shares of Common Stock owned by
the optionee, (iii) by delivery of an irrevocable direction to a securities
broker approved by the Committee to sell shares and deliver all or a portion of
the proceeds to the Company in payment for the Common Stock, (iv) by delivery of
the optionee's promissory note with such recourse, interest, security and
redemption provisions as the Committee in its discretion determines appropriate,
or (v) in any combination of the foregoing. Any Common Stock used to exercise
options shall be valued at its fair market value on the date of the exercise of
the option.

The consideration for Common Stock issued under the 1997 Plan shall be as
the Committee deems appropriate, including past services; provided, however,
that such consideration shall have a fair market value at least equal to fifty
percent (50%) of the fair market value of the Common Stock on the date of
issuance. Stock issued subject to restrictions shall be evidenced by a written
agreement which can be amended by the Committee, but such amendments shall not
adversely affect an individual's rights without his or her consent.

ADDITIONAL TERMS AND CONDITIONS OF OPTIONS GRANTED TO NON-EMPLOYEE DIRECTORS

On February 15, 1996, each person who was a non-employee director as of
February 15, 1996 automatically received an option for 15,000 shares of Common
Stock subject to stockholder approval. Persons first becoming Non-Employee
Directors after such date (other than a person who previously had been an
employee) will receive an option for 15,000 shares of Common Stock at that time.
In addition, on February 15, 1996, each person who was both a non-employee
director and the chairman of the Audit Committee, the Committee and/or the
Nominating Committee as of February 15, 1996 automatically received an option
for 10,000 shares of Common Stock with respect to each chairmanship. Persons
first becoming chairmen of these committees after such date shall receive an
option for 10,000 shares of Common Stock with respect to each chairmanship at
that time.

The term of these options shall be ten years, and the exercise price of the
Common Stock covered by each option granted shall be equal to the per share fair
value of such Common Stock on the date the option is granted.

On the date that a non-employee director ceases to be a member of the Board
for any reason (the "Cessation Date"), all unexercisable options held by such
Director as of that date shall immediately terminate and all exercisable options
shall terminate at the earlier of (i) the end of the 12-month period following
the Cessation Date or (ii) the date the option would otherwise expire.
Notwithstanding the foregoing, an option granted to a non-employee director
pursuant to the 1997 Plan within the six-month period that ends on the Cessation
Date shall automatically and immediately terminate on the Cessation Date.

Non-employee directors shall enter into stock option agreements containing
such terms, provisions and conditions as may be determined by the Committee not
inconsistent with the 1997 Plan.

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<PAGE> 26

ADJUSTMENT UPON RECAPITALIZATION

The 1997 Plan provides for appropriate adjustment by the Committee 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 1997 Plan in the event of a
reorganization, stock split, combination of shares, stock dividend or other
recapitalization of the Company.

TERM OF THE 1997 PLAN, AMENDMENT AND TERMINATION

The Board of Directors may at any time amend, suspend, or discontinue the
1997 Plan, subject to the requirement that amendments be approved by the
stockholders to the extent required by applicable laws, regulations or rules.
Unless earlier terminated by the Board of Directors, the 1997 Plan will be in
effect until February 15, 2006.

FEDERAL INCOME TAX CONSEQUENCES

The following discussion of the federal income tax consequences of the ISOs
and nonstatutory stock options ("NSOs") under the 1997 Plan is intended to be a
summary of applicable federal law. State and local tax consequences may differ.
Because the federal income tax rules governing options and related payments are
complex and subject to frequent change, optionees are advised to consult their
tax advisors prior to exercise of options or dispositions of stock acquired
pursuant to option exercise.

ISOs and NSOs are treated differently for federal income tax purposes. ISOs
are intended to comply with the requirements of Section 422 of the Code. NSOs
need not comply with such requirements.

An optionee is not taxed on the grant or exercise of an ISO. The difference
between the exercise price and the fair market value of the shares on the
exercise date will, however, be added to an optionee's alternative minimum
taxable income, which may subject an optionee to the alternative minimum tax. If
an optionee holds the shares acquired upon exercise of an ISO for at least two
years following grant and at least one year following exercise, the optionee's
gain, if any, upon a subsequent disposition of such shares is long-term capital
gain. The measure of the gain is the difference between the proceeds received on
disposition and the optionee's basis in the shares (which generally equals the
exercise price). If an optionee disposes of stock acquired pursuant to exercise
of an ISO before satisfying the one and two-year holding periods described
above, the optionee will recognize both ordinary income and capital gain in the
year of disposition. The amount of the ordinary income will generally be the
lesser of (i) the amount realized on disposition less the optionee's adjusted
basis in the stock (usually the option price) or (ii) the difference between the
fair market value of the stock on the exercise date and the option price. The
balance of the consideration received on such a disposition will be long-term
capital gain if the stock had been held for at least one year following exercise
of the ISO. The Company is not entitled to an income tax deduction on the grant
or exercise of an ISO or on the optionee's disposition of the shares after
satisfying the holding period requirement described above. If the holding
periods are not satisfied, the Company will be entitled to a deduction in the
year the optionee disposes of the shares, in an amount equal to the ordinary
income recognized by the optionee.

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<PAGE> 27

An optionee is not taxed on the grant of an NSO. On exercise, however, the
optionee recognizes ordinary income equal to the difference between the option
price and the fair market value of the shares on the date of exercise. The
Company is entitled to an income tax deduction in the year of exercise in the
amount recognized by the optionee as ordinary income. Any gain on subsequent
disposition of the shares is long-term capital gain if the shares are held for
at least one year following exercise. The Company does not have a deduction for
this gain.

NEW PLAN BENEFITS

The Committee has full discretion to determine the number and amount of
options and stock awards to be granted to participants under the 1997 Plan,
subject to an annual limitation on the total number of options that may be
granted to any participant. Notwithstanding the foregoing, the Committee shall
have no discretion as to certain grants to non-employee directors described
above. The following grants have been approved by the Committee or have occurred
automatically under the 1997 Plan, subject to stockholder approval:

<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE
GRANTEE UNDERLYING OPTIONS GRANT DATE PRICE
--------------------------------------------- ------------------ ---------- --------
<S> <C> <C> <C>
Roel Pieper.................................. 200,000 8/15/96 $ 10.625
250,000 8/15/96 18.750
250,000 8/15/96 23.500
Thomas J. Perkins............................ 90,000 8/15/96 10.750
15,000 2/15/96 10.375
10,000 2/15/96 10.375
Jack F. Bennett.............................. 15,000 2/15/96 10.375
Morton Collins............................... 15,000 2/15/96 10.375
10,000 2/15/96 10.375
Franklin P. Johnson, Jr. .................... 15,000 2/15/96 10.375
10,000 2/15/96 10.375
10,000 7/29/96 10.375
Robert M. Kavner............................. 15,000 4/29/96 12.500
Vera Stephanie Shirley....................... 15,000 2/15/96 10.375
Robert G. Stone, Jr.......................... 15,000 2/15/96 10.375
Alex S. Vieux................................ 15,000 7/29/96 10.375
Walter B. Wriston............................ 15,000 2/15/96 10.375
Enrico L. Pesatori........................... 150,000 10/22/96 12.000
---------
1,115,000
=========
</TABLE>

ASSIGNABILITY

Options granted pursuant to the 1997 Plan shall not be transferable other
than by will or the laws of descent and distribution.

WITHHOLDING OF SHARES

To the extent permitted by the option agreement, an optionee may satisfy
federal, state and local tax obligations incident to the exercise of stock
options under the 1997 Plan or other purchase or receipt of Common Stock under
the 1997 Plan, with shares of the Company's Common Stock.

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<PAGE> 28

RESTRICTION ON TRANSFER OF SHARES

The Common Stock acquired pursuant to the 1997 Plan shall be subject to
such restrictions and agreements regarding sale, assignment, encumbrances, or
other transfer as are in effect among the stockholders of the Company at the
time such Common Stock is acquired, as well as to such other restrictions as the
Committee shall deem advisable.

CHANGE IN CONTROL

Upon the actual consummation of a Change in Control (as hereinafter
defined), all outstanding repurchase rights of the Company shall automatically
expire and cease to have effect with respect to any and all shares of Common
Stock purchased under the 1997 Plan, and all outstanding options shall
immediately become exercisable in full. The foregoing notwithstanding, the Board
may make other provisions in connection with such Change in Control or any
attempt to effect such Change in Control.

A Change in Control shall be deemed to be effected upon (i) the acquisition
by any individual, firm, partnership, corporation or other entity (other than
the Company or an entity controlling, controlled by or under common control of
the Company) of beneficial ownership of eighty-five percent (85%) or more of the
Company's outstanding voting securities in a transaction which the majority of
the continuing directors does not at any time recommend to the Company's
stockholders to accept or approve, or (ii) a change in the composition of the
Board over any period of thirty-six consecutive months or less such that a
majority of the Board ceases to be comprised of individuals who either were
continuing directors at the start of such period or were elected or nominated
for election as Board members during such period by a majority of the continuing
directors at that time.

USE OF PROCEEDS

Any cash proceeds realized from the sale of Common Stock pursuant to
options granted or Common Stock issued under the 1997 Plan shall constitute
general funds of the Company.

REQUIRED VOTE

The adoption of the 1997 Plan requires the affirmative vote of not less
than a majority of the shares of Common Stock represented and voting at the
Annual Meeting of Stockholders.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE TANDEM COMPUTERS
INCORPORATED 1997 STOCK PLAN.

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 1997 fiscal year effective November 12, 1996, 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.

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<PAGE> 29

BOARD OF DIRECTORS MEETINGS AND COMMITTEES

The Company's Board of Directors held six meetings during the 1996 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
Messrs. Johnson, Stone and Wriston who were unable to attend certain meetings
due to other commitments.

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 four meetings during the 1996 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 one meeting during the
1996 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 Johnson and Mrs. Shirley. The Compensation/Option Committee held
seven meetings during the 1996 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 1998, a stockholder proposal must be received at the offices of the
Company, 19333 Vallco Parkway, Cupertino, California 95014, not later than
August 12, 1997.

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

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<PAGE> 30

PROXY

TANDEM COMPUTERS INCORPORATED

PROXY SOLICITED BY BOARD OF DIRECTORS
FOR ANNUAL MEETING JANUARY 28, 1997

Thomas J. Perkins and Roel Pieper, 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 28, 1997, 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 TWO CLASS II DIRECTORS AND FOR ITEMS 2
AND 3, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY
COME BEFORE THE MEETING.

CONTINUED AND TO BE SIGNED ON REVERSE SIDE

- --------------------------------------------------------------------------------
FOLD AND DETACH HERE

<PAGE> 31

PLEASE MARK
VOTES AS IN /X/
THIS EXAMPLE

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF TWO CLASS II
DIRECTORS AND FOR ITEMS 2 AND 3.

1. Election of Director:
FOR WITHHELD
Nominee: Franklin P. Johnson, Jr. / / / /
Nominee: Thomas J. Perkins / / / /

FOR AGAINST ABSTAIN
2. To consider and vote upon a proposal
to adopt the Tandem Computers / / / / / /
Incorporated 1997 Stock Plan.

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

4. 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
addresses listed. Please do not send annual reports to the
account listed on this proxy.

MARK HERE FOR ADDRESS
CHANGE AND NOTE AT LEFT / /

PLEASE MARK, DATE, SIGN AND RETURN

Signature(s) 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.

- --------------------------------------------------------------------------------
FOLD AND DETACH HERE

<PAGE> 32

PROXY

TANDEM COMPUTERS INCORPORATED

PROXY SOLICITED BY TRUSTEE OF THE TANDEM COMPUTERS INCORPORATED
EMPLOYEE STOCK OWNERSHIP PLAN
FOR ANNUAL MEETING JANUARY 28, 1997

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 28, 1997, 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

- --------------------------------------------------------------------------------
FOLD AND DETACH HERE

<PAGE> 33

PLEASE MARK
VOTES AS IN /X/
THIS EXAMPLE

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF TWO CLASS II
DIRECTORS AND FOR ITEMS 2 AND 3.

1. Election of Director: FOR WITHHELD

Nominee: Franklin P. Johnson, Jr. / / / /
Nominee: Thomas J. Perkins / / / /

FOR AGAINST ABSTAIN
2. To consider and vote upon a proposal
to adopt the Tandem Computers / / / / / /
Incorporated 1997 Stock Plan.

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

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

MARK HERE FOR ADDRESS
CHANGE AND NOTE AT LEFT / /

PLEASE MARK, DATE, SIGN AND RETURN

- --------------------------------------------------------------------------------
FOLD AND DETACH HERE